TIDMSTB
RNS Number : 7064I
Secure Trust Bank PLC
09 August 2023
PRESS RELEASE
9 August 2023
For immediate release
LEI: 213800CXIBLC2TMIGI76
SECURE TRUST BANK PLC
Interim Results for the six months to 30 June 2023
Foundations set for a strong 2023; Launching 'Optimising for
Growth' strategic priorities
Secure Trust Bank PLC ('STB' or the 'Group'), a leading
specialist lender, is pleased to announce its financial results for
the six months to 30 June 2023. STB continued to build momentum,
delivered solid income growth, managed costs effectively and
delivered a significant increase of 14.6% in continuing profit
before tax pre impairments. STB is declaring an interim dividend of
16.0 pence per share for HY 2023 (HY 2022: 16.0 pence per share).
The Group achieved a continuing profit before tax of GBP16.5
million (HY 2022: GBP17.1 million).
The Group has laid the foundations for a strong 2023 and expects
a significant improvement in profitability during the second half
of the year.
David McCreadie, Chief Executive, said:
"Our specialist lending businesses have significant growth
potential in large addressable markets. We have grown our lending
balances by 45% since the start of 2021 and are optimising for
growth by being simpler, enhancing our customer experience and
leveraging our distribution networks.
We have laid strong foundations for the rest of the year and are
on track to meet our target cost optimisation savings. I am pleased
with our positive operational performance and we continue to help
our customers and business partners during these challenging
times.
We have demonstrated our ability to grow and are well placed to
realise our ambitions. We have a clear focus and strengthened
capital position, and will scale the Group further to deliver our
return on average equity ('ROAE') target. We remain confident about
the future."
Highlights(1)
-- Introducing the Optimising for Growth strategic priorities to
drive sustainable and attractive ROAE
-- 8.2% growth in lending balances to GBP3.2 billion (FY 2022: GBP2.9 billion)
-- Cost income ratio remained flat at 56.9% (HY 2022: 57.0%); on
track to deliver GBP4m in annualised savings(2)
-- Profit before tax pre impairment up 14.6% to GBP39.3 million (HY 2022: GBP34.3 million)
-- Profit before tax of GBP16.5 million (HY 2022: GBP17.1
million) adversely affected by a material impairment of GBP7.2
million relating to a long-running problem debt case within
Commercial Finance. The aggregate cost of impairments for
Commercial Finance since inception is 0.6% including this
impairment
-- Arrears stable at low levels in Consumer Finance divisions
-- Expect significant improvement in profitability during the
second half of the year through loan book growth and cost
leverage
Optimising for Growth
At its core, the Group's strategic priority is to grow our loan
book and revenue, which in turn drives cost efficiency. This will
be enhanced by the simplification and streamlining of the Group's
operating model. Combined, these initiatives will deliver
sustainable, value-creating returns on equity at attractive levels.
Optimising for Growth has three core strategic priorities and we
have made good progress against all of them during the year:
-- Simplify - Since the start of 2021 we have taken action to
simplify the Group into a focused and more cost-efficient
specialist lending business, with four core lending segments. The
sale of our Debt Managers (Services) Limited's loan portfolio
completed the simplification of the lending activities for the
Group. The next phase of our simplification is around increased
integration of shared services, the streamlining of operational
processes and enhanced digitalisation of our business. Project
Fusion, our cost efficiency programme, is key to mitigating ongoing
cost inflation that the business faces and is on track to deliver
on its GBP4m annualised cost savings(2) target by year-end.
Combined, these initiatives give us high confidence in driving our
cost income ratio to below 50% in the medium term.
-- Enhance Customer Experience - STB has a long track record of
achieving high customer satisfaction scores for our consumer
lending businesses and savings products. We are proud of our
performance but will not take it for granted. We will continue to
strive to improve our customer experience across all our lending.
The delivery of improved customer experience is a key element in
driving our growth. In the latest surveys, we achieved 4.6 stars
out of 5 (HY 2022: 4.5 stars out of 5), and our Vehicle Finance and
Retail Finance teams were recognised by being awarded by Feefo's
'Platinum Trusted Service Award'.
-- Leverage Networks - STB is built on the importance of strong
relationships. We have a wide range of existing relationships with
a range of partners, retailers, car dealers, intermediaries, new
business originators, and advisers. The Group looks to deepen these
existing relationships: to take market share opportunities; to
originate new business; to expand our product offering. During the
year, we launched AppToPay with a selection of existing retail
partners. We maintained our large retail network, working with over
1,400 retailers, as well as our dealer, broker and internet
introducer network supporting Vehicle Finance (680). Nearly
two-thirds of our private equity group clients have more than one
connection to Business Finance.
These three strategic priorities are enabled by our technology
platform that has seen significant investment in recent years and
which we believe will position the Group for growth and increased
market share in large addressable markets, as has been demonstrated
in recent years and during HY 2023.
The Group achieved record new business lending during the
period, increasing 2.4% compared to the first six months of 2022,
while maintaining its disciplined credit and risk approach. The net
lending book has grown 8.2% in the period. Net interest margin
('NIM') decreased to 5.4% (HY 2022: 5.7%) reflecting new Tier 2
capital, which reduced NIM by 20 bps in the period but provides
capital for growth, and the strategic shift towards lower yielding,
lower risk lending in both our Business Finance and Consumer
Finance divisions. In line with the Group's strategy, the cost
income ratio remained flat at 56.9% (HY 2022: 57.0%), demonstrating
our ability to leverage our cost base.
In Consumer Finance, net lending balances grew to GBP1.6 billion
(FY 2022 GBP1.4 billion) following record new business lending of
GBP863.6 million in the 6 months to June 2023 (HY 2022: GBP743.4
million). In Business Finance, net lending balances were maintained
at GBP1.5 billion (FY 2022 GBP1.5 billion) with new business
lending of GBP283.8 million in the 6 months to June 2023 (HY 2022:
GBP377.6 million).
On a continuing basis the Group achieved a profit before tax of
GBP16.5 million (HY 2022: GBP17.1 million).
The impairment charge of GBP23.0 million (HY 2022: GBP17.9
million) reflects a cost of risk of 1.5% (HY 2022: 1.3%), growth in
new business, and one material loss of GBP7.2 million relating to a
long running problem debt case within Commercial Finance. The
circumstances around the particular case were unique, with a
lessons learned exercise confirming no similar concerns across the
Commercial Finance portfolio. Impairment charges in the Group's
IFRS 9 models reflect a normalisation of provisions within Vehicle
Finance and improved macroeconomic scenarios compared to December
2022. The Group is aware of the uncertain economic outlook and
retains management overlays to modelled provisions for customer
affordability challenges. Arrears within Consumer Finance remain
stable at low levels reflecting the impact of credit tightening
measures taken in 2022 and a higher proportion of prime
lending.
The Directors have approved an interim dividend of 16.0 pence
per share for 2023, which is payable on 28 September 2023 to
shareholders on the register at the close of business on 1
September 2023. This is in line with the Group policy to return 25%
of earnings to shareholders.
The Group achieved a total ROAE of 6.8% (HY 2022: 12.5%) and
maintained strong capital ratios. ROAE in HY 2022 benefitted from a
one-off GBP6.1 million gain recognised on the sale of the Debt
Manager (Services) Limited's loan portfolio. Excluding the
gain/(losses) from discontinued operations, the total continuing
ROAE for 30 June 2022 would be 8.4% compared to 7.5% for 30 June
2023.
Financial summary
Six months Six months
to 30 June 2023 to 30 June 2022 Change(3) %
Total profit before tax GBP15.0m GBP24.7m (39.3)
----------------- ----------------- ------------
Continuing profit before tax GBP16.5m GBP17.1m (3.5)
----------------- ----------------- ------------
Continuing profit before tax and pre impairments GBP39.3m GBP34.3m 14.6
----------------- ----------------- ------------
Total basic earnings per share 59.4 pence 102.4 pence (42.0)
----------------- ----------------- ------------
Continuing basic earnings per share 65.8 pence 69.1 pence (4.8)
----------------- ----------------- ------------
Ordinary dividend per share 16.0 pence 16.0 pence -
----------------- ----------------- ------------
Total return on average equity 6.8% 12.5%(4) (5.7)pp
----------------- ----------------- ------------
Net interest margin 5.4% 5.7% (0.3)pp
----------------- ----------------- ------------
Cost of risk 1.5% 1.3% 0.2pp
----------------- ----------------- ------------
Cost income ratio 56.9% 57.0% (0.1)pp
----------------- ----------------- ------------
30 June 31 December
2023 2022 Change(3) %
----------------- ----------------- ------------
Total lending balances GBP3,158.5m GBP2,919.5m 8.2
----------------- ----------------- ------------
Customer deposits GBP2,648.9m GBP2,514.6m 5.3
----------------- ----------------- ------------
Common Equity Tier 1 ('CET 1') ratio 13.0% 14.0% (1.0)pp
----------------- ----------------- ------------
Total capital ratio 15.2% 16.1%(5) (0.9)pp
----------------- ----------------- ------------
Other highlights
-- Customer deposits grew to GBP2,648.9 million (FY 2022:
GBP2,514.6 million) through a combination of growth in fixed term
funds and Access accounts. Savings markets have repriced following
the Bank of England Base Rate increases and predictions of further
increases, resulting in a cost of funds of 3.9% (HY 2022: 1.4%).
Funding costs are expected to continue to increase as maturing
deposits reprice in a higher interest rate environment.
-- Tier 2 capital of GBP90.0 million issued to refinance
existing 2018 Tier 2 capital with 2023 first call dates and support
growth, with the buy-back of existing Tier 2 capital completed in
the period, providing additional growth capital for the Group.
-- Customer satisfaction remains high, as measured by Feefo, 4.6 stars (HY 2022: 4.5 stars)
-- Listed as an official UK Best Workplace(TM) for the fourth
year running, ranking 12 out of 87 companies (large organisations
category), a significant improvement from 2022 (ranked 29 out of
67).
-- We have made progress against our ESG strategy that was
launched at the start of 2023, especially around Equity, Diversity
and Inclusion, Climate Action, Customer Trust and Education and
Skills.
Outlook
We remain confident about the future despite near term
uncertainties. We are committed to navigating our businesses
carefully during these uncertain times and will continue to be
flexible in how we react during this period of economic
uncertainty. We will continue to monitor inflation and the impact
it will have on the cost of living. Further increases in the Bank
of England Base Rate are predicted and this will have a direct
impact on customer pricing. Despite these challenges, we have
significant growth potential and will continue to capture
opportunities with our usual focus on disciplined credit and risk
management.
Our Optimising for Growth strategic priorities will support the
delivery of our medium-term targets. We are well placed to realise
our ambitions and have shown resilience and agility through the
challenges of the last few years. During the first half of the
year, we have laid the foundations for a strong 2023 and expect a
significant improvement in our profitability during the second half
of the year and in 2024, through loan book growth and cost
leverage.
The Group plans to host a Capital Markets event on 8 November,
with a focus on our Retail Finance business and more detail on
delivering our medium-term targets.
30 June 2023
Medium-term targets Actual Target
Net interest margin 5.4% >5.5%
-------------------------------- ----------
Cost income ratio 56.9% <50%
-------------------------------- ----------
Total return on average equity 6.8% 14% - 16%
-------------------------------- ----------
CET 1 ratio 13.0% >12.0%
-------------------------------- ----------
Compound Annual Growth Rate(6) 15.9% >15.0%
-------------------------------- ----------
Footnotes:
1. Performance metrics presented below relate to continuing
operations unless otherwise stated. For further details see the
Appendix to the 2023 Interim Report.
2. Cost savings relative to operating expenses for the 12 months
ended December 2021.
3. pp represents the percentage point movement
4. HY 2022 benefitted from a one-off GBP6.1 million gain
recognised on the sale of the Debt Manager (Services) Limited's
loan portfolio.
5. The total capital ratio have also been restated to reflect
the prior year restatement of land and buildings from fair value to
historic cost. Further details are provided Note 1.3.1 to the
Interim Report
6. Compound Annual Growth Rate is the annual growth rate
calculated as the annualised compound growth in continuing loans
and advances to customers since 31 December 2020.
Results presentation
This announcement together with the associated investors'
presentation are available
on:www.securetrustbank.com/results-reports/results-reports-presentations
Secure Trust Bank will host a webcast for analysts and investors
today, 9 August 2023 at 10.00am, which can be accessed by
registering at: https://brrmedia.news/STB_IR23
For those wishing to ask a question, please dial into the event
by conference call:
Dial +44 (0)330 551 0200
Confirmation code (if prompted): Secure Trust Bank
Enquiries:
Secure Trust Bank PLC
David McCreadie, Chief Executive
Rachel Lawrence, Chief Financial Officer
Phil Clark, Investor Relations
Tel: 0121 693 9100
Stifel Nicolaus Europe Limited (Joint Broker)
Robin Mann
Akshman Ori
Tom Marsh
Nicholas Harland
Tel: 020 7710 7600
Canaccord Genuity Limited (Joint Broker)
Emma Gabriel
Harry Rees
Tel: 020 7523 8000
Teneo
Tom Murray
Misha Bayliss
Tel: 020 7353 4200
This announcement contains inside information.
The person responsible for the release of this information on
behalf of STB is Mark Stevens, Company Secretary.
Forward looking statements
This announcement contains forward looking statements about the
business, strategy and plans of STB and its current objectives,
targets and expectations relating to its future financial condition
and performance. Statements that are not historical facts,
including statements about STB's or management's beliefs and
expectations, are forward looking statements. By their nature,
forward looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that will occur
in the future. STB's actual future results may differ materially
from the results expressed or implied in these forward looking
statements as a result of a variety of factors. These include UK
domestic and global economic and business conditions, risks
concerning borrower credit quality, market related risks including
interest rate risk, inherent risks regarding market conditions and
similar contingencies outside STB's control, the COVID-19 pandemic,
expected credit losses in certain scenarios involving forward
looking data, any adverse experience in inherent operational risks,
any unexpected developments in regulation, or regulatory and other
factors. The forward looking statements contained in this
announcement are made as of the date of this announcement, and
(except as required by law or regulation) STB undertakes no
obligation to update any of its forward looking statements.
Certain key performance indicators and performance metrics represent
alternative performance measures that are not defined or specified
under IFRS. Definitions of these alternative performance measures,
their calculation and an explanation of the reasons for their
use can be found in the Appendix to the Interim Report.
Prior year results and key performance indicators have been restated
to reflect a change in accounting policy relating to land and
buildings, which are now presented at historical cost. Further
details are provided in Note 1.3.1 to the Interim Financial Statements.
'Secure Trust Bank PLC', 'STB' and the 'Group' refer to Secure
Trust Bank PLC together with its subsidiaries.
Measuring performance: Key performance indicators
The following key performance indicators are the primary
measures used by management to assess the performance of the
Group.
30 June 30 June 31 December
2023 2022 2022
Grow
-------- -------- ------------
Loans and advances to customers (GBPmillion) 3,158.5 2,751.2 2,919.5
-------- -------- ------------
Why we measure this: Shows the growth in the Group's lending balances,
which generate income
Compound annual growth rate(1) (%) 15.9 16.7 15.6
-------- -------- ------------
Why we measure this: Shows the rate of growth in the Group's lending
balances
Net interest margin (%) 5.4 5.7 5.7
-------- -------- ------------
Why we measure this: Shows the interest margin earned on the Group's
lending balances, net of funding costs
Total return on average equity (%) 6.8 12.5 10.8(5)
-------- -------- ------------
Why we measure this: Measures the Group's ability to generate
profit from the equity available to it
Sustain
-------- -------- ------------
Cost to income ratio(2) (%) 56.9 57.0 55.0
-------- -------- ------------
Why we measure this: Measures how efficiently the Group utilises
its cost base to produce income
Cost of risk(3) (%) 1.5 1.3 1.4
-------- -------- ------------
Why we measure this: Measures how effectively the Group manages
the credit risk of its lending portfolios
Common Equity Tier 1 ('CET 1') ratio (%) 13.0 14.0 14.0
-------- -------- ------------
Why we measure this: The CET 1 ratio demonstrates the Group's
capital strength
Care
-------- -------- ------------
Customer Feefo ratings (Stars)
(mark out of 5 based on star rating from
854 reviews (30 June 2022: 496 reviews,
31 December 2022: 990 reviews) 4.6 4.5 4.6
-------- -------- ------------
Why we measure this: Indicator of customer satisfaction with the
Group's products and services
Employee survey trust index score (%)(4)
(based on 2022 all employee survey) N/A N/A 85
-------- -------- ------------
Why we measure this: Indicator of employee engagement and satisfaction
Environmental intensity indicator(4)
(tonnes of carbon dioxide equivalent per
GBP1 million Group income) N/A N/A 2.8
-------- -------- ------------
Key performance indicators have been presented in the Financial
review on a continuing basis, unless otherwise stated.
Continuing businesses include the Retail Finance, Vehicle
Finance, Real Estate Finance and Commercial Finance businesses
only. Discontinued business includes the Debt Management business.
Further details of discontinued business can be found in Note 6 of
the Interim Financial Statements.
Further explanation of the financial key performance indicators
is discussed in the narrative of the Financial review, where they
are identified by being in bold font. Further explanation of the
non-financial key performance indicators is provided in the
Managing our business responsibly (pages 37 to 49) and
Climate-related financial disclosures sections on (pages 50 to 59)
of the 2022 Annual Report and Accounts.
1. Compound annual growth rate is the annual growth rate
calculated as the annualised compound growth in continuing loans
and advances to customers since 31 December 2020.
2. A decrease in the cost to income ratio reflects an improving
performance.
3. A decrease in the cost of risk reflects an improving
performance.
4. Data is only collated on an annual basis.
5. Total return on average equity has been restated to reflect a
change in accounting policy relating to land and buildings, which
are now presented at historical cost. Further details are provided
in Note 1.3.1.
Chairman's statement
STB is building momentum as we scale our business and improve
efficiency. As a result of robust credit discipline, our lending
and savings books grew strongly during the first six months of the
year.
The Group delivered a continuing profit before tax of GBP16.5
million (30 June 2022: GBP17.1 million) and we anticipate strong
profit growth in the second half of 2023 as we benefit from the
additional income from a larger balance sheet. The Board has
approved an interim dividend of 16.0 pence per share (30 June 2022:
16.0 pence per share).
I would like to thank the Board for their support in helping the
Group navigate through another challenging period. Consumer Duty
regulations went live at the end of last month and I am especially
grateful to Finlay Williamson for taking on the role as our
Consumer Duty Board Champion.
High levels of inflation, a war in Europe and increasingly
higher interest rates have all created unprecedented uncertainty
and it is unsurprising that banks are not currently favoured as a
sector by investors. STB is a well capitalised specialist lender
with an established track record and a clear strategy to achieve
growth. In the first half of the year, tangible book value per
share increased by 2.0% to GBP17.46 (31 December 2022: GBP17.11).
With our resilient, diversified business model and our proven
agility, we are well placed to continue to scale the Group's
businesses and deliver value for our shareholders.
Lord Forsyth
Chairman
Chief Executive's statement
I am pleased with our positive operational performance during
the first six months of the year. We have continued to build
momentum, delivering strong new business volumes and loan book
growth, allowing us to scale the Group in line with our ambitions.
Project Fusion, our cost efficiency programme, is on track to
deliver its target of GBP4 million in annualised savings(1) by the
end of the year. We have strengthened our capital base via our
recent GBP90 million Tier 2 bond issuance. Overall, we have laid
the foundations for a strong 2023 and expect a significant
improvement in our profitability during the second half of the year
and in 2024.
Optimising for Growth: Our strategic priorities
We are using our credit discipline and operational agility to
achieve our vision of becoming the most trusted specialist lender
in the UK. Our strategic pillars to achieve this are built around
Grow, Sustain and Care. Growth is a particularly important
priority. Growth of our loan book and revenue will deliver a
reduced cost to income ratio and support our return on equity
target. We have defined our specialist lending segments and the
continued simplification and streamlining of the Group's operating
model will further enhance our cost efficiency. Combined, these
initiatives underpin our confidence in delivering on all our
medium-term targets.
Our Optimising for Growth framework has three core strategic
priorities:
1. Simplify
Since the start of 2021, the Group has been simplified into a
focused specialist lending business with four core lending
segments. The sale of Debt Managers (Services) Limited's loan
portfolio completed the simplification of the lending activities
for the Group. The next phase of our simplification is around
increased integration of shared services, the streamlining of
operational processes and digitalisation of our business. Project
Fusion, our cost efficiency programme, helps to mitigate ongoing
cost inflation that the business faces. Combined, these initiatives
give us high confidence in driving our cost income ratio to below
50% in the medium-term.
Project Fusion achieved GBP2 million of annualised savings(1)
during 2022 and is on track to achieve the target of GBP4 million
in annualised savings(1) by the end of 2023. In the property
workstream, the Group moved to single sites in Solihull and
Cardiff. In the digitalisation workstream, we have reduced the
number of documents and letters printed and posted to customers and
now deliver these through digital channels. In the operational
efficiency workstream, the Group has successfully renegotiated a
significant number of supplier contracts.
With a greater focus on cost discipline, we contained our
period-on-period cost growth at 9.7%, despite the significant
inflation in the UK economy, and maintained a broadly flat cost
income ratio of 56.9% (30 June 2022: 57.0%).
2. Enhance customer experience
The Group has a long track record of achieving high customer
satisfaction scores for our Consumer Finance and Savings
businesses. We are proud of our performance but will not take it
for granted. We will continue to strive to improve customer
experience across all of our operations. The delivery of improved
customer experience is a key element in driving our growth more
cost efficiently.
Feefo scores continue to rate highly at 4.6 stars out of 5 (30
June 2022: 4.5 stars out of 5). Our Vehicle Finance and Retail
Finance teams were recognised by Feefo's 'Platinum Trusted Service
Award', and our Savings team secured Feefo's 'Trusted Service
Award'. Established in 2014, the Trusted Service Awards recognise
brands that use the platform to collect verified reviews and
receive exceptional feedback from their customers. The award is an
independent seal of excellence, which recognises businesses that
consistently deliver a world-class customer experience.
For the second year in a row, Vehicle Finance was also nominated
for the Finance Provider of the Year Award at the Motor Trader
Independent Dealer Awards 2023. Our Commercial Finance team took
home the Asset-Based Lender of the Year Award at the recent Real
Deals Private Equity Awards, the longest running and most
prestigious Private Equity awards in Europe.
Our internal net promoter scores remain high for our Consumer
Finance businesses and benchmark well against our industry. Our
customer experience is increasingly digital, with over 75% of our
Retail Finance customers registered for online account
management.
Our preparations for the introduction of Consumer Duty at the
end of July have seen a comprehensive review of our Consumer
Finance and Savings products and customer experience. Consumer
testing has been completed on our communications, and we have
identified further opportunities to enhance these to improve our
customer experience. Our products continue to offer good customer
outcomes and represent fair value, which was initially assessed by
an independent party, and we will continue to monitor and develop
our products and services in line with developing best practice
post-implementation.
We have raised record levels of deposits and retained funds on
maturing products, and supported customers by increasing rates on
managed rate products as the Bank of England Base Rate increased.
Our deposits are entirely from retail customers and 96% of deposits
are fully covered by the FSCS.
3. Leverage networks
The Group is built on the importance of strong relationships. We
have relationships with a range of partners, retailers, car
dealers, intermediaries, new business originators and advisers. The
Group looks to further deepen these existing relationships to
originate new business; to expand our product offering; and to take
market share opportunities.
Within our Retail Finance business, a pilot of AppToPay has been
launched with a focused group of existing retail partners, marking
the Group's entry into the digital Buy Now, Pay Later market. The
product has been fully integrated into the suite of products
offered by Retail Finance, so that no IT integration effort is
required by our retail partners.
Our Retail Finance business is supported by over 1,400 retail
partners. Loan book growth has been achieved from expanding our
distribution and growth with existing partners. New business grew
by 14.7% compared to the first half of 2022, resulting in lending
balances of GBP1.2 billion.
A key strategic priority for Vehicle Finance has been the
expansion of our distribution network to drive loan book growth.
During 2023, the Group increased its Vehicle Finance dealer network
to 680 from 560 at the end of 2022. Combined with the build out of
the product portfolio in consumer lending and stock funding, the
Group has seen the total loan book increase to GBP440.4 million
from GBP373.1 million at year-end 2022, with GBP250.1 million of
new business lending.
Our Business Finance businesses offer bespoke products and
personalised relationships. In Commercial Finance, private equity
groups, professional advisory firms and accountants are important
relationships. Nearly two-thirds of our private equity clients have
made more than one client introduction.
Enabled by technology
In recent years, the Group has invested in improving its
technology infrastructure and IT platform, both to support enhanced
customer experiences and drive operational efficiency. Major
projects in the last couple of years have included our motor
transformation project, AppToPay, and Open Banking payments. Since
2018, the Group has spent GBP16.4 million on strategic IT projects
and has a modern, scalable environment to support our growth
ambitions. Our technology platform will: unlock our ability to
simplify the Group through digitalisation; allow us to deliver
enhanced customer experiences; and to leverage our networks through
ease of integration with third parties.
During the first half, the Group implemented a series of
technology enhancements, including the completion of the project to
replace our legacy collections platform for Vehicle Finance, launch
of the pilot of AppToPay in Retail Finance, a workflow management
tool for Commercial Finance and confirmation of payee within our
Savings platform. We will commence the customer testing phase of
our new digital Savings App in the next few months, with a wider
rollout planned before the end of the year.
Delivering market share gains in large addressable markets
With our four specialist lending segments, the Group operates in
large addressable markets. Through our strategic decision to launch
new products to increase the proportion of lower risk, prime
customers our Consumer Finance businesses have expanded their
addressable markets significantly in recent years. The Group
believes it has significant market share opportunities to take
advantage of, and it has demonstrated a strong track record of
market share gain in recent years.
The Group has grown lending in all our businesses and achieved
record new business volumes of GBP1.15 billion in the six months to
June 2023 (30 June 2022: GBP1.12 billion).
At the end of the first six months, we delivered net lending
growth of 8.2% (GBP239.0 million). Our Consumer Finance businesses
contributed significantly to this growth, increasing by 13.5%, with
Business Finance lending increasing by 3.1%.
Within our Retail Finance business, we have increased our market
share for new business from 11.4% at the end of 2022 to 12.9%(2) .
The planned exit of the second largest player from the market at
the start of 2023 has provided new opportunities for the Group.
Within our Vehicle Finance business, we have increased our market
share for new business from 1.1% at the end of 2022 to 1.3%(3) on
the back of improved distribution, despite the tightening of our
credit criteria over the last 12 months.
Credit discipline
We recognised an impairment charge of GBP23.0 million (30 June
2022: GBP17.9 million). We have actively tightened our credit
criteria in our Vehicle Finance business, which had a positive
impact on the impairment charge. However, we also recognised one
material loss of GBP7.2 million on a long-running problem debt case
within Commercial Finance. The circumstances around the particular
case were unique, with a lessons learned exercise confirming no
similar concerns across the portfolio. The Commercial Finance team
has a long-term track record of excellent credit discipline and
minimal impairments since that business was established in 2014.
Arrears across Consumer Finance have remained stable and at lower
levels than pre-pandemic times due to the higher mix of prime
lending in our loan book.
Capital and liquidity strength
The Group strengthened its capital position during the year
through the new issue of GBP90.0 million Tier 2 bonds with 2033
maturity, and subsequent buyback of the two GBP25 million Tier 2
bonds with maturity in 2028 and first call dates in 2023. We have
maintained strong capital ratios during the period with a Common
Equity Tier 1 ratio of 13.0% as at 30 June 2023 (30 June 2022:
14.0%), where we continue to utilise the transitional IFRS 9
provisions, albeit with the benefit tapering down by GBP9.3 million
as we entered the year. Increases to the Countercyclical Buffer
('CCyB') at the end of 2022, and again in July 2023, to a level of
2%, have been incorporated within our capital management
framework.
We have maintained liquidity metrics above the regulatory
thresholds throughout the period.
Environmental, Social and Governance ('ESG')
The Group continues to make progress against our ESG priorities.
On Climate Action, the 'paper to digital' initiative continues at
pace. Within Equity, Diversity and Inclusion, we continue to make
progress towards our initial targets for Women in Finance. In
Education and Skills, we have launched our MentorMe initiative, a
mentoring programme within the Group, and continued to offer the
'Blazing my trail' programme, an extremely popular course, which
supports employees to learn to be their authentic selves, improve
self-confidence and plan their futures. For Customer Trust, our
latest customer feedback report highlighted our strengths and areas
for improvement. Fundraising activities have supported a number of
charities, and many of our people have participated in
volunteering.
Our people
We have once again been recognised as one of the UK's Best
Workplaces(TM) by Great Place to Work(R), the global authority on
workplace culture, reaching our highest ranking of 12 out of 87
(large organisation category), surpassing last year's ranking of 29
out of 67. In addition, we were also ranked 12 out of 25 for Best
Workplace for Wellbeing(TM), and 17 out of 89 companies for UK Best
Workplace(TM) for Women.
Our recent colleague pulse survey highlighted 85% of colleagues
continue to say that STB is a great place to work, and our Trust
Outcome came out at 87%. It is pleasing to know how positively our
colleagues feel about the organisation. I would like to thank them
for all their hard work and commitment.
Outlook
We remain confident about the future, despite near-term
uncertainties. We are committed to carefully navigating our
businesses during these uncertain times and will continue to be
flexible in how we react during this period of economic
uncertainty. We will continue to monitor inflation and the impact
the cost of living will have on our customers. Further increases in
the Bank of England Base Rate are predicted and this will have a
direct impact on product pricing. Despite these challenges, we have
significant growth potential and will capture opportunities with
our usual focus on disciplined risk management.
Our Optimising for Growth strategic priorities will support the
delivery of our medium-term targets. We are well placed to realise
our ambitions and have shown resilience and agility through the
challenges of the last few years. During the first half of the
year, we have laid the foundations for a strong 2023 and expect a
significant improvement in our profitability during the second half
of the year and in 2024.
David McCreadie
Chief Executive Officer
1. Cost savings relative to operating expenses for the 12 months
ended December 2021.
2. Source: Finance & Leasing Association ('FLA'): New
business values within retail store and online credit: 2023 based
on January to May. Market share of 12.9% in 2023 (1 January 2022 to
31 December 2022: 11.4%): FLA total and Retail Finance new business
of GBP3,838 million (1 January 2022 to 31 December 2022: GBP9,846
million) and GBP495.9 million (2022: GBP1,124.3 million)
respectively.
3. Source: FLA. Cars bought on finance by consumers through the
point of sale: New business values: Used cars: 2023 based on
January to May 2023, FLA total and Vehicle Finance total of
GBP9,429 million (1 January 2022 to 31 December 2022: GBP23,472
million) and GBP119.2 million (1 January 2022 to 31 December 2022:
GBP262.9 million) respectively.
About us
Our vision
To be the most trusted specialist lender in the UK
Purpose
To help more consumers and businesses fulfil their ambitions
Our strategic pillars
Grow Sustain Care
* Generate growth and attractive returns in specialist * Create sustainable value through market expertise and * Help customers with simple, clear and compelling
segments deep customer knowledge products
* Exploit digital capabilities to build scale and drive * Utilise strong credit discipline, capital allocation * Deliver consistently excellent customer care and
cost efficiency and risk management capabilities swift outcomes
Always act with integrity and transparency, delivering value for
all stakeholders
Our strategic priorities
Simplify Enhance Customer Experience Leverage Networks
Strengths
Specialist Expert Diverse Ambitious
Focus on attractive Strong market Diverse portfolios Clear opportunities
returns in our expertise, relationships in consumer and for growth and
core markets and digital capabilities business lending strategy for long-term
value creation
Values
Customer Risk Aware Future Orientated Teamwork Ownership Performance
Focused It keeps Embracing We achieve Each of us Driven
Because they our customers change and more when need to take We will only
are at the and us safe implementing we work well personal be the most
heart of and secure good ideas together responsibility trusted specialist
everything give us a lender in
we do competitive the UK by
advantage each of us
taking personal
accountability
for our performance
Financial review
30 June 30 June 31 December
2023 2022 Change 2022
Income statement GBPmillion GBPmillion % GBPmillion
------------------------------------------------ ------------ ------------ ----------- ------------
Continuing operations
Interest income and similar income 138.8 90.6 53.2 203.0
Interest expense and similar charges (57.8) (17.5) 230.3 (50.4)
------------------------------------------------ ------------ ------------ ----------- ------------
Net interest income 81.0 73.1 10.8 152.6
Fee and commission income 8.1 8.1 - 17.4
Fee and commission expense - (0.2) (100.0) (0.4)
------------------------------------------------ ------------ ------------ ----------- ------------
Net fee and commission income 8.1 7.9 2.5 17.0
------------------------------------------------ ------------ ------------ ----------- ------------
Operating income 89.1 81.0 10.0 169.6
Net impairment charge on loans and
advances to customers (23.0) (17.9) 28.5 (38.2)
Gains on modification of financial
assets 0.2 0.7 (71.4) 1.1
Fair value gains/(losses) on financial
instruments 0.9 (0.5) (280.0) (0.3)
Operating expenses (50.7) (46.2) 9.7 (93.2)
------------------------------------------------ ------------ ------------ ----------- ------------
Profit before income tax from continuing
operations 16.5 17.1 (3.5) 39.0
Income tax expense (4.2) (4.2) - (9.4)
------------------------------------------------ ------------ ------------ ----------- ------------
Profit for the period from continuing
operations 12.3 12.9 (4.7) 29.6
------------------------------------------------ ------------ ------------ ----------- ------------
Discontinued operations:
(Loss)/profit before income tax from
discontinued operations (1.5) 7.6 (119.7) 5.0
Income tax credit/(expense) 0.3 (1.4) (121.4) (0.9)
------------------------------------------------ ------------ ------------ ----------- ------------
(Loss)/profit for the period from discontinued
operations (1.2) 6.2 (119.4) 4.1
------------------------------------------------ ------------ ------------ ----------- ------------
Profit for the period 11.1 19.1 (41.9) 33.7
------------------------------------------------ ------------ ------------ ----------- ------------
Basic earnings per share (pence) -
Total 59.4 102.4 (42.0) 180.5
Basic earnings per share (pence) -
Continuing 65.8 69.1 (4.8) 158.5
------------------------------------------------ ------------ ------------ ----------- ------------
Selected Key Performance Indicators Change
and performance metrics GBPmillion GBPmillion % GBPmillion
------------------------------------------------ ------------ ------------ ----------- ------------
Total profit before tax 15.0 24.7 (39.3) 44.0
------------------------------------------------ ------------ ------------ ----------- ------------
Percentage
point
% % movement %
------------------------------------------------ ------------ ------------ ----------- ------------
Net interest margin ('NIM') 5.4 5.7 (0.3) 5.7
Yield 9.3 7.1 2.2 7.5
Cost of funds 3.9 1.4 2.5 1.9
Cost to income ratio 56.9 57.0 (0.1) 55.0
Cost of risk 1.5 1.3 0.2 1.4
Total return on average equity(1) 6.8 12.5 (5.7) 10.8
Common Equity Tier 1 ('CET 1') ratio 13.0 14.0 (1.0) 14.0
Total capital ratio(1) 15.2 16.2 (1.0) 16.1
------------------------------------------------ ------------ ------------ ----------- ------------
1. Restated to reflect a change in accounting policy relating to
land and buildings, which are now presented at historical cost.
Further details are provided in Note 1.3.1 to the Interim Financial
Statements.
Certain key performance indicators and performance metrics represent
alternative performance measures that are not defined or specified
under IFRS. Definitions of these alternative performance measures,
their calculation and an explanation of the reasons for their
use can be found in the Appendix to the Interim Report. In the
narrative of this Financial review, key performance indicators
are identified by being in bold font.
Key performance indicators have been presented in the Financial
review on a continuing basis, unless otherwise stated.
Continuing businesses include the Retail Finance, Vehicle Finance,
Real Estate Finance and Commercial Finance businesses only. Discontinued
business includes the Debt Management business. Further details
of discontinued business can be found in Note 6 of the Interim
Financial Statements.
The first half of 2023 saw a continued focus on growth whilst
maintaining strong credit discipline and cost management. Growth
has been targeting higher credit quality prime lending,
particularly within our Consumer Finance business. Balance sheet
growth has generated 10.0% increase in operating income, and this
has been achieved with an 9.7% increase in costs. The Group
achieved a profit before tax of GBP16.5 million (30 June 2022:
GBP17.1 million), with CET 1 ratio remaining strong at 13.0%.
Earnings per share fell from 69.1 pence per share (30 June 2022)
to 65.8 pence per share. Total return on average equity decreased
from 12.5% (30 June 2022) to 6.8%. Return on average equity
performance in H1 2022 was impacted by the one-off GBP6.1 million
gain recognised on the sale of the Debt Managers (Services)
Limited's loan portfolio. Excluding the gain/(losses) from
discontinued operations, the continuing return on average equity
for 30 June 2022 would be 8.4% compared to 7.5% for 30 June
2023.
Detailed disclosures of earnings per ordinary share are shown in
Note 7 to the Interim Financial Statements. The components of the
Group's profit are analysed in more detail in the sections
below.
Operating income
The Group's operating income increased by 10.0% to GBP89.1
million (30 June 2022: GBP81.0 million). Net interest income on the
Group's lending assets continues to be the largest component of
operating income. This increased by 10.8% to GBP81.0 million (30
June 2022: GBP73.1 million), driven by growth in net lending
assets, with average balances increasing by 16.3% to GBP3,005.6
million (30 June 2022: GBP2,584.2 million).
The Group's net interest margin decreased to 5.4% (30 June 2022:
5.7%), reflecting new Tier 2 capital, which reduced NIM by 20 bps
in the period, but provides capital for growth, and the strategic
shift towards lower yielding, lower risk lending in both our
Business Finance and Consumer Finance divisions.
The Group's other income, which relates to net fee and
commission income, remained at similar levels to the prior
period.
Impairment charge
Impairment charges increased to GBP23.0 million (30 June 2022:
GBP17.9 million). The charge was impacted by one material loss of
GBP7.2 million relating to a long-running problem debt case within
the Commercial Finance business, which was highlighted in the 2022
Annual Report and Accounts (Note 47.2). Circumstances around the
particular case were unique, with a lessons learned exercise
confirming no similar concerns across the portfolio. Whilst it is
disappointing to record a loss of this magnitude, the cost of risk
since inception of the business in 2014, excluding this specific
impairment charge has been 0.04% of average lending balances, and
would be 0.6%, inclusive of this case. This loss in the period
resulted in an increase in cost of risk to 1.5% (30 June 2022:
1.3%). Overall impairment provisions remain robust at GBP79.5
million (30 June 2022: GBP67.0 million) with an aggregate coverage
level of 2.5% (30 June 2022: 2.4%).
During the second quarter of the financial year, the Group
refreshed macroeconomic inputs to its IFRS 9 Expected Credit Loss
('ECL') models incorporating its external economic advisors latest
UK economic outlook. The forecast economic assumptions within each
IFRS 9 scenario, and the weighting applied, are set out in more
detail in Note 10 to the Interim Financial Statements.
The Group has applied Expert Credit Judgements ('ECJ's') where
management believes the IFRS 9 modelled output is not fully
reflecting current risks in the loan portfolios. Further details of
these ECJs are included in Note 10 to the Financial Statements.
Fair value gains/(losses) on financial instruments
During the period, the Group realised a gain of GBP1.2 million
(30 June 2022: GBPnil) in relation to the buy-back of the 2018 Tier
2 debt. The Group also recognised a loss of GBP0.8 million (30 June
2022: GBPnil) relating to interest rate swaps being entered into
ahead of hedge accounting becoming available, which will reverse to
the income statement over the remaining life of the swaps. The
Group has highly effective hedge accounting relationships, and as a
result, recognised a small hedging ineffectiveness gain of GBP0.5
million (30 June 2022: GBP0.5 million loss).
Operating expenses
The Group's cost base increased in the period by 9.7% to GBP50.7
million (30 June 2022: GBP46.2 million), with the cost income ratio
remaining flat at 56.9% (30 June 2022: 57.0%), despite the impact
of inflation on operating expenses. The ratio reflects both the
increase in operating income and the ongoing programme of
initiatives that seek to achieve more efficient and effective
operational processes, including digitalisation of processes,
supplier and procurement reviews, organisational design and
property management.
Taxation
The effective tax rate on continuing activities of 25.5%,
increased compared with 2022 (30 June 2022: 24.6%). The effective
rate is above the Corporation Tax rate of 23.5% reflecting a
reduced deferred tax asset on future share option exercises. The
total effective tax rate is 26.0% (30 June 2022: 22.7%).
Discontinued business
In May 2022, the Group disposed of the loan portfolio of Debt
Managers (Services) Limited, realising an overall initial profit on
disposal of GBP6.1 million in the first half of 2022. A further
GBP1.5 million of wind-down costs have been incurred during the
period.
Distributions to shareholders
The Board approved an interim dividend of 16.0 pence per share
(30 June 2022: 16.0 pence per share).
Balance sheet
Restated(1)
30 June 30 June
Restated(1)
31 December
2023 2022 2022
Summarised balance sheet GBPmillion GBPmillion GBPmillion
-------------------------------------------- ------------- ------------- -------------
Assets
Cash and balances at central banks 318.3 253.0 370.1
Loans and advances to banks 33.3 54.2 50.5
Debt securities - 34.9 -
Loans and advances to customers 3,158.5 2,751.2 2,919.5
Fair value adjustment for portfolio hedged
risk (47.7) (17.0) (32.0)
Derivative financial instruments 50.3 17.7 34.9
Other assets(1) 38.2 40.8 36.8
-------------------------------------------- ------------- ------------- -------------
3,550.9 3,134.8 3,379.8
-------------------------------------------- ------------- ------------- -------------
Liabilities
-------------------------------------------- ------------- ------------- -------------
Due to banks 409.3 400.3 400.5
Deposits from customers 2,648.9 2,290.9 2,514.6
Fair value adjustment for portfolio hedged
risk (33.7) (15.2) (23.0)
Derivative financial instruments 36.1 17.3 26.7
Tier 2 subordinated liabilities 92.9 51.0 51.1
Other liabilities 64.2 76.4 83.5
-------------------------------------------- ------------- ------------- -------------
3,217.7 2,820.7 3,053.4
-------------------------------------------- ------------- ------------- -------------
1. Restated to reflect a change in accounting policy relating to
land and buildings, which are now presented at historical cost.
Further details are provided in Note 1.3.1 to the Interim Financial
Statements.
New business
Loan originations in the period, being the total of new loans
and advances to customers entered into during the period, increased
by 2.4% to GBP1,147.4 million (30 June 2022: GBP1,121.0
million).
30 June 30 June Change
New business volumes 2023 2022 %
---------------------- -------- -------- -------
Consumer Finance
Retail Finance 613.5 535.0 14.7
Vehicle Finance 250.1 208.4 20.0
Business Finance
Real Estate Finance 252.4 241.8 4.4
Commercial Finance 31.4 135.8 (76.9)
Total 1,147.4 1,121.0 2.4
---------------------- -------- -------- -------
Customer lending and deposits
Group lending assets increased by 8.2% to GBP3,158.5 million (31
December 2022: GBP2,919.5 million), surpassing GBP3 billion for the
first time, primarily driven by strong growth in our Consumer
Finance and Real Estate Finance business.
Consumer Finance balances grew by GBP192.7 million or 13.5%,
driven by strong demand from strategic partner retailers in the
first half of 2022.
Further analysis of loans and advances to customers, including a
breakdown of the arrears profile of the Group's loan books, is
provided in Note 20 to the Interim Financial Statements.
Customer deposits include Fixed term bonds, ISAs, Notice and
Access accounts. Customer deposits increased by 5.3% to GBP2,648.9
million (31 December 2022: GBP2,514.6 million). Total funding ratio
of 109.8% decreased slightly from 31 December 2022 (112.5%). As set
out below, the mix of the deposit book has continued to change as
the Group has adapted to the ongoing Base Rate changes, with a
focus on meeting customer demand for Access products, and retaining
stable funds, which is reflected in the increase in Fixed term
bonds.
Investments and wholesale funding
As at the end of 2022, the Group held no debt securities (31
December 2022: GBPnil). Amounts due to banks consisted primarily of
drawings from the Bank of England Term Funding Scheme with
additional incentives for SMEs ('TFSME') facility.
Tier 2 subordinated liabilities
Tier 2 subordinated liabilities represents GBP90.0 million of
10.5-year 13.0% Fixed Rate Callable Subordinated Notes, which
qualify as Tier 2 capital. The existing 2018 Notes were repurchased
in February and March 2023.
Capital
Management of capital
Our capital management policy is focused on optimising
shareholder value over the long-term. Capital is allocated to
achieve targeted risk adjusted returns whilst ensuring appropriate
surpluses are held above the minimum regulatory requirements.
Key factors influencing the management of capital include:
-- The level of buffers and the capital requirement set by the
Prudential Regulation Authority ('PRA');
-- Estimated credit losses calculated using IFRS 9 methodology,
and the applicable transitional rules;
-- New business volumes; and
-- The product mix of new business.
Capital resources
Capital resources increased over the period from GBP376.8
million to GBP383.5 million. The increase was primarily in CET 1
capital and was driven by total profit for the period of GBP11.1
million, offset by the 2023 interim dividend of GBP3.0 million, and
the reduction in the IFRS 9 transitional adjustment of GBP9.3
million. In addition, the increase in Tier 2 was driven by the
newly-issued GBP90.0 million subordinated debt, which will have
increased utility over time as capital eligibility increases as a
consequence of risk weighted asset growth.
Restated(1) Restated(1)
30 June 30 June 31 December
2023 2022 2022
Capital GBPmillion GBPmillion GBPmillion
---------------------------------------------------- ------------- ------------- --------------
CET 1 capital, excluding IFRS 9 transitional
adjustment 324.4 305.0 315.2
IFRS 9 transitional adjustment 2.4 8.5 11.7
CET 1 capital 326.8 313.5 326.9
Tier 2 capital 56.7 49.8 49.9
---------------------------------------------------- ------------- ------------- --------------
Total capital 383.5 363.3 376.8
---------------------------------------------------- ------------- ------------- --------------
Total risk exposure 2,518.5 2,237.1 2,334.6
---------------------------------------------------- ------------- ------------- --------------
Capital ratios
---------------------------------------------------- ------------- ------------- --------------
CET 1 capital ratio 13.0 14.0 14.0
Total capital ratio 15.2 16.2 16.1
CET 1 capital ratio (excluding IFRS 9 transitional
adjustment) 12.9 13.7 13.6
Total capital ratio (excluding IFRS 9 transitional
adjustment) 15.1 15.9 15.7
Leverage ratio 10.1 10.6 10.7
---------------------------------------------------- ------------- ------------- --------------
1. Restated to reflect a change in accounting policy relating to
land and buildings, which are now presented at historical cost.
Further details are provided in Note 1.3.1 to the Interim Financial
Statements.
Capital requirements
The Total Capital Requirement, set by the PRA, includes both the
calculated requirement derived using the standardised approach and
the additional capital derived in conjunction with the Internal
Capital Adequacy Assessment Process ('ICAAP'). In addition, capital
is held to cover generic buffers set at a macroeconomic level by
the PRA.
Restated(1)
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
----------------------------- ------------ ------------ -------------
Total Capital Requirement 226.7 211.9 210.1
Capital conservation buffer 63.0 55.9 58.4
Countercyclical buffer 25.2 - 23.3
----------------------------- ------------ ------------ -------------
Total 314.9 267.8 291.8
----------------------------- ------------ ------------ -------------
1. Restated to reflect a change in accounting policy relating to
land and buildings, which are now presented at historical cost.
Further details are provided in Note 1.3.1 to the Interim Financial
Statements.
The increase in lending balances through the first six months of
the year resulted in an increase in risk weighted assets over the
period, bringing the total risk exposure up from GBP2,334.6 million
to GBP2,518.5 million. The capital conservation buffer has been
held at 2.5% of total risk exposure since 1 January 2019. The
countercyclical capital buffer rose from 0% to 1% of relevant risk
exposures in December 2022, and remained at this level at the end
of the period. The countercyclical capital buffer rose to 2% on 5
July 2023.
Liquidity
Management of liquidity
The Group uses a number of measures to manage liquidity risk.
These include:
-- The Overall Liquidity Adequacy Requirement ('OLAR'), which is
the Board's view of the Group's liquidity needs, as set out in the
Board approved Internal Liquidity Adequacy Assessment Process
('ILAAP').
-- The Liquidity Coverage Ratio ('LCR'), which is a regulatory
measure that assesses net 30-day cash outflows as a proportion of
High Quality Liquid Assets ('HQLA').
-- Total funding ratio, as defined in the Appendix to the Interim Report.
-- 'HQLA' are held in the Bank of England Reserve Account and UK
Treasury Bills. For LCR purposes, the HQLA excludes UK Treasury
Bills that are pledged as collateral against the Group's TFSME
drawings with the Bank of England.
The Group met the LCR minimum threshold throughout the year and,
with the Group's average LCR being 217.0% (based on a rolling 12
month-end average).
Liquid assets
We continued to hold significant surplus liquidity over the
minimum requirements throughout the first six months of the year,
managing liquidity by holding High Quality Liquid Assets ('HQLA')
and utilising predominantly retail funding balances from customer
deposits over the period. The Group held additional levels of
liquidity at the end of 2022 (31 December 2022: GBP416.9 million)
to support funding planned for Business Finance drawdowns in early
2023. These returned to more normal levels at the end of the period
(30 June 2023: GBP347.3 million).
The Group is a participant in the Bank of England's Sterling
Money Market Operations under the Sterling Monetary Framework and
has drawn GBP390.0 million under the TFSME. The Group has no liquid
asset exposures outside of the United Kingdom and no amounts that
are either past due or impaired.
30 June 30 June 31 December
2023 2022 2022
Liquid assets GBPmillion GBPmillion GBPmillion
--------------- ------------ ------------ ------------
Aaa - Aa3 318.3 285.6 370.1
A1 - A2 29.0 49.1 41.6
Unrated - 5.1 5.2
--------------- ------------ ------------ ------------
Total 347.3 339.8 416.9
--------------- ------------ ------------ ------------
We continue to attract customer deposits to support balance
sheet growth. The composition of customer deposits is shown in the
table below:
30 June 30 June
31 December
2023 2022 2022
Customer deposits % % %
------------------- -------- -------- ------------
Fixed term bonds 54 52 56
Notice accounts 12 30 20
ISA 19 14 17
Access accounts 15 4 7
------------------- -------- -------- ------------
Total 100 100 100
------------------- -------- -------- ------------
Business review
Consumer Finance
Retail Finance
We provide quick and easy finance options at point of
purchase:
-- Helping consumers purchase lifestyle goods and services without having to wait.
-- Supporting the growth of UK retailers by offering integrated
finance options that drive sales.
30 June 30 June 31 December
2023 2022 Movement Change 2022
GBPmillion GBPmillion GBPmillion % GBPmillion
------------------- ------------ ------------ ------------ ------- ------------
New business 613.5 535.0 78.5 14.7 1,124.3
Lending balance 1,179.9 916.2 263.7 28.8 1,054.5
Total revenue 49.2 35.9 13.3 37.0 78.0
Impairment charge 8.9 5.6 3.3 58.9 14.8
------------------- ------------ ------------ ------------ ------- ------------
What we do
-- We operate a market-leading online e-commerce service to
retailers, providing unsecured, prime lending products to UK
customers to facilitate the purchase of a wide range of consumer
products, including bicycles, music, furniture, outdoor/leisure,
electronics, dental, jewellery, home improvements and football
season tickets. These markets include a large number of household
names.
-- The finance products are either interest bearing or have
promotional interest-free credit subsidised by retailers. For
interest-free products, the customer pays the same price for the
goods, regardless of whether credit is taken or not. Taking the
credit option allows the customer to spread the cost of the main
purchase into more manageable monthly payments, and afford
ancillary extras and add-ons, which can also be financed.
Interest-free borrowing attracts a large proportion of high credit
quality customers.
-- The online processing system allows customers to sign their
credit agreements digitally, thereby speeding up the pay-out
process, and removing the need to handle sensitive personal
documents.
-- The business is supported by a highly experienced senior team and workforce.
H1 2023 performance
-- Strong lending growth, with an increase of 11.9% on balances
at 31 December 2022, resulting from an increase in our market share
of the retail store and online credit market(1) .
-- Extension of our footprint with key retail partners and the
introduction of new retailer relationships as we leveraged our
strong track record of systems integration.
-- Lending and revenue growth has come mainly from interest-free
lending into the furniture and jewellery sectors, which attracts a
prime customer at a lower credit risk, but a lower net interest
margin. At the end of the H1 2023, 86.2% (31 December 2022: 85.1%)
of the lending book related to interest-free lending.
-- We have consciously focused on primer sectors remaining
cautious in response to the economic environment. As a result,
whilst the impairment charge has increased compared to H1 2022, it
remains in line with expectation and aligned to a growing lending
balance and stable coverage levels.
-- We anticipate further lending growth from our existing retail
partners and our operational plans are focused on digitalisation of
all key processes to improve the customer and our retail partners'
experience.
-- AppToPay was launched in April 2023 and will promote
additional lending in the new digital Buy Now Pay Later markets
using mobile application-based technology.
1. Source: Finance & Leasing Association ('FLA'): New
business values within retail store and online credit: 2023 based
on January to May. Market share of 12.9% in 2023 (2022: 11.4%): FLA
total and Retail Finance new business of GBP3,838 million (1
January 2022 to 31 December 2022: GBP9,846 million) and GBP495.9
million (1 January 2022 to 31 December 2022: GBP1,124.3 million)
respectively.
Vehicle Finance
We help to drive more business in UK car dealerships:
-- Providing funds to customers to help them buy used vehicles
from dealers via Vehicle Finance.
-- Providing funds to dealers to help them buy vehicles for
their forecourts and showrooms via Stock funding.
30 June 30 June 31 December
2023 2022 Movement Change 2022
GBPmillion GBPmillion GBPmillion % GBPmillion
------------------- ------------ ------------ ------------ ------- ------------
New business 250.1 208.4 41.7 20.0 401.7
Lending balance 440.4 332.6 107.8 32.4 373.1
Total revenue 29.0 22.3 6.7 30.0 48.0
Impairment charge 4.9 12.4 (7.5) (60.5) 21.3
------------------- ------------ ------------ ------------ ------- ------------
What we do
-- We provide lending products that are secured against the
vehicle being financed. The majority of vehicles financed are used
cars sold by independent dealers.
-- We also provide vehicle stock funding, whereby funds are
advanced and secured against dealer forecourt used car stock;
sourced from auctions, part exchanges or trade sources.
-- Finance is provided via technology platforms, allowing
Vehicle Finance to receive applications online from its
introducers; provide an automated decision; facilitate document
production through to pay-out to dealer, and manage in-life loan
accounts.
H1 2023 performance
-- In the first five months of 2023, new business volumes for
point-of-sale finance for used cars in the UK (by value) was 10%
lower than in the same period in 2022(1) . Over the same period,
the Vehicle Finance business grew its share of this market from
1.1% to 1.3%.
-- Prime Hire Purchase and Personal Contract Purchase products
introduced in 2021 delivered GBP63.0 million of new business in the
first half of 2023 (30 June 2022: GBP46.8 million). Lending
balances from Prime products grew to GBP131.8 million or 29.9% of
lending balances (31 December 2022: GBP90.4 million, 24.2%). Near
Prime new business was GBP82.7 million (30 June 2022: GBP96.2
million), demonstrating the impact of us tightening our credit
criteria. New business growth exceeded lending growth due to the
short-term duration of Stock Funding.
-- Revenues grew broadly in line with lending balances. However,
the move towards Prime lending has resulted in an improvement in
total arrears levels, and this coupled with IFRS 9 ECL models now
reacting to credit tightening that took place in 2022, has resulted
in a reduction in the impairment charge in the first half of 2023
compared with 2022.
-- Stock Funding grew lending balances from GBP18.8 million in
the first half of 2022 (5.7% of lending balances) to GBP30.0
million in 2023 (6.8% of lending balances). Stock Funding now
represents 7.7% of Vehicle Finance revenues.
-- As part of the continuing Motor Transformation Programme, we
successfully delivered the second phase, which launched a new
collection's platform for Prime lending. The final phase of the
programme, to transition Near Prime lending and Prime lending on to
one new 'rate for risk' based platform, will be the focus for the
business in 2023.
1. Source: FLA. Cars bought on finance by consumers through the
point of sale: New business values: Used cars: 2023 based on
January to May 2023, FLA total and Vehicle Finance total of
GBP9,429 million (1 January 2022 to 31 December 2022: GBP23,472
million) and GBP119.2 million (1 January 2022 to 31 December 2022:
GBP262.9 million) respectively.
Business Finance
Real Estate Finance
We lend money against residential properties to professional
landlords and property developers:
-- Providing mortgage-style borrowing to professional landlords
to allow them to improve and grow their portfolio.
-- Providing development facilities to property developers and
SME housebuilders to help build new homes for sale or letting.
30 June 30 June 31 December
2023 2022 Movement Change 2022
GBPmillion GBPmillion GBPmillion % GBPmillion
---------------------------- ------------ ------------ ------------ ---------- ------------
New business 252.4 241.8 10.6 4.4 384.5
Lending balance 1,221.8 1,142.6 79.2 6.9 1,115.5
Total revenue 35.1 27.0 8.1 30.0 57.7
Impairment charge/(credit) 2.2 (0.2) 2.4 (1,200.0) 1.3
---------------------------- ------------ ------------ ------------ ---------- ------------
What we do
-- We provide lending secured against property assets to a
maximum 70% loan-to-value ratio, on fixed or variable rates over a
term of up to five years.
-- Finance opportunities are sourced and supported on a
relationship basis directly and via introducers and brokers.
-- We have an experienced specialist team, with many years of
property expertise, who are nimble and responsive within the
market.
-- We maintain a strong risk management framework for existing and prospective customers.
H1 2023 performance
-- We have delivered a strong performance in difficult trading
conditions amidst ongoing interest rate volatility. Lending
balances increased, primarily driven by strong new business
lending. Revenue growth reflected growth in average lending
balances and rising interest rates. At 30 June 2023, 82% of the
loan book provided lending for residential investment financing (31
December 2022: 85%).
-- We have been working with our larger customers to take
advantage of investment opportunities and re-finance their existing
portfolios.
-- Impairment charges have increased due to higher loan balances
within IFRS 9 stage 3. This relates to a small number of loans all
of which are appropriately provided for, given the level of
collateral protection, and are subject to close monitoring and
oversight.
-- Secured loan book with an average loan-to-value of 56.4% (31
December 2022: 57.7%), slightly reducing the level of inherent risk
to credit losses.
-- The outlook for the second half of the year is uncertain
across both development and investment markets due to the expected
increase in the Bank of England Base Rate. We will continue to
support our clients through this difficult market environment.
Commercial Finance
We support the growth of UK businesses by enabling effective
cash flow:
-- Providing working capital finance to UK SMEs.
-- Providing funds for strategic events.
30 June 30 June 31 December
2023 2022 Movement Change 2022
GBPmillion GBPmillion GBPmillion % GBPmillion
------------------- ------------ ------------ ------------ -------- ------------
New business 31.4 135.8 (104.4) (76.9) 157.3
Lending balance 316.4 359.8 (43.4) (12.1) 376.4
Total revenue 18.2 12.5 5.7 45.6 29.3
Impairment charge 7.0 0.1 6.9 6,900.0 0.8
------------------- ------------ ------------ ------------ -------- ------------
What we do
-- Our lending remains predominantly against receivables,
typically releasing funds against up to 90% of qualifying invoices
under invoice discounting facilities. Other assets can also be
funded either long or short-term and across a range of
loan-to-value ratios alongside these facilities.
-- We also provided additional lending to existing customers
through the Government guaranteed Coronavirus Business Interruption
Loan ('CBIL') Scheme, Coronavirus Large Business Interruption Loan
('CLBIL') Scheme and Recovery Loan Scheme ('RLS').
-- Business is sourced and supported both directly and via
professional introducers but is not reliant on the broker
market.
-- The Commercial Finance team has a strong reputation across
the Asset Based Lending ('ABL') market. The experienced specialist
team works effectively with its partners across private equity and
tier 1 and 2 accountancy practices.
H1 2023 performance
-- Lending balances at June 2023 were 12.1% lower than June
2022. However, average lending balances were only 1.3% lower in the
six months to 30 June 2023 than the six months to 30 June 2022. The
month-end balances can be susceptible to changes in utilisation by
larger clients and, indeed, two larger clients reduced their
utilisation levels just prior to the end of the first half of 2023.
We have maintained focus on supporting our existing customer
base.
-- Total revenue has grown in the first half of 2023, reflecting
that lending balances are directly linked to the Bank of England
Base Rate.
-- The Group's lending under Government CBIL, CLBIL and RLS is
now largely in run-off, and at 30 June 2023, the outstanding
lending balances under these schemes totalled GBP20.3 million (31
December 2022: GBP28.9 million). Commercial Finance took the
conscious decision not to participate in the UK Government's Bounce
Back Loan Scheme, which closed in March 2021.
-- The lack of growth in economic activity, rising inflation and
cost pressures are, in general, adding financial stress across the
SME market, and we have seen this reflected in our own customer
base. We incurred an impairment charge of GBP7.0 million (30 June
2022: GBP0.1 million) largely due to one material loss of GBP7.2
million on a long-running problem debt case. Circumstances around
the particular case were unique, with a lessons learned exercise
confirming no similar concerns across the portfolio. Excluding this
specific impairment charge, the total write-off incurred between
2015 and 2023 has been 0.04% of average lending balances and would
be 0.6%, inclusive of this write-off.
Savings
Customers trust us to look after their savings and provide a
competitive return:
-- Helping our customers save for special events such as a holiday, wedding or retirement.
-- Providing our customers with a diverse range of products to
choose from that offer fair value.
30 June 30 June 31 December
2023 2022 Movement Change 2022
GBPmillion GBPmillion GBPmillion % GBPmillion
------------------ ------------ ------------ ------------ ------- ------------
Fixed term bonds 1,410.0 1,182.4 227.6 19.2 1,414.0
Notice accounts 324.3 696.8 (372.5) (53.5) 500.7
ISAs 505.2 310.8 194.4 62.5 421.8
Access accounts 409.4 100.9 308.5 305.7 178.1
------------------ ------------ ------------ ------------ ------- ------------
2,648.9 2,290.9 358 15.6 2,514.6
------------------ ------------ ------------ ------------ ------- ------------
What we do
-- We offer a range of savings accounts that are purposely
simple in design, with a choice of products from easy access to
180-day notice, and six-month to seven-year fixed terms across both
bonds and ISAs.
-- Accounts are made available and priced in line with our
ongoing funding needs, allowing each individual to hold a maximum
balance of GBP1 million.
-- Our range of savings products enables us to access the
majority of the UK personal savings markets and compete for
significant liquidity pools, achieving a lower marginal cost with
the volume, mix and the competitive rates offered; optimised to the
demand of our funding needs.
H1 2023 performance
-- H1 2023 saw continued increases in the Bank of England Base
rate, which has impacted the rates offered within the savings
market. During the period, we have raised over GBP0.7 billion of
new deposits and retained GBP0.3 billion at maturity.
-- Our deposit base is made up of retail customers and 96% of
total deposits are fully covered by FSCS.
-- We have continued to grow Access balances since introducing
the product last year, with it proving a popular customer choice
given the ongoing increases in the Base Rate. In part due to the
growth of the Access market, with continued repricing offering
savers increasingly competitive returns without sacrificing
immediate access to funds. We have seen a corresponding decrease in
demand for Notice products.
-- The higher-rate market environment has demonstrated the
importance of competitive ISA products for those with higher
balances looking to maximise returns, with plans to continue growth
of these balances during H2 2023.
-- The introduction of six, nine and 18-month fixed-rate terms
has supplemented our existing one-year product, with customer
preference remaining within shorter-dated product terms.
-- Savings have continued to deliver improvements to the
customer experience during the year. Confirmation of Payee has been
enhanced in H1 2023, with services for inbound payments now
included alongside support for verification of customers' external
accounts. This gives customers the reassurance that they are
depositing funds to the correct account and further simplifies the
account opening and funding journey.
-- Customers have continued to adopt a more digital-first
approach, with 95% registered for internet banking. We continue to
offer customers paperless communications where this suits their
needs, and plan to further digitalise our account communications
during H2 2023. Development of our digital proposition through the
launch of a mobile app will see the customer testing phase and
wider roll out of this service during H2 2023.
Market review
The Group operates exclusively within the UK and its performance
is influenced by the macroeconomic environment in the UK. As the
Group's revenue is derived almost entirely from customers operating
in the UK, the Group is particularly exposed to the condition of
the UK economy. Customers' borrowing demands are variously
influenced by, among other things, UK property markets, employment
levels, inflation, interest rates and customer confidence. The
economy impacts demand for the Group's products, margins that can
be earned on lending assets and the levels of loan impairment
provisions.
As a financial services firm, the Group is subject to extensive
and comprehensive regulation by governmental and regulatory bodies
in the UK. The Group conducts its business subject to ongoing
regulation by the Financial Conduct Authority ('FCA') and the
Prudential Regulation Authority ('PRA'). The Group must comply with
the regulatory regime across many aspects of its activity,
including the training, authorisation and supervision of personnel,
systems, processes and documentation.
Economic review
Economic growth, as measured in quarterly UK Gross Domestic
Product ('GDP'), remained low in the first quarter of 2023, at just
0.1%(1) . Economists' base case forecasts indicate recession will
be avoided in 2023 as the UK economy has so far showed greater
resilience than expected. However, growth is expected to be
constrained below 0.5%, with consumer spending being affected by
increasingly tighter fiscal and monetary policy.
Inflation continues to weigh heavily on the UK economy. Whilst
falling from the peak of 11.1%(1) in October 2022 to 7.9%(1) in
June 2023, first quarter inflation data showed unexpected increases
in core inflation and services inflation. The Bank of England has
responded with further Base Rate hikes to a new 15-year high of
5.25%. Financial markets have responded strongly to recent
inflation data, and the Bank of England's likely response, and
currently price in the Base Rate of interest reaching 5.75% in Q1
2024. The compounding increases in the real cost of living will
continue to adversely impact on consumers' disposable incomes and
challenge the affordability of household bills and consumers'
appetite for discretionary spending.
Employment levels remain high at 76.0%(1) . Unemployment
continues to remain at a low level of 4.0%(1) with an increase
recorded in Q2 2023 ahead of expectations, and vacancies in the
labour market falling to circa 1.0 million(1) as employers hold
back on recruitment to control costs in an uncertain economic
environment. Given the continued pressures on employers from
borrowing and energy costs, unemployment may rise further by the
end of 2023. Wage growth was 6.9% in March to May 2023, and ahead
of expectations, which has further fuelled inflation.
As anticipated, impacts of tighter credit and higher interest
rates has started to soften transaction volumes and prices in the
housing market. Lenders have reported lower mortgage approvals and
negative net lending in early 2023. Given the increase in swap
rates, linked to the latest inflation figures and monetary policy
decisions, the pressure on the housing market is unabating. 2023 is
likely to see a perfect storm of high new borrowing and refinancing
rates and large numbers of customers exiting cheap fixed rate
mortgage deals. Economists therefore continue to predict a
peak-to-trough fall in house prices of circa 10% in the near
term.
Outlook
The Base Rate of interest is expected to continue to rise in
2023 and peak at 5.75% in late Q1 2024, albeit recent volatility in
the swap markets has at times implied rates as high as 6.25%. The
UK economy is expected to grow only modestly through 2023. House
prices are expected to continue to fall after a long period of
growth, and unemployment is expected to rise a little from its
current low levels. The full impact of high interest rates and
inflation has not yet been seen on consumers' household incomes,
therefore the balance of risks to the UK remains skewed to the
downside.
1. Source: Office for National Statistics, latest data as at 30
June 2023, unless otherwise stated.
Government and regulatory
This has been another eventful period for Government and
regulatory announcements that potentially impact the Group. The key
announcements are set out below.
Prudential regulation
In November 2022, the PRA issued CP16/22 'The PRA consults on
proposals for implementation of the Basel 3.1 standards' setting
out its proposed changes to regulatory requirements, which are
expected to become effective on 1 January 2025. The proposals set
out changes to the regulatory environment, including significant
changes to the capital requirements for credit risk and operational
risk. The guidance also proposes allowing those firms that are
eligible for the Simpler Regime to apply for a waiver not to adopt
Basel 3.1 and instead remain on the current UK Capital Requirements
Regulation regime until the capital rules applicable to the Simpler
Regime are launched.
In February 2023, the PRA issued CP4/23 'The Strong and Simple
Framework: Liquidity and Disclosure requirements for Simpler-regime
Firms', adding further proposals for a strong and simple prudential
framework. This sets out the proposed liquidity related rules for
the new regime, with a proposed implementation date of 1 July 2024.
The capital rules are the subject of a further consultation,
expected in H1 2024, however the PRA have indicated that the Basel
3.1 rules will be the starting point for designing the Simpler
Regime requirements. The implementation date for the Simpler Regime
capital requirements is still to be announced but is expected to be
after 2025. The Group has undertaken an impact analysis of the
CP16/22 proposals to understand the potential impact under the
proposed full rules and will decide whether it will adopt the full
rules, or defer and adopt the Simpler Regime, when required to do
so.
During May 2023, the PRA issued PS5/23 'Model risk management
principles for banks' setting out stronger governance expectations
for model governance to address observed shortcomings within the
industry. A new supervisory statement, SS1/23, incorporating these
revised expectations was also issued with an effective date of 17
May 2024. Although the final statement issued applies only to banks
adopting the internal model approach to capital, and therefore does
not directly impact the Group, it is aligning to the statement
until the Simpler Regime Supervisory Statement is released, which
is expected to adopt a more proportionate approach.
The UK Countercyclical Capital Buffer ('CCyB') rate increased
from 1% to 2% on 5 July 2023, as previously announced by the
Financial Policy Committee ('FPC'). The FPC have stated that they
will continue to monitor the CCyB rate due to the current
uncertainty around the economic outlook.
Conduct regulation
Through the first half of 2023, the FCA has continued to focus
on supporting consumers who are in vulnerable circumstances
struggling with the rising cost of living and the countdown to the
implementation of the Consumer Duty.
In February, the FCA published a Dear CEO letter to Retail Banks
(followed by Dear CEO letters for Retail Finance and Motor Finance
providers in March) intended to help firms embed and implement the
Consumer Duty effectively. The letter outlined key expectations on
firms under the Consumer Duty, as well as provided feedback from a
review of firm's implementation plans, containing observed good
practice and areas of improvement. Importantly, the FCA identified
three key areas of focus, including working with other firms, such
as firms involved in the product distribution chain. In May, the
FCA provided further insight for firms by publishing its findings
from a review of firm's fair value assessment frameworks and in
June produced a podcast outlining expectations for firm's outcomes
testing and the types of data firms should be using to assess how
customers are treated. The Group satisfied the key 30 April
milestone of completing fair value assessments for all current
products and services and sharing the outcomes of those assessments
with relevant firms to assist with their own planning.
Cost of living pressures for consumers remain a key area of
focus for the FCA, with Dear CEO letters relating to the Consumer
Duty also referencing the cost of living crisis as well as focused
initiatives, such as podcasts and blogs to ensure firms remain
focused on supporting customers. In May, the FCA published a
consultation on changes to sourcebooks to incorporate aspects of
the Tailored Support Guidance that was introduced during the
coronavirus pandemic. In June, a Dear CEO letter signed by the main
UK regulatory bodies, including the FCA, set out shared
expectations of firms in their respective sectors in supporting
customers impacted by the rising cost of living. The Group looks to
ensure customers are supported where experiencing financial
difficulties.
More recently, the FCA set out expectations that consumers
should be offered fair and competitive saving rates. The FCA is
using the new Consumer Duty legislation and has set out an action
plan to ensure banks and building societies are passing on interest
rate rises to savers appropriately, communicating with customers
more effectively and offering customers better savings rate deals.
The Group is well positioned to meet the FCA's expectations of
deposit-taking firms.
Government and monetary policy
Following a consultation on the optimal structure for UK
financial services post-Brexit, the Financial Services and Markets
Act 2023 (the 'FSMA') received royal assent during June 2023, with
the aim of implementing the outcomes of the Government's future
regulatory framework review and to make changes to update the UK
regulatory regime. This allows for sector-wide regulation of
financial services and markets, involving the revocation of EU law
and its replacement with rules-based regulation primarily
administered by regulators, subject to the oversight of Parliament,
which is expected to allow for faster responses to changing
conditions.
The Bank of England MPC announced five consecutive increases in
the UK Base Rate over the course of 2023, taking rates up from 3.5%
at the end of December 2022 to 5.25% at 3 August 2023. Rising
interest rates have had a significant impact on the Group's funding
costs and appropriate action has been taken to manage new business
pricing and overall net interest margin.
In response to current cost of living challenges, on 23 June
2023 the Chancellor met with the FCA and principal mortgage lenders
to agree a support package for customers struggling with mortgage
repayments.
Principal risks and uncertainties
Risk management
The effective management of risk is a key part of the Group's
strategy and is underpinned by our Risk Aware value. This helps to
protect the Group's customers and generate sustainable returns for
shareholders. The Group is focused on ensuring that it maintains
sufficient levels of capital, liquidity and operational control,
and acts in a reputable way.
The Group's Chief Risk Officer is responsible for leading the
Group's Risk function, which is independent from the Group's
operational and commercial teams. The Risk function is responsible
for designing and embedding appropriate risk management frameworks,
processes and controls, and making sure that they are sufficiently
robust, so that key risks are identified, assessed, monitored and
accepted or mitigated in line with the Group's risk appetite. The
Chief Risk Officer is responsible for reporting to the Board on the
Group's principal risks and how they are being managed against
agreed risk appetite.
Further details of the Group's risk management frameworks,
including risk appetite statements and governance, can be found on
the Group's website: www.securetrustbank.com.
Changes to the Group's risk profile
Changes to the Group's risk profile since the position set out
in the 2022 Annual Report and Accounts are detailed below.
Credit risk: Heightened
Description: The risk of loss to the Group from the failure of
clients, customers, or counterparties to honour fully their
obligations to the firm, including the whole and timely payment of
principal, interest, collateral, or other receivables.
Consumer Finance Credit risk
Notwithstanding the cost of living challenges experienced across
the UK, including of high inflation and rising interest rates, the
performance of the Consumer Finance credit portfolios has remained
robust in the first half of the year.
The credit profile of the Vehicle Finance business has improved
through the first half of the year as a result of an increase in
Prime business and the positive impacts of credit tightening within
the Near Prime portfolio.
Previous moves to lower risk sectors within Retail Finance
continue to show through in strong performance and whilst, as
anticipated, arrears have risen slightly from historical lows post
COVID-19, they remain well below pre-COVID-19 levels.
Reflective of the high inflation environment, tightening of
affordability metrics has been applied to Consumer Finance
businesses to strengthen affordability assessment at the point of
origination.
Business Finance Credit risk
Whilst Business Finance customers have been impacted by
inflation, high interest rates and supply chain challenges credit
performance remains robust across both Business Finance portfolios,
notwithstanding a specific credit loss in Commercial Finance
detailed below.
Real Estate Finance at a portfolio level is performing well and
continues to work closely with borrowers experiencing challenges as
a result of higher interest rates. Conservative origination
parameters allow the business scope to work with customers on
agreeing revisions to interest cover covenants, where necessary.
Only a very small number of clients are in an active workout
situation.
Commercial Finance is similarly performing strongly at a
portfolio level, and whilst it does have customers who have been
materially impacted by high inflation, particularly in relation to
energy costs, the secured and highly-structured nature of
facilities provided means these cases can be managed down without
loss to the Group. One material loss was recorded in the first half
on a long-running problem debt case. The circumstances around the
particular case were unique, with a lessons learned exercise
confirming no similar concerns across the portfolio.
The risk continues to be assessed as heightened, reflecting the
challenges impacting the UK's economic environment, including high
rates of inflation and increasing interest rates.
Liquidity and Funding risk: Stable
Description: Liquidity risk is the risk that the Group is unable
to meet its liquidity obligations as they fall due or can only do
so at excessive cost. Funding risk is the risk that the Group is
unable to raise or maintain funds to support asset growth, or the
risk arising from an unstable funding profile which could result in
higher funding costs.
The Group has maintained its liquidity and funding ratios in
excess of regulatory and internal risk appetite requirements
throughout the first half of the year. The Group continues to hold
significant levels of high quality liquid assets, principally cash,
and there is no material risk that liabilities cannot be met as
they fall due. The Group reviewed the circumstances with respect to
the recent banking failures, with no similar concerns around
liquidity. The vast majority of deposits benefit from FSCS
protection and we have seen no material change in behaviours
following recent sector issues.
Capital risk: Stable
Description: Capital risk is the risk that the Group will have
insufficient capital resources to meet minimum regulatory
requirements and to support levels of growth.
The Group's balance sheet and total risk exposure has increased
since the beginning of the year as the Group continues to grow its
core businesses organically. The Group has continued to ensure
through this growth that it maintains adequate capital and all
capital ratio measures have been met through the period.
The initial IFRS 9 transitional adjustment ended on 1 January
2023, however the Group continues to benefit from the capital
relief that has been provided by the Prudential Regulation
Authority ('PRA') in respect of IFRS 9 transitional provisions
relating to the COVID-19 related 'quick-fix' that tapers off to 31
December 2024.
The Bank of England further increased the Countercyclical
Capital Buffer ('CCyB') to 2% in July 2023, following its previous
increase of the CCyB to 1% from December 2022, which will require
the Group to hold increased levels of minimum regulatory capital in
Common Equity Tier 1 ('CET 1').
In February 2023, the Group issued GBP90.0 million of 10.5 year,
13.0% Fixed Rate Callable Subordinated Notes, which also qualify as
Tier 2 regulatory capital (subject to a cap of 25% of Pillar 1 and
2A requirements). Both GBP25.0 million issuances of our existing
2018 Notes were repurchased in quarter one 2023, ahead of their
first call dates in the second half of 2023.
The Group manages its capital requirements on a forward-looking
basis against minimum regulatory requirements and Board risk
appetite. It assesses the adequacy of the quantum and quality of
capital held under stress through the annual Internal Capital
Adequacy Assessment Process ('ICAAP'). The Group will take
opportunities to increase overall levels of capital and to optimise
its capital stack, as and when appropriate.
Market risk: Stable
Description: Market risk is the risk to the Group's earnings
and/or economic value from unfavourable market movements, such as
interest rates and foreign exchange rates.
The Group continues to take a cautious approach to managing
interest rate and foreign exchange risks, with all exposures hedged
to minimise the impact of movements of underlying rates on
financial performance.
Despite increasing interest rates through the period, the Group
has remained within all Board agreed Risk Appetite measures
governing interest rate and foreign exchange risk.
Operational risk: Stable
Description : Operational risk is the risk that the Group may be
exposed to direct or indirect loss arising from inadequate or
failed internal processes, personnel and succession, technology/
infrastructure, or from external factors.
The Group's operational risk processes and standards are defined
in a formal Operational Risk Management Framework, which is aligned
to the Basel Committee on Banking Supervision criteria for the
sound management of operational risk.
The Group continues to enhance and further embed its approach to
achieving Operational Resilience for all of its Important Business
Services and is on track to meet the 2025 regulatory deadline.
Strong progress has also been made in managing and monitoring its
third-party suppliers; and the Group has seen benefits from the
additional resource allocated to the management of this risk, with
improved governance and supplier relationships.
Model risk: Stable
Description: Model risk is the potential for adverse
consequences from model errors or the inappropriate use of modelled
outputs to inform business decisions.
Model risk has been a key focus for the Group in the first half
of 2023, with investment in both additional employees and external
expertise to strengthen the Group's approach to model risk
management and governance.
The PRA published its supervisory statement (SS1/23) in relation
to Model Risk Management in May 2023. Whilst the Group is not
directly captured by this statement, the principles have been
reflected in the ongoing work to strengthen the approach to model
management and governance.
Conduct and Compliance risk: Heightened
Description: The risk that the Group's products and services,
and the way they are delivered, or the Group's failure to be
compliant with all relevant regulatory requirements result in poor
outcomes for customers or markets in which we operate, or harm to
the Group. This could be as a direct result of poor or
inappropriate execution of our business activities or behaviour
from our employees.
During the period, the Group has engaged with its regulators on
an increased number of thematic reviews and information requests,
reflective of the regulatory focus on a number of key priority
areas across the industry. In particular, the Group was contacted
by the FCA in July 2023 in a follow up to a review of forbearance
outcomes associated with its Borrowers in Financial Difficulty
project. The Group is responding to requests from the FCA to review
and enhance its practices in this area.
The Group had an extensive implementation programme in place
during the period to ensure it met the requirements of the FCA's
Consumer Duty. A progress update confirming work completed and
readiness for the Duty coming into force on 31 July 2023 was
approved by the Group's Board Risk Committee. The Group is now
working on fully embedding all activity delivered in the
implementation programme.
Recognising the increasing focus referenced above, and
notwithstanding progress on Consumer Duty implementation, the risk
has been assessed as being heightened for the period.
Financial Crime risk: Stable
Description: The risk that the Group fails to prevent the
facilitation of financial crime by not having effective systems and
controls in line with regulatory requirements.
The Group continues to invest and strengthen its financial crime
framework against a backdrop of an evolving external landscape. The
current economic challenges in the UK will increase the fraud
threat across the industry, and the Group continues to enhance its
systems and controls in this regard. There has been an increase in
regulatory and legislative changes, or proposed changes, for
financial crime that will be relevant to our strategic objectives
and are picked up through the Group's horizon-scanning
activity.
Climate Change risk: Stable
Description: The risk of exposure to physical and transition
risks arising from climate change.
A detailed report on the key risks the Group faces in relation
to climate change was included in the Task Force on Climate-related
Financial Disclosures in the 2022 Annual Report and Accounts. Since
then, the Group has made good progress in embedding Climate Change
risk management into business-as-usual processes aligned to the
Groups wider environmental, social, and governance strategy.
Plans are in place to further develop emissions reporting, which
will be reflected in enhanced disclosures reporting in our next
Annual Report and Accounts.
Interim Financial Statements
Condensed consolidated statement of comprehensive income
Restated(1) Restated(1)
Unaudited Unaudited Unaudited
30 June 30 June 31 December
2023 2022 2022
For the period ended Note GBPmillion GBPmillion GBPmillion
------------------------------------------------ ----- ------------ ------------ -------------
Continuing operations:
Income statement
Interest income and similar income 3 138.8 90.6 203.0
Interest expense and similar charges (57.8) (17.5) (50.4)
------------------------------------------------ ----- ------------ ------------ -------------
Net interest income 81.0 73.1 152.6
------------------------------------------------ ----- ------------ ------------ -------------
Fee and commission income 3 8.1 8.1 17.4
Fee and commission expense - (0.2) (0.4)
------------------------------------------------ ----- ------------ ------------ -------------
Net fee and commission income 8.1 7.9 17.0
------------------------------------------------ ----- ------------ ------------ -------------
Operating income 89.1 81.0 169.6
Net impairment charge on loans and
advances to customers 10 (23.0) (17.9) (38.2)
Gains on modification of financial
assets 0.2 0.7 1.1
Fair value gains/(losses) on financial
instruments 4 0.9 (0.5) (0.3)
Operating expenses (50.7) (46.2) (93.2)
------------------------------------------------ ----- ------------ ------------ -------------
Profit before income tax from continuing
operations 16.5 17.1 39.0
Income tax expense 5 (4.2) (4.2) (9.4)
------------------------------------------------ ----- ------------ ------------ -------------
Profit for the period from continuing
operations 12.3 12.9 29.6
------------------------------------------------ ----- ------------ ------------ -------------
Discontinued operations:
------------------------------------------------ ----- ------------ ------------ -------------
(Loss)/profit before income tax from
discontinued operations 6 (1.5) 7.6 5.0
Income tax credit/(expense) 6 0.3 (1.4) (0.9)
------------------------------------------------ ----- ------------ ------------ -------------
(Loss)/profit for the period from discontinued
operations 6 (1.2) 6.2 4.1
------------------------------------------------ ----- ------------ ------------ -------------
Profit for the period 11.1 19.1 33.7
------------------------------------------------ ----- ------------ ------------ -------------
Other comprehensive loss
Items that will be reclassified to
the income statement
Cash flow hedge - fair value loss taken
to reserves (0.3) (0.5) (0.8)
Reclassification to the income statement 0.2 - 0.1
Taxation - - 0.2
------------------------------------------------ ----- ------------ ------------ -------------
Other comprehensive loss for the period,
net of income tax (0.1) (0.5) (0.5)
------------------------------------------------ ----- ------------ ------------ -------------
Total comprehensive income for the
period 11.0 18.6 33.2
------------------------------------------------ ----- ------------ ------------ -------------
Profit attributable to the equity holders
of the Company 11.1 19.1 33.7
------------------------------------------------ ----- ------------ ------------ -------------
Total comprehensive income attributable
to the equity holders of the Company 11.0 18.6 33.2
------------------------------------------------ ----- ------------ ------------ -------------
Earnings per share for profit attributable to the equity holders
of the Company during the year (pence per share)
--------------------------------------------------------------------------------------------------
Basic earnings per ordinary share 7 59.4 102.4 180.5
Diluted earnings per ordinary share 7 57.9 99.1 174.7
------------------------------------------------ ----- ------------ ------------ -------------
Basic earnings per ordinary share -
continuing operations 65.8 69.1 158.5
Diluted earnings per ordinary share
- continuing operations 64.1 67.0 153.4
------------------------------------------------ ----- ------------ ------------ -------------
1. The condensed consolidated statement of comprehensive income
has been restated to reflect a change in accounting policy relating
to land and buildings, which are now presented at historical cost.
See Note 1.3.1 for further details.
Condensed consolidated statement of financial position
Restated(1) Restated(1)
Unaudited Unaudited Unaudited
30 June 30 June 31 December
2023 2022 2022
As at the period ended Note GBPmillion GBPmillion GBPmillion
------------------------------------------ ----- ------------ ------------ -------------
ASSETS
Cash and Bank of England reserve account 318.3 253.0 370.1
Loans and advances to banks 33.3 54.2 50.5
Debt securities - 34.9 -
Loans and advances to customers 9 3,158.5 2,751.2 2,919.5
Fair value adjustment for portfolio
hedged risk (47.7) (17.0) (32.0)
Derivative financial instruments 50.3 17.7 34.9
Assets held for sale 11 - 3.3 -
Investment property - 1.4 -
Property, plant and equipment 11.4 8.5 9.7
Right-of-use assets 1.9 1.7 1.5
Intangible assets 6.5 6.9 6.6
Current tax assets 1.4 0.5 -
Deferred tax assets 5.0 6.1 5.6
Other assets 12.0 12.4 13.4
------------------------------------------ ----- ------------ ------------ -------------
Total assets 3,550.9 3,134.8 3,379.8
------------------------------------------ ----- ------------ ------------ -------------
LIABILITIES AND EQUITY
Liabilities
Due to banks 12 409.3 400.3 400.5
Deposits from customers 13 2,648.9 2,290.9 2,514.6
Fair value adjustment for portfolio
hedged risk (33.7) (15.2) (23.0)
Derivative financial instruments 36.1 17.3 26.7
Current tax liabilities - - 0.8
Lease liabilities 2.3 2.5 2.1
Other liabilities 59.1 72.4 78.1
Provisions for liabilities and charges 14 2.8 1.5 2.5
Subordinated liabilities 15 92.9 51.0 51.1
------------------------------------------ ----- ------------ ------------ -------------
Total liabilities 3,217.7 2,820.7 3,053.4
------------------------------------------ ----- ------------ ------------ -------------
Equity attributable to owners of the
parent
Share capital 7.5 7.5 7.5
Share premium 82.3 82.2 82.2
Other reserves (1.2) (0.8) (1.1)
Retained earnings 244.6 225.2 237.8
------------------------------------------ ----- ------------ ------------ -------------
Total equity 333.2 314.1 326.4
------------------------------------------ ----- ------------ ------------ -------------
Total liabilities and equity 3,550.9 3,134.8 3,379.8
------------------------------------------ ----- ------------ ------------ -------------
1. The condensed consolidated statement of financial position
has been restated to reflect a change in accounting policy relating
to land and buildings, which are now presented at historical cost.
See Note 1.3.1 for further details.
Condensed consolidated statement of changes in equity
Other reserves
--------------------------------------
Cash
flow
Share Share hedge Revaluation Own Retained
capital premium reserve reserve shares earnings Total
Unaudited GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------- ----------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at 1 January
2023
(as originally stated) 7.5 82.2 (0.8) 0.8 (0.3) 237.5 326.9
Prior year restatement
net of tax (see Note
1.3.1) - - - (0.8) - 0.3 (0.5)
-------------------------- ----------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at 1 January
2023 (restated) 7.5 82.2 (0.8) - (0.3) 237.8 326.4
Total comprehensive income
for the period
Profit for the six months
to 30 June 2023 - - - - - 11.1 11.1
--
Other comprehensive income,
net of income tax
Cash flow hedge reserve
movements - - (0.1) - - - (0.1)
Total other comprehensive
income - - (0.1) - - - (0.1)
-------------------------- ----------- ----------- ----------- ------------ ----------- ----------- -----------
Total comprehensive
income
for the period - - (0.1) - - 11.1 11.0
-------------------------- ----------- ----------- ----------- ------------ ----------- ----------- -----------
--
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Issue of shares - 0.1 - - - - 0.1
Dividends - - - - - (5.4) (5.4)
Share-based payments - - - - - 1.1 1.1
-------------------------- ----------- ----------- ----------- ------------ ----------- ----------- -----------
Total contributions by
and distributions to
owners - 0.1 - - - (4.3) (4.2)
-------------------------- ----------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at 30 June 2023 7.5 82.3 (0.9) - (0.3) 244.6 333.2
-------------------------- ----------- ----------- ----------- ------------ ----------- ----------- -----------
Other reserves
--------------------------
Cash
flow
Share Share hedge Revaluation Retained
capital premium reserve reserve earnings Total
Unaudited GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 1 January
2022 (as previously stated) 7.5 82.2 (0.3) 1.3 211.7 302.4
Land and buildings prior
year restatement net
of tax (see Note 1.3.1) - - - (1.3) 1.1 (0.2)
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 1 January
2022 (restated) 7.5 82.2 (0.3) - 212.8 302.2
Total comprehensive income for
the period
Profit for the six months
to 30 June 2022 - - - - 19.1 19.1
Other comprehensive income,
net of income tax
Cash flow hedge reserve
movements - - (0.5) - - (0.5)
Total other comprehensive
income - - (0.5) - - (0.5)
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Total comprehensive income
for the period - - (0.5) - 19.1 18.6
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Transactions with owners, recorded
directly in equity
Contributions by and distributions
to owners
Dividends - - - - (7.7) (7.7)
Share-based payments - - - - 1.0 1.0
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Total contributions by
and distributions to
owners - - - - (6.7) (6.7)
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 30 June 2022 7.5 82.2 (0.8) - 225.2 314.1
------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Other reserves
----------------------------------------
Cash
flow
Share Share hedge Revaluation Own Retained
capital premium reserve reserve shares earnings Total
Unaudited GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 1
January
2022 (as
originally
stated) 7.5 82.2 (0.3) 1.3 - 211.7 302.4
Land and buildings
prior
year restatement
net
of tax (see Note
1.3.1) - - - (1.3) - 1.1 (0.2)
-------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 1
January
2022 (restated) 7.5 82.2 (0.3) - - 212.8 302.2
Total comprehensive income
for the period
Profit for the year
to 31 December
2022 - - - - - 33.7 33.7
--
Other comprehensive income,
net of income tax
Cash flow hedge
reserve
movements - - (0.7) - - - (0.7)
Tax on cash flow
hedge
reserve movements - - 0.2 - - - 0.2
Total other
comprehensive
income - - (0.5) - - - (0.5)
-------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total comprehensive
income for the
period - - (0.5) - - 33.7 33.2
-------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
--
Transactions with owners, recorded
directly in equity
Contributions by and
distributions
to owners
Purchase of own
shares - - - - (0.3) - (0.3)
Dividends - - - - - (10.7) (10.7)
Share-based
payments - - - - - 2.0 2.0
-------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total contributions
by and
distributions
to owners - - - - (0.3) (8.7) (9.0)
-------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at 31
December
2022 7.5 82.2 (0.8) - (0.3) 237.8 326.4
-------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Condensed consolidated statement of cash flows
Restated(1)
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
For the period ended Note GBPmillion GBPmillion GBPmillion
------------------------------------------------ ----- ------------ ------------ -------------
Cash flows from operating activities
Profit for the year 11.1 19.1 33.7
Adjustments for:
Income tax expense 5 3.9 5.6 10.3
Depreciation of property, plant and equipment 0.5 0.6 1.2
Depreciation of right-of-use assets 0.3 0.3 0.7
Amortisation of intangible assets 0.6 0.8 1.4
Loss on disposal of property, plant and
equipment, right of use assets and intangible
assets - - 1.4
Impairment charge on loans and advances
to customers 10 23.0 18.6 39.0
Share-based compensation 1.1 1.0 2.0
Gain on disposal of loan books 6 - (8.1) (8.9)
Other non-cash items included in profit
before tax 1.2 0.3 1.0
------------------------------------------------ ----- ------------ ------------ -------------
Cash flows from operating
profits before changes in operating assets
and liabilities 41.7 38.2 81.8
Changes in operating assets and liabilities:
- loans and advances to customers (262.1) (308.8) (497.1)
- loans and advances to banks and balances
at central banks (0.6) 2.0 0.6
- other assets 1.4 (0.5) (1.5)
- deposits from customers 134.3 187.7 411.4
- provisions for liabilities and charges (1.6) (0.3) (1.1)
- other liabilities (17.2) 37.7 45.6
Income tax paid (5.5) (4.3) (7.0)
------------------------------------------------ ----- ------------ ------------ -------------
Net cash (outflow)/inflow from operating
activities (109.6) (48.3) 32.7
------------------------------------------------ ----- ------------ ------------ -------------
Cash flows from investing activities
Consideration on sale of loan books 6 - 81.9 81.9
Sale of investment property 11 - - 3.3
Maturity and sale of debt securities - 45.0 80.0
Purchase of debt securities - (45.0) (80.0)
Purchase of property, plant and equipment
and intangible assets (2.7) (1.0) (2.7)
Net cash (outflow)/inflow from investing
activities (2.7) 80.9 82.5
------------------------------------------------ ----- ------------ ------------ -------------
Cash flows from financing activities
Issue of subordinated debt 15 90.0 - -
Redemption of subordinated debt 15 (48.8) - -
Drawdown of amounts due to banks 7.3 8.7 7.0
Purchase of own shares - - (0.3)
Issue of shares 0.1 - -
Dividends paid (5.4) (7.7) (10.7)
Repayment of lease liabilities (0.5) (0.5) (1.0)
------------------------------------------------ ----- ------------ ------------ -------------
Net cash inflow/(outflow) from financing
activities 42.7 0.5 (5.0)
------------------------------------------------ ----- ------------ ------------ -------------
Net (decrease)/increase in cash and cash
equivalents (69.6) 33.1 110.2
Cash and cash equivalents at 1 January 416.9 306.7 306.7
------------------------------------------------ ----- ------------ ------------ -------------
Cash and cash equivalents at end of period 18 347.3 339.8 416.9
------------------------------------------------ ----- ------------ ------------ -------------
1. Cash and cash equivalents at June 2022 have been restated
from GBP338.3 million to GBP339.8 million. See Note 1.3.2 for
further details.
Notes to the interim financial statements
1. Accounting policies
The principal accounting policies applied in the preparation of
these Interim Financial Statements are set out below. These
policies have been consistently applied to all the years presented,
unless otherwise stated.
1.1. Reporting entity
Secure Trust Bank PLC is a public limited company incorporated
in England and Wales in the United Kingdom (referred to as 'the
Company') and is limited by shares. The Company is registered in
England and Wales and has the registered number 00541132. The
registered address of the Company is Yorke House, Arleston Way,
Shirley, Solihull, West Midlands B90 4LH. The Interim Financial
Statements, as at and for the period ended 30 June 2023, comprises
Secure Trust Bank PLC and its subsidiaries (together referred to as
'the Group' and individually as 'subsidiaries'). The Group is
primarily involved in banking and financial services.
1.2. Basis of presentation
The Interim Financial Statements do not constitute statutory
accounts as defined in Section 434 of the Companies Act 2006, and
has been prepared in accordance with International Accounting
Standards in conformity with the requirements of the Companies Act
2006 and United Kingdom adopted International Financial Reporting
Standards and IAS 34 Interim Financial Reporting.
A copy of the statutory accounts for the year ended 31 December
2022 has been delivered to the Registrar of Companies. The
auditor's report on those accounts was not qualified and did not
contain statements under Section 498(2) or (3) of the Companies Act
2006. The results for the periods ending 30 June 2023 and 30 June
2022 are unaudited. The restated results for the year ending 31
December 2022 are unaudited.
The Interim Financial Statements have been prepared under the
historical cost convention, as modified by the valuation of
derivative financial instruments and investment properties. The
Interim Financial Statements are presented in pounds sterling,
which is the functional and presentational currency of the entities
within the Group.
The preparation of the Interim Financial Statements in
conformity with IFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its
judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the Interim Financial Statements, are disclosed in
Note 2.
1.2.1 Going concern
The Directors have assessed the Group's ability to continue to
adopt the going concern basis of accounting, as required by
accounting standards.
As disclosed in the 2022 Annual Report and Accounts (pages 35
and 36), the Group considers a number of factors in making this
assessment. This includes reviewing current performance, past
performance, changes in the economic and regulatory environment,
the risk profile of the business, operational resilience and
possible future events that will impact the business. The Group
also undertakes stress testing to ensure the adequacy of capital
and liquidity under severe, but plausible stresses. The Board sets
risk appetites to enable the Group to withstand stress and tail
risk events.
Since the year-end, the Group has reviewed its principal risks
to ensure they remain appropriate and relevant (for further details
see Principal risks and uncertainties). There has been no
significant deterioration in the risk profile of the Group and no
new principal risks have arisen in the six-month period.
In addition, the Group has reviewed its five-year profit and
loss, net assets, and capital forecasts to reflect actual
performance in the year-to-date, strategic changes in the business
plan, and the impact of changes in the macroeconomic environment on
its loan loss provisioning and business activities (the
'Reforecast'). Macroeconomic inputs to the Reforecast reflect
increases in forecast Base Rate of interest, which impact customer
pricing and funding costs, and revised forecast economic variables,
which impact IFRS 9 loan loss provisioning. The Reforecast also
reflected future changes in the Countercyclical Capital Buffer, as
announced by the Bank of England. Under the Reforecast, the Board
is satisfied that the Group can continue to operate within its
capital and liquidity risk appetites.
The 2023 Internal Capital Adequacy Assessment Process ('ICAAP')
was approved by the Board in August 2023. Details of the Group's
2022 ICAAP are included in the 2022 Annual Report and Accounts and
there were no major changes in approach taken for the 2023 ICAAP
other than refreshing the macroeconomic stress scenario to reflect
a more typical prolonged economic recession using the latest
scenario published by the Prudential Regulation Authority ('PRA')
for small banks.
The Board approved the Internal Liquidity Adequacy Assessment
Process ('ILAAP') in June 2023. This provides assurance that the
Group can maintain liquidity resources which are adequate, both as
to amount and quality, to ensure that there is no significant risk
that its liabilities cannot be met as they fall due. As part of the
ILAAP, the Group reviews the liquidity risks to which it is exposed
and assesses the quantum of liquid resources required to survive,
and remain viable, under a severe, but plausible combined
idiosyncratic and whole of market 90-day stress. The Group
maintained liquidity levels in excess of its liquidity risk
appetite and regulatory requirements throughout the year and is
forecast to continue to do so over the ILAAP planning horizon and
going concern period.
Taking the updates noted above, the Directors confirm they are
satisfied that the Group has adequate resources to continue in
business for the foreseeable future. For this reason, they continue
to adopt the 'going concern' basis for preparing the accounts.
1.3. Accounting policies
The accounting policies applied in preparing the unaudited
Condensed Interim Financial Statements are consistent with those
used in preparing the audited statutory financial statements for
the year ended 31 December 2022, other than the change noted
below.
1.3.1 Property, plant and equipment prior year adjustment
IAS 16 Property, plant and equipment offers a choice of two
methods of measuring the carrying amount of land and buildings:
-- The cost model or;
-- The revaluation model.
The Group's previous accounting policy was to hold land and
buildings at its revalued amount, being its fair value at the date
of valuation less any subsequent accumulated depreciation.
Revaluations were carried out annually at the reporting date, and
movements were recognised in Other Comprehensive Income, net of any
applicable deferred tax. External valuations were performed on a
triennial basis.
Following a review, the Directors have concluded that the
historical cost model is a more appropriate and relevant approach
due to the nature of the Group's business. This will reduce
volatility in the income statement and revaluation reserve,
allowing for a more appropriate presentation of the Group's
financial performance. Furthermore, the cost model approach is
adopted by the majority of our peer group, which will allow for
better comparability.
Therefore under IAS 8.14(b) Accounting Policies, Changes in
Accounting Estimates and Errors, the Group is changing its
accounting policy to measure land and buildings at historical cost
less depreciation, less any impairment, and to adjust the
depreciation charge accordingly. The Group's policy to depreciate
buildings over 50 years remains unchanged. This has also resulted
in the removal of the Group's revaluation reserve and associated
deferred tax.
Due to the change in accounting policy, the Group is required to
restate its comparatives in accordance with IAS 8.28. A summary of
the impact on the primary statements is as follows:
Prior
As originally year
stated adjustment Restated
Audited Unaudited Unaudited
1 January 1 January 1 January
2022 2022 2022
Statement of financial position GBPmillion GBPmillion GBPmillion
--------------------------------- -------------- ------------ ------------
Property, plant and equipment 9.3 (0.5) 8.8
Deferred tax assets 6.9 0.3 7.2
Other assets 2,869.7 - 2,869.7
---------------------------------- -------------- ------------ ------------
Total assets 2,885.9 (0.2) 2,885.7
---------------------------------- -------------- ------------ ------------
Total liabilities 2,583.5 - 2,583.5
---------------------------------- -------------- ------------ ------------
Retained earnings 211.7 1.1 212.8
Revaluation reserve 1.3 (1.3) -
Other equity/reserves 89.4 - 89.4
---------------------------------- -------------- ------------ ------------
Total equity 302.4 (0.2) 302.2
---------------------------------- -------------- ------------ ------------
Total liabilities and equity 2,885.9 (0.2) 2,885.7
---------------------------------- -------------- ------------ ------------
Prior
As originally year
stated adjustment Restated
Unaudited Unaudited Unaudited
30 June 30 June 30 June
2022 2022 2022
Statement of financial position GBPmillion GBPmillion GBPmillion
--------------------------------- -------------- ------------ ------------
Property, plant and equipment 9.0 (0.5) 8.5
Deferred tax assets 5.9 0.2 6.1
Other assets 3,120.2 - 3,120.2
---------------------------------- -------------- ------------ ------------
Total assets 3,135.1 (0.3) 3,134.8
---------------------------------- -------------- ------------ ------------
Total liabilities 2,820.7 - 2,820.7
---------------------------------- -------------- ------------ ------------
Retained earnings 224.1 1.1 225.2
Revaluation reserve 1.4 (1.4) -
Other equity/reserves 88.9 - 88.9
---------------------------------- -------------- ------------ ------------
Total equity 314.4 (0.3) 314.1
---------------------------------- -------------- ------------ ------------
Total liabilities and equity 3,135.1 (0.3) 3,134.8
---------------------------------- -------------- ------------ ------------
Prior
As originally year
stated adjustment Restated
Audited Unaudited Unaudited
31 December 31 December 31 December
2022 2022 2022
Statement of financial position GBPmillion GBPmillion GBPmillion
--------------------------------- -------------- ------------- -------------
Property, plant and equipment 10.3 (0.6) 9.7
Deferred tax assets 5.5 0.1 5.6
Other assets 3,364.5 - 3,364.5
---------------------------------- -------------- ------------- -------------
Total assets 3,380.3 (0.5) 3,379.8
---------------------------------- -------------- ------------- -------------
Total liabilities 3,053.4 - 3,053.4
---------------------------------- -------------- ------------- -------------
Retained earnings 237.5 0.3 237.8
Revaluation reserve 0.8 (0.8) -
Other equity/reserves 88.6 - 88.6
---------------------------------- -------------- ------------- -------------
Total equity 326.9 (0.5) 326.4
---------------------------------- -------------- ------------- -------------
Total liabilities and equity 3,380.3 (0.5) 3,379.8
---------------------------------- -------------- ------------- -------------
There is negligible impact on the income statement or cash flow
statement for the period ended June 2022 or year ended December
2022.
1.3.2 Cash and cash equivalents prior year adjustment
During 2022, the International Financial Reporting
Interpretations Committee ('IFRIC') issued a clarification of IAS 7
Statement of cash flows. IFRIC clarified that restrictions on use
of a demand deposit, arising from a contract with a third party,
does not result in the deposit no longer being treated as cash,
unless those restrictions change the nature of the deposit in a way
that it would no longer meet the definition of cash in IAS 7.
At June 2022, GBP1.5 million of loans and advances to banks was
excluded from cash and cash equivalents. This comprised amounts
over which the Group had a contractual obligation with a third
party to use the cash only for specified purposes. If the Group
were to use these amounts for purposes other than those agreed with
the third party, the Group would have been in breach of its
contractual obligation. However, the terms and conditions did not
prevent the Group from accessing the amounts held. As the Group
could still access the amounts held, these amounts met the
definition of cash. Accordingly, as a result of the IFRIC
clarification above, cash and cash equivalents in the Condensed
consolidated statement of cash flows have been restated as
follows:
Prior
year
As originally adjustment
stated Unaudited Restated
GBPmillion GBPmillion GBPmillion
--------------------------- -------------- ------------ ------------
June 2022
Cash and cash equivalents 338.3 1.5 339.8
---------------------------- -------------- ------------ ------------
Accordingly, Changes in operating assets, loans and advances to
banks and net cash flow from operating activities, have been
restated by GBP2.2 million in the cash flow statement for the
period ended 30 June 2022.
1.3.3 Taxation
Taxes on profits in interim periods are accrued using the tax
rate that will be applicable to expected total annual profits.
1.3.4 Standards in issue but not yet effective
There are no new standards in issue, but not yet effective, that
have a material effect on the Group.
2. Critical accounting judgements and key sources of estimation uncertainty
2.1 Judgements
A critical judgement relating to Consumer Finance affordability
is disclosed in Note 10.2. No other critical judgements were
identified.
2.2. Key sources of estimation uncertainty
Estimations which could have a material impact on the Group's
financial results, and are therefore considered to be key sources
of estimation uncertainty, all relate to allowances for impairment
of loans and advances and are therefore set out in Note 10.1.
3. Operating segments
The Group is organised into four lending segments, which
consists of the different products available, as disclosed
below.
During 2022, the Group disposed of the Debt Management operating
segment. Accordingly, the results of this business is now included
in discontinued operations.
Consumer Finance
-- Vehicle Finance: hire purchase lending for used cars to prime
and near-prime customers and Personal Contract Purchase lending
into the consumer prime credit market, both secured against the
vehicle financed. In addition, a Stocking Funding product is also
offered whereby funds are advanced and secured against dealer
forecourt used car stock; sourced from auctions, part exchanges or
trade sources.
-- Retail Finance: a market-leading online e-commerce service to
retailers, providing unsecured lending products to prime UK
customers to facilitate the purchase of a wide range of consumer
products, including bicycles, music, furniture, outdoor/leisure,
electronics, dental, jewellery, home improvements and football
season tickets.
Business Finance
-- Real Estate Finance: lending secured against property assets
to a maximum 70% loan-to-value ratio, on fixed or variable rates
over a term of up to five years.
-- Commercial Finance: lending is predominantly against
receivables, typically releasing up to 90% of qualifying invoices
under invoice discounting facilities. Other assets can also be
funded either long or short-term and for a range of loan-to-value
ratios alongside these services. Additional lending to existing
customers through the Government guaranteed Coronavirus Business
Interruption Loan Scheme, Coronavirus Large Business Interruption
Loan Scheme and Recovery Loan Scheme is also provided.
Other
This principally includes interest receivable from central
banks, interest receivable on derivatives and property rental
income.
Discontinued operations
Debt Management: a credit management services business that
primarily invested in purchased debt portfolios from third parties,
as well as fellow group undertakings. The Debt Management loan book
was sold during 2022.
Management review these segments by looking at the income, size
and growth rate of the loan books, impairments and customer
numbers.
Interest expense and similar charges, fee and commission expense
and operating expenses are not aligned to operating segments for
day-to-day management of the business, so they cannot be allocated
on a reliable basis. Accordingly, profit by operating segment has
not been disclosed. Furthermore, no balance sheet items are
allocated to segments other than loans and advances to
customers.
Net impairment
Interest Revenue charge
income Fee and from on loans Loans
and similar commission external and advances and advances
Unaudited income income customers to customers to customers
30 June 2023 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------------- ------------- ------------ ------------ --------------- --------------
Retail Finance 47.9 1.3 49.2 8.9 1,179.9
Vehicle Finance 28.0 1.0 29.0 4.9 440.4
-------------------------------- ------------- ------------ ------------ --------------- --------------
Consumer Finance 75.9 2.3 78.2 13.8 1,620.3
-------------------------------- ------------- ------------ ------------ --------------- --------------
Real Estate Finance 34.6 0.5 35.1 2.2 1,221.8
Commercial Finance 12.9 5.3 18.2 7.0 316.4
Business Finance 47.5 5.8 53.3 9.2 1,538.2
-------------------------------- ------------- ------------ ------------ --------------- --------------
Other 15.4 - 15.4 - -
-------------------------------- ------------- ------------ ------------ --------------- --------------
Continuing operations 138.8 8.1 146.9 23.0 3,158.5
-------------------------------- ------------- ------------ ------------ --------------- --------------
Discontinued operations - Debt
Management - - - - -
-------------------------------- ------------- ------------ ------------ --------------- --------------
138.8 8.1 146.9 23.0 3,158.5
-------------------------------- ------------- ------------ ------------ --------------- --------------
Net impairment
charge/
Interest Revenue (credit)
income Fee and from on loans Loans
and similar commission external and advances and advances
Unaudited income income customers to customers to customers
30 June 2022 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------------- ------------- ------------ ------------ --------------- --------------
Retail Finance 34.2 1.7 35.9 5.6 916.2
Vehicle Finance 21.6 0.7 22.3 12.4 332.6
Consumer Finance 55.8 2.4 58.2 18.0 1,248.8
-------------------------------- ------------- ------------ ------------ --------------- --------------
Real Estate Finance 26.9 0.1 27.0 (0.2) 1,142.6
Commercial Finance 7.1 5.4 12.5 0.1 359.8
-------------------------------- ------------- ------------ ------------ --------------- --------------
Business Finance 34.0 5.5 39.5 (0.1) 1,502.4
-------------------------------- ------------- ------------ ------------ --------------- --------------
Other 0.8 0.2 1.0 - -
-------------------------------- ------------- ------------ ------------ --------------- --------------
Continuing operations 90.6 8.1 98.7 17.9 2,751.2
-------------------------------- ------------- ------------ ------------ --------------- --------------
Discontinued operations - Debt
Management 5.3 1.1 6.4 0.7 -
-------------------------------- ------------- ------------ ------------ --------------- --------------
95.9 9.2 105.1 18.6 2,751.2
-------------------------------- ------------- ------------ ------------ --------------- --------------
Net impairment
Interest Revenue charge
income Fee and from on loans Loans
and similar commission external and advances and advances
Audited income income customers to customers to customers
31 December 2022 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------------- -------------- ------------- ------------- --------------- ---------------
Retail Finance 74.4 3.6 78.0 14.8 1,054.5
Vehicle Finance 46.6 1.4 48.0 21.3 373.1
Consumer Finance 121.0 5.0 126.0 36.1 1,427.6
-------------------------------- -------------- ------------- ------------- --------------- ---------------
Real Estate Finance 57.4 0.3 57.7 1.3 1,115.5
Commercial Finance 17.5 11.8 29.3 0.8 376.4
-------------------------------- -------------- ------------- ------------- --------------- ---------------
Business Finance 74.9 12.1 87.0 2.1 1,491.9
-------------------------------- -------------- ------------- ------------- --------------- ---------------
Other 7.1 0.3 7.4 - -
-------------------------------- -------------- ------------- ------------- --------------- ---------------
Continuing operations 203.0 17.4 220.4 38.2 2,919.5
-------------------------------- -------------- ------------- ------------- --------------- ---------------
Discontinued operations - Debt
Management 5.3 4.1 9.4 0.8 -
-------------------------------- -------------- ------------- ------------- --------------- ---------------
208.3 21.5 229.8 39.0 2,919.5
-------------------------------- -------------- ------------- ------------- --------------- ---------------
All of the Group's operations are conducted wholly within the
United Kingdom and geographical information is therefore not
presented.
4. Fair value gains/(losses) on financial instruments
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
-------------------------------------- ------------ ------------ -------------
Hedge ineffectiveness recognised in
the income statement 0.5 (0.5) (0.3)
Losses recognised on derivatives not
in hedge relationships (0.8) - -
Extinguishment gain on redemption
of subordinated debt 1.2 - -
-------------------------------------- ------------ ------------ -------------
0.9 (0.5) (0.3)
-------------------------------------- ------------ ------------ -------------
5. Income tax expense
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
------------------------------------------------- ------------ ------------ -------------
Current taxation
Corporation tax charge - current year 3.2 4.6 8.4
Corporation tax charge - adjustments in respect
of prior years - - 0.1
------------------------------------------------- ------------ ------------ -------------
3.2 4.6 8.5
------------------------------------------------- ------------ ------------ -------------
Deferred taxation
Deferred tax charge - current year 0.7 1.0 1.9
Deferred tax credit - adjustments in respect
of prior years - - (0.1)
------------------------------------------------- ------------ ------------ -------------
0.7 1.0 1.8
------------------------------------------------- ------------ ------------ -------------
Income tax expense 3.9 5.6 10.3
------------------------------------------------- ------------ ------------ -------------
Of which:
Continuing 4.2 4.2 9.4
Discontinued (Note 6) (0.3) 1.4 0.9
------------------------------------------------- ------------ ------------ -------------
Total 3.9 5.6 10.3
------------------------------------------------- ------------ ------------ -------------
The tax for all of the periods above has been calculated at the
current statutory rate, which is 23.5% for the six months ended 30
June 2023, and 19% for the six months ended 30 June 2022 and year
ended 31 December 2022.
The Corporation Tax rate increased from 19% to 25%, with effect
from 1 April 2023, giving a rate of 23.5% for the year to 31
December 2023. At the same time, the banking surcharge reduced from
8% to 3% and the surcharge allowance available to a banking group
increased from GBP25 million to GBP100 million. These changes were
enacted prior to the start of 2023 and so opening and closing
deferred asset values have been calculated from expected future tax
relief based on these enacted rates.
6. Discontinued operations
Discontinued operations includes the Debt Management business,
which sold its loan portfolio in 2022. Employees have been retained
for a period of time, with the eventual aim to wind down the entity
in line with regulatory requirements.
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
Income statement GBPmillion GBPmillion GBPmillion
------------------------------------------------ ------------ ------------ -------------
Interest income and similar income - 5.3 5.3
Interest expense and similar charges - (0.8) (0.8)
------------------------------------------------- ------------ ------------ -------------
Net interest income - 4.5 4.5
------------------------------------------------- ------------ ------------ -------------
Fee and commission income - 1.1 4.1
Net fee and commission income - 1.1 4.1
------------------------------------------------- ------------ ------------ -------------
Operating income - 5.6 8.6
Net impairment charge on loans and
advances to customers - (0.7) (0.8)
Overall profit on disposal of loan
portfolio - 8.1 6.1
Operating expenses (1.5) (5.4) (8.9)
------------------------------------------------- ------------ ------------ -------------
(Loss)/profit before income tax from
discontinued operations (1.5) 7.6 5.0
Income tax credit/(charge) 0.3 (1.4) (0.9)
------------------------------------------------- ------------ ------------ -------------
(Loss)/profit for the period from discontinued
operations (1.2) 6.2 4.1
------------------------------------------------- ------------ ------------ -------------
Basic earnings per ordinary share -
discontinued operations (6.4) 33.2 22.0
------------------------------------------------- ------------ ------------ -------------
Diluted earnings per ordinary share
- discontinued operations (6.3) 32.2 21.3
------------------------------------------------- ------------ ------------ -------------
Audited
31 December
2022
GBPmillion
-------------------------------------------- -------------
Consideration received 81.9
Carrying value of loan books disposed (71.8)
Selling costs (1.2)
----------------------------------------------- -------------
Profit on disposal of loan book (including
selling costs) 8.9
Other closure costs (2.8)
----------------------------------------------- -------------
Overall profit on disposal of loan
portfolio(s) 6.1
----------------------------------------------- -------------
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
Net cash flows GBPmillion GBPmillion GBPmillion
------------------ ------------ ------------ -------------
Operating (1.5) (81.2) (82.6)
Investing - 80.7 81.9
Financing - - (0.1)
------------------- ------------ ------------ -------------
Net cash outflow (1.5) (0.5) (0.8)
------------------- ------------ ------------ -------------
7. Earnings per ordinary share
7.1 Basic
Basic earnings per ordinary share are calculated by dividing the
profit attributable to equity holders of the parent by the weighted
average number of ordinary shares as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
--------------------------------------- ----------- ----------- -------------
Profit attributable to equity holders
of the parent (GBPmillion) 11.1 19.1 33.7
Weighted average number of ordinary
shares (number) 18,699,341 18,658,851 18,672,650
---------------------------------------- ----------- ----------- -------------
Earnings per share (pence) 59.4 102.4 180.5
---------------------------------------- ----------- ----------- -------------
7.2 Diluted
Diluted earnings per ordinary share are calculated by dividing
the profit attributable to equity holders of the parent by the
weighted average number of ordinary shares in issue during the
year, as noted above, as well as the number of dilutive share
options in issue during the year, as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
----------------------------------------- ----------- ----------- -------------
Weighted average number of ordinary
shares 18,699,341 18,658,851 18,672,650
Number of dilutive shares in issue
at the period end 485,520 609,051 617,340
------------------------------------------ ----------- ----------- -------------
Fully diluted weighted average number
of ordinary shares 19,184,861 19,267,902 19,289,990
------------------------------------------ ----------- ----------- -------------
Dilutive shares being based on:
Number of options outstanding at the
period end 1,506,219 1,205,610 1,206,639
Weighted average exercise price (pence) 246 297 304
Average share price during the period
(pence) 685 1,205 1,040
------------------------------------------ ----------- ----------- -------------
Diluted earnings per share (pence) 57.9 99.1 174.7
------------------------------------------ ----------- ----------- -------------
8. Dividends
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
-------------------------------------- ------------ ------------ -------------
2021 final dividend - 41.1 pence per
share (paid May 2022) - 7.7 7.7
2022 interim dividend - 16.0 pence
per share (paid September 2022) - - 3.0
2022 final dividend - 29.1 pence per
share (paid May 2023) 5.4 - -
5.4 7.7 10.7
-------------------------------------- ------------ ------------ -------------
The Directors have approved an interim dividend of 16.0 pence
per share (2022: 16.0 pence per share). This will be paid on 28
September 2023 with an associated record date of 1 September
2023.
9. Loans and advances to customers
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
------------------------------------ ---------- ---------- -------------
Gross loans and advances 3,238.0 2,818.2 2,997.5
Less: allowances for impairment of
loans and advances (79.5) (67.0) (78.0)
------------------------------------- ---------- ---------- -------------
3,158.5 2,751.2 2,919.5
------------------------------------ ---------- ---------- -------------
10. Allowances for impairment of loans and advances
Expected Credit Losses ('ECL') by stage and by business are
disclosed below:
Not credit-impaired Credit-impaired
--------------------------- ----------------
Stage
1: Stage Stage
Subject 2: 3: Gross
to Subject Subject loans
12-month to lifetime to lifetime Total and advances Provision
Unaudited ECL ECL ECL provision to customers cover
30 June 2023 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion %
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
Consumer Finance:
Retail Finance 13.8 11.3 6.8 31.9 1,211.8 2.6
Vehicle Finance:
------------ ------------- ---------------- ------------ -------------- ----------
Voluntary termination
provision 5.0 - - 5.0
Other impairment 6.7 12.6 17.9 37.2
------------ ------------- ---------------- ------------ -------------- ----------
11.7 12.6 17.9 42.2 482.6 8.7
Business Finance:
Real Estate Finance 0.3 0.5 3.6 4.4 1,226.2 0.4
Commercial Finance 0.2 0.2 0.6 1.0 317.4 0.3
26.0 24.6 28.9 79.5 3,238.0 2.5
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
Not credit-impaired Credit-impaired
--------------------------- ----------------
Stage
1: Stage Stage
Subject 2: 3: Gross
to Subject Subject loans
12-month to lifetime to lifetime Total and advances Provision
Unaudited ECL ECL ECL provision to customers cover
30 June 2022 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion %
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
Consumer Finance:
Retail Finance 11.3 7.8 5.4 24.5 940.7 2.6
Vehicle Finance:
------------ ------------- ---------------- ------------ -------------- ----------
Voluntary termination
provision 4.9 - - 4.9
Other impairment 5.0 17.6 11.6 34.2
------------ ------------- ---------------- ------------ -------------- ----------
9.9 17.6 11.6 39.1 371.7 10.5
Business Finance:
Real Estate Finance 0.1 0.1 2.0 2.2 1,144.8 0.2
Commercial Finance 0.7 0.1 0.4 1.2 361.0 0.3
22.0 25.6 19.4 67.0 2,818.2 2.4
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
Not credit-impaired Credit-impaired
--------------------------- ----------------
Stage
1: Stage Stage
Subject 2: 3: Gross
to Subject Subject loans
12-month to lifetime to lifetime Total and advances Provision
Audited ECL ECL ECL provision to customers cover
31 December 2022 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion %
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
Consumer Finance:
Retail Finance 12.7 9.8 5.7 28.2 1,082.7 2.6
Vehicle Finance:
------------ ------------- ---------------- ------------ -------------- ----------
Voluntary termination
provision 3.7 - - 3.7
Other impairment 7.3 16.4 17.0 40.7
------------ ------------- ---------------- ------------ -------------- ----------
11.0 16.4 17.0 44.4 417.5 10.6
Business Finance:
Real Estate Finance 0.3 1.1 2.0 3.4 1,118.9 0.3
Commercial Finance 0.3 1.3 0.4 2.0 378.4 0.5
24.3 28.6 25.1 78.0 2,997.5 2.6
-------------------------- ------------ ------------- ---------------- ------------ -------------- ----------
The impairment charge disclosed in the income statement can be
analysed as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
------------------------------------------- ------------ ------------ -------------
Expected credit losses: impairment
charge 17.1 18.4 38.9
(Credit)/charge in respect of off balance
sheet loan commitments (0.4) 0.2 0.2
Loans written off/(recovered) directly
to the income statement(1) 6.3 - (0.1)
23.0 18.6 39.0
------------------------------------------- ------------ ------------ -------------
Of which:
Continuing 23.0 17.9 38.2
Discontinued (Note 6) - 0.7 0.8
-------------------------------------------- ------------ ------------ -------------
Total 23.0 18.6 39.0
-------------------------------------------- ------------ ------------ -------------
1. The impairment charge for the period ending 30 June 2023
includes a GBP7.2 million charge relating to a single long-running
problem debt case, of which GBP6.3 million was written off-directly
to the income statement.
Total allowance for impairment above include expert credit
judgements (post model adjustments) as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
------------------------------------------ ------------ ------------ -------------
Specific (underlays)/overlays held
against credit-impaired
secured assets held within the Business
Finance portfolio (2.4) (1.7) 0.7
Management judgement in respect of:
Consumer Finance affordability 2.8 5.3 2.5
Vehicle Finance used car valuations 0.9 1.6 1.3
Adjustment of model over-extrapolation
of observed defaults - (2.2) -
Other 0.2 (1.0) (1.6)
Expert credit judgements over the IFRS
9 model results 1.5 2.0 2.9
------------------------------------------- ------------ ------------ -------------
The specific (underlays)/overlays for Business Finance have been
estimated on an individual basis by assessing the recoverability
and condition of the secured asset, along with any other recoveries
that may be made. For further details on Consumer Finance
affordability and Vehicle Finance used car valuations, see Notes
10.2.1 and 10.1.4 respectively.
Reconciliations of the opening to closing allowance for
impairment of loans and advances are presented below:
Not credit-impaired Credit-impaired
--------------------------- ----------------
Stage
1: Stage Stage
Subject 2: 3:
to Subject Subject
12-month to lifetime to lifetime
ECL ECL ECL Total
Unaudited GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------------------------- ------------ ------------- ---------------- ------------
At 1 January 2023 24.3 28.6 25.1 78.0
Increase due to change in credit risk
------------ ------------- ----------------
- Transfer to stage 2 (4.8) 25.7 - 20.9
- Transfer to stage 3 - (13.9) 21.8 7.9
- Transfer to stage 1 4.9 (16.8) - (11.9)
Passage of time (6.6) (0.2) (0.3) (7.1)
New loans originated 11.6 - - 11.6
Matured and derecognised loans (1.4) (2.4) (1.9) (5.7)
Changes to credit risk parameters (1.5) 3.6 (1.0) 1.1
Other adjustments 0.3 - - 0.3
------------ ------------- ----------------
Charge to income statement 2.5 (4.0) 18.6 17.1
Allowance utilised in respect of write-offs (0.8) - (14.8) (15.6)
--------------------------------------------- ------------ ------------- ---------------- ------------
30 June 2023 26.0 24.6 28.9 79.5
--------------------------------------------- ------------ ------------- ---------------- ------------
Not credit-impaired Credit-impaired
--------------------------- ----------------
Stage
1: Stage Stage
Subject 2: 3:
to Subject Subject
12-month to lifetime to lifetime
ECL ECL ECL Total
Unaudited GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------------------------- ------------ ------------- ---------------- ------------
At 1 January 2022 18.5 20.0 29.0 67.5
(Decrease)/increase due to change in
credit risk
------------ ------------- ----------------
- Transfer to stage 2 (3.3) 19.9 - 16.6
- Transfer to stage 3 (0.4) (8.9) 13.1 3.8
- Transfer to stage 1 1.3 (2.4) - (1.1)
Passage of time (2.2) 0.1 (4.1) (6.2)
New loans originated 11.2 - - 11.2
Matured and derecognised loans (1.6) (1.6) - (3.2)
Changes to credit risk parameters (2.2) (1.5) - (3.7)
Other adjustments 1.0 - - 1.0
------------ ------------- ----------------
Charge to income statement 3.8 5.6 9.0 18.4
Allowance utilised in respect of write-offs (0.3) - (18.6) (18.9)
--------------------------------------------- ------------ ------------- ---------------- ------------
30 June 2022 22.0 25.6 19.4 67.0
--------------------------------------------- ------------ ------------- ---------------- ------------
Not credit-impaired Credit-impaired
--------------------------- ----------------
Stage
1: Stage Stage
Subject 2: 3:
to Subject Subject
12-month to lifetime to lifetime
ECL ECL ECL Total
Audited GBPmillion GBPmillion GBPmillion GBPmillion
--------------------------------------------- ------------ ------------- ---------------- ------------
At 1 January 2022 18.5 20.0 29.0 67.5
(Decrease)/increase due to change in
credit risk
------------ ------------- ----------------
- Transfer to stage 2 (8.8) 46.3 - 37.5
- Transfer to stage 3 (0.4) (21.4) 29.5 7.7
- Transfer to stage 1 2.3 (4.6) - (2.3)
Passage of time (6.3) (0.7) (2.5) (9.5)
New loans originated 23.2 - - 23.2
Matured and derecognised loans (2.9) (3.8) (5.2) (11.9)
Changes to credit risk parameters (2.9) (7.2) 1.9 (8.2)
Other adjustments 2.4 - - 2.4
------------ ------------- ----------------
Charge to income statement 6.6 8.6 23.7 38.9
Allowance utilised in respect of write-offs (0.8) - (27.6) (28.4)
--------------------------------------------- ------------ ------------- ---------------- ------------
31 December 2022 24.3 28.6 25.1 78.0
--------------------------------------------- ------------ ------------- ---------------- ------------
The tables above have been prepared based on monthly movements
in the ECL.
Transfers between stages 1 to 2 or 1 to 3 relate to changes from
12-month ECL to lifetime ECLs, and vice versa.
Passage of time represents the impact of accounts maturing
through their contractual life and the associated reduction in
Probability of Defaults ('PD') and the unwind of the discount
applied in calculating the ECL.
Changes to credit risk parameters represent movements that have
occurred due to the Group updating model inputs. This would include
the impact of, for example, updating the macroeconomic scenarios
applied to the models.
Other adjustments represent the movement in the Vehicle Finance
voluntary termination provision.
Stage 1 'Allowance utilised in respect of write-offs' arise on
Vehicle Finance accounts where borrowers have exercised their right
to voluntarily terminate their agreements.
10.1 Key sources of estimation uncertainty
Estimations that could have a material impact on the Group's
financial results, and are therefore considered to be key sources
of estimation uncertainty all relate to the impairment charge on
loans and advances to customers and are therefore set out
below.
The potential impact of the current macroeconomic environment
has been considered in determining reasonably possible changes in
key sources of estimation uncertainty, which may occur in the next
12 months.
The determination of both the PD and Loss Given Default ('LGD')
require estimation, which is discussed further below.
10.1.1 Incorporation of forward-looking data
The Group incorporates forward-looking information into both its
assessment of whether the credit risk of a financial asset has
increased significantly since initial recognition and its
measurement of expected credit loss by developing a number of
potential economic scenarios and modelling expected credit losses
for each scenario.
The macroeconomic scenarios used were provided by external
economic advisors. The scenarios and weightings applied are
summarised below:
Unaudited
30 June UK Unemployment Rate - UK HPI - movement from
2023 Annual Average H1 2023
------------------------------ -------------------------------------
Year Year Year 5 Yr Year Year Year 5 Yr
1 2 3 Average 1 2 3 Average
Scenario Weightings % % % % % % % %
----------- ----------- ----- ----- ----- --------- -------- ------- ------- ---------
Upside 20% 3.8 3.7 3.7 3.7 (2.7) (3.8) 0.8 2.3
Base 50% 4.0 4.2 3.9 3.9 (6.0) (9.0) (6.7) 0.7
Downside 25% 4.9 6.3 6.9 6.3 (12.3) (19.2) (21.0) (2.3)
Severe 5% 5.2 6.8 7.5 6.8 (17.1) (26.9) (32.0) (4.8)
----------- ----------- ----- ----- ----- --------- -------- ------- ------- ---------
Unaudited
30 June UK Unemployment Rate - UK HPI - movement from
2022 Annual Average H1 2022
------------------------------ ------------------------------------
Year Year Year 5 Yr Year Year Year 5 Yr
1 2 3 Average 1 2 3 Average
Scenario Weightings % % % % % % % %
----------- ----------- ----- ----- ----- --------- ------- ------- ------- ---------
Upside 20% 3.6 3.6 3.6 3.6 4.2 5.5 8.4 7.3
Base 50% 3.8 3.8 3.7 3.8 1.3 0.3 1.0 2.0
Downside 25% 6.0 6.2 6.3 6.1 (6.9) (17.1) (23.0) (15.0)
Severe 5% 6.3 6.5 6.6 6.4 (11.0) (25.7) (34.8) (23.4)
----------- ----------- ----- ----- ----- --------- ------- ------- ------- ---------
Audited
31 December UK Unemployment Rate - UK HPI - movement from
2022 Annual Average December 2022
------------------------------ ------------------------------------
5 Yr 5 Yr
2023 2023 2024 Average 2023 2023 2024 Average
Scenario Weightings % % % % % % % %
-------------- ----------- ----- ----- ----- --------- ------- ------- ------- ---------
Upside 20% 4.1 4.0 3.8 3.8 (5.2) (6.3) (2.0) 1.9
Base 50% 4.4 4.4 4.0 4.1 (8.4) (11.4) (9.2) 0.4
Downside 25% 5.4 6.5 7.1 6.5 (14.6) (21.3) (23.5) (2.6)
Severe 5% 5.6 7.0 7.6 6.9 (19.2) (28.8) (34.3) (5.2)
-------------- ----------- ----- ----- ----- --------- ------- ------- ------- ---------
The sensitivity of the ECL allowance to reasonably possible
changes in macroeconomic scenario weighting is presented below:
Increase in
Increase in severe stress
downside case case
weighting by weighting by
10% and reduction 5% and reduction
in upside case in base case
------------ -------------------------- ------------ --------------------------
Unaudited Unaudited Audited Unaudited Unaudited Audited
June June December June June December
2023 2022 2022 2023 2022 2022
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------- ------------ ------------ ------------ ------------ ------------ ------------
Vehicle Finance 0.2 1.1 0.6 0.1 0.8 0.4
Retail Finance 0.3 1.6 0.7 0.2 1.2 0.5
----------------- ------------ ------------ ------------ ------------ ------------ ------------
The sensitivity is immaterial for other lending products.
The Group recognised an impairment charge of GBP23.0 million (30
June 2022: GBP18.6 million, 31 December 2022: GBP39.0 million).
Were each of the macroeconomic scenarios to be applied 100%, rather
than using the weightings set out above, the increase/(decrease) on
ECL provisions would be as follows:
Unaudited Vehicle Retail Business Total
30 June 2023 Finance Finance Finance Group
Scenario GBPmillion GBPmillion GBPmillion GBPmillion
--------------- ------------ ------------ ------------ ------------
Upside (0.9) (1.4) (0.6) (2.9)
Base (0.4) (0.7) (0.3) (1.4)
Downside 1.3 2.0 0.7 4.0
Severe 1.8 2.8 1.7 6.3
--------------- ------------ ------------ ------------ ------------
Unaudited Vehicle Retail Business Total
30 June 2022 Finance Finance Finance Group
Scenario GBPmillion GBPmillion GBPmillion GBPmillion
------------------- ------------ ------------ ------------ ------------
Upside (1.7) (2.6) (0.3) (4.6)
Base (1.2) (1.8) (0.2) (3.2)
Downside 3.0 4.6 0.5 8.1
Severe 3.7 5.7 1.1 10.5
------------------- ------------ ------------ ------------ ------------
Audited Vehicle Retail Business Total
31 December 2022 Finance Finance Finance Group
Scenario GBPmillion GBPmillion GBPmillion GBPmillion
------------------- ------------ ------------ ------------ ------------
Upside (1.9) (0.3) (0.7) (2.9)
Base (1.5) 0.4 (0.4) (1.5)
Downside 0.9 3.0 0.9 4.8
Severe 1.6 3.8 1.7 7.1
------------------- ------------ ------------ ------------ ------------
10.1.2 ECL modelled output: Estimation of PDs
Sensitivity to reasonably possible changes in PD could
potentially result in material changes in the ECL allowance for
Vehicle Finance and Retail Finance.
A 15% change in the PD for Vehicle Finance would immediately
impact the ECL allowance by GBP4.4 million (30 June 2022: 50%
change impacted ECL allowance by GBP7.2 million, 31 December 2022:
a 15% change impacted the ECL allowance by GBP3.1 million).
A 15% change in the PD for Retail Finance would immediately
impact the ECL allowance by GBP5.8 million (30 June 2022: 10%
change impacted ECL allowance by GBP1.3 million, 31 December 2022:
a 15% change impacted the ECL allowance by GBP2.5 million).
The above sensitivities reflect the levels of defaults observed
during the period.
Due to the relatively low levels of provisions in the Business
Finance books, sensitivity to reasonably possible changes in PD are
not considered material.
10.1.3. ECL modelled output: Vehicle Finance recovery rates
With the exception of the Vehicle Finance portfolio, the
sensitivity of the ECL allowance to reasonably possible changes in
the LGD is not considered material. The Vehicle Finance portfolio
is particularly sensitive to changes in LGD due to the range of
outcomes, that could crystallise, depending on whether the Group is
able to recover the vehicle as security. For the Vehicle Finance
portfolio a 20% (June 2022: 20%, December 2022: 20%) change in the
LGD is considered reasonably possible due to delays in the vehicle
collection process. A 20% reduction in the vehicle recovery rate
assumption element of the LGD for Vehicle Finance would increase
the ECL by GBP1.5 million (30 June 2022: GBP1.4 million, 31
December 2022 GBP1.9 million). There has been no change in the
vehicle recovery rate assumption in the ECL model, in either the
current or prior periods.
10.1.4 Vehicle Finance used car values
Since used car values first started to increase following the
COVID-19 pandemic in March 2021, we have observed an increase in
used car prices of 18% (30 June 2022: 26%, 31 December 2022: 17%).
This increase in used car prices, if incorporated into the modelled
LGD, would have reduced the ECL provision by GBP1.2 million (30
June 2022: GBP2.1 million, 31 December 2022: GBP2.0 million).
However, the Directors believe that the used car prices will drop
by 9% (30 June 2022: 14%, 31 December 2022: 9%) and have applied an
overlay for lower recoveries, with an increased provision of GBP0.7
million (30 June 2022: GBP1.6 million, 31 December 2022: GBP1.0
million).
10.1.5 Climate risk impact
The Group has considered the impact of climate-related risks on
the financial statements, in particular the impact on impairment
within the Vehicle Finance business. While the effects of climate
change represent a source of uncertainty (in respect of potential
transitional risks, such as those that may arise from changes in
future Government policy), the Group does not consider there to be
a material impact on its judgements and estimates from the
physical, transition and other climate-related risks in the
short-term.
10.2. Critical judgments
10.2.1. ECJ: Consumer Finance customer affordability
An additional PD estimate was applied at June 2022 to reflect
the heightened risk of lower customer affordability in the Consumer
Finance businesses due to the increased cost of living. A 15%
uplift was applied to the ECL on loans identified
as most likely to be impacted by increases in cost of living,
which impacted the ECL by GBP5.3 million.
At 31 December 2022, the methodology was changed to a new
Exogenous Maturity Vintage model, which used inflation as the
driver of defaults, with the difference between this model and our
base models informing the expert credit judgement. The resulting
expert credit judgement relating to Consumer Finance affordability
was GBP2.8 million at 30 June 2023 (31 December 2022: GBP2.5
million). The Directors have deemed this a critical judgement,
given the uncertainty of the current economic environment and the
effect that this could have on customer affordability. The Group is
satisfied that it is reasonably estimating the level of
provisioning required to capture expected defaults, including the
impacts of costs of living.
11. Assets and liabilities held for sale
Under IFRS 5, Non-current Assets Held for Sale and Discontinued
Operations, assets and liabilities are required to be reclassified
as 'Held for sale' on the face of the Statement of financial
position, if they are expected to be sold within 12 months of the
balance sheet date.
As at 30 June 2022, the Group's office property in Bourne End
was available for immediate sale in its present condition and its
sale was highly probable. Accordingly, it was reclassified in the
June 2022 Condensed consolidated statement of financial position at
its carrying amount of GBP3.3 million from Investment properties to
Assets held for sale. During July 2022, the sale completed, and the
property was sold for GBP3.3 million.
12. Due to banks
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
---------------------------------------------- ------------ ------------ -------------
Amounts due under the Bank of England's
liquidity support operations (Term Funding
Scheme with additional incentives for SMEs) 390.0 390.0 390.0
Amounts due to other credit institutions 15.0 9.4 7.7
Accrued interest 4.3 0.9 2.8
409.3 400.3 400.5
---------------------------------------------- ------------ ------------ -------------
13. Deposits from customers
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
------------------ ------------ ------------ -------------
Fixed term bonds 1,410.0 1,182.4 1,414.0
Notice accounts 324.3 696.8 500.7
ISAs 505.2 310.8 421.8
Access accounts 409.4 100.9 178.1
------------------- ------------ ------------ -------------
2,648.9 2,290.9 2,514.6
------------------ ------------ ------------ -------------
14. Provisions for liabilities and charges
ECL allowance
on loan
commitments Other Total
GBPmillion GBPmillion GBPmillion
--------------------------------------- -------------- ------------ ------------
Balance at 1 January 2022 0.9 0.4 1.3
Charge to income statement 0.2 0.3 0.5
Utilised - (0.3) (0.3)
---------------------------------------- -------------- ------------ ------------
Balance at 30 June 2022 (Unaudited) 1.1 0.4 1.5
Charge to income statement - 1.6 1.6
Utilised - (0.6) (0.6)
---------------------------------------- -------------- ------------ ------------
Balance at 31 December 2022 (Audited) 1.1 1.4 2.5
(Release)/charge to income statement (0.4) 2.6 2.2
Utilised - (1.9) (1.9)
Balance at 30 June 2023 (Unaudited) 0.7 2.1 2.8
---------------------------------------- -------------- ------------ ------------
ECL allowance on loan commitments
In accordance with the requirements of IFRS 9, the Group holds
an ECL allowance against loans it has committed to lend, but have
not yet been drawn. For the Real Estate Finance and Commercial
Finance portfolios, where a loan facility is agreed that includes
both drawn and undrawn elements, and the Group cannot identify the
ECL on the loan commitment separately, a combined loss allowance
for both drawn and undrawn components of the loan is presented as a
deduction from the gross carrying amount of the drawn component,
with any excess of the loss allowance over the gross drawn amount
presented as a provision. At 30 June 2023, 30 June 2022, 31
December 2022, no provision was held for losses in excess of drawn
amounts.
Other
Other includes:
-- provision for fraud, which relates to cases where the Group
has reasonable evidence of suspected fraud, but further
investigation is required before the cases can be dealt with
appropriately;
-- s75 Consumer Credit Act 1974 provision;
-- restructuring provision; and
-- customer remediation.
The Directors expect all provisions to be fully utilised within
the next 12 months.
15. Subordinated liabilities
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
------------------------- ------------ ------------ -------------
Notes at face value 90.0 50.0 50.0
Unamortised issue costs (1.0) (0.2) (0.1)
Accrued interest 3.9 1.2 1.2
92.9 51.0 51.1
------------------------- ------------ ------------ -------------
On 28 February 2023, the Group issued GBP90.0 million 13.0%
Fixed Rate Reset Callable Subordinated Notes due August 2033 (the
'New Notes'). The New Notes are treated as Tier 2 regulatory
capital and are listed on the International Securities Market of
the London Stock Exchange. This issuance is in line with the
Group's funding strategy and supports the Group's stated
medium-term growth ambitions.
The Group redeemed all of its existing 6.75% Fixed Rate Reset
Callable Subordinated Notes due in 2028, with first call dates in
2023, in two tranches: GBP25.0 million on 28 February 2023; and
GBP25.0 million on 20 March 2023.
16. Contingent liabilities and commitments
16.1 Contingent liabilities
As a financial services business, the Group must comply with
numerous laws and regulations, which significantly affect the way
it does business. Whilst the Group believes there are no material
unidentified continuing areas of failure to comply with these laws
and regulations, other than noted below, there can be no guarantee
that all issues have been identified.
In July 2023, the Group was contacted by the Financial Conduct
Authority ('FCA') in a follow up to a review of forbearance
outcomes associated with its Borrowers in Financial Difficulty
project. The Group is responding to requests from the FCA to review
its practices in this area. It is not possible to estimate or
reliably predict the outcome of this review and its financial
effect on the Group.
16.2 Credit commitments
Commitments to extend credit to customers were as follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
---------------------- ------------ ------------ -------------
Consumer Finance
Retail Finance 72.5 100.8 97.2
Vehicle Finance 2.0 1.6 1.2
Business Finance
Real Estate Finance 54.2 77.3 53.1
Commercial Finance 165.3 152.6 146.5
294.0 332.3 298.0
---------------------- ------------ ------------ -------------
17. Share-based payments
Movements in the share options outstanding during the period are
set out below:
Outstanding
Outstanding Forfeited, at 30
at 1 January lapsed June
2023 Granted and cancelled Exercised 2023
Number Number Number Number Number
-------------------------- -------------- -------- --------------- ---------- ------------
Long term incentive plan 611,353 281,282 (36,723) (3,249) 852,663
Deferred bonus plan 49,807 39,953 - (1,227) 88,533
Sharesave plan 545,479 - - (17,179) 528,300
1,206,639 321,235 (36,723) (21,655) 1,469,496
-------------------------- -------------- -------- --------------- ---------- ------------
Outstanding Outstanding
at 1 at 30
January June
2022 Granted Exercised 2022
Number Number Number Number
-------------------------- ------------ -------- ---------- ------------
Long term incentive plan 401,800 230,789 (17,565) 615,024
Deferred bonus plan 19,686 38,344 (4,316) 53,714
Sharesave plan 542,446 - (5,574) 536,872
963,932 269,133 (27,455) 1,205,610
-------------------------- ------------ -------- ---------- ------------
Outstanding
Outstanding Forfeited, at 31
at 1 January lapsed December
2022 Granted and cancelled Exercised 2022
Number Number Number Number Number
-------------------------- -------------- -------- --------------- ---------- ------------
Long term incentive plan 408,043 230,789 - (27,479) 611,353
Deferred bonus plan 19,686 38,344 - (8,223) 49,807
Sharesave plan 542,446 111,833 (100,873) (7,927) 545,479
970,175 380,966 (100,873) (43,629) 1,206,639
-------------------------- -------------- -------- --------------- ---------- ------------
18. Cash flow statement
18.1 Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash
equivalents comprise the following balances with less than three
months maturity from the date of acquisition.
Restated
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
------------------------------------------ ------------ ------------ -------------
Cash and Bank of England reserve account 318.3 253.0 370.1
Loans and advances to banks 33.3 54.2 50.5
Debt securities - 34.9 -
Less:
Cash ratio deposit (4.3) (2.3) (3.7)
347.3 339.8 416.9
------------------------------------------ ------------ ------------ -------------
Cash and cash equivalents at June 2022 have been restated from
GBP338.3 million to GBP339.8 million. See Note 1.3.2 for further
details.
The Group has no access to the cash ratio deposit, so this
amount does not meet the definition of cash and cash equivalents
and accordingly it is excluded from cash and cash equivalents.
18.2 Changes in liabilities arising from financing
activities
All changes in liabilities arising from financing activities
arise from changes in cash flows, apart from GBPnil (June 2022:
GBP0.1 million, December 2022: GBP0.1 million) of lease liabilities
interest expense.
19. Related party transactions
There were no changes to the nature of the related party
transactions during the period to June 2023 that would materially
affect the position or performance of the Group. The nature and
relative quantum of related party transactions has not changed in
the six months ended 30 June 2023 in comparison to the year ended
31 December 2022. Details of the transactions for the year ended
December 2022 can be found in the 2022 Annual Report and
Accounts.
20. Management of credit risk
The Group takes on exposure to credit risk, which is the risk
that a counterparty will be unable to pay amounts in full when due.
Details of the management of credit risk can be found in the 2022
Annual Report and Accounts.
Stage Stage Stage
1 2 3 Total
------------ ------------ ------------ ------------ ------------ -----------
<= 30 > 30
days days
past past
Unaudited due due Total Total
30 June 2023 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------------- ------------ ------------ ------------ ------------ ------------ -----------
Consumer Finance
Retail Finance 1,111.5 89.0 4.0 93.0 7.3 1,211.8
Vehicle Finance 385.1 68.7 3.4 72.1 25.4 482.6
Business Finance
Real Estate Finance 1,023.1 142.1 20.8 162.9 40.2 1,226.2
Commercial Finance 276.9 19.9 - 19.9 20.6 317.4
Total drawn exposure 2,796.6 319.7 28.2 347.9 93.5 3,238.0
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Off balance sheet
Loan commitments 260.9 32.8 - 32.8 0.3 294.0
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Total gross exposure 3,057.5 352.5 28.2 380.7 93.8 3,532.0
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Less:
Impairment allowance (26.0) (19.5) (5.1) (24.6) (28.9) (79.5)
Provision for loan
commitments (0.7) - - - - (0.7)
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Total net exposure 3,030.8 333.0 23.1 356.1 64.9 3,451.8
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Stage Stage
1 Stage 2 3 Total
------------ ---------------------------------------- ------------ -----------
<= 30 > 30
days days
past past
Unaudited due due Total Total
30 June 2022 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------------- ------------ ------------ ------------ ------------ ------------ -----------
Consumer Finance
Retail Finance 827.2 105.0 2.7 107.7 5.8 940.7
Vehicle Finance 253.6 97.6 2.8 100.4 17.7 371.7
Business Finance
Real Estate Finance 969.7 143.7 - 143.7 31.4 1,144.8
Commercial Finance 344.5 14.5 - 14.5 2.0 361.0
Total drawn exposure 2,395.0 360.8 5.5 366.3 56.9 2,818.2
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Off balance sheet
Loan commitments 332.3 - - - - 332.3
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Total gross exposure 2,727.3 360.8 5.5 366.3 56.9 3,150.5
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Less:
Impairment allowance (22.0) (21.7) (3.9) (25.6) (19.4) (67.0)
Provision for loan
commitments (1.1) - - - - (1.1)
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Total net exposure 2,704.2 339.1 1.6 340.7 37.5 3,082.4
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Stage Stage
1 Stage 2 3 Total
------------ ---------------------------------------- ------------ -----------
<= 30 > 30
days days
past past
Audited due due Total Total
31 December 2022 GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
----------------------- ------------ ------------ ------------ ------------ ------------ -----------
Consumer Finance
Retail Finance 987.4 85.4 3.8 89.2 6.1 1,082.7
Vehicle Finance 306.8 83.3 3.8 87.1 23.6 417.5
Business Finance
Real Estate Finance 957.9 122.9 21.3 144.2 16.8 1,118.9
Commercial Finance 327.7 50.2 - 50.2 0.5 378.4
Total drawn exposure 2,579.8 341.8 28.9 370.7 47.0 2,997.5
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Off balance sheet
Loan commitments 298.0 - - - - 298.0
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Total gross exposure 2,877.8 341.8 28.9 370.7 47.0 3,295.5
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Less:
Impairment allowance (24.3) (23.9) (4.7) (28.6) (25.1) (78.0)
Provision for loan
commitments (1.1) - - - - (1.1)
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
Total net exposure 2,852.4 317.9 24.2 342.1 21.9 3,216.4
------------------------- ------------ ------------ ------------ ------------ ------------ -----------
20.1 Concentration risk
Management assesses the potential concentration risk from
geographic, product and individual loan concentration. Due to the
nature of the Group's lending operations, the Directors consider
the lending operations of the Group as a whole to be well
diversified. Details of the Group's loans and advances to customers
and loan commitments by product is provided in Notes 3 and
16.2.
The Group's Real Estate Finance loan book is secured against UK
property only. The geographical concentration of these business
loans and advances to customers, by location of the security, is as
follows:
Unaudited Unaudited Audited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
------------------------------------------- ------------ ------------ -------------
Central England 100.4 95.1 101.9
Greater London 749.6 696.7 689.7
Northern England 66.3 61.5 68.7
South East England (excl. Greater London) 194.9 225.7 189.5
South West England 41.0 22.2 20.4
Scotland, Wales and Northern Ireland 74.0 43.6 48.7
-------------------------------------------- ------------ ------------ -------------
Gross loans and advances to customers 1,226.2 1,144.8 1,118.9
Allowance for impairment (4.4) (2.2) (3.4)
-------------------------------------------- ------------ ------------ -------------
Total 1,221.8 1,142.6 1,115.5
-------------------------------------------- ------------ ------------ -------------
Loan-to-value 56% 57% 58%
-------------------------------------------- ------------ ------------ -------------
Under its credit policy, the Real Estate Finance business lends
to a maximum loan-to-value of:
-- 70% for investment loans;
-- 60% for residential development loans*;
-- 65% for certain residential higher leveraged development
loans*, which is subject to an overall cap on such lending agreed
by management according to risk appetite; and
-- 65% for commercial development loans*.
* Based on gross development value.
21. Capital risk
The Group's capital management policy is focused on optimising
shareholder value in a safe and sustainable manner. There is a
clear focus on delivering organic growth and ensuring capital
resources are sufficient to support planned levels of growth. The
Board regularly reviews the capital position.
The following table shows the regulatory capital resources, as
managed by the Group:
Restated(1) Restated(1)
Unaudited Unaudited Unaudited
30 June 30 June 31 December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
------------------------------------------------ ------------ ------------ -------------
Tier 1
Share capital 7.5 7.5 7.5
Share premium 82.3 82.2 82.2
Retained earnings 244.6 225.2 237.8
Own shares (0.3) - (0.3)
IFRS 9 transition adjustment (See below
for further details) 2.4 8.5 11.7
Goodwill (1.0) (1.0) (1.0)
Intangible assets net of attributable deferred
tax (5.5) (5.9) (5.6)
Prudential adjustments (0.2) - -
------------------------------------------------ ------------ ------------ -------------
Common Equity Tier 1 ('CET 1') capital
before foreseeable dividend 329.8 316.5 332.3
Foreseeable dividend (3.0) (3.0) (5.4)
------------------------------------------------- ------------ ------------ -------------
CET 1 capital 326.8 313.5 326.9
------------------------------------------------- ------------ ------------ -------------
Tier 2
Subordinated liabilities 89.0 49.8 49.9
Less ineligible portion (32.3) - -
------------------------------------------------ ------------ ------------ -------------
Total Tier 2 capital 56.7 49.8 49.9
------------------------------------------------- ------------ ------------ -------------
Total own funds/Total capital 383.5 363.3 376.8
------------------------------------------------- ------------ ------------ -------------
Reconciliation to total equity:
IFRS 9 transition adjustment (2.4) (8.5) (11.7)
Prudential adjustments 0.2 - -
Eligible subordinated liabilities (56.7) (49.8) (49.9)
Cash flow hedge reserve (0.9) (0.8) (0.8)
Goodwill and other intangible assets net
of attributable deferred tax 6.5 6.9 6.6
Foreseeable dividend 3.0 3.0 5.4
------------------------------------------------- ------------ ------------ -------------
Total equity 333.2 314.1 326.4
------------------------------------------------- ------------ ------------ -------------
1. Restated to reflect a change in accounting policy relating to
land and buildings, which are now presented at historical cost. See
Note 1.3.1 for further details.
The Group has elected to adopt the IFRS 9 transitional rules. In
2022, this allowed for 25% of the initial IFRS 9 transitional
adjustment, net of attributable deferred tax, and for increases in
provisions between 1 January 2018 to 31 December 2019, except where
these provisions relate to defaulted accounts, to be added back to
eligible capital. This part of the relief has now ended. The relief
for increases in provisions since 1 January 2020. however continues
to apply at 50% in 2023 (2022: 75%). This relief will taper off by
31 December 2024.
The Group's regulatory capital is divided into:
-- CET 1 capital, which comprises shareholders' funds, after
adding back the IFRS 9 transition adjustment and deducting
qualifying intangible assets, both of which are net of attributable
deferred tax.
-- Tier 2 capital, which is solely subordinated debt net of
unamortised issue costs, capped at 25% of the capital
requirement.
The Group operates the standardised approach to credit risk,
whereby risk weightings are applied to the Group's on and off
balance sheet exposures. The weightings applied are those
stipulated in the Capital Requirements Regulation.
The Group is subject to capital requirements imposed by the PRA
on all financial services firms. During the periods, the Group
complied with these requirements.
22. Fair value of loans and advances to customers and deposits
from customers
The fair value of loans and advances to customers and deposits
from customers is set out below:
Unaudited Unaudited Unaudited Unaudited Audited Audited
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
30 June 30 June 30 June 30 June 31 December 31 December
2023 2023 2022 2022 2022 2022
GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion GBPmillion
-------------------------- ------------ ------------ ------------ ------------ ------------- -------------
Total loans and advances
to customers 3,158.5 3,077.4 2,751.2 2,771.7 2,919.5 2,895.6
Deposits from customers 2,648.9 2,631.7 2,290.9 2,297.3 2,514.6 2,494.0
-------------------------- ------------ ------------ ------------ ------------ ------------- -------------
Investment properties and derivatives are carried at fair value.
All other assets and liabilities are carried at amortised cost.
Appendix to the Interim Report (unaudited)
Key performance indicators and other alternative performance
measures
All key performance indicators are based on continuing
operations and continuing loans and advances to customers, unless
otherwise stated.
(i) Net interest margin ratio
Net interest margin is calculated as interest income and similar
income less interest expense and similar charges for the financial
period as a percentage of the average loan book. The calculation of
the average loan book is the average of the monthly balance of
loans and advances to customers, net of provisions, over seven or
13 months. The resulting ratios for June 2023 and June 2022 are
multiplied by 365/181 to give an annual equivalent comparable to
the annual results:
June June December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
-------------------------------------- ------------ ------------ ------------
Interest income and similar income 138.8 90.6 203.0
Interest expense and similar charges (57.8) (17.5) (50.4)
-------------------------------------- ------------ ------------ ------------
Net interest income 81.0 73.1 152.6
-------------------------------------- ------------ ------------ ------------
Opening loan book 2,919.5 2,451.0 2,451.0
Closing loan book 3,158.5 2,751.2 2,919.5
-------------------------------------- ------------ ------------ ------------
Average loan book 3,005.6 2,584.2 2,699.3
-------------------------------------- ------------ ------------ ------------
Net interest margin 5.4% 5.7% 5.7%
-------------------------------------- ------------ ------------ ------------
The net interest margin ratio measures the return net of funding
costs on the loan book.
(ii) Yield
Yield is calculated as interest income and similar income for
the financial period as a percentage of the average loan book. The
calculation of the average loan book is the average of the monthly
balance of loans and advances to customers, net of provisions, over
seven or 13 months. The resulting ratios for June 2023 and June
2022 are multiplied by 365/181 to give an annual equivalent
comparable to the annual results:
June June December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
------------------------------------ ------------ ------------ ------------
Interest income and similar income 138.8 90.6 203.0
Average loan book 3,005.6 2,584.2 2,699.3
------------------------------------ ------------ ------------ ------------
Yield 9.3% 7.1% 7.5%
------------------------------------ ------------ ------------ ------------
The yield measures the gross return on the loan book.
(iii) Cost of funds
Cost of funds is calculated as the interest expense for the
financial period expressed as a percentage of average loan book.
The resulting ratios for June 2023 and June 2022 are multiplied by
365/181 to give an annual equivalent comparable to the annual
results:
June June December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
-------------------------------------- ------------ ------------ ------------
Interest expense and similar charges 57.8 17.5 50.4
Average loan book 3,005.6 2,584.2 2,699.3
-------------------------------------- ------------ ------------ ------------
Cost of funds 3.9% 1.4% 1.9%
-------------------------------------- ------------ ------------ ------------
The cost of funds measures the cost of money being lent to
customers.
(iv) Cost to income ratio
Cost to income ratio is calculated as operating expenses for the
financial period as a percentage of operating income for the
financial period.
June June December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
---------------------------- ------------ ------------ ------------
Operating expenses 50.7 46.2 93.2
Operating income 89.1 81.0 169.6
---------------------------- ------------ ------------ ------------
Total cost to income ratio 56.9% 57.0% 55.0%
---------------------------- ------------ ------------ ------------
The cost to income ratio measures how efficiently the Group is
utilising its cost base to produce income.
(v) Cost of risk
Cost of risk is calculated as the net impairment charge on loans
and advances to customers and gains and losses on modification of
financial assets for the financial period as a percentage of the
average loan book. The resulting ratios for June 2023 and June 2022
are multiplied by 365/181 to give an annual equivalent comparable
to the annual results:
June June December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
--------------------------------------------- ------------ ------------ ------------
Net impairment charge on loans and advances
to customers 23.0 17.9 38.2
Gains on modification of financial assets (0.2) (0.7) (1.1)
--------------------------------------------- ------------ ------------ ------------
Total 22.8 17.2 37.1
--------------------------------------------- ------------ ------------ ------------
Average loan book 3,005.6 2,584.2 2,699.3
--------------------------------------------- ------------ ------------ ------------
Cost of risk 1.5% 1.3% 1.4%
--------------------------------------------- ------------ ------------ ------------
The cost of risk measures how effective the Group has been in
managing the credit risk of its lending portfolios.
(vi) Total annualised return on average equity
Total annualised return on average equity is calculated as the
total profit after tax for the financial period as a percentage of
average equity. Average equity is calculated as the average of the
monthly equity balances. The resulting ratios for June 2023 and
June 2022 are multiplied by 365/181 to give an annual equivalent
comparable to the annual results:
Restated(1) Restated(1)
June June December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
------------------------------------------- ------------ ------------ ------------
Total profit after tax 11.1 19.1 33.7
------------------------------------------- ------------ ------------ ------------
Opening equity 326.4 302.2 302.2
Closing equity 333.2 314.1 326.4
------------------------------------------- ------------ ------------ ------------
Average equity 331.4 307.9 313.4
------------------------------------------- ------------ ------------ ------------
Total annualised return on average equity 6.8% 12.5% 10.8%
------------------------------------------- ------------ ------------ ------------
1. Restated to reflect a change in accounting policy relating to
land and buildings, which are now presented at historical cost. See
Note 1.3.1 for further details.
Return on average equity is a measure of the Group's ability to
generate profit from the equity available to it.
(vii) Loans and advances to customers compound annual growth
rate
Annual growth rate is calculated as the annualised growth in
loans and advances to customers based on the number of days in the
period since 31 December 2020:
June June December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
--------------------------------------------- ------------ ------------ ------------
Loans and advances to customers at period
end 3,158.5 2,751.2 2,919.5
Loans and advances to customers at December
2020 2,184.9 2,184.9 2,184.9
--------------------------------------------- ------------ ------------ ------------
Annual growth rate (since 31 December 2020) 15.9% 16.7% 15.6%
--------------------------------------------- ------------ ------------ ------------
(viii) Funding ratio
The funding ratio is calculated as the total funding at the
year-end, being the sum of deposits from customers, borrowings
under the Bank of England's liquidity support operations and the
Term Funding Scheme with additional incentives for SMEs, Tier 2
capital and equity, divided by the loan book at the year end:
Restated(1) Restated(1)
June June December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
-------------------------------------------------- ------------ ------------ ------------
Deposits from customers 2,648.9 2,290.9 2,514.6
Borrowings under the Bank of England's liquidity
support operations (Term Funding Scheme with
additional incentives for SMEs (including
accrued interest)) 394.3 390.9 392.8
Tier 2 capital (including accrued interest) 92.9 51.0 51.1
Equity 333.2 314.1 326.4
-------------------------------------------------- ------------ ------------ ------------
3,469.3 3,046.9 3,284.9
-------------------------------------------------- ------------ ------------ ------------
Loans and advances to customers 3,158.5 2,751.2 2,919.5
-------------------------------------------------- ------------ ------------ ------------
Funding ratio 109.8% 110.7% 112.5%
-------------------------------------------------- ------------ ------------ ------------
Loan to deposit ratio 119.2% 120.1% 116.1%
-------------------------------------------------- ------------ ------------ ------------
1. Restated to reflect a change in accounting policy relating to
land and buildings, which are now presented at historical cost. See
Note 1.3.1 for further details.
The funding ratio measures the Group's liquidity.
(ix) Profit before tax pre impairments
Profit before tax pre impairments is profit before tax,
excluding impairment charges and gains on modification of financial
assets.
June June December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
---------------------------------------------- ------------ ------------ ------------
Profit before income tax 16.5 17.1 39.0
Excluding:
Net impairment charge on loans and advances
to customers 23.0 17.9 38.2
Gains on modification of financial assets (0.2) (0.7) (1.1)
---------------------------------------------- ------------ ------------ ------------
Profit before tax pre impairments 39.3 34.3 76.1
---------------------------------------------- ------------ ------------ ------------
Profit before tax pre impairments measures the operational
performance of the business.
(x) Tangible book value per share
Tangible book value per share is calculated as the total equity
less intangible assets divided by the number of shares in issue at
the end of the period:
June June December
2023 2022 2022
GBPmillion GBPmillion GBPmillion
----------------------------------------- ------------ ------------ ------------
Total equity 333.2 314.1 326.4
Less: Intangible assets (6.5) (6.9) (6.6)
----------------------------------------- ------------ ------------ ------------
Tangible book value 326.7 307.2 319.8
----------------------------------------- ------------ ------------ ------------
Number of shares in issue at the end of
the period 18,713,089 18,675,260 18,691,434
----------------------------------------- ------------ ------------ ------------
Tangible book value per share GBP17.46 GBP16.45 GBP17.11
----------------------------------------- ------------ ------------ ------------
Tangible book value is a measure of the Group's value per
share.
Directors' responsibility statement
The Directors confirm that, to the best of their knowledge:
-- the Interim Financial Statements have been prepared in
accordance with United Kingdom adopted International Accounting
Standard 34 - 'Interim Financial Reporting', issued by the IASB and
give a true and fair view of the assets, liabilities, financial
position and profit of the undertakings included in the
consolidation as a whole;
-- the Interim Business Report includes a fair review of the
information required by Section 4.2.7R of the Disclosure Guidance
and Transparency Rules, issued by the UK Listing Authority (that
being an indication of important events that have occurred during
the first six months of the current financial year and their impact
on the condensed financial statements and a description of the
principal risks and uncertainties for the remaining six months of
the financial year); and
-- the Interim Business Report includes a fair review of the
information required by Section 4.2.8R of the Disclosure Guidance
and Transparency Rules, issued by the UK Listing Authority (that
being disclosure of related party transactions that have taken
place in the first six months of the current financial year and
that have materially affected the financial position or the
performance of the enterprise during that period; and any changes
in the related party transactions described in the last annual
report which could do so).
Approved by the Board of Directors and signed on behalf of the
Board.
Lord Forsyth David McCreadie
Chairman Chief Executive Officer
Independent review report to Secure Trust Bank PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the Interim Financial Statements for the
six months ended 30 June 2023 which comprises the condensed
consolidated statement of comprehensive income, the condensed
consolidated statement of financial position, the condensed
consolidated statement of changes in equity, the condensed
consolidated statement of cash flows and related Notes 1 to 22.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the Interim Financial Statements for the six months ended 30
June 2023 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom ('ISRE (UK) 2410'). A review of interim financial
information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in Note 1.2, the annual financial statements of the
Group are prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this Interim Financial Statements has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, 'Interim Financial Reporting'.
Conclusion relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the Directors have inappropriately
adopted the going concern basis of accounting or that the Directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410; however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the Interim
Financial Statements in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the Interim Financial Statements, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the Interim Financial Statements, we are
responsible for expressing to the Group a conclusion on the
condensed set of financial statements in the Interim Financial
Statements. Our conclusion, including our conclusion relating to
going concern, are based on procedures that are less extensive than
audit procedures, as described in the Basis for conclusion
paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with
ISRE (UK) 2410. Our work has been undertaken so that we might state
to the Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
Birmingham
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END
IR PPMFTMTIMBBJ
(END) Dow Jones Newswires
August 09, 2023 02:00 ET (06:00 GMT)
Secure Trust Bank (LSE:STB)
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