Annual Financial Report

POLLEN STREET SECURED LENDING PLC

Annual Financial Report for the year ended to 31 December 2019

The Directors are pleased to present the Annual Financial Report of Pollen Street Secured Lending plc (the "Company") for the year ended 31 December 2019, a copy of the Company's Annual Report will shortly be available to view and download from the Company's website https://pollenstreetsecuredlending.com. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this announcement.

The information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2019 but is derived from those accounts. Statutory accounts for the year ended 31 December 2019 will be delivered to the Registrar of Companies in due course. The report of the auditor for the year ended 31 December 2019 contains no qualification or statement under Section 498(2) or (3) of the Companies Act 2006.

Strategic Report

Investment Objective

The investment objective of Pollen Street Secured Lending plc (the "Company") and its subsidiaries (together, the "Group") is to provide shareholders with an attractive level of dividend income through exposure to investments in alternative finance and related instruments. The Company wants to achieve investment diversification across originators, geographies, loan asset classes and credit grades and allow shareholders to access equity assets that are aligned with the Company's Investment Policy. The policy was updated on 19 December 2017, with the aim of using the Company's revised strategy to capitalise opportunities that present themselves to enhance the Company's returns.

Financial and Operational Highlights

1 NET ASSET VALUE (CUM INCOME): The value of investments, cash and other assets, including current year revenue, less liabilities.

2 NET ASSET VALUE (EX INCOME): The value of investments and cash and other assets, excluding current year revenue, less liabilities.

3 ALTERNATIVE PERFORMANCE MEASURES: Reconciliations to amounts appearing in the financial statements can be found on page 142.

4 MARKET CAPITALISATION: the closing mid-market share price multiplied by the number of shares outstanding at month end.

5 SHARE PRICE (AT CLOSE): closing mid-market share price at month end (excluding dividends reinvested).

6 INTERIM DIVIDENDS: dividends relating to 2019 financial year were paid in June 2019, September 2019, December 2019 and March 2020. Dividends relating to 2018 financial year were paid in June 2018, September 2018, December 2018 and March 2019.

7 PREMIUM/(DISCOUNT): the amount by which the price per share of an investment trust is either higher (at a premium) or lower (at a discount) than the net asset value per share (cum income), expressed as a percentage of the net asset value per share.

8 ANNUAL NAV PER SHARE RETURN: is calculated as Net Asset Value (Cum Income) at the end of the year, plus dividends declared during the year, divided by NAV (Cum Income) calculated on a per share basis at the start of the year.

9 ITD: inception to date - excludes issue costs.

10 TOTAL NAV PER SHARE RETURN: is calculated as Net Asset Value (Cum Income) at the end of the year, plus dividends declared during the year, divided by NAV (Cum Income) calculated on a per share basis at the start of the year.

11 CONTINUING PORTFOLIO: portfolio of platforms that the Group has originated through in 2018 and 2019 calculated based on NAV exposure to investment assets as a percentage of total NAV before deducting topco debt, excluding cash, working capital and equity positions.

12 LEGACY PORTFOLIO: portfolio of platforms that the Group has not originated through in 2018 and 2019 (predominately Consumer platforms) calculated based on NAV exposure to investment assets as a percentage of total NAV before deducting topco debt excluding cash, working capital and equity positions.

13 ONGOING CHARGES: The Annualised Ongoing Charge is calculated using the Association of Investment Companies recommended methodology. It is calculated as a percentage of annualised ongoing charge over average reported Net Asset Value. Ongoing charges are those expenses of a type which are likely to recur in the foreseeable future, whether charged to capital or revenue, and which relate to the operation of the investment company as a collective fund, excluding the costs of acquisition/disposal of investments, financing charges and gains/losses arising on investments. Ongoing charges are based on costs incurred in the year as being the best estimate of future costs. The AIC excludes performance fees from the Ongoing Charges calculation. This is also an alternative performance measure.

Investment Characteristics

THE COMPANY IS AN INVESTMENT TRUST FOCUSING ON SPECIALIST LENDING

The Company is a FTSE 250 company listed on the London Stock Exchange and dedicated to investing in credit assets originated by non-bank lending platforms and other originators of alternative credit assets globally. The Company believes that this asset class has the potential to provide attractive returns for investors on a risk-adjusted basis

MANAGED BY POLLEN STREET CAPITAL, A DEDICATED INVESTOR IN FINANCIAL AND BUSINESS SERVICES BUSINESSES

PSC Credit Holdings LLP (the "Investment Manager") serves as the Company's investment manager. The Investment Manager is a member of the Pollen Street Capital group ("PSC"). PSC is an investment management group focused on investing in financial and business services. The Investment Manager has also appointed a sub Investment Manager ("Sub-Manager"), Pollen Street Capital (US) LLC, an affiliate of the Investment Manager and an SEC registered investment adviser.

LONG-TERM OPPORTUNITY TO DELIVER ATTRACTIVE RETURNS

A large opportunity exists for non-bank capital to earn attractive returns from lending across a broad origination universe, largely as banks retrench to serve mainstream, vanilla markets. The banks' structural re-positioning together with the advancements in data and technology and a change in customer behaviour provide an opportunity for non-bank lenders to offer high quality products to those markets that are not well served by the large banks.

PARTNERING WITH STRONG ORIGINATORS

Specialist players offer attractive products based upon expertise and understanding of particular sectors and target customer groups. These players are often better at servicing specialist markets based upon focus, expertise, efficiency and entrepreneurialism. In many cases, they also share risk by putting their own balance sheet capital at risk. The Investment Manager aims to partner with the highest quality originators in order to access exciting investment opportunities in direct lending assets and, where there is an aligned strategic opportunity, certain minority equity stakes.

6.0 to 8.0 PER CENT PER ORDINARY SHARE PER ANNUM TARGET DIVIDEND, PAYABLE QUARTERLY

The Company targets the payment of dividends which equate to a net yield of 6.0 to 8.0 per cent per ordinary share per annum on the issue price for the Company's IPO placing, payable in quarterly instalments (the "Target Dividend") based upon the average number of non-treasury shares in issue during a given period. Investors should note that the Target Dividend, including its declaration and payment dates, is a target only and not a profit forecast.

How the Business Works

SPECIALIST LENDING PARTNERS

The Investment Manager, on behalf of the Group, actively identifies sub-segments of the consumer, property and small and medium-sized enterprises ("SMEs") lending market that it believes deliver attractive risk adjusted returns. It then targets origination partners through which to originate Credit Assets. The Investment Manager adopts three principles when selecting partners - control, alignment and partnership. It seeks to work with high quality partners with diversity across asset class and geography to build a high quality portfolio with attractive returns with controlled risk.

RIGOROUS CREDIT PROCESS

The Investment Manager has a rigorous investment process to provide a consistent approach to risk-based pricing to ensure the weighted risk adjusted return provides an attractive level of dividend income with an acceptable risk profile for shareholders of the Company. The Investment Manager is of the belief that, irrespective of origination source or the convenience of the product to the borrower, credit performance will vary depending on the quality of verification, underwriting, servicing and the ability to construct diversified portfolios of selective loans. The Investment Manager conducts rigorous due diligence on each origination partner and a continuous program of compliance monitoring and retains tight control of underwriting standards across all partners.

STRUCTURING CAPABILITIES

The Investment Manager is focused on assessing opportunities in a variety of forms and lending structures, that provides significant protection should the credit performance of the underlying assets deteriorate ensuring that the direct or indirect exposure subscribed to in each case offers suitable risk adjusted returns for investors. The exposure may be direct lending to the borrower but in other cases, the Investment Manager has partnered up with originators and provided financing that sits senior to the originator's position allowing the Company to benefit from first loss protection on its capital. The Investment Manager will assess the best risk-adjusted return in each case. It will also place significant focus on ensuring that debt financing can be sourced in an efficient and low-cost way to enhance returns where appropriate.

CAPITAL PRESERVATION AND INCOME STABILITY

The Investment Manager is focused on delivering a combination of strong income with relatively low duration and volatility. The Investment Manager has partnered with high quality originators across target customer groups, asset classes and geography. In that way, the exposure to any single loan asset or market is reduced. This provides strong risk mitigation across the portfolio. The diversification across tens of thousands of individual credit assets and the short duration of the overall portfolio should allow the Company to deliver a level of stability in its income and protect the Company from capital losses.

Chairman's Statement

INTRODUCTION

I am pleased to present the Annual Report of Pollen Street Secured Lending plc, for the year to 31 December 2019.

The Company's original strategy was to acquire interests in assets originated by peer-to-peer lenders. Pollen Street Capital was appointed as Investment Manager in 2017 and the strategy was changed to focus on alternative lending assets, which is a considerably larger market. This offered access to credit assets with more downside protection. On 18 September 2019, the name of the Company was changed from P2P Global Investments plc to Pollen Street Secured Lending plc to better reflect the new strategy.

Over 2019 the Company has maintained its business and strategic discipline in its investment strategy. The legacy run-off portfolio, which was predominately unsecured US and UK consumer loans that were originated before the change in Investment Manager, is now only 7 per cent1 of the total investment assets and is reducing on a monthly basis. Further, the legacy equity portfolio has also been reduced to £23.6 million at 31 December 2019 (£32.6 million 31 December 2018).

This has been delivered at the same time as repositioning the Company to have more downside protection through a combination of increased seniority of lending and increased security packaging. Property backed and structured lending now make up over 66 per cent of credit asset NAV.

In March 2020, the World Health Organisation recognised as a pandemic an outbreak of a new virus that causes coronavirus disease 2019 ("COVID-19"). COVID-19 has caused severe disruption to businesses and economic activity which has been reflected in recent fluctuations in global stock markets and noted in recent months by our peer group. The Board considers the emergence and spread of COVID-19 to be a non-adjusting post balance sheet event. Given the inherent uncertainties, it is not possible at this time to provide a quantitative estimate of the impact of this on the Company. We provide further commentary on the Company's approach in these circumstances below. The Company will continue to monitor portfolio developments closely and keep shareholders updated accordingly.

INVESTMENT PERFORMANCE AND DIVIDENDS

The Company delivered a Net Asset Value ("NAV") return of 5.25 per cent (2018: 5.21 per cent) and paid dividends of 48.0 pence (2018: 48.0 pence) per ordinary share in relation to the 2019 calendar year. The dividend payments were fully covered by revenue earnings and the special distributable reserve was not utilised. The dividend return was 4.8 per cent (2018: 4.8 per cent) on the original issue price.

The impairment charge for the year was £18.0 million (2018: £35.7 million), which is 50 per cent lower than the prior period. The key driver of this is UK consumer lending which has seen the impairment charge reduce from £12.3 million to £2.7 million which is a 78 per cent reduction. The significant reduction shows the continued progress that has been made in transitioning the portfolio to a lower risk position.

SHARE PRICE AND BUYBACKS

The Company's share price (at 31 December 2019) was 830 pence, representing a discount to NAV of 14.0 per cent. The discount to NAV was in the range of 10.8 per cent to 16.3 per cent over the course of the year. As part of its revised investment strategy, the Company has continued with its share buyback program and during 2019 1,686,112 ordinary shares in issue were repurchased (2018: 3,747,148 shares) at an average price of 823.4 pence per ordinary share (2018: 800.4 pence per ordinary share).

RISK MANAGEMENT AND OVERSIGHT

The Board plays a key role in supporting and challenging the Group's long-term strategic planning. This includes a rigorous assessment of both the risks and opportunities presented by the evolving market environment and considering the interests of key stakeholders. The oversight is exercised through the board's committee structure and further information is provided in each board committee report.

During 2019, the Directors considered the application of the new Corporate Governance Code to the Company and introduced a series of measures to strengthen the governance arrangements. In addition, the Board considered the Company culture and stakeholder engagement. Further detail on how the Board has regard to its various stakeholders is set out on pages 19 and 20.

BOARD COMPOSITION

After 6 years on the Board as Chairman, Stuart Cruickshank resigned, with effect from 1 January 2020. Following Stuart's decision to step down, I was invited by the Board to become Chairman with effect from the same date. Mahnaz Safa was appointed as Senior Independent Director following my appointment as Chairman.

The Board would like to thank Mr Cruickshank for his significant and valuable contribution to the Company over the past 6 years and wish him well going forward. The Board continues to keep under review the appropriate size of the Board.

OUTLOOK

The COVID-19 virus has had a major impact on the markets in which the Company operates. In response the Company has adopted a prudent strategy with the focus being on managing the existing portfolio and ensuring that cash collections remain robust. The Manager is not proposing to re-invest the vast majority of cash generated by the portfolio in new investments for the foreseeable future and expects the Company to generate significant cash over the coming months as loans amortise and repay.

On 25 February 2020, the Board announced it was in discussions regarding a possible cash offer for the entire share capital of the Company. As a result of the Board not receiving the support expected of the Investment Manager during the due diligence process resulting from the discussions the Board also announced that it had served 12 months' notice on the Investment Manager to terminate the Investment Management Agreement. Discussions regarding a possible cash offer are continuing but there can be no certainty that a firm offer will be made.

In these difficult and unprecedented circumstances, protecting shareholders' interests remains the Board's key priority. Therefore the Board is reviewing all of its strategic options including the possible cash offer, the timing and process for the appointment of a new Investment Manager, the bringing forward of the Company's Continuation Vote (currently to be proposed at the 2021 Annual General Meeting), and the appropriate use of the cash currently being generated by the portfolio. The Board will consult with shareholders on these matters at the appropriate time. The Board will continue to monitor the Company's dividend policy in the context of the market environment and portfolio performance

Simon King

Chairman

29 May 2020

1Run-off investment credit assets less debt but before the PSSL topco facility and deferred Castlehaven cash as a percentage of total investment assets

Investment Manager's Report

The Investment Manager is a member of the Pollen Street Capital group ("Pollen Street"). Pollen Street is an independent asset manager that has £2.5 billion (2018: £2.6 billion) of assets-under-management ("AUM") across private equity and credit strategies. The Group was formed in 2013 and possesses a strong and consistent track record within the financial and business services sectors.

Pollen Street has significant experience in lending markets with £1.6 billion of AUM within its credit strategies. It works with the specialty finance market, which the Investment Manager believes is underserved by the banking industry, capital markets and more generalist credit funds. The strategy is supported by changes in the focus of mainstream lenders together with the implementation of new models that utilise data, analytics and technology more effectively. It provides an opportunity to deliver better products to borrowers while generating attractive risk adjusted returns for investors.

The platforms are typically better than mainstream lenders at servicing their markets based upon focus, expertise, efficiency and entrepreneurialism. In many cases, they also share the risk exposure with their own balance sheet and capital. The Investment Manager partners with the highest quality originators in order to access exciting investment opportunities in direct lending assets and, where there is an aligned strategic opportunity, certain minority equity stakes.

This Investment Manager provides the Company with access to an established network of specialist lenders, market leading underwriting capabilities and strategic insight into the optimal collection strategy. The relationship with the platforms extends beyond Pollen Street being simply providers of capital. Pollen Street leverages its expertise to enable the platforms it partners with to outperform across all stages of the credit cycle. The relationships and expertise created are difficult to replicate and help provide more stable and attractive returns. The Investment Manager is deeply involved in the underwriting decisions, the customer journey, and collections.

2019 HIGHLIGHTS

2019 has been a successful year for the Company. The Investment Manager has:

· Doubled earnings per share over the last two years, from 20.7 pence per share in 2017 to 46.8 pence per share in 2019;

· Delivered the target NAV return of 6.0 per cent pa in every month between August 2019 and December 2019, prior to the effect of the one-off write down of the Zopa equity position, which occurred in November; and

· Repositioned the portfolio to have better downside protection and less volatile returns.

FINANCIAL PERFORMANCE

The successful implementation of the strategy has seen the Company increase profit after tax by 13 percent to £34.8 million (2018: £30.7 million). This is reflective of the improved performance of the continuing portfolio driven by the new relationships that have been put in place throughout the period. These benefit from downside protection which has led to a significant decrease in expected credit losses in the year.

The impairment charge for the year was £18.0 million (2018: £35.7 million), which is 50 per cent lower than the prior period. The key driver of this is UK consumer lending which has seen the impairment charge drop from £12.3 million to £2.7 million which is a 78 per cent reduction as the value of assets in Stage 3 has reduced. The significant reduction shows the continued progress that has been made in transitioning the portfolio to a lower risk position.

The NAV per share (cumulative of income) is 965 pence per ordinary share at 31 December 2019, which, including dividends declared or paid, is equivalent to a NAV return of 26.8 per cent since inception (taking into account 2.49 per cent reduction for the introduction of IFRS 9 on 1 January 2018). Additionally, the share price of the Company at 31 December 2019 was 830.0 pence per share, representing a 14.0 per cent discount to NAV (cumulative of income).

The Investment Manager is acutely aware of the continued dislocation between the current share price and the underlying value of the portfolio. On this basis the Company continued its share buyback program throughout 2019, with 1,686,112 (2018: 3,747,148) ordinary shares in issue being repurchased at an average price of 823.4 pence per ordinary share (2018: 800.4 pence) which contributed 0.32 per cent to the NAV return. As well as being accretive to NAV, it is expected to assist in reducing the magnitude of the discount.

RISK MANAGEMENT

Over the course of 2019, the Investment Manager has worked hard to reposition the portfolio to have better downside protection and less volatile returns. This means the company is well positioned for 2020. There have been four main activities.

Firstly, the Company's discontinued portfolio has been managed down so that it is now only 7 per cent of investment assets at 31 December 2019 (52 per cent, 31 December 2017) and continues to reduce on a monthly basis. This portfolio was predominately unsecured US and UK consumer mainstream Platforms that were originated before Pollen Street took over as Investment Manager and suffered from higher and volatile impairments. This has been achieved through the disposal of nonperforming loans, which have been executed at a modest premium to the carrying value, active management of collections and ordinary amortisation.

Secondly, the legacy equity portfolio has also been managed down to £23.6 million at 31 December 2019 (£32.6 million 31 December 2018). This was achieved through the sale of two positions this year totalling £12.1 million with an additional sale completing in Q1 2020. We continue to look to realise these equity positions where possible.

Thirdly, on the 23 August 2019 the Investment Manager executed a sale of the Company's interests in Castlehaven Finance, which is an alternative development and bridging finance lender in Ireland, to Avenue Capital Group. The transaction was completed at a modest premium to the Company's holding and removed the company's exposure to the relatively highly geared Irish development and bridging finance market.

Finally, we have been prudent in our underwriting of new deals over the course of the year. New originations have been focused on more secured asset classes with structural protection in the form of either the platform equity covering the first loss or the customer equity covering the first loss. These assets exhibit lower volatility and a better coverage ratio of income to expected credit losses and has allowed for a steady reduction of the cost and complexity of the facilities in place. Further the Investment Manager has ensured the Company maintains its diversification across US and UK geographies. Consequently, we have modestly reduced the leverage of the Company over the period to £302 million at 31 December 2019 (£378 million, 31 December 2018).

Portfolio

The continuing portfolio consists of 23 per cent SME lending, 33 per cent consumer lending, 41 per cent of real estate lending and 3 per cent equity. The majority of the Consumer loan exposure is in the form of structured loans where the originator has first loss equity ahead of the Company's exposure. The remainder is exposure to unsecured loans in markets that have demonstrated consistent and attractive risk adjusted margins. This portfolio consists of UK, European, US and Australasian assets. The SME portfolios are domestically focused and reflect the underlying performance of the UK economy and our credit risk appetite. The Real Estate sector has been underwritten with conservative LTVs to high credit quality underlying borrowers and proven management teams.

OUTLOOK

The outbreak of COVID-19 has caused major disruption across the globe. The principal effects of the outbreak in the UK started in March and therefore it has not had a material effect on the financial year under review. We have seen that a number of the structured borrowers have asked for temporary amendments to their facility to reflect the regulatory guidance on forbearance requests as well as a deterioration in underlying economic conditions. We are assessing these individually.

Given the uncertain economic environment the Investment Manager has adopted a prudent approach with the focus on the existing portfolio and ensuring cash collections remain robust as the appropriate strategies are in place. The Investment Manager continues to have faith in the strength of the performance of the asset class despite the unprecedented conditions. The portfolio and underlying asset security benefits from much of the portfolio being asset backed with 66 per cent at year end benefiting from some structural protection, while a significant majority of the underlying assets are amortising and generate strong levels of cash. The Company is well diversified with the underlying loan portfolios being highly granular with low concentration risk. The portfolio has demonstrated in 2019 that it delivers strong yields with high levels of bad debt coverage.

The Investment Manager is not proposing to re-invest the cash generated by the portfolio in new investments for the foreseeable future. In the structured portfolio where the Company provides finance to nonbank lenders, the Investment Manager is working with the borrowers to help them navigate the difficult environment whilst ensuring most of the cash generated by their portfolio is utilised to repay loans due to the Company. We expect the Company to generate significant cash over the coming months as the loans amortise and repay.

The monthly newsletter includes the latest information about the performance of the Group.

Top Ten Holdings

As at 31 December 2019

As at 31 December 2019, the value of the top 10 assets totalled £245,113,010 (2018: £166,028,417) which equated to 34.2 per cent (2018: 22.63 per cent) of net assets.

Business Review

The strategic report on pages 3 to 29 has been prepared to help shareholders assess how the Group and Company works and how it has performed. The strategic report has been prepared in accordance with the requirements of Section 414 A to 414 D of the Companies Act 2006 (the "Act"). The business review section of the strategic report discloses the Group's and Company's key risks and uncertainties as identified by the Board, the key performance indicators used by the Board to measure the Group and Company's performance, the strategies used to implement the Group's and Company's objectives, its environmental, social and ethical policy and future developments.

