Secured Income Fund : Interim Report Dec 2020

Secured Income Fund plc

(formerly SQN Secured Income Fund plc)

(Registered number 09682883)

HALF-YEARLY REPORT AND

UNAUDITED CONDENSED FINANCIAL STATEMENTS

For the six months ended 31 December 2020

Contents

Strategic Report

Key Points 3

Chairman's Statement 4

Investment Manager's Report 6

Company Analytics as at 31 December 2020 13

Principal Risks and Uncertainties 14

Governance

Statement of Directors' Responsibilities 15

Unaudited Condensed Financial Statements

Statement of Comprehensive Income 16

Statement of Changes in Equity 17

Statement of Financial Position 20

Statement of Cash Flows 21

Notes to the Half-Yearly Financial Statements 22

Directors and Advisers 50

Key Points

NET ASSETS [1]

DIVIDEND PER SHARE DECLARED IN RESPECT OF THE PERIOD

£41,262,000 8.50p

(unaudited 31 December 2019: £48,686,000) (audited 30 June 2020: £45,532,000)

(unaudited 31 December 2019: 3.50p) (audited 30 June 2020: 7.00p)

NAV PER ORDINARY SHARE

78.26p

(unaudited 31 December 2019: 92.36p) (audited 30 June 2020: 86.37p)

DIVIDEND COVER

0.15

(unaudited 31 December 2019: 0.67) (audited 30 June 2020: 0.44)

SHARE PRICE

66.50p

(unaudited 31 December 2019: 85.25p) (audited 30 June 2020: 76.50p)

TOTAL RETURN PER ORDINARY SHARE (BASED ON NAV) [2]

+1.8%

(unaudited 31 December 2019: +0.8%) (audited 30 June 2020: -1.8%)

DISCOUNT TO NAV

15.03%

(unaudited 31 December 2019: 7.7%) (audited 30 June 2020: 11.4%)

TOTAL RETURN PER ORDINARY SHARE (BASED ON SHARE PRICE) [2]

-0.4%

(unaudited 31 December 2019: -3.5%) (audited 30 June 2020: -9.2%)

PROFIT/(LOSS) FOR THE PERIOD

£820,000

(unaudited 31 December 2019: £399,000) (audited 30 June 2020: £(913,000))

ORDINARY SHARES IN ISSUE

52,660,350

(unaudited 31 December 2019: 52,660,350) (audited 30 June 2020: 52,660,350)

• [1] In addition to the Ordinary Shares in issue, 50,000 Management Shares of £1 each are in issue (see note 20).

• [2] Total return per Ordinary Share has been calculated by comparing the NAV or share price, as applicable, at the start of the period with the NAV or share price, as applicable, plus dividends paid, at the period end.

Secured Income Fund plc // ANNUAL REPORT AND FINANCIAL STATEMENTS

Chairman's Statement

Introduction

I am pleased to provide Shareholders with my Chairman's statement, covering the interim results from 1 July 2020 to 31 December 2020. Over the reporting period, the Company has continued to reduce platform and third-party debt. Despite continued macro uncertainty caused by Brexit, wider geopolitical issues and the continuing Covid-19 pandemic, the target income has continued to be delivered for Shareholders and KKV Investment Management Limited (the "Investment Manager") has made a good start to returning capital as defined in the wind down plan presented to the Board. So far, the Secured Income Fund plc (the "Company") has returned 8.5p per share to Shareholders since the wind down proposals were adopted in September.

Secured Income Fund plc (LSE: SSIF) is a UK-listed specialist investment trust with a focus on secured investments that produce regular, collateralised income from investments made in a portfolio of loans to lower middle market companies in the UK and the rest of the world.

Performance

All loans underwritten since April 2017 are performing in line with expectations and there has been a marked improvement in performance over the reporting period after the initial impact of Covid-19 had been felt by our borrowers. I am pleased to observe that amortisation and general trading conditions have improved.

For the reporting period ended 31 December 2020, the Company generated a net profit of £0.8 million comprised of earnings per Ordinary Share of 1.56p (compared to loss of £0.9 million and loss per Ordinary Share of 1.73p for the year ended 30 June 2020). The Company's NAV at 31 December 2020 was £41.3 million (78.26p (cum income) per Ordinary Share) compared to £45.5 million (86.37p per Ordinary Share) as at 30 June 2020. The fall in the NAV was due to the payment of dividends of 9.67p in the period, with a total return for the reporting period of 1.8%.

Foreign exchange hedging was removed in September 2020, with details of USD and EUR exposure published in monthly factsheets allowing Shareholders to make their own hedging arrangements as appropriate. As a result of this investors should be aware that there might be some impact on the Company if FX markets move markedly.

Note that all returns are net of all fees and no gearing was applied to the portfolio during the reporting period.

Corporate Activity

As reported in the full year accounts, on 5 June 2020, the Company novated the contract to manage the portfolio to KKV Investment Management Limited, following the management team into their new entity. Continuity of management has been maintained with the same core team responsible for the portfolio, this allows for the smooth run-off of the portfolio as it starts the process of wind down.

Upon the recommendation of the Board, in June 2020, Shareholders voted for the Company to go into a managed wind down. This decision was made after the Company was unable to raise new capital and meet its original goal to increase shareholder capital to £250 million by December 2019. The Board of Directors and the Investment Manager have begun work on an orderly wind-down of the business and have made a good start on the return of capital to investors expeditiously, avoiding capital erosion where possible. No new underwriting commitments have been made and arrangements were made for loans to begin amortisation in line with contractual terms.

Costs have been monitored carefully and management fees were renegotiated to reflect the wind down status of the Company, details of which were reported in my last report and commenced on 17 September 2020.

Dividends

The Company elected to designate all dividends for the period ended 31 December 2020 as interest distributions to its Shareholders. In doing so, the Company took advantage of UK tax treatment by "streaming" income from interest-bearing investments into dividends that will be taxed in the hands of Shareholders as interest income.

As a consequence of the decision to proceed with a managed wind-down, the Board reviewed the dividend policy and decided to cease paying monthly dividends, paying quarterly dividends instead, as well as returning excess capital as and when the Company has excess cash reserves available for distribution. Since September 2020, the Company has been able to make distributions equivalent to 8.5p per share, with a total of 9.67p per share being paid in the period.