Vpc Specialty Regulatory News (VSL)

VPC SPECIALTY LENDING INVESTMENTS PLC

half-yearly report and unaudited financial statements

For the SIx Month period to 30 june 2016

22 September 2016 - VPC Specialty Lending Investments PLC (the "Company') today announces its unaudited half-yearly financial results for the period ended 30 June 2016.

Copies of the Half-Yearly Financial Report can be obtained from the following website: www.vpcspecialtylending.com

FINANCIAL AND OPERATIONAL HIGHLIGHTS

1Based on a share price of 100p

2Net of issue costs

CHAIRMAN'S STATEMENT

I am pleased to present the interim statement of VPC Specialty Lending Investments PLC ("VSL" or the "Company") for the six month period to 30 June 2016. The period was marked by increased volatility and investor uncertainty across markets. While performing well, the specialty lending markets were not immune to these developments. In response to tightening capital markets and heightened risk premiums, a number of leading specialty lending platforms announced layoffs and scaled back ambitious growth plans. Amid the resulting investor apprehension, the Company's holdings of residual interests in recent securitisations suffered market-to-market writedowns. The majority of the Company's underlying loan portfolios continue to perform in line with our expectations, but certain positions did exhibit higher than expected losses. In addition, the decision by U.K. voters to leave the European Union ("EU") and the subsequent depreciation of the GBP had a negative impact on the Company's performance as outsized cash balances were required as margin in relation to the Company's currency hedges.

While market conditions were challenging during the period, the Investment Manager took advantage of industry illiquidity by closing several new deals under preferential terms and amending existing deals in ways that we believe will be accretive to the existing portfolio. These developments served to highlight the strength of the Company's business model; that by having a broadly diversified portfolio, the Company is not reliant on any one Platform, and can allocate capital dynamically across Platforms and geographies in pursuit of the best risk-adjusted returns in the sector. I continue to have strong confidence in the Investment Manager and believe that the Company will deliver high quality risk-adjusted returns in line with expectations over the coming years. In a step to further bolster that confidence, the Investment Manager has agreed to modify the management agreement such that 20% of monthly management fees will be used to purchase VSL shares at the prevailing market price, provided the shares are trading at a discount to net asset value ("NAV").

INVESTMENTS

During the period under review, the Company delivered a total NAV return of 1.51% and paid quarterly dividends amounting to 3.5p per share. As highlighted in the Investment Manager's report, the vast majority of investments have exhibited credit losses in line with expectations. However, returns in the period were negatively affected by isolated spots of credit underperformance in the marketplace loan portfolio and the effect of cash drag related to currency hedges. The Company has taken steps to mitigate the credit underperformance by exiting and winding down certain positions and redeploying capital to other, better performing opportunities. In particular, I am excited about the strong pipeline of investments in proprietary balance sheet facilities, which offer significant credit enhancements, and feature attractive interest rates ranging from 12% to 16%. Several new balance sheet investments were closed during the period, and are highlighted in the Investment Manager's Report below.

Early in the year, the Company completed the deployment of the 2015 C share proceeds and effected the merger of the share classes. During March and April, the Company participated in two public securitisations of consumer loans, which despite being accretive transactions, created some initial cash drag as proceeds were returned to the Company upon the close of the transaction. During the period, the Company operated with an average cash balance of 18.8% of NAV, which created a slight performance drag, but also mitigated risk and allowed the company to continue to execute on new investments.

MARKET OUTLOOK

I, along with the Board, continue to believe the specialty lending market has an important role in connecting borrowers and lenders in a way that will help consumers and small businesses flourish. The underlying trends driving the sector's growth remain firmly in place and we believe the company is well positioned as a leader in the field to advance the maturation of the sector and deliver high quality risk-adjusted returns to investors.

Andrew Adcock

Chairman

21 September 2016

INVESTMENT MANAGER'S REPORT

MARKET OVERVIEW

The Company and the Investment Manager continue to believe that a significant opportunity exists for credit investors in the specialty lending market, primarily through tech-enabled consumer and small business lending Platforms. The global banking industry has been under enormous pressure since the 2007-2009 global financial crisis. The strain has been particularly acute in the U.S. and Europe where banks have been subjected to a flurry of new regulations and heightened scrutiny of their risk profile and capitalizations. 

These constraints have given rise to a new opportunity for specialty lending Platforms to fill the void. In 2010, Platforms in the U.S. accounted for approximately US$200 million of loans to consumers and small businesses. By 2015 this grew to nearly US$23 billion.1 Despite this rapid development, research indicated that specialty lending Platforms today represent a tiny portion of the U.S. consumer and small business loan market, estimated at US$3.4 trillion and US$305 billion respectively, leaving ample room for sustained growth.

However, during the Period, the specialty lending market experienced some negative headwinds, highlighted by widening spreads in the ABS markets and issues surrounding Lending Club including the resignation of CEO Renaud Laplanche. The Investment Manager believes these events were temporary in nature and will not affect the long term growth trajectory of the specialty lending market. The Investment Manager further believes that these events highlight the strength of its investment model, with a focus on a broadly diversified portfolio of Platform exposures and intensive upfront and ongoing due diligence. The Investment Manager capitalised on the market turbulence during the period by closing several new deals under preferential terms and amending existing deals in ways that it believes will be accretive to the existing portfolio.

1. Liberum Report.

CAPITAL MARKETS UPDATE

The first half of the year showed positive momentum in marketplace lending capital markets activity with $3.4 billion of new issuance. This represented a 94% increase over the first half of 2015 but a 17% decline from the $4.1 billion issued in the second half of 2015. In February 2016, Avant brought to market its initial rated transaction, Avant 2016-1, followed by their second rated transaction, Avant 2016-2 in April. In May 2016, the U.K. closed its first ever SME marketplace lending transaction with SBOLT 2016-1 backed by Funding Circle UK receivables. Many investors seem to be attracted to marketplace ABS investments for short duration spread opportunities, in an increasingly low return investment environment. The Investment Manager expects to see a strong rate of issuance for the second half of 2016, and it will selectively participate, when appropriate.

COMPANY HIGHLIGHTS

On 29 January 2016, the Company announced that it had substantially fully invested the initial C Share proceeds and set the timing of the C Share conversion. The calculation date of the conversion of shares was 31 January 2016. On 3 March 2016, the Company completed the conversion of the C Shares to Ordinary Shares.

As at 30 June 2016 the Company had investments in 28 Platforms across the U.S., U.K., Europe, Latin America and Australia originating consumer and small business loans, up from investments in 21 Platforms as at 31 December 2015. For the six month period to 30 June 2016, the Company's total NAV return was 1.51% and total dividends of 3.50p per share were paid to Ordinary Shareholders during the period under review. Since the date the Company was listed (on 17 March 2015), the Company has returned a total 7.30% of NAV growth and paid dividends totalling 6.29p per share.

PORTFOLIO COMPOSITION

As at 30 June 2016, Consumer exposure accounted for 66% of the invested portfolio, while small business exposure accounted for 34%. Investments in U.S. Platforms accounted for 72% of the invested portfolio, U.K.-based loans accounted for 24% with the remainder being European, Latin American and Australian exposure. Investments in the balance sheet portfolio accounted for 38% of NAV, compared to 29% of the NAV of the Ordinary Share portfolio at 31 December 2015. As part of these investments, the Company has equity exposure to 18 Platforms through equity securities or convertible notes.

2. Restricted Cash reflects cash held in underlying private fund investments that is not available for direct investment by VSL.

3. Calculations using gross asset exposure and not reduced for gearing. Excludes cash.

NEW INVESTMENTS

During the period, the Company made investments in proprietary balance sheet facilities, which offer significant credit enhancements, and featured attractive interest rates ranging from 12% to 16%. These new investments are highlighted below:

· In January, the Company invested in Cognical, Inc., a lender that offers a straightforward point of sale, lease-to-own payment option for consumer goods in the U.S. The lender fully integrates with retailers' storefront and online checkout processes to provide a unique lease-to-own financing alternative to underbanked, non-prime U.S. consumers, allowing them to purchase electronics, appliances, furniture, musical instruments and other large ticket items.

· In February, the Company closed on an investment in FinanceFox, a digital insurance manager that provides a unique, hybrid product that is a cross between a software application and an in-person alternative to the modern insurance broker. The business operates in Germany and Switzerland, acting as an intermediary between major insurance providers and individual consumers. The investment is a manifestation of the Investment Manager's thesis that significant disintermediation opportunities exist across the various traditional operators in the financial services sector.