KEY INFORMATION

Pollen Street Secured lending plc (the "Company") is a closed-ended investment company incorporated and domiciled in the United Kingdom on 6 December 2013 with registered number 08805459. On the 18 September 2019 the Company was renamed from P2P Global Investments plc to Pollen Street Secured Lending plc. The Company is a publicly listed company and commenced operations on 30 May 2014. The registered office is 6th Floor, 65 Gresham Street, London, EC2V 7NQ, United Kingdom.

PRINCIPAL ACTIVITY

The Company carries on business as an investment trust and its principal activity is investing in small size private credit assets across SME, consumer (secured and unsecured), real estate and trade finance asset classes through strategic partnerships which encompass marketplace lending platforms, balance sheet lenders and other non-bank loan originators. The Company invests in the USA, Europe and Australasia and actively seeks opportunities in other markets. Investment companies are a way for investors to make a single investment that gives a share in a much larger portfolio. A type of collective investment, they allow investors opportunities to spread risk and diversify in investment opportunities which may not otherwise be easily accessible to them. For more information, please see: http://www.theaic.co.uk/guide-to-investment-companies.

PERFORMANCE REVIEW

The Group's NAV as at 31 December 2019 was £718.2 million (2018: £733.4 million) (cum income). Reduction in NAV was driven by share buybacks with improved underlying performance meaning all dividend payments were fully covered by earnings and the special distributable reserve was not utilised. Profit after taxation for the year after tax was £34.8 million (2018: £30.7 million). The improved performance over 2019 is driven by the Investment Manager's continued progress on repositioning the portfolio away from predominately unsecured US and UK consumer mainstream Platforms that were originated before Pollen Street took over as Investment Manager to structured facilities that have better downside protection and less volatile returns.

IMPAIRMENT REVIEW

As at 31 December 2019, the Expected Credit Loss ("ECL") balance was £52.8 million (31 December 2018: £51.2 million). The consumer portfolio makes up over 59 per cent of the ECL, split £11.6 million in the UK, £19.3 million in the US and £1.6 million from other consumer lending. SME lending of £19.1 million and Real Estate lending £1.2 million make up the remainder of the ECL.

The Company had £13.7 million of write offs, with SME lending contributing £6.2 million, UK consumer portfolios contributing £2.9 million and US consumer £3.4 million. The Company managed to release £7.5 million of ECL from the sale of Castlehaven and a UK consumer portfolio.

These releases have been offset by an increase in the ECL charge which was £18.0 million. The key driver of the charge is the Stage 3 provision on defaulted loans, with UK SME contributing a charge of £9.8 million, Consumer UK £4.9 million and US consumer £3.8 million. These have been offset by releases in Stage 1 and 2 as loans roll through to defaulted status.

The outbreak of COVID-19 has caused major disruption across the globe. The principal effects of the outbreak in the UK and US occurred in March and therefore it has not had a material effect on the financial year under review. However, by end of Q1 2020 we have started to see some requests for forbearance.

The Investment Manager continues to have faith in the strength of the performance of the asset class despite the unprecedented conditions. The Group is well diversified with the underlying loan portfolios being highly granular with low concentration risk. It has maintained a close and proactive engagement with all platform partners and forbearance has been applied sensitively and proportionately. It believes that this approach together with the structural protection and asset backing of the portfolio will robustly position the Group. The unsecured component of the portfolio is seasoned and stable such that the Investment Manager believes that the Company is well positioned to perform solidly throughout the crisis.

However, given the Group's UK and US focus, its performance is linked to the health of these economies. We expect the Group could experience further impairments and consequently reduced profits, particularly if economic expectations deteriorate further. However, the overall effect of this cannot be quantified reliably because the impact of the UK government's various support initiatives and the US government's COVID-19 Stimulus Bill is not yet known, but they are expected to reduce the potential expected credit loss impact. The Investment Manager has adopted a prudent approach with the focus on the existing portfolio and ensuring cash collections remain robust as the appropriate strategies are in place. The legacy book continues to run off, whilst performance of this book has been poor to date and it is expected that impairments will increase over the coming months, the loans are now well seasoned.

The longer-term financial impact of coronavirus is not yet clear and given the significant change in the operating environment and economic expectations the Investment Manager is proposing to re-invest the cash generated by the portfolio very selectively during this period of uncertainty with the majority of cash going to reduce net debt.

The Board considers the emergence and spread of COVID-19 to be a non-adjusting post balance sheet event.

The ultimate impact of COVID-19 is not clear however the economic outlook has materially changed, the Group has updated its estimate of ECL to allocate 100 per cent of the weight to the downside scenario. This scenario was set as a downside in the Q4 2019 review of the impairment model and is broadly consistent with the economic outlook indicated by our third-party economic advisers. This revised outlook resulted in an impairment charge of £2.0 million in the NAV calculation for 31 March 2020 that was released on 5 May 2020.

STRATEGIC AND INVESTMENT POLICY

The Company's investment objective is to provide shareholders with an attractive level of dividend income and capital growth through investment in the acquisition of:

(i) loans to consumers, loans to SMEs and other counterparties, corporate loans, real estate loans and advances and loans against corporate trade receivables and other assets, together with related investments ("Credit Assets"); and

(ii) equity assets that are aligned with the Company's strategy and that present opportunities to enhance the Company's returns from its investments ("Equity Assets").

The Group may invest in Credit Assets and Equity Assets relating to a broad range of sectors, provided that such investment is in accordance with the Company's investment strategy.

When the Group has incurred borrowings in line with its borrowing policy, the Group will target the payment of dividends which equate to a yield of 6.0 - 8.0 per cent per ordinary share per annum on the issue price for the Company's IPO placing, based upon the average number of non-treasury shares in issue for the period, payable in quarterly instalments (the ''Target Dividend''). Investors should note that the Target Dividend, including its declaration and payment dates, is a target only and not a profit forecast.

The Group believes that certain sub-segments linked to these Credit Assets have the potential to provide attractive returns for investors on a risk-adjusted basis, and that changes in the focus of mainstream lenders together with the implementation of new models that make the best use of data, analytics and technology, provide an opportunity to deliver attractive products to borrowers while generating attractive returns for the Company.

The Group enters into loan origination and service agreements with selected third parties, originators, platforms and partners. The Group and the Investment Manager also actively seek opportunities to acquire portfolios from third parties and make investments in loans to specialist lenders.

ASSET ALLOCATION AND RISK DIVERSIFICATION

Credit Assets invested in by the Group will consist of debt obligations, both secured and unsecured, within a range of sub-sectors selected based on their risk/return characteristics. These sub-categories may include, but are not limited to, personal loans, loans against corporate trade receivables and other assets, as well as loans secured against real estate and investments in loans to specialist lenders to provide structured finance for consumer, SME and other counter party lending.

The Group's investment in Credit Assets encompasses the following investment models:

(i) investment, or acquisition of interests, in Credit Assets, whether offered to the Group by origination platforms that allow non-bank capital to: (a) lend or advance capital to consumers, SME borrowers or corporate borrowers; and/or (b) advance capital against corporate trade receivables ("Platforms") or by other third parties;

(ii) investment, or acquisition of interests, in loans (which may be secured or unsecured) to specialist lenders for the purpose of providing structured finance to those specialist lenders, secured against (amongst other things) granular portfolios of Credit Assets; and

(iii) the acquisition by the Group of interests in portfolios of Credit Assets from third parties.

The Group may undertake such investments directly, or through its subsidiaries or special purpose vehicles ("SPVs"). It is also possible that the Group may use alternative investment structures which achieve comparable commercial results to the investments described above (such as, without limitation, sub-participations in loans, credit-linked securities or fund structures), but which offer enhanced returns for the Group or other efficiencies (such as, without limitation, efficiencies as to origination, funding, servicing or administration of the relevant Credit Assets). Any such use of alternative investment structures will be subject always to the diversification requirements of this investment policy.

The Company may also invest (in aggregate) up to 10.0 per cent of Gross Assets in Equity Assets, calculated, in each case, at the time of acquisition of any relevant Equity Assets based on the consideration payable for those Equity Assets and the aggregate consideration paid for all previous investments in Equity Assets which form part of the Company's investments. This restriction shall not apply to any consideration paid by the Company for the issue to it of any convertible securities by a Platform. However, it will apply to any consideration payable by the Company at the time of exercise of any such convertible securities or any warrants.

PLATFORM RESTRICTIONS

The Group will not invest more than 33.0 per cent of Gross Assets via any single Platform or single counterparty. This limit may be increased to 66.0 per cent of Gross Assets via any single Platform or single counterparty, provided that where this limit is so increased in respect of any Platform or counterparty, the Group does not invest an amount which is greater than 25.0 per cent (by value) of the total loan origination or investment of the preceding calendar year via such Platform or counterparty.

ASSET CLASS RESTRICTIONS

The Group will invest in Credit Assets originated across various sectors and across credit risk bands to ensure diversification and to seek to mitigate concentration risks. The following investment limits and restrictions apply to the Group to ensure that the diversification of the portfolio is maintained that concentration risk is limited and that limits are placed on risk associated with borrowings.

The Group will not invest more than 20.0 per cent of Gross Assets, at the time of investment, via any single investment fund investing in Credit Assets. The Group will not invest, in aggregate, more than 60.0 per cent of Gross Assets, at the time of investment, in other investment funds that invest in Credit Assets.

The Group will not invest more than 10.0 per cent of its Gross Assets, at the time of investment, in other listed closed-ended investment funds, whether managed by the Investment Manager or not, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15.0 per cent of their gross assets in other listed closed-ended investment funds.

The following apply, in each case at the time of investment by the Group, to both Credit Assets acquired by the Group directly and on a look-through basis to any Credit Assets held by another investment fund which is managed by the Investment Manager, the Sub-Manager or their affiliates in which the Group invests (proportionate to the percentage interest the Company has in such investment fund). It is intended that:

· No single consumer loan shall exceed 0.25 per cent of Gross Assets;

· No single SME loan shall exceed 5.0 per cent of Gross Assets;

· No single advance or loan against a trade receivable asset shall exceed 5.0 per cent of Gross Assets;

· No single corporate loan shall exceed 5.0 per cent of Gross Assets; and

· No single facility, security or other interest backed by a portfolio of loans, assets or receivables (excluding any borrowing ring-fenced within any SPV which would be without recourse to the Company) shall exceed 20 per cent of Gross Assets.

At any given time, not more than 50.0 per cent of Gross Assets will be maintained in SME Credit Assets and not more than 50.0 per cent of Gross Assets will be maintained in trade receivable assets (taking into account both Credit Assets acquired by the Group directly and, on a look-through basis, any Credit Assets held by another investment fund managed by the Investment Manager, the Sub-Manager or their affiliates in which the Company invests (proportionate to the percentage interest the Group has in such investment fund)).

OTHER RESTRICTIONS

The Group may invest in cash, cash equivalents and fixed income instruments for cash management purposes and with a view to enhancing returns to Shareholders or mitigating credit exposure. However, for cash management purposes the Group will only invest in fixed income instruments of investment grade.

The Group will not invest in collateralised debt obligations.

BORROWING

Borrowings may be employed (through banks or other facilities on a secured or unsecured basis) at the level of the Company and/or at the level of any investee entity (including, without limitation, any other investment fund in which the Company invests or any SPV that may be established by the Company in connection with obtaining leverage against any of its assets or any issuer vehicle of facilities, securities or other interests backed by a portfolio of Credit Assets).

The aggregate leverage of the Company, whether incurred directly or indirectly through a subsidiary or an SPV established by the Company (in each case calculated at the time of drawdown under any facility the Company, subsidiary or SPV has entered into), and any investment fund which is managed by the Investment Manager, the Sub-Manager or their affiliates and in which the Company invests (on a look-through basis, proportionate to the percentage interest the Company retains in the most junior tranche of such investment fund) shall not exceed 1.5 times NAV.

The Company may seek to securitise portfolios of Credit Assets and may establish one or more SPVs in connection with any such securitisation. The Company may also use SPVs in connection with obtaining leverage against Credit Assets to seek to protect the levered portfolio from group level bankruptcy or financing risks. The Company may also, in connection with seeking such leverage or securitising its loans, seek to assign existing assets to one or more SPVs and/or seek to acquire loans using an SPV.

HEDGING

Fluctuations in interest rates are influenced by factors outside the Group's control and can adversely affect the Group's results of operations and profitability in a number of ways. The Group intends to invest in Credit Assets which may be subject to a fixed rate of interest, or a floating rate of interest (which may be linked to base rates or LIBOR). The Group expects that its borrowings will typically be subject to a floating rate of interest. Any mismatches the Group has between the income generated by its Credit Assets, on the one hand, and the liabilities in respect of its borrowings, on the other hand, may be managed, in full or in part, by matching any floating rate borrowings with investments in Credit Assets that are also subject to a floating rate of interest. The Group may use derivative instruments, including interest rate swaps, to reduce its exposure to fluctuations in interest rates.

To the extent that the Group does rely on derivative instruments to hedge interest rate risk, it will be subject to counterparty risk. Any failure by a hedging counterparty of the Company to discharge its obligations could have a material adverse effect on the Company's results, operations and financial condition.

The Group intends to hedge currency exposure between Sterling and any other currency in which the Group's assets may be denominated, including US Dollars and Euros.

The Group will, to the extent it is able to do so on terms that the Investment Manager considers to be commercially acceptable, seek to arrange suitable hedging contracts, such as currency swap agreements, futures contracts, options and forward currency exchange and other derivative contracts (including, but not limited to, interest rate swaps and credit default swaps) in a timely manner and on terms acceptable to the Company.

CASH MANAGEMENT

Whilst it is intended that the Group will be close to fully invested in normal market conditions, the Group may invest surplus capital in cash deposits, cash equivalent instruments and fixed income instruments. While, as noted above, there are restrictions as on the type of instruments that may be held to support cash management activity, there is no restriction on the amount of cash or cash equivalent instruments that the Group may hold and there may be times when it is appropriate for the Group to have a significant cash position instead of being fully or near fully invested. As at 31 December 2019, the Group held 9.9 per cent (2018: 9.4 per cent) of its portfolio in cash.

BUSINESS MODEL

The management of the Group's assets and the Group's administration has been outsourced to third-party service providers, however, the Board implements key elements of the Group's strategy, including the following:

· changes to the Company's capital structure or its status as an investment company, investment trust and a listed public limited company;

· the effectiveness and implementation by the Investment Manager of the investment policy of the Company and the appointment, amendment or removal of the Company's third-party service providers;

· an effective system of oversight over the Company's risk management and corporate governance; and

· premium and discount management.

In order to effectively undertake its duties, the Board may seek expert legal advice. It can also call upon the advice of the Company Secretary.

Based on the Group's current position and the performance of the assets acquired the principal risks that it faces and their potential impact on its future development and prospects, the Directors have concluded that there is a reasonable expectation that the Group will be able to continue its business model and meet its liabilities as they fall due over the three-year period to the AGM in 2022. Please see the viability statement on page 28 for more detail.

DIRECTORS' DUTIES

Section 172 of the Companies Act 2006

Under Section 172 of the Companies Act 2006 ("S.172") the Directors have a general duty to act in a way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders. S.172 also requires directors, in making their decisions and choices and in setting policies and strategy, to have regard to a non-exhaustive list of factors, comprising:

· the likely long-term consequences of any decision;

· the interests of the Company's employees (the Company has no other than its Directors who are all non-executives);

· the need to foster the Company's business relationships with suppliers, customers and others;

· the impact of the company's operations on the community and the environment;

· the desirability of the Company's to maintain a reputation for high standards of business conduct; and

· the need to act fairly between members of the Company.

Fulfilling this duty naturally supports the Company in achieving its Investment Objective and helps to ensure that all decisions are made in a responsible and sustainable way. In accordance with the requirements of the Companies (Miscellaneous Reporting) Regulations 2018, the Group explains how the Directors have discharged their duty under Section 172 below.

To ensure that the Directors are aware of and understand their duties they are provided with pertinent information when they first join the Board as well as receive regular and ongoing updates and training on the relevant matters. The Directors also have continued access to the advice and services of the Company Secretary, and when deemed necessary, the Directors have the opportunity to seek independent professional advice. The schedule of matters reserved for the Board and the terms of reference of its Committees, which are reviewed on at least an annual basis, further describe Directors' responsibilities and obligations, including any statutory and regulatory duties. The Risk Committee has the responsibility for the ongoing review of the Company's risk management systems and internal controls. This includes reasonably satisfying itself that relevant systems and controls in place remain effective and appropriate and that the Manager puts in place appropriate policies including whistleblowing procedures, Anti‑Bribery and Anti-Corruption and reports to the Board on these matters when necessary.

Decision-making

The importance of the stakeholder considerations, in particular in the context of decision-making, is taken into account at every Board meeting. All discussions involve careful considerations of the longer-term consequences of any decisions and their implications for stakeholders. For example, the Board discusses in detail the portfolio's performance and forecasts; asset allocation within the portfolio investment realisations, acquisitions and pipeline; as well as financial performance, liquidity and balance sheet management. In addition, the Board and the Investment Manager hold separate strategy focused sessions at least once per annum to consider and analyse the investment strategy.

Stakeholders

The Board aims to recognise and understand the needs and priorities of the Company's stakeholder and these are taken into account during all its discussions and as part of its decision-making. As the Company is an externally managed investment firm, the Company does not have any employees (other than its Directors who are all non-executives ) or customers, nor does it have a direct impact on the community or environment in the conventional sense. The description of the way the Company operates on page 6 explains the various stakeholders in the lending market involved in the investment strategy of the Company. The table below explains why these stakeholders are considered important to the Company and the actions taken to ensure that their interests are taken into account.

SHAREHOLDERS

Importance

Continued shareholder support and engagement are critical to existence of the business and the delivery of the long-term strategy of the business.

A resolution to continue the life of the Company is put to the shareholders every five years. Having last been approved by shareholders in 2016, the next vote is scheduled to take place at the Company's 2021 AGM.

Board Engagement

The Company's shareholders at 31 December 2019 consist of institutional investors, professional and professionally advised and knowledgeable investors. The Board is committed to maintaining open channels of communication and engagement with shareholders, in a manner which they find most meaningful to gain an understanding of the views of shareholders. These include:

· Annual General Meeting ("AGM") - In normal circumstances the Group welcomes and encourages attendance and participation from shareholders at the AGM. Shareholders have the opportunity to meet the Directors and Investment Manager and to address questions to them directly. The Board values any feedback and questions it may receive from shareholders ahead of and during the AGM and will endeavour to take action, when appropriate;

· Publications - The Annual Report and Half-Year results are made available on the Company's website and the Annual Report is circulated to shareholders. These reports provide shareholders with a clear understanding of the Company's portfolio and financial position. This information is supplemented by the monthly calculation and publication of the NAV per share and a monthly factsheet which are available on the website, the publication of which is announced via the stock exchange. Feedback and questions received by the Company and the Manager receive from the shareholders assist the Company to improve its reporting;

· Shareholder meetings - Shareholder meetings often take the form of a meeting with the Investment Manager rather than members of the Board. Shareholders are able to meet with the Investment Manager throughout the year. Feedback from meetings between the Investment Manager and shareholders is shared with the Board. The Chairman, the Chairman of the Audit Committee or other members of the Board are available to meet with shareholders to understand their views on governance and the Company's performance where they wish to do so. With assistance from the Investment Manager, the Chairman seeks meetings with shareholders who might wish to meet with him;

· Working with external partners - the Investment Manager and the Broker maintain an active dialogue with shareholders and potential investors at scheduled meetings or analyst briefings following financial results and provide the Board with regular updates at Board meetings or more frequently if required

OTHER STAKEHOLDERS

The Manager

Importance

The Manager's performance is critical for the Company to successfully deliver its investment strategy and meet its objective to provide shareholders with an attractive level of dividend income and capital growth through investing in primarily asset secured loans ("Credit Assets") and selected equity investments that are aligned with the Company's strategy and that present opportunities to enhance the Group's returns from its investments ("Equity Assets").

Engagement

Maintaining a constructive and effective working relationship with the Manager is crucial as the Board and the Manager both aim to continue to achieve attractive returns in line with its investment objective. The following are important elements in the effective collaboration with the Manager:

· Encouraging open discussion with the Manager;

· Adopting a tone of constructive challenge;

· Drawing on Board Members' individual experience and knowledge to support the Manager in its monitoring the portfolio of investments; and

· That the Board and the Manager should act within the agreed investment restrictions and risk appetite statement and not seek to add further investment risk.

The Company Secretary, the Administrator, the Registrar, the Depositary and the Broker

Importance

In order to function as an investment trust and a constituent of the specialist fund segment on the London Stock Exchange, the Group relies on a diverse range of advisors for support with meeting all relevant obligations.

Engagement

The Board maintains contact with its key external providers at the Board and Committee meetings, as well as through the Manager from its own interactions with the external providers outside of the regular meeting cycle when required. In addition, the Management and Engagement Committee reviews their performance, fees and continuing appointment at least annually to ensure that service continues at an acceptable level and they are appropriately remunerated to deliver the expected level of service.

Lenders

Importance

Availability of funding and liquidity are crucial to the Company's ability to take advantage of investment opportunities as they arise.

Engagement

The Company aims to demonstrate to lenders that it is a well-managed business, capable of consistently delivering long-term returns.

Regulators

Importance

The Company can only operate with the approval of its regulators who have a legitimate interest in how the Company operates in the market and treats its shareholders.

Engagement

The Company regularly considers how it meets various regulatory and statutory obligations and follows voluntary and best-practice guidance, including how any governance decisions it makes can have an impact on its stakeholders, both in the shorter and in the longer-term.

CULTURE

The Directors agree that establishing and maintaining a healthy corporate culture among the Board and in its interaction with the Manager, shareholders and other stakeholders will support the delivery on its purpose, values and strategy. The Board seeks to promote a culture of openness, debate and integrity through ongoing dialogue and engagement with its service providers, principally the Investment Manager.

The Board strives to ensure that its culture is in line with the Company's purpose, values and strategy. The Company has a number of policies and procedures in place to assist with maintaining a culture of good governance including those relating to Directors' conflicts of interest and Directors' dealings in the Company's shares. The Board assesses and monitors compliance with these policies as well as the general culture of the Board during Board meetings and in particular through the annual performance evaluation process which is undertaken by each Director (for more information see the performance evaluation section on page 38).

The Board seeks to appoint the best possible service providers and evaluates their service on a regular basis as described on pages 23 and 24. The Board considers the culture of the Manager and other service providers, including their policies, practices and behaviour, through regular reporting from these stakeholders and in particular during the annual review of the performance and continuing appointment of all service providers.

PREMIUM/DISCOUNT MANAGEMENT

The Company may seek to address any significant discount to NAV at which its Ordinary Shares may be trading by purchasing its own Ordinary Shares in the market on an ad hoc basis.

The Directors have the authority to make market purchases of up to 14.99 per cent of the Ordinary Shares. The maximum price (exclusive of expenses) which may be paid for an Ordinary Share must not be more than the higher of (i) 5.0 per cent above the average of the mid-market values of the Ordinary Shares for the five Business Days before the purchase is made, or (ii) the higher of the price of the last independent trade and the highest current independent bid for the Ordinary Shares. Ordinary Shares will be repurchased only at prices below the prevailing NAV per Ordinary Share, which should have the effect of increasing the NAV per Ordinary Share for remaining Shareholders. A renewal of the authority to make market purchases will be sought from Shareholders at each AGM of the Company. Purchases of Ordinary Shares will be made within guidelines established from time to time by the Board. Any purchase of Ordinary Shares would be made only out of the available cash resources of the Company. Ordinary Shares purchased by the Company may be held in treasury or cancelled.

Purchases of Ordinary Shares may be made only in accordance with the Companies Act 2006 ("the Act"), the Listing Rules and the Disclosure and Transparency Rules.

As part of its revised investment strategy, the Company continued its share buyback program. During 2019, 1,686,112 Ordinary Shares (2018: 3,747,148 Ordinary Shares) were repurchased at an average price of 823.4 pence per ordinary share (2018: 800.4 pence per ordinary share).

CORPORATE AND OPERATIONAL STRUCTURE

Corporate structure

There have been several changes in the structure of the Group in 2019. The Group's entered into several new debt facilities in 2019, including its third SME unsecured lending securitisation in April 2019 which resulted in a cheaper cost of funding for the Company. Small Business Origination Loan Trust 2019-1 DAC ("SBOLT 2019"), the entity relating to this facility was consolidated in the financial statements for the period April to December 2019. This was a £187 million transaction that was collateralised by unsecured loans to SMEs originated through the online lending platform operated by Funding Circle Limited ("Funding Circle"). The transaction reduced the cost of funding, and offered matched duration funding which will enhance the Company's returns. The Company ceased purchasing loans from Funding Circle in Q4 2018 as part of the strategy to focus on asset secured lending. The Company incorporated CH Mercury Note Issuer DAC ("CH") in November 2018 which became active in February 2019 when a pool of development and bridging finance loans were transferred in as well as asset specific leverage which resulted in a cheaper cost of funding for the Company. CH was consolidated in the financial statements for the period from February to August 2019 and then unwound in August 2019.

During the period, all remaining loans from P2P BL-2 PLC ("P2P BL-2"), P2P BL-3 Limited ("P2P BL-3") and Marketplace Originated Consumer Assets 2016-1 PLC ("MOCA 2016") were novated out of these Companies to Pollen Street Secured Lending plc and these Companies are not in the process of liquidation. The Company consolidated P2P BL-2 in the financial statements for the period January to September 2019, P2L BL-3 for the period January to April 2019 and MOCA 2016 for the period January to August 2019.

The Company also controls and consolidates a number of trusts ("Trusts") through its control of Eaglewood SPV I LP (the "SPV" or the "Subsidiary") and Eaglewood Income Fund I, LP (the "Eaglewood Fund"). The SPV and Eaglewood Fund control a Trust if they are exposed to, or have the rights to, variable returns from their involvement with the Trust and have the ability to affect those returns through its power over the Trust. During the year, the SPV became the sole beneficial owner of an LLC; PSC 2019P LLC.

Operational and portfolio management

The Company has outsourced its operations and portfolio management to various service providers as detailed below:

· PSC Credit Holdings LLP is the Company's investment manager and Alternative Investment Fund Manager ("AIFM") for the purposes of the Alternative Investment Fund Managers Directive ("AIFMD");

· Link Asset Services acts as the Company's registrar;

· Link Company Matters Limited acts as the Company Secretary;

· Citco Fund Services (Ireland) Limited is the Company's administrator and external valuer;

· Citco Custody (UK) Limited acts as the Company's depositary and custodian; and

· Liberum Capital Limited acts as the Company's corporate broker and financial adviser.

Principal Risks and Uncertainties

The Group is exposed to a number of potential risks and uncertainties which could have a material impact on the Group performance and could cause actual results to differ materially from expected and/or historical results.

The Board has in place a robust process to assess and monitor the risks of the Group. A core element of this is the Group's risk register, which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk, and the quality of the controls operating to mitigate the risk.

The register, its method of preparation and the operation of the key controls in the Investment Manager's systems of internal control are reviewed and reported on to the Board on a regular basis. In order to gain a more comprehensive understanding of the Investment Manager's risk management processes and how these apply to the Group's business, the Board periodically receives on-site presentations from the Investment Manager.

The Investment Manager also has responsibility for day-to-day risk management for the Group and it works with the Board to identify and manage the principal risks facing the Group.

The Board has undertaken a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity. Those principal risks have been described below together with an explanation of how they are managed and mitigated. The Board will continue to assess these risks on an ongoing basis.

OPERATIONAL RISKS

Third-Party Service Providers

The Group has no employees (other than its Directors who are all non-executives) and relies on the services provided by third parties. Accordingly, it is dependent on the control systems of third parties such as the Investment Manager, the depositary and the fund administrator, who maintain the Group's assets and accounting records.

In addition, the Group predominantly uses originators and third-party servicers to acquire and service loans. Accordingly, it is dependent on the originators' credit underwriting and control systems and collection capabilities.

The security of the Group's assets, dealing procedures, accounting records and adherence to regulatory and legal requirements depend on the effective operation of the systems of the third-party service providers.

Failure by any service provider, or originator, to carry out its obligations to the Group in accordance with the terms of its appointment could have a materially adverse effect on the operation of the Group.

The Group is reliant on the Investment Manager's relationships with originators. Should the Investment Manager cease to continue to be investment manager there is a risk that the Group will not be able to successfully pursue its investment management objective and policy.

Resilient IT systems and associated infrastructure are essential for maintaining high service levels to the Group by the originators and other third-party service providers. These service levels are at risk from cyber-attack, component failure or unplanned disasters.

Mitigation

The Company has appointed third party service providers who are experienced in their field and have a reputation for high standards of business conduct.

Due diligence is undertaken before contracts are entered into with third party service providers and originators and oversight of the performance of these parties is conducted by the Investment Manager and reported to the Board periodically.

In order to gain a more comprehensive understanding of the Investment Manager's internal processes, controls and risk management, the Board periodically receives on-site presentations from the Investment Manager and periodically reviews the controls reports.

The Board reviews the overall performance of the Investment Manager and all other third-party service providers on a regular basis. The Board also considers the business continuity arrangements of the Company's key service providers. The Board reviews arrangements that the Investment Manager has put in place to ensure that back up loan servicers are available and able to take on the Group's loans. The Investment Manager has a robust cyber security and disaster recovery ("DR") policy. The Investment Manager also assesses cyber security and DR of the Group's third-party service providers and Platforms. The Board regularly reviews these arrangements.

As part of the response to Covid-19 all outsourced third party service providers have successfully implemented business continuity processes such as working from home. This has meant that the service levels received by the Group have been maintained in this difficult time.

Reliance on key individuals

The Group relies on key individuals at the Investment Manager to identify and select investment opportunities and to manage the day-to-day affairs of the Group. There can be no assurance as to the continued service of these key individuals at the Investment Manager. The departure of key individuals from the Investment Manager without adequate replacement may have a material adverse effect on the Group's business prospects and results of operations. Accordingly, the ability of the Group to achieve its investment objective depends heavily on the experience of the Investment Manager's team, and more generally on the ability of the Investment Manager to attract and retain suitable staff.

MitigationThe interests of the Investment Manager are closely aligned with the performance of the Group through the management and performance fee structures in place and direct investment by certain key individuals of the Investment Manager. Furthermore, investment decisions are made by a team of professionals, mitigating the impact of a loss of any single key professional within the Investment Manager's organisation. The performance of the Investment Manager in its duties to the Group is subject to ongoing review by the Board on a quarterly basis.

Fluctuations in the market price of Issued Shares

The market price of the Company's shares may fluctuate widely in response to different factors and there can be no assurance that the Company's shares will be repurchased by the Company even if they trade materially below their Net Asset Value. Similarly, the shares may trade at a premium to Net Asset Value whereby the shares can trade on the open market at a price that is higher than the value of the underlying assets. There can be no assurance, express or implied, that shareholders will receive back the amount of their investment in the Company's shares.

MitigationThe Investment Manager and the Board closely monitor the level of discount or premium at which the Company's shares trade on the open market. The Company may purchase its shares in the market with the intention of enhancing the NAV per ordinary share, however there can be no assurance that any purchases will take place or that any purchases will have the effect of narrowing any discount to NAV at which the Company's ordinary shares may trade.

In the first instance, the Company's Board and Investment Manager believe the best defence against the share price trading at a discount to NAV is an attractive dividend policy, with quarterly distributions driven from the pursuit of attractive risk adjusted returns in Credit Assets and Equity Assets.

With regard to repurchasing shares, the Board may use its discretion during periods of market dislocation to opportunistically buyback shares where it believes such a purchase would be accretive over and above the long term attractions of investing in further loan and equity portfolios and it is in the best long term interest of all shareholders to do so.

INVESTMENTS

Achievement of the Investment Objective

There can be no assurance that the Investment Manager will be successful in implementing the Group's investment objective.

MitigationThe Group's investment decisions are delegated to the Investment Manager. Performance of the Company against its investment objectives is closely monitored on an ongoing basis by the Investment Manager and is reviewed in detail at each Board meeting by its members. In the event it is required, any action required to mitigate underperformance is taken as deemed appropriate by the Investment Manager.

The Board has set investment restrictions and guidelines which the Investment Manager monitors and reports on quarterly to the Board. The Board also receives from the Investment Manager a quarterly explanation of portfolio allocation decisions, large exposures, leverage levels and any changes in leverage and the rationale for the composition of the investment portfolio.

Borrowing

The Group may use borrowings in connection with its investment activities including, where the Investment Manager believes that it is in the interests of shareholders to do so, for the purposes of seeking to enhance investment returns. Such borrowings may subject the Group to interest rate risk and additional losses if the value of its investments fall. Whilst the use of borrowings should enhance the Net Asset Value of the Company's shares when the value of the Company's underlying assets is rising, it will have the opposite effect where the underlying asset value is falling. In addition, in the event that the Company's income falls for whatever reason, the use of borrowings will increase the impact of such a fall on the Company's return and accordingly will have an adverse effect on the Company's ability to pay dividends to shareholders. There is a risk that the Company will breach the covenants set by the lender which could have an adverse effect of the Company continuing as a going concern.

Mitigation

The Investment Manager and the Board closely monitors the level of gearing of the Group. The Group has a maximum limitation on borrowings of 1.5 times of NAV (calculated at the time of draw down) which the Investment Manager may affect at its discretion when conditions and opportunities exist to enhance investment returns. All covenants are monitored on a monthly basis and any Group wide transactions are appraised against their impact on any debt related covenant.

Exposure to Credit Risk

As a lender to small businesses, property lenders and individuals, the Group is exposed to credit losses if customers or counterparties are unable to repay loans and outstanding interest and fees or through fraud. The Group is expected to invest a significant proportion of its assets in Credit Assets which, by their nature, are exposed to credit risk and may be impacted by adverse economic and market conditions, including through higher impairment charges, increased capital losses and reduced opportunities for the Group to invest in Credit Assets. Additionally, competition could serve to reduce yields and lower the volume of loans generated by the Group.

The outbreak of COVID-19 has caused major disruption across the globe. At the time of writing the portfolio has not seen a material impact in payment performance yet albeit some end borrowers have requested and been granted payment holidays. However, given the Group's UK and US focus, its performance is linked to the health of these economies. We expect the Group could experience further impairments and consequently reduced profits, particularly if economic expectations deteriorate further. However, the overall effect of this cannot be quantified reliably because the impact of the UK government's various support initiatives and the US governments COVID-19 Stimulus Bill is not yet known, but they are expected to reduce the potential expected credit loss impact. The Investment Manager has adopted a prudent approach with the focus on the existing portfolio and ensuring cash collections remain robust as the appropriate strategies are in place. The legacy book continues to run off, whilst performance of this book has been poor to date and it is expected that impairments will increase over the coming months, the loans are now well seasoned.

MitigationThe Group will invest in a granular portfolio of assets across various originators, asset classes, geographies (primarily Europe and United States), levels of collateral and credit bands in order to ensure diversification and to seek to mitigate concentration risks.

Origination rates and performance of the underlying assets of the Group are closely monitored on an ongoing basis by the Investment Manager and the Board and are reviewed in detail at each Board meeting.

The Group has focused on increasing its exposure to structured lending and lending with asset backing, which both mitigate the credit risk through the provision of collateral or structural protection in the form of either the platform equity covering the first loss or the customer equity covering the first loss.

In relation to Covid-19 the impact is being mitigated where possible through the Investment Manager proposing not to re-invest the cash generated by the portfolio in new investments until there is more visibility on the impact of the lockdown restrictions on performance and a return to some level of normality in the economy. In the structured portfolio where the Group provides finance to non-bank lenders, the Investment Manager is working with the borrowers to help them navigate the difficult environment whilst ensuring most of the cash generated by their portfolio is utilised to repay the Group's loan.

Interest Rate Risk

The Group invests in Credit Assets which may be subject to a fixed rate of interest, or a floating rate of interest (which may be linked to base rates or LIBOR) and expects that its borrowings will be typically subject to a floating rate of interest. Any mismatches the Group has between the income generated by its Credit Assets, on the one hand, and the liabilities in respect of its borrowings, on the other hand, may subject the Group to interest rate risk.

Following the recommendations of the Financial Stability Board, a fundamental review and reform of the major interest rates benchmarks, including Interbank offered rate ("Ibors"), are underway across the world's largest financial markets. In some cases, the reform will include replacing interest rate benchmarks with alternative risk-free rates ('RFRs'). This replacement process is at different stages, and is progressing at different speeds, across several major currencies.

Mitigation

Interest rate risk exposures may be managed, in part, by matching any floating rate borrowings with investments in Credit Assets that are also subject to a floating rate of interest. The Group may use derivative instruments, including interest rate swaps, to reduce its exposure to fluctuations in interest rates, however some unmatched risk may remain.

With the Ibor transition there is inherent uncertainty as to the basis, method and timing of transition and their implications on the participants in the financial markets. Until there is market acceptance on the form of alternative RFRs for different products, the legal mechanisms to effect transition cannot be confirmed, and the impact cannot be determined nor any associated costs accounted for. Going forward the Group needs to assess the potential effects of these Ibor replacements and has the intention of minimising disruption through appropriate mitigating actions.

The current Covid-19 outbreak has seen the Bank of England lower interest rates on 19 March 2020 to 0.1 per cent, the lowest they have been in its 325-year history. The Board will continue to monitor this development.

Foreign Exchange Rate Risk

Brexit has been a driver for exchange rate volatility and the devaluation of Sterling. The Group's policy is to hedge exchange rate risk where appropriate. This in turn can create liquidity risk due to the potential for large cash margin calls in relation to any derivative contracts entered into.

MitigationThe Investment Manager monitors the fluctuations in foreign currency exchange rates and may use forward foreign exchange contracts to hedge the currency exposure of the Group's non-Sterling denominated investments. The Investment Manager re-examines the currency exposure on a regular basis in each currency and manages the Group's currency exposure in accordance with market expectations. The Investment Manager as part of this monitoring ensures it has the required liquidity to cover any cash margin calls.

Liquidity of Investments

The Group may invest in Equity Assets that are aligned with the Group's strategy and that present opportunities to enhance the Company's return on its investments. Such Equity Assets are likely to be predominantly in the form of unquoted equity securities. Investments in unquoted equity securities, by their nature, involve a higher degree of valuation and performance uncertainties and liquidity risks than investments in listed securities and therefore may be more difficult to realise.

Mitigation

The Group has established investment restrictions on the extent to which it can invest in Equity Assets, such that no more than 10.0 per cent of the net proceeds of any placing are invested in Equity Assets. Compliance with these restrictions is monitored by the Investment Manager on an ongoing basis and by the Board quarterly.

REGULATIONS

The Group is subject to extensive laws, regulations, corporate governance practice and disclosure requirements, administrative actions and policies in each jurisdiction in which it operates. Many of these have been introduced or amended recently and are subject to further material changes, which may increase compliance and conduct risks. The Group expects government and regulatory intervention in the financial services industry to remain high for the foreseeable future.

Tax

Any changes in the Company's tax status or in taxation legislation could affect the value of investments held by the Group, affect the Company's ability to provide returns to shareholders and the tax treatment for shareholders of their investments in the Company.

Mitigation

At all times, the Company intends to conduct its affairs so as to enable it to qualify as an investment trust for the purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010. Both the Board and the Investment Manager are aware of the requirements, which are to be fulfilled in any accounting period for the Company to maintain its investment trust status. The conditions required to satisfy the investment trust criteria are monitored by the compliance function of the Investment Manager.

Breach of Applicable Legislative Obligations

The Group and its third-party service providers are subject to various legislative and regulatory regimes, including, but not limited to, the Consumer Credit Act and the Data Protection Act. Any breach of applicable legislative and/or regulatory obligations could have a negative impact on the Company and impact returns to shareholders.

Mitigation

The Group engages only with third-party service providers which hold the appropriate regulatory approvals for the function they are to perform and can demonstrate that they can adhere to the regulatory standards required of them. Each appointment is governed by agreements which contain the ability to terminate each of these counterparties with limited notice should they continually or materially breach any of their legislative obligations, or their obligations to the Group more broadly.

EMERGING RISKS

The Group utilises an established framework to monitor its portfolio for emerging risks, supporting organisational readiness for external volatility.

This incorporates input and insight from both a top-down and bottom-up perspective:

· Top-down: Emerging risks identified by directors at a group level via the Audit and Risk Committee and the Board.

· Bottom-up: Emerging risks identified at a business level and escalated, where appropriate by the Investment Manager, via risk updates into the Audit and Risk Committee and the Board.

· Emerging risks are monitored by the Group Audit and Risk Committee on an ongoing basis, with agreed actions tracked to ensure the Group's preparedness should an emerging risk crystallise.

· The most significant emerging risk is the ongoing outbreak of the COVID-19. We are monitoring the situation carefully as it evolves. The Group's business model aims to ensure that it is able to continue to trade and support its clients in all economic conditions.

GOING CONCERN

The Directors have reviewed the financial projections of the Group from the date of this report, which have been updated to take into account the economic disruption caused by the COVID-19 pandemic. These show that the Group will be able to generate sufficient cash flows in order to meet its liabilities as they fall due and for the foreseeable future, and that all relevant conditions such as covenants under the Group's external borrowings will be met over that period

The Directors have considered the risks arising of economic disruption caused by the COVID-19 pandemic. The Investment Manager has performed suitable stress tests which show that even on a severe but plausible basis the Group is expected to be able to meet its liabilities for the foreseeable period.

There are a number of other developments which are relevant to the future of the Group and Company, and which may affect the continued use of going concern accounting principles.

The Directors of the Company announced on 25 February 2020 that the Company was in discussions regarding a possible offer by Waterfall Asset Management LLC ("Waterfall") for the acquisition of the entire share capital of the Company. They also announced that the possible offer was supported by the largest shareholder of the Company at that time. The offer period has since been extended, and on 19 May 2020, a further extension to 16 June 2020 was announced. The intentions of Waterfall, as to their plans for the Company should an offer be made and be successful, have not been announced. The announcement made by the Company on 19 May 2020, indicated also that The Board is also reviewing all options in the event that the possible offer does not proceed.

In addition, Article 167 of the Company's Articles of Association stipulates that at the Annual General Meeting to be held in 2021 the Directors shall propose an ordinary resolution that the Company continues to operate as an investment company (the "continuation vote"). If this resolution does not receive approval from a majority of shareholders, the Articles stipulate that the Directors shall, within three months of the date of the resolution, put forward proposals to shareholders to the effect that the Company be wound up or similarly restructured. The outcome of the continuation vote cannot at this stage be determined with any certainty.

The potential consequences of the possible offer, and the continuation vote, are conditions that indicate the existence of a material uncertainty which may cast significant doubt about the Group's and Company's plans or ability to continue as a going concern. The Group and Company financial statements do not include the adjustments that would result if the Group and Parent Company were no longer to be considered a going concern.

Notwithstanding this uncertainty, the Directors are satisfied that the going concern basis remains appropriate for the preparation of the financial statements.

VIABILITY STATEMENT

In accordance with UK Corporate Governance Code, published by the Financial Reporting Council in July 2018 (the "UK Code"), the Directors have assessed the prospects of the Group over the two-year period to the Annual General Meeting ("AGM") in 2022.

The Directors of the Company announced on 25 February 2020 that the Company was in discussions regarding a possible offer by Waterfall Asset Management LLC ("Waterfall") for the acquisition of the entire share capital of the Company. They also announced that the possible offer was supported by the largest shareholder of the Company at that time. The offer period has since been extended, and on 19 May 2020, a further extension to 16 June 2020 was announced. The intentions of Waterfall, as to their plans for the Company should an offer be made and be successful, have not been announced. The announcement made by the Company on 19 May 2020, indicated also that The Board is also reviewing all options in the event that the possible offer does not proceed. The Directors have assumed for the purposes of this viability statement that if a firm offer were to be made and be successful, that the Group would continue to operate and be able to meet its obligations, based on its current financial position over the period.

The Directors will be required by the Articles of Association to put a proposal for the continuation of the Group at the 2021 AGM, and note that, based on the current position, performance and prospects of the Group they have no reason to believe that shareholders will vote against continuation. However, the outcome of the continuation vote cannot at this stage be determined with any certainty and therefore this is a key assumption. If this resolution does not receive approval from a majority of shareholders, the Articles stipulate that the Directors shall, within three months of the date of the resolution, put forward proposals to shareholders to the effect that the Company be wound up or similarly restructured.

The Directors note that, even if there were to be a firm offer made, and that offer were to be successful, or there were to be a vote against continuation at the 2021 AGM, the Group would be likely to continue to operate for at least a year thereafter, due to the Group's investments not comprising readily realisable securities.

 In their assessment of the viability of the Group, the Directors have considered each of the Group's principal risks and uncertainties and mitigating factors are detailed on pages 23 to 24. The Directors have also considered the Group's revenue and expenditure projections, working capital requirements, which have been updated to take into account the economic disruption caused by the COVID-19 pandemic, and as noted above) the fact that the Group's investments do not comprise readily realisable securities which can be sold to meet funding requirements if necessary.

Analysis has also focused on the risks in delivery of the business model, including consideration of the proposed change in Investment Manager, and the continued satisfactory operation of the other service providers, and the platforms through which the Group operates its activities, as well as a series of projections addressing changing funding levels, origination volumes and the performance of the assets acquired.

The Board are aware that a decision to proceed with a potential change of Manager (following the notice to that effect issued on 25th February 2020) could result in financial consequences for the Company arising from the exercise by third parties of rights to terminate loan and other facilities that are currently in place. It is not considered that such consequences, if they occur, will be of an amount that could not be accommodated within the available resources of the Company at the relevant time or call into question the Board's view on Going concern or viability in this Report.

Based on the Group's current position, the principal risks that it faces and their potential impact on its future development and prospects, the Directors have concluded that there is a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the two-year period to the AGM in 2022.

Key Performance Indicators (KPIs)

The Board monitors success in implementing the Group's strategy against a range of key performance indicators (KPIs), which are viewed as significant measures of success over the longer term. Although performance relative to the KPIs is also monitored over shorter periods, it is success over the long-term that is viewed as more important, given the inherent volatility of short-term investment returns. The principal KPIs are set out below:

· The movement in Net Asset Value per ordinary share (please see page 4);

· Dividend per share (please see page 4);

· The share price premium/(discount) to NAV (please see page 4);

· The movement in the share price (please see page 4);

· Ongoing charges ratio (please see page 4); and

· Annual NAV per share return (please see page 4).

APPROVAL

The Strategic Report was approved by the Board of Directors on 29 May 2020 and signed on its behalf by:

Simon King

Chairman

Directors' Report

Board of Directors

PREVIOUS DIRECTORS

STUART CRUICKSHANK

Mr Cruickshank was appointed in 2014 as non-executive Director, Chairman of the Company, the Nomination Committee and Insider Committee and a member of the Audit Committee, Management & Engagement Committee, Risk Committee and Remuneration Committee. Mr Cruickshank resigned as a member of the Audit Committee, Risk Committee and Remuneration Committee with effect from 13 June 2019 and resigned as non-executive Director, Chairman of the Company, the Nomination Committee and Insider Committee with effect from 1 January 2020.

Report of the Directors

The Directors of Pollen Street Secured Lending plc (Reg: 08805459) present their annual report and audited financial statements of the Company and its subsidiaries (together, the "Group") for the year ended 31 December 2019.

DIRECTORS

The Directors in office at the date of this report are shown on page 30.

Directors Remuneration and Interests

The remuneration and beneficial interests of the Directors in the securities of the Company are set out in the Directors' Remuneration Report on pages 49 to 52.

DIVIDENDS AND SHARE BUYBACKS

No final dividend is being recommended. The Company's policy is to pay dividends on a quarterly basis, as set out in the Company's prospectus dated 30 June 2015. The dividends paid or payable in respect of the year ended 31 December 2019 are set out in Note 22 to the financial statements. A reconciliation of movements in reserves is presented in the Consolidated and Parent Company Statement of Changes in Shareholders' Funds on pages 70 and 71 of the financial statements. The Company may make distributions from the revenue reserve, the special distributable reserve and from realised capital gains.

An interim dividend of 12 pence per Ordinary Share was declared by the Board on 24 February 2020 in respect of the three-month period to 31 December 2019, which was paid on 27 March 2020 to shareholders on the register as of 5 March 2020.

The Company continued its share buyback program in 2020 and as at 28 May 2020, 12,303,792 shares are held in treasury.

AUDIT INFORMATION

As required by section 418 of the Companies Act 2006, the Directors who held office at the date of the Annual Report confirm that, so far as they are aware, there is no relevant audit information of which the Company's Auditors is unaware; and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's Auditors are aware of that information.

OUTLOOK

The Group's anticipated future developments and outlook are discussed in more detail in the Chairman's Statement on pages 7 and 8 and the Investment Manager's Report on pages 9 to 11.

AUDITORS

The Company's independent auditors, PricewaterhouseCoopers LLP ("PwC") have indicated their willingness to continue in office as Auditor of the Company for the forthcoming financial year, and resolutions for their re-appointment and for the Audit Committee to determine their remuneration will be proposed at the forthcoming AGM.

The Audit Committee has carefully considered the auditors' appointment, as required in accordance with its terms of reference, and, having regard to its effectiveness and the services it has provided the Company during the year under review, has recommended to the Board that the independent auditors be appointed at the forthcoming 2020 AGM. In reaching its decision, the Audit Committee considered the points detailed on page 46 of the Audit Committee's report.

FINANCIAL RISK MANAGEMENT

The principal risks and the Company's policies for managing these risks are set out in Note 8 to the financial statements and pages 23 and 24 of the Strategic Report.

SUBSEQUENT EVENT

An interim dividend of 12 pence per Ordinary Share was declared by the Board on 24 February 2020 in respect of the three-month period to 31 December 2019, which was paid on 27 March 2020 to shareholders on the register as of 5 March 2020.

An interim dividend of 12 pence per Ordinary Share was declared by the Board on 4 May 2020 in respect of the three-month period to 31 March 2020, which will be paid on 19 June 2020 to shareholders on the register as of 15 May 2020.

The Company continued its share buyback program in 2020 and as at 28 May 2020, 12,303,792 shares are held in treasury.

The Company received an approach to acquire all of its issued share capital at 900 pence per share from Waterfall Asset Management, LLC ("Waterfall"), subject to confirmatory due diligence and certain other standard conditions.

The Board announced on 25 February 2020 that it served 12 months' notice in writing on the Manager to terminate the Investment Management Agreement ("IMA").

In March 2020, the World Health Organisation recognised an outbreak of a new virus that causes coronavirus disease 2019 ("COVID-19") as a pandemic. COVID-19 has caused disruption to businesses and economic activity which has been reflected in recent fluctuations in global stock markets. There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a potential pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change.

The Investment Manager continues to have faith in the strength of the performance of the asset class despite the unprecedented conditions. The Group is well diversified with the underlying loan portfolios being highly granular with low concentration risk. It has maintained a close and proactive engagement with all platform partners and forbearance has been applied sensitively and proportionately. The Investment Manager believes that the company is well positioned to perform solidly throughout the crisis.

However, given the Group's UK and US focus, its performance is linked to the health of these economies. We expect the Group could experience further impairments and consequently reduced profits, particularly if economic expectations deteriorate further. However, the overall effect of this cannot be quantified reliably because the impact of the UK government's various support initiatives and the US government's COVID-19 Stimulus Bill is not yet known, but they are expected to reduce the potential expected credit loss impact. The Investment Manager has adopted a prudent approach with the focus on the existing portfolio and ensuring cash collections remain robust as the appropriate strategies are in place. The legacy book continues to run off, whilst performance of this book has been poor to date and it is expected that impairments will increase over the coming months, the loans are now well seasoned.

The longer-term financial impact of coronavirus is not yet clear and given the significant change in the operating environment and economic expectations the Investment Manager is proposing to re-invest the cash generated by the portfolio very selectively during this period of uncertainty with the majority of cash going to reduce net debt.

The Board considers the emergence and spread of COVID-19 to be a non-adjusting post balance sheet event.

The NAV for 31 March 2020 was released on 5 May 2020 and included a £2.0 million one-off provision arising from the change to the economic scenarios due to the COVID-19 situation.

As at 27 May 2020, the Company's latest published NAV per Ordinary Share as at 31 March 2020 was 963.0 pence and the latest share price was 708.0 pence per share.

GREENHOUSE GAS EMISSIONS

The Group has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, including those within its underlying investment portfolio.

REQUIREMENTS OF THE LISTING RULES

Listing Rule 9.8.4 requires the Group to include specified information in a single identifiable section of the Annual Report or a cross reference table indicating where the information is set out.

Listing Rule

CORPORATE GOVERNANCE

The Corporate Governance Statement on pages 36 to 44 forms part of the Report of the Directors.

ARTICLES OF ASSOCIATION

Any amendments to the Company's Articles must be made by special resolution passed at a general meeting.

ANNUAL GENERAL MEETING

The AGM will be held on 30 June 2020 and explanations of the business proposed at the AGM will be contained in the Notice of the AGM, which is being posted to shareholders with this Annual Report.

GENERAL MEETING

The Board may convene a general meeting of the shareholder at whatever time it deems necessary or when such a meeting is required under applicable laws or regulations. Under the principles of the Association of Investment Companies Code of Corporate Governance (the "AIC Code") notice of that general meeting should be sent to shareholders 14 days in advance.

ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE

In accordance with the AIFMD, the Company has appointed PSC Credit Holdings LLP to act as the Company's AIFM for the purposes of the AIFMD. The AIFM ensures that the Company's assets are valued appropriately in accordance with the relevant regulations and guidance. Citco Custody (UK) Limited acts as the Company's Depositary and Citco Fund Services (Ireland) Limited provides custody services to the Company as required by the AIFMD.

DONATIONS

The Company made no political or charitable donations during the year under review to organisations either within or outside the EU (2018: none).

ANTI-BRIBERY AND CORRUPTION POLICY

The Company has no employees (other than its Directors who are all non-executives) or operations but uses the anti-bribery and corruption policy of the Investment Manager, ensuring compliance with all applicable anti-bribery and corruption laws and regulations, including the UK Bribery Act 2010.

ENVIRONMENT, HUMAN RIGHTS, EMPLOYEE, SOCIAL AND COMMUNITY ISSUES

The Company is required by law to provide details of environmental matters (including the impact of the Company's business on the environment), employee, human rights, social and community issues (including information about any policies it has in relation to these matters and the effectiveness of those policies). The Company does not have any employees other than its Directors which are all independent non-executive Directors. As an investment trust, the Company does not have any direct impact on the environment. The Company aims to minimise any detrimental effect that its actions may have by adhering to applicable social legislation, and as a result does not maintain specific policies in relation to these matters.

The Company has no operations and therefore no greenhouse gas emissions to report nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013, including those within its underlying investment portfolio. During the period, the Board considered the Energy Savings Opportunity Scheme ("ESOS") reporting requirement and confirmed that it had no energy reporting responsibilities.

In carrying out its investment activities and in relationships with suppliers, the Company aims to conduct itself responsibly, ethically and fairly.

MODERN SLAVERY ACT

The Board is aware of its responsibilities and obligations under the Modern Slavery Act and other relevant legislation relating to the detection and prevention of modern slavery and human trafficking. The Board is committed to implementing and enforcing effective systems and controls that seek to ensure that modern slavery is not taking place anywhere in its business or in its supply chains.

Further details of our compliance with the Modern Slavery Act can be found on our website.

BOARD DIVERSITY

The Board places great emphasis on ensuring that its membership reflects diversity in its broadest sense. A combination of demographics, skills, experience, race, age, gender, educational and professional background and other relevant personal attributes on the Board is important in providing a range of perspectives, insights and challenge needed to support good decision making.

New appointments are made on merit, taking account of the specific skills and experience, independence and knowledge needed to ensure a rounded Board and the diversity benefits each candidate can bring to the overall Board composition.

The Board consists of four non-executive Directors, one of whom is female. The Board seeks to appoint new Directors on the basis of merit as a primary consideration, with the aim of bringing an appropriate range of skills and experience to the Board.

By order of the Board

Link Company Matters Limited

Company Secretary

29 May 2020

Corporate Governance Statement

STATEMENT OF COMPLIANCE

This Corporate Governance Statement explains how the Board has sought to protect shareholders' interest by protecting and enhancing shareholder value. The Board has considered the principles and recommendations of the AIC Code of Corporate Governance (the "AIC Code") issued in February 2019.

The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code issued by the Financial Reporting Council ("FRC") in July 2018 and applicable for the year under review (the "UK Code"), as well as setting out additional principles and recommendations on issues that are of specific relevance to investment trusts.

The Board considers that reporting against the principles and recommendations of the AIC Code (which incorporates the Corporate Governance Code), provides better information to shareholders.

The AIC Code of Corporate Governance

The FRC, the UK's independent regulator for corporate reporting and governance responsible for the Corporate Governance Code, has endorsed the AIC Code. The terms of the FRC's endorsement mean that AIC members who report against the AIC Code and the AIC Guide meet fully their obligations under the UK Code and the related disclosure requirements contained in the Listing Rules. The UK Code is available on the FRC website www.frc.org.uk.

The Company has complied with the recommendations of the AIC Code and the relevant provisions of the Corporate Governance Code, except as set out below:

The role of the Chief Executive

For the reasons set out in the AIC Guidance, and as explained in the UK Code, the Board considers that the post of Chief Executive is not relevant for the Company, being an externally managed investment company.

Executive Directors' Remuneration

As the Board has no executive Directors, it is not required to comply with the principles of the AIC Code in respect of executive Directors' remuneration.

Internal Audit Function

The Group delegates all of its day-to-day operations to third parties and has no employees, other than its Directors who are all non-executives. These third parties have their own internal audit function and the Board has therefore determined that there is no need for the Group to have its own internal audit function, but this is reviewed on an annual basis. The Directors consider semi-annually the principal risks relating to the operations of the Group. Such a review includes the consideration of whether the Company's third parties have adequate internal controls in place.

Chairman's Membership of the Audit Committee

Simon King is also a member of the Audit Committee. The Board believes that it is appropriate for Mr King to be a member of the Audit Committee, given the size of the Board and Mr King's relevant financial experience. The Board is also satisfied that the combined knowledge and experience of its members within the Company's sector enable the Committee to exercise its duties effectively.

Tenure of the Chair Policy

During the period, the Board has determined and approved a policy governing Board members' tenure and reappointment. The Board does not feel that it would be appropriate to set a specific tenure limit for individual Directors or the Chairman of the Board or its Committees. In line with the supplementary AIC guidance, the Board has opted to take a more flexible approach to chair tenure to manage succession. Accordingly, the Board will seek to recruit a new Director promptly when appropriate so as to regularly to bring the challenge of fresh thinking into the Board's discussions.

ROLE OF THE BOARD AND ITS COMMITTEES

The Board is responsible for the effective stewardship of the Company's affairs, including corporate strategy, corporate governance, risk assessment and overall investment policy. It provides overall leadership, sets out the strategic aims of the Company and ensures that the necessary resources are in place for the Company to meet its objective and fulfil its obligations to shareholders within a framework of high standards of corporate governance and effective internal controls.

Composition of the Board

During the year to 31 December 2019, the Board consisted of five independent non-executive Directors. Following the retirement of Stuart Cruickshank, with effect from 1 January 2020, the Board consists of four independent non-executive Directors. Biographies of the Directors in office at the date of this report are provided on page 30 and demonstrate the wide range of skills and experience each Director brings to the Board.

Each Director has a signed letter of appointment to formalise the terms of their engagement as a Director and are appointed for an initial three-year term which is then extended for a further three-year term. The Board believes that a stable Board composition is fundamental to run the Company properly. The Board has not stipulated a maximum term of any directorship, however the Board has approved a Policy governing Board members' tenure and reappointment which provides that the Board intends to maintain a broad range of experience in the Board, with Directors who have served a range of periods on the Board of the Company. This is likely to result in an average tenure of around 6-9 years, thus ensuring that on each occasion that the Board enters into new investment commitments at least half the members have direct personal experience of negotiating previous commitments with the Manager.

Copies of the letters of appointment are available on request from the Company Secretary and will be available at the AGM.

No individuals other than the Committee chairman and its members are entitled to be present at Committee meetings unless invited to attend by its members. The Board has a formal schedule of matters specifically reserved to it to ensure effective control of strategic, financial, operational and compliance issues.

There is an agreed procedure for Directors to take independent professional advice if necessary and at the Company's expense. This is in addition to the access to Link Company Matters Limited as Company Secretary for advice.

The rules concerning the appointment and replacement of Directors are contained in the Company's Articles of Association (the "Articles") and the Act.

The Company has taken out Directors' and Officers' Liability Insurance at what is considered to be an appropriate limit of liability, such cover is to be maintained for the full term of each Director's appointment. Save for such indemnity provisions in the Company's Articles and in the Directors' letters of appointment, there are no qualifying third-party indemnity provisions in force.

Board Operation

The Board holds formal meetings on a quarterly basis and additional ad-hoc meetings are held when necessary. Attendance at the quarterly Board and committee meetings is displayed in the table on page 38 under the heading "Meetings".

Responsibilities of the Chair and Senior Independent Director & Chairman

In accordance with Provision 6.2.8 of the AIC Code, during the period the Board reviewed and approved a memorandum setting out the responsibilities of the Chairman and the Senior Independent Director. This document is available on the Company's website.

COMMITTEES

The Board has delegated certain responsibilities to its Audit, Management Engagement, Nomination, Remuneration, Risk and Insider Committees. Given the size and nature of the Board it is felt appropriate and practical that all Directors are members of the Committees. The Board has established formal terms of reference for each of its Committees which were reviewed and updated during the period, in accordance with the AIC Code. The terms of reference are available on the Company website, https://pollenstreetsecuredlending.com or upon request from the Company Secretary.

An outline of the remit of each of the Audit, Management Engagement, Nomination, Remuneration, and Risk Committees and their activities during the year are set out on pages 45 to 54. A brief overview of the Insider Committee is set out below.

Insider Committee

The Insider Committee was formed by the Board following the introduction of the Market Abuse Regulations in July 2016 and has responsibility for identifying price sensitive information and determining on a timely basis the disclosure treatment of such information.

The Insider Committee is chaired by Simon King.

The Chairman and Senior Independent Director

During the financial period, Mr Cruickshank was the Chairman and was deemed by his fellow Board members to be independent and to have no conflicting relationships. He considered himself to have sufficient time to commit to the Company's affairs.

During the financial period, Mr King was the Senior Independent Director of the Company and provided an alternative channel for shareholder communications and leading the annual evaluation of the Chairman by the Independent Directors

With Effect from 1 January 2020, Simon King was appointed as the Chairman, and is considered by his fellow Board members to be independent and to have no conflicting relationships. He considers himself to have sufficient time to commit to the Company's affairs.

With effect from 1 January 2020, Mahnaz Safa was appointed as the Senior Independent Director of the Company, providing an alternative channel for shareholder communications and leading the annual evaluation of the Chairman by the Independent Directors.

Independence of Directors

The Board has reviewed the independence of each Director in accordance with the guidance set out under provision 13 of the AIC Code. Each of the Directors is considered to be independent and free from any business or other relationship that could materially interfere with the exercise of their independent judgement. There are no relationships or circumstances relating to the Company that are likely to affect their judgement.

Care will be taken at all times to ensure that the Board is composed of members who, as a whole, have the required knowledge, abilities, and expert experience to properly fulfil their role and are sufficiently independent.

Meetings

The Board of Directors meets at least six times a year and more often if required. The table below sets out the Directors' attendance at scheduled Board and Committee meetings during the year to 31 December 2019.

A Sub-Committee of the Board was established to approve the annual and the half yearly financial statements. There were also a significant number of additional board and committee board meetings held during the financial period in order for the Board to discharge their duties in relation to one-off projects.

*Resigned from the Board, with effect from 1 January 2020 and resigned from the Audit Committee, Risk Committee and Remuneration Committee with effect from 13 June 2019.

Board Performance Evaluation

The Directors are aware of the need to continually monitor and improve performance and recognise this can be achieved through regular Board evaluation, which provides a valuable feedback mechanism for improving Board effectiveness. In addition to regular discussions in the course of Board meetings, a formal performance evaluation of the Board, its Committees and the Chairman was carried out during the year.

Following the externally facilitated evaluation conducted in 2018 in accordance with the AIC code, it was considered appropriate to conduct an internal Chairman led evaluation of the Board, individual Directors the performance of its Committees during 2019.

The 2019 evaluation was comprised of a three-stage process. For the first stage, detailed questionnaires specifically designed to assess the strengths and independence of the Board and the Chairman, individual Directors and the performance of its Committees were circulated and completed. In the second stage, the Chairman met with each of the Directors, facilitated by the Company Secretary, to discuss their responses to the questionnaire to explore and to identify common themes and actions required to improve performance. In the final stage, the results of the questionnaire and interviews would be combined in a paper and would be reported to and discussed by both the Nomination Committee and the Board.

Director Induction

The Board, or the Investment Manager upon request of the Board, shall offer induction training to new Directors about the Company, its key service providers, the Directors' duties and obligations and other matters as may be relevant from time to time.

Appointment and Re-election of Directors

In accordance with the provisions of the Company's Articles, the Directors are required to retire at the first Annual General Meeting following their appointment and thereafter, at each Annual General Meeting, each Director will retire and, if appropriate, seek re-election after each three years' service.

Beyond these requirements, the Board has agreed a policy whereby all Directors will seek annual re-election at the Company's Annual General Meeting, in line with the recommendations of the AIC Code. In accordance with this policy, all the Directors who are in office at the date of this Report will stand for re-election at the forthcoming AGM. The Board considers that, following the board performance evaluations conducted during 2019, all of the current Directors contribute effectively to the operation of the Board and the strategy of the Company. The Board therefore believes that it is in the best interests of shareholders that each of the Directors is re-elected.

BOARD RESPONSIBILITIES AND RELATIONSHIP WITH THE INVESTMENT MANAGER

The Board is responsible for the determination of the Company's investment policy and strategy and has overall responsibility for the Company's activities, including the review of investment activity and performance and the control and supervision of all suppliers of services to the Company including the Investment Manager. The Board is also responsible for the Company's system of internal and financial controls and for ensuring that commercial risks and financing needs are properly considered and that the obligations of a public limited company are adhered to.

To assist the Board in the day-to-day operations of the Company, arrangements have been put in place to delegate authority for the performance of day-to-day operations of the Company to the Investment Manager and other third-party service providers.

The Investment Manager is responsible for the discretionary management of the Company's portfolio of investments manages the Company's investment portfolio within guidelines set by the Board. The Investment Manager is in frequent contact with the Board and supplies the Directors with regular updates on the Company's activities and detailed reports at each Board meeting.

The existing sub-management agreement, pursuant to which the Investment Manager has delegated certain elements of its responsibilities and functions to Pollen Street capital (US) LLC, continues in force.

Details of the management fees are set out in Note 12 to the financial statements.

By notice dated 25 February 2020, the Company served 12 months' notice in writing on the Investment Manager to terminate the Investment Management Agreement with effect from 25 February 2021.

The Board keeps the performance of the Investment Manager under continual review and it is the current opinion of the Directors that the continuing appointment of the Investment Manager for the balance of the notice period referred to above is in the interests of the shareholders as a whole.

CONFLICTS OF INTEREST

The Company's Articles provide that the Directors may authorise any actual or potential conflict of interest that a Director may have, with or without imposing any conditions that they consider appropriate on the Director. Directors are not able to vote in respect of any contract, arrangement, or transaction in which they have a material interest, and, in such circumstances, they are not counted in the quorum. A process has been developed to identify any of the Directors' potential or actual conflicts of interest. This includes each Director completing a detailed conflict of interest questionnaire. The matters disclosed in the questionnaires are reviewed by the Board following the Directors' appointments and annually thereafter and, if considered appropriate, authorised in accordance with the Act and the Articles. There were no actual or potential conflicts of interest which were required to be authorised by the Board during the period under review.

STEWARDSHIP RESPONSIBILITIES AND THE USE OF VOTING RIGHTS

Pursuant to its Investment Policy, the Company may invest (in aggregate) up to 10.0 per cent of gross assets (at the time of investment) in the listed or unquoted securities issued by one or more Platforms.

The Investment Manager, in the absence of explicit instruction from the Board, is empowered to exercise discretion in the use of the Company's voting rights. The UK Stewardship Code (the "Stewardship Code") applies on a 'comply or explain' basis. Although the Investment Manager broadly supports the objectives of the Code, it has determined that it will not commit to the Code's principles because the investment strategies it employs do not generally involve listed equities. In the event of a material change to any investment strategy such that the Stewardship Code's principles become relevant, the Investment Manager will reconsider its commitment to the Stewardship Code.

COMPANY SECRETARY

The Board has direct access to the advice and services of the Company Secretary, Link Company Matters Limited, which is responsible for ensuring that the Board and Committee procedures are followed and that applicable regulations are complied with.

SHARE CAPITAL & SHAREHOLDERS

As at 31 December 2019, there were 86,306,803 ordinary shares of £0.01 each in issue, of which 11,904,514 were held by the Company as treasury shares. Therefore, the total number of voting rights in the Company at the year-end was 74,402,289. The share capital and rights attaching to the shares are set out in Note 21 to the financial statements.

There is a total of 86,306,803 ordinary shares of £0.01 each in issue as of 28 May 2020, of which 12,303,792 ordinary shares were held by the Company as treasury shares.

Purchase of Own Shares

At the AGM held on 6 June 2019 ("2019 AGM"), the Directors were granted the authority to buyback up to 11,735,994 ordinary shares, representing 14.99 per cent of the ordinary shares in issue as at the date of the notice. As part of its discount management strategy to opportunistically buyback shares where it believes such a purchase would be accretive over and above the long term attractions of investing in its loan and equity portfolios and is in the best long term interest of all shareholders to do so. The Board utilised the authority granted at the AGM 2019 to buyback shares. The Company appointed Liberum Capital Limited ("Liberum") to manage the share buyback program (the "Program"). During the term of the Program, Liberum are authorised to independently of and without influence of the Company, effect purchases of ordinary shares from time to time, within certain pre-agreed parameters. Further details on the Company's Discount Management Policy are contained on the Company's website, https://pollenstreetsecuredlending.com.

Since the authority granted at the 2019 AGM on 6 June 2019, the Company has bought back 588,450 ordinary shares (2018: 1,751,727) at an average price of 834.0 pence per ordinary share (2018: 795.7 pence per ordinary share). At 31 December 2019, the unused authority to buyback ordinary shares as granted by shareholders at the Company's 2019 AGM, was therefore 11,147,544 ordinary shares (2018: 9,984,267). The nominal value of ordinary shares repurchased during this period was £5,884.50 (2018: £17,517.27), being 0.7 per cent of the issued ordinary share capital at 31 December 2019 (2018: 2.03 per cent). In total for the period from 1 January 2019 up to and including 31 December 2019, the Company bought back 1,686,112 ordinary shares (1 January to 31 December 2018: 3,747,148). The nominal value of these ordinary shares repurchased during the year was £16,861.12 (2018: £37,471.48) being 2.0 per cent of the issued ordinary share capital at 31 December 2019 (2018: 4.3 per cent). Further information on the buybacks undertaken during the year can be found in Note 21 to the financial statements.

From 31 December 2019 to 28 May 2020, the Company has repurchased a further 399,278 ordinary shares to hold in treasury, with a nominal value of £0.01 and being 0.5 per cent of the issued ordinary share capital at 31 December 2019. The total consideration for these repurchases was £2,873,479.

The buybacks described above were utilised both to manage the share price discount to NAV and to be accretive for shareholders. The average price paid was approximately a 14.7 per cent discount to year end NAV (2018: 20.4 per cent discount to year end NAV). The impact of the buyback activity for the year ended 31 December 2019 was an enhancement of 3.1 pence to NAV per ordinary share (2018: 7.5 pence to NAV per ordinary share ) and 0.7 pence to earnings per ordinary share (2018: 1.9 pence to earnings per ordinary share).

The existing authority to buyback ordinary shares will expire at the forthcoming AGM in 2020, where a resolution for its renewal will be proposed.

Under Rule 9 of the City Code on Takeovers and Mergers (the "Code"), to which the Company is subject, when:

1. a person acquires an interest in shares which (taken together with shares in which he and persons acting in concert (as defined in the Code) with him are interested) carry 30.0 per cent or more of the voting rights of a company subject to the Code; or

2. any person who, together with persons acting in concert with him, is interested in shares which in aggregate carry not less than 30.0 per cent of the voting rights of a company subject to the Code, but does not hold shares carrying more than 50.0 per cent of the voting rights of the company, and such person, or any persons acting in concert with him, acquires an interest in any shares which increase the percentage of shares carrying voting rights in which he is interested, that person together with the persons acting in concert with him, is normally required to extend offers in cash, at the highest price paid by him (or any persons acting in concert with him) for shares in the company within the preceding 12 months, to the holders of any class of equity share capital whether voting or non-voting and also to the holders of any other class of transferable securities carrying voting rights.

Rule 37 of the Code states that when a company redeems or purchases its own voting shares, any resulting increase in the percentage of shares carrying voting rights in which a person or group of persons acting in concert is interested will be treated as an acquisition for the purposes of Rule 9. However, Note 1 to Rule 37.1 states that a person who comes to exceed the limits in Rule 9.1 in consequence of a company's redemption or purchase of its own shares will not normally incur an obligation to make a mandatory offer unless that person is a director, or the relationship of the person with any one or more of the directors is such that the person is, or is presumed to be, acting in concert with any of the directors. A person who has appointed a representative to the Board of the company, and investment managers of investment trusts, will be treated for these purposes as a director.

The Panel on Takeovers and Mergers (the "Panel") must be consulted in advance in any case where Rule 9 of the Code might be relevant. The Company has consulted with the Panel in relation to its buyback program and, following discussions during February 2017, the Panel confirmed on an ex-parte basis that the funds managed by Invesco Asset Management Limited ("Invesco") would not be obliged to make a mandatory offer for the Company under Rule 9 of the Code in the event of an increase to Invesco's percentage shareholding in the Company caused by repurchases by the Company of its own shares.

Share Issues

At the AGM held on 6 June 2019, the Directors, in accordance with Section 551 of the Act, were granted the authority to allot ordinary shares up to an aggregate nominal value of £75,091.61, representing approximately 10.0 per cent of the issued ordinary share capital at the time. No shares have been issued under this authority. The Directors will seek approval to renew this authority at the Company's AGM to be held on 30 June 2020.

There are no restrictions concerning the transfer of securities in the Company or on voting rights; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; and no agreements which the Company is party to that might affect its control following a successful takeover bid.

Substantial Shareholdings

The Company has been informed of the following notifiable interests of 3 per cent or more in the Company's voting rights as at 31 December 2019:

Since 31 December 2019, to the date of this report, the Company has received the following notifiable interests of 3 per cent or more in the Company's voting rights:

RELATIONS WITH SHAREHOLDERS

All shareholders have the opportunity to attend and vote, in person or by proxy, at the AGM. The Notice of the AGM, which has been sent out within this Report, contains separate resolutions in respect of each substantive issue.

Shareholders are encouraged to attend the AGM and to participate in proceedings. The Chairman of the Board and the Directors, together with representatives of the Investment Manager, will be available to answer shareholders' questions at the AGM.

The Investment Manager holds regular discussions with major shareholders, the feedback from which is provided to and greatly valued by the Board. The Directors are available to enter into dialogue and correspondence with shareholders regarding the progress and performance of the Company. The section of this report, entitled 'Shareholder Information', is intended to provide information which would be useful to shareholders. General enquiries about the Company should be directed to the Company Secretary.

INTERNAL CONTROL REVIEW

The Board is responsible for ensuring the maintenance of a robust system of internal control and risk management and for reviewing the effectiveness of the Company's overall internal control arrangements and processes following recommendations from the Risk Committee.

The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company and for reviewing the effectiveness of the Company's system of internal controls including financial, operational, compliance and risk management. The Company has established a risk register consisting of the key risks and controls in place to mitigate those risks. This risk register provides a basis for the Audit Committee and the Board to regularly monitor the effective operation of the controls and to update the register when new risks are identified.

The Board has reviewed the effectiveness of the Investment Manager's, Administrator's and the Depository's system of internal control and risk management to ensure the safekeeping and accurate valuation on the Group's assets. For the year under review, the Board has not identified any significant failings or weaknesses in the internal control systems.

Risk is inherent in the Company's activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The Company is exposed to market risk (which includes currency risk, interest rate risk and other price risk), credit risk and liquidity risk arising from the financial instruments held by the Company. These risks are further disclosed in Note 8 to the financial statements.

As the Company has no employees, other than its Directors who are all non-executives, it does not have a whistleblowing policy and procedure in place. The Audit Committee reviews the whistleblowing procedures of the Investment Manager to ensure that the concerns of their staff may be raised in a confidential manner.

The following are the key components which the Company has in place to provide effective internal control:

· The Board has agreed clearly defined investment criteria and Platform restrictions, which specify levels of authority and exposure limits. The Investment Manager regularly reports to the Board on compliance with these criteria;

· The Board has a procedure to ensure that the Company can continue to be approved as an investment company by complying with sections 1158/1159 of the Corporation Tax Act 2010;

· The Investment Manager and Administrator prepare forecasts and management accounts, covering investment activities and financial matters, which allow the Board to assess the Company's activities and review its performance;

· Contractual arrangements with the Investment Manager and other third-party service providers are in place which specifically define their roles and responsibilities to the Company;

· The services and controls of the Investment Manager and other third-party service providers are subject to review by the Management Engagement Committee on an ongoing basis. Regular reports are provided to the Board by the Administrator and the Depositary; and

· The Investment Manager's Management Committee and compliance departments continually review the Investment Manager's controls and procedures and report to the Audit Committee.

The system of internal control and risk management is designed to meet the Company's particular needs and the risks to which it is exposed. The Board recognises that these control systems can only be designed to manage, rather than eliminate, the risk of failure to achieve business objectives and to provide reasonable, but not absolute, assurance against material misstatement or loss.

ALTERNATIVE INVESTMENT FUND MANAGEMENT DIRECTIVE DISCLOSURE

Quantitative remuneration disclosure

In accordance with 3.3.5 (5) of the FCA's Investment Funds Sourcebook ("FUND") and in accordance with FCA Finalised guidance - General guidance on the AIFM Remuneration Code (SYSC 19B) ("the Guidelines"), dated January 2014, the total remuneration paid by Pollen Street Capital Group companies which include the AIFM during the year was £19.4 million, split £10.6 million into variable and £8.8 million in fixed remuneration. During the year, the average number of beneficiaries at the Group which includes the AIFM were 77 and the aggregate amount of remuneration paid in relation to the Senior Management of the firm was £6.4 million. Fixed remuneration is amounts paid as salaries. Variable remuneration is amounts paid under bonus arrangements and distributions. The AIFM does not consider that any individual member of staff of the AIFM has the ability to materially impact the risk profile of the Company.

Other disclosures

The AIFMD requires that the AIFM ensures that certain other matters are actioned and or reported to investors. Each of these is set out below.

· Provision and content of an Annual Report (FUND 3.3.2 and 3.3.5). The publication of the Annual Report and audited financial statements of the Group satisfies these requirements.

· Material change of information. The AIFMD requires certain information to be made available to investors in the Company before they invest and requires that material changes to this information be disclosed in the Annual Report.

Periodic disclosure (FUND 3.2.5 and 3.2.6)

There are no assets subject to special arrangements due to their illiquid nature and no new arrangements for the managing of the liquidity of the Group.

There is no change to the arrangements, as set out in the prospectus, for managing the Group's liquidity.

The current risk profile of the Group is set out in the Strategic Report: Principal Risks and Uncertainties on pages 23 and 24 and in note 8 Financial instruments and associated risks.

The Company is permitted to be leveraged and the table below sets out the current maximum permitted and actual leverage under the gross and commitment method in accordance with Annex IV Article 8 of the AIFMD.

In accordance with the prospectus the actual leverage employed by the Group as a percentage of NAV was 42 per cent. The Group has a maximum limit of 1.5 times of NAV in aggregate (calculated at the time of draw down under any facility that the Group has entered into) as detailed in the Company's prospectuses dated 30 May 2014, 29 January 2015 and 28 July 2015. There have been no breaches of the permitted leverage limits within the reporting period and no changes to maximum level of leverage employed by the Group.

Other matters

The Investment Manager has confirmed that required reporting to the FCA has been undertaken in accordance with FUND 3.4.

By order of the Board

Link Company Matters Limited

Company Secretary

29 May 2020 

Report of the Audit Committee

As Chairman of the Audit Committee, I am pleased to present the Audit Committee report for the year ended 31 December 2019.

SUMMARY

The Committee operates within a clearly defined Terms of Reference, a copy of which is available from the Company's website.

MEMBERSHIP OF THE AUDIT COMMITTEE

The Audit Committee comprises all Directors, is chaired by Michael Cassidy and meets at least twice a year. The AIC Code stipulates that the Chairman of the Company should not be a member of the Audit Committee. However, the Board believes that it is appropriate for Mr King to be a member of the Audit Committee, given the size of the Board and Mr King's relevant financial experience. The Board is also satisfied that the combined knowledge and experience of its members within the Company's sector enable the Committee to exercise its duties effectively. Representatives of the Auditors, PricewaterhouseCoopers LLP ('PwC') also attend meetings of the Committee at least twice a year.

THE ROLE OF THE AUDIT COMMITTEE

The primary role of the Audit Committee is to monitor the integrity of the financial statements of the Company, keep under review the internal controls, manage the relationship with the external auditor and monitor the external audit process including the independence and objectivity of the external auditor.

MATTERS CONSIDERED IN THE YEAR

The Audit Committee met twice during the year under review and during those meetings it has:

· reviewed the internal controls and risk management systems of the Company and its third-party service providers;

· considered the requirement for an internal audit function;

· considered the prospects for the Company and concluded on the viability of the Company over the two-year period to the AGM in 2022;

· assessed the appropriateness of the Group's provision for credit losses under IFRS 9;

· approved the audit plan with the Auditors, including the principal areas of focus and the Auditors' fees;

· reviewed the Group's Audited Annual Report and Financial Statements for the year ended 31 December 2018 and advised the Board accordingly;

· reviewed the Group's half-year financial statements for the period ended 30 June 2019 and advised the Board accordingly;

· met with the Auditor without the presence of the Investment Manager;

· reviewed the Whistleblowing Policy of the Investment Manager;

· reviewed the Auditor's appointment and independence and considered their re-appointment; and

· reviewed and updated the terms of reference of the Committee.

A number of similar matters will be considered again during 2020 as set out in the pre-determined schedule of items for discussion during the year.

INTERNAL AUDIT

The Board has considered the need for an internal audit function and it has decided that the systems and procedures employed by the Investment Manager and the other third-party providers in relation to the Company give sufficient assurance that a sound system of internal control, which safeguards the Company's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary. The requirement, however, will regularly be re-visited in accordance with the Committee's terms of reference.

AUDIT FEES AND NON-AUDIT SERVICES

The breakdown of fees between audit services and non-audit services for the year ended 31 December 2019 are provided in Note 12 of the financial statements. The fees for the non-audit service work carried out by PwC were 7.0 per cent of the audit fee (2018: 7.0 percent) and related to assurance services in relation to the Group. The Committee considered that engaging PwC to provide these services was in the best interests of the Company due to their expertise and their knowledge and understanding of the business. To maintain the external auditor's independence and objectivity, an independent partner was appointed to lead on these services.

EXTERNAL AUDIT

The Committee monitors the Company's relationship with the Auditor and has discussed and considered their independence and objectivity. The Committee is satisfied that PwC are independent considering the term of appointment to date and have been reassured that no conflicts arose during the year and will continue to monitor this position.

The Audit Committee has met with the audit partner and reviewed and assessed PwC's performance to date. The review has involved an examination of the auditor's remuneration, the quality of its work including the quality of the audit report, the quality of the audit partner and audit team, the expertise of the audit firm and the resources available to it, the identification of audit risk, the planning and execution of the audit and the terms of engagement. Following completion of the external audit, the Committee obtains feedback on the conduct of the audit. The Auditor is also invited to attend Committee meetings and also meets with the Committee and its Chairman without the presence of the Investment Manager.

The Committee recommends to the Board that, subject to shareholders' approval at the 2020 AGM, PwC be re-appointed as the Auditor for the Company.

The Company has complied throughout 2019 with the provisions of The Statutory Audit Services Order 2014, issued by the Competition and Markets Authority.

SIGNIFICANT AREAS CONSIDERED BY THE AUDIT COMMITTEE

After discussion with the Investment Manager and the Auditors, the Committee determined that the key risks in relation to the Company's financial statements and how they were addressed were:

For and on behalf of the Audit Committee

Michael Cassidy

Audit Committee Chairman

29 May 2020

Risk Committee Report

As Chairman of the Risk Committee, I am pleased to present the report for the year ended 31 December 2019. Full details of the number of committee meetings and attendance by individual committee members can be found on page 38.

SUMMARY

The Committee operates within a clearly defined Terms of Reference, a copy of which is available from the Company's website.

MEMBERSHIP AND ROLE OF THE RISK COMMITTEE

The Risk Committee comprises all Directors and is chaired by David Fisher and meets at least twice a year. Senior representatives of the Manager also attend meetings of the Committee to present risk related management information. The Board is satisfied that the combined knowledge and experience of its members enables the Committee to exercise its duties effectively. The Board is ultimately responsible for the risk management of the Company. It seeks to achieve an appropriate balance between mitigating risk and generating attractive risk-adjusted returns for shareholders. Integrity and responsibility are embedded in the Company's approach to risk management.

MATTERS CONSIDERED IN THE YEAR

The Risk Committee met twice during the year under review and during those meetings it has:

· reviewed the internal controls and risk management systems of the Company and its third-party service providers;

· assessed the principal risks of the Company and how they are managed and mitigated;

· received and review risk related management information;

· monitored the Group's risk appetite;

· reviewed the policies and process for identifying and assessing business risks and the management of those risks by the Company;

· received regular reports from key service providers on their own controls;

· monitored and ensured adherence to best practice in corporate governance; and

· reviewed and updated the terms of reference of the Committee.

Risk management

During the year the committee reviewed and updated the risk matrix, where appropriate, to reflect the Company's key risks and considered risk related matters.

For and on behalf of the Risk Committee

David Fisher

Risk Committee Chairman

29 May 2020 

Directors' Remuneration Report

The Directors' Remuneration Report for the year ended 31 December 2019 has been prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2008 (as amended). An ordinary resolution for the approval of the Directors' Remuneration Report will be put to shareholders at the forthcoming Annual General Meeting.

Full details of the number of attended committee meetings by individual committee members can be found on page 38.

STATEMENT FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE

Remuneration Committee

The Remuneration Committee is chaired by Mahnaz Safa and consists of all the Directors. It is the responsibility of the Committee to determine the remuneration of each Director and to consider the skills, competence and independence of candidates in the context of the overall Board composition and to nominate candidates to the Board. No Director is involved in deciding their own remuneration.

During the year under review, the Committee met five times and reviewed and considered:

· market remuneration trends against a comparison of its peer group;

· the size, composition and structure of the Board, time commitment required of the Directors and the leadership and succession needs of the Company;

· the level of the Directors' fees;

· the level of Directors' fees in relation one-off projects in order for the Board to discharge their duties in relation to one-off projects; and

· The Board have also considered and agreed upon a formal policy for the approval of Directors' expenses.

VOTING AT ANNUAL GENERAL MEETING

The Directors' Remuneration Report for the year ended 31 December 2018 and the Directors' Remuneration Policy was approved by shareholders at the AGM's held on 6 June 2019 and 15 June 2018 respectively. The votes cast by proxy were as follows:

DIRECTORS' REMUNERATION POLICY

The Remuneration Policy set out below was approved at the AGM held on 15 June 2018 and will apply until it is put to shareholders for renewal at intervals of not more than three years, or the Remuneration Policy is varied, in which event shareholder approval for the new Remuneration Policy will be sought.

The Company has no employees other than its Directors who are all non-executives. When deciding the level of fees the Committee considers the amount of time expected to be spent on the Company's affairs and each Director's associated responsibilities to the Company. It also takes into account the remuneration of Directors of other investment companies of similar size and/or mandate and gives due regard to the limits set out in the Company's Articles of Association, which prohibits the total aggregate annual fees payable to the Directors in respect of any financial year to exceed £500,000.

The Directors do not participate in any discussions relating to their own fee which is determined by the Board.

Directors are not eligible for bonuses, share options or long-term incentives schemes or other performance-related benefits. There are no pension arrangements in place for the Directors of the Company. No Director has a service contract with the Company and as such is not entitled to compensation payments upon termination of their appointment or loss of office.

Under the Articles, if any Director is called upon to perform extra or special services of any kind, he or she is entitled to receive such sum as the Board may think fit for expenses, and also such remuneration as the Board may think fit, either as a fixed sum or as a percentage of profits or otherwise, and such remuneration may, as the Board shall determine, be either in addition to or in substitution for any other remuneration he or she may be entitled to receive.

Directors are also entitled to receive all expenses properly incurred by them in attending general meetings or separate meetings of the holders of any class of shares or meetings of the Board or Committees of the Board or otherwise in or with a view to the performance of their duties.

Fees of any new Director appointed will be on the above basis. Fees payable in respect of subsequent periods will be determined following an annual review. Any views expressed by shareholders on the fees being paid to Directors would be taken into consideration by the Board.

TOTAL REMUNERATION PAID TO EACH DIRECTOR (AUDITED)

The Directors who served during the year earned the following remuneration set out in the table below. The highest paid director for the year was Stuart Cruickshank £64,000 (2018: Stuart Cruickshank £49,000).

*Stuart Cruickshank resigned from the Board, with effect from 1 January 2020.

*\* The total remuneration was increased by £10,000 for Directors and £15,000 for the Chairman as a result of additional work undertaken for one-off projects during the financial period. The base Directors' fee was unchanged during the financial period.

The table below sets out a breakdown of Director's remuneration for 2019:

Following the 31 December 2019 year end, the Board's remuneration for the year ending 31 December 2020 was reviewed in April 2020 and it was agreed that no changes would be made to the Directors' fees. As part of the review it was agreed to make a payment to each Director of £15,000 and £25,000 to the Chairman in respect of one-off project work already undertaken in respect of the year ending 31 December 2020.

RELATIVE IMPORTANCE OF SPEND ON PAY

The table below shows the total amount paid out in remuneration and distribution to shareholders for the financial years 2019 and 2018.

* This figure includes the interim dividends to 31 March 2019, 30 June 2019, 30 September 2019 and 31 December 2019 which were paid to ordinary shareholders on 14 June 2019, 30 September 2019, 13 December 2019 and 27 March 2020 respectively.

** This figure includes the interim dividends to 31 March 2018, 30 June 2018, 30 September 2018 and 31 December 2018 which were paid to ordinary shareholders on 18 June 2018, 19 September 2018, 19 December 2018 and 27 March 2019 respectively

DIRECTORS' SERVICE CONTRACTS

No Director has a service contract with the Company and as such is not entitled to compensation payments upon termination of their appointment or loss of office.

A letter of appointment was issued to the Directors at the beginning of their term of office which details their initial three-year appointment, subject to retirement by rotation in accordance with the Company's Articles of Association.

ADVISORS TO THE REMUNERATION COMMITTEE

The Board has not sought the advice or service by any outside person in respect of its consideration of the Directors' remuneration.

DIRECTORS' INTERESTS (AUDITED)

There is no requirement under the Company's Articles or letters of appointment for Directors to hold shares in the Company. The interests of the Directors (who served during the year) in the shares of the Company, at the end of the year under review were as follows:

There have been no other changes to the Directors' share interests between 31 December 2019 and the date of this report.

On behalf of the Board

Mahnaz Safa

Chairman of the Remuneration Committee

29 May 2020

Nomination Committee Report

Full details of the number of committee meetings and attendance by individual committee members can be found on page 38.

New appointments will be identified against the requirements of the Company's business and the need to have a balanced Board with the best range of skills and experience to complement existing Directors. Appointments will be made on merit, taking into account the benefits of diversity, including gender.

The Board acknowledges the benefits of greater diversity, including gender diversity and remains committed to ensuring that the Company's directors bring a wide range of skills, knowledge, experience, backgrounds and perspectives. The Board decided it would not be appropriate to set targets as all appointments must be made on merit. It established the following measurable objectives for achieving diversity on the Board:

· All Board appointments will be made on merit, in the context of the skills, knowledge and experience that are needed for the Board to be effective;

· Long lists of potential non-executive directors should include diverse candidates of appropriate merit; and

· Only engage executive search firms who have signed up to the voluntary Code of Conduct on gender diversity and best practice.

MEMBERSHIP AND ROLE OF THE NOMINATION COMMITTEE

The Nomination Committee is chaired by Simon King and consists of all the Directors. The Board is satisfied that the combined knowledge and experience of its members enables the Committee to exercise its duties effectively. The Committee is primarily responsible for keeping the composition of the Board under review and to lead the process for appointments to the Board and its Committees. It is also responsible for keeping the structure, size and composition of the Board under regular review, and for making recommendations to the Board with regard to any changes necessary. The Committee also considers succession planning for the Board, taking into account the skills and expertise that will be needed on the Board in the future.

DIVERSITY POLICY

The Board has approved and adopted a diversity policy. The policy acknowledges the importance of diversity, including gender diversity, for the Company. The Board acknowledges the benefits of greater diversity, including gender diversity and remains committed to ensuring that the Company's directors bring a wide range of skills, knowledge, experience, backgrounds and perspectives. There has been no further recruitment of Directors post year end as the Board have decided not to appoint another Director.

MATTERS CONSIDERED IN THE YEAR

The Nomination Committee met twice during the year under review and during those meetings it has:

· considered and agreed upon a formal policy on tenure;

· considered and agreed upon a formal policy the responsibilities of the chairman and the senior independent director;

· considered and enacted its succession plan by appointing Simon King as Chairman of the Company;

· agreed the appointment of Mahnaz Safa as the Senior Independent Director;

· undertook a performance evaluation of the Board, its Committees and individual Directors; and

· reviewed and agreed upon the decision to not appoint another Director

On behalf of the Board

Simon King

Chairman of the Nomination Committee

29 May 2020

Management Engagement Committee Report

MEMBERSHIP AND ROLE OF THE COMMITTEE

All of the Directors are members of the Committee and the Board is satisfied that the combined knowledge and experience of its members enables the Committee to exercise its duties effectively.

Full details of the number of committee meetings and attendance by individual committee members can be found on page 38.

The Management Engagement Committee is primarily responsible for reviewing the appropriateness of the continuing appointment of the Investment Manager, ensuring the terms and conditions of the Investment Manager's continuing appointment align with the investment policy and investment objective of the Company.

PERFORMANCE OF INVESTMENT MANAGER

The Committee keeps under review the performance of the Investment Manager and the level and terms of the management fee. Following a formal review carried out by the Committee, on 25 February 2020, the Board announced that it had served 12 months' notice on the Manager to terminate the Investment Management Agreement.

On behalf of the Board

Simon King

Chairman of the Management Engagement Committee

29 May 2020

Management Report and Statement of Directors' Responsibilities

Listed companies are required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rules (the 'Rules') to include a management report in their annual Financial statements. The information required to be in the management report for the purpose of the Rules is included in the Chairman's Statement (pages 7 and 8), the Investment Manager's Report (pages 9 to 11), Top Ten Holdings (pages 12), Portfolio composition (page 13), the Business Review (pages 14 to 22) and the Report of the Directors (pages 32 to 35). Therefore, a separate management report has not been included.

Directors' Responsibilities Statement in Relation to the Financial Statements

The Directors are responsible for preparing the Annual Report and the Group and Company Financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards ("IFRS") as adopted by the European Union. The Directors are also required to prepare a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement. Under company law, the Directors must not approve the Financial statements unless they are satisfied that they present a fair, balanced and understandable report and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. In preparing the Financial statements, the Directors are required to:

• select suitable accounting policies in accordance with IAS 8: 'Accounting Policies, Changes in Accounting Estimates and Errors' and then apply them consistently;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

 • provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance;

• state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the financial statements;

• make judgements and estimates that are reasonable and prudent; and

• prepare the financial statements on a going concern basis unless it is inappropriate to assume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the Financial position of the Group and Company and enable them to ensure that the Group and Company's Financial statements and Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Responsibility Statements under the Disclosure Guidance and Transparency Rules Each of the Directors confirms that to the best of his or her knowledge:

• the Group and Company's Financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, Financial position and profit or loss of the Company;

• the Strategic Report (comprising the Chairman's Statement, Manager's Report, top ten largest Holdings, Analysis of Investment Portfolio by Sector and Business Model and Strategy) and the Report of the Directors include a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces;

• taken as a whole, the Annual Report and Financial statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy; • the Financial statements include details on related party transactions; and

• having assessed the principal risks and other matters discussed in connection with the Viability Statement, it is appropriate to adopt the going concern basis in preparing the Financial statements.

The Annual Report and Accounts were approved by the Board and the above responsibility statement was signed on its behalf by:

Simon King

Chairman

29 May 2020 

Financial Statements

Consolidated Statement of Financial Position

AS AT 31 DECEMBER 2019

There have been presentational changes to the Consolidated Statement of Financial position please see note 25 for details.

The financial statements on pages 66 to 136 were approved by the Board of Directors on 29 May 2020 and signed on its behalf by:

Simon King

Chairman

29 May 2020

Company Statement of Financial Position

AS AT YEAR ENDED 31 DECEMBER 2019

Advantage has been taken of the exemption under section 408 of the Companies Act 2006 and accordingly the Company has not presented a Statement of Comprehensive Income for the Company alone. The profit after taxation of the Company for the year ended 31 December 2019 was £34,823,000 (2018: £30,727,000).

There have been presentational changes to the Company Statement of Financial position please see note 25 for details.

The financial statements on pages 66 to 136 were approved by the Board of Directors on 29 May 2020 and signed on its behalf by:

Simon King

Chairman

29 May 2020

Consolidated Statement of Comprehensive Income 2019

FOR THE YEAR ENDED 31 DECEMBER 2019

The total column of this statement represents the Group's Consolidated 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. There is no other comprehensive income.

There have been presentational changes to the Consolidated Statement of Comprehensive Income please see note 25 for details.

Consolidated Statement of Comprehensive Income 2018

FOR THE YEAR ENDED 31 DECEMBER 2018

The total column of this statement represents the Group's Consolidated 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. There is no other comprehensive income.

There have been presentational changes to the Consolidated Statement of Comprehensive Income please see note 25 for details.

Consolidated Statement of Changes in Shareholders' Funds

FOR THE YEAR ENDED 31 DECEMBER 2019

FOR THE YEAR ENDED 31 DECEMBER 2018

Company Statement of Changes in Shareholders' Funds

FOR THE YEAR ENDED 31 DECEMBER 2019

FOR THE YEAR ENDED 31 DECEMBER 2018

Consolidated Cash Flow Statement

FOR THE YEAR ENDED 31 DECEMBER 2019

Company Cash Flow Statement

FOR THE YEAR ENDED 31 DECEMBER 2019

Notes to the Consolidated Financial Statements

1. GENERAL INFORMATION

Pollen Street Secured Lending plc (the "Company") is a closed-ended investment company incorporated and domiciled in the United Kingdom on 6 December 2013 with registered number 08805459. On the 18 September 2019 the Company was renamed from P2P Global Investments plc. The Company is a publicly listed company and commenced operations on 30 May 2014. The registered office is 6th Floor, 65 Gresham Street, London, EC2V 7NQ, United Kingdom.

The investment objective of the Company is to provide shareholders with an attractive level of dividend income and capital growth through exposure to investments in alternative finance and related instruments.

The Company's investment manager is PSC Credit Holdings LLP (the "Investment Manager"). Pollen Street Capital (US) LLC, an affiliate of the Investment Manager and an SEC registered investment adviser, was appointed as sub investment manager (the "Sub-Manager") to the Company. The Investment Manager has, pursuant to the Sub-Management Agreement, delegated certain of its responsibilities and functions, including those in relation to its discretionary management of the Company's portfolio of credit assets, to the Sub-Manager.

The Investment Manager is authorised as an Alternative Investment Fund Manager ("AIFM") under the Alternative Investment Fund Managers Directive ("AIFMD"). The Company is defined as an Alternative Investment Fund and is subject to the relevant articles of the AIFMD.

The Company invests, directly and indirectly, in consumer loans, small and medium sized enterprises ("SME") loans, advances against corporate trade receivables and/or purchases of corporate trade receivables ("Credit Assets") which have been originated via Platforms. The Company will typically seek to invest in Credit Assets with targeted net annualised returns of 5 to 15 per cent. The Company will seek to purchase Credit Assets directly (via Platforms or via other originators) and may also invest in such assets indirectly via funds, partnerships or special purpose vehicles (including those managed by the Investment Manager, the Sub-Manager or their affiliates) that it deems suitable with a view to enhancing Shareholder returns and providing diversification of the Company's assets.

As at 31 December 2019, the Company had total issued equity in the form of 86,306,803 ordinary shares (2018: 86,306,803) of which 74,402,289 (2018: 76,088,401) were outstanding and 11,904,514 (2018: 10,218,402) were held as treasury shares. These shares are listed on the Premium listing segment of the Official List of the UK Listing Authority and trade on the London Stock Exchange's main market for listed securities.

Citco Fund Services (Ireland) Limited (the "Administrator") has been appointed as the Administrator of the Company. The Administrator is responsible for the Company's general administrative functions, such as the calculation and publication of the Net Asset Value ("NAV") and maintenance of the Company's accounting records.

All values are rounded to the nearest thousand pounds unless otherwise indicated.

2. SIGNIFICANT ACCOUNTING POLICIES

a) Basis of preparation and consolidation

The consolidated financial statements for the Company are prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU"). They comprise standards and interpretations approved by the International Accounting Standards Board ("IASB") and International Financial Reporting Committee, including interpretations issued by the IFRS Interpretations Committee and interpretations issued by the International Accounting Standard Committee ("IASC") that remain in effect, to the extent they have been adopted by the EU. The consolidated financial statements are also in compliance with relevant provisions of the Companies Act 2006 as applicable to companies reporting under IFRS. The accounting policies have been applied consistently year on year.

Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for investment trusts issued by the Association of Investment Companies ("AIC") in July 2018 is consistent with the requirements of IFRS, the Directors have sought to prepare the consolidated financial statements on a basis compliant with the recommendations of the SORP.

Accounting standards effective

IFRS 16 Leases

IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases, with the objective of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or after 1 January 2019.

The adoption of this standard and interpretations does not have a material impact on the financial statements, given the nature of the Group's business being that it has no leases.

Accounting standards issued but not yet effective

IFRS 17 Insurance Contract

IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity's financial position, financial performance and cash flows. IFRS 17 was issued in May 2017 and applies to annual reporting periods beginning on or after 1 January 2023.

The Directors do not anticipate that the adoption of this standard and interpretations will have a material impact on the financial statements, given the nature of the Group's business being that it has no insurance contracts.

IFRS 3 Amendments regarding the definition of a business

The IASB has issued 'Definition of a Business (Amendments to IFRS 3)' aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020.

Other future developments include the IASB undertaking a comprehensive review of existing IFRSs. The Group will consider the impact of these new standards as they are finalised.

Consolidation

Subsidiaries are investees controlled by the Company. The Company controls an investee if it is exposed to, or has the rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Company reassesses whether it has control if there are changes to one or more elements of control. The Company does not consider itself to be an investment entity for the purposes of IFRS 10, as it does not hold substantially all of its investments at fair value. Consequently, it consolidates its subsidiaries rather than treating its subsidiaries as investments at fair value through profit or loss. At the Company level, the Company's investments in its subsidiaries are measured at fair value which is determined with reference to the underlying net asset value of the subsidiary.

Associates are entities over which the Group has significant influence, but does not control, generally accompanied by a shareholding of between 20 per cent and 50 per cent of the voting rights.

No associates are presented on the Statement of Financial Position using the equity accounting method as the Group elects to hold such investments at fair value through profit and loss. This treatment is permitted by International Accounting Standard ("IAS") 28 Investment in Associates and Joint Ventures, which also permits investments held by entities that are venture capital organisations, mutual funds or similar entities to be excluded from its measurement methodology requirements where those investments are designated, upon initial recognition, as at fair value through profit or loss and accounted for in accordance with IFRS 9 Financial Instruments. Changes in fair value of associates are recognised in the Statement of Comprehensive Income in the period in which the change occurs.

The disclosures required by Section 409 of the Companies Act 2006 for associated undertakings are included in Note 2 to the financial statements.

As at 31 December 2019, the Company controls four legal entities listed below as well as nine Trusts which are subsidiaries that the Company controls (together "the Group").

During 2019, the Company controlled four legal entities listed below as well as one Trust which were subsidiaries that the Company controlled at some point in the year, which however were not controlled at year end.

The Company invests in a special purpose vehicle, Eaglewood SPV I LP (the "SPV") and at 31 December 2019 is the sole Limited Partner in that SPV and controls it. The principal activity of Eaglewood SPV I LP is to invest in alternative finance investments and related instruments, including marketplace loans, which is aligned with the Company's investment objective. The Company's position with regards to the SPV is that of an investor where its maximum loss is restricted to its investment in the vehicle and in return for this receives a quarterly income distribution.

The Company controls Eaglewood Income Fund I, LP (the "Eaglewood Fund"), a Delaware limited partnership established on 3 February 2012, through the control of the SPV. As at 31 December 2019, the SPV is the sole limited partner in the Eaglewood Fund. The Eaglewood Fund is an open ended private investment fund, offering monthly subscriptions and quarterly redemptions, with 90 days' notice. The Eaglewood Fund is managed by the Investment Manager, Pollen Street Capital (US), LLP. It employs a strategy that primarily involves leveraged investment in monthly amortising unsecured US consumer loans originated by a single Platform with terms of three to five years.

The Company also controls Marketplace Originated Consumer Assets 2017-1 PLC ("MOCA 2017") a public limited company incorporated under the Law of England and Wales. MOCA 2017 is a securitisation vehicle for UK consumer loans and operates in a pre-determined manner. The Company is considered to control MOCA 2017 by virtue of being its sponsor whilst having exposure to the variable returns of the vehicle through the holding of junior notes issued by it. MOCA 2017 was incorporated in November 2017. MOCA 2017 has issued senior debt, which is listed on Irish Stock Exchange.

The Company also controls Small Business Origination Loan Trust 2019-1 DAC ("SBOLT 2019") a public limited company incorporated in Ireland, SBOLT 2019 is a securitisation vehicle for unsecured loans made to small and medium-sized enterprises ("SMEs") incorporated in the UK and operates in a pre-determined manner. The Company is considered to control SBOLT 2019 from April 2019 by virtue of being its sponsor whilst having exposure to the variable returns of the vehicle through the holding of junior notes issued by it. SBOLT 2019 was incorporated in April 2019. SBOLT 2019 has issued senior debt, which is listed on Irish Stock Exchange.

The Company also controls a number of trusts ("Trusts") through its control of the SPV and the Eaglewood Fund. The SPV and the Eaglewood Fund control a Trust if they are exposed to, or have the rights to, variable returns from their involvement with the Trust and have the ability to affect those returns through its power over the Trust. As at 31 December 2019, the SPV is the sole beneficial owner of EW-PFL Trust, SPV I Loan Trust, Payoff Consumer Loan Trust, PSC 1803 Autoloan Trust, PSC Rocketloans Prime Consumer Loan Trust and PSC 2018F loan Trust while the Eaglewood Fund is the sole beneficial owner of Eaglewood LC Trust. During the year, the SPV became the sole beneficial owner of an LLC; PSC 2019P LLC.

During the period, P2P BL-3 PLC ("P2P BL-3"), a public limited company incorporated with limited liability under the Law of England and Wales was liquidated. The Company was previously considered to control P2P BL-3 by virtue of being its sponsor while having exposure to the variable returns of the vehicle through the holding of junior note issued by it. During the period all loans were novated from the Company as part of the liquidation process and therefore the Company is no longer exposed to variable returns from April 2019.

During the period, the Company controlled CH Mercury Note Issuer DAC ("CH") a public limited company incorporated in Ireland, CH is a special purpose vehicle for development and bridging finance loans. The Company was considered to control CH through holding 100 per cent of the issued shares. The Company was formed in November 2018 but only became active in February 2019. The pool of development and bridging finance loans were sold in August 2019 and CH was liquidated. CH was consolidated from February 2019 until August 2019.

During the period, Marketplace Originated Consumer Assets 2016-1 PLC ("MOCA 2016"), a public limited company incorporated under the Law of England and Wales is in the process of being liquidated. MOCA 2016 was a securitisation vehicle for UK consumer loans and operates in a pre-determined manner. The Company was previously considered to control MOCA 2016 by virtue of being its sponsor whilst having exposure to the variable returns of the vehicle through the holding of junior notes issued by it. During the period all loans were novated from the Company and it is in the process of liquidation therefore the Company is no longer exposed to variable returns from August 2019.

During the period, P2P BL-2 Limited ("P2P BL-2"), a public limited company incorporated with limited liability under the Law of England and Wales is in the process of liquidation. The Company was previously considered to control P2P BL-2 by virtue of being its sponsor while having exposure to the variable returns of the vehicle through the holding of junior note issued by it. During the period all loans were novated from the Company and it is in the process of liquidation therefore the Company is no longer exposed to variable returns from September 2019.

All entities within the Group have co-terminus reporting dates.

Intra-group balances and transactions, and any unrealised income and expenses (except for currency transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the Consolidated Financial Statements.

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. The Directors consider that the Group and the Company have adequate financial resources to enable them to continue operations for a period of no less than 12 months from the reporting date. The Directors have reviewed the financial projections of the Group from the date of this report, which have been updated to take into account the economic disruption caused by the COVID-19 pandemic. These show that the Group will be able to generate sufficient cash flows in order to meet its liabilities as they fall due and for the foreseeable future, and that all relevant conditions such as covenants under the Group's external borrowings will be met over that period

There are a number of other developments which are relevant to the future of the Group and Company, and which may affect the continued use of going concern accounting principles.

The Directors of the Company announced on 25 February 2020 that the Company was in discussions regarding a possible offer by Waterfall Asset Management LLC ("Waterfall") for the acquisition of the entire share capital of the Company. They also announced that the possible offer was supported by the largest shareholder of the Company at that time. The offer period has since been extended, and on 19 May 2020, a further extension to 16 June 2020 was announced. The intentions of Waterfall, as to their plans for the Company should an offer be made and be successful, have not been announced. The announcement made by the Company on 19 May 2020, indicated also that The Board is also reviewing all options in the event that the possible offer does not proceed.

In addition, Article 167 of the Company's Articles of Association stipulates that at the Annual General Meeting to be held in 2021 the Directors shall propose an ordinary resolution that the Company continues to operate as an investment company (the "continuation vote"). If this resolution does not receive approval from a majority of shareholders, the Articles stipulate that the Directors shall, within three months of the date of the resolution, put forward proposals to shareholders to the effect that the Company be wound up or similarly restructured. The outcome of the continuation vote cannot at this stage be determined with any certainty.

The potential consequences of the possible offer, and the continuation vote, are conditions that indicate the existence of a material uncertainty which may cast significant doubt about the Group's and Company's plans or ability to continue as a going concern. The Group and Company financial statements do not include the adjustments that would result if the Group and Parent Company were no longer to be considered a going concern.

Notwithstanding this uncertainty, the Directors are satisfied that the going concern basis remains appropriate for the preparation of the financial statements.

(b) Foreign currency

The Group's presentational and functional currency is Pounds Sterling (£). Pounds Sterling is the denomination of the Company's share capital and the primary economic environment of its shareholders. Foreign currency exposures arising from its investments are hedged back into Pounds Sterling.

Transactions in foreign currencies are translated into 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 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, including loans at amortised cost, or liabilities, are taken to the capital return column of the Consolidated Statement of Comprehensive Income. Foreign exchange gains and losses arising on investments held at fair value are included within changes in fair value.

(c) 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. Net profit on ordinary activities before finance costs and taxation in the revenue column is the measure the Directors believe appropriate in assessing the Group's compliance with certain requirements set out in section 1158 of the Corporation Taxes Act 2010.

In respect of the analysis between revenue and capital items presented within the Consolidated Statement of Comprehensive Income, all expenses and finance costs, which are accounted for on an accruals or effective interest rate basis as relevant, have been presented as revenue items except those items listed below:

· expenses are allocated to capital where a direct connection with the maintenance or enhancement of the value of the investments can be demonstrated; and

· expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.

The following are presented as capital items:

· realised gains and losses on the disposal of investments;

· unrealised gains and losses arising from the valuation of investments held at the year-end;

· realised and unrealised gains and losses on transactions undertaken to hedge an exposure of a capital nature;

· realised and unrealised exchange differences of a capital nature; and

· expenses, together with the related taxation effect, allocated to capital in accordance with the above policies.

(d) Income

For financial instruments measured at amortised cost the effective interest rate ("EIR") 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 EIR is the rate that exactly discounts estimated future cash payments or receipts through 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 EIR, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, early redemption penalty charges) but does not consider future credit losses. The calculation includes all fees received and paid and costs borne that are an integral part of the EIR and all other premiums or discounts above or below market rates.

Once a financial asset or a group of similar financial assets becomes credit impaired, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss and is recognised over the period to which the expected cash flows relate.

Dividend income from investments is taken to the revenue column of the Consolidated Statement of Comprehensive Income on an ex-dividend basis.

Bank interest and other income receivable are accounted for on an accruals basis.

Fair value gains and losses arising from derivative instruments are credited or charged to the Consolidated Statement of Comprehensive Income.

(e) Expenses

Expenses are recognised on an accruals basis, on-going operational expenses are detailed in Note 12. The basis of calculation for the investment management and performance fees is set out in Note 12 to the financial statements.

Following a review of the Consolidated Statement of Comprehensive Income and Consolidated Statement of Financial Position and the associated knock on effect on the Cashflow Statement, the Directors have decided to re-present these statements for 2018 and incorporate them in 2019. The changes made to the face of these financial statements are to make them easier to read and understand for the end user and to tie in with how the Company Group monitors and reviews performance internally and externally in other outputs. There have been no changes to the basis on which the items are estimated or measured. This has involved third party servicing being split out on the face of the Consolidated Statement of Comprehensive Income given it is a material number and better reflects how the business operates.

(f) Dividends payable to shareholders

Dividends to shareholders are accounted for in the period in which the ex-dividend date falls. Dividends payable to shareholders are recognised in the Consolidated Statement of Changes in Equity on the ex-dividend date. Only revenue reserves and those from the special distributable reserve will be distributed.

(g) Taxation

The tax payable is based on the taxable profit for the year. Taxable profit differs from 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 reporting date.

In line with the recommendations of the SORP, 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.

Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Investment trusts which have approval as such under section 1158 of the Corporation Taxes Act 2010 are not liable for taxation on capital gains. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the reporting date.

Deferred tax is charged or credited in the Consolidated Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

(h) Financial assets and financial liabilities

(i) Financial assets

Classification and measurement

Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument. The Group shall offset financial assets and financial liabilities if it has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis. Financial assets and liabilities are derecognised when the Group settles its obligations relating to the instrument.

IFRS 9 involves a principle-based approach and applies one classification approach for all types of debt instruments. For Debt Instruments, two criteria are used to determine how they should be classified and measured: (a) the entity's business model (i.e. how an entity manages its debt instruments in order to generate cash flows by collecting contractual cash flows, selling debt instruments or both); and (b) the contractual cash flow characteristics of the financial asset (i.e. whether the contractual cash flows are solely payments of principal and interest).

A debt instrument is measured at amortised cost if it meets both of the following conditions and is not designated as at fair value through profit and loss ("FVTPL"): (a) it is held within a business model whose objective is to hold assets to collect contractual cash flows; and (b) its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The carrying amount of these assets is adjusted by any expected credit loss allowance recognised and measured as described further in this note.

A debt instrument is measured at fair value through other comprehensive income ("FVOCI") if it meets both of the following conditions and is not designated as at FVTPL: (a) it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and (b) its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Movements in the carrying amount are taken through the Other Comprehensive Income ("OCI"), except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses on the investments amortised cost which is recognised in the Consolidated Statement of Comprehensive Income. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to the Consolidated Statement of Comprehensive Income and recognised in 'Income'. Interest income from these financial assets is included in 'Income' using the effective interest rate method ("EIRM").

The EIRM is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate ("EIR") is the rate that exactly discounts estimated future cash flows through 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. When calculating the effective interest rate, the Group takes into account all contractual terms of the financial instrument, for example prepayment options, but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Fees and commissions which are not considered integral to the EIRM and deposit interest income are recognised on an accruals basis when the service has been provided or received.

Equity instruments are measured at FVTPL, unless they are not held for trading purposes, in which case an irrevocable election can be made on initial recognition to measure them at FVOCI with no subsequent reclassification to the Consolidated Statement of Comprehensive Income. This election is made on an investment by investment basis. Equity instruments are instruments that meet the definition of equity from the issuer's perspective; that is, instruments that do not contain a contractual obligation to pay and that evidence a residual interest in the issuer's net assets. Examples of equity instruments include basic ordinary shares.

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. Financial assets measured at FVTPL are recognised in the Consolidated Statement of Financial Position at their fair value. Fair value gains and losses together with interest coupons and dividend income are recognised in the income statement within net trading income in the period in which they occur. The fair values of assets and liabilities traded in active markets are based on current bid and offer prices respectively. If the market is not active the Group establishes a fair value by using valuation techniques. In addition, on initial recognition the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Refer to Note 2(h)(ii) for further details on financial liabilities.

Business model assessment

The Group has made an assessment of the objective of the business model in which a financial asset is held at a portfolio level in order to generate cash flows because this best reflects the way the business is managed and information is provided to the Board by the Investment Manager. That is, whether the Group's objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of assets. If neither of these are applicable, then the financial assets are classified as part of the other business model and measured at FVTPL.

The information considered by the Group in determining the business model includes:

· The stated policies and objectives for the portfolio and the operation of those policies in practice, including whether the strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of assets;

· Past experience on how the cash flows for these assets were collected;

· How the performance of the portfolio is evaluated and reported to the Board;

· The risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; and

· The frequency, volume and timing of sales in prior periods, the reasons for such sales and expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Investment Manager's stated objective for managing the financial assets is achieved and how cash flows are realised.

Assessment whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a reasonable profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the contractual terms of the instrument are considered to see if the contractual cash flows are consistent with a basic lending arrangement. In making the assessment, the following features are considered:

· Contingent events that would change the amount and timing of cash flows;

· Leverage features;

· Prepayment and extension terms;

· Terms that limit the Group's claim to cash flows from specified assets e.g. non-recourse asset arrangements; and

· Features that modify consideration for the time value of money, e.g. periodic reset of interest rates.

The Group reclassifies debt investments when and only when its business model for managing those assets changes. The reclassification that has taken place forms the start of the first reporting period following the change. Such changes are expected to be very infrequent.

Deemed loans

The deemed loans are a non-derivative financial liability with fixed or determinable repayments that are not quoted in an active market. Deemed loans in relation to the Company relate to loans originated by the Company and subsequently securitised in a special purpose entity to reduce the cost of borrowing. Although the loans are no longer legally owned by the Company, the Company maintains the economic risk and reward of the underlying assets and therefore does not meet the criteria to derecognise. Derecognition cannot be achieved by merely transferring the legal title of a financial asset to another party. The substance of the arrangement must be assessed in order to determine whether an entity has transferred the economic exposure associated with the rights inherent in the asset.

Loans and related transaction costs are measured at initial recognition at fair value and are subsequently measured at amortised cost using the EIRM. International accounting standards ("IAS") makes it clear that assets should only appear on one statement of financial position. IFRS require a reporting entity, as part of the derecognition assessment, to consider whether the transfer includes a transfer to a consolidated subsidiary. Derecognition cannot be achieved by merely transferring the legal title to a financial asset to another party. The substance of the arrangement must be assessed in order to determine whether an entity has transferred the economic exposure associated with the rights inherent in the asset (i.e., its risks and rewards) and, in some cases, control of those rights.

In the case of the Company, it has not met the requirements of derecognition in relation to the deemed loans given the economic exposure associated with the rights inherent in the assets (i.e., its risks and rewards), have been retained. As such the Company fails to meet the requirements for derecognition and continues to recognise the financial assets and as such has a deemed loans liability to the to the relevant special purpose entity. At a consolidated Group level, the deemed liability is eliminated.

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 have expired or where the assets have been transferred and substantially all of the risks and rewards of ownership have been transferred.

Impairment

The impairment charge in the consolidated statement of comprehensive income includes the change in expected credit losses which are recognised for loans and advances to customers, other financial assets held at amortised cost and certain loan commitments.

IFRS 9 applies a single impairment model to all financial instruments subject to impairment testing. Impairment losses are recognised on initial recognition, and at each subsequent reporting period, even if the loss has not yet been incurred. In addition to past events and current conditions where there has been a change in credit risk, reasonable and supportable forecasts affecting collectability are also considered when determining the amount of impairment in accordance with IFRS 9.

At initial recognition, allowance is made for expected credit losses resulting from default events that are possible within the next 12 months (12-month expected credit losses). In the event of a significant increase in credit risk, allowance (or provision) is made for expected credit losses resulting from all possible default events over the expected life of the financial instrument (lifetime expected credit losses). Financial assets where 12-month expected credit losses are recognised are considered to be Stage 1; financial assets which are considered to have experienced a significant increase in credit risk are in Stage 2; and financial assets which have defaulted or are otherwise considered to be credit impaired are allocated to Stage 3.

The measurement of expected credit losses is primarily based on the product of the instrument's probability of default ("PD"), loss given default ("LGD"), and exposure at default ("EAD"), taking into account the value of any collateral held or other mitigants of loss and including the impact of discounting using the EIR.

· The PD represents the likelihood of a borrower defaulting on its financial obligation, either over the next 12 months ("12M PD"), or over the remaining lifetime ("Lifetime PD") of the obligation.

· EAD is based on the amounts the Group expects to be owed at the time of default, over the next 12 months ("12M EAD") or over the remaining lifetime ("Lifetime EAD"). For example, for a revolving commitment, the Group includes the current drawn balance plus any further amount that is expected to be drawn up to the current contractual limit by the time of default, should it occur.

· LGD represents the Group's expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, type and seniority of claim and availability of collateral or other credit support. LGD is expressed as a percentage loss per unit of exposure at the time of default. LGD is calculated on a 12-month or lifetime basis, where 12-month LGD is the percentage of loss expected to be made if the default occurs in the next 12 months and Lifetime LGD is the percentage of loss expected to be made if the default occurs over the remaining expected lifetime of the loan.

The estimated credit loss ("ECL") is determined by estimating the PD, LGD, and EAD for each individual exposure or collective segment. These three components are multiplied together and adjusted for the likelihood of survival (i.e. the exposure has not prepaid or defaulted in an earlier month). This effectively calculates an ECL, which is then discounted back to the reporting date and summed. The discount rate used in the ECL calculation is the original EIR or an approximation thereof. The Lifetime PD is developed by applying a maturity profile to the current 12M PD. The maturity profile looks at how defaults develop on a portfolio from the point of initial recognition throughout the lifetime of the loans. The maturity profile is based on historical observed data and is assumed to be the same across all assets within a portfolio and credit grade band where supported by historical analysis. The 12-month and lifetime EADs are determined based on the expected payment profile, which varies by product type.

· For revolving products, the exposure at default is predicted by taking current drawn balance and adding a "credit conversion factor" which allows for the expected drawdown of the remaining limit by the time of default. These assumptions vary by product type and current limit utilisation band, based on analysis of the Group's recent default data;

· The 12-month and lifetime LGDs are determined based on the factors which impact the recoveries made post default. These vary by product type;

· For secured products, this is primarily based on collateral type and projected collateral values, historical discounts to market/book values due to forced sales, time to repossession and recovery costs observed; and

· For unsecured products, LGD's are typically set at product level due to the limited differentiation in recoveries achieved across different borrowers. These LGD's are influenced by collection strategies, including contracted debt sales and price.

The main difference between Stage 1 and Stage 2 is the respective PD horizon. Stage 1 estimates use a maximum of a 12-month PD, while Stage 2 estimates use a lifetime PD. The main difference between Stage 2 and Stage 3 is Stage 3 is effectively the point at which there has been a default event. For financial assets in stage 3, entities continue to recognise lifetime ECL but they now recognise interest income on a net basis. This means that interest income is calculated based on the gross carrying amount of the financial asset less ECL.

Movements between Stage 1 and Stage 2 are based on whether an instrument's credit risk as at the reporting date has increased significantly relative to the date it was initially recognised. Where the credit risk subsequently improves such that it no longer represents a significant increase in credit risk since origination, the asset is transferred back to Stage 1.

In assessing whether a borrower has a significant increase in credit risk the following indicators are considered:

· Unsecured

- Short-term forbearance; and

- Extension of terms granted.

· Structured and Property

- Significant increase in credit spread;

- Significant adverse changes in business, financial and/or economic conditions in which the borrower operates;

- Actual or expected forbearance or restructuring;

- Actual or expected significant adverse change in operating results of the borrower;

- Significant change in collateral value (secured facilities only) which is expected to increase the risk of default; and

- Early signs of cashflow/liquidity problems such as delay in servicing of trade creditors.

However, as a backstop, unless identified at an earlier stage, the credit risk of financial assets is deemed to have increased significantly when repayments are more than 30 days past due. Movements between Stage 2 and Stage 3 are based on whether financial assets are credit-impaired as at the reporting date. Assets can move in both directions through the stages of the impairment model.

In assessing whether a borrower is credit impaired the following qualitative indicators are considered:

· Unsecured

- Long-term forbearance;

- Borrower deceased; and

- Borrower insolvent.

· Structured and Property

- Borrower in breach of financial covenants;

- Concessions have been made by the lender relating to the borrower's financial difficulty;

- Significant adverse changes in business, financial or economic conditions on which the borrower operates; and

- Long-term forbearance or restructuring.

In assessing whether a borrower is credit impaired the following quantitative indicator is considered:

- The remaining lifetime PD at the reporting date has increased, compared to the residual lifetime PD expected at the reporting date when the exposure was first recognised.

The criteria for determining whether credit risk has increased significantly varies by portfolio and includes a backstop based on delinquency. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due. The Group uses this 90 day backstop for all its non-real estate and non-structured lending as these assets typically show low recovery rates past this point. For structured and real-estate lending the key identifiable presumption for default occurring is a breach of covenant or another event of default (e.g. deterioration in underlying assets or corporate) and this is analysed on a case by case basis.

These criteria have been applied to all financial instruments held at amortised cost and are consistent with the definition of default used for internal credit risk management purposes. The default definition has been applied consistently to model the PD, EAD and LGD throughout the Group's expected credit loss calculations. Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes in circumstances.

The measurement of expected credit losses for each stage and the assessment of significant increases in credit risk considers information about past events and current conditions as well as reasonable and supportable forward-looking information. A 'Base case' view of the future direction of relevant economic variables and a representative range of other possible forecasts scenarios have been developed. The process has involved developing two additional economic scenarios and considering the relative probabilities of each outcome.

The Base case represents a most likely outcome and is aligned with information used for other purposes, such as strategic planning and budgeting. The number of scenarios and their attributes are reassessed at each reporting date. At 31 December 2019, all the portfolios of the Group use one positive, more optimistic and one downside, more pessimistic outcome. The scenario weightings are determined by a combination of statistical analysis and expert credit judgement, taking account of the range of possible outcomes each chosen scenario is representative of.

The estimation and application of forward-looking information requires significant judgement. PD, LGD and EAD inputs used to estimate Stage 1 and Stage 2 credit loss allowances, are modelled and adjusted based on the macroeconomic variables (or changes in macroeconomic variables) that are most closely correlated with credit losses in the relevant portfolio. The Group has utilised macroeconomic scenarios for each relevant jurisdiction (the most important of which are the UK and the US) prepared and provided by Oxford Economics. Oxford Economics combines two decades of forecast errors with the quantitative assessment of the current and future risks facing the global and domestic economy to produce robust forward-looking distributions for the economy. Oxford Economics construct three alternative scenarios at specific percentile points in the distribution. In any distribution, the probability of a given discrete scenario is close to zero. Therefore, scenario probabilities represent the probability of that scenario or similar scenarios occurring. In effect, a given scenario represents the average of a broader bucket of similar severity scenarios and the probability reflects the width of that bucket. Given that it is known where the IFRS 9 scenarios sit in the distribution (the percentiles), their probability (the width of the bucket of similar scenarios) will depend on how many scenarios are chosen. Scenario probabilities must add up to 100 per cent so the more scenarios chosen, the smaller the section of the distribution, or bucket, each scenario represents and therefore the smaller the probability. This allows the probabilities to be calculated according to whichever subset of scenarios chosen to use in the ECL calculation. The scenarios are generated at the year-end and are only updated during the year if economic conditions change significantly. The Base case is given a 40 per cent weighting and the downside and upside a 30 per cent weighting each. These weightings specifically relate to the period 1 January 2019 to 31 December 2019.

As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. The Group considers these forecasts to represent its best estimate of the possible outcomes and has analysed the non-linearities and asymmetries within the Group's different portfolios to establish that the chosen scenarios are appropriately representative of the range of possible scenarios.

Other forward-looking considerations not otherwise incorporated within the above scenarios, such as the impact of any regulatory, legislative or political changes, have also been considered, but are not deemed to have a material impact and therefore no adjustment has been made to the ECL for such factors. This is reviewed and monitored for appropriateness on an annual basis. The impact of the downside scenario can be seen on page 121.

COVID-19 has caused disruption to businesses and economic activity which has been reflected in recent fluctuations in global stock markets. There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a potential pandemic, and, as a result, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. The Board considers the emergence and spread of COVID-19 to be a non-adjusting post balance sheet event. Given the Group's UK and US focus, its performance is linked to the health of these economies. We expect the Group could experience further impairments and consequently reduced profits, particularly if economic expectations deteriorate further. However, the overall effect of this cannot be quantified reliably because the impact of the UK government's various support initiatives and the US government's COVID-19 Stimulus Bill is not yet known, but they are expected to reduce the potential expected credit loss impact. The Investment Manager has adopted a prudent approach with the focus on the existing portfolio and ensuring cash collections remain robust as the appropriate strategies are in place. The legacy book continues to run off, whilst performance of this book has been poor to date and it is expected that impairments will increase over the coming months, the loans are now well seasoned.

Write offs

The Group is not in possession of personal identifiable information on borrowers and therefore generally restricts itself to writing off on the basis of observed payment records (or lack thereof). The assumption is that even after a loan has been placed into default, there will likely be ongoing collections efforts. Also, any sales to debt collection agencies typically take some time to execute. Therefore, an unsecured consumer loan is normally written off when 120 days have elapsed without a payment being made, and the loan has been in a defaulted state throughout this period. Unsecured SME loans often have a lengthier legal process before collections can be made from any guarantors, so such a loan is written off when 240 days have elapsed without a payment being made, and the loan has been in a defaulted state throughout this period. Secured loans are written off when the proceeds from realising any available collateral have been received or where there is no realistic prospect of recovery and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of impairment losses recorded in the Consolidated Statement of Comprehensive Income.

When the Group becomes aware of special circumstances that make any further collections unlikely (such as fraud, insolvency, or deceased with no known executors or next of kin), a decision may be made to write off a loan earlier than after the periods indicated above.

Collateral and other credit enhancements

The Group employs a range of policies to mitigate credit risk. The most common of these is accepting collateral for funds advanced.

The Group has internal policies of the acceptability of specific classes of collateral or credit risk mitigation.

The Group prepares a valuation of the collateral obtained as part of the loan origination process. This assessment is reviewed periodically. The principal collateral types for loans and advances are:

· Mortgages over residential properties;

· Margin agreement for derivatives, for which the Group has also entered into master netting agreements;

· Charges over business assets such as premises, inventory and accounts receivable; and

· Charges over financial instruments such as debt securities and equities.

Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured.

Collateral held as security for financial assets other than loans and advances depends on the nature of the instrument. Derivatives are also collateralised.

The Group's policies regarding obtaining collateral have not significantly changed during the reporting period and there has been a focus on increasing the quality and quantity of the collateral held by the Group.

The Group closely monitors collateral held for financial assets considered to be credit-impaired, as it becomes more likely that the Group will take possession of collateral to mitigate potential credit losses.

Modification of financial assets

The Group sometimes modifies the terms or loans provided to customers due to commercial renegotiations, or for distressed loans, with a view to maximising recovery.

Such restructuring activities include extended payment term arrangements, payment holidays and payment forgiveness. Restructuring policies and practice are based on indicators or criteria which, in the judgement of management, indicate that payment will most likely continue. These policies are kept under continuous review. Restructuring is most commonly applied to term loans.

The risk of default of such assets after modification is assessed at the reporting date and compared with the risk under the original terms at initial recognition, when the modification is not substantial and so does not result in derecognition of the original assets. The Group monitors the subsequent performance of modified assets. The Group may determine that the credit risk has significantly improved after restructuring, so that the credit loss Stage the asset sits in is reduced.

Modification of loans

The Group sometimes renegotiates or otherwise modifies the contractual cash flows of loans to customers. When this happens, the Group assesses whether or not the new terms are substantially different to the original terms. The Group does this by considering, among others, the following factors:

· If the borrower is in financial difficulty, whether the modification merely reduces the contractual cash flows to amounts the borrower is expected to be able to pay;

· Whether any substantial new terms are introduced, such as a profit share/equity-based return that substantially affects the risk profile of the loan;

· Significant extension of the loan term when the borrower is not in financial difficulty;

· Significant change in the interest rate;

· Change in the currency the loan is denominated in; and

· Insertion of collateral, other security or credit enhancements that significantly affect the credit risk associated with the loan.

If the terms are substantially different, the Group derecognises the original financial asset and recognises a 'New' asset at fair value and recalculates a new EIR for the asset. The date of renegotiation is consequently considered to be the date of initial recognition for impairment calculation purposes, including for the purpose of determining whether a significant increase in credit risk has occurred. However, the Group also assesses whether the new financial asset recognised is deemed to be credit-impaired at initial recognition, especially in circumstances where the renegotiation was driven by the debtor being unable to make the originally agreed payments. Differences in the carrying amounts are also recognised in the Consolidated Statement of Comprehensive Income as a gain or loss on derecognition.

If the terms are not substantially different, the renegotiation or modification does not result in derecognition, and the Group recalculates the gross carrying amount based on the revised cash flows of the financial asset and recognises a modification gain or loss in the Consolidated Statement of Comprehensive Income. The new gross carrying amount is recalculated by discounting the modified cash flows at the original EIR (or credit-adjusted EIR for purchased or originated credit-impaired financial assets).

Derecognition other than a modification

Financial assets, or a portion thereof, are derecognised when the contractual rights to receive the cash flows from the assets have expired, or when they have been transferred and either (i) the Group transfers substantially all the risks and rewards of ownership, or (ii) the Group has not retained control.

The Group enters into transactions where it retains the contractual rights to receive cash flows from assets but assumes a contractual obligation to pay those cash flows to other entities and transfers substantially all of the risks and rewards. These transactions are accounted for as 'pass through' transfers that result in derecognition if the Group:

· Has no obligation to make payments unless it collects equivalent amounts from the assets;

· Is prohibited from selling or pledging the assets; and

· Has an obligation to remit any cash it collects from the assets without material delay.

Collateral (cash, shares and bonds) furnished by the Group under standard repurchase agreements and securities lending and borrowing transactions are not derecognised because the Group retains substantially all the risks and rewards on the basis of the predetermined repurchase price, and the criteria for derecognition are therefore not met. This also applies to certain securitisation transactions in which the Group retains a subordinated residual interest.

(ii) Financial liabilities

Classification and subsequent measurement

In both the current year and prior year, financial liabilities are classified and subsequently measured at amortised cost, except for:

· Financial liabilities at fair value through profit or loss: this classification is applied to derivatives, financial liabilities held for trading (e.g. short positions in the trading booking) and other financial liabilities designated as such at initial recognition. Gains or losses on financial liabilities designated at fair value through profit or loss are presented partially in other comprehensive income (the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability, which is determined as the amount that is not attributable to change in market conditions that give rise to market risk) and partially profit or loss (the remaining amount of change in the fair value of the liability). This is unless such a presentation would create, or enlarge, an accounting mismatch, in which case the gains and losses attributable to changes in the credit risk of the liability are also presented in the Consolidated Statement of Comprehensive Income. There were none in the year ended 31 December 2019 (2018: none);

· Financial liabilities arising from the transfer of financial assets which did not qualify for derecognition, whereby a financial liability is recognised for the consideration received for the transfer. In subsequent periods, the Group recognises any expense incurred on the financial liability; and

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

Modification of a financial liability

The Group sometimes renegotiates or otherwise modifies the contractual cash flows of its financial liabilities. When this happens, the Group assesses whether or not the new terms are substantially different to the original terms. The Group does this by considering, among others, the following factors:

· Whether the modification merely reduces the contractual cash flows;

· Whether any substantial new terms are introduced that substantially affects the risk profile of the liability;

· Significant extension of the term;

· Significant change in the interest rate;

· Change in the currency the liability is denominated in; and

· Insertion of collateral, other security or credit enhancements that significantly affect the credit risk associated with the liability.

If the terms are substantially different, the Group derecognises the original financial liability and recognises a 'New' liability at fair value and recalculates a new EIR for the liability. If the terms are not substantially different, the renegotiation or modification does not result in derecognition, and the Group recalculates the gross carrying amount based on the revised cash flows of the financial liability and recognises a modification gain or loss in the Consolidated Statement of Comprehensive Income.

(iii) Derivatives

Derivatives are entered into to reduce exposures to fluctuations in interest rates, exchange rates, market indices and credit risk 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.

All derivatives are classified as assets where their fair value is positive and liabilities where their 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.

(iv) Other receivables

Other receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value as reduced by estimated credit losses for irrecoverable amounts (if any). Given their short-term nature a lifetime ECL is not deemed material as expected life is less than a month.

(i) Cash and cash equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments with a maturity of 3 months or less that are readily convertible to known amounts of cash and are subject to insignificant changes in fair value.

(j) Current liabilities

Current liabilities, other than derivatives, are not interest-bearing and are stated at the nominal value.

(k) Shares

Ordinary and treasury 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, legal fees, accounting and other professional advisers, printing costs and stamp duties.

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

Treasury shares have no entitlements to vote and are held directly by the Company.

(l) Capital reserves

Capital reserve arising on investments sold includes:

· gains/losses on disposal of investments;

· exchange differences on currency balances and on settlement of loan balances;

· cost of own shares bought back; and

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

Capital reserve arising on investments held includes:

· increases and decreases in the valuation of investments held at the year end.

All of the above are accounted for in the Consolidated Statement of Comprehensive Income except the cost of own shares bought back which is accounted for directly against reserves, and reported in the Consolidated Statement of Changes in Shareholders' Funds.

(m) Segmental reporting

The Board and Investment Manager consider investment activity in Credit Assets and selected Equity Assets as the single operating segment of the Group, being the sole purpose for its existence. No other activities are performed. Whilst visibility over originations, portfolios, structured facilities and equity assets is afforded at an operational level, all are considered 'routes to market' for acquiring interests in credit assets, and thus act merely as indicators of the key drivers of financial performance and position of the Group. The four routes to market are not determinants of resource allocations, rather each investment opportunity is considered on its own merits. Additionally, there are no segment managers directly accountable for the individual routes to market. The Directors are of the opinion that the Group is engaged in a single segment of business.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of financial statements in conformity with IFRS adopted in the EU requires the Group to make judgements and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. UK company law and IFRS require the Directors, in preparing the Group's consolidated financial statements, to select suitable accounting policies, apply them consistently and make judgements and estimates that are reasonable. The Group's estimates and assumptions are based on historical experience and expectations of future events and are reviewed on an ongoing basis. Although these estimates are based on the Directors' best knowledge of the amount, actual results may differ ultimately from those estimates.

The critical judgements relate to the application of consolidation accounting principles, and within the Company, the treatment of asset derecognition and deemed loans. These have been explained below as well as in the accounting policies section of the Notes.

The estimates of most significance to the financial statements, are in relation to EIR, expected credit losses and investments at fair value through profit or loss. These are detailed below.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

ECL allowance for financial assets measured at amortised cost (estimate)

The calculation of the Group's ECL allowances and provisions against loan commitments and guarantees under IFRS 9 involves the use of a significant degree of estimation. This includes the formulation and incorporation of multiple forward-looking economic conditions into ECL to meet the measurement objective of IFRS 9. The most significant areas are set out below.

Definition of default

The PD of an exposure, both over a 12-month period and over its lifetime, is a key input to the measurement of the ECL allowance. Default has occurred when there is evidence that the customer is experiencing significant financial difficulty which is likely to affect the ability to repay amounts due. The Group has not rebutted the presumption in IFRS 9 that default occurs no later than when a payment is 90 days past due except for structured or real estate instruments. The definition has been rebutted in these cases based on the Group's historical loss experiences of these instruments and the underlying collateral available to the Group.

The lifetime of an exposure

To derive the PDs necessary to calculate the ECL allowance it is necessary to estimate the expected life of each financial instrument. A range of approaches has been adopted across different product groupings including the full contractual life and taking into account behavioural factors such as expected early repayments and refinancing. The Group has defined the lifetime for each product by analysing the time taken for all losses to be observed and for a material proportion of the assets to fully resolve through either closure or write-off.

Significant increase in credit risk ('SICR')

Assets are transferred from Stage 1 to Stage 2 when there has been an SICR since initial recognition. As described further above, the Group uses a quantitative test together with qualitative indicators and a backstop of 30 days past due for determining whether there has been a SICR for all instruments that are not structured or real-estate backed. The setting of precise SICR thresholds for when an asset displays a SICR combined with risk indicators requires judgement. The use of different SICR thresholds may have a material impact upon the size of the ECL allowance.

Forward looking information

The measurement of ECL's is required to reflect an unbiased probability-weighted range of possible future outcomes. In order to do this the Group uses a model to project a number of key variables to generate future economic scenarios. These are ranked according to severity of loss and three economic scenarios have been selected to represent an unbiased and full loss distribution. They represent a 'most likely outcome' (the Base case scenario) and two, less likely, 'outer' scenarios, referred to as the 'Upside' and 'Downside' scenarios. These scenarios are used to produce a weighted average PD for each product grouping which is used to determine stage allocation and calculate the related ECL allowance. This weighting scheme is deemed appropriate for the computation of unbiased ECL. Key scenario assumptions are set using the average of forecasts from external economists, Oxford Economics, helping to ensure the IFRS 9 scenarios are unbiased and maximise the use of independent information. Using externally available forecast distributions helps ensure independence in scenario construction. While key economic variables are set with reference to external distributional forecasts, we also align the overall narrative of the scenarios to the macroeconomic risks faced by the Group.

The choice of alternative scenarios and probability weighting is a combination of quantitative analysis and judgemental assessments, designed to ensure that the full range of possible outcomes and material non-linearity are captured. Paths for the two outer scenarios are benchmarked to the Base scenario and reflect the economic risk assessment. Scenario probabilities reflect management judgement and are informed by data analysis of past recessions, transitions in and out of recession, and the current economic outlook. The key assumptions made, and the accompanying paths, represent our 'best estimate' of a scenario at a specified probability. Suitable narratives are developed for the Central scenario and the paths of the two outer scenarios. Using three scenarios will be insufficient in certain economic environments. Additional analysis may be requested at management's discretion, including the production of extra scenarios. We anticipate there will be only limited instances when the standard approach will not apply. The Base case, Upside and Downside scenarios are generated annually and those described herein reflect the conditions in place at the balance sheet date, and are only updated during the year if economic conditions change significantly.

UK mild Upside scenario can be seen as an alternative base case in which the cyclical momentum in demand in the UK and other economies is stronger than currently thought, reflecting in part improved business, household and investor sentiment and more buoyant global trade. The scenario sees UK GDP growth rate rise to 2.3 per cent over the next five years. With a key driver being a swift resolution of ongoing Brexit uncertainty, especially should that entail a significant shift toward a "soft" Brexit where the UK opts to remain a member of the single market. Consequently, unemployment falls slightly to around 3.2 per cent.

Against this backdrop, gearing in the economy remains at comfortable levels and asset prices appreciate significantly. The benign probability of default and loss given default mean that loan losses are likely to remain well below long run averages.

The Company's UK Downside scenario sees UK GDP growth averaging 0.5 per cent per annum over the next five years. The UK enters recession during 2020, but the 1.6 per cent contraction in output is very mild by historical standards and the UK economy then gradually recovers.

In the scenario, unemployment rises to just above 6 per cent by 2022 Q4, wage growth slows and inflation falls well below target. Despite lower interest rates, increased unemployment introduces forced sellers into the residential property market. House prices fall sharply, by over 16 per cent peak-to-trough. While commercial property prices also fall, the peak to trough adjustment is around one third of the size of that seen for residential house prices. The relative magnitude of the falls in this scenario, reflect the relative valuation positions of the two markets - whereas aggregate UK house prices remain dear when compared to incomes, commercial property prices are more in line with fair value having peaked in end-2015.

Please see Note 11 for sensitivity analysis.

Valuation of unquoted investments (estimate)

The valuation of unquoted investments and investments for which there is an inactive market is a key area of estimation and may cause material adjustment to the carrying value of those assets and liabilities. These are valued in accordance with the techniques set out in Note 2(h). The unquoted equity assets are valued on periodic basis using techniques including a market approach, costs approach and/or income approach. The valuation process is collaborative, involving the finance and investment functions within the Investment Manager with the final valuations being reviewed by the Audit Committee. The specific techniques used typically include earnings multiples, discounted cash flow analysis, the value of recent transactions, and, where appropriate, industry rules of thumb. The valuations often reflect a synthesis of a number of different approaches in determining the final fair value estimate. The individual approach for each investment will vary depending on relevant factors that a market participant would take into account in pricing the asset. These might include the specific industry dynamics, the company's stage of development, profitability, growth prospects or risk as well as the rights associated with the particular security. Please see Note 5 for sensitivity analysis. Investments in subsidiaries are also held at fair value on the Company's Statement of Financial Position. These subsidiaries are calculated on a net asset value. This involves directly measuring the fair value of the recognised and unrecognised assets and liabilities. 

Consolidation (judgement)

Determining whether the Group has control of an entity is generally straightforward when based on ownership of the majority of the voting capital. However, in certain instances, this determination will involve significant judgement, particularly in the case of structured entities such as MOCA 2017 and SBOLT 2019 where voting rights are often not the determining factor in decisions over the relevant activities. This judgement may involve assessing the purpose and design of the entity. It will also often be necessary to consider whether the Group, or another involved party with power over the relevant activities, is acting as a principal in its own right or as an agent on behalf of others.

4. 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).

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 judgement and is specific to the investment.

Level 3 investment in a fixed income security issued by a fund is valued based on the NAV as calculated by the fund's Administrator at the balance sheet date. The constitutional and offering documentation of the fund sets out the valuation methodology, the applicable generally accepted accounting principles and the frequency, by which its assets are to be valued and the NAV are to be calculated. No adjustments have been determined to be necessary to the NAV as supplied by the Administrator as this reflects the fair value of the underlying investments under the relevant valuation methodology. The NAV is the value of all the assets of the fund less its liabilities to creditors (including provisions for such liabilities) determined in accordance with applicable accounting standards. The NAV of the fund is sensitive to movements in interest rates due to its investment in fixed rate loans.

The other investments in fixed income securities included within Level 3 of the hierarchy are valued based on, if available, recent transactions and otherwise broker quotes. The investments in unquoted equities are valued using several different techniques, primarily recent transactions and recent rounds of funding by the investee entities.

The Group's Level 2 positions are valued by the Administrator, acting in their capacity as the External Valuer, in accordance with the valuation policy. Fixed income positions are valued using prices from an independent market data provider. Forward foreign exchange contracts are valued using interpolated FX forward points from Bloomberg. The option contracts are valued using yield curves from Bloomberg.

The following table analyses within the fair value hierarchy the Group's assets and liabilities measured at fair value at 31 December 2019:

The following table analyses within the fair value hierarchy the Group's assets and liabilities measured at fair value at 31 December 2018: