TIDMDFCH
RNS Number : 0797O
Distribution Finance Cap. Hldgs PLC
29 September 2023
29 September 2023
Distribution Finance Capital Holdings plc
("DF Capital" or the "Company" together with its subsidiaries
the "Group")
Results for the six months ended 30 June 2023 and Trading
Update
Scaling the bank to deliver strong growth in profitability
Distribution Finance Capital Holdings plc, the specialist bank
providing working capital solutions to dealers and manufacturers
across the UK, today announces its results for the six months ended
30 June 2023 together with a trading update.
-- Delivered GBP3.2m profit before tax; more than entire FY 2022 (H1: 2022: breakeven).
-- 8 consecutive quarters of loan book growth; loan book up 69%
to new record of GBP519m (H1 2022: GBP308m) including GBP15m of new
lending products.
-- Record new lending up 38% to GBP607m (H1 2022: GBP439m);
supported by GBP926m of facilities (30 June 2022: GBP724m) and
1,152 dealers (30 June 2022: 908).
-- Retail deposits total GBP498m (H1 2022: GBP304m) from over 13,600 accounts.
-- Net interest margin (NIM) increased to 7.5% (H1 2022: 6.1%), ahead of 6% target.
30 June 31 December
30 June 2023 2022 2022
6-month 6-month 12-month
----------------------------------- -------------------------------- -------- --------------------------------
Financial Highlights
Gross revenues (GBPm) (1) 27.4 10.5 26.8
Profit before taxation (GBPm) 3.2 0.0 1.3
Profit after taxation (GBPm) 2.3 0.0 9.8
Loan book principal (GBPm) (2) 519 308 439
Net assets (GBPm) (3) 98.8 86.1 96.2
Customer deposits (GBPm) 498.4 304.4 479.7
Regulatory capital (GBPm) (4) 77.1 82.8 83.3
Common Equity Tier 1 capital
ratio 22% 31% 22%
Gross yield (5) 10.6% 7.4% 8.2%
Net interest margin (6) 7.5% 6.1% 6.5%
Average cost of retail deposits
(7) 3.7% 1.3% 1.9%
Cost of risk (8) 1.55% 0.50% 0.74%
Impairment loss coverage on
loans to customers (9) 1.38% 0.69% 0.84%
Cost income ratio (10) 61% 92% 82%
----------------------------------- -------------------------------- -------- --------------------------------
Key Performance Indicators
Loans advanced to customers
(GBPm) 607 439 1,001
Number of dealer customers (11) 1,152 908 998
Number of manufacturer partners
(12) 86 85 90
Total credit available to dealers
(GBPm) (13) 926 724 817
----------------------------------- -------------------------------- -------- --------------------------------
Post period end highlights and outlook
-- Loan book growth continued ahead of seasonal expectations
over summer; closed August 2023 at more than GBP518m.
-- Launched maiden easy access saving account: GBP44m of
deposits raised from 1,150 applications in c.36 hours.
-- British Business Bank ENABLE Guarantee extended to GBP250m.
-- Obtained GBP20m non-dilutive Tier 2 capital facility from
British Business Investments; first GBP5m drawn in September
2023.
-- Potential aggregate capital capacity provides optionality to
deliver attractive loan book growth to in excess of GBP800m,
without the requirement for additional dilutive Tier 1 equity
raise.
-- FY 2023 loan book expected to be in the range of GBP550-600m
and profit before tax expected to be in line with Board
expectations.
Carl D'Ammassa, Chief Executive, commented : "It is pleasing to
report the continued strong momentum within the bank. Reporting
eight consecutive quarters of loan book growth and profitability
during the period under review that outpaces the whole of 2022,
truly demonstrates that our products and services resonate with our
dealer and manufacturer customers.
Having the aggregate capital firepower to provide loans in
excess of GBP800m, provides the ability to support an attractive
growth plan without the need for additional dilutive Tier 1 equity.
Notwithstanding the macro-economic outlook, we remain optimistic
about our full year performance."
For further information contact:
Distribution Finance Capital Holdings
plc
Carl D'Ammassa - Chief Executive Officer +44 (0) 161 413 3391
Kam Bansil - Head of Investor Relations +44 (0) 7779 229508
http://www.dfcapital-investors.com
Investec Bank plc (Nomad and Broker) +44 (0) 207 597 5970
David Anderson
Bruce Garrow
Harry Hargreaves
Maria Gomez de Olea
Liberum Capital Limited (Joint Broker) +44 (0) 203 100 2000
Chris Clarke
Lauren Kettle
Chief Executive's Statement
Strong growth in profitability; on-track to hit full year
expectations
The Group is pleased to report on the progress made during the
first half of 2023, delivering eight consecutive quarters of loan
book growth and profit for the period in line with the Board's
expectations. The Group has built on the momentum reported in 2022.
Despite a macroeconomic environment that has proven increasingly
challenging, with rising interest rates and a tightening of
consumer demand across a number of sectors in which our customers
operate, our products and services continue to resonate with our
manufacturer and dealer customers, playing an important role in
supporting their working capital needs.
During the period, we increased lending ahead of seasonal
expectations and hit record loan balances of GBP519m as at 30 June
2023, whilst delivering net interest margin well above our 6%
target. In addition, by gaining access to the British Business Bank
ENABLE Guarantee, we have unlocked capacity to drive further
organic growth without the need for additional Tier 1 capital which
would have otherwise required us to raise further equity. These
factors, alongside effective cost control and strong portfolio
management have delivered a profit before tax in the first six
months of 2023 of GBP3.2m, materially outpacing what was achieved
through the entire twelve months of 2022 (FY22: GBP1.3m).
These results underpin the Board's belief that the strategy is
effective as we can profitably scale the bank and move forward at
pace on our journey to deliver a mid-to-high teens return on
capital over the medium term.
Record loan origination; supporting more customers than ever
before
The Group originated new loans of GBP607m during the six-month
period to 30 June 2023, up 38% on the equivalent period in 2022 (H1
2022: GBP439m), increasing its reach across our chosen markets and
now supporting 1,152 dealers (30 June 2022: 908 and 31 December
2022: 998). Aggregate dealer loan facilities at the end of the
period totalled GBP926m, up 28% on the prior year (30 June 2022:
GBP724m) and up 13% on the end of FY22 (31 December 2022:
GBP817m).
The Group's loan book ended the period at GBP519m, up 69% on the
equivalent period in the prior year (30 June 2022: GBP308m) and up
18% on the end of FY22 (31 December 2022: GBP439m). At this
critical time for dealers and manufacturers, it is clear that our
products and services continue to resonate. Our digitised approach
to lending, coupled with the depth of relationship management are
the foundation of our growth story.
The impact of high inflation and rising interest rates has been
felt across a number of sectors, where discretionary spend has
tightened, adversely impacting dealer sales. This dynamic has a
positive impact on our loan book balance, as slowing sales means
that dealers hold more stock on their forecourts, and for
longer.
Overall, stock turn (i.e. the weighted average duration of
repaid loans in the period) has slowed to 133 days (6 months to 30
June 2022: 110 days), extending by 13 days over FY22 (12 months to
31 December 2022: 120 days). Whilst this was expected, it is still
below our historical annualised average of 150 days and our
seasonally adjusted expectations, leaving additional capacity for
loan book growth should sales slow further.
The average age of outstanding loans has extended quarter on
quarter to 145 days in Q2 2023, from 128 days in Q1 2023 and 109
days in Q4 2022, with a further extension seen so far in this
quarter at 158 days.
In the transportation sector, as an example, we have seen lower
relative demand from end users for electric vehicles versus
combustion engines, whereas by comparison demand has remained
relatively high particularly in the motorhome and caravan sectors.
In these markets new loan origination and therefore stock flowing
to dealers has remained robust, despite this dynamic.
Portfolio By Sector
The following table analyses the portfolio at the reporting date
by principal outstanding:
31 December
30 June 2023 30 June 2022 2022
GBPmillion % GBPmillion % GBPmillion %
------------------------------ ----------- ------ ----------- ------ ----------- ------
Leisure
Lodges and holiday
homes 157.1 30.3% 94.2 30.6% 117.3 26.7%
Motorhomes and caravans 97.1 18.7% 58.0 18.8% 83.1 18.9%
Marine 48.1 9.3% 36.6 11.9% 47.5 10.8%
Motorsport 28.8 5.5% 15.7 5.1% 20.6 4.7%
Specialist and prestige
cars 4.1 0.8% 1.8 0.6% 2.9 0.7%
335.2 64.5% 206.3 67.1% 271.4 61.8%
Commercial
Transport 112.1 21.6% 54.4 17.7% 113.4 25.8%
Industrial equipment 31.5 6.1% 27.5 8.9% 30.0 6.8%
Agricultural equipment 25.6 4.9% 19.4 6.3% 24.4 5.6%
169.2 32.6% 101.3 32.9% 167.8 38.2%
Wholesale and receivables
funding 14.9 2.9% - 0.0% - 0.0%
Total loan book principal(1) 519.3 100% 307.6 100% 439.2 100%
------------------------------ ----------- ------ ----------- ------ ----------- ------
(1) Principal balance outstanding at the reporting date for
loans and advances to customers.
During the period, we originated c.GBP21m of new lending across
adjacent receivables financing (better known as invoice
discounting) and wholesale funding products. Whilst these lending
opportunities remain small in the context of our entire loan book
at GBP15m (c3%) at the end of June 2023, they present attractive
risk-adjusted returns for the Group and diversification within the
loan book, as well as offering routes to deepen relationships with
our customers, providing them with alternative lending products
that support their businesses' needs.
Becoming a multi-product lender remains a strategic imperative
for the Group over the medium term. We have continued to explore
inorganic opportunities, be that through business combination or
partnership with others, but are yet to identify an opportunity
that demonstrates acceptable financial characteristics which would
be additive to the Group's longer-term ambitions. As we continue to
scale the bank, building diversification in both lending product
and obligor mix are important for the Group to effectively manage
its risk weighted assets, control concentration risk and remain
capital efficient.
Financial performance
Summarised Statement of Comprehensive Income
30 June 30 June 31 December
2023 2022 2022
6-month 6-month 12-month
GBP'000 GBP'000 GBP'000
----------------------------------- ---------- --------- ------------
Gross revenues (1) 27,439 10,511 26,842
Interest expense (9,126) (1,865) (6,411)
Net income (2) 18,313 8,646 20,431
----------------------------------- ---------- --------- ------------
Fee expenses (180) - -
Other operating expenses (11,148) (7,926) (16,831)
Impairment charges (3,786) (704) (2,296)
Profit before taxation 3,199 16 1,304
----------------------------------- ---------- --------- ------------
Taxation (938) - 8,457
Profit after taxation 2,261 16 9,761
----------------------------------- ---------- --------- ------------
Other comprehensive loss (53) (172) (79)
Total comprehensive income/(loss)
for the period 2,208 (156) 9,682
----------------------------------- ---------- --------- ------------
(1) Sum of interest and similar income, fee income, net
gains/(losses) on disposal of financial assets, and net losses from
derivatives measured at fair value through profit or loss
(2) Gross revenues less interest and similar expenses
Summarised Statement of Financial Position
30 June 31 December
30 June 2023 2022 2022
GBP'000 GBP'000 GBP'000
--------------------------------- --------------------------- --------- ----------------------------
Cash and balances at central
banks 46,642 47,586 107,353
Loans and advances to banks 5,067 20,898 3,848
Debt securities 24,528 31,997 22,964
Loans and advances to customers 513,787 305,629 435,883
Taxation asset 7,574 59 8,512
Other assets 5,639 3,448 3,936
Total assets 603,237 409,617 582,496
--------------------------------- --------------------------- --------- ----------------------------
Customer deposits 498,357 304,377 479,736
Financial liabilities 1,317 499 445
Other liabilities 4,723 18,648 6,076
Total liabilities 504,397 323,524 486,257
--------------------------------- --------------------------- --------- ----------------------------
Total equity 98,840 86,093 96,239
--------------------------------- --------------------------- --------- ----------------------------
Net Interest Margin ahead of 6% target
Net Interest Margin (NIM), which is gross yield less interest
expense, increased during the period to 7.5% (H1 2022: 6.1%), being
well ahead of our NIM target of 6%, largely influenced by movements
in UK base rates.
Gross yield increased by 43% to 10.6% (H1 2022: 7.4%), as base
rate rises were passed on through newly originated loans. This
coupled with a higher average loan book through the period saw
gross revenues, which predominantly comprise interest and similar
income of GBP26.5m and fee income of GBP0.8m, increased by 161% to
GBP27.4m (H1 2022: GBP10.5m).
As expected, and given the rising base rate, the average cost of
retail deposits increased during the period to 3.7% (H1 2022:
1.3%). As the Group's deposit book is predominantly an array of
fixed rate tenors, it takes time for increasing deposit rates to
fully flow through to the deposit book as a whole, only impacting
as older maturing deposits are replaced by newer deposits at higher
rates.
Accordingly, the loan book has repriced more quickly than the
deposit book given its shorter average tenor, which has driven much
of the favourable NIM expansion. This positive mis-match has been
more pronounced in 2023 given the speed of base rate increases and
whilst we expect some favourability in the near-term it is less
likely to be as significant over the medium term; unwinding over
time as the base rate reduces. Our target NIM remains unchanged at
6%.
Unlocking our operational leverage
During 2022, the Group bolstered and upgraded its commercial and
relationship management team. Accordingly, most of the people
resources we require to scale the bank over the near term are
embedded in the business already, allowing us to unlock operational
leverage as we grow our lending. Our platform is highly digitised
and we continue to make investments in robotic process automation
and character-recognition technologies to provide us with further
operational capacity.
As a Group, we are not immune to the general and wage
inflationary pressures. We have carefully managed these
inflationary pressures whilst being mindful of the cost-of-living
pressures faced by a number of our employees and our need to
attract and retain high quality colleagues to support our growth
ambitions.
As such, we expect any increase in cost relating to the core
lending product, to be predominantly driven by increased
relationship management and client facing employees and any
on-going inflationary pressures. During the period under review
operating expenses were GBP11.1m, an increase of 41% on the
comparative period (H1 2022: GBP7.9m).
Whilst our overall operating expenses increased during the
period, this increase was considerably lower than the relative
increase in net income and our cost to income ratio reduced
significantly to 61% (H1 2022: 92%). We expect our cost to income
ratio to reduce further as we continue to scale the bank.
Strong portfolio and credit risk management
We are operating in a more challenging macro-economic
environment, where a number of businesses will find it increasingly
difficult to navigate rising interest rates, high inflation and
potentially contraction in demand. Accordingly, we have held a
highly cautious and vigilant approach to credit risk
management.
We have continued to invest in technology and analytics to
provide us with greater early warning of issues amongst our
customers, as well as adding further capacity to visit dealers to
ensure our security remains in place. Dealers selling assets and
not repaying us directly (sale out of trust) is our single biggest
credit risk.
We have made adjustments to our credit criteria for new dealer
relationships to ensure we maintain a high-quality portfolio of
relationships. Through this period of uncertainty and as we bring
on new dealers, our focus is on the quality of dealer relationship
rather than quantity of new dealers onboarded.
Scalability and credit quality of our manufacturer partners has
been in focus for us through the period, making tough decisions to
reposition relationships that do not meet our revised expectations.
Whilst the Group added 16 new manufacturers in the period, the
total number reduced to 86 key manufacturers and distributors who
meet the Group's revised criteria (FY22: 90). The 20 manufacturers
where relationships were terminated represented approximately
GBP3.5m of the new loan origination to end of August, c0.4% of
total new lending; management believe these relationships do not
present scalable opportunities for the bank.
Arrears
The following table analyses the arrears balances of lending
portfolio at the respective reporting dates. This table includes
the arrears balance (principal, fees, and interest) by past due
days, and a following table which summarises the maximum arrears
days past due by total principal outstanding on the respective loan
receivable:
30 June 31 December
30 June 2023 2022 2022
GBP'000 GBP'000 GBP'000
-------------------------------- ------------------------------- -------- ------------
Arrears - principal repayment,
fees and interest
1 - 30 days past due 475 541 136
31 - 60 days past due 1,226 145 1,084
61 - 90 days past due 219 12 25
91 + days past due 11,155 56 5,885
13,075 754 7,130
-------------------------------- ------------------------------- -------- ------------
Total % of loan book 2.5% 0.2% 1.6%
-------------------------------- ------------------------------- -------- ------------
Associated principal balance
1 - 30 days past due 1,400 13,033 2,016
31 - 60 days past due 1,385 1,866 1,512
61 - 90 days past due - - 214
91 + days past due 13,006 138 16,317
15,791 15,037 20,058
-------------------------------- ------------------------------- -------- ------------
Total % of loan book 3.0% 4.9% 4.6%
-------------------------------- ------------------------------- -------- ------------
Despite the economic uncertainty, the actions we have taken to
manage our portfolio have delivered a continued low number of
arrears cases during the period, with just 29 dealers out of c1,150
in arrears at 30 June 2023. Total value of arrears has increased
from the end of FY22 at 2.5% of the loan book (30 June 2022: 0.2%
and 31 December 2022: 1.6%). The Group's arrears balance includes
GBP10.4m outstanding in respect of a previously communicated large
single obligor, which excluding this balance would have been 0.5%
(31 December 2022: 0.6%).
This large single obligor, who has been a customer of the Group
since June 2018, has been undergoing a major refinance and
restructure. As a result, its facility is not currently operating
in the normal course, and we are aware of a number of assets that
have been sold out of trust or are missing from confirmed
locations. While we had expected the restructuring and refinancing
process to complete during Summer 2023, given the complexity of the
situation and unique characteristics of our customer's position,
progress has been slower than expected. We have been in regular
direct communication with the firm's principal, its largest
existing secured lenders, new shareholders and new lender
throughout, despite the Group not being a direct counterparty to
the refinance. Whilst the successful conclusion of this refinancing
and restructure is not without risk, we are both confident and
reassured by the extent of our dialogue with stakeholders. The
Group continues to have cross company and personal guarantees
relating to the facility in force. The Group will make further
announcements as soon as it is able.
Cost of risk, which includes provisions for credit losses and
write-offs, for the six months ended 30 June 2023 was 1.55% (H1
2022: 0.50%). Our approach to credit loss provisioning is
principally a function of expected probability of default and loss
given default, with additional consideration given for aged arrears
cases. Where there are instances of more complex cases or obligor
default, which remain in progress, the Group undertakes analysis of
a range of scenarios, associating a likely outcome probability
against each. These scenarios, which determine the size of any
provision, are based on the specific circumstances of an individual
case, known factors and the Group's relative security position.
Following the principles of IFRS9 and given the probability-based
approach to calculations, any individual case specific provision is
unlikely to represent the anticipated financial impact in either
the most positive or least favourable outcome. Additionally, the
Group's credit loss provision for the period incorporates an IFRS9
overlay increase for the general uncertain macro-economic
environment and outlook. The Group has aggregate credit loss
provisions for the whole portfolio and all arrears cases of GBP7.2m
at 30 June 2023 (31 December 2022: GBP3.7m) with impairment charges
of GBP3.8m for the period (H1 2022: GBP0.7m). The Group expects its
full year cost of risk to trend back towards its through the cycle
estimate of 1% of average gross receivable.
The Group's lending relative to its security position remains
strong with a Loan to Wholesale Value ('LTV') of 88% (30 June 2022:
90% and 31 December 2022: 91%). This reduction in LTV is due to a
slowdown in stock turn with an increase in the associated monthly
capital repayments.
Our Security Position
30 June 31 December
30 June 2023 2022 2022
GBP'000 GBP'000 GBP'000
----------------------------- ------------- -------- ------------
Loan to wholesale value (1) 88% 90% 91%
(1) Wholesale price is the invoice value paid by the dealer to
the manufacturer
On balance and given the current macro-economic environment, we
are pleased with the underlying high quality and financial strength
of our dealer obligors as a whole.
Effective deposit raising capability
We continue to operate an effective and well-diversified deposit
raising capability, entering the best buy tables as necessary. Over
GBP168m of deposits were raised or retained on maturity during the
period (H1 2022: GBP84m), at an average interest rate of 4.4%. We
continue to focus on existing customer retention, with c.70% of
maturing deposits retained through loyalty products and a seamless
online product change process. As at 30 June 2023, we had retail
deposits totalling GBP498m (30 June 2022: GBP304m; 31 December
2022: GBP480m) from over 13,600 accounts. We continue to offer
exceptional service to our deposit customers receiving over 1,800
feefo customer reviews with an average score of 4.7 over the past
12 months.
Well capitalised balance sheet to support near-term growth
ambitions
The Group is well-capitalised. At 30 June 2023 the Group's
equity stood at GBP98.8m (30 June 2022: GBP86.1m; 31 December 2022:
GBP96.2m).
Supporting our growth ambitions, in January 2023, the British
Business Bank agreed an initial GBP175m ENABLE Guarantee, which
could be increased in the future to GBP350m. This Guarantee
commitment provides the Group with incremental capacity to scale
its loan book without the need for additional Tier 1 equity capital
by up to GBP75m on the basis of the initial GBP175m facility and up
to GBP150m if the facility is increased to GBP350m. In August 2023,
this Guarantee was upsized to GBP250m, unlocking an additional
cGBP105m of loan capacity without the need for any further Tier 1
capital.
Earlier this month, we announced that the Group secured a new
GBP20m Tier 2 capital facility from British Business Investments, a
wholly-owned commercial subsidiary of the British Business Bank.
The facility, which has a term of 10 years, can be drawn in
quarterly tranches of up to GBP5m.
Utilising the Group's existing equity, the entire GBP350m ENABLE
Guarantee and the GBP20m Tier 2 facility, the firm has aggregate
capacity to grow its loan book to over GBP800m.
Our CET1 ratio as at 30 June 2023 was 22% (30 June 2022: 31%; 31
December 2022:22%) which reflects the benefit of the reduction in
Risk Weighted Assets provided by the British Business Bank Enable
Guarantee and is well above our regulatory capital minimum limits
.
Current trading and outlook
Notwithstanding the slower repayment of our single large arrears
case, the Board is pleased with the Group's operational and
financial performance year-to-date. Over the summer months, the
loan book has continued to perform ahead of our seasonally adjusted
expectations closing August 2023 at more than GBP518m. New loan
origination has remained strong, stock turn has extended further
and with continued elevated NIM, we have generated additional
profits. Given current trading, our expectation of further loan
book growth and the rebalancing of the cost of risk through the
balance of the year, we expect full year results for 2023 remain in
line with the Board's expectations.
I am very proud of what the entire DF Capital team has achieved
since the Group obtained its banking licence in September 2020, not
least eight consecutive quarters of loan book growth. The progress
we have made this year is a testament to the quality of business we
are building, the dedication of our colleagues and the breadth and
depth of relationships we have with our manufacturer and dealer
customers.
Carl D'Ammassa
Chief Executive Officer
Financial Highlights and Key Performance Indicators
30 June 31 December
30 June 2023 2022 2022
6-month 6-month 12-month
----------------------------------- -------------------------------- -------- --------------------------------
Financial Highlights
Gross revenues (GBPm) (1) 27.4 10.5 26.8
Profit before taxation (GBPm) 3.2 0.0 1.3
Profit after taxation (GBPm) 2.3 0.0 9.8
Loan book principal (GBPm) (2) 519 308 439
Net assets (GBPm) (3) 98.8 86.1 96.2
Customer deposits (GBPm) 498.4 304.4 479.7
Regulatory capital (GBPm) (4) 77.1 82.8 83.3
Common Equity Tier 1 capital
ratio 22% 31% 22%
Gross yield (5) 10.6% 7.4% 8.2%
Net interest margin (6) 7.5% 6.1% 6.5%
Average cost of retail deposits
(7) 3.7% 1.3% 1.9%
Cost of risk (8) 1.55% 0.50% 0.74%
Impairment loss coverage on
loans to customers (9) 1.38% 0.69% 0.84%
Cost income ratio (10) 61% 92% 82%
----------------------------------- -------------------------------- -------- --------------------------------
Key Performance Indicators
Loans advanced to customers
(GBPm) 607 439 1,001
Number of dealer customers (11) 1,152 908 998
Number of manufacturer partners
(12) 86 85 90
Total credit available to dealers
(GBPm) (13) 926 724 817
----------------------------------- -------------------------------- -------- --------------------------------
(1) Sum of interest and similar income, fee income, net
gains/(losses) on disposal of financial assets, and net losses from
derivatives measured at fair value through profit or loss
(2) Principal balance outstanding for loans and advances to
customers.
(3) The equity held in the Group
(4) Regulatory capital is the Common Equity Tier 1 capital
held
(5) The effective interest rate we charge our customers
including fees
(6) Gross yield including fees less interest expense
(7) The weighted average interest rate we pay our depositors
(8) Impairments and provisions in the period (annualised) as a %
of average gross receivables.
(9) Impairment allowance as a % of gross receivables at the
period end
(10) Operating cost as a % of total operating income.
(11) Number of borrower relationships
(12) Number of vendors and manufacturers with whom we have
programs that support our lending
(13) Amount of credit available to our customers to draw
(uncommitted)
Alternative Performance Measures
Certain financial measures disclosed in the Interim Financial
Report do not have a standardised meaning prescribed by
International Financial Reporting Standards (IFRS) and may
therefore not be comparable to similar measures presented by other
issuers. These measures (defined above) are deemed to be
alternative performance measures ("APMs").
APMs may be considered in addition to, but not as a substitute
for, the reported IFRS results. The Group believes that these APMs,
when considered together with reported IFRS results, provide
stakeholders with additional information to better understand the
Group's financial performance.
Principal Risks
Based on the Group's strategy and business model, there are six
principal risk categories used to help shape our policy and control
framework. This categorisation creates structure for the risk
policy framework and clear ownership/responsibility for assessing
risk performance.
There are certain risk themes that cut across many of these risk
types. We have chosen at this stage to manage them within the
principal risks framework rather than separate them out, but keep
this approach under active consideration. The most relevant cross
cutting risk is climate change, which is considered in our risk
assessment and controls but has not crystallized to the extent that
we would separate it out into its own principal risk category.
Principal
Risks
------------ ------------------------------------------------------------------ ---------------------------------
Operational Operational risk is defined as the Key risk mitigation tools:
risk risk of loss resulting from inadequate operational risk policies,
or failed internal processes, people standard operating procedures,
and systems, or from external events. Risk and Control Self
We have a framework in place which Assessments ("RCSAs"),
sets out our approach to Operational risk event analysis, key
Risk, with associated roles and responsibilities controls testing, ongoing
further defined in a number of risk monitoring of risk metrics
policies and standard operating procedures and limits, scenario analysis,
covering the various types of Operational information security and
Risk. Although the overall scope cyber defences, operational
of Operational Risk would cover areas risk training, Operational
of Conduct and Compliance (i.e. regulatory) Forums aligned to defined
risks, we believe it makes sense customer and internal
to separate these items out as individual journeys, change management
principal risks - Conduct Risk and framework, operational
Compliance Risk respectively given resilience framework,
the importance of these risks in physical security and
the context of the bank's activities safety, regular risk training,
and regulatory environment. Executive Risk Committee
oversight.
Compliance Compliance risk is the risk of legal Key risk mitigation tools:
Risk or regulatory sanctions, material : compliance
financial loss, or loss to reputation policies, regulatory monitor,
the firm may suffer as a result of enterprise-wide
its failure to comply with laws, compliance and financial
regulations, rules, related self-regulatory crime risk
organization standards and codes assessments, compliance
of conduct applicable to its activities. monitoring
DF Capital operates within the context plan, ongoing monitoring
of the UK legal and regulatory environment. of risk metrics
Our Compliance Framework sets out and limits, customer risk
the responsibilities within the firm assessments,
to ensure awareness of both current regulatory compliance
and upcoming legal and regulatory training,
changes and how the firm plans and Executive Risk Committee
implements those requirements appropriately. oversight.
Compliance risk also includes the
bank's obligations under the Money
Laundering Regulations and covers
the Group's exposure to financial
crime risks for which associated
risk management policies and procedures
are in place.
------------ ------------------------------------------------------------------ ---------------------------------
Conduct We define conduct risk as the risk Key risk mitigation tools:
Risk of detriment caused to DF Capital's conduct risk policies,
customers or financial markets due product governance, enterprise-
to inappropriate execution of its wide conduct risk assessment,
business activities and processes, ongoing monitoring of
including the sale of unsuitable risk metrics and limits,
products and inappropriate behaviours. monitoring of complaints
The Conduct Risk Framework outlines and customer feedback,
our approach for ensuring good customer key controls testing,
conduct outcomes. It is supported Code of Ethics, conduct
by specific policies covering topics risk training, Executive
such as product governance, complaints, Risk Committee oversight,
and vulnerable customers which detail tracking and embedding
the specific steps and responsibilities of the New Consumer Duty
across the firm. The scope of conduct requirements.
risk coverage includes our AIM requirements,
with policies such as a Market Abuse
Regime Policy (including Share Dealing
Code) and a Substantial and Related
Party Transactions Policy.
------------ ------------------------------------------------------------------ ---------------------------------
Prudential Prudential risk covers three financial Key risk mitigation tools:
Risk risks relating to the bank maintaining treasury policies, ICAAP,
sufficient resources to ensure it ILAAP, funds transfer
is financially resilient: pricing policy, additional
* Funding and liquidity risk: The risk that DF Capital stress testing, ongoing
is not able to meet its financial obligations as they monitoring of risk metrics
fall due or that it does not have the tenor and and limits, financial
composition of funding and liquidity to support its planning and forecasting,
assets. monitoring of external
environment, Asset & Liability
Committee and Executive
* Capital risk: The risk that DF Capital has an Risk Committee oversight.
insufficient amount or quality of capital to support
the regulatory requirements of its business
activities through normal and stressed conditions.
* Market risk (including interest rate risk): The risk
of financial loss through un-hedged or mismatched
asset and liability positions due to interest rate
changes. This also includes the risk that assets and
liabilities reference different interest rate bases
and the risk of adverse financial impact from
movements in market prices in the value of assets and
liabilities.
Roles, responsibilities, and requirements
for Liquidity and Capital management
are outlined in the Treasury Policy,
with risk appetite taking into account
the results of the bank's ILAAP and
ICAAP. The Treasury Policy also outlines
the roles and responsibilities required
for identifying, measuring, monitoring
and controlling any interest rate
risk which arises due to the mismatch
between assets and liabilities.
------------ ------------------------------------------------------------------ ---------------------------------
Credit Risk Credit risk is the risk of financial Key risk mitigation tools:
loss arising from a customer or counterparty C redit underwriting criteria,
failing to meet their financial obligations asset audits, sector deep-dive
to DF Capital. Credit risk is considered reviews, portfolio monitoring,
the most significant risk faced by ongoing monitoring of
DF Capital and can be broken down risk metrics and limits,
into the following categories: hindsight reviews of default
events, monitoring of
* Client Default Risk: The risk of loss arising from a external environment,
failure of a borrower to meet their obligations under Credit Committee and Executive
a credit agreement. Risk Committee oversight.
* Credit Concentration Risk: The risk of loss due to
the concentration of credit risk to a specific
customer, counterparty, geography, or industry.
* Repurchase Risk: The risk of loss arising from the
failure of a third-party to meet a claim under a
repurchase agreement.
* Security Risk: The risk that an asset used as
security to mitigate a credit loss does not provide
the protection to the Company that is expected,
leading to unanticipated losses.
* Counterparty Risk: The failure of a Group
counterparty or derivative provider.
A credit framework and policies are
in place to manage DF Capital's credit
risk exposure, covering the roles
and responsibilities of the Group's
lending and investment activities.
------------ ------------------------------------------------------------------ ---------------------------------
Strategic Strategic risks are the risks which Key risk mitigation tools:
Risk can adversely impact the ability Executive Committee and
of DF Capital in achieving its strategic Board oversight, comprehensive
objectives. These risks may impact risk assessments of strategic
shareholder value, earnings or growth and financial plans, stress
from poor strategic decisions, improper testing, horizon scanning,
implementation of business strategies ongoing monitoring of
or from external events. macro- and microeconomic
environment, change management
The level 2 principal risks which framework.
fall under this category include:
* Strategic Planning Risk: The risk of strategic plans
being unachievable or unrealistic.
* Execution Risk: The risk of failing to execute the
Group's strategy and failing to deliver key strategic
initiatives required to meet the financial and
commercial targets of the Group.
* Strategic Projects Risk: The risk of delay or failure
of strategic projects and programmes.
* External Environment: The risk of failing to address
the impact of external events and competitive
threats.
Strategic risks are considered as
part of DF Capital's strategic and
financial plans. Stress scenarios
are modelled as part of the ICAAP
and ILAAP to determine what level
of capital and liquidity the Group
will need to hold in support of its
strategic and financial plans.
------------ ------------------------------------------------------------------ ---------------------------------
Enterprise-wide Key and Emerging Risks
The Enterprise-wide key and emerging risks of the Group are:
Macroeconomic risks; Operational execution and change; Cyber risk;
and Climate change. Full details of each emerging risk, including
the potential impact of the risk and how the risk is managed, are
set out in the 2022 Annual Report and Accounts. As for any
organisation, we are exposed to near-term plan risk, given the
comments made about macroeconomic risk below.
Relevant updates for these risks are provided below.
Macroeconomic risk
We are operating in a more challenging macro-economic
environment where the impact of high inflation and rising interest
rates has been felt across a number of sectors, where discretionary
spend has tightened, adversely impacting dealer sales. This dynamic
has a positive impact on our loan book balance, as slowing sales
means that dealers hold more stock on their forecourts, and for
longer. But a prolonged and/or deep recession could ultimately lead
to a rise in loan losses. The Group is protected through its
various layers of security and is employing enhanced controls in
preparation for an expected turn in the credit cycle.
Statement of Directors' Responsibilities
We, the Directors, confirm that to the best of our
knowledge:
-- the interim condensed consolidated financial statements have
been prepared in accordance with IAS 34 'Interim Financial
Reporting' as adopted by the United Kingdom (UK);
-- the interim report includes a fair review of the performance
of the business and the position of the Group and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they
face; and
-- the interim report and financial statements, taken as a
whole, are fair, balanced and understandable.
By order of the Board
.................................
Carl D'Ammassa
Director
28 September 2023
Independent Review Report to Distribution Finance Capital
Holdings plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2023 which comprises the condensed
consolidated statement of comprehensive income statement, the
condensed consolidated statement of financial position, the
condensed consolidated statement of changes in equity, the
condensed consolidated cashflow statement and related notes 1 to
28.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report 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 AIM Rules of the London Stock Exchange.
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, 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 half-yearly financial report 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 half-yearly
financial report in accordance with the AIM rules of the London
Stock Exchange.
In preparing the half-yearly financial report, 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 half-yearly financial report, we are
responsible for expressing to the company a conclusion on the
condensed set of financial statements in the half-yearly financial
report. 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
London, United Kingdom
28 September 2023
Condensed Consolidated Statement of Comprehensive Income
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
Note GBP'000 GBP'000 GBP'000
----------------------------------- ----- ------------ ------------ ------------
Interest and similar income 5 26,542 9,999 25,407
Interest and similar expenses 6 (9,126) (1,865) (6,411)
Net interest income 17,416 8,134 18,996
----------------------------------- ----- ------------ ------------ ------------
Fee income 819 540 1,348
Fee expenses (180) - -
Net losses on disposal of
financial assets at fair value
through other comprehensive
income - (17) (17)
Net gains from derivatives
and other financial instruments
at fair value through profit
or loss 72 (16) 99
Other operating income 6 5 5
Total operating income 18,133 8,646 20,431
----------------------------------- ----- ------------ ------------ ------------
Staff costs 7 (7,155) (5,122) (10,848)
Other operating expenses 9 (3,993) (2,804) (5,983)
Net impairment loss on financial
assets 11 (3,786) (704) (2,296)
Total operating profit 3,199 16 1,304
----------------------------------- ----- ------------ ------------ ------------
Profit before taxation 3,199 16 1,304
----------------------------------- ----- ------------ ------------ ------------
Taxation 12 (938) - 8,457
Profit after taxation 2,261 16 9,761
----------------------------------- ----- ------------ ------------ ------------
Other comprehensive loss:
Items that may subsequently
be transferred
to the income statement:
FVOCI debt securities:
Amounts transferred to the
income statement - 17 17
Fair value movements on debt
securities (53) (189) (96)
Total other comprehensive
loss for the period, net of
tax (53) (172) (79)
----------------------------------- ----- ------------ ------------ ------------
Total comprehensive income/(loss)
for the period 2,208 (156) 9,682
----------------------------------- ----- ------------ ------------ ------------
Earnings per share: pence pence pence
Basic EPS 26 1 0 5
Diluted EPS 26 1 0 5
Condensed Consolidated Statement of Financial Position
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
Note GBP'000 GBP'000 GBP'000
--------------------------------- ----- ------------ ------------ ------------
Assets
Cash and balances at central
banks 46,642 47,586 107,353
Loans and advances to banks 5,067 20,898 3,848
Debt securities 24,528 31,997 22,964
Derivatives held for risk
management 24 - - 57
Loans and advances to customers 13 513,787 305,629 435,883
Trade and other receivables 14 2,340 1,811 1,524
Current taxation asset 15 55 59 55
Deferred taxation asset 16 7,519 - 8,457
Property, plant and equipment 1,220 122 1,045
Right-of-use assets 17 1,299 543 433
Intangible assets 780 972 877
Total assets 603,237 409,617 582,496
--------------------------------- ----- ------------ ------------ ------------
Liabilities
Customer deposits 20 498,357 304,377 479,736
Derivatives held for risk
management 24 1,409 24 42
Fair value adjustments on
hedged liabilities 25 (1,579) (8) (84)
Financial liabilities 21 1,317 499 445
Trade and other payables 4,829 18,557 6,041
Provisions 10 64 75 77
Total liabilities 504,397 323,524 486,257
--------------------------------- ----- ------------ ------------ ------------
Equity
Issued share capital 19 1,793 1,793 1,793
Share premium 19 - 39,273 39,273
Merger relief 19 94,911 94,911 94,911
Merger reserve (20,609) (20,609) (20,609)
Own shares 19 (364) (364) (364)
Retained earnings/(loss) 23,109 (28,911) (18,765)
Total equity 98,840 86,093 96,239
--------------------------------- ----- ------------ ------------ ------------
Total equity and liabilities 603,237 409,617 582,496
--------------------------------- ----- ------------ ------------ ------------
Condensed Consolidated Statement of Changes in Equity
Retained
Issued Share Merger Merger Own earnings/
share capital premium relief reserve shares (loss) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================== =============== ========== ======== ========= ======== =========== ========
Balance at 31 December
2021 (Audited) 1,793 39,273 94,911 (20,609) (364) (28,945) 86,059
------------------------ --------------- ---------- -------- --------- -------- ----------- --------
Profit after taxation - - - - - 16 16
Other comprehensive
loss - - - - - (172) (172)
Share-based payments - - - - - 190 190
Balance at 30 June
2022 (Unaudited) 1,793 39,273 94,911 (20,609) (364) (28,911) 86,093
------------------------ --------------- ---------- -------- --------- -------- ----------- --------
Profit after taxation - - - - - 9,745 9,745
Other comprehensive
loss - - - - - 93 93
Share-based payments - - - - - 308 308
Balance at 31 December
2022 (Audited) 1,793 39,273 94,911 (20,609) (364) (18,765) 96,239
------------------------ --------------- ---------- -------- --------- -------- ----------- --------
Profit after taxation - - - - - 2,261 2,261
Other comprehensive
loss - - - - - (53) (53)
Share-based payments - - - - - 393 393
Share premium account
cancellation(1) - (39,273) - - - 39,273 -
Balance at 30 June
2023 (Unaudited) 1,793 - 94,911 (20,609) (364) 23,109 98,840
------------------------ --------------- ---------- -------- --------- -------- ----------- --------
(1) See note 19 for further details of the share premium account
cancellation transaction in the six-month period ended 30 June
2023.
Condensed Consolidated Cash Flow Statement
30 June 31 December
2023 30 June 2022 2022
(Unaudited) (Unaudited) (Audited)
Note GBP'000 GBP'000 GBP'000
----------------------------------- ----- ------------ ------------- ------------
Cash flows from operating
activities:
Profit before taxation 3,199 16 1,304
Adjustments for non-cash items
and other adjustments included
in the income statement 18 4,174 1,629 4,664
Increase in operating assets 18 (85,081) (60,775) (193,189)
Increase in operating liabilities 18 17,281 21,025 183,809
Taxation received 15 - - 4
Net cash used in operating
activities (60,427) (38,105) (3,408)
----------------------------------- ----- ------------ ------------- ------------
Cash flows from investing
activities:
Purchase of debt securities (14,554) - -
Proceeds from sale and maturity
of debt securities 13,000 76,070 85,070
Interest received on debt
securities 196 603 746
Purchase of property, plant
and equipment (318) (65) (1,041)
Purchase of intangible assets (103) (95) (193)
Net cash (used in)/generated
from investing activities (1,779) 76,513 84,582
----------------------------------- ----- ------------ ------------- ------------
Cash flows from financing
activities:
Repayment of lease liabilities 22 (106) (71) (141)
Net cash used in financing
activities (106) (71) (141)
----------------------------------- ----- ------------ ------------- ------------
Net (decrease)/increase in
cash and cash equivalents (62,312) 38,337 81,033
Cash and cash equivalents
at start of the period 18 110,630 29,597 29,597
Cash and cash equivalents
at end of the period 18 48,318 67,934 110,630
----------------------------------- ----- ------------ ------------- ------------
Notes to the Interim Financial Report
1. Basis of preparation
1.1 General information
The interim condensed consolidated financial statements of
Distribution Finance Capital Holdings plc (the "Company" or "DFCH
plc") include the assets, liabilities and results of its wholly
owned subsidiaries, DF Capital Bank Limited ("the Bank") and DF
Capital Financial Solutions Limited, together form the "Group".
DFCH plc is registered and incorporated in England and Wales
under company registration number 11911574. The registered office
is St James' Building, 61-95 Oxford Street, Manchester, M1 6EJ. The
Company's ordinary shares are admitted to trading on AIM, a market
operated by the London Stock Exchange.
The principal activity of the Company is that of an investment
holding company. The principal activity of the Group is as a
specialist personal savings and commercial lending bank group. The
Group provides niche working capital funding solutions to dealers
and manufacturers across the UK, enabled by competitively priced
personal savings products.
The interim report is presented in pounds sterling, which is the
currency of the primary economic environment in which the Group
operates, and are rounded to the nearest thousand pounds, unless
stated otherwise.
1.2 Basis of accounting
The condensed consolidated set of consolidated financial
statements included in this Interim Financial Report has been
prepared in accordance with International Accounting Standard 34
'Interim Financial Reporting' ('IAS 34').
The condensed set of financial statements included within this
Interim Financial Report for the six months ended 30 June 2023
should be read in conjunction with the annual audited financial
statements of Distribution Finance Capital Holdings plc for the
year ended 31 December 2022.
The annual consolidated financial statements of Distribution
Finance Capital Holdings plc are prepared in accordance with
International Financial Reporting Standards ("IFRS") as issued by
the International Accounting Standards Board ("IASB") and the UK
adopted IFRS.
The condensed consolidated financial information for the six
months ended 30 June 2023 has been prepared using accounting
policies consistent with IFRS. The interim information does not
constitute statutory financial statements within the meaning of
section 434 of the Companies Act 2006. The financial information
for the periods ending 30 June 2023 and 30 June 2022 are unaudited
but has been reviewed by the Company's auditor, Deloitte LLP, and
their report appears on page 16 of this Interim Financial Report.
The comparative figures for the year ended 31 December 2022 are the
Group's statutory accounts and have been reported on by its auditor
and delivered to the Registrar of Companies. The report of the
auditor on those statutory accounts was unqualified, did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report, and
did not contain a statement under Section 498(2) or (3) of the
Companies Act 2006.
1.3 Principal accounting policies
The principal accounting policies adopted in the preparation of
this financial information are set out below. These policies have
been applied consistently to all the financial periods
presented.
1.4 Going concern
The financial statements are prepared on a going concern basis
as the Directors are satisfied that the Group has adequate
resources to continue operating in the foreseeable future. In
making this assessment the Directors have considered the Group's
current available capital and liquidity resources, the business
financial projections and the outcome of stress testing. Based on
this review, the Directors believe that the Group is well placed to
manage its business risks successfully within the expected economic
outlook. Accordingly, the Directors have adopted the going concern
basis in preparing the Interim Financial statements.
1.5 Critical accounting estimates and judgements
In accordance with IFRS, the Directors of the Group are required
to make judgements, estimates and assumptions in certain subjective
areas whilst preparing these financial statements. The application
of these accounting policies may impact the reported amounts of
assets, liabilities, income and expenses and actual results may
differ from these estimates.
Any estimates and underlying assumptions used within the
statutory financial statements are reviewed on an ongoing basis,
with revisions recognised in the period in which they are adjusted,
and any future periods affected.
Further details can be found in note 3 of these financial
statements on the critical accounting estimates and judgements used
within these financial statements.
1.6 Foreign currencies
The financial statements are expressed in Pounds Sterling, which
is the functional and presentational currency of the Group.
Transactions in foreign currencies are translated to the Group's
functional currency at the foreign exchange rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are retranslated to
the functional currency at the foreign exchange rate ruling at that
date. Non-monetary assets and liabilities that are measured in
terms of historical cost in a foreign currency are translated using
the exchange rate at the date of the transaction. Foreign exchange
differences arising on translation are recognised in the statement
of income.
1.7 New accounting standards issued but not yet effective
The Group assesses on an ongoing basis the impact of new
accounting standards which are not yet effective at the reporting
date and the likely impact of the new accounting standard on the
financial statements. At 30 June 2023, the Group has applied all
new IFRS and foresees no additional standards with a likely
material impact to consider at this time.
2. Summary of significant accounting policies
The same accounting policies, presentation and methods of
computation are followed in the condensed consolidated set of
financial statements as applied in the Group's latest annual
audited financial statements for the year ended 31 December
2022.
3. Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial information in accordance with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and reported
amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The areas involving the most complex and subjective judgements
and areas where assumptions and estimates are considered to have
the most significant effect on the financial statements are the
same as those set out in Note 3 of the 2022 Annual Report and
Accounts. A summary and updates regarding these critical accounting
judgements and estimates are set out below.
Judgements
3.1. Expected credit losses loan impairment
Significant increase in credit risk for classification in stage
2
Counterparties are classified into stage 2 where the risk
profile of the borrower profile has significantly increased from
inception of the exposure. This increase in credit risk is
signified by either increases in internal or external credit
ratings, the counterparty becoming over 30 days past due, or
forbearance measures being applied.
Definition of default
The Group aligns its definition of default to the regulatory
definition for default in all periods presented. The Group applies
the regulatory guideline of 90+ days in arrears and also uses
internal and external information, along with financial and
non-financial information, available to the Group to determine
whether a default event has either occurred or is perceived to have
occurred.
Should a default event occur the Group applies a probationary
("cooling off") period to Stage 3 counterparties before being
transferred back to either stage 1 or 2. The probationary period is
typically 3 months but is extended up to 12 months for more severe
scenarios. During the probationary period the counterparty must no
longer meet the criteria for Stage 3 inclusion for the entire
applicable period.
Estimates
The Group has made the following estimates in the application of
the accounting policies that have a significant risk of material
adjustment to the carrying amount of assets and liabilities:
3.2. Expected credit losses loan impairment
See the Group's Annual Report for the year ended 31 December
2022 which outlines the assumptions the Group includes to best
estimate the probability of default ("PD"), exposure at default
("EAD"); and loss given default ("LGD") inputs within the
impairment model in order to calculate the expected credit loss
("ECL"). The general design of the impairment model remains
unchanged for the period ended 30 June 2023, however certain
assumptions have been updated to reflect changes in
circumstances.
Probability of Default ("PD")
In the six-month period ended 30 June 2023, the Group observed a
strong performance of defaults and a migration of counterparties
into lower risk rating categories, which in turn has reduced the
stage 1 and 2 PD in the six months since the 2022 annual report.
The Group is closely monitoring the evolving macro-economic
environment and is aware that some factors within the Group's PD
modelling are lagging indicators. Resultantly, the Group has
elected to increase its PD modelling within the baseline scenario
by approximately 20%, resulting in a GBP270,000 additional
impairment charge. To support this estimation, the Group has
recently engaged with an external economics research company to
provide industry-specific economic forecasts.
A 100% deterioration in PDs (excluding stage 3 exposures, which
are already in default) would result in an additional impairment
charge of GBP1,643,000 at 30 June 2023 (30 June 2022: GBP871,000;
31 December 2022: GBP1,130,000).
Loss Given Default ("LGD")
The Group reviewed its LGD modelling assumptions as at 30 June
2023 by comparing actual loss given default values against modelled
LGD. The Group concluded its current LGD modelling was closely
aligned to recent historical actuals.
Although the Group has observed strong performance in default
recoveries within the six-month period ended 30 June 2023, the
Group has elected to review its LGD modelling assumptions to
reflect an uncertain economic outlook. Collateral haircuts have
been reviewed at industry-level, along with an adjustment of
"sold-out-trust" (SOTs) probabilities, which weaken the Group's
recovery position due to becoming uncollateralised. The total
additional impairment charge from these LGD modelling adjustments
in the period is GBP119,000.
A 10% reduction in the expected discounted cashflows from the
collateral held by the Group would result in an additional
impairment charge of GBP2,356,000 at 30 June 2023 (30 June 2022:
GBP956,000; 31 December 2022: GBP2,389,000).
The Group's arrears balance includes GBP10.4m outstanding in
respect of a large single obligor. This obligor has been undergoing
a major refinance and restructure. As a result, its facility is not
currently operating in the normal course, and we are aware of a
number of assets that have been sold out of trust or are missing
from confirmed locations. This obligor balance is therefore
assessed as a stage 3 exposure. For those counterparties who are in
stage 3, where there are instances of more complex cases or obligor
default, which remain in progress, the Group undertakes analysis of
a range of scenarios, associating a likely outcome probability
against each. These scenarios, which determine the size of any
provision, are based on the specific circumstances of an individual
case, known factors and the Group's relative security position.
Given the probability-based approach to calculations, any
individual case specific provision is unlikely to represent the
anticipated financial impact in either the most positive or least
favourable outcome.
Forward looking macroeconomic scenarios
The Group considers four economic stress scenarios within its
impairment modelling whereby the Group stresses PD and LGD inputs
in accordance with expected macro-economic outlooks. This provides
an ECL impairment allowance for each scenario which is multiplied
by the likelihood of occurrence over the next 12-month period from
the balance sheet date to give a probability weighted ECL.
Probability Weighting ECL Impairment ECL Coverage (1)
Scenario (%) (GBP'000) (%)
----------------------------- ----------------------- ------------------------------- ------------------
30 June 2023 (Unaudited):
Upside 15% 5,537 1.05%
Base 55% 6,286 1.19%
Downside 25% 9,026 1.71%
Severe downside 5% 12,778 2.42%
-----------------------------
Weighted Total 100% 7,198 1.36%
----------------------------- ----------------------- ------------------------------- ------------------
30 June 2022 (Unaudited):
Upside 15% 1,098 0.35%
Base 60% 1,695 0.55%
Downside 20% 3,311 1.07%
Severe downside 5% 5,889 1.90%
-----------------------------
Weighted Total 100% 2,138 0.69%
----------------------------- ----------------------- ------------------------------- ------------------
31 December 2022 (Audited):
Upside 15% 2,427 0.55%
Base 55% 2,823 0.64%
Downside 25% 5,343 1.20%
Severe downside 5% 9,362 2.11%
-----------------------------
Weighted Total 100% 3,720 0.84%
----------------------------- ----------------------- ------------------------------- ------------------
(1) ECL Coverage is calculated by dividing the ECL impairment by
the Exposure At Default (EAD). EAD is typically higher than the
gross loan receivable balance.
In the event one of the above scenarios occurs and applied a
100% probability weighting the impact on the impairment allowances
would be as follows:
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
Scenario GBP'000 GBP'000 GBP'000
----------------- -------------------------------- ------------ ------------
Upside (1,661) (1,040) (1,293)
Base (912) (443) (897)
Downside 1,828 1,173 1,623
Severe downside 5,580 3,751 5,642
----------------- -------------------------------- ------------ ------------
3.3. Deferred taxation asset
In the year ended 31 December 2022, the Group recognised a
deferred taxation asset, which was based on the latest recently
approved financial forecasts through to December 2026 with the
deferred taxation asset being fully utilised during this
period.
The forecast is inherently sensitive to the assumptions and
estimates which underpin it, including macroeconomic conditions
(such as interest rates, inflation and future tax rates), and is
dependent on the Group's ability to successfully execute its
strategy. As such, the expected utilisation of the deferred tax
asset may vary significantly.
In the six-month period ended 30 June 2023, the Group has
performed favourably in accordance with the forecasts used to
estimate the deferred taxation asset. The Group has updated its
forecasts for actual performance in the elapsed period to ensure
the deferred taxation asset recognition is still valid.
Further, as detailed in note 3 of the audited consolidated
financial statements of the Group for the year ended 31 December
2022, the Group has performed the same sensitivity analysis and is
comfortable there is minimal risk to the deferred taxation asset
recognition.
4. Operating segments
It is the Directors' view that the Group's products and the
markets to which they are offered are so similar in nature that
they are reported as one class of business. All customers are
currently UK-based only. As a result, it is considered that the
chief operating decision maker uses only one segment to control
resources and assess the performance of the entity, while deciding
the strategic direction of the Group.
5. Interest and similar income
6 months
6 months ended ended Year ended
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------------- --------------------------- -------------------------- ------------------------------
On loans and advances to
customers 25,070 9,895 24,333
On loans and advances to
banks 1,213 112 1,065
On debt securities -
measured
at FVOCI 259 (8) 9
Total interest and similar
income 26,542 9,999 25,407
----------------------------- --------------------------- -------------------------- ------------------------------
6. Interest and similar expenses
6 months 6 months
ended ended Year ended
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------------- --------------------------- -------------------------- ------------------------------
On financial liabilities not
at fair value through profit
or loss:
Customer deposits 8,741 1,873 6,373
On financial liabilities at
fair value through profit or
loss:
Net interest expense on
financial
instruments hedging
liabilities 385 (8) 38
Total interest and similar
expenses 9,126 1,865 6,411
----------------------------- --------------------------- -------------------------- ------------------------------
7. Staff costs
6 months 6 months
ended ended Year ended
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------------- ---------------------------- ------------------------- ----------------------------
Wages and salaries 5,672 4,166 8,651
Share based payments 393 190 499
Contractor costs 16 4 75
Social security costs 757 515 1,099
Pension costs arising on
defined
contribution schemes 317 247 524
Total staff costs 7,155 5,122 10,848
------------------------------- ---------------------------- ------------------------- ----------------------------
Contractor costs are recognised within personnel costs where the
work performed would otherwise have been performed by employees.
Contractor costs arising from the performance of other services is
included within other operating expenses.
Refer to note 8 for further details on the share option schemes
introduced by the Group in the six-month period ended 30 June
2023.
8. Share-based payments
Summary of movements in long-term incentive schemes during the
period:
Options Options Options Options Options
outstanding granted forfeited exercised outstanding
at start during during during at end of
of period the period the period the period the period
Plan No. No. No. No. No.
------------------------- ------------- ------------ ------------ ------------ --------------
Six-month period ended 30 June
2023 (Unaudited)
General Award 2020 222,500 - (10,000) - 212,500
General Award 2021 160,248 - (6,000) - 154,248
General Award 2022 385,511 - (15,000) - 370,511
General Award 2023 - 365,000 (10,000) - 355,000
Manager CSOP Award 384,298 - - - 384,298
Manager PSP Award 853,334 - - - 853,334
CEO Recruitment Award 900,000 - - - 900,000
Senior Manager Award
2020 885,000 - (173,200) - 711,800
Senior Manager Award
2021 144,370 - - - 144,370
Senior Manager Award
2022 1,765,000 - - - 1,765,000
Senior Manager Award
2023 - 3,725,000 - - 3,725,000
Leader & High Performer
Award 2022 201,022 5,000 - - 206,022
Leader & High Performer
Award 2023 - 615,000 - - 615,000
Recruitment Award 2023 - 300,000 - - 300,000
Sharesave scheme 1,068,212 - (139,775) - 928,437
Total 6,969,495 5,010,000 (353,975) - 11,625,520
------------------------- ------------- ------------ ------------ ------------ --------------
Six-month period ended 30 June
2022 (Unaudited)
General Award 2020 287,500 - (50,000) - 237,500
General Award 2021 216,000 - (33,000) - 183,000
General Award 2022 - 450,000 (15,000) - 435,000
Manager CSOP Award 385,298 - - - 385,298
Manager PSP Award 853,334 - - - 853,334
CEO Recruitment Award 900,000 - - - 900,000
Senior Manager Award
2020 885,000 - - - 885,000
Senior Manager Award
2021 114,370 30,000 - - 144,370
Senior Manager Award
2022 - 1,365,000 - - 1,365,000
Leader & High Performer
Award 2022 - 220,000 - - 220,000
Total 3,641,502 2,065,000 (98,000) - 5,608,502
------------------------- ------------- ------------ ------------ ------------ --------------
Year ended 31 December 2022
(Audited)
General Award 2020 287,500 - (65,000) - 222,500
General Award 2021 216,000 3,000 (58,752) - 160,248
General Award 2022 - 450,000 (64,489) - 385,511
Manager CSOP Award 385,298 - (1,000) - 384,298
Manager PSP Award 853,334 - - - 853,334
CEO Recruitment Award 900,000 - - - 900,000
Senior Manager Award
2020 885,000 - - - 885,000
Senior Manager Award
2021 114,370 30,000 - - 144,370
Senior Manager Award
2022 - 1,765,000 - - 1,765,000
Leader & High Performer
Award 2022 - 220,000 (18,978) - 201,022
Sharesave scheme - 1,693,596 (625,384) - 1,068,212
Total 3,641,502 4,161,596 (833,603) - 6,969,495
------------------------- ------------- ------------ ------------ ------------ --------------
During the six-month period ended 30 June 2023, the Group
granted the following to employees:
General Award
Nil cost options over 365,000 ordinary shares of GBP0.01 each of
the current share capital of the Company were granted to all
employees (excluding Directors) in April 2023. These options vest
over a 3-year period and are not subject to specific performance
conditions.
Senior Manager Award
Members of the Group's Executive Committee and other senior
managers were granted nil-cost options over 3,725,000 ordinary
shares of GBP0.01 each of the current share capital of the Company
in April 2023. These options vest over a 3-year period and are
subject to specific non-market performance conditions.
Two Directors of the Group were granted options as part of this
award. Carl D'Ammassa and Gavin Morris were granted 1,168,000 and
753,000 shares respectively.
Leader & High Performer Award
Managers and high performers (excluding Directors) were granted
nil-cost options over 620,000 ordinary shares of GBP0.01 each of
the current share capital of the Company during February 2023 to
April 2023. These options vest over a 3-year period and are not
subject to specific performance conditions.
Recruitment Award
Senior managers were granted nil-cost options over 300,000
ordinary shares of GBP0.01 each of the current share capital of the
Company in April 2023. These options vest over a 3-year period and
are not subject to specific performance conditions.
9. Other operating expenses
6 months
6 months ended ended Year ended
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------------------------- ---------------------------- ------------------------ ----------------------------
Finance costs 17 10 21
Depreciation 230 147 318
Amortisation of intangible
assets 201 189 382
Professional services expenses 1,246 782 1,831
IT-related expenses 1,236 889 1,862
Other operating expenses 1,063 787 1,569
Total other operating expenses 3,993 2,804 5,983
-------------------------------- ---------------------------- ------------------------ ----------------------------
10. Provisions
Analysis for movements in other provisions:
Leasehold dilapidations Total
GBP'000 GBP'000
----------------------------------------- ------------------------ --------------------
6 months ended 30 June 2023 (Unaudited)
At start of period 77 77
Additions 25 25
Utilisation of provision - -
Unused amounts reversed (10) (10)
Unwinding of discount 2 2
Lease modification (30) (30)
At end of period 64 64
----------------------------------------- ------------------------ --------------------
6 months ended 30 June 2022 (Unaudited)
At start of period 73 73
Additions - -
Utilisation of provision - -
Unused amounts reversed - -
Unwinding of discount 2 2
At end of period 75 75
----------------------------------------- ------------------------ --------------------
Year ended 31 December 2022 (Audited)
At start of period 73 73
Additions - -
Utilisation of provision - -
Unused amounts reversed - -
Unwinding of discount 4 4
At end of period 77 77
----------------------------------------- ------------------------ --------------------
11. Net impairment loss on financial assets
6 months 6 months
ended ended Year ended
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------- ---------------------------- ---------------------------- -------------------------------
Movement in impairment
allowance
in the period 3,673 513 2,028
Write-offs 113 191 268
Write-back of amounts
written-off - - -
Total net impairment
losses
on financial assets 3,786 704 2,296
------------------------- ---------------------------- ---------------------------- -------------------------------
See note 13 on further analysis of the movement in impairment
allowances on loans and advances to customers.
12. Taxation
Analysis of tax charge recognised in the period:
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------- --------------------------- ----------------------------- -------------------------------
Current taxation charge:
UK corporation tax on
profit
for the current period 938 - 586
Adjustments in respect
of prior
years - - -
Total taxation charge 938 - 586
------------------------- --------------------------- ----------------------------- -------------------------------
Deferred taxation
(credit)/charge:
Current period - - (9,043)
Adjustments in respect
of prior
years - - -
Total deferred taxation
(credit)/charge - - (9,043)
------------------------- --------------------------- ----------------------------- -------------------------------
Total taxation
charge/(credit) 938 - (8,457)
------------------------- --------------------------- ----------------------------- -------------------------------
On 1 April 2023, the UK corporation tax rate increased from 19%
to 25%, resulting in the current UK corporation tax on profits
being levied at a blended rate of 23.5% for the period ended 30
June 2023 (30 June 2022: 19%, 31 December 2022: 19%). Further, on 1
April 2023, the banking surcharge rate reduced from 8% to 3% and
the Bank Surcharge Allowance increased from GBP25m to GBP100m
profits per annum.
Expenses that are not deductible in determining taxable
profits/losses include impairment losses, amortisation of
intangible assets, depreciation of fixed assets, client and staff
entertainment costs, and professional fees which are capital in
nature.
A deferred tax asset is only recognised to the extent the Group
finds it probable that the prior taxable losses can be utilised
against future taxable profits. As at 30 June 2023, the Group has
an estimated unrecognised deferred tax asset of GBP0.8m (30 June
2022: GBP7.3m, 31 December 2022: GBP0.7m) from prior taxable
losses.
Further details on the Group's deferred taxation asset can be
found in note 16.
13. Loans and advances to customers
30 June 31 December
2023 30 June 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
--------------------------------------- -------------- ------------------------ -----------------------------
Loan book principal 519,348 307,619 439,282
Accrued interest and fees 3,135 1,041 2,002
Gross carrying amount 522,483 308,660 441,284
--------------------------------------- -------------- ------------------------ -----------------------------
less: impairment allowance (7,198) (2,138) (3,720)
less: effective interest rate
adjustment (1,498) (893) (1,681)
Total loans and advances to customers 513,787 305,629 435,883
--------------------------------------- -------------- ------------------------ -----------------------------
Refer to note 11 for further details on the impairment losses
recognised in the periods.
Ageing analysis of gross loan receivables:
30 June 31 December
2023 30 June 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
---------------------------- --------------------------- -------------------------- -------------------------------
Not in default:
Not yet past due 505,480 304,834 422,845
Past due: 1 - 30 days 268 307 136
Past due: 31 - 60 days 78 - 1,074
Past due: 61 - 90 days - - 25
Past due: 90+ days - - -
505,826 305,141 424,080
Defaulted:
Not yet past due and past
due
1 - 90 days 5,502 3,463 11,319
Past due 90+ days 11,155 56 5,885
16,657 3,519 17,204
Total gross carrying amount 522,483 308,660 441,284
---------------------------- --------------------------- -------------------------- -------------------------------
Analysis of gross loan receivables in accordance with impairment
losses:
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------------------------- ------------------------ ---------------------- -------------------------
As at 1 January 2023
(Audited) 410,756 13,323 17,205 441,284
Transfer to Stage 1 23,053 (23,053) - -
Transfer to Stage 2 (43,568) 43,913 (345) -
Transfer to Stage 3 (1,286) (901) 2,187 -
Net
lending/(repayment) 98,391 (14,802) (2,358) 81,231
Write-offs - - (32) (32)
Total movement in
receivables 76,590 5,157 (548) 81,199
As at 30 June 2023
(Unaudited) 487,346 18,480 16,657 522,483
--------------------- --------------------------- ------------------------ ---------------------- -------------------------
Loss allowance
coverage
at 30 June 2023 0.48% 1.12% 27.87% 1.38%
Stage Stage
1 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- -------------------- ------------------- ------------------ ------------------------
As at 1 January 2022
(Audited) 239,327 9,585 542 249,454
Transfer to Stage 1 1,316 (1,306) (10) -
Transfer to Stage 2 (8,639) 8,643 (4) -
Transfer to Stage 3 (1,522) (2,388) 3,910 -
Net lending/(repayment) 56,546 3,597 (753) 59,390
Write-offs (17) - (167) (184)
Total movement in
receivables 47,684 8,546 2,976 59,206
As at 30 June 2022
(Unaudited) 287,011 18,131 3,518 308,660
----------------------------- -------------------- ------------------- ------------------ ------------------------
Loss allowance coverage at
30 June 2022 0.41% 0.40% 25.07% 0.69%
Stage
Stage 1 Stage 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----------------------- ----------------------- ------------------------ ---------
As at 1 January 2022 (Audited) 239,327 9,585 542 249,454
Transfer to Stage 1 6,920 (6,597) (323) -
Transfer to Stage 2 (29,077) 29,081 (4) -
Transfer to Stage 3 (1,731) (16,739) 18,470 -
Net lending/(repayment) 195,333 (2,007) (1,310) 192,016
Write-offs (16) - (170) (186)
Total movement in receivables 171,429 3,738 16,663 191,830
As at 31 December 2022
(Audited) 410,756 13,323 17,205 441,284
------------------------------- ----------------------- ----------------------- ------------------------ ---------
Loss allowance coverage
at 31 December 2022 0.47% 0.63% 9.84% 0.84%
Analysis of impairment losses on loans and advances to
customers:
Stage
Stage 1 Stage 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------------------------- ------------------------ --------- -------------------------
As at 1 January 2023
(Audited) 1,943 84 1,693 3,720
Transfer to Stage 1 108 (108) - -
Transfer to Stage 2 (195) 337 (142) -
Transfer to Stage 3 (8) (148) 156 -
Remeasurement of
impairment
allowance (679) 126 3,139 2,586
Net lending/(repayment) 1,180 (84) (172) 924
Write-offs - - (32) (32)
Total movement in loss
allowance 406 123 2,949 3,478
As at 30 June 2023
(Unaudited) 2,349 207 4,642 7,198
------------------------- --------------------------- ------------------------ --------- -------------------------
Stage Stage
1 Stage 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- --------------------- ------------------- ------------------- ---------
As at 1 January 2022 (Audited) 1,142 155 421 1,718
Transfer to Stage 1 18 (17) (1) -
Transfer to Stage 2 (60) 60 - -
Transfer to Stage 3 (10) (43) 53 -
Remeasurement of impairment
allowance - 64 624 688
Net lending/(repayment) 93 (146) (48) (101)
Write-offs - - (167) (167)
Total movement in loss allowance 41 (82) 461 420
As at 30 June 2022 (Unaudited) 1,183 73 882 2,138
---------------------------------- --------------------- ------------------- ------------------- ---------
Stage
Stage 1 Stage 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------------------- ------------------------- ---------- ---------
As at 1 January 2022 (Audited) 1,142 155 421 1,718
Transfer to Stage 1 76 (73) (3) -
Transfer to Stage 2 (146) 146 - -
Transfer to Stage 3 (13) (421) 434 -
Remeasurement of impairment
allowance (24) 143 1,028 1,147
Net lending/(repayment) 908 134 (17) 1,025
Write-offs - - (170) (170)
Total movement in loss allowance 801 (71) 1,272 2,002
As at 31 December 2022 (Audited) 1,943 84 1,693 3,720
---------------------------------- ------------------------- ------------------------- ---------- ---------
14. Trade and other receivables
30 June 31 December
2023 30 June 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
---------------------------- ---------------------------- -------------------------- ------------------------------
Trade receivables 1,276 919 850
Impairment allowance (296) (168) (101)
980 751 749
Other debtors 352 271 273
Accrued income (89) 33 94
Prepayments 1,097 756 408
1,360 1,060 775
Total trade and other
receivables 2,340 1,811 1,524
---------------------------- ---------------------------- -------------------------- ------------------------------
All trade receivables are due within one year and typically due
for payment within 30 days of invoice.
The trade receivable balances are assessed for expected credit
losses (ECL) under the 'simplified approach', which requires the
Group to assess all balances for lifetime ECLs and is not required
to assess significant increases in credit risk.
Ageing analysis of trade receivables:
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------- ----------------------------- ---------------------------- --------------------------------
Not in default:
Not yet past due 941 617 563
Past due: 1 - 30 days 9 149 27
Past due: 31 - 60 days 41 1 2
Past due: 61 - 90 days - 1 -
Past due: 90+ days - - -
991 768 592
Defaulted:
Not yet past due and
past due
1 - 90 days 255 49 194
Past due 90+ days 30 102 64
285 151 258
Total trade
receivables 1,276 919 850
----------------------- ----------------------------- ---------------------------- --------------------------------
Analysis of movement of impairment losses on trade
receivables:
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------- ----------------------------- ---------------------------- --------------------------------
At 1 January 101 75 75
Amounts written off (1) (4) (19)
Amounts recovered - - -
Change in loss
allowance due
to new trade and
other receivables
originated net of
those derecognised
due to settlement 196 97 45
At period end 296 168 101
----------------------- ----------------------------- ---------------------------- --------------------------------
15. Current taxation asset
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------- --------------------------- ----------------------------- -------------------------------
At 1 January 55 59 59
(Charge)/credit to
profit and
loss account - - (586)
Repayments - - (4)
Adjustments in respect
of prior
years - - -
Utilisation of deferred
taxation
asset - - 586
At period end 55 59 55
------------------------- --------------------------- ----------------------------- -------------------------------
16. Deferred taxation asset
The table below shows the movement in net deferred tax
assets:
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------- --------------------------- ----------------------------- -------------------------------
At 1 January 8,457 - -
(Charge)/credit to
profit and
loss account - - 8,457
Adjustments in respect
of prior
years - - -
Utilisation of deferred
taxation
asset (938) - -
At period end 7,519 - 8,457
------------------------- --------------------------- ----------------------------- -------------------------------
The Group has an unrecognised deferred tax asset value of
GBP0.8m (30 June 2022: GBP7.3m, 31 December 2022: GBP0.7m) which is
not expected to be utilised for the foreseeable future.
On 1 April 2023, the UK corporation tax rate increased from 19%
to 25%, and the Banking Surcharge rate reduced from 8% to 3%, with
an increase in the Banking Surcharge Allowance from GBP25m to
GBP100m. The Group has used these tax rates to calculate the
deferred tax balances.
17. Right-of-use assets
Buildings
GBP'000
---------------------------------- ------------------------
Cost:
31 December 2021 (Audited) 1,138
Additions 1
Disposals and write offs -
Lease modifications 6
As at 30 June 2022 (Unaudited) 1,145
---------------------------------- ------------------------
Additions 3
Disposals and write offs -
Lease modifications 5
As at 31 December 2022 (Audited) 1,153
---------------------------------- ------------------------
Additions 385
Disposals and write offs -
Lease modifications 567
As at 30 June 2023 (Unaudited) 2,105
---------------------------------- ------------------------
Accumulated depreciation:
31 December 2021 (Audited) 497
Charge for the period 105
Disposals and write offs -
As at 30 June 2022 (Unaudited) 602
---------------------------------- ------------------------
Charge for the period 118
Disposals and write offs -
As at 31 December 2022 (Audited) 720
---------------------------------- ------------------------
Charge for the period 86
Disposals and write offs -
As at 30 June 2023 (Unaudited) 806
---------------------------------- ------------------------
Carrying amount:
At 30 June 2022 (Unaudited) 543
At 31 December 2022 (Audited) 433
At 30 June 2023 (Unaudited) 1,299
---------------------------------- ------------------------
In the six-month period ended 30 June 2023, the Group entered
into a new lease agreement for additional office space at its
existing Manchester headquarters. The Group expects to utilise the
right-of-use asset to the contractual maturity date in August 2030.
The Group recognised additions of GBP394,000 in respect to the new
lease agreement.
For an existing lease agreement, the Group expected to enact a
contractual break clause in 2025 for its lease agreement of the
Manchester headquarters office, however, following the signing of
the agreement for additional space, the Group now expects for the
original lease agreement to also elapse at the contractual end date
in August 2030. Consequently, the Group has recognised GBP567,000
in lease modifications to reflect the increased expected term of
the lease agreement.
Further, in the six-month period ended 30 June 2023, the Group
reversed GBP10,000 for an unused dilapidations provision for a
prior period terminated office lease agreement.
18. Notes to the cash flow statement
Cash and cash equivalents:
For the purpose of the statement of cash flows, cash and cash
equivalents comprise cash on demand and overnight deposits
classified as cash and balances at central banks (unless
restricted) and balances within loans and advances to banks. The
following balances have been identified as being cash and cash
equivalents:
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
--------------------------------- --------------------- ------------------ -----------------------------
Cash and balances at central
banks 46,642 47,586 107,353
Loans and advances to banks 1,676 20,348 3,277
Total cash and cash equivalents 48,318 67,934 110,630
--------------------------------- --------------------- ------------------ -----------------------------
Adjustments for non-cash items and other adjustments included in
the income statement:
30 June 31 December
2023 30 June 2022 2022
(Unaudited) (Unaudited) (Audited)
Note GBP'000 GBP'000 GBP'000
-------------------------------------- ----- ------------ ------------- ------------
Depreciation of property,
plant and equipment 144 42 95
Depreciation of right-of-use
assets 17 86 105 223
Loss on disposal of property,
plant and equipment - - -
Amortisation of intangible
assets 201 189 382
Loss on disposal of intangible
assets - - -
Share based payments 7 393 190 499
Impairment allowances on receivables 11 3,786 704 2,296
Movement in other provisions 10 (13) - 4
Interest income on debt securities 5 (259) 8 (9)
Realised loss on debt securities - 17 -
Finance costs 9 17 10 21
Unwind of discount 10 2 2 4
Interest in suspense (183) 362 1,149
Total non-cash items and
other adjustments 4,174 1,629 4,664
-------------------------------------- ----- ------------ ------------- ------------
Net change in operating assets:
30 June 31 December
2023 30 June 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ------------- ------------
Increase in loans and advances
to customers (65,095) (58,968) (190,709)
Derivative financial instruments 57 - (57)
Increase in other assets (20,043) (1,807) (2,423)
Increase in operating assets (85,081) (60,775) (193,189)
---------------------------------- ------------ ------------- ------------
Net change in operating liabilities:
30 June 31 December
2023 30 June 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------------------------------- ------------ ------------- ------------
Increase in customer deposits 18,622 7,521 182,879
Derivative financial instruments 1,367 24 42
Fair value adjustments for portfolio
hedged risk (1,495) (8) (84)
(Decrease)/increase in other
liabilities (1,213) 13,488 972
Increase in operating liabilities 17,281 21,025 183,809
-------------------------------------- ------------ ------------- ------------
19. Equity
30 June 30 June 31 December 30 June 30 June 31 December
2023 2022 2022 2023 2022 2022
(Unaudited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Audited)
No. No. No. GBP'000 GBP'000 GBP'000
------------------ ------------ ------------ --------------- ------------ ------------ -------------
Authorised:
Ordinary shares
of 1p each 179,369,199 179,369,199 179,369,199 1,793 1,793 1,793
Allotted,
issued and
fully paid:
Ordinary shares
of 1p each 179,369,199 179,369,199 179,369,199 1,793 1,793 1,793
Analysis of the movements in share capital:
No. of Issue Share Share Merger
Date shares Price Capital Premium Relief Total
# GBP GBP'000 GBP'000 GBP'000 GBP'000
------------------- ------------ ---------------- ------- ----------- -------------- ------------- --------------
Balance at 1 January
2022 (Audited) 179,369,199 1,793 39,273 94,911 135,977
--------------------------------- ---------------- ------- ----------- -------------- ------------- --------------
No transactions
within
the period - - - - - -
Balance at 30 June
2022 (Unaudited) 179,369,199 1,793 39,273 94,911 135,977
--------------------------------- ---------------- ------- ----------- -------------- ------------- --------------
No transactions
within
the period - - - - - -
Balance at 31 December 2022
(Audited) 179,369,199 1,793 39,273 94,911 135,977
--------------------------------- ---------------- ------- ----------- -------------- ------------- --------------
Share premium
account
cancellation 29-Jun-23 - - - (39,273) - (39,273)
Balance at 30 June
2023 (Unaudited) 179,369,199 1,793 - 94,911 96,704
--------------------------------- ---------------- ------- ----------- -------------- ------------- --------------
At the Company's annual general meeting on 24 May 2023 (the
"AGM"), a resolution was passed to cancel the Company's share
premium account. The purpose of the proposed cancellation was to
create additional distributable reserves and to provide the Company
with greater flexibility and headroom in the future to: pay
ordinary course dividends; undertake a share buyback; redeem
preference shares; or to fund purchases by its Employee Benefit
Trust of shares in the capital of the Company. As set out in the
notice of the AGM, the Directors intend to apply GBP50,000 of the
distributable reserves which the capital reduction has created to
fund the redemption by the Company of the 50,000 non-voting
redeemable preference shares of GBP1.00 each in the capital of the
Company.
To be effective, the cancellation required Court approval which
the Group has obtained and thus making the cancellation effective.
This follows the Court order approving the reduction of capital
which was registered with Companies House on 29 June 2023.
Own shares:
Own shares represent 2,963,283 (30 June 2022: 2,963,283; 31
December 2022: 2,963,283) ordinary shares held by the Group's
Employee Benefits Trust to meet obligations under the Company's
share and share option plans. The shares are stated at cost and
their market value at 30 June 2023 was GBP1,022,333 (30 June 2022:
GBP1,037,149; 31 December 2022: GBP992,700).
20. Customer deposits
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------------------- -------------------- --------------------- -------------------------
Retail deposits 498,357 304,377 479,736
Total customer deposits 498,357 304,377 479,736
-------------------------- -------------------- --------------------- -------------------------
Amounts repayable within
one year 435,159 273,445 364,674
Amounts repayable after
one year 63,198 30,932 115,062
498,357 304,377 479,736
-------------------------- -------------------- --------------------- -------------------------
21. Financial liabilities
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------------- ----------------------- ------------------------ -----------------------------
Lease liabilities 1,267 449 395
Preference Shares 50 50 50
Total financial liabilities 1,317 499 445
----------------------------- ----------------------- ------------------------ -----------------------------
Lease liabilities:
Refer to note 22 for further details on movements of lease
liabilities during the six-month period ended 30 June 2022.
22. Lease liabilities
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------ ------------------------------ ------------------------------- ---------------------------------
Current 128 118 145
Non-current 1,139 331 250
Total lease
liabilities 1,267 449 395
------------------ ------------------------------ ------------------------------- ---------------------------------
Maturity
analysis:
Year 1 253 137 162
Year 2 252 184 184
Year 3 252 168 79
Year 4 252 - -
Year 5 253 - -
Onwards 482 - -
Total lease
payments 1,744 489 425
------------------ ------------------------------ ------------------------------- ---------------------------------
Finance charges (477) (40) (30)
Total lease
liabilities 1,267 449 395
------------------ ------------------------------ ------------------------------- ---------------------------------
Movements in lease liabilities in the period:
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------- ---------------------------------- ------------------------------- ---------------------------------
At 1 January 395 504 504
Additions 365 - -
Finance costs 17 10 21
Lease
payments (106) (71) (141)
Lease
modification 596 6 11
At period end 1,267 449 395
-------------- ---------------------------------- ------------------------------- ---------------------------------
In the six-month period ended 30 June 2023, the Group entered
into a new lease agreement for additional office space at its
Manchester headquarters. The Group has recognised GBP365,000 of
additional lease payment obligations in respect to this new
agreement.
In conjunction to the above new lease, the Group reviewed the
expected term of the existing lease agreement of the Manchester
headquarters office, which resulted in a lease modification of
GBP596,218 - refer to note 17 for further details.
23. Financial instruments
Analysis of financial instruments by valuation model
The Group measures fair values using the following hierarchy of
methods:
-- Level 1 - Quoted market price in an active market for an identical instrument
-- Level 2 - Valuation techniques based on observable inputs.
This category includes instruments valued using quoted market
prices in active markets for similar instruments, quoted prices for
similar instruments that are considered less than active, or other
valuation techniques where all significant inputs are directly or
indirectly observable from market data
-- Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
Financial assets and liabilities that are not measured at fair
value:
Carrying Level Level Level
amount Fair value 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------- ----------- -------- -------- ---------
30 June 2023 (Unaudited)
Financial assets not measured at
fair value:
Cash and balances at
central banks 46,642 46,642 46,642 - -
Loans and advances to
banks 5,067 5,067 5,067 - -
Loans and advances to
customers 513,787 513,787 - - 513,787
Trade receivables 980 980 - - 980
Other receivables 352 352 - - 352
566,828 566,828 51,709 - 515,119
----------------------------- --------- ----------- -------- -------- ---------
30 June 2023 (Unaudited)
Financial liabilities not measured
at fair value:
Customer deposits 498,357 494,379 - - 494,379
Other financial liabilities 1,267 1,267 - - 1,267
Trade payables 469 469 - - 469
Other payables 2,106 2,106 - - 2,106
Preference shares 50 50 - - 50
502,249 498,271 - - 498,271
----------------------------- --------- ----------- -------- -------- ---------
Carrying Level Level Level
amount Fair value 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------------------------ ----------- -------- -------- ---------
30 June 2022 (Unaudited)
Financial assets not measured at
fair value:
Cash and balances at
central banks 47,586 47,586 47,586 - -
Loans and advances to
banks 20,898 20,898 20,898 - -
Loans and advances to
customers 305,629 305,629 - - 305,629
Trade receivables 751 751 - - 751
Other receivables 330 330 - - 330
375,194 375,194 68,484 - 306,710
----------------------------- ------------------------ ----------- -------- -------- ---------
30 June 2022 (Unaudited)
Financial liabilities not measured
at fair value:
Customer deposits 304,377 303,640 - - 303,640
Other financial liabilities 449 449 - - 449
Trade payables 172 172 - - 172
Other payables 16,882 16,882 - - 16,882
Preference shares 50 50 - - 50
321,930 321,193 - - 321,193
----------------------------- ------------------------ ----------- -------- -------- ---------
Carrying Level Level Level
amount Fair value 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ------------------------ ----------- --------- -------- ---------
31 December 2022 (Audited)
Financial assets not measured at
fair value:
Cash and balances at central
banks 107,353 107,353 107,353 - -
Loans and advances to
banks 3,848 3,848 3,848 - -
Loans and advances to
customers 435,883 435,883 - - 435,883
Trade receivables 749 749 - - 749
Other receivables 273 273 - - 273
548,106 548,106 111,201 - 436,905
------------------------------ ------------------------ ----------- --------- -------- ---------
31 December 2022 (Audited)
Financial liabilities not measured
at fair value:
Customer deposits 479,736 478,800 - - 478,800
Other financial liabilities 395 395 - - 395
Trade payables 218 218 - - 218
Other payables 3,377 3,377 - - 3,377
Preference shares 50 50 - - 50
483,776 482,840 - - 482,840
------------------------------ ------------------------ ----------- --------- -------- ---------
Fair values for level 3 assets were calculated using a
discounted cash flow model and the Directors consider that the
carrying amounts of financial assets and liabilities recorded at
amortised cost are approximate to their fair values.
Cash and balances at central banks
This represents cash held at central banks where fair value is
considered to be equal to carrying value.
Loans and advances to banks
This mainly represents the Group's working capital current
accounts with other banks with an original maturity of less than
three months. Fair value is not considered to be materially
different to carrying value.
Loans and advances to customers
Due to the short-term nature of loans and advances to customers,
their carrying value is considered to be approximately equal to
their fair value. These items are short term in nature such that
the impact of the choice of discount rate would not make a material
difference to the calculations.
Customer deposits
The fair value of fixed rate retail deposits has been estimated
by discounting future cash flows at current market rates of
interest. Retail deposits at variable rates and deposits payable on
demand are considered to be at current market rates and as such
fair value is estimated to be equal to carrying value.
Trade and other receivables, other borrowings and other
liabilities
These represent short-term receivables and payables and as such
their carrying value is considered to be equal to their fair
value.
Financial assets and liabilities included in the statement of
financial position that are measured at fair value:
Carrying Principal Level Level Level
Amount Amount 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- ---------- -------- -------- --------
30 June 2023 (Unaudited)
Financial assets measured at fair
value:
Debt securities 24,528 25,000 24,528 - -
24,528 25,000 24,528 - -
-------------------------- --------- ---------- -------- -------- --------
30 June 2023 (Unaudited)
Financial liabilities measured at
fair value:
Derivative liabilities 1,409 165,000 - 1,409 -
1,409 165,000 - 1,409 -
-------------------------- --------- ---------- -------- -------- --------
Carrying Principal Level Level Level
Amount Amount 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- ---------- -------- -------- --------
30 June 2022 (Unaudited)
Financial assets measured at fair
value:
Debt securities 31,997 32,000 31,997 - -
31,997 32,000 31,997 - -
-------------------------- --------- ---------- -------- -------- --------
30 June 2022 (Unaudited)
Financial liabilities measured at
fair value:
Derivative liabilities 24 5,000 - 24 -
24 5,000 - 24 -
-------------------------- --------- ---------- -------- -------- --------
Carrying Principal Level Level Level
Amount Amount 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- ---------- -------- -------- --------
31 December 2022 (Audited)
Financial assets measured at fair
value:
Debt securities 22,964 23,000 22,964 - -
Derivative assets 57 70,000 - 57 -
23,021 93,000 22,964 57 -
---------------------------- --------- ---------- -------- -------- --------
31 December 2022 (Audited)
Financial liabilities measured at
fair value:
Derivative liabilities 42 20,000 - 42 -
42 20,000 - 42 -
---------------------------- --------- ---------- -------- -------- --------
Debt securities
The debt securities carried at fair value by the Company are
treasury bills and government gilts. Treasury bills and government
gilts are traded in active markets and fair values are based on
quoted market prices.
There were no transfers between levels during the periods, all
debt securities have been measured at level 1 from acquisition.
Derivatives
Derivative instruments fair values are provided by a third party
and are based on the market values of similar financial
instruments. The fair value of investment securities held at
FVTPL is measured using a discounted cash flow model.
Capital management
The Group manages its capital to ensure that it will be able to
continue as a going concern while providing an adequate return to
shareholders.
Refer to the audited financial statement of the Group for the
year ended 31 December 2022 for further details of the Group's
approach to capital management.
Financial risk management
The Group's activities and the existence of the above financial
instruments expose it to a variety of financial risks.
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies. The overall
objective of the Board is to set policies that seek to reduce
ongoing risk as far as possible without unduly affecting the
Group's competitiveness and flexibility.
The Group is exposed to the following financial risks:
-- Credit risk
-- Liquidity risk
-- Interest rate risk
Credit risk
Credit risk is the risk that a customer or counterparty will
default on its contractual obligations resulting in financial loss
to the Group. One of the Group's main income generating activities
is lending to customers and therefore credit risk is a principal
risk. Credit risk mainly arises from loans and advances to
customers. The Group considers all elements of credit risk exposure
such as counterparty default risk, geographical risk and sector
risk for risk management purposes.
Refer to the audited financial statement of the Group for the
year ended 31 December 2022 for further details of the Group's
approach to credit risk management and impairment provisioning.
Collateral held as security:
31 December
30 June 2023 30 June 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
---------------------------- --------------------------- -------------------------- -------------------------------
Fully collateralised
Loan-to-value* ratio:
Less than 50% 4,972 3,955 2,798
51% to 70% 56,006 20,957 36,764
71% to 80% 61,764 34,002 63,239
81% to 90% 80,598 36,212 69,499
91% to 100% 301,148 213,203 264,118
Total collateralised
lending 504,488 308,329 436,418
---------------------------- --------------------------- -------------------------- -------------------------------
Partially collateralised
lending - - -
---------------------------- --------------------------- -------------------------- -------------------------------
Unsecured lending 17,995 331 4,866
---------------------------- --------------------------- -------------------------- -------------------------------
* Calculated using wholesale collateral values. Wholesale
collateral values represent the invoice total (including applicable
VAT) from the invoice received from the supplier of the product.
The wholesale amount is less than the recommended retail price
(RRP) of the product.
The Group's lending activities are asset based so it expects
that the majority of its exposure is secured by the collateral
value of the asset that has been funded under the loan agreement.
The Group has title to the collateral which is funded under loan
agreements. The collateral includes boats, motorcycles,
recreational vehicles, caravans, light commercial vehicles,
industrial and agricultural equipment. The collateral has low
depreciation and is not subject to rapid technological changes or
redundancy. There has been no change in the Group's assessment of
collateral and its underlying value in the reporting period.
The assets are generally in the counterparty's possession, but
this is controlled and managed by the asset audit process. The
audit process checks on a periodic basis that the asset is in the
counterparty's possession and has not been sold out of trust or is
otherwise not in the counterparty's control. The frequency of the
audits is initially determined by the risk rating assessed at the
time that the borrowing facility is first approved and is assessed
on an ongoing basis.
Additional security may also be taken to further secure the
counterparty's obligations and further mitigate risk. Further to
this, in many cases, the Group is often granted, by the
counterparty, an option to sell-back the underlying collateral.
Based on the Group's current principal products, the
counterparty repays its obligation under a loan agreement with the
Group at or before the point that it sells the asset. If the asset
is not sold and the loan agreement reaches maturity, the
counterparty is required to pay the amount due under the loan
agreement plus any other amounts due. In the event that the
counterparty does not pay on the due date, the Group's customer
management process will maintain frequent contact with the
counterparty to establish the reason for the delay and agree a
timescale for payment. Senior Management will review actions on a
regular basis to ensure that the Group's position is not being
prejudiced by delays.
In the event the Group determines that payment will not be made
voluntarily, it will enforce the terms of its loan agreement and
recover the asset, initiating legal proceedings for delivery, if
necessary. If there is a shortfall between the net sales proceeds
from the sale of the asset and the counterparty's obligations under
the loan agreement, the shortfall is payable by the counterparty on
demand.
Concentration of credit risk:
The Group maintains policies and procedures to manage
concentrations of credit at the counterparty level and industry
level to achieve a diversified loan portfolio. The Group's gross
receivable balance for loans and advances to customers is split by
industry as follows:
30 June 2023 30 June 2022 31 December 2022
(Unaudited) (Unaudited) (Audited)
Portfolio Portfolio Portfolio
GBP'000 % GBP'000 % GBP'000 %
---------------------------- -------- ---------- -------- ---------- --------- ----------
Gross carrying amount:
Lodges and holiday homes 158,586 30% 94,696 31% 118,156 27%
Motorhomes and caravans 97,414 19% 58,103 19% 83,420 19%
Transport 112,605 22% 54,489 18% 113,595 26%
Marine 48,420 9% 36,786 12% 47,713 11%
Industrial equipment 31,644 6% 27,561 9% 30,159 7%
Motor vehicles 28,965 6% 17,490 6% 20,767 5%
Agricultural equipment 25,835 5% 19,535 6% 24,555 6%
Automotive 4,107 1% - 0% 2,919 1%
Wholesale and receivables
funding 14,907 3% - 0% - 0%
Total gross carrying
amount 522,483 100% 308,660 100% 441,284 100%
---------------------------- -------- ---------- -------- ---------- --------- ----------
Credit quality of borrowers:
An analysis of the Group's credit risk exposure for loan and
advances per class of financial asset, internal rating and "stage"
is provided in the following tables. Refer to the audited financial
statements of the Group for the year ended 31 December 2022 for
description of the meanings of Stages 1, 2 and 3.
30 June 2023 (Unaudited) Stage 1 Stage 2 Stage 3 Total
Portfolio Portfolio Portfolio Portfolio
GBP'000 % GBP'000 % GBP'000 % GBP'000 %
-------------------------- -------- ---------- -------- ---------- -------- ---------- -------- ----------
Gross carrying amount:
Above average (Rating
1-2) 366,504 70% 678 0% - 0% 367,182 70%
Average (Rating
3-5) 90,005 17% 15,102 3% 37 0% 105,144 20%
Below average (Rating
6+) 30,837 6% 2,700 1% 16,620 3% 50,157 10%
Total gross carrying
amount 487,346 93% 18,480 4% 16,657 3% 522,483 100%
-------------------------- -------- ---------- -------- ---------- -------- ---------- -------- ----------
ECL ECL ECL ECL
coverage coverage coverage coverage
GBP'000 % GBP'000 % GBP'000 % GBP'000 %
-------------------------- -------- ---------- -------- ---------- -------- ---------- -------- ----------
Impairment allowance:
Above average (Rating
1-2) (944) 0.3% (1) 0.2% - 0.0% (945) 0.3%
Average (Rating
3-5) (1,101) 1.2% (171) 1.1% (1) 4.0% (1,273) 1.2%
Below average (Rating
6+) (304) 1.0% (35) 1.3% (4,641) 27.9% (4,980) 9.9%
Total impairment
allowance (2,349) 0.5% (207) 1.1% (4,642) 27.9% (7,198) 1.4%
-------------------------- -------- ---------- -------- ---------- -------- ---------- -------- ----------
30 June 2022
(Unaudited) Stage 1 Stage 2 Stage 3 Total
Portfolio Portfolio Portfolio Portfolio
GBP'000 % GBP'000 % GBP'000 % GBP'000 %
--------------------------------- ---------- -------- ---------- -------- ---------- -------- ----------
Gross carrying amount:
Above average (Rating
1-2) 188,489 61% - 0% - 0% 188,489 61%
Average (Rating
3-5) 72,424 23% 17,279 6% 710 0% 90,413 29%
Below average (Rating
6+) 26,098 8% 852 0% 2,808 1% 29,758 10%
Total gross carrying
amount 287,011 93% 18,131 6% 3,518 1% 308,660 100%
ECL ECL ECL ECL
coverage coverage coverage coverage
GBP'000 % GBP'000 % GBP'000 % GBP'000 %
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Impairment allowance:
Above average (Rating
1-2) (302) 0.2% - 0.0% - 0.0% (302) 0.2%
Average (Rating
3-5) (533) 0.7% (66) 0.4% (465) 65.5% (1,064) 1.2%
Below average (Rating
6+) (348) 1.3% (7) 0.8% (417) 14.8% (772) 2.6%
Total impairment
allowance (1,183) 0.4% (73) 0.4% (882) 25.1% (2,138) 0.7%
31 December 2022
(Audited) Stage 1 Stage 2 Stage 3 Total
Portfolio Portfolio Portfolio Portfolio
GBP'000 % GBP'000 % GBP'000 % GBP'000 %
Gross carrying amount:
Above average (Rating
1-2) 267,000 61% 6,629 2% - 0% 273,629 62%
Average (Rating
3-5) 110,818 25% 5,433 1% 14,757 3% 131,008 30%
Below average (Rating
6+) 32,938 7% 1,261 0% 2,448 1% 36,647 8%
Total gross carrying
amount 410,756 93% 13,323 3% 17,205 4% 441,284 100%
ECL ECL ECL ECL
coverage coverage coverage coverage
GBP'000 % GBP'000 % GBP'000 % GBP'000 %
Impairment allowance:
Above average (Rating
1-2) (475) 0.2% (17) 0.3% - 0.0% (492) 0.2%
Average (Rating
3-5) (981) 0.9% (46) 0.8% (1,292) 8.8% (2,319) 1.8%
Below average (Rating
6+) (487) 1.5% (21) 1.7% (401) 16.4% (909) 2.5%
Total impairment
allowance (1,943) 0.5% (84) 0.6% (1,693) 9.8% (3,720) 0.8%
See note 13 for analysis of the movements in gross loan
receivables and impairment allowances in terms of IFRS 9
staging.
Analysis of credit quality of trade receivables:
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Status at balance sheet date
Not past due, nor defaulted 941 617 563
Past due but not in default 50 151 29
Defaulted 285 151 258
Total gross carrying amount 1,276 919 850
Loss allowance (296) (168) (101)
Carrying amount 980 751 749
See note 14 for analysis of the movements in gross trade
receivables and impairment allowances in terms of IFRS 9
staging.
Liquidity risk
Liquidity risk is the risk that the Group does not have
sufficient financial resources to meet its obligations as they fall
due or will have to do so at an excessive cost. This risk arises
from mismatches in the timing of cash flows which is inherent in
all finance operations and can be affected by a range of
Group-specific and market-wide events.
Refer to the audited financial statement of the Group for the
year ended 31 December 2022 for further details of the Group's
approach to liquidity risk management.
Market risk
Market risk is the risk that movements in market factors, such
as foreign exchange rates, interest rates, credit spreads, equity
prices and commodity prices will reduce the Group's income or the
value of its assets.
The principal market risk to which the Group is exposed is
interest rate risk.
The Group's treasury function is responsible for managing the
Group's exposure to all aspects of market risk within the
operational limits set out in the Group's treasury policies, with
the overall objective of managing market risk in line with the
Group's risk appetite. The Asset and Liability Committee approves
the Group's treasury policies and receives regular reports on all
aspects of market risk exposure, including interest rate risk.
Refer to the audited financial statement of the Group for the
year ended 31 December 2022 for further details of the Group's
approach to market risk management.
24. Derivatives
Derivative financial instruments are used by the Group for risk
management purposes in order to minimise or eliminate the impact of
movements in interest rates and foreign exchange rates. Derivatives
are not used for trading or speculative purposes.
The table below reconciles the gross amount of derivative
contracts to the carrying balance shown in the Consolidated
statement of financial position:
Net amount
of financial Cash collateral
assets/(liabilities) paid/(received)
Gross amount presented in not offset
of recognised the Statement in the Statement
financial of Financial of Financial
assets/(liabilities) Position Position Net amount
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------
30 June 2023
(Unaudited)
Derivative
assets:
Interest rate
risk
hedging - - - -
Derivative
liabilities:
Interest rate
risk
hedging (1,409) (1,409) 1,380 (29)
30 June 2022
(Unaudited)
Derivative
assets:
Interest rate
risk
hedging - - - -
Derivative
liabilities:
Interest rate
risk
hedging (24) (24) 50 26
31 December
2022
(Audited)
Derivative
assets:
Interest rate
risk
hedging 57 57 (28) 29
Derivative
liabilities:
Interest rate
risk
hedging (42) (42) 98 56
All derivative instruments which have been entered into are
transacted against SONIA. Interest rate swaps are used to manage
interest rate risk associated with the Group's customer deposits
portfolio only. Due to the short-term duration of the Group's loans
and advances to customers portfolio, and the ability to reprice the
interest charged, the Group's interest rate risk on the loan
portfolio is limited so the Group does not hedge against this
risk.
Derivative assets and liabilities include a variation margin
receivable of GBP1,380,000 (30 June 2022: GBP50,000, 31 December
2022: GBP70,000) with swap counterparties to mitigate credit risk
for both parties. Further, the Group holds GBP2,000,000 (30 June
2022: GBP500,000, 31 December 2022: GBP500,000) of independent
collateral with banks for the swap facility, which is not included
within the above table.
The table below profiles the maturity of nominal amounts for
interest rate risk hedging derivatives based on contractual
maturity:
Total nominal Less than 3 - 12 1 - 5 More than
amount 3 months months years 5 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
30 June 2023 (Unaudited)
Derivative assets - - - - -
Derivative liabilities 165,000 - 155,000 10,000 -
165,000 - 155,000 10,000 -
--------- --------
30 June 2022 (Unaudited)
Derivative assets - - - - -
Derivative liabilities 5,000 - 5,000 - -
5,000 - 5,000 - -
31 December 2022 (Audited)
Derivative assets 70,000 - 30,000 40,000 -
Derivative liabilities 20,000 5,000 - 15,000 -
90,000 5,000 30,000 55,000 -
The Group has 9 (30 June 2022: 1, 31 December 2022: 6) active
derivative contracts with an average fixed rate of 4.60% (30 June
2022: 0.92%, 31 December 2022: 4.21%).
25. Hedge accounting
30 June 31 December
30 June 2023 2022 2022
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------------- ------------- ------------- ------------
Hedged liabilities
Current hedge relationships (1,593) (4) (77)
Swap inception adjustment 14 (4) (7)
Fair value adjustments on
hedged liabilities (1,579) (8) (84)
-----------------------------
As at the period ended 30 June 2023, the Group presently only
hedges liabilities in the form of its customer deposits. The Group
does not hedge its loans and advances to customers given these
assets are expected to reprice within a short time frame.
At present, the Group expects its hedging relationships to be
highly effective as the Group hedges fixed term deposit accounts
for which the fair value movements between the hedged item and
hedging instrument are expected to be highly correlated.
Further, the Group does not anticipate having to rebalance the
relationship once entered into due to the contractual terms of the
fixed term deposits with depositors. In the period ended 30 June
2023, there has been no cancelled or de-designated hedge
relationships due to failed hedge accounting relationships.
The tables below analyse the Group's portfolio hedge accounting
for fixed rate amounts owed to retail depositors:
30 June 2023 30 June 2022 31 December
(Unaudited) (Unaudited) 2022 (Audited)
Hedged Hedging Hedged Hedging Hedged Hedging
item instrument item instrument item instrument
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Customer deposits:
Carrying amount of
hedged item/nominal
value of hedging instrument 168,165 165,000 5,025 5,000 90,505 90,000
Cumulative fair value
adjustments (1,579) (1,409) (8) (24) (84) -
Fair value adjustments
for the period (1,495) (1,409) (8) (24) (84) -
In the Consolidated Statement of Financial Position, GBPnil (30
June 2022: GBPnil, 31 December 2022: GBP57,000) of hedging
instruments were recognised within derivative assets; and
GBP1,409,000 (30 June 2022: GBP24,000, 31 December 2022: GBP42,000)
within derivative liabilities.
26. Earnings per share
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
(Unaudited) (Unaudited) (Audited)
Number of shares # # #
At period end 179,369,199 179,369,199 179,369,199
Basic
Weighted average number of shares
in issue during period 179,369,199 179,369,199 179,369,199
Diluted
Effect of weighted average number
of options outstanding for the
period - - -
Diluted weighted average number
of shares and options for the
period 179,369,199 179,369,199 179,369,199
Earnings attributable to ordinary
shareholders GBP'000 GBP'000 GBP'000
Profit after tax attributable
to the shareholders 2,261 16 9,761
Earnings per share pence pence pence
Basic 1 0 5
Diluted 1 0 5
27. Related party disclosures
In the six-month period ended 30 June 2023, Directors Carl
D'Ammassa and Gavin Morris were awarded share options as a
long-term incentive plan, refer to note 8 for further details.
Otherwise, during the six months period ended 30 June 2023, all
other related party transactions have had no material effect on the
financial position or performance of the Group. The related party
transactions remain similar in nature to those disclosed in the
audited financial statements of the Group for the year ended 31
December 2022.
28. Subsequent events
On 8 September 2023 the Group announced it had secured a new
GBP20m Tier 2 Capital Facility from British Business Investments, a
wholly-owned commercial subsidiary of the British Business Bank.
The facility, which has a term of 10 years, can be drawn in
quarterly tranches of up to GBP5m with each tranche having a fixed
coupon. GBP5m was drawn under this facility on 22 September
2023.
In August 2023 the ENABLE Guarantee with the British Business
Bank was upsized from GBP175m to GBP250m.
There have been no other significant events between 30 June 2023
and the date of approval of the Interim Financial Report that
require a change or additional disclosure in the condensed
consolidated interim financial statements.
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END
IR BCGDCSDDDGXI
(END) Dow Jones Newswires
September 29, 2023 02:00 ET (06:00 GMT)
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