SCRF.L Regulatory News (SCRF)

NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES OR TO US PERSONS

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18 December 2020

SME Credit Realisation Fund Limited

(the "Company")

Publication of Half-Yearly Financial Report and Condensed Consolidated Financial Statements

SME Credit Realisation Fund Limited (the "Company") has published its results for the financial period from 1 April 2020 to 30 September 2020. The Half-Yearly Financial Report and Condensed Consolidated Financial Statements are attached to this release and are also available on the Company's website (www.smecreditrealisation.com).

CONTACTS

Richard Boleat, Chairman

+44 (0) 1534 615 656

Richard.Boleat@smecreditrealisation.com

Secretary and Administrator

Sanne Group (Guernsey) Limited

+44 (0) 1481 739810

smecreditrealisation@sannegroup.com

Corporate Broker

Numis Securities

Nathan Brown

George Shiel

+44 (0) 207 260 1000

n.brown@numis.com

Investor Relations

IR@smecreditrealisation.com

Website

www.smecreditrealisation.com

The ISIN number of the Ordinary Shares is GG00BMF75J31, the SEDOL code is BMF75J3 and the TIDM is SCRF.

The LEI number of the Company is 549300ZQIYQVNIZGOW60.

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ABOUT SME Credit Realisation Fund Limited

The Company is a registered closed-ended collective investment scheme registered pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended and the Registered Collective Investment Scheme Rules 2018 issued by the Guernsey Financial Services Commission (''GFSC''). 

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IMPORTANT NOTICES

This announcement contains "forward-looking" statements, beliefs or opinions. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company and all of which are based on its directors' current beliefs and expectations about future events. Forward-looking statements are sometimes identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "could", "should", "shall", "risk", "intends", "estimates", "aims", "plans", "predicts", "projects", "continues", "assumes", "positioned" or "anticipates" or the negative thereof, other variations thereon or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events, assumptions or intentions. These forward-looking statements include all matters that are not historical facts. Forward-looking statements may and often do differ materially from actual results. They appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of the Board or the Company with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's business concerning, amongst other things, the financial performance, liquidity, prospects, growth and strategies of the Company. These forward-looking statements and other statements contained in this announcement regarding matters that are not historical facts involve predictions. No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Company. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed or implied in such forward-looking statements. The forward-looking statements contained in this announcement speak only as of the date of this announcement. Nothing in this announcement is, or should be relied on as, a promise or representation as to the future. The Company disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any change in its expectations or any change in events, conditions or circumstances on which such statements are based unless required to do so by applicable law, the Prospectus Rules, the Listing Rules or the Disclosure Rules and Transparency Rules of the FCA. No statement in this announcement is intended as a forecast or profit estimate.

Neither this announcement nor any copy of it may be made or transmitted into the United States of America (including its territories or possessions, any state of the United States of America and the District of Columbia) (the "United States"), or distributed, directly or indirectly, in the United States or to US Persons (as such term is defined in Regulation S under the US Securities Act of 1933, as amended (the "Securities Act"). Neither this announcement nor any copy of it may be taken or transmitted directly or indirectly into Australia, Canada, Japan or South Africa or to any persons in any of those jurisdictions, except in compliance with applicable securities laws. Any failure to comply with this restriction may constitute a violation of United States, Australian, Canadian, Japanese or South African securities laws. The distribution of this announcement in other jurisdictions may be restricted by law and persons into whose possession this announcement comes should inform themselves about, and observe, any such restrictions. This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for securities in the United States, Australia, Canada, Japan or South Africa or in any jurisdiction to whom or in which such offer or solicitation is unlawful.

SME CREDIT REALISATION FUND LIMITED

HALF-YEARLY FINANCIAL REPORT AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the six-month PERIOD ended 30 sEPTEMBER 2020

FORWARD-LOOKING STATEMENTS

This report includes statements that are, or may be considered, "forward-looking statements". The forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative, or other variations or comparable terminology. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

FINANCIAL HIGHLIGHTS

The information below is presented for the period ended or as at 30 September 2020 unless expressly stated to cover a different period.

SUMMARY INFORMATION

About the Company

SME Credit Realisation Fund Limited (the "Company" or the "Fund") is a closed-ended investment company incorporated with liability limited by shares in Guernsey under The Companies (Guernsey) Law, 2008 (as amended), on 22 July 2015.

Group Structure

The Company holds a number of its investments in loans through Special Purpose Vehicles ("SPVs"). This interim report for the period ended 30 September 2020 (the "Half-Yearly Report") includes the results of Basinghall Lending Designated Activity Company ("Basinghall"), Tallis Lending Designated Activity Company ("Tallis"), Lambeth Lending Designated Activity Company ("Lambeth"), and Queenhithe Lending Designated Activity Company ("Queenhithe"). The Company, Basinghall, Tallis, Lambeth and Queenhithe are collectively referred to in this report as the "Group".

Capital Management

As at 30 September 2020 the total number of shares in issue was 213,739,800 (31 March 2020: 258,301,354) with no shares held in treasury (31 March 2020: 586,243).

The scrip dividend programme has been discontinued by the Company in line with the change in the Company's Investment Objective and Policy as discussed below.

On 21 May 2019, the Company published a circular and notice of an Extraordinary General Meeting ("EGM") which set out details of, and sought shareholder approval for, certain Proposals. The Proposals involved modifying the Company's Investment Objective and Policy to reflect a realisation strategy, for the detailed reasons set out in that circular, and amending its Articles to include a mechanism to enable the Company to redeem shares in the Company compulsorily so as to return cash to shareholders.

On 11 June 2019, the Proposals were approved at the EGM.

The Company is in the process of returning capital via a combination of share buybacks, compulsory redemptions of shares and distribution of dividends, as the Company's portfolio of Credit Assets amortises.

As at 30 September 2020, the Company has repurchased a total of 43,746,667 shares (31 March 2020: 43,736,667) of which nil (31 March 2020: 586,243) remain held in treasury. During the period, a total of 596,243 (31 March 2020: 43,150,424) shares held in treasury were cancelled and formally discharged. The directors resolved to suspend the programme of repurchases of its own shares on 2 April 2020 until further notice.

The Company redeemed a total of 44,551,554 (31 March 2020: 32,245,772) shares for a total amount of £38,499,854 (31 March 2020: £30,499,833) throughout the period.

CHAIRMAN'S STATEMENT

Dear Shareholder,

I am pleased to write to you to provide an update on the Company's progress for the half-year ended 30 September 2020. The Company continues to conduct a managed wind-down of its activities, with the objective of returning capital to shareholders promptly whilst seeking to maximise returns.

COVID-19 Pandemic

Readers will be well aware of the evolution of the pandemic through the course of the reporting period and to date. Impacts on the Company's portfolio continue to be felt as the non-standard market environment remains in place for many businesses, and appears likely to remain so through the reasonably foreseeable future. However, the combination of continuing governmental and central bank support to businesses in the Company's markets, alongside the very real prospects of a vaccine-driven solution to the business environment impediments over the medium term, provide a more positive outlook than was the case when I last wrote to you in July.

Performance Review and Net Asset Value ("NAV")

This report presents the financial position of the Company as at 30 September 2020.

On 21 October 2020, the Company announced its NAV at 30 September 2020 at £179 million (30 June 2020: £191 million) and NAV per Share at that date at 83.86 pence (30 June 2020: 80.18 pence. The improvement in NAV per share was driven principally by a better than anticipated credit market environment and the demonstrably resilient performance of the Company's investments, augmented by elevated prepayments arising from businesses refinancing with governmental credit support initiatives.

An analysis of the performance of the Company for the 6 month period to 30 September 2020 (with the 6 month period to 31 March 2020 for comparative purposes) is set out below:

(1)FVTPL Adjustment includes fair value through profit or loss movements on the Fund's interest in the EIB transaction.

(2)FVTOCI Adjustment includes fair value through other comprehensive income movements on the portfolio of Credit Assets held by the Fund, which moved to fair value accounting from 1 April 2020.

Performance Since 30 September 2020

The Board continues to closely monitor data trends within its portfolio. Positive trends identified in my previous report have been sustained, and the recent announcements from pharmaceutical companies of apparently highly effective vaccines have given a significant fillip to financial markets, particularly credit markets. The Company will next report its quarterly NAV mid-January 2021.

Return of Capital

The Company continues to make distributions to shareholders as free cash flow becomes available through interest payments, repayments, prepayments and recoveries. In the 6 month period to 30 September 2020, £38.5 million was distributed to shareholders through compulsory share redemptions and £5.9 million through dividend payments. After the period end, a further £42 million was distributed to shareholders through compulsory share redemptions and £2.1 million through dividend payments.

The Company will continue to return capital to investors predominantly by way of compulsory redemption of shares as liquidity arises through loan repayments or by other means. The directors may also seek to apply free cash to on-market share repurchases if such a strategy is deemed to be in the best interests of shareholders as a whole.

Potential Portfolio Sales

The Company has continued to actively explore portfolio sales as a means of accelerating the return of capital to investors. A small pool of UK non-performing loans was sold at a modest premium to carrying value in October 2020, and the Company continues to explore potential disposals where pricing levels are attractive.

Conclusion

The reporting period has, for the Company, been one of great uncertainty, but that uncertainty is starting to be replaced with guarded optimism in markets generally. Our borrowers have in many cases experienced the greatest economic stress in a generation, and the Company, through Funding Circle, has endeavoured to support them through forbearance programs and refinancings, and as such, our borrowers are largely weathering the effects on their businesses successfully, and with fortitude. When taken alongside the recent positive vaccine announcements, it is therefore reasonable to cautiously conclude that the Company's wind-down program will remain on track with decreasing downside risk to NAV per share.

My thanks as always go to the team at Funding Circle, our advisors and service providers, and my board colleagues for their support and wise counsel.

RICHARD BOLÉAT

Chairman of the Board of Directors

18 December 2020

INTERIM REPORT

Incorporation

The Company is a limited liability company registered in Guernsey under The Companies (Guernsey) Law, 2008 (as amended) with registered number 60680.

Activities

The Company is registered as a closed-ended collective investment scheme in Guernsey pursuant to The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended. Prior to the amendment of the Company's Investment Objective and Policy, the primary activity of the Company was investment in loans to small and medium sized enterprises in the United Kingdom, the United States and Continental Europe, in order to seek to provide shareholders with a sustainable and attractive level of dividend income. Following the result of the EGM on 11 June 2019, the Company has ceased investment into Credit Assets as the Company's Investment Objective and Policy were updated to facilitate the managed wind-down of the Company.

Defined Terms

Definitions appearing in this Interim Report used are shown at the end of the report. The Company's prospectus, which may be found on the Company's website at www.smecreditrealisation.com contains a more comprehensive list of defined terms.

Strategy and Business Model

The Group was established to provide shareholders with a sustainable and attractive level of dividend income, primarily by way of investment in Credit Assets originated both directly through the platform operated by Funding Circle and indirectly, in each case as detailed in the Company's original investment policy. The Group identified the Funding Circle platform as a leader in the growing direct lending space to SMEs with its established infrastructure, scale of origination volumes and expertise in accurately assessing loan applications.

On 11 June 2019, the Company changed its Investment Objective and Policy to facilitate a managed wind-down of the Company in a prudent manner consistent with the principles of good investment management as required by the Listing Rules.

Investment Objective and Policy

In order to implement the managed wind-down, it was necessary to amend the Company's Investment Objective and Policy to reflect the objective of realising the Company's portfolio, as follows:

 "The Company will be managed with the intention of realising all remaining assets in the portfolio in a prudent manner which achieves a balance between maximising the value from the realisation of the Company's investments and making timely returns of capital to shareholders."

The managed wind-down is being affected with a view to the Company realising all of its investments in accordance with the Investment Objective. Such realisations comprise natural amortisation of the Company's investments in Credit Assets as well as potentially opportunistic portfolio sales.

During the prior financial year, the Company ran an auction process as the Board explored a potential sale of a portion of the Company's assets during which it received a high level of interest from potential buyers. The Company continues to engage with potential buyers, however given the ongoing market volatility and uncertainty caused by COVID-19, it is likely any material asset sales shall be delayed, or may not proceed at all.

In October 2020, Basinghall sold a pool of UK non-performing loans to a third party at a modest premium to carrying value, receiving proceeds of £2,203,183.

The Directors continue to explore potential portfolio disposals where pricing levels are attractive.

As a result of the Company's change in investment objective and policy, for the purposes of accounting, the Company's business model was deemed to have changed from "hold to collect" to "hold to collect and sell" during the prior financial year. The Company is therefore required to report under fair value accounting for the valuation of Credit Assets from 1 April 2020. This change in methodology is discussed further in note 2 and 14.

The Company will not allocate further capital to Credit Assets, directly or indirectly via leveraged transactions or SPVs, or undertake capital expenditure except where necessary in the reasonable opinion of the Board in order to protect or enhance the value of any existing investments or to facilitate orderly disposals.

As at 30 September 2020, the Company held indirect investments in loans through the following investing companies:

*From January 2017, Tallis discontinued further lending to Spain. The Company retains a small portfolio of loans in Spain.

The following analyses of the Group's investments in Credit Assets are provided as reference.

Loans by geographical region

Industry split

Basinghall, Tallis, Lambeth, Queenhithe and the EIB SPV were formed solely in connection with the implementation of the previous investment policy of the Company.

Loans acquired by Basinghall, Tallis and the EIB SPV (subject to the investment policy, any Portfolio Limits and Available Cash) were funded, in whole or in part, by advances made by the Company under the note programmes. The notes issued by Basinghall and Tallis to the Company are listed on the Irish Stock Exchange. Loans acquired by Lambeth and Queenhithe were funded in part by Basinghall.

The assets held by each of Basinghall, Tallis and the EIB SPV are ring-fenced from other entities or SPV'-s and there is no cross-collateralisation between the SPV's in which the Company invests.

Borrowing Limitation

In pursuit of the original investment objective, the Company was able to borrow or use leverage, and also guarantee the borrowings of its Affiliates and Near Affiliates. The aggregate leverage or borrowings of the Company, its Affiliates and any Near Affiliates (including Basinghall, Tallis, Lambeth and/or Queenhithe) and guarantees of such borrowing or leverage by such person(s), was not permitted to exceed (at the time the relevant indebtedness is incurred or guarantee given) 0.5 times the then current NAV.

Following the approval of the resolution to execute a managed wind-down of the Company in its EGM on 11 June 2019, the leverage limit as described above no longer applies to the Company.

All of the Group's leverage facilities have now been fully repaid.

Results and dividends

The total comprehensive loss for the period, determined under International Financial Reporting Standards ("IFRS"), amounted to £6.32 million (30 September 2019: profit of £3.61 million). The payment of any dividend by the Company is subject to the satisfaction of a solvency test as required by The Companies (Guernsey) Law, 2008 (as amended). Following the result of the EGM, the Directors expect to maintain quarterly dividend payments of 1.3125 pence per Ordinary Share on an annualised basis, which may be partially uncovered by income. Dividends declared during the period are disclosed in note 13.

Business review

On 21 May 2019, the Company published a circular and notice of EGM which sets out details of, and sought shareholder approval for, certain Proposals. Those Proposals involved modifying the Company's Investment Objective and Policy to reflect a realisation strategy and amending its Articles to include a mechanism to enable the Company to redeem shares in the Company compulsorily so as to return cash to shareholders.

On 11 June 2019, the Proposals were approved at the EGM.

As at 30 September 2020, the Company has purchased a total of 43,746,667 shares (31 March 2020: 43,736,667) of which nil (31 March 2020: 586,243) remain held in treasury. During the period, a total of 596,243 (31 March 2020: 43,150,424) shares held in treasury were cancelled and formally discharged.

The directors resolved to suspend the programme of repurchases of its own shares on 2 April 2020 until further notice.

The Company redeemed a total of 44,551,554 shares (year ended 31 March 2020: 32,245,772) for a total amount of £38,499,854 (year ended 31 March 2020: £30,499,833) during the period.

On 11 April 2020, Lambeth fully repaid the remaining amount owed on its senior loan to Citibank. The remaining portfolio of Credit Assets held were transferred to Basinghall on 17 June 2020 for an amount equal to the principal and interest outstanding at 31 May 2020 being the economic cut-off date for the transaction. Shortly after the period end, liquidators were formally appointed and commenced proceedings to wind up Lambeth in an orderly manner.

On 17 August 2020, Queenhithe fully repaid the remaining amount owed on its loan with Fleetbank. The remaining portfolio of Credit Assets held were transferred to Basinghall on the same date for an amount equal to the principal and interest outstanding at 31 July 2020 being the economic cut-off date for the transaction. The process is underway to put Queenhithe into formal liquidation in the coming months.

The World Health Organisation declared COVID-19 as a global pandemic on 11 March 2020. The Board continues to closely monitor the situation and the impact on the performance of the loan portfolios held by the Group.

The Board receives updates on a monthly basis from Funding Circle on current delinquency and default trends by geographic exposure. The Risk Committee also reviews a comprehensive range of other risks that may be impacted by COVID-19.

During H1 2020, the impact of COVID-19 led to the use of forbearance measures for eligible borrowers, including short term payment plans and payment holidays, to assist creditworthy borrowers whose businesses suffered a short-term liquidity shock as a result of the ongoing pandemic environment. Forbearance measures began to expire towards the end of the period with an encouraging proportion of borrowers returning to making full repayments.

In the UK, as at 30 September 2020, over 90% of non-defaulted borrowers were making full payments, with an additional 6% still on forbearance plans. In the US, over 82% of non-defaulted borrowers were making full payments, with an additional 12% still on forbearance plans. In CE, over 96% of non-defaulted borrowers were making full payments.

Shortly after 30 September 2020, the UK went back into a national lockdown due to a second wave of COVID-19. Similar governmental measures being implemented in both CE and the US following the period end are also a possibility. The full impact of COVID-19 on the Group's UK portfolios is uncertain, however the Directors continue to monitor the delinquency and default data available to them closely.

In October 2020, Basinghall sold a pool of UK non-performing loans to a third party at a modest premium to carrying value, receiving proceeds of £2,203,183.

On 21 October 2020, the Company announced that it has declared a quarterly dividend of 1.3125 pence per share payable on 20 November 2020 and will also be returning approximately £42m to shareholders by way of a compulsory partial redemption of shares payable on 10 November 2020.

Going concern

The Directors have considered the financial performance of the Group and the impact of market conditions at the financial period end date and subsequently.

Whilst the managed wind-down of the Company continues to progress, there is no definite and final plan in place for the timing of liquidation of the Company's assets and the process of returning capital to shareholders.

The Company will therefore continue to redeem shares, pay dividends and where appropriate execute further share buy-backs. The Company has prepared cashflow forecasts and liquidity analyses reviewing likely scenarios that are stress tested to support further distributions and to monitor the ongoing solvency of the Company. This is reviewed on a regular basis in light of new information received.

The Directors confirm that they have a reasonable expectation that the Company will pay its liabilities as they fall due over the period of the managed wind-down and as the ongoing COVID-19 pandemic progresses. As a result, the Directors continue to present the condensed consolidated financial statements on a going concern basis.

Principal Risk and Risk Management

There are a number of actual and potential risks and uncertainties which could have a material impact on the Group's actual results which may differ materially from expected and historical results, particularly given the implementation of the managed wind-down and the impact of COVID-19.

The Board of Directors has overall responsibility for risk management and internal control within the context of achieving the Company's objectives. The Board agrees the strategy for the Company, approves the Company's risk appetite and monitors the risk profile of the Company. The Company also maintains a risk register to identify, monitor and control risk concentration, which has been updated to reflect the managed wind-down.

The Company has established a risk matrix, consisting of the principal and emerging risks and the controls in place to mitigate those risks. The risk matrix provides a basis for the Audit Committee and the Board to regularly monitor the effective operation of the controls and to update the matrix when new risks are identified. The Board's responsibility for conducting a robust risk assessment are embedded in the Company's risk matrix and stress testing which helps position the Company to ensure compliance with The Association of Investment Companies Code of Corporate Governance's ("the AIC Code") requirements.

The Board continues to monitor the Company's systems of risk management and internal control and will continue to receive updates from the Company's external service providers to ensure that the principal risks and challenges faced by the Group are fully understood and managed appropriately. The Board did not identify any significant weaknesses during the period and up to the date of this Interim Report.

An overview of the principal risks and uncertainties that the Board considers to be currently faced by the Company are provided below, together with the mitigating actions being taken. The Directors have also linked the key performance indicators to the risks where relevant. Risks arising from the Group's use of financial instruments are set out in note 14 of the condensed consolidated financial statements.

As part of the process of evaluating principal risks, the Board also identifies emerging risks and how they impact on the Group's managed wind down process. The likelihood of occurrence of each risk and the extent of financial effect to the Group are considered when the Board makes economic decisions. Along with the update on the principal risks to take into account the impact of the COVID-19 pandemic to the Group, the Board identified the following as emerging and other key operational risks:

Changes in the tax regulation in jurisdictions where the Group operates could have an impact on the treatment of income generated from loans held in subsidiaries

The Company holds assets indirectly through subsidiaries established in Ireland.

There is currently no indication that this will become a principal risk to the Group but the Board will continue to monitor. Refer to note 11 for further information on taxation payable by Basinghall due to a change in tax regulation.

The Company has no employees and is reliant on the performance of third party service providers

The Company's investment administration functions have been outsourced to external service providers. Any failure by any external service provider to carry out its obligations could have a materially detrimental impact on the effective operation, reporting and monitoring of the Company's financial position. This may have an effect on the Company's ability to meet its investment objective successfully. The Board receives and reviews reports from its principal external service providers. The Board may request a report on the operational effectiveness of controls in place at the service providers as part of the annual quality review performed by the Board on the services provided by the external service providers. The results of the Board's review are reported to the Audit Committee.

Cybersecurity breaches

The Company is reliant on the functionality of Funding Circle's software and IT infrastructure to facilitate the process of servicing the Company's remaining credit assets. The Company is also reliant on the functionality of the IT infrastructure of its other service providers. These systems may be prone to operational, information security and related risks resulting from failures of, or breaches in, cybersecurity.

Along with other holders of risk assets generally, the Group is exposed to a range of macroeconomic, geopolitical and regulatory factors which could, in certain circumstances either individually or in combination have a negative effect on carrying values, portfolio returns, delinquencies and operating costs. These factors are kept under review by the Board and relevant Board committees as appropriate.

Directors

The Directors who held office during the financial period end and up to the date of approval of this report were:

Tom Parachini, Global Head of Legal and Regulatory at Funding Circle Ltd is appointed as an Alternate Director for Sachin Patel.

Directors' shares and interests

A list of all Directors who served during the period and up to the date of this report and their biographies are included at the end of the report.

The appointment and replacement of Directors is governed by the Company's Articles of Incorporation, The Companies (Guernsey) Law 2008 (as amended) and related legislation. The Articles of Incorporation themselves may be amended by special resolution of the Shareholders.

As at 30 September 2020, the Directors held the following Ordinary shares of the Company:

During the period, no Director had a material interest in a contract to which the Company was a party (other than his own letter of appointment). Mr. Patel is an employee of Funding Circle Ltd.

Related party transactions

The related parties of the Group, the transactions with those parties during the period and the outstanding balances as at 30 September 2020 are disclosed in Note 15 to the condensed consolidated financial statements.

Company Secretary

The Company Secretary is Sanne Group (Guernsey) Limited of De Catapan House, Grange Road, St Peter Port, Guernsey GY1 2QG.

On behalf of the Board

RICHARD BOLÉAT

Chairman of the Board of Directors

STATEMENT OF DIRECTORS' RESPONSIBILITIES

IN RESPECT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

To the best of their knowledge and belief, the Directors confirm that:

• the Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34, "Interim Financial Reporting"; and

• the Half-Yearly Financial Report, comprising the Financial Highlights, the Summary Information, the Chairman's Statement, and the Interim Report, meets the requirements of an interim management report and includes a fair review of the information required by DTR 4.2.4R;

o DTR 4.2.7R of the UK Disclosure Guidelines and Transparency Rules, being an indication of important events that have occurred during the first six months and their impact on the Condensed Consolidated Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

o DTR 4.2.8R of the UK Disclosure Guidelines and Transparency Rules, being related party transactions that have taken place in the first six months and that have materially affected the financial position or performance of the Group during the period, and any material changes in the related party transactions disclosed in the last Annual Report.

The maintenance and integrity of the Group and Company's website is the responsibility of the Directors. The work carried out by the independent auditor does not involve consideration of these matters and accordingly, the auditor accepts no responsibility for any changes that may have occurred to the condensed consolidated financial statements since they were initially presented on the website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Richard Boléat Jonathan Bridel

Chairman Chairman of the Audit Committee

INDEPENDENT REVIEW REPORT TO SME CREDIT REALISATION FUND LIMITED

Report on the Condensed Consolidated Financial Statements

_________________________________________________________________________

Our conclusion

We have reviewed SME Credit Realisation Fund Limited's Condensed Consolidated Financial Statements (the "interim financial statements") in the Half-Yearly Financial Report of SME Credit Realisation Fund Limited for the 6-month period ended 30 September 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

_________________________________________________________________________

What we have reviewed

The interim financial statements comprise:

● the Condensed Consolidated Statement of Financial Position as at 30 September 2020;

● the Condensed Consolidated Statement of Comprehensive Income for the period then ended;

● the Condensed Consolidated Statement of Cash Flows for the period then ended;

● the Condensed Consolidated Statement of Changes in Shareholders' Equity for the period then ended; and

● the explanatory notes to the interim financial statements.

The interim financial statements included in the Half-Yearly Financial Report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Company is The Companies (Guernsey) Law, 2008 and International Financial Reporting Standards (IFRSs)._________________________________________________________________________

Responsibilities for the interim financial statements and the review

_________________________________________________________________________

Our responsibilities and those of the directors

The Half-Yearly Financial Report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half-Yearly Financial Report in accordance with International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Half-Yearly Financial Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.____________________________________________________________________________

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the International Auditing and Assurance Standards Board. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers CI LLP

Chartered Accountants

Guernsey, Channel Islands

18 December 2020

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX-MONTH PERIOD ENDED 30 SEPTEMBER 2020

Other comprehensive income

The other comprehensive income recognised above relates to the unrealised gain on the movement in fair valuation of the Group's portfolio of loans advanced.

There were no other items of other comprehensive income in the current or prior period.

The Notes below form part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2020

The condensed consolidated financial statements were approved and authorised for issue by the Board of Directors on 18 December 2020 and were signed on its behalf by:

Richard Boléat Jonathan Bridel

Chairman Chairman of the Audit Committee

The Notes below form part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE SIX-MONTH PERIOD ENDED 30 SEPTEMBER 2020

The Notes below form part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX-MONTH PERIOD ENDED 30 SEPTEMBER 2020

The Notes below form part of these condensed consolidated financial statements.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX-MONTH PERIOD ENDED 30 SEPTEMBER 2020

1. GENERAL INFORMATION

The Company is a closed-ended limited liability company registered under The Companies (Guernsey) Law, 2008 (as amended) with registered number 60680. The Company is a registered collective investment scheme in Guernsey and admitted to trading on the London Stock Exchange's Main Market and listed on the UKLA's premium segment. The Company's home member state for the purposes of the EU Transparency Directive is the United Kingdom. As such, the Company is subject to regulation and supervision by the Financial Conduct Authority, being the financial markets supervisor in the United Kingdom. The registered office of the Company is De Catapan House, Grange Road, St Peter Port, Guernsey GY1 2QG.

The Company was established to provide shareholders with sustainable and attractive levels of dividend income, primarily by way of investment in loans originated both directly through the Platforms operated by Funding Circle and indirectly, in each case as detailed in the investment policy. The Company identified Funding Circle as a leader in the growing Platform lending space with its established infrastructure, scale of origination volumes and expertise in accurately assessing loan applications.

On 21 May 2019, the Company published a circular and notice of extraordinary general meeting ("EGM") which sets out details of, and sought shareholder approval for, certain Proposals. The Proposals involved modifying the Company's Investment Objective and Policy to reflect a realisation strategy and amending its Articles to include a mechanism to enable the Company to redeem shares in the Company compulsorily so as to return cash to shareholders.

On 11 June 2019, the Proposals were approved at the EGM as discussed in detail in the most recent Annual Report. The Company publishes net asset value statements on its website at www.smecreditrealisation.com.

2. Basis of preparation

The Company has prepared these Condensed Consolidated Financial Statements on a going concern basis in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom Financial Conduct Authority and prepared in accordance with International Financial Reporting Standard ('IFRS') IAS 34 'Interim Financial Reporting'. This Half-Yearly Report does not comprise statutory financial statements within the meaning of The Companies (Guernsey) Law, 2008 (as amended) and should be read in conjunction with the audited Consolidated Financial Statements of the Group for the year ended 31 March 2020, which have been prepared in accordance with IFRS. The statutory financial statements for the year ended 31 March 2020 were approved by the Board of Directors on 28 July 2020. The opinion of the auditor on those financial statements was unqualified. Other than the policy described below relating to fair value through other comprehensive income, the accounting policies adopted in these condensed consolidated financial statements are unchanged since 31 March 2020. The Company does not have seasonal or cyclical interim business operations. 

This Half-Yearly Report for the period ended 30 September 2020 has been reviewed by the auditor but not audited. PwC have been performing the audit of the Company's year end financial statements for five financial years, starting with the period ended 31 March 2016.

Reclassification of loans advanced from financial asset at amortised cost to financial asset at fair value through other comprehensive income

For financial assets, reclassification is required between fair value through other comprehensive income ("FVTOCI") and amortised cost, if and only if the entity's business model objective for its financial assets changes so its previous model assessment would no longer apply.

If reclassification is appropriate, it must be done prospectively from the reclassification date which is defined as the first day of the first reporting period following the change in business model. An entity does not restate any previously recognised gains, losses, or interest. 

The Group's loans advanced have been reclassified and now fall within this category due to the change in business model during the prior financial year. This is the first reporting period showing the loans advanced at fair value through other comprehensive income.

Classification and measurement

Financial assets that are held for collection of contractual cash flows and for selling the assets, where the assets' cash flows represent solely payments of principal and interest, and that are not designated at fair value through profit or loss, are measured at fair value through other comprehensive income. Movements in the carrying amount are taken through other comprehensive income, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses on the instrument's amortised cost which continue to be recognised in profit or loss.

The fair value of the loans advanced has been estimated by discounting expected future cash flows from the loans advanced using a discount rate determined by the Directors based on appropriate market comparatives and conditions. Refer to note 14 for further information.

Disposal

On disposal of any financial asset measured at FVTOCI, any related balance within the FVTOCI reserve is reclassified to other gains/(losses) within profit or loss.

In the Directors' opinion, all other non-mandatory new accounting requirements are either not yet permitted to be adopted, or would have no material effect on the reported performance, financial position or disclosures of the Group and consequently have neither been adopted nor listed.

3. LOANS ADVANCED

The Group predominantly made unsecured loans in previous periods and prior to the modification of the Company's investment policy during the prior year. As at 30 September 2020, the carrying value of loans secured by charges over properties is £371,588 (31 March 2020: £647,606).

Each loan has a contractual payment date for principal and interest. The Group considers a loan as past due when the borrower's repayment has not been received for at least 30 days from the scheduled payment date. A loan is classified as defaulted when the borrower's repayment is late by 91 or more days, except for those loans which are under forbearance measures which are classified as defaulted when repayment is late by 180 or more days.

The following table shows the movement in impairment allowance during the period:

As a result of the COVID-19 global pandemic, impairment allowance has increased for the period due to an increased number of delinquencies across the Group's portfolio of loans advanced. Impairment losses increased by £13,364,498 during the period to 30 September 2020 (30 September 2019: £10,355,873).

The table below shows an analysis of the principal and interest of the loans along with the amount recognised as an impairment allowance analysed by the stages described within IFRS 9:

Loans in stage 2 have been separated into two groups for the purposes of calculating expected credit losses, the first group includes impairment relating to loans which are late, have recently returned to making full repayments but have not yet caught up on arrears, and loans which are on forbearance measures. The second group includes loans which are late and have not been making any recent repayments.

In October 2020, Basinghall sold a pool of UK non-performing loans to a third party at a modest premium to carrying value, receiving proceeds of £2,203,183.

Structured Finance Transactions

In June 2016, the Group entered into a structured finance transaction with the European Investment Bank (the "EIB transaction"). The transaction involved the Company participating in the financing of an Irish domiciled special purpose vehicle ("EIB SPV"). The Company invested £25 million into the junior Class B Note issued by the EIB SPV whilst the European Investment Bank ("EIB") committed £100 million in a senior loan to the EIB SPV. This transaction went into amortisation in June 2018. The EIB SPV and its financial results are not consolidated into the Group.

In August 2018, the Group entered into a transaction to provide lending to a special purpose vehicle, Queenhithe, which made loans to UK small businesses. The Group, through Basinghall, provided an initial funding of approximately £9.2 million through subscription into the Class B note issued by Queenhithe. Queenhithe has been accounted for in these consolidated financial statements as a subsidiary consolidated into the results of the Group.

In November 2018, the transaction was updated whereby the Department for Business, Energy and Industrial Strategy ("BEIS") - the British Business Bank's ("BBB") sole shareholder - agreed to provide up to £150 million of funding via a senior floating rate loan to Queenhithe.

Following the result of the EGM on 11 June 2019, the Group has ceased any further investment through Queenhithe.

The transactions entered into by the Group in respect of the structured financing arrangements for Lambeth are discussed in note 9.

4. FINANCIAL ASSET AT FAIR VALUE THROUGH PROFIT OR LOSS

The Group's financial asset at fair value through profit or loss relates to the investment in the EIB transaction.

In October 2019, one of the financial covenants in respect of the EIB transaction was breached resulting in a switch from principal proceeds being distributed pari passu between the EIB and the Company to being fully allocated to the EIB until such time as the loan with the EIB has been fully repaid or the breach is no longer continuing. Principal and interest collections in the transaction are currently being applied to repay the loan with the EIB.

It has been estimated that the Company will not receive any future cashflows from its investment into the EIB transaction which resulted in the full write down of the Company's interest in the prior financial year causing the net loss on change in fair value during the period of £nil (30 September 2019: £120,107) and a fair value of £nil (31 March 2020: £nil) as at 30 September 2020.

The calculation of the fair value is discussed in note 14.

5. SEGMENTAL REPORTING

The Group operates in the UK, US, Germany, Spain and the Netherlands. For financial reporting purposes, Germany, Spain and the Netherlands combine to make up the Continental Europe operating segment.

The measurement basis used for evaluating the performance of each segment is consistent with the policies used for the Group as a whole. Assets, liabilities, profits and losses for each reportable segment are recognised and measured using the same accounting policies as the Group.

Except for the EIB transaction, all of the Group's investments are loans to SMEs. Each individual SME loan does not generate income that exceeds 10% of the Group's total income.

The structured finance transaction and the corresponding income have been reported under the 'UK' segment below. All items of income and expenses not directly attributable to specific reportable segments have been included in 'Other income and expenses' column.

Segment performance for the period ended 30 September 2020 - (unaudited)

Segment assets and liabilities as at 30 September 2020 - (unaudited)

Segmental performance for the period ended 30 September 2019 - (unaudited)

Segment assets and liabilities as at 31 March 2020 - (audited)

6. cash and cash equivalents

Cash equivalents are term deposits held with different banks with maturities between overnight and 90 days.

7. Derivatives

Foreign exchange swaps are held to hedge the currency exposure generated by US dollar assets and Euro assets held by the Group (see note 14). The hedges have been put in place taking into account the fact that derivative positions, such as simple foreign exchange swaps, could cause the Group to require cash to fund margin calls on those positions. The Group negotiated the terms of the contracts with each counterparty such that no collateral is required on the initial transaction and in instances of temporary negative fair value positions.

Fair value of currency derivatives

8. ACCRUED EXPENSES and other LIABILITIES

9. loanS payable

In January 2018, the Group entered into the Citibank transaction to provide lending to a special purpose vehicle, Lambeth, which made loans to UK small businesses. Under the terms of the Senior Facility Agreement, Citibank provided £50 million into the transaction, by entering into a senior floating rate loan.

In July 2018, the Citibank transaction was amended whereby the senior loan from Citibank was increased to £66 million with a corresponding net increase to the Group's lending to Lambeth. As a result, Basinghall increased its investments into Lambeth to keep the proportional exposure between Citibank and Basinghall. The additional investment by Basinghall to Lambeth was settled by transferring a portfolio of loans during that period.

The loan from Citibank was fully repaid by Lambeth on 11 April 2020. Total interest expense on this loan during the period was £638 (30 September 2019: £529,167).

In August 2018, the Group entered into a transaction to provide lending to Queenhithe. The Group provided initial funding of approximately £9.2 million through subscription into the Class B note issued by Queenhithe. In November 2018, the transaction was updated whereby the Department for Business, Energy and Industrial Strategy ("BEIS") - the British Business Bank's ("BBB") sole shareholder - agreed to provide up to £150 million of funding via a senior floating rate loan to Queenhithe. The facility came with a 12-year legal maturity. As at 30 September 2020, Queenhithe has drawn £ 20,378,043 (31 March 2020: £20,378,043) from the facility.

Pursuant to the original loan agreement with BBB and the relevant agreement supplement signed in November 2018, the total commitment fee incurred for the period was £187,500 (30 September 2019: £337,500) with £nil (31 March 2020: £93,750) outstanding as at 30 September 2020.

On 17 August 2020, Queenhithe fully repaid the remaining amount owed on its loan with Fleetbank. The remaining portfolio of Credit Assets held were transferred to Basinghall on the same date for an amount equal to the principal and interest outstanding at 31 July 2020 being the economic cut-off date for the transaction. The process is underway in order to put Queenhithe into formal liquidation in the coming months.

The loan from BBB had a floating interest rate plus a margin. Total interest expense on this loan during the period was £62,962 (30 September 2019: £202,646) with £nil (31 March 2020: £6,964) outstanding as at 30 September 2020.

10. Share capital

As at 30 September 2020, the Company has purchased a total of 43,746,667 shares (31 March 2020: 43,736,667) of which nil (31 March 2020: 586,243) remain held in treasury. During the period, a total of 596,243 (31 March 2020: 43,150,424) shares held in treasury were cancelled and formally discharged.

Following the COVID-19 pandemic and the uncertainty around its impact, the directors resolved to suspend the programme of repurchases of its own shares on 2 April 2020 until further notice.

The Company redeemed a total of 44,551,554 (31 March 2020: 32,245,772) shares for a total amount of £38,499,854 (31 March 2020: £30,499,833) during the period.

Rights attaching to the Ordinary share class

All shareholders have the same voting rights in respect of the share capital of the Company. Every member who is present in person or by a duly authorised representative or proxy shall have one vote on a show of hands and on a poll every member present shall have one vote for each share of which he is the holder, proxy or representative. All shareholders are entitled to receive notice of the Annual General Meeting and any other General meetings.

Each Ordinary share will rank in full for all dividends and distributions declared after their issue and otherwise pari passu in all respects with each existing Ordinary share and will have the same rights (including voting and dividend rights and rights on a return of capital) and restrictions as each existing Ordinary share.

11. TAXATION

The Group may be subject to taxation under the tax rules of the jurisdictions in which it invests. During the period, Basinghall, Tallis, Lambeth and Queenhithe which are consolidated into the Group's results were subject to a corporation tax rate of 25% in Ireland.

From 1 January 2020 new tax rules were applicable under the legislative changes made to the Irish Finance Act 2019. These rules included changes to the anti-hybrid and anti-avoidance rules in section 110 TCA of the legislation.

Basinghall paid class B profit participating note interest to SCRF in February 2020 totaling £1,392,467, which is considered disallowable for tax purposes in Ireland following the legislative changes discussed above and so a 25% tax charge will be levied totaling £348,117. This charge relates to the prior financial year ended 31 March 2020 and is accrued in the current period due to the timing of the completion of the impact assessment. The Group has been advised that changes made to its structural arrangements have caused the relevant entity to fall outside the scope of the legislative changes discussed above with effect from 1 April 2020.

12. Earnings per share ("EPS")

The calculation of the basic and diluted EPS is based on the following information:

13. Dividends

The following table shows a summary of dividends declared during the period, and previous period, in relation to Ordinary shares.

The Company's scrip offering programme has been discontinued from 31 March 2019.

14. FINANCIAL RISK MANAGEMENT

Financial risk management and financial instruments

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's Annual Report and financial statements as at 31 March 2020.

There have been no changes in the risk management or in any risk management policies since the prior year end.

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Compared to the prior year end, there has been no material change in how the Board of Directors manages liquidity risk.

Fair value measurement

The Group classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes "observable" requires significant judgement by the Group. The Group considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market.

The Group's financial instruments measured at fair value as at 30 September 2020 are its currency derivatives, the investment in the EIB transaction and its loans advanced.

The fair value of the currency derivatives held by State Street and Northern Trust were estimated by Record Currency Management Limited based on the GBP-USD forward exchange rate, the GBP-EUR forward exchange rate, the GBP-USD spot rate and the GBP-EUR spot rate as at 30 September 2020.

In estimating the fair value of the EIB transaction, the Directors believe that no further amounts will be available to be paid in the future and that the estimated fair value was £nil as at 30 September 2020 (31 March 2020: £nil).

As a result of the Company's managed wind-down and change in business model, the Company is required to report under fair value accounting for the valuation of Credit Assets from 1 April 2020.

The Company has appointed a third-party valuation expert to provide quarterly valuations of its Credit Assets. The fair value of the Credit Assets has been estimated by discounting expected future cash flows from the loans advanced using a discount rate determined by the Directors based on appropriate market comparatives and conditions. The fair value of the Group's Credit Assets as at 30 September was £128,197,082 (31 March 2020: £200,094,130). The most relevant unobservable input to the fair valuation was the discount rate, which has been summarised below based on the geography of each of the Groups portfolios:

The Board of Directors believe that the fair value of the currency derivatives falls within Level 2 in the fair value hierarchy described above. The fair value of the loans advanced and the EIB transaction falls within Level 3 in the fair value hierarchy due to the unobservable inputs used in the valuation which include discount rate and timing and amounts of cash flows.

The following table presents the fair value of the Group's assets and liabilities not measured at fair value as at 30 September 2020 but for which fair value is disclosed:

The Board of Directors believe that the carrying values for cash and cash equivalents, other receivables and prepayments, loans payable and accrued expenses and other liabilities approximate their fair values.

In the case of cash and cash equivalents, other receivables and prepayments, and accrued expenses and other liabilities the amount estimated to be realised in cash are equal to their value shown in the Consolidated Statement of Financial Position due to their short-term nature.

There were no transfers between levels during the period or the prior year.

The managed wind-down of the Company is being operated with a view to the Company realising all of its investments in accordance with the Investment Objective. Such realisations will comprise natural amortisation of the Company's investments in Credit Assets as well as potentially opportunistic portfolio sales.

During the prior financial year, the Company ran an auction process as the Board explored a potential sale of a portion of the Company's assets during which it received a high level of interest from potential buyers. The Company continues to engage with potential buyers, however given the recent market volatility and uncertainty caused by COVID-19, it is likely the asset sales shall be delayed, or may not proceed at all. The Directors continue to explore potential portfolio disposals where pricing levels are attractive.

Capital risk management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the Group. The Group's capital is represented by Ordinary share capital and retained earnings. The capital of the Group is managed in accordance with its investment policy, in pursuit of its investment objectives.

The Group is not subject to externally imposed capital requirements. However, certain calculations on the employment of leverage are required under the AIFMD. This directive requires more information to be reported if the Group's leverage exceeds three times its net asset value. As at 30 September 2020, the Group used leverage through the EIB only following the repayment of the Queenhithe and Citibank transactions but did not exceed the threshold within the directive and therefore did result in a change of the reporting requirements as prescribed by AIFMD.

15. Related party disclosure

The Directors, who are the key management personnel of the Group, are remunerated per annum as follows:

Sachin Patel has waived his fees as a director of the Company.

Richard Burwood is/was also a director of Basinghall, Tallis, Lambeth and Queenhithe and is entitled to receive £5,000 (31 March 2020: £5,000) per annum as Director's fees from each of the companies. Richard Burwood resigned as a director of Basinghall and Tallis on 13 July 2020.

The Directors held the following number of shares as at 30 September 2020 and 31 March 2020:

During the period, each of the directors except for Sachin Patel purchased a number of shares which contributed to the movement in the number of shares held by each of the directors as well as mandatory redemptions paid by the Company.

The Group had no employees during the period or the prior year.

The Directors delegate certain functions to other parties. In particular, the Directors have appointed Funding Circle UK, Funding Circle US and Funding Circle CE to originate and service the Group's investments in loans and FCGPL to provide corporate services. Notwithstanding these delegations, the Directors have responsibility for exercising overall control and supervision of the services provided by the Funding Circle entities, for risk management of the Group and otherwise for the Group's management and operations.

The transaction amounts incurred during the period and amounts payable to each of Funding Circle UK, Funding Circle Global Partners Limited ("FCGPL"), Funding Circle US and Funding Circle CE are disclosed below.

16. INVESTMENT IN SUBSIDIARIES

The Company accounts for its interest in the following entities as subsidiaries, in accordance with the definition of subsidiaries and control set out in IFRS 10:

17. Subsequent events

In October 2020, Basinghall sold a pool of UK non-performing loans to a third party at a modest premium to carrying value, receiving proceeds of £2,203,183.

Shortly after 30 September 2020, the UK went back into a national lockdown due to a second wave of COVID-19. Similar governmental measures being implemented in both CE and the US following the period end are also a possibility. The full impact of COVID-19 on the Group's portfolios is uncertain, however the Directors continue to monitor the delinquency and default data available to them closely.

On 21 October 2020, the Company announced that it has declared a quarterly dividend of 1.3125 pence per share payable on 20 November 2020 and will also be returning approximately £42m to shareholders by way of a compulsory partial redemption of shares payable on 10 November 2020.

In the opinion of the Directors, there are no other material subsequent events that require adjustment to the balances as at the period end or disclosure in the financial statements.

BOARD OF DIRECTORS

Richard Boléat

Chairman, Remuneration and Nominations Committee Chairman, Non-executive Director

Richard Boléat was born in Jersey in 1963. He is a Fellow of the Institute of Chartered Accountants in England & Wales, having trained with Coopers & Lybrand in Jersey and the United Kingdom. After qualifying in 1986, he subsequently worked in the Middle East, Africa and the UK for a number of commercial and financial services groups before returning to Jersey in 1991. He was formerly a Principal of Channel House Financial Services Group from 1996 until its acquisition by Capita Group plc ("Capita") in September 2005. Mr Boléat led Capita's financial services client practice in Jersey until September 2007, when he left to establish Governance Partners, L.P., an independent corporate governance practice. He currently acts as Chairman of CVC Credit Partners European Opportunities Limited and Audit Committee Chairman of M&G Credit Income Investment Trust plc, and also serves on the boards of a number of other substantial collective investment and investment management entities established in Jersey, the Cayman Islands and Luxembourg. He is regulated in his personal capacity by the Jersey Financial Services Commission.

Jonathan Bridel

Audit Committee Chairman, Non-executive Director

Mr Bridel is currently a non-executive Chairman or director of various listed and unlisted investment funds and private equity investment managers. Listings include Starwood European Real Estate Finance Limited (until 31 December 2020), The Renewables Infrastructure Group Limited and Sequoia Economic Infrastructure Income Fund Limited which are listed on the premium segment of the London Stock Exchange. He is also Chairman of DP Aircraft 1 Limited and a director of Fair Oaks Income Fund Limited. He was until 2011 Managing Director of Royal Bank of Canada's investment businesses in Guernsey and Jersey. This role had a strong focus on corporate governance, oversight, regulatory and technical matters and risk management. He is a Chartered Accountant and has specialised in Corporate Finance and Credit. After qualifying as a Chartered Accountant in 1987, Mr Bridel worked with Price Waterhouse Corporate Finance in London and subsequently served in a number of senior management positions in Australia and Guernsey in corporate and offshore banking and specialised in credit. This included heading up an SME Lending business for a major bank in South Australia. He was also chief financial officer of two private multi-national businesses, one of which raised private equity. He holds qualifications from the Institute of Chartered Accountants in England and Wales where he is a Fellow, the Chartered Institute of Marketing and the Australian Institute of Company Directors. He graduated with an MBA from Durham University in 1988. Mr Bridel is a Chartered Marketer and a member of the Chartered Institute of Marketing, a Chartered Director and a Fellow of the Institute of Directors and is a Chartered Fellow of the Chartered Institute for Securities and Investment.

Richard Burwood

Management Engagement Committee Chairman, Non-executive Director

Mr Burwood is a resident of Guernsey with 25 years' experience in banking and investment management. During 18 years with Citibank London Mr Burwood spent 4 years as a Treasury Dealer and 11 years as a Fixed Income portfolio manager covering banks & finance investments, corporate bonds and asset backed securities.

Mr Burwood moved to Guernsey in 2010, initially working as a portfolio manager for EFG Financial Products (Guernsey) Ltd managing the treasury department's ALCO Fixed Income portfolio. From 2011 to 2013 Mr Burwood worked as the Business and Investment manager for the Guernsey branch of Man Investments (CH) AG. This role involved overseeing all aspects of the business including operations and management of proprietary investments.

Mr Burwood serves as Non-Executive Director on the boards of the Roundshield Fund, Guernsey (a European asset backed special opportunities fund providing finance to small and mid-cap businesses) since January 2014 and TwentyFour Income Fund (a UK and European asset backed investments) since January 2013.

Frederic Hervouet

Risk Committee Chairman, Non-executive Director

Fred Hervouet (45) is a resident of Guernsey and has dual nationality with both British and French citizenship. He has more than 20 years of experience in Hedge Funds and Capital Markets roles.

Until end of 2013, Fred was Managing Director and Head of Commodity Derivatives Asia for BNP Paribas including Trading, Structuring and Sales. Prior to BNP Paribas, he also worked for two multi-billion, multi- strategy hedge funds including Quantitative strategies (CTAs), Convertible Arbitrage, Event Driven, Fixed Income Relative Value, Equity & Commodity Long-short, Global Macro, Emerging Markets Debt Fund. In the last 20 years, Fred has worked in different aspects of the Financial Markets and Asset Management Industry. His experience includes Derivatives Markets, Structured Finance, Structured Products and Hedge Funds, Trading and Risk Management.

Fred has worked in Singapore, Switzerland, United Kingdom and France. Most recently, Mr Hervouet was a member of BNP Paribas Commodity Group Executive Committee and BNP Paribas Credit Executive Committees on Structured Finance projects (structured debt and Trade Finance).

Fred now acts as a full time dedicated Non-executive Director of a number of listed and non-listed companies. He is the Chairman of Chenavari Toro Income Fund listed on the SFM of the LSE and a director of Crystal Amber Fund Limited. He is also a GP on a number of Guernsey Private Equity Funds (Terra Firma, Lakestar, Telstra Ventures, LCH Partners).

Fred graduated from the University of Paris Dauphine, France achieving a Masters (DESS 203) in Financial Markets, Commodity Markets and Risk Management and an MSc in Applied Mathematics and International Finance.

Fred has provided investment and risk management services to corporations and institutions worldwide and worked with CEOs, CFOs and Head of Investment Divisions. Appearances on financial programs include CNBC, Bloomberg and other networks. He is a member of various financial services interest Groups including the UK Institute of Directors, the UK Association of Investment Companies, the Guernsey Chamber of Commerce and of the Guernsey Investment Fund Association ("GIFA").

Sachin Patel

Non-executive Director

Sachin Patel is the Chief Capital Officer at Funding Circle, leads the Global Capital Markets group and is responsible for investor strategy. Previously, Sachin was Vice President in the cross-asset structured products and solutions businesses at Barclays Capital and, prior to this, at J.P. Morgan, advising a wide variety of investors including insurance companies, pension funds, discretionary asset managers and private banks.

By virtue of Sachin's role at Funding Circle Ltd, Sachin is not an independent Director. Notwithstanding this, Sachin has undertaken in his service contract with the Company to communicate to the Board any actual or potential conflict of interest arising out of his position as a Director and the other Directors have satisfied themselves that procedures are in place to address potential conflicts of interest.

Sachin is not entitled to any fee for the services provided and to be provided in relation to his directorship, although the Company shall, during the course of his appointment, reimburse all properly incurred out-of-pocket expenses incurred in the execution of his duties as a Director.

AGENTS AND ADVISORS

GLOSSARY

Definitions and explanations of methodologies used are shown below. The Company's prospectus contains a more comprehensive list of defined terms.