TIDMPCF
RNS Number : 1485B
PCF Group PLC
05 June 2019
5 June 2019
PCF Group plc
("PCF", the "Bank" or the "Group")
Half Year Results for the Six Months Ended 31 March 2019
Continued strong profitability and capital in place for the next
phase of growth
PCF Group plc, the AIM-listed specialist bank, today announces
its results for the six months ended 31 March 2019. The Board is
pleased to report that trading is strong, results are in line with
market expectations and the Group's strategic diversification of
asset classes and routes to market is on track.
H1 2019 Financial Highlights:
-- Operating income up 51% to GBP10.1 million (2018: GBP6.7 million)
-- Statutory profit before tax up 57% to GBP3.3 million (2018:
GBP2.1 million); strong portfolio growth delivered operational
gearing and increased profitability
-- Earnings per share up 50% at 1.2p (2018: 0.8p)
-- Weighted after-tax return on equity up to 11.4% (2018: 8.7%),
illustrating operational gearing and an efficient deployment of
capital
-- Impairment losses of GBP1.2m (2018: GBP0.6 million), including the adoption of IFRS 9
-- Adoption of IFRS 9 as at 1 October 2018 resulted in a 13.8%
increase to balance sheet impairment allowances. During the period
a 0.1% increase in impairment charges in the income statement
relates to the adoption of IFRS 9
H1 2019 Operational Highlights:
-- On 11 March 2019 the Bank raised GBP10.75 million of new
equity to support its next phase of growth
-- Additionally, we are finalising a GBP15 million Tier 2
capital facility, to optimise the composition and cost of the
Bank's capital base and to support organic growth, eliminating the
need for further capital in the medium-term. We expect this to be
in place in June
-- Portfolio growth of 54% to GBP276 million (2018: GBP179 million)
-- Acquisition in the period of Azule Limited, the broadcast and
media finance provider, which is performing to management
expectation
-- Bridging property finance commenced operations in January 2019
-- Total new business origination up 75% to GBP121 million (2018: GBP69 million) comprising
o New business origination for 'own portfolio' increased by 39%
to GBP96 million (2018: GBP69 million); and
o GBP25 million of new business origination (2018: NIL)
generating broker commission income
-- Total customer base is now over 19,000 (2018: 15,000)
-- Awarded 2018 Top New Challenger Bank at the Leasing World industry awards
-- Nominated for both 2019 Best Notice and Best Fixed Account
Provider by savings specialist, Money Facts
Scott Maybury, CEO, commented: "This has been another highly
successful period for the Group. We set ourselves ambitious targets
and are on track to deliver these ahead of schedule. Profit before
tax is up 57% to GBP3.3 million, with a similar increase in
earnings per share. An acquisition and a new property lending
initiative were announced in the period and organic growth in our
established markets remains strong.
"Prudent capital management led us to increase the capital base
and diversify the capital structure. This mitigates the potential
risk of market volatility that may arise in these uncertain times
and provides a strong base to support ongoing growth.
"We remain on track to meet market expectations and with the
enhanced capital structure in place, we are well set to implement
our 2019 objectives and medium-term plans. We look forward to
reporting continued success as the year progresses."
For further information, please visit https://pcf.bank/ or
contact:
PCF Group plc Tel: +44 (0) 20 7222
Scott Maybury, Chief Executive Officer 2426
Robert Murray, Managing Director
David Bull, Finance Director
Tavistock Communications Tel: +44 (0) 20 7920
Jos Simson / Simon Hudson / Edward Lee 3150
Panmure Gordon (UK) Limited Tel: +44 (0) 20 7886
Atholl Tweedie - Corporate Finance 2500
Charles Leigh-Pemberton - Corporate Broking
Stockdale Securities Tel: +44 (0) 20 7601
Robert Finlay / Richard Johnson - Corporate 6100
Finance
Henry Willcocks - Corporate Broking
There will be a dial-in facility available for an analyst and
investor call today, Wednesday 5 June, at 1030h (BST). The details
are:
United Kingdom Toll-Free: 0800 3589473
United Kingdom Toll: +44 333 3000804
PIN: 39243661#
About PCF Group plc (www.pcf.bank)
Established in 1994, PCF Group plc is the AIM-listed parent of
specialist bank, PCF Bank Limited. Since commencing operations as a
bank in 2017, the Group has increased its lending portfolio
significantly, targeting an initial portfolio of GBP350 million by
2020 and growing to a GBP750 million portfolio by 2022. The Group
will retain its focus on portfolio quality, lending increasingly to
the prime segment of its existing finance markets. The Group has
also recently diversified its lending products and asset classes
through acquisition and by setting up new organic operations.
PCF Bank currently offers retail savings products for
individuals and then deploys those funds through its four lending
divisions:
-- Business Finance which provides finance for vehicles, plant and equipment to SMEs;
-- Consumer Finance which provides finance for motor vehicles to consumers;
-- Azule Limited which provides finance to the broadcast and media industry; and
-- Bridging Property Finance which provides loans to companies
and sole traders investing in residential property
Inside information
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
Chairman's Statement
for the six months ended 31 March 2019
I am pleased to present the half-year report for the period
ended 31 March 2019. The first six months have gone well and we
have made significant progress on profitability, strategic
initiatives and capital planning. We diversified our business model
with the acquisition of Azule Limited and the launch of a bridging
property finance division. This augments the continued strong
organic growth in our existing business lines of asset finance and
consumer motor finance, which are focused on the prime end of the
credit spectrum.
Profits and shareholder return
Profit before tax for the six months ended 31 March 2019 was up
57% to GBP3.3 million (2018: GBP2.1 million). This is an excellent
performance, as strong portfolio growth delivered operational
gearing and increased profitability. Earnings per share were up 50%
in the period to 1.2p (2018: 0.8p) and the return on average equity
increased to 11.4% (2018: 8.7%).
The net interest margin ('NIM') was 8.0% (2018: 8.4%) for the
period and performed ahead of expectation, as we transition to a
lower yielding but better-quality portfolio. We are seeing
competitive pressures on prime lending margins in both our
divisions and we expect our NIM to fall further in the short to
medium-term. This decrease in NIM will be offset by operational
gearing through continued growth of our portfolio. The
cost-to-income ratio in the period was 35% (2018: 34%) which is a
very pleasing result, given the significant costs associated with
the recruitment of talent, banking governance and a robust risk
framework. We are ahead of where we expected to be in terms of
portfolio, so we will continue to invest in people and
infrastructure to build scalable customer-facing systems as we
advance towards our medium-term target of a GBP750 million
portfolio by 2022.
The Group's total funding cost fell to 2.4% (2018: 3.5%) as we
improved the efficiency of the Bank's treasury structure and
continued to replace higher cost wholesale funding. The lending
portfolio is now, in the main, funded by retail deposits of GBP204
million (2018: GBP108 million) and the support of over 4,500
savings customers.
2019 strategic objectives
The Board's primary objective is to deliver increased
profitability while investing for long-term sustainable growth
alongside a robust risk framework. Our priorities in 2019 are
to
1. grow the core businesses of asset finance and consumer motor
finance by increased lending into the prime market;
2. diversify the balance sheet with new asset classes, either through acquisition or organically;
3. develop and launch a much-improved proposition to the
broker-introduced consumer motor finance market by automating
credit decision-making and delivering high levels of customer
service;
4. continue to invest in people and infrastructure to build a
bank that can support a significantly larger portfolio; and
5. review the capital structure to prepare for the next stage of
growth, while continuing to grow earnings per share.
We have made significant progress in achieving these objectives.
Our previously stated objective of a portfolio of GBP350 million by
2020 is within our sights, well ahead of schedule, while the
acquisition of Azule and the new property finance division provides
momentum for the next portfolio target of GBP750 million by 2022
and a target return on equity target of 15%.
Azule Limited and bridging property finance
On 30 October 2018 we completed the acquisition of Azule
Limited. Azule is a UK market leader in providing specialist
funding and leasing services direct to individuals and businesses
in the broadcast and media industry. Azule has a strong market
presence with a sales capability to place asset finance to a wide
range of banks and lending institutions for a commission, as well
as originating asset finance for its own portfolio. This ability to
generate commission income is a diversification for PCF Bank. Azule
has contributed five months trading to these results and GBP33
million (2018: GBP23 million, pre-acquisition) of new business
origination. 76% of this origination generated broker commission
income with the remainder for 'own portfolio'. We expect this mix
of brokered to own portfolio business to move in favour of own
portfolio over time as the business is integrated into PCF Bank.
The acquisition will also offer synergies with PCF's existing
operations, however, the first five months post acquisition have
been firmly focussed on supporting the sales operations of the
Azule business. We are pleased with the performance to date.
PCF Bank also commenced bridging property finance in the period.
We have recruited a small team of experienced staff and the first
transactions were closed at the end of January 2019. We are pleased
with the first two months' new business origination and we have a
strong pipeline of approved transactions and enquiries. This
division specialises in financing property professionals, who may
be individuals or small companies, with a successful track record
in property investment. The transactions are typically six to
eighteen months in duration and secured by a first charge, with
repayment coming from a third-party refinance or the sale of the
property. This diversification complements our existing lines of
business with a shorter average life as well as introducing the
capital efficiencies inherent in property lending. This is a new
market for PCF and there is cost in building the operating model.
This cost has been absorbed in this period's profit and we do not
expect this business line to contribute at the profit before tax
level until 2020.
Existing business lines and portfolio performance
New business originations in existing business lines increased
by 23% to GBP85 million (2018: GBP69 million) in the period and we
finished with a record month for originations in March 2019 of
GBP21 million (March 2018: GBP14 million). The largest increase in
new business originations came from our Business Finance Division,
where new volumes increased by 36% to GBP56 million (2018: GBP41
million). The modest increase in Consumer Finance Division
originations to GBP29 million (2018: GBP28 million) was expected
and growth in this division is anticipated later in the year, when
we have delivered the strategic initiative of improved automated
credit-decision making and superior customer service. This is a
standard capability for operating in the prime motor finance
market.
The lending portfolio now stands at GBP276 million (2018: GBP179
million), an increase of 54%, and the operating income generated
from the portfolio was up 51% to GBP10.1 million in the period
(2018: GBP6.7 million). The portfolio is reported net of unearned
finance income of GBP53 million (2018: GBP39 million). This
unearned finance income will be attributed to accounting periods
over the next four years and provides certainty of operating income
in the future.
Impairment losses in the period were GBP1.2 million (2018:
GBP0.6 million), which represents a charge of 0.9% (2018: 0.5%) of
which 0.1% was attributable to IFRS 9. This charge is consistent
with the underlying loss rates expected from the portfolio going
forward. As previously reported, past accounting periods have
benefited from significant recoveries from legacy customers that
defaulted during the financial crisis, but these are now becoming
immaterial to overall performance. The part of the portfolio
reported as 'past due' deteriorated slightly in the period to 95%
(2018: 96%) and we are seeing evidence in the market place to
suggest that the high point in this credit cycle has passed. This
will not come as a surprise when placed in the context of the
broader backdrop of economic uncertainty, but we are seeing some
unfavourable indicators including business failure, fraudulent
practices and falling asset recovery values. However, by
maintaining our proven, prudent underwriting standards in the
quality of the business we write, we are confident that we will
continue to be well positioned in this regard.
Capital management
The Group has a CET1 capital ratio of 19.7% (2018: 21.6%) and
held 122% (2018: 157%) of what was needed to meet the Overall
Liquidity Adequacy Rule. These comfortably exceed regulatory
requirements and will support the next phase of growth. Net assets
have increased by 40% to GBP56 million (2018: GBP40 million) after
the recent capital raise.
The decision to raise the additional capital of GBP10.75 million
in March was taken in the light of significant market uncertainty
in early 2019 and a desire to de-risk our growth strategy against
potential market volatility or economic downturn. This is
consistent with our strategy when raising capital in March 2017,
ahead of launching the banking operations. In addition, we are
finalising the terms of a Tier 2 capital facility which we expect
to be completed by the end of June 2019. Subject to the final
contract, this facility may be drawn as required to support future
growth and so delays the requirement for further equity. This will
enhance earnings per share by optimising our cost of capital and
with an after-tax cost of 6.4%, this an attractive additional
capital resource.
Current trading and outlook
We are pleased with the quality of business we are originating,
and this is consistent with our cautious risk outlook. By
maintaining prudent and responsible lending practices, we are
confident that we will continue to perform well.
Economic and political uncertainty is weighing heavily on the UK
economy but, assuming there is an orderly exit from the European
Union, the economic outlook is likely to improve and the Group is
well placed to take advantage in both our existing and new
marketplaces.
We remain on track to meet market expectations and, with the
enhanced capital structure now in place, we are well set to
implement our 2019 objectives and medium-term plans. We look
forward to reporting continued success as the year progresses.
T A Franklin
Chairman
5 June 2019
INDEPENT REVIEW REPORT TO PCF GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the interim financial report for the six
months ended 31 March 2019, which comprises Consolidated Income
Statement, Consolidated Statement of Comprehensive Income,
Consolidated Balance Sheet, Consolidated Statement of Changes in
Equity, Consolidated Statement of Cash Flows and the related
explanatory notes 1 to 11. We have read the other information
contained in the interim financial report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity', issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the interim financial report in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting,' as adopted by the European Union.
As disclosed in note 2, the annual financial statements of the
Company are prepared in accordance with International Financial
Reporting Standards ('IFRSs'), as adopted by the European Union.
The condensed set of financial statements included in this interim
financial report has been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting'; as adopted
by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity', issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (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.
Conclusion
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 report for the six months ended 31 March
2019 is not prepared, in all material respects, in accordance with
International Accounting Standard 34, as adopted by the European
Union.
Ernst & Young LLP
London
5 June 2019
CONSOLIDATED INCOME STATEMENT
Six months ended Six months ended Twelve months ended
31 March 31 March 30 September
2019 2018 2018
unaudited unaudited audited
Note GBP'000 GBP'000 GBP'000
Interest and similar income 16,248 11,648 25,494
Interest and similar charges (6,230) (4,828) (10,492)
----------------- ----------------- --------------------
Net interest income 10,018 6,820 15,002
Fees and commission income 605 248 492
Fees and commission expense (501) (379) (844)
----------------- ----------------- --------------------
Net fees and commission income / (expense) 104 (131) (352)
----------------- ----------------- --------------------
Net operating income 10,122 6,689 14,650
----------------- ----------------- --------------------
Personnel expenses 3,800 2,495 5,186
Depreciation of property and equipment 67 40 84
Amortisation of intangible assets 196 191 385
Other operating expenses 1,644 1,320 2,907
Impairment losses on financial assets 1,164 579 915
Total operating expenses 6,871 4,625 9,477
----------------- ----------------- --------------------
Profit before tax 3,251 2,064 5,173
Income tax expense 8 (658) (413) (981)
----------------- ----------------- --------------------
Profit after tax 2,593 1,651 4,192
Earnings per 5p ordinary share - basic and
diluted 11 1.2p 0.8p 2.0p
Underlying adjustments
Profit before tax 3,251 2,064 5,173
Acquisition costs 61 - 270
------ ------ ------
Underlying profit before taxation 3,312 2,064 5,443
Income tax expense (658) (413) (981)
------ ------ ------
Underlying profit after taxation, being total comprehensive income, attributable to owners 2,654 1,651 4,462
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Six months ended Twelve months ended
31 March 31 March 30 September
2019 2018 2018
unaudited unaudited audited
GBP'000 GBP'000 GBP'000
Profit after taxation 2,593 1,651 4,192
Other comprehensive income that will be reclassified to
the income statement
Fair value (loss)/gain on AFS financial instruments (see
note 4.2.2) - (11) 18
Fair value loss on FVOCI financial instruments (see note
4.2.2) (87) - -
Income tax expense - - (3)
----------------- ----------------- --------------------
Total items that will be reclassified to the income
statement (87) (11) 15
----------------- ----------------- --------------------
Total comprehensive income, net of tax 2,506 1,640 4,207
----------------- ----------------- --------------------
CONSOLIDATED BALANCE SHEET
31 March 31 March 30 September
2019 2018 2018
Note unaudited unaudited audited
GBP'000 GBP'000 GBP'000
Assets
Cash and balances at central banks 2,882 14,657 21,338
AFS financial instruments 9 - 25,091 39,902
Debt instruments at FVOCI 9 27,491 - -
Loans and advances to customers 275,710 179,203 219,322
Property, plant and equipment 292 244 224
Goodwill and other intangible assets 5,437 3,031 2,957
Deferred tax assets 1,287 1,206 1,185
Other assets 5,856 757 1,542
----------- ----------- -------------
Total assets 318,955 224,189 286,470
Liabilities
Due to banks 52,028 72,198 48,881
Due to customers 203,754 108,276 191,139
Current tax liabilities 528 213 414
Other liabilities 7,065 3,201 3,485
----------- ----------- -------------
Total liabilities 263,375 183,888 243,919
Equity
Issued capital 10 12,509 10,611 10,611
Share premium 10 17,654 8,524 8,527
Other reserves (72) (11) 15
Own shares (355) (355) (355)
Retained earnings 25,844 21,532 23,753
----------- ----------- -------------
Total equity 55,580 40,301 42,551
Total equity and liabilities 318,955 224,189 286,470
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders
Non-distributable Distributable
Issued Share Own Other Retained Total
Capital premium shares Reserves Earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------- --------- --------
Balance at 1 October 2018 10,611 8,527 (355) 15 23,753 42,551
Impact on transition to IFRS9 - - - - (502) (502)
------- ------- ------ ----- ------- -------
Restated balance as at 1 October 10,611 8,527 (355) 15 23,251 42,049
Profit for the period - - - - 2,593 2,593
Issuance of new shares 1,898 9,127 11,025
Fair value loss on FVOCI
financial instruments - - - (87) - (87)
------- ------- ------ ----- ------- -------
Balance at 31 March 2019 12,509 17,654 (355) (72) 25,844 55,580
------- ------- ------ ----- ------- -------
Balance at 1 October 2017 10,611 8,524 (355) - 19,881 38,661
Profit for the period - - - - 1,651 1,651
Fair value loss on FVOCI
financial instruments - - - (11) - (11)
------- ------- ------ ----- ------- -------
Balance at 31 March 2018 10,611 8,524 (355) (11) 21,532 40,301
------- ------- ------ ----- ------- -------
CONSOLIDATED STATEMENT OF CASH FLOWS
31 March 31 March 30 September
2019 2018 2018
unaudited unaudited audited
GBP'000 GBP'000 GBP'000
Operating activities
Profit before tax 3,251 2,064 5,173
Other non-cash items included in profit/(loss) before tax
Depreciation of property, plant and equipment 67 40 84
Amortisation of other intangible assets 196 191 385
Net change in AFS financial instruments - (11) 15
Net change in FVOCI financial instruments (87) - -
Share-based payments - - 34
Impairment losses on financial assets 1,164 579 915
Income tax paid (650) (366) (668)
Adjustment for change in operating assets
Net change in loans and advances (42,383) (34,065) (74,519)
Net change in other assets (3,366) 284 (502)
Change in operating liabilities
Net change in amounts due to customers 12,615 55,156 138,019
Net change in other liabilities (85) (253) 31
--------- ----------- -------------
Net cash flows from / (used in) operating activities (29,278) 23,619 68,967
--------- ----------- -------------
Investing activities
Proceeds from financial instruments 12,411 - -
Purchase of financial instruments - (20,580) (35,390)
Purchase of property and equipment (27) (13) (36)
Cash outflow on acquisition (2,394) - -
Purchase of intangible assets (148) (518) (637)
--------- ----------- -------------
Net cash flows from / (used in) investing activities 9,842 (21,111) (36,063)
--------- ----------- -------------
Financing activities
Proceeds from share issue during the period 10,275 - 3
Proceeds from borrowings - - 1,006
Repayment of borrowings (9,295) (4,869) (29,190)
Dividends paid to equity holders - - (403)
--------- ----------- -------------
Net cash flows from / (used in) financing activities 980 (4,869) (28,584)
--------- ----------- -------------
Net increase / (decrease) in cash and cash equivalents (18,456) (2,361) 4,320
Cash and cash equivalents brought forward 21,338 17,018 17,018
--------- ----------- -------------
Cash and cash equivalents carried forward 2,882 14,657 21,338
--------- ----------- -------------
NOTES TO THE INTERIM REPORT
1. Basis of preparation
The interim results are unaudited and do not constitute
statutory accounts as defined by section 434 of the Companies Act
2006. The Group balance sheet comparative figures for the year
ended 30 September 2018 are based on the statutory accounts of the
Group for that year and have been reported on by the Group's
auditor and delivered to the Registrar of Companies. The
comparative figures for the Group statement of profit and loss and
other comprehensive income are based on the unaudited interim
report for six months ended 31 March 2018. The report of the
auditors was unqualified and did not contain a statement under
section 498 of the Companies Act 2006.
2. Statement of compliance
These interim consolidated financial statements have been
prepared in accordance with IAS 34 'Interim Financial Reporting',
as adopted by the European Union.
The interim results have been prepared based on the accounting
policies set out in the Annual Report & Financial Statements
for the year ended 30 September 2018, except for the adoption of
new standards effective as of 1 October 2018.
3. New standards, interpretations and amendments adopted by the
Group
The Group applies, for the first time, IFRS 15 'Revenue from
Contracts with Customers' and IFRS 9 'Financial Instruments'. As
required by IAS 34, the nature and effect of these changes are
disclosed below.
Several other amendments and interpretations apply for the first
time in 2018, but do not have an impact on the interim condensed
consolidated financial statements of the Group. All other
accounting policies are unchanged from the last annual financial
statements.
4. Changes in accounting policies and disclosures
The accounting policies applied by the Group differ from those
in the 2018 Annual Report partly due to new standards and
interpretations, becoming effective. The following amendments to
standards have been illustrated as they were applied for the first
time in the 2019 interim financial period, resulting in
consequential changes to the accounting policies and other note
disclosures, where applicable
-- IFRS 15 'Revenue from Contracts with Customers' (see below)
-- IFRS 9 'Financial Instruments' (see below)
-- IFRIC 22: 'Foreign Currency Transactions and Advance Consideration'
-- Amendments to IFRS 2: 'Classification and Measurement of
Share-based Payment Transactions' (effective 2019 financial
year)
-- Amendments to IFRS 4: Applying IFRS 9 'Financial Instruments'
with IFRS 4 'Insurance Contracts' (effective 2019 financial
year)
4.1 IFRS 15 'Revenue from contracts with customers'
IFRS 15 'Revenue from Contracts with Customers', supersedes IAS
11 'Construction Contracts', IAS 18 'Revenue and related
Interpretations' and it applies to all revenue arising from
contracts with customers, unless those contracts are in the scope
of other standards. The new standard establishes a five-step model
to account for revenue arising from contracts with customers. Under
IFRS 15, revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer.
The standard requires entities to exercise judgement, taking
into consideration all of the relevant facts and circumstances when
applying each step of the model to contracts with their customers.
The standard also specifies the accounting for the incremental
costs of obtaining a contract and the costs directly related to
fulfilling a contract. IFRS 15 is effective for the Group from 1
October 2018.
The Group has assessed the impact of the above and concluded
that there will not be any changes required due to the nature of
its business.
4.2 IFRS 9 'Financial Instruments'
IFRS 9: 'Financial Instruments' replaces IAS 39 'Financial
Instruments: Recognition and Measurement' with effect from 1
October 2018, in line with the Standard's requirements of applying
for financial periods beginning on or after 1 January 2018,
bringing together all three aspects of the accounting for financial
instruments: classification and measurement; impairment; and hedge
accounting.
4.2.1 Transition
On implementation, the Group has not provided a full restatement
of comparatives but has instead reflected changes through the
opening balance of retained earnings, as permitted by IFRS 9, and
disclosed in the financial statements under consolidated statement
of changes in equity.
4.2.2 Classification and measurement
IFRS 9 makes changes to the measurement categories for financial
assets and liabilities, with the former categories under IAS 39
such as 'available for sale' (AFS) and 'held to maturity' being
replaced.
The measurement categories under IFRS 9 are
-- Assets, primarily the Group's conditional sale, hire purchase
and personal loan receivables, which are deemed to consist solely
of payments of principal and interest ('SPPI') and are intended to
be held and collected and not sold, which are held at amortised
cost (see note 4.2.3.4).
-- Instruments meeting the SPPI criteria but which may be sold,
which are held at fair value through other comprehensive income
(('FVOCI') (see note 4.2.3.4).
-- Assets not meeting the SPPI criteria and not classified under
FVOCI, such as derivatives, which are held at fair value through
profit and loss ('FVTPL').
The accounting for the Group's financial liabilities remains the
same as it was under IAS 39.
The Group's approach to the adoption of IFRS 9 and a
reconciliation of the changes from IAS 39, are set out in note
4.2.3.7, which applied from 1 October 2018, and through retained
earnings.
IFRS 9 was not adopted until 1 October 2018 and so did not
affect the financial statements for the period ended 30 September
2018.
The following table shows the original measurement categories in
accordance with IAS 39 and the new measurement categories under
IFRS 9 for the Group's financial assets and financial liabilities
at 1 October 2018:
Original New carrying
carrying
amount under amount
under
IAS 39 at IFRS 9
at
Original New 30 September 1 October
classification classification 2018 2018
under IAS 39 under IFRS GBP'000 GBP'000
9
Financial assets
Cash and balances at Amortised
central banks Loans and receivables cost 21,338 21,338
Loans and advances to Amortised
customers Loans and receivables cost 219,322 218,718
Available for
Quoted debt instruments sale FVOCI 39,902 39,902
------------- -------------
Total financial assets 280,562 279,958
------------- -------------
Amortised
Due to banks Amortised cost cost 48,881 48,881
Amortised
Due to customers Amortised cost cost 191,139 191,139
------------- -------------
Total financial liabilities 240,020 240,020
------------- -------------
The movement in 'Loans and advances to customers' is explained
below and is due to an increase in the impairment provision from
IAS 39 to IFRS 9.
1 October 2018
Under Increase Total Day one
Loan provisions IAS 39 under IFRS PMA provision adjustment
9
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Consumer Finance 2,286 77 14 2,377 91
Business Finance 2,084 498 15 2,597 513
-------- ---------- -------- ------------- ----------
4,370 575 29 4,974 604
-------- ---------- -------- ------------- ----------
31 March 2019
Under Increase Total Total
Loan provisions IAS 39 under IFRS PMA provision Increase
9
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Consumer finance 2,596 77 14 2,687 91
Business finance 2,786 498 15 3,299 513
Azule finance 197 197
Bridging finance 14 14
-------- ---------- -------- ------------- ----------
5,593 575 29 6,197 604
-------- ---------- -------- ------------- ----------
4.2.3 Financial Instruments - initial recognition
4.2.3.1 Date of recognition
Financial assets and liabilities, with the exception of loans
and advances to customers and balances due to customers, are
initially recognised on the trade date (i.e., the date on which the
Group becomes a party to the contractual provisions of the
instrument). This includes regular way trades, (i.e., purchases or
sales of financial assets that require delivery of assets within
the time frame generally established by regulation or convention in
the market place). Loans and advances to customers are recognised
when funds are transferred to the customers' accounts. The Group
recognises balances due to customers when funds are transferred to
the Group.
4.2.3.2 Initial measurement of financial instruments
The classification of financial instruments at initial
recognition depends on their contractual terms and the business
model for managing the instruments, as described in note 4.2.2.
Financial instruments are initially measured at their fair value
and except in the case of financial assets and financial
liabilities recorded at FVTPL, transaction costs are added to, or
subtracted from, this amount. Trade receivables are measured at the
transaction price.
4.2.3.3 Measurement categories of financial assets and liabilities
From 1 October 2018, the Group classifies all its financial
assets based on the business model for managing the assets and the
asset's contractual terms, measured at either
-- Amortised cost, as explained in note 4.2.2; or
-- FVOCI, as explained in note 4.2.2
Financial liabilities are measured at amortised cost.
4.2.3.4 Financial assets and liabilities
Balances at central banks, loans and advances to customers,
other assets at amortised cost
From 1 October 2018, the Group measures balances at central
banks, loans and advances to customers and other assets at
amortised cost if both of the following conditions are met.
-- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows.
-- The contractual terms of the financial asset give rise on
specified dates to cash flows that are SPPI on the principal amount
outstanding.
The details of these conditions are outlined below
Business model assessment
The Group determines its business model at the level that best
reflects how it manages groups of financial assets to achieve its
business objective.
-- The risks that affect the performance of the business model
(and the financial assets held within that business model) and, in
particular, the way those risks are managed.
-- How managers of the business are compensated (for example,
whether the compensation is based on the fair value of the assets
managed or on the contractual cash flows collected).
The expected frequency, value and timing of sales are also
important aspects of the Group's assessment.
The business model assessment is based on reasonably expected
scenarios without taking 'worst case' or 'stress case' scenarios
into account. If cash flows after initial recognition are realised
in a way that is different from the Group's original expectations,
the Group does not change the classification of the remaining
financial assets held in that business model, but incorporates such
information when assessing newly originated or newly purchased
financial assets going forward.
The SPPI test
As a second step of its classification process, the Group
assesses the contractual terms of the financial asset to identify
whether they meet the SPPI test.
'Principal', for the purpose of this test, is defined as the
fair value of the financial asset at initial recognition and may
change over the life of the financial asset (for example, if there
are repayments of principal or amortisation of the
premium/discount).
The most significant elements of interest within a lending
arrangement are typically the consideration for the time value of
money and credit risk. To make the SPPI assessment, the Group
applies judgement and considers relevant factors such as the
currency in which the financial asset is denominated, and the
period for which the interest rate is set.
In contrast, contractual terms that introduce a more than de
minimis exposure to risks or volatility in the contractual cash
flows that are unrelated to a basic lending arrangement do not give
rise to contractual cash flows that are solely payments of
principal and interest on the amount outstanding. In such cases,
the financial asset is required to be measured at FVTPL.
Debt instruments at FVOCI
The Group applies the new category under IFRS 9 of debt
instruments measured at FVOCI when both of the following conditions
are met.
-- The instrument is held within a business model, the objective
of which is achieved by both collecting contractual cash flows and
selling financial assets.
-- The contractual terms of the financial asset meet the SPPI test.
These instruments largely comprise assets that had previously
been classified as financial investments available-for-sale under
IAS 39.
FVOCI debt instruments are subsequently measured at fair value
with gains and losses arising due to changes in fair value
recognised in OCI. Interest income and foreign exchange gains and
losses are recognised in profit or loss. The calculation of
Expected Credit Losses ('ECL') for debt instruments at FVOCI is
explained in note 4.2.3.7. On derecognition, cumulative gains or
losses previously recognised in OCI are reclassified from OCI to
profit or loss.
Due to banks and due to customers
After initial measurement, due to banks and due to customers are
subsequently measured at amortised cost. Amortised cost is
calculated by taking into account any discount or premium on issued
funds, and costs that are an integral part of the EIR.
4.2.3.5 Reclassification of financial assets and liabilities
From 1 October 2018, the Group does not reclassify its financial
assets subsequent to their initial recognition, apart from the
exceptional circumstances in which the Group acquires, disposes of,
or terminates a business line. Financial liabilities are never
reclassified. The Group did not reclassify any of its financial
assets or liabilities in 2018.
4.2.3.6 Derecognition of financial assets and liabilities
Financial assets
A financial asset (or where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised where
-- the rights to receive cash flows from the asset have expired; or
-- the Group retains the right to receive cash flows from the
asset, but has assumed an obligation to pay them in full without
material delay to a third party under a 'pass through' arrangement;
or
-- the Group has transferred its rights to receive cash flows
from the asset and either (a) has transferred substantially all the
risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but
has transferred control of the asset.
When the Group has transferred its rights to receive cash flows
from an asset and has neither transferred nor retained
substantially all the risks and rewards of the asset, nor
transferred control of the asset, the asset is recognised to the
extent of the Group's continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the
transferred asset is measured at the lower of the original carrying
amount of the asset and the maximum amount of consideration that
the Group could be required to repay.
Financial liabilities
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expired. Where an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original
liability and the recognition of a new liability.
4.2.3.7 Impairment of financial assets
From 1 October 2018, the Group has been recording the allowance
for expected credit losses for all loans and other debt financial
assets not held at FVTPL.
The Group uses the three stage model for determination of
expected credit losses: (i) For loans where the credit risk has not
increased significantly since initial recognition, a provision is
recognised for the expected 12 month credit losses expected to be
incurred. (ii) For loans where there is deemed to be a significant
increase in credit risk, a provision for the expected lifetime
credit loss is recognised across this portfolio. (iii) For loans
that are credit impaired, the Group will need to undertake a
specific impairment assessment. For loans classified as either
Stage 1 or 2, an assessment is performed on a portfolio wide basis
for impairment, with the key judgements and estimates being
-- The determination of significant increase in credit risk;
-- The probability of an account falling into arrears and subsequently defaulting;
-- Loss given default; and
-- Forward economic guidance.
Significant increase in credit risk
The Group applies a series of quantitative, qualitative and
backstop criteria to determine if an account has demonstrated a
significant increase in credit risk and should therefore be moved
to Stage 2:
-- Quantitative criteria: This considers the increase in an
account's remaining lifetime Probability of Default ('PD') at the
reporting date compared to the expected residual lifetime PD when
the account was originated. The Group segments its credit
portfolios into PD bands and has determined a relevant threshold
for each PD band, where a movement in excess of threshold is
considered to be significant. These thresholds have been determined
separately for each portfolio based on historical evidence of
delinquency.
-- Qualitative criteria: This includes the observation of
specific events such as short-term forbearance, payment
cancellation, historical arrears or extension to customer
terms.
-- Backstop criteria: IFRS 9 includes a rebuttable presumption
that 30 days past due is an indicator of a significant increase in
credit risk. The Group considers 30 days past due to be an
appropriate backstop measure and does not rebut this
presumption.
Definition of default and credit-impaired assets
The Group's definition of default is fully aligned with the
definition of credit-impaired. The Group applies a series of
quantitative and qualitative criteria to determine if an account
meets the definition of default and should therefore be moved to
Stage 3. These criteria include
-- when the borrower is unlikely to pay its credit obligations
to the Group in full, without recourse by the Group to actions such
as realising security (if any is held); and
-- when the borrower is more than 90 days past due on any
material credit obligation to the Group.
Forward economic guidance
The group considered forward economic indicators including
Brexit, gross domestic product, unemployment, inflation and used
car price index.
Expected credit losses ('ECL')
ECLs are an unbiased, probability-weighted estimate of credit
losses determined by evaluating a range of possible outcomes. They
are measured in a manner that reflects the time value of money and
uses reasonable and supportable information that is available
without undue cost or effort at the reporting date about past
events, current conditions and forecasts of future economic
conditions. Measurement of ECLs depends on the 'stage' of the
financial asset, based on changes in credit risk occurring since
initial recognition, as described below
-- Stage 1. When a financial asset is first recognised, it is
assigned to Stage 1. If there is no significant increase in credit
risk from initial recognition, the financial asset remains in Stage
1. Stage 1 also includes financial assets where the credit risk has
improved and the financial asset has been reclassified back from
Stage 2. For financial assets in Stage 1, a 12-month ECL is
recognised.
-- Stage 2. When a financial asset shows a significant increase
in credit risk from initial recognition, it is moved to Stage 2.
For financial assets in Stage 2, a lifetime ECL is recognised.
-- Stage 3. When there is objective evidence of impairment and
the financial asset is considered to be in default, or otherwise
credit-impaired, it is moved to Stage 3. For financial assets in
Stage 3, a lifetime ECL is recognised.
-- Lifetime ECL is defined as ECLs that result from all possible
default events over the expected behavioural life of a financial
instrument.
-- 12-month ECL is defined as the portion of lifetime ECL that
will result if a default occurs in the 12 months after the
reporting date, weighted by the probability of that default
occurring.
The calculation of ECLs
The Group calculates ECLs based on multiple economic
scenarios.
The mechanics of the ECL calculations are outlined below and the
key elements are, as follows:
-- PD - The Probability of Default ('PD') is an estimate of the
likelihood of default over a given time horizon. A default may only
happen at a certain time over the assessed period, if the facility
has not been previously derecognised and is still in the
portfolio.
-- EAD - The Exposure at Default ('EAD') is an estimate of the
exposure at a future default date, taking into account expected
changes in the exposure after the reporting date, including
repayments of principal and interest, whether scheduled by contract
or otherwise, expected drawdowns on committed facilities, and
accrued interest from missed payments.
-- LGD - The Loss Given Default ('LGD') is an estimate of the
loss arising in the case where a default occurs at a given time. It
is based on the difference between the contractual cash flows due
and those that the lender would expect to receive, including from
the realisation of any collateral. It is usually expressed as a
percentage of the EAD.
When estimating the ECLs, the Group considers three scenarios (a
base case, an upside and a downside). Each of these is associated
with different PDs, EADs and LGDs. When relevant, the assessment of
multiple scenarios also incorporates how defaulted loans are
expected to be recovered, including the value of collateral or the
amount that might be received for selling the asset.
The adoption of the ECL requirements of IFRS 9 resulted in
increases in impairment allowances of the Group's debt financial
assets. The increase in allowance resulted in adjustment to
retained earnings.
Upon adoption of IFRS 9, the Group recognised additional
impairment on its loans and receivables of GBP604,000.
Set out below is the reconciliation of the ending impairment
allowances in accordance with IAS 39 to the opening loss allowances
determined in accordance with IFRS 9.
Allowance
for ECL ECL
impairment Under Under
under IAS IFRS 9 IFRS 9
39 as at 30 as at 1 as at 31
September October March
2018 Remeasurement 2018 2019
GBP'000 GBP'000 GBP'000 GBP'000
Consumer lending 2,286 91 2,377 2,687
Business lending 2,084 513 2,597 3,299
Azule - - - 197
Bridging loans - - - 14
------- ------------------ ------------- ---------
4,370 604 4,974 6,197
------- ------------------ ------------- ---------
GBP'000
Remeasurement of ECL under IFRS 9 604
Deferred tax on remeasurement (102)
Change in Equity due to impact on transition
to IFRS 9 502
5. Standards issued but not yet effective
The Group is assessing the impact of the following standards,
interpretations and amendments that are not yet effective. Except
for IFRS 17, they have all been endorsed by the EU and these
changes will be adopted on the effective dates noted.
-- IFRS 16: 'Leases' (effective 2020 financial year)
-- IFRS 17: 'Insurance contracts' (effective 2022 financial year, not yet endorsed by the EU)
-- IFRIC 23: 'Uncertainty over Income Tax Treatments' (effective 2020 financial year)
-- Amendments to IAS 28: Long-term Interests in Associates and
Joint Ventures (effective 2020 financial year)
-- Annual Improvements to IFRSs 2015-2017 (effective 2020 financial)
-- Amendments to IAS 19: 'Plan Amendment, Curtailment or
Settlement' (effective 2020 financial year)
The Group continues to assess the impact of IFRS 16. It requires
lessees to account for all leases under a single on-balance sheet
model in a similar way to finance leases under IAS17. The standard
includes two recognition exemptions for lessees - leases of
'low-value' assets (e.g., personal computers) and short-term leases
(i.e., leases with a lease term of 12 months or less). At the
commencement date of a lease, a lessee will recognise a liability
to make lease payments (i.e., the lease liability) and an asset
representing the right to use the underlying asset during the lease
term (i.e., the right-of-use asset). Lessees will be required to
separately recognise the interest expense on the lease liability
and the depreciation expense on the right-of-use asset.
Lessees will be required to remeasure the lease liability upon
the occurrence of certain events (e.g., a change in the lease term,
a change in future lease payments resulting from a change in an
index or rate used to determine those payments). The lessee will
generally recognise the amount of the remeasurement of the lease
liability as an adjustment to the right-of-use asset. Lessor
accounting is substantially unchanged from today's accounting under
IAS 17. Lessors will continue to classify all leases using the same
classification principle as in IAS 17 and distinguish between two
types of leases, operating and finance leases.
A lessee can choose to apply the standard using either a full
retrospective or a modified retrospective approach. The standard's
transition provisions permit certain reliefs. Early application is
permitted, but not before an entity applies IFRS 15.
The Group currently expects these standards to have a limited
impact on the Group's results, but will provide fuller detail in
the year end consolidated financial statements.
6. Business combinations
Acquisition of Azule Limited and its subsidiaries ('Azule
Group')
On 30 October 2018, the Group acquired 100% of the voting shares
of Azule Group, a UK market leader in providing specialist funding
and leasing services to individuals and businesses in the broadcast
and media industry. The Group acquired Azule Group because it
offers revenue synergies in a niche class of business-critical
assets with strong collateral characteristics and lending to prime
credit grade customers.
Assets acquired and liabilities assumed
The book value of the identifiable assets and liabilities of
Azule Limited as at the date of acquisition were
Book value
recognised
on acquisition
Assets GBP'000
Property, plant and equipment 108
Cash and cash equivalents 900
Hire purchase, leasing and loans 15,693
Prepayment and other debtors 948
17,649
Liabilities
Due to banks (12,442)
Current tax liabilities (106)
Other liabilities (2,085)
(14,633)
Total identifiable net assets at carrying
value 3,016
Purchase consideration 5,544
Goodwill 2,528
Net cash acquired with the
subsidiary 900
Cash paid (3,294)
Net cash flow on acquisition (2,394)
Purchase consideration
Issue of shares 750
Cash paid 3,294
Deferred consideration 1,500
5,544
The Company issued 1,923,076 ordinary shares in PCF Group plc as
part consideration of the 100% acquisition of Azule Group. The fair
value of the shares was calculated with reference to the quoted
price of the shares of the Company at the date of acquisition,
which was GBP0.39 per share. The fair value of the consideration
given in shares was, therefore, GBP750,000.
Transaction costs of GBP270,000 were expensed and are included
in administrative expenses for the year ended 30 September 2018. A
further GBP61,000 of costs were paid and included as an expense in
the income statement for the period ended 31 March 2019.
Contingent consideration
As part of the purchase agreement with the previous owners of
Azule Limited and its subsidiaries, a contingent consideration has
been agreed. This consideration is subject to the level of
aggregate new business originations upon the first and second
anniversaries of the acquisition. The fair value of the contingent
consideration at the acquisition date and signing date was
GBP1,500,000. This comprises of GBP750,000 at each anniversary. The
contingent consideration is due for final measurement and payment
at each anniversary.
Since the date of acquisition, Azule Group has contributed
GBP960,000 of net operating income and GBP283,000 to the net profit
before tax to the continuing operations of the Group. If the
acquisition had taken place at the beginning of the period, revenue
from continuing operations would have been GBP1,110,000 and the
profit from continuing operations for the period before tax and
dividends would have been GBP283,000.
Identification and valuation for all acquired assets and
liabilities (including contingent liabilities) is currently being
assessed which will impact the goodwill recognised at the date of
acquisition. An assessment of intangible assets will be completed
by the year ending 30 September 2019.
7. Segment Information
The Group operates in the principal areas of consumer finance
for motor vehicles and business finance for vehicles, plant and
equipment, specialist funding in the broadcast and media industry
and bridging property finance.
For management purposes, the Group has been organised into four
operating segments based on products and services.
Consumer finance
Consumer hire purchase, personal loan and conditional sale
finance for motor vehicles.
Business finance
Business hire purchase and lease finance for vehicles, plant and
equipment.
Azule finance
Specialist funding and leasing services direct to individuals
and businesses in the broadcast and media industry. Azule Group was
acquired on 30 October 2018.
Bridging finance
Bridging property finance commenced operations in January 2019,
for residential, semi-commercial and commercial properties.
The Group's Executive Committee monitors the operating results
of its business units separately for the purpose of making
decisions about resource allocation and performance assessment.
Segment performance is evaluated based on operating profits or
losses and is measured consistently with operating profits or
losses in the consolidated financial statements. However, income
taxes are managed on a Group basis and are not allocated to
operating segments.
No revenue from transactions with a single external customer or
counterparty amounted to 10% or
more of the Group's total revenue for the six-month periods
ended 31 March 2019 and 31 March 2018.
Segment assets include cash and balances at central banks, loans
and advances to customers,
financial instruments and tax assets. Segment liabilities
comprise of amounts due to banks, amounts due to customers,
derivative financial instruments and tax liabilities but exclude
certain borrowings that are for general corporate purposes.
The following table presents income and profit and certain asset
and liability information for the Group's operating segments.
For the six months ended 31 March 2018, the profit for the
period was allocated based on balance sheet size. For 31 March
2019, the profit for the period has been prepared on an actual
profit centre basis, where income and expenses are allocated
specifically.
Segment Information
Consumer Business Azule Bridging Total
finance finance finance finance segments
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Six months ended 31 March
2019
Interest and similar income 7,505 7,958 771 14 16,248
Interest and similar expense (2,766) (3,223) (238) (3) (6,230)
Net interest income 4,739 4,735 533 11 10,018
Fee and commission income 51 119 435 - 605
Fee and commission expense (236) (257) (8) - (501)
Net fees and commission
(expense)/income (185) (138) 427 - 104
Net operating income 4,554 4,597 960 11 10,122
Personnel expense 1,553 1,507 525 215 3,800
Depreciation of property
and equipment 18 27 22 - 67
Amortisation of intangible
assets 81 113 - 2 196
Other operating expenses 726 714 112 92 1,644
Impairment loss on financial
instruments 602 530 18 14 1,164
Total operating expenses 2,980 2,891 677 323 6,871
Segment profit before tax 1,574 1,706 283 (312) 3,251
Income tax expense (308) (356) (53) 59 (658)
Profit for the period 1,266 1,350 230 (253) 2,593
Assets
Additions to property and
equipment 11 16 - - 27
Additions to other intangibles
assets 61 86 - 1 148
Total assets 122,312 171,178 22,495 2,970 318,955
Total liabilities 104,344 146,030 10,468 2,533 263,375
Consumer Business Azule Bridging Total
finance finance finance finance segments
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Six months ended 31 March
2018
Interest and similar income 5,501 6,147 - - 11,648
Interest and similar expense (2,280) (2,548) - - (4,828)
- -
Net interest income 3,221 3,599 - - 6,820
- -
Fee and commission income 117 131 - - 248
Fee and commission expense (179) (200) - - (379)
- -
Net fees and commission
(expense)/income (62) (69) - - (131)
- -
Net operating income 3,159 3,530 - - 6,689
- -
Personnel expense 1,178 1,317 - - 2,495
Depreciation of property
and equipment 19 21 - - 40
Amortisation of intangible
assets 90 101 - - 191
Other operating expenses 623 697 - - 1,320
Impairment loss on financial
instruments 274 305 - - 579
Total operating expenses 2,184 2,441 - - 4,625
Segment profit before tax 975 1,089 - - 2,064
- -
Income tax expense (195) (218) - - (413)
Profit for the period 780 871 - - 1,651
Assets
Additions to property and
equipment 6 7 - - 13
Additions to other intangibles
assets 245 273 - - 518
Total assets 105,883 118,306 - - 224,189
Total liabilities 86,849 97,039 - - 183,888
8. Income tax
The income tax rate is 20%, representing the best estimate of
the annual effective tax rate applied to operating profit before
tax for the six months period.
9. Assets and liabilities by classification, measurement and
fair value hierarchy
Amortised
cost FVOCI Total
Unaudited GBP'000 GBP'000 GBP'000
31 March 2019
Cash and balances at central banks 2,882 - 2,882
Loans and advances to customers 275,710 - 275,710
Debt instruments at FVOCI - 27,491 27,491
---------- -------- ----------
Total financial instruments 278,592 27,491 306,083
---------- -------- ----------
Other non-financial assets 12,872
---------- -------- ----------
Total assets 318,955
---------- -------- ----------
Due to banks 52,028 - 52,028
Due to customers 203,754 - 203,754
---------- -------- ----------
Total financial liabilities 255,782 - 255,782
---------- -------- ----------
Other non-financial liabilities 7,593
---------- -------- ----------
Total liabilities 263,375
---------- -------- ----------
Amortised
cost FVOCI Total
Unaudited GBP'000 GBP'000 GBP'000
31 March 2018
Cash and balances at central banks 14,657 - 14,657
Loans and advances to customers 179,203 - 179,203
Available-for-sale financial instruments - 25,091 25,091
---------- -------- ----------
Total financial assets 193,860 25,091 218,951
---------- -------- ----------
Other non-financial assets 5,238
---------- -------- ----------
Total assets 224,189
---------- -------- ----------
Due to banks 72,198 - 72,198
Due to customers 108,276 - 108,276
---------- -------- ----------
Total financial liabilities 180,474 - 180,474
---------- -------- ----------
Other non-financial liabilities 3,414
---------- -------- ----------
Total liabilities 183,888
---------- -------- ----------
Amortised
cost FVOCI Total
Audited GBP'000 GBP'000 GBP'000
30 September 2018
Cash and balances at central banks 21,338 - 21,338
Loans and advances to customers 219,322 - 219,322
Available-for-sale financial instruments - 39,902 39,902
---------- -------- ----------
Total financial assets 240,660 39,902 280,562
---------- -------- ----------
Other non-financial assets 5,908
---------- -------- ----------
Total assets 286,470
---------- -------- ----------
Due to banks 48,881 - 48,881
Due to customers 191,139 - 191,139
---------- -------- ----------
Total financial liabilities 240,020 - 240,020
---------- -------- ----------
Other non-financial liabilities 3,899
---------- -------- ----------
Total liabilities 243,919
---------- -------- ----------
The Group holds certain financial assets at fair value grouped
into Levels 1 to 3 of the fair value hierarchy, as explained below,
but no liabilities at fair value.
Level 1 - The most reliable fair values of financial instruments
are quoted market prices in an actively traded market. The Group's
Level 1 portfolio mainly comprises gilts, fixed rate bonds and
floating rate notes for which traded prices are readily
available.
Level 2 - These are valuation techniques for which all
significant inputs are taken from observable market data. These
include valuation models used to calculate the present value of
expected future cash flows and may be employed when no active
market exists and quoted prices are available for similar
instruments in active markets.
Level 3 - These are valuation techniques for which one or more
significant inputs are not based on observable market data.
Valuation techniques include net present value by way of discounted
cash flow models. Assumptions and market observable inputs used in
valuation techniques include risk-free and benchmark interest
rates, similar market products, foreign currency exchange rates and
equity index prices. Critical judgement is applied by management in
utilising unobservable inputs including expected price
volatilities, expected mortality rates and prepayment rates, based
on industry practice or historical observation. The objective of
valuation techniques is to arrive at a fair value determination
that reflects the price of the financial instrument at the
reporting date that would have been determined by market
participants acting at arm's length.
The following table shows an analysis of financial instruments
recorded at amortised cost by level of the fair value
hierarchy.
Carrying Fair
Level Level Level value value
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Financial instruments held
at amortised cost 31 March
2019
Cash and balances at central
banks 2,882 - - 2,882 2,882
Loans and advances to customers - - 275,710 275,710 319,094
-------- -------- -------- --------- --------
2,882 - 275,710 278,592 321,976
-------- -------- -------- --------- --------
Due to banks 52,028 - - 52,028 52,028
Due to customers - 203,754 - 203,754 203,754
-------- -------- -------- --------- --------
52,028 203,754 - 255,782 255,782
-------- -------- -------- --------- --------
Carrying Fair
Level Level Level value value
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Financial instruments held
at amortised cost 31 March
2018
Cash and balances at central
banks 14,657 - - 14,657 14,657
Loans and advances to customers - - 179,203 179,203 209,108
-------- -------- -------- --------- --------
14,657 - 179,203 193,860 223,765
-------- -------- -------- --------- --------
Due to banks 72,198 - - 72,198 72,198
Due to customers - 108,276 - 108,276 108,276
-------- -------- -------- --------- --------
72,198 108,276 - 180,474 180,474
-------- -------- -------- --------- --------
Carrying Fair
Level Level Level value value
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Financial instruments held
at amortised cost 30 September
2018
Cash and balances at central
banks 21,338 - - 21,338 21,338
Loans and advances to customers - - 219,322 219,322 255,922
-------- -------- -------- --------- --------
21,338 - 219,322 240,660 277,260
-------- -------- -------- --------- --------
Due to banks 48,881 - - 48,881 48,881
Due to customers - 191,139 - 191,139 191,139
-------- -------- -------- --------- --------
48,881 191,139 - 240,020 240,020
-------- -------- -------- --------- --------
The following table shows an analysis of financial instruments
recorded at FVOCI / AFS by level of the fair value hierarchy.
Fair
Level Level Level value
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
Financial instruments at fair value
though other comprehensive income
(FVOCI) 31 March 2019
Quoted debt instruments 27,491 - - 27,491
-------- -------- -------- --------
Fair
Level Level Level value
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
Financial instruments at available
for sale (AFS) 31 March 2018
Quoted debt instruments 25,091 - - 25,091
-------- -------- -------- --------
Fair
Level Level Level value
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
Financial instruments at available
for sale (AFS) cost 30 September
2018
Quoted debt instruments 39,902 - - 39,902
-------- -------- -------- --------
Following the implementation of IFRS 9 effective from 1 October
2018, quoted debt instruments are now valued at FVOCI instead of
previously being valued at available for sale.
Valuation techniques
Debt instruments at FVOCI
Government debt securities are financial instruments issued by
sovereign governments and include both long-term bonds and
short-term bills with fixed or floating rate interest payments.
These instruments are generally highly liquid and traded in active
markets resulting in a Level 1 classification. When active market
prices are not available, the Group uses discounted cash flow
models with observable market inputs of similar instruments and
bond prices to estimate future index levels and extrapolating
yields outside the range of active market trading, in which
instances the Group classifies those securities as Level 2.
10. Issued capital and reserves
Share capital 31 March 30 September
2019 31 March 2018
unaudited 2018 audited
GBP'000 unauditedGBP'000 GBP'000
Ordinary shares issued and fully paid
Brought forward 10,611 10,611 10,611
Issuance of new shares during the period 1,898 - -
Carried forward 12,509 10,611 10,611
----------- ------------------- -------------
Share premium
31 March 31 March
2019 2018 30 September 20188
unaudited unaudited audited
GBP'000 GBP'000 GBP'000
Brought forward 8,527 8,524 8,524
Issuance of new shares during the period 9,127 - -
Dividend reinvestment - - 3
Carried forward 17,654 8,524 8,527
----------- ------------ -------------------
Change
in share Change
No. of Issue capital in share
shares Price 5p @ premium
Date of share GBP'000
Issue GBP'000
Shares issued as part
30 October of the consideration on
2018 acquisition of Azule Limited 1,923,076 39.00p 96 654
11 March Shares issued to support
2019 increased lending 35,833,333 30.00p 1,792 8,958
Fees relating to share
issue (536)
Shares issued pursuant
29 March to Employee Share Scheme
2019 - Exercise of Options 195,000 31.26p 10 51
---------- -----------
1,898 9,127
---------- -----------
11. Earnings per Share
The calculation of basic and diluted earnings per ordinary share
for the six months ended 31 March 2019 is based on a profit of
GBP2,593,000 for the period on 217,920,608 ordinary shares, being
the weighted average number of ordinary shares in issue during the
period.
The calculation of basic and diluted earnings per ordinary share
for the six months ended 31 March 2018 is based on a profit of
GBP1,651,000 for the period on 212,219,778 ordinary shares, being
the weighted average number of ordinary shares in issue during the
period.
12. Communication
The 2019 Interim Report will be posted to all shareholders on 12
June 2019 or shortly thereafter. Further copies can be obtained
from the Company Secretary at Pinners Hall, 105-108 Old Broad
Street, London EC2N 1ER or can be downloaded from our website,
www.pcf.bank.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EANKLEAFNEFF
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June 05, 2019 02:00 ET (06:00 GMT)
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