· In March, the Company made an initial investment pursuant to the Investment Manager's $100 million credit facility commitment to Wheels Financial Group, LLC, a leading provider of auto title loans in the U.S. The lender provides consumers with quick and convenient access to liquid funds through instalment loans secured by an interest in the borrower's vehicle. The products provide consumers with an affordable alternative to traditional higher cost lenders, which allow them to establish or rebuild positive credit.

· In May, the Company made an initial investment in West Creek Financial, Inc., a provider of point of sale lease-to-own financing to underserved customers enabling purchases of durable goods such as furniture, mattresses, and appliances.

· In June, the Company made an initial investment in Fundbox Ltd., a provider of short-term working capital advances to small and medium-sized businesses in the U.S. The Company also funded a new tranche of senior secured debt to Elevate Credit, Inc. Elevate is a provider of cash advances and installment loans to U.S. consumers.

OUTLOOK

While cash drag as a result of the currency hedge and the performance of certain whole loan investments were disappointing, the Investment Manager is encouraged by the performance of the existing balance sheet investments as well as the attractive terms associated with newer deals. Over the past six months the Investment Manager has been able take advantage of industry illiquidity to close several new balance sheet investments under preferential terms and favourably amend existing deals, resulting in a portfolio of proprietary credit facilities accretive to the Company's long-term performance objectives. We believe that the proprietary nature of these relationships will continue to benefit the Company's shareholders going forward. Given the current opportunity set, the Investment Manager plans to redeploy the majority of principal amortisation from our whole loan portfolio into balance sheet investments. Over time, we expect our balance sheet loans to make up a significant portion of the portfolio. In order to further demonstrate our commitment to the Company and our confidence in achieving targeted returns, we have agreed with the Company's Board to modify our management agreement such that we will apply 20% of our monthly management fee to the purchase of shares of the Company at the prevailing market price on an ongoing basis, provided the shares are trading at a discount to NAV.

Victory Park Capital Advisors, LLC

Investment Manager

21 September 2016

RESPONSIBILITY STATEMENT OF THE DIRECTORS

The Directors acknowledge responsibility for the Half-Year Financial Report and confirm that to the best of their knowledge:

(a) the consolidated set of financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit for the period of the Group as required by the Disclosure and Transparency Rules ("DTR") 4.2.4 R;

(b) the Interim Management Report (including the Chairman's Statement and the Investment Manager's Report) includes a fair review of the information required by DTR 4.2.7 R (indication of important events that have occurred during the six month period to 30 June 2016 and their impact on the set of consolidated financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year); and

(c) the Half-Year Financial Report includes a fair review of the information concerning related parties transactions as required by DTR 4.2.8 R.

Signed on behalf of the Board by:

Andrew Adcock

Chairman

21 September 2016

INTERIM MANAGEMENT REPORT

CAUTIONARY STATEMENT

This Interim Management Report has been prepared solely to provide additional information to Shareholders to assess the strategies of VPC Specialty Lending Investments PLC (the "Company") with its subsidiaries (together "the Group"). The Interim Management Report should not be relied on by any other party or for any other purpose.

The Interim Management Report contains certain forward looking statements. 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 the Half-Year Financial Report but 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.

ACTIVITIES

The activities of the Group are described in the Chairman's Statement and in the Investment Manager's Report. Refer to the Chairman's Statement above and the Investment Manager's Report above. Further refer to Note 1 to the consolidated financial statements.

STRATEGY AND INVESTMENT OBJECTIVES

The important events that have occurred during the period under review and the key factors influencing the consolidated financial statements are described in the Chairman's Statement and in the Investment Manager's Report.

Refer to the Chairman's Statement above and the Investment Manager's Report above.

GOING CONCERN

As stated in Note 2 to the consolidated financial statements, the Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period not less than 12 months from the date of the Half-Year Financial Report. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.

RISKS AND UNCERTAINTIES

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial period and could cause actual results to differ materially from expected and historical results. Refer to the Chairman's Statement above and the Investment Manager's Report above as well as Note 5 to the consolidated financial statements for the potential risks and uncertainties. The principal risks and uncertainties are consistent with those disclosed in the annual report for the period ended 31 December 2015 which can be found on the Company's website.

FINANCIAL PERFORMANCE

The financial and operational highlights of the Group can be found above.

RELATED PARTY TRANSACTIONS

Related party transactions are disclosed in Note 12 to the consolidated financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2016

These consolidated financial statements of VPC Specialty Lending Investments PLC registered number 9385218 were approved and authorised for issue by the Board of Directors on 21 September 2016.

Signed on behalf of the Board by:

Andrew Adcock

Chairman of the Board

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2016

The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD FROM 12 JANUARY 2015 (DATE OF INCORPORATION) TO 30 JUNE 2015

The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME continued

FOR THE PERIOD FROM 12 JANUARY 2015 (DATE OF INCORPORATION) TO 31 DECEMBER 2015

The total column of this statement represents the Group's statement of comprehensive income, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All items in the above Statement derive from continuing operations.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD TO 30 JUNE 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD FROM 12 JANUARY 2015 (DATE OF INCORPORATION) TO 30 JUNE 2015

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD FROM 12 JANUARY 2015 (DATE OF INCORPORATION) TO 31 DECEMBER 2015

\* The High Court of Justice Chancery Division approved the cancellation of the amount standing to the credit of the "Share Premium" account of the Company on 17 September 2015 of £194,000,000. As a result, this amount was transferred to the "Other Reserve" account.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTH PERIOD TO 30 JUNE 2016

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTH PERIOD TO 30 JUNE 2016

1. GENERAL INFORMATION

The investment objective of VPC Specialty Lending Investments PLC (the "Parent Company") with its subsidiaries (together "the Group") is to generate an attractive total return for shareholders consisting of distributable income and capital growth through investments in specialty lending opportunities. The Parent Company was incorporated in England and Wales on 12 January 2015 with registered number 9385218. The Parent Company commenced its operations on 17 March 2015 and continues to carry on business as an investment trust within the meaning of Chapter 4 of Part 24 of the Corporation Tax Act 2010.

The Group's investment manager is Victory Park Capital Advisors, LLC (the "Investment Manager"), a US Securities and Exchange Commission registered investment adviser. The Investment Manager also acts as the Alternative Investment Fund Manager of the Group under the Alternative Investment Fund Managers Directive ("AIFMD"). The Parent Company is defined as an Alternative Investment Fund and is subject to the relevant articles of the AIFMD.

The Group will invest directly or indirectly into available opportunities, including by making investments in, or acquiring interests held by, third party funds (including those managed by the Investment Manager or its affiliates). Direct investments may include consumer loans, SME loans, advances against corporate trade receivables and/or purchases of corporate trade receivables ("Debt Instruments") originated by platforms which engage with and directly lend to borrowers ("Platforms"). Such Debt Instruments may be subordinated in nature, or may be second lien, mezzanine or unsecured loans. Indirect investments may include investments in Platforms (or in structures set up by Platforms) through the provision of credit facilities ("Credit Facilities"), equity or other instruments. Additionally, the Group's investments in Debt Instruments and Credit Facilities may be made through subsidiaries of the Company or through partnerships or other structures. The Group may also invest in other specialty lending related opportunities through any combination of debt facilities, equity or other instruments.

During the period, the Company cancelled 183,000,000 C Shares on 3 March 2016 and issued 182,615,665 new Ordinary Shares on 4 March 2016. As at 30 June 2016, the Company held equity in the form of 382,615,665 Ordinary Shares (31 December 2015: 200,000,000 Ordinary Shares and 183,000,000 C Shares; 30 June 2015: 200,000,000 Ordinary Shares). The Ordinary Shares are listed on the premium segment of the Official List of the UK Listing Authority and trade on the London Stock Exchange's main market for listed securities.

Northern Trust Hedge Fund Services LLC (the "Administrator") has been appointed as the administrator of the Group. The Administrator is responsible for the Group's general administrative functions, such as the calculation and publication of the Net Asset Value ("NAV") and maintenance of the Group's accounting records.

For any terms not herein defined, refer to Part X of the IPO Prospectus. The Parent Company's IPO Prospectus dated 26 February 2015, available on the Parent Company's website, www.vpcspecialtylending.com. The audited financial statement information contained within the consolidated financial statements are also available on the Parent Company's website.

2. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies followed by the Group are set out below:

Basis of preparation

The consolidated financial statements present the financial performance of the Group for the six month period to 30 June 2016. These statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and International Accounting Standard ("IAS") 34, Interim Financial Reporting, as adopted by the European Union.

The consolidated financial statements for the period ended 30 June 2016 have not been audited or reviewed by the Group's auditors and do not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. They do not include all financial information required for full annual financial statements. The consolidated financial statements and the comparative financial statements have been prepared using the accounting policies adopted in the audited financial statements for the period ended 31 December 2015.

The consolidated financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the valuation of investments and derivative financial instruments at fair value. Having assessed the principal risks, the directors considered it appropriate to adopt the going concern basis of accounting in preparing the consolidated financial statements. The principal accounting policies adopted are set out below.

Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for investment trusts issued by the Association of Investment Companies ("AIC") in November 2014 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

The Group's presentational currency is Pound Sterling (£). Pound Sterling is also the functional currency because it is the currency of the Parent Company's share capital and the currency which is most relevant to the majority of the Parent Company's Shareholders. The Group enters into forward currency Pound Sterling hedges where operating activity is transacted in a currency other than the functional currency.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Parent Company and its subsidiaries. Control is achieved where the Parent Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The Parent Company controls an entity when the Parent Company is exposed to, or has rights to, variable returns from its investment and has the ability to affect those returns through its power over the entity. All intra-group transactions, balances, income and expenses are eliminated in consolidation. The accounting policies of the subsidiaries have been applied on a consistent basis to ensure consistency with the policies adopted by the Parent Company.

Subsidiaries of the Parent Company, where applicable, have been consolidated on a line by line basis as the Parent Company does not meet the definition of an investment entity under IFRS 10 because it does not measure and evaluate the performance of all of its investments on the fair value basis of accounting. The period ends for the subsidiaries are consistent with the Company.

Presentation of Consolidated Statement of Comprehensive Income

In order to better reflect the activities of an investment trust company and in accordance with the guidance set out by the AIC, supplementary information which analyses the Consolidated Statement of Comprehensive Income between items of revenue and capital nature has been presented alongside the Consolidated Statement of Comprehensive Income.

Income

For financial instruments measured at amortised cost, the effective interest rate method is used to measure the carrying value of a financial asset or liability and to allocate associated interest income or expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or receipts over the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability.

In calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider expected credit losses. The calculation includes all fees received and paid, costs borne that are an integral part of the effective interest rate and all other premiums or discounts above or below market rates.

Dividend income from investments is taken to the revenue account on an ex-dividend basis.

Bank interest and other income receivable is accounted for on an effective interest basis.

Distributions from investments in funds are accounted for on an accrual basis as of the date the Group is entitled to the distribution. The income is treated as revenue return provided that the underlying assets of the investments comprise solely income generating loans, or investments in lending platforms which themselves generate net interest income.

Expenses and finance costs

Expenses and finance costs not directly attributable to generating a financial instrument are recognised as services are received, or on the performance of a significant act which means the Group has become contractually obligated to settle those amounts.

The Group currently charges investment management fees and performance fees to either revenue or capital return based on the classification of the investment that generates the fees. The current expectation is that the majority of the Group's return will be generated through revenue rather than capital gains on investments. Refer to Note 8 for further details of the management and performance fees.

All expenses are accounted for on an accruals basis.

Dividends payable to Shareholders

Dividends payable to Shareholders are recognised in the Consolidated Statement of Changes in Equity when they are paid, or have been approved by Shareholders in the case of a final dividend and become a liability to the Parent Company.

Taxation

The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the Consolidated Statement of Financial Position date.

In line with the recommendations of SORP for investment trusts issued by the AIC, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Consolidated Statement of Comprehensive Income is the "marginal basis".

Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Consolidated Statement of Comprehensive Income, then no tax relief is transferred to the capital return column.

Investment trusts which have approval as such under section 1158 of the Corporation Taxes Act 2010 are not liable for taxation on capital gains.

Financial assets and financial liabilities

The Group classifies its financial assets and financial liabilities in one of the following categories below. The classification depends on the purpose for which the financial assets and liabilities were acquired. The classification of financial assets and liabilities are determined at initial recognition:

Financial assets and financial liabilities designated as held at fair value through profit or loss

This category consists of forward foreign exchange contracts and investments in funds.

Assets and liabilities in this category are carried at fair value. The fair values of derivative instruments are estimated using discounted cash flow models using yield curves that are based on observable market data or are based on valuations obtained from counterparties.

Investments in funds are carried at fair value through profit or loss and designated as such at inception. This is determined using the NAV for the units at the balance sheet date.

Gains and losses arising from the changes in the fair values are recognised in the Consolidated Statement of Comprehensive Income.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Group's loan assets are classified as loans and receivables.

Loans are recognised when the funds are advanced to borrowers. Loans and receivables are carried at amortised cost using the effective interest rate method less provisions for impairment.

Purchases and sales of financial assets

Purchases and sales of financial assets are accounted for at trade date. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

Fair value estimation

The determination of fair value of investments requires the use of accounting estimates and assumptions that could cause material adjustment to the carrying value of those investments.

Impairment of financial assets

Financial Assets carried at amortised cost

The Group assesses at each balance sheet date whether, as a result of one or more events that occurred after initial recognition, there is objective evidence that a financial asset or group of financial assets is impaired. Evidence of impairment may include:

v indications that the borrower or group of borrowers is experiencing significant financial difficulty;

v default or delinquency in interest or principal payments; or

v debt being restructured to reduce the burden on the borrower.

The Group assesses whether objective evidence of impairment exists either individually for assets that are separately significant or individually or collectively for assets that are not separately significant.

If there is no objective evidence of impairment for an individually assessed asset it is included in a group of assets with similar credit risk characteristics and collectively assessed for impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. The resultant provisions are deducted from the appropriate asset values in the Consolidated Statement of Financial Position.

The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the provision is adjusted and the amount of the reversal is recognised in the Consolidated Statement of Comprehensive Income.

Where a loan is not recoverable, it is written off against the related provision for loan impairment once all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are reflected against the impairment losses recorded in the Consolidated Statement of Comprehensive Income.

Key estimates and assumptions in impairment of financial assets

The assessment of impairment of the financial assets held at amortised cost requires the use of accounting estimates and assumptions that could cause material adjustment to the carrying value of those investments. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group.

Financial liabilities

Borrowings, deposits, debt securities in issue and subordinated liabilities, if any, are recognised initially at fair value, being the issue proceeds net of premiums, discounts and transaction costs incurred.

All borrowings are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is adjusted for the amortisation of any premiums, discounts and transaction costs. The amortisation is recognised in interest expense and similar charges using the effective interest rate method.

Financial liabilities are derecognised when the obligation is discharged, cancelled or has expired.

Derivatives

Derivatives are entered into to reduce exposures to fluctuations in interest rates, exchange rates, market indices and credit risks and are not used for speculative purposes.

Derivatives are carried at fair value with movements in fair values recorded in the Consolidated Statement of Comprehensive Income. Derivative financial instruments are valued using discounted cash flow models using yield curves that are based on observable market data or are based on valuations obtained from counterparties.

Gains and losses arising from derivative instruments are credited or charged to the Consolidated Statement of Comprehensive Income. Gains and losses of a revenue nature are reflected in the revenue column and gains and losses of a capital nature are reflected in the capital column. Gains and losses on forward foreign exchange contracts are reflected in Foreign exchange gain / (loss) in the Consolidated Statement of Comprehensive Income.

All derivatives are classified as assets where the fair value is positive and liabilities where the fair value is negative. Where there is the legal ability and intention to settle net, then the derivative is classified as a net asset or liability, as appropriate.

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position if, and only if, there is currently enforceable legal right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise an asset and settle the liability simultaneously.

Investments in funds

Investments in funds are measured at fair value through profit or loss.

Equity securities

Equity securities are measured at fair value through recent transaction prices. These securities are not traded in an active market and thus are considered Level 3 investments.

Other receivables

Other receivables do not carry interest and are short-term in nature and are accordingly recognised at fair value as reduced by appropriate allowances for estimated irrecoverable amounts.

Cash and cash equivalents

Cash comprises of cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments with a maturity of 90 days or less that readily convertible to known amounts of cash.

Current Liabilities

Current liabilities, other than derivatives, are not interest-bearing and are stated at their nominal values. Due to their short term nature this is determined to be equivalent to their fair value.

Shares

Both the Ordinary Shares and C Shares, for the time to their conversion date, (together the "Shares") are classified as equity. The costs of issuing or acquiring equity are recognised in equity (net of any related income tax benefit), as a reduction of equity on the condition that these are incremental costs directly attributable to the equity transaction that otherwise would have been avoided.

The costs of an equity transaction that is abandoned are recognised as an expense. Those costs might include registration and other regulatory fees, amounts paid to legal, accounting and other professional advisers, printing costs and stamp duties.

The Group's equity NAV per unit is calculated by dividing the equity - net assets attributable to the holder of Shares by the total number of outstanding shares.

Foreign exchange

Transactions in foreign currencies are translated into Pound Sterling at the rate of exchange ruling on the date of each transaction. Monetary assets, liabilities and equity investments in foreign currencies at the Consolidated Statement of Financial Position date are translated into Pound Sterling at the rates of exchange ruling on that date. Profits or losses on exchange, together with differences arising on the translation of foreign currency assets or liabilities, are taken to the capital return column of the Consolidated Statement of Comprehensive Income. Foreign exchange gains and losses arising on investment assets including loans are included within Net gain / (loss) on investments within the capital return column of the Consolidated Statement of Comprehensive Income.

The assets and liabilities of the Group's foreign operations are translated using the exchange rates prevailing at the reporting date. Income and expense items are translated using the average exchange rates during the period. Exchange differences arising from the translation of foreign operations are taken directly as currency translation differences through the Consolidated Statement of Comprehensive Income.

Capital reserves

Capital reserve - arising on investments sold includes:

v gains/losses on disposal of investments and the related foreign exchange differences;

v exchange differences on currency balances;

v cost of own shares bought back; and

v other capital charges and credits charged to this account in accordance with the accounting policies above.

Capital reserve - arising on investments held includes:

v increases and decreases in the valuation of investments held at the period end; and

v subsidiaries where the investment by the Group is in a capital loss position.

All of the above are accounted for in the Consolidated Statement of Comprehensive Income except the cost of own shares bought back, if applicable, which would be accounted for in the Consolidated Statement of Changes in Equity.

Segmental reporting

The decision maker is the Board of Directors. The Directors are of the opinion that the Group is engaged in a single segment of business, being the investment of the Group's capital in financial assets comprising consumer loans, SME loans, corporate trade receivables and/or advances thereon.

Critical accounting estimates and assumptions

Estimates and assumptions used in preparing the consolidated financial statements are reviewed on an ongoing basis and are based on historical experience and various other factors that are believed to be reasonable under the circumstances.

The results of these estimates and assumptions form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.

Estimates and assumptions made in the valuation of unquoted investments and investments for which there is no active market may cause material adjustment to the carrying value of those assets and liabilities. These are valued in accordance with the techniques set out above.

Information about significant areas of estimation uncertainty and critical judgments in relation to the impairment of investments are described in Note 5.

Judgement is required to determine whether the Parent Company exercises control over its investee entities and whether they should be consolidated. Control is achieved where the Parent Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The Parent Company controls an investee entity when the Parent Company is exposed to, or has rights to, variable returns from its investment and has the ability to affect those returns through its power over the entity. At each reporting date an assessment is undertaken of investee entities to determine control. In the intervening period assessments are undertaken where circumstances change that may give rise to a change in the control assessment. These include when an investment is made into a new entity, or an amendment to existing entity documentation or processes. When assessing whether the Parent Company has the power to affect its variable returns, and therefore control investee entities, an assessment is undertaken of the Parent Company's ability to influence the relevant activities of the investee entity. These activities include considering the ability to appoint or remove key management or the manager, which party has decision making powers over the entity and whether the manager of an entity is acting as principal or agent. The assessment undertaken for entities considers the Parent Company's level of investment into the entity and its intended long-term holding in the entity. Further details of the Parent Company's subsidiaries are included in Note 13.

Accounting standards issued but not yet effective

The following new standards are not applicable to this financial information but may have an impact when they become effective:

IFRS 9, 'Financial Instruments', introduces new requirements for classification and measurement, impairment and hedge accounting. This standard is effective from 1 January 2018. The adoption of IFRS 9 results in an impairment model that is more forward looking than that which is currently in place under IAS 39. In the longer term it is expected that the adoption of the standard will increase the total level of impairment allowance as financial assets will be assessed for impairment at least to the extent that an impairment is expected to arise within the following 12-month period and this impairment amount recognised within the financial statements.

IFRS 15, 'Revenue from Contracts with Customers', requires revenue to be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring services to a customer. This standard is effective from 1 January 2018. The adoption of this standard is not expected to have a significant impact on the Group's financial statements.

Both IFRS 9 and IFRS 15 are subject to endorsement from the European Union. The Directors are assessing the impact of the above standards on the Group's future consolidated financial information.

3. FAIR VALUE MEASUREMENT

Financial instruments measured and reported at fair value are classified and disclosed in one of the following fair value hierarchy levels based on the significance of the inputs used in measuring its fair value:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets and liabilities;

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

Level 3 - Pricing inputs for the asset or liability that are not based on observable market data (unobservable inputs).

An investment is always categorised as Level 1, 2 or 3 in its entirety. In certain cases, the fair value measurement for an investment may use a number of different inputs that fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and is specific to the investment.

Valuation of investments in funds

The Group's investments in funds are subject to the terms and conditions of the respective fund's offering documentation. The investments in funds are primarily valued based on the latest available financial information. The Investment Manager reviews the details of the reported information obtained from the funds and considers: (i) the valuation of the fund's underlying investments; (ii) the value date of the NAV provided; (iii) cash flows (calls/distributions) since the latest value date; and (iv) the basis of accounting and, in instances where the basis of accounting is other than fair value, fair valuation information provided by the funds. If necessary, adjustments to the NAV are made to the funds to obtain the best estimate of fair value. The funds in which the Group invests are close-ended and unquoted. The NAV is provided to investors only and is not made publically available.

Valuation of equity securities

The Group's equity securities investments are valued at recent transaction prices. As these equity securities are not traded in an active market, they are categorised as Level 3 investment assets.

The following table analyses the fair value hierarchy of the Group's assets and liabilities measured at fair value at 30 June 2016:

There were no movements between Level 1 and Level 2 fair value measurements during the period ended 30 June 2016 and no transfers into and out of Level 3 fair value measurements for the Group.

The following table analyses the fair value hierarchy of the Group's assets and liabilities measured at fair value at 30 June 2015:

The following table analyses the fair value hierarchy of the Group's assets and liabilities measured at fair value at 31 December 2015:

The following table presents the movement in Level 3 positions for the period for the Group at 30 June 2016:

The net change in unrealised gains is recognised within gains on investments in the Consolidated Statement of Comprehensive Income.

Quantitative information regarding the unobservable inputs for Level 3 positions is given below:

The investments in funds consist of investments in Larkdale III, L.P. and VPC Offshore Unleveraged Private Debt Fund, L.P. are valued based on the NAV as calculated at the balance sheet date. No adjustments have been deemed necessary to the NAV as it reflects the fair value of the underlying investments, as such no specific unobservable inputs have been identified. The NAVs are sensitive to movements in interest rates due to the funds' underlying investment in loans.

If the price of the investment assets held at period end had increased / decreased by 5 per cent. it would have resulted in an increase / decrease in the total value the funds and equity securities of £2,939,239 which would affect the Net gain / (loss) on investments within the capital return column of the Consolidated Statement of Comprehensive Income.

Assets and liabilities not carried at fair value but for which fair value is disclosed

The following table presents the fair value of the Group's assets and liabilities not measured at fair value through profit and loss at 30 June 2016 but for which fair value is disclosed. The carrying value has been used where it is a reasonable approximation of fair value:

The following table presents the fair value of the Group's assets and liabilities not measured at fair value through profit and loss at 30 June 2015 but for which fair value is disclosed. The carrying value has been used where it is a reasonable approximation of fair value:

The following table presents the fair value of the Group's assets and liabilities not measured at fair value through profit and loss at 31 December 2015 but for which fair value is disclosed. The carrying value has been used where it is a reasonable approximation of fair value:

The table below provides details of the investments at amortised cost held by the Group for the period ended 30 June 2016:

The table below provides details of the investments at amortised cost held by the Group for the period ended 30 June 2015: