TIDMPCF

RNS Number : 4592Z

PCF Group PLC

25 January 2022

24 January 2022

PCF Group plc

("PCF", the "Company" or the "Group")

Interim Results

Six months to 31 March 2021

PCF Group plc, the AIM-listed specialist bank, today announces its interim results for the six-months ended 31 March 2021.

The following summary of the consolidated interim financial statements should be read in conjunction with PCF Group plc's Annual Report & Financial Statements 2020, notably the emerging risks and uncertainties outlined in the Risk Overview.

Garry Stran, Interim Chief Executive Officer, commented:

'The Group delivered a statutory profit after tax of GBP1.0 million. The reduction on the prior year (2020: GBP2.0 million) predominantly reflects higher operating expenses as a result of the focus on remediation activities and the need to invest in order to ensure that the business can support automation and future growth. New business origination was lower in the period and net loans reduced slightly as a result.

The first six months of the 2021 financial year were challenging as a result of the general ongoing pandemic related difficulties facing all businesses and individuals and the specific difficulties that the Group has experienced.

The suspension of trading in the Group's shares on 19 May 2021 followed the identification of accounting errors and misstatements as well as a failure to properly report certain exposures under the Prudential Regulation Authority's Large Exposure reporting framework between December 2018 and June 2019 as set out in the Group's announcement on 28 June 2021. I am pleased to announce that the suspension is expected to be lifted today, allowing trading in the Group's shares to recommence.

Once again, I thank all my colleagues for their commitment and support during this difficult period. It's through their efforts and diligence that we have been able to continue to operate in an effective manner and I am confident we will return to our strategy of controlled and prudent growth, having learned the lessons from this period, as soon as possible.

Whilst the necessary actions have been taken to remediate our core Finance processes, which culminated in an update to the Group's FPPP (Financial Position and Prospects Procedures) memorandum, further work will continue to enhance our processes and develop the foundations to support the future strategy of the Group which will be centred around an enhanced, more robust risk management framework and underpinned by higher levels of automation and self-service.

I look forward to sharing more updates in the future about the status of these activities and the progress towards delivering our strategic priorities.'

Business Highlights:

 
 *   Net loans and advances reduced slightly to GBP425.8 million 
      (September 2020: GBP427.3 million). 
 *   Total new business originations were 20% lower at GBP122.9 
      million (2020: GBP153.3 million). 
 *   Focus remains on writing high quality business, with 93% 
      (2020: 80%) of originations in our top four credit grades.(1) 
 *   Customer savings balances of GBP338.3 million (September 
      2020: GBP341.8 million) with over 8,050 customers (September 
      2020: over 7,950). 
 *   Portfolio forbearance has reduced signi cantly since the 
      introduction of lockdowns in the United Kingdom ('UK'). 
      At March 2021, less than 4% of the portfolio was in forbearance 
      (September 2020: 9%). 
 

(1) (Top four credit grades refer to internal credit grades 1 to 4. Refer to the Risk Management Report in the PCF Group Annual Report & Financial Statements 2020 for further details.)

Financial Highlights:

 
 *   Net operating income increased by 4% to GBP14.7 million 
      (2020: GBP14.2 million). 
 *   Net interest margin decreased slightly to 6.7% (2020: 6.8%). 
 *   Cost to income ratio increased to 66.3% (2020: 49.2%).(2) 
 *   Credit impairment charge of GBP3.8 million (2020: GBP4.7 
      million) largely driven by a change to the provision estimates 
      for defaulted receivables. 
 *   Impairment charge as a percentage of average gross loans 
      was 1.7% (2020: 2.5%). 
 *   Statutory pro t after tax of GBP1.0 million (2020: GBP2.0 
      million), with the reduction driven by higher expenses. 
 *   Post-tax return on equity of 3.6% (2020: 6.8%). 
 *   Earnings per share of 0.4p (2020: 0.8p). 
 *   Total Capital Ratio of 16.7% (September 2020: 16.8%). 
 *   Leverage ratio of 11.5% (September 2020: 11.5%).(3) 
 *   Liquidity Coverage Ratio of 488% (September 2020: 673%). 
 

(2) (Cost to income ratio excludes impairment of goodwill and impairment losses on financial assets.)

(3) (Leverage ratio - transition definition of Tier 1 capital.)

Interim Chief Executive Officer's statement for the six months ended 31 March 2021

I begin by acknowledging the uncertainty and concern that the delayed publication of our financial results has caused for our stakeholders, and thanking you all for your patience and understanding during this challenging time.

As announced in our Annual Report & Financial Statements 2020, accounting errors and misstatements were identified, which resulted in trading in the Group's shares being suspended on 19 May 2021. In response to these events, the Group is progressing with a number of restorative actions. These actions are focused on significant improvements to culture, governance and controls, and technology.

Culture, governance and controls, and technology

During the period, PCF was delighted to welcome Caroline Richardson to the executive team as Chief Financial Officer. Caroline brings with her a wealth of experience and has been instrumental in implementing our strengthened control environment.

As part of the Group's wider assessment of culture and governance, an extensive culture improvement programme has been launched within the Bank where everybody understands their personal responsibility for risk. The programme will also ensure colleagues feel comfortable to speak up and challenge if they have concerns.

One of the key areas of focus for the Group is continuing our investment in IT systems and infrastructure to develop a technologically advanced, digital, and modern operating platform where we can leverage economies of scale and move towards our ultimate goal of a zero marginal cost operating model.

Economic environment and COVID-19

The first half of the 2021 financial year has been significantly impacted by the ongoing social and economic effects of COVID-19. We have continued to support customers and colleagues and remained focused on the strength of our balance sheet.

Throughout the various lockdowns and restrictions we continued to receive requests for COVID-19 related payment deferrals and other requests for assistance. We have accommodated customers' requests wherever possible, and whilst we continued to receive these requests the percentage of customers benefitting from these plans has reduced significantly since the initial earlier stage of the COVID-19 pandemic.

Business and financial performance

New business origination in the period was lower at GBP122.9 million (2020: GBP153.3 million). Origination levels were impacted by the pandemic, particularly in the Business Finance Division where demand remained low as sole traders and small businesses deferred investment decisions and continued to make use of the Government's support schemes.

Origination increased in the Consumer Finance Division, as demand for used vehicles remained robust although we adopted a cautious approach to origination levels given the unusual dynamics witnessed in respect of the pricing of used vehicles as a result of the shortage of supply of new vehicles. The Group's continued diversification into Bridging Finance has been successful, with significantly higher originations in the first half of the 2021 financial year.

The quality of new business increased with 93% of lending written in our top four credit grades. This compares favourably with 80% in the first half of 2020 .

Net operating income increased 4% to GBP14.7 million in the period largely driven by a 12% increase in net interest income which reflects a broadly stable margin of 6.7% (2020: 6.8%) on a higher average balance sheet.

Operating expenses, excluding impairment of goodwill and credit impairment charges, increased to GBP9.8 million (2020: GBP7.0 million) as we continued to scale to support remediation and capability enhancements to our operating and governance models.

The Group's cost to income ratio increased to 66.3% (2020: 49.2%), with the higher expenses more than offsetting the increased net operating income.

The credit impairment charge of GBP3.8 million (2020: GBP4.7 million) includes an additional GBP3.2 million provision increase for defaulted receivables (receivables that were either seriously in arrears or where the asset which acted as security for the receivable had been sold and a balance of the receivable remained outstanding), resulting from revisions to recovery expectations against those exposures. Besides this, the incremental credit impairment charge in the first half of 2021 was lower than in 2020, reflecting the broadly flat gross loan book in the six months to March 2021.

The Group generated a profit after tax of GBP1.0 million (2020: GBP2.0 million) which represents a return on equity of 3.6% (2020: 6.8%) and an earnings per share of 0.4 pence (2020: 0.8 pence).

Capital, funding and liquidity management

The Group remains extremely focused on ensuring it maintains sufficient levels of capital and liquidity. At 31 March 2021, the Group had a total capital ratio of 16.7% (September 2020: 16.8%) and a liquidity coverage ratio of 488% (September 2020: 673%).

The Group's diversified funding model comprises both retail deposits, wholesale funding and drawings from the Bank of England's Term Funding Schemes. At 31 March 2021, we held GBP338.3 million in deposits and had drawings of GBP59.6 million against the Term Funding Schemes. This is in addition to the GBP7.2 million of Tier 2 capital from the facility that we have with British Business Investments Limited.

Changes to the Board

As announced on 23 December 2021, the Group's Chairman Tim Franklin has notified the Board that he will retire as director and Chairman, effective no later than 31 January 2022. Marian Martin has also resigned as a director. Tim and Marian were both valued members of the Board.

As Chairman, Tim oversaw significant change in the business during his tenure and in recent months provided calm and considered leadership against what was an extremely challenging backdrop. His contribution to the Group has been significant and I thank him for his contributions and wish him the very best for the future.

We announced on 10 January 2022 that following a thorough search process, Simon Moore and Mark Sismey-Durrant were appointed as non-executive directors to the Board with effect from 9 January 2022.

Subject to regulatory approvals, Simon Moore will take up the role of the Chair of the Board and Board Nominations Committee and Mark Sismey-Durrant will take up the role of Senior Independent Director and interim Chair of the Board Risk Committee. Both bring a wealth of executive and non- executive experience, including within financial services, and we are extremely pleased to be welcoming them to PCF.

Financial targets

Published financial targets were withdrawn in June 2020 in response to the uncertainty caused by COVID-19. We are determined to return to providing targets and we now believe the most suitable time to reintroduce these will be with, or shortly after, the publication of our Annual Report & Financial Statements 2021. At this stage, our new auditor Macintyre Hudson will have completed their first annual audit and we will have more certainty in respect of performance for the first six months of the 2022 financial year; given this we anticipate being in a position to share details of our full year forecast for the 2022 financial year and how we expect profitability and the size of the balance sheet to develop over the duration of our planning horizon.

Outlook

Financial performance of the Group in the period was impacted by the ongoing economic and social effects of the pandemic, the initial costs associated with the commencement of remediation activity and our IT investment.

Furthermore, in the second half of the 2021 financial year the Group continued with the remediation and enhancement activities discussed herein. We will manage new business volumes to ensure the Group remains well capitalised throughout but before we return to normalised origination levels it is anticipated that there will be a temporary reduction in the overall size of the Group's loan book. Although these factors will continue to have a negative impact on capital generation and profitability in the near-term, it is absolutely necessary that we invest and manage the business appropriately for the future success of the Group.

The Board is confident that this investment coupled with the improvements in culture, governance and controls, and technology will allow the Group to overcome the current challenges and prepare the business to execute against its growth strategy which will be underpinned by a data-driven and digitalised approach to lending and loan origination. I will share more details of our future plans in the Annual Report & Financial Statements 2021.

GG Stran

Interim Chief Executive Officer

24 January 2022

CONSOLIDATED INCOME STATEMENT

 
                                                                                                Half-year to 
                                                                                        ---------------------------- 
 
                                                                                             31 March       31 March 
                                                                                                 2021        2020(4) 
                                                                                          (unaudited)    (unaudited) 
                                                                                 Note         GBP'000        GBP'000 
 Interest income calculated using the effective interest method                    6           21,680         20,364 
 Interest expense calculated using the effective interest method                   7          (7,517)        (7,717) 
                                                                                        -------------  ------------- 
 Net interest income                                                                           14,163         12,647 
 Fees and commission income(4)                                                     8            1,307          2,430 
 Fees and commission expense                                                      8             (928)          (813) 
                                                                                        -------------  ------------- 
 Net fees and commission income                                                    8              379          1,617 
                                                                                        -------------  ------------- 
 Net profit / (loss) on financial instruments classified at fair value through 
  profit or loss                                                                                  207           (25) 
                                                                                        -------------  ------------- 
 Net operating income                                                                          14,749         14,239 
                                                                                        -------------  ------------- 
 Personnel expenses                                                                           (5,731)        (4,331) 
 Depreciation of office equipment, motor vehicles 
  and right-of-use assets                                                                       (575)          (122) 
 Amortisation of intangible assets                                                              (319)          (268) 
 Impairment loss on software                                                                     (14)              - 
 Other operating expenses                                                                     (3,135)        (2,280) 
 Impairment losses on financial assets(4)                                          9          (3,755)        (4,686) 
 Total operating expenses                                                                    (13,529)       (11,687) 
                                                                                        -------------  ------------- 
 
 Profit before tax                                                                              1,220          2,552 
 Income tax                                                                       10            (255)          (509) 
                                                                                        -------------  ------------- 
 Profit after tax                                                                                 965          2,043 
 Earnings per 5p ordinary share - basic and diluted                               17             0.4p           0.8p 
 
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 
                                                                                         Half-year to 
                                                                                ----------------------------- 
 
                                                                                      31 March       31 March 
                                                                                          2021           2020 
                                                                                   (unaudited)    (unaudited) 
                                                                                       GBP'000        GBP'000 
 Profit after taxation                                                                     965          2,043 
 Other comprehensive income that will be reclassified to the Income statement 
 Fair value loss on FVOCI financial instruments                                           (62)          (460) 
 Deferred tax                                                                               12              - 
 Total items that will be reclassified to the Income statement                            (50)          (460) 
                                                                                --------------  ------------- 
 Total comprehensive income net of tax                                                     915          1,583 
                                                                                --------------  ------------- 
 

CONSOLIDATED BALANCE SHEET

 
                                                              At 
                                                 ---------------------------- 
                                                      31 March   30 September 
                                                          2021           2020 
                                          Notes    (unaudited)      (audited) 
                                                       GBP'000        GBP'000 
 Assets 
    Cash and balances at central banks                  25,858         24,936 
 Debt instruments at FVOCI                               2,594          9,095 
 Derivative financial instruments                           18              - 
 Loans and advances to customers           11          425,795        427,297 
 Office equipment, motor vehicles and                    2,652          3,144 
 right-of-use assets 
 
  vehicles 
 Goodwill and other intangible assets      13            4,346          4,327 
 Deferred tax assets                                     1,822          1,810 
 Current tax assets                                      1,341              - 
 Other assets                                            3,349          2,051 
 Total assets                                          467,775        472,660 
 
 Liabilities 
 Due to customers                                      338,336        341,784 
 Due to banks                                           59,615         62,620 
 Derivative financial instruments                            -             80 
 Lease liabilities                                       1,332          1,604 
 Current tax liabilities                                     -            125 
 Other liabilities                                       6,358          5,446 
 Subordinated liabilities                  15            7,224          7,126 
                                                 -------------  ------------- 
 Total liabilities                                     412,865        418,785 
 
 Equity 
 Issued capital                            16           12,550         12,512 
 Share premium                             16           17,679         17,625 
 Other reserves                                              3             53 
 Own shares                                              (147)          (147) 
 Retained earnings                                      24,825         23,832 
                                                 -------------  ------------- 
 Total equity                                           54,910         53,875 
                                                 -------------  ------------- 
 
 Total equity and liabilities                          467,775        472,660 
                                                 -------------  ------------- 
 

The interim financial statements were approved and authorised for issue by the Board on 24 January 2022.

On behalf of the Board

   GG Stran                                                               C Richardson 
   Director                                                                          Director 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 
                                                 Attributable to equity holders of the Group 
                      ------------------------------------------------------------------------------------------------ 
                                    Non-distributable                                  Distributable 
                      --------------------------------------------  -------------------------------------------------- 
                       Issued Capital   Share Premium   Own Shares   Other Reserves   Retained Earnings   Total Equity 
                              GBP'000         GBP'000      GBP'000          GBP'000             GBP'000        GBP'000 
                      ---------------  --------------  -----------  ---------------  ------------------  ------------- 
 Balance at 1 
  October 2020                 12,512          17,625        (147)               53              23,832         53,875 
 Profit for the 
  period                                                                                            965            965 
 Issuance of new 
  shares/scrip 
  dividend                         38              54            -                -                   -             92 
 Fair value 
 gain/(loss) on 
 FVOCI 
 financial 
  instruments                       -               -            -             (50)                   -           (50) 
 Share-based 
  payments                          -               -            -                -                  28             28 
 Cash dividends                     -               -            -                -                   -              - 
 Balance at 31 March 
  2021                         12,550          17,679        (147)                3              24,825         54,910 
                      ---------------  --------------  -----------  ---------------  ------------------  ------------- 
 
 
                                                 Attributable to equity holders of the Group 
                      ------------------------------------------------------------------------------------------------ 
                                    Non-distributable                                  Distributable 
                      --------------------------------------------  -------------------------------------------------- 
                       Issued Capital   Share Premium   Own Shares   Other Reserves   Retained Earnings   Total Equity 
                              GBP'000         GBP'000      GBP'000          GBP'000             GBP'000        GBP'000 
                      ---------------  --------------  -----------  ---------------  ------------------  ------------- 
 Balance at 1 
  October 2019                 12,510          17,619        (355)                7              28,974         58,755 
 Profit for the 
  period                            -               -            -                -               2,043          2,043 
 Issuance of new                    -               -            -                -                   -              - 
 shares/scrip 
 dividend 
 Fair value 
 gain/(loss) on 
 FVOCI 
 financial 
  instruments                       -               -            -            (460)                   -          (460) 
 Share-based 
  payments                          -               -            -                -                (79)           (79) 
 Cash dividends                     -               -            -                -                   -              - 
 Balance at 31 March 
  2020                         12,510          17,619        (355)            (453)              30,938         60,259 
                      ---------------  --------------  -----------  ---------------  ------------------  ------------- 
 
 
                                                 Attributable to equity holders of the Group 
                      ------------------------------------------------------------------------------------------------ 
                                    Non-distributable                                  Distributable 
                      --------------------------------------------  -------------------------------------------------- 
                       Issued Capital   Share Premium   Own Shares   Other Reserves   Retained Earnings   Total Equity 
                              GBP'000         GBP'000      GBP'000          GBP'000             GBP'000        GBP'000 
                      ---------------  --------------  -----------  ---------------  ------------------  ------------- 
 Balance at 1 April 
  2020                         12,510          17,619        (355)            (453)              30,938         60,259 
 Loss for the period                -               -            -                -             (6,301)        (6,301) 
 Issuance of new 
  shares/scrip 
  dividend                          2               6            -                -                 (8)              - 
 Reclassification to 
  cash                              -               -          208                -                   -            208 
 Fair value 
  gain/(loss) on 
  FVOCI 
  financial 
  instruments                       -               -            -              506                   -            506 
 Share-based 
  payments                          -               -            -                -                 196            196 
 Cash dividends                     -               -            -                -               (993)          (993) 
 Balance at 30 
  September 2020               12,512          17,625        (147)               53              23,832         53,875 
                      ---------------  --------------  -----------  ---------------  ------------------  ------------- 
 

CONSOLIDATED STATEMENT OF CASH FLOWS

 
                                                                                      Half-year to 
                                                                           ----------------------------- 
                                                                                 31 March       31 March 
                                                                                     2021      2020(4,5) 
                                                                              (unaudited)    (unaudited) 
                                                                                  GBP'000        GBP'000 
 Operating activities 
 Profit before tax                                                                  1,220          2,552 
 
 Other non-cash items included in profit before tax 
 Depreciation of Office equipment, motor vehicle and right-of-use assets              575            122 
 Loss on sale of motor vehicles                                                         2              - 
 Amortisation of other intangible assets                                              319            268 
 Interest on lease liabilities                                                         21              - 
 Accrued finance costs                                                                 15              - 
 Impairment loss on software                                                           14              - 
 Share-based payments                                                                  28           (79) 
 Impairment losses on financial assets(4)                                           3,755          4,686 
 
   Income tax (paid) / due                                                        (1,733)        (1,788) 
 Adjustment for change in operating assets 
 Net change in loans and advances(4)                                              (2,253)       (67,039) 
 Net change in other assets                                                       (1,298)          1,641 
 Change in operating liabilities 
 Net change in derivative financial instruments                                      (98)            (7) 
 Net change in amounts due to customers                                           (3,448)         72,783 
 Net change in other liabilities                                                      912          4,621 
                                                                            -------------  ------------- 
 Net cash flows from / (used in) operating activities                             (1,969)         17,760 
                                                                            -------------  ------------- 
 
 Investing activities 
 Net sale / (purchase) of debt instruments at FVOCI(5)                              6,451          (950) 
 Purchase of office equipment, motor vehicles                                        (85)        (2,711) 
 Purchase of intangible assets                                                      (352)          (295) 
                                                                            -------------  ------------- 
 Net cash flows from / (used in) investing activities                               6,014        (3,956) 
                                                                            -------------  ------------- 
 
 Financing activities 
 Proceeds from share issue during the period                                           92              - 
 Proceeds from subordinated borrowings                                                 98          5,000 
 Repayment of capital element of leases                                             (293)              - 
 Net proceeds from borrowings                                                     (3,020)       (13,929) 
 Net cash flows used in financing activities                                      (3,123)        (8,929) 
                                                                            -------------  ------------- 
 Net increase in cash and cash equivalents                                            922          4,875 
 Cash and cash equivalents brought forward                                         24,936          7,371 
                                                                            -------------  ------------- 
 Cash and cash equivalents carried forward                                         25,858         12,246 
                                                                            -------------  ------------- 
 
 

NOTES TO THE INTERIM REPORT

   1.   Basis of preparation 

The consolidated interim financial statements for the half-year to 31 March 2021 have been prepared in accordance with the UK adopted IAS 34 'Interim Financial Reporting'. They should be read in conjunction with PCF Group plc Annual Report & Financial Statements 2020 (hereinafter referred to as the 'Annual Report & Financial Statements 2020') which were prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and delivered to the Registrar of Companies. The auditor's report for those accounts did not express an opinion on the financial statements of PCF Group plc (disclaimer of opinion) and contained a statement under 498(2) and (3) of the Companies Act 2006.

The consolidated interim financial statements have not been audited or subject to review by the Group's auditor.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report section of the Annual Report & Financial Statements 2020. In particular this going concern statement should be read in conjunction with the Emerging risks and uncertainties section of the Strategic Report which sets out those risks and mitigations.

The financial position of the Group, its cash flows, liquidity position and borrowing facilities at 30 September 2020 are set out in the Annual Report & Financial Statements 2020 and updated in the consolidated interim financial statements for the half-year to 31 March 2021.

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next twelve months. Accordingly, they continue to adopt the going concern basis in preparing these consolidated interim financial statements.

The directors have assessed the appropriateness of the going concern assumption taking into account all matters set out in the Strategic Report section of the Annual Report & Financial Statements 2020 and a detailed review of the Group's medium-term plan which includes increased remediation costs alongside a consideration of capital, funding and liquidity requirements. This consideration also included other business and emerging risks.

The Group made a GBP(4.8) million statutory loss before tax for the year ended 30 September 2020 and a GBP1.2 million profit before tax for the half-year to 31 March 2021. The Board has approved a medium-term plan in which the Group returns to profitability, but this is dependent on building scale to support an increased cost base. Remediation costs are expected to be incurred for at least the next twelve months. The growth in the medium-term plan requires capital to be raised. However, given the delay to the Annual Report & Financial Statements 2020, the disclaimer of auditor opinion and the temporary suspension of trading in the Group's shares, there are risks associated with our ability to raise capital and fund the planned future balance sheet growth.

Group performance, and the return to profitability in the medium-term plan, is underpinned by a number of key inputs and assumptions which cover:

 
 *   The raising of external capital. 
 *   The funding of new business through retail deposits and 
      other wholesale funding. 
 *   New business origination levels. 
 *   Net interest margin on new business originations. 
 *   The expected date of completion of the Group's remediation 
      activities and the impact on the Group's expenses. 
 *   The level of impairment losses on financial assets. 
 *   Capital requirements, both from a regulatory and internal 
      management perspective. 
 *   Dividends, which have been assumed at zero in the medium-term 
      plan. 
 

This indicates that the Group's ability to operate as a going concern is subject to material uncertainties. As with any medium-term planning process, there is a risk that these assumptions do not materialise. As part of the review of the medium-term plan, the Board was presented with a severe but plausible downside scenario in which the Group is unable to raise external capital, and a number of sensitivities to the medium-term plan in which the Group's net interest margin, impairment losses and business volumes were subject to materially adverse performance. Even under the severe but plausible scenario it was demonstrated that the Group would continue to operate and meet current regulatory requirements for at least the next twelve months, albeit at the expense of balance sheet growth.

The Board has concluded based on the items below that the going concern basis of accounting was deemed appropriate:

 
 *   Planned performance, including a medium-term plan which 
      returns the Group to profitability. 
 *   The assessment of downside risk to the medium-term plan. 
 
   2.   Accounting policies 

The accounting policies adopted by the Group in the preparation of these consolidated interim financial statements and those which the Group currently expects to adopt in the Annual Report & Financial Statements 2021 are consistent with those disclosed in the Annual Report & Financial Statements 2020.

Significant accounting judgements, estimates and assumptions

The judgements and assumptions that are considered to be the most important to the portrayal of the Group's financial condition are those relating to impairment losses on financial assets, effective interest rate and goodwill impairment. These significant accounting judgements, estimates and assumptions are referenced in note 1.7 of the Annual Report & Financial Statements 2020. Estimation uncertainty has been affected by the COVID-19 pandemic. Management's consideration of this source of uncertainty is outlined in the relevant sections of the Annual Report & Financial Statements 2020.

Information used for significant estimates

The COVID-19 pandemic has continued to cause significant economic and social disruption. Key financial estimates are based on a range of anticipated future economic conditions described by internally developed scenarios. Measurement of expected credit losses, effective interest rate and goodwill are highly sensitive to reasonably possible changes in those anticipated conditions. Other reasonably possible assumptions about the future include a prolonged financial effect of the COVID-19 pandemic on the economy of the UK and other countries. Changes in judgements and assumptions could result in a material adjustment to those estimates in the next reporting periods. Refer to the Emerging risks and uncertainties section in the Annual Report & Financial Statements 2020.

   3.   Standards issued but not yet effective 

Minor amendments to IFRSs effective for the Group from 1 October 2020 have been issued by the International Accounting Standards Board (IASB). These amendments are expected to have no or an immaterial impact on the Group's financial statements.

   4.   Amendments to prior year comparatives 

4.1 Fee income on credit impaired accounts

Amendments to the previously reported 2020 disclosures have been made relating to the treatment of other account charges and income on termination, in respect of defaulted agreements.

Amounts in the profit and loss account have been reclassified with the recognition of other fees and commissions of GBP1.5 million and a corresponding increase in impairment losses on financial assets for the same amount. Amounts on the balance sheet have been reclassified with a reduction in loans and advances to customers of GBP1.2 million and a corresponding reduction in allowance for impairment losses for the expected non-recoverable amount of fees outstanding as at the reporting period charged and capitalised on credit impaired accounts. These adjustments have no impact on the previously reported profit before or after tax, or on the net assets of the Group for the half-year to, and at, 31 March 2020.

4.2 Cash flows arising on debt instruments at FVOCI

Amendments to the previously reported 2020 Consolidated statement of cash flows have been made relating to the treatment of unrealised losses on debt instruments at FVOCI.

Amounts in the cash flow statement within Other non-cash items included in profit / (loss) before tax relating to the net change in FVOCI financial instruments of GBP(460,000) have been reclassified to Investing activities as net purchase of debt instruments at FVOCI. These adjustments have no impact on the previously reported Cash and cash equivalents of the Group at 31 March 2020.

   5.   Segment information 

The Group operates in the principal areas of Consumer Finance for motor vehicles and Business Finance for vehicles, plant and equipment, specialist funding in the broadcast and media industry and Bridging Finance.

For management purposes, the Group has been organised into four operating segments based on products and services: Consumer Finance; Business Finance; Azule Finance; and Bridging Finance.

The following table presents income and profit and certain asset and liability information for the Group's operating segments. All of the operating segments are materially based in the UK. Non-UK based operations are not considered material to the Group and therefore no additional geographical information is disclosed.

Segmental allocations were revised for the year ended 30 September 2020. Comparatives for the half-year to, and at, 31 March 2020 have been re-presented in accordance with IFRS 8, paragraph 29.

Segment Information

 
 
                                  Consumer   Business    Azule     Bridging   Adjustment     Total 
                                   Finance    Finance    Finance    Finance    at Group     Segments 
                                                                                 Level 
                                  GBP'000    GBP'000    GBP'000    GBP'000     GBP'000      GBP'000 
 Half-year to 31 March 
  2021 
 Interest income calculated 
  using the effective interest 
  method                             9,863      7,599        729      3,489            -      21,680 
 Interest expense calculated 
  using the effective interest 
  method                           (3,693)    (2,995)      (112)      (717)            -     (7,517) 
 Net interest income                 6,170      4,604        617      2,772            -      14,163 
 Fees and commission income          (131)        942        372        124            -       1,307 
 Fees and commission expense         (557)      (348)       (15)        (8)            -       (928) 
 Net fees and commission 
  (expense)/income                   (688)        594        357        116            -         379 
 Net profit / (loss) on 
  financial instruments 
  classified at fair value 
  through profit or loss                87         79          9         32            -         207 
 Net operating income                5,569      5,277        983      2,920            -      14,749 
 Personnel expenses                (2,070)    (1,924)      (775)      (962)            -     (5,731) 
 Depreciation of office 
  equipment, motor vehicles 
  and right-of-use assets            (202)      (184)      (116)       (73)            -       (575) 
 Amortisation of intangible 
  assets                             (135)      (122)       (14)       (48)            -       (319) 
 Impairment loss on software           (6)        (5)        (1)        (2)            -        (14) 
 Other operating expenses          (1,018)    (1,136)      (815)      (166)            -     (3,135) 
 Impairment losses on 
  financial assets                   (417)    (3,083)      (282)         27            -     (3,755) 
 Total operating expenses          (3,848)    (6,454)    (2,003)    (1,224)            -    (13,529) 
 Segment profit/(loss) 
  before tax                         1,721    (1,177)    (1,020)      1,696            -       1,220 
 Income tax credit / (charge)        (360)        246        213      (354)            -       (255) 
 Profit/(loss) after tax             1,361      (931)      (807)      1,342            -         965 
 
 At 31 March 2021 
 Total Assets                      195,888    178,199     22,208     70,333        1,147     467,775 
 Total Liabilities                 173,652    157,973     18,890     62,350            -     412,865 
 
 At 30 September 2020 
 Total Assets                      181,209    197,855     27,063     65,386        1,147     472,660 
 Total Liabilities                 160,759    175,694     23,671     58,661            -     418,785 
 

Segment Information (continued)

 
 
 (Re-presentation)                Consumer   Business    Azule     Bridging   Adjustment     Total 
                                   Finance    Finance    Finance    Finance    at Group     Segments 
                                                                                 Level 
                                  GBP'000    GBP'000    GBP'000    GBP'000     GBP'000      GBP'000 
 Half-year to 31 March 
  2020 
 Interest income calculated 
  using the effective interest 
  method                             8,284     10,227        918        935            -      20,364 
 Interest expense calculated 
  using the effective interest 
  method                           (3,128)    (4,158)      (262)      (169)            -     (7,717) 
 Net interest income                 5,156      6,069        656        766            -      12,647 
 Fees and commission income(4)         447      1,430        553        (0)            -       2,430 
 Fees and commission expense         (472)      (327)       (11)        (3)            -       (813) 
 Net fees and commission 
  (expense)/income                    (25)      1,103        542        (3)            -       1,617 
 Net profit / (loss) on 
  financial instruments 
  classified at fair value 
  through profit or loss               (9)       (13)        (1)        (2)            -        (25) 
 Net operating income                5,122      7,159      1,197        761            -      14,239 
 Personnel expenses                (1,314)    (1,786)      (874)      (357)            -     (4,331) 
 Depreciation of office 
  equipment, motor vehicles 
  and right-of-use assets             (37)       (52)       (26)        (7)            -       (122) 
 Amortisation of intangible 
  assets                              (98)      (136)       (16)       (18)            -       (268) 
 Other operating expenses          (1,111)      (908)      (142)      (119)            -     (2,280) 
 Impairment losses on 
  financial assets(4)              (1,298)    (3,179)      (201)        (8)            -     (4,686) 
 Total operating expenses          (3,858)    (6,061)    (1,259)      (509)            -    (11,687) 
 Segment profit/(loss) 
  before tax                         1,264      1,098       (62)        252            -       2,552 
 Income tax credit / (charge)        (300)      (171)         12       (50)            -       (509) 
 Profit/(loss) after tax               964        927       (50)        202            -       2,043 
 
   6.   Interest income calculated using the effective interest method 
 
 
                                                Half-year to 
                                     --------------------------------- 
                                          31 March            31 March 
                                              2021                2020 
                                       (unaudited)         (unaudited) 
                                           GBP'000             GBP'000 
                                     -------------       ------------- 
 Cash and short-term funds                       1                  42 
 Loans and advances to customers            21,599              20,195 
 Financial instruments - FVOCI                  80                 127 
                                      21221,125 
                                     -------------       ------------- 
 Total interest and similar income          21,680              20,364 
                                     -------------       ------------- 
 
 
 
   7.   Interest expense calculated using the effective interest method 
 
                                                     Half-year to 
                                         ----------------------------------- 
                                               31 March             31 March 
                                                   2021              2020(6) 
                                            (unaudited)          (unaudited) 
                                                GBP'000              GBP'000 
                                         --------------       -------------- 
 Paid and accrued to banks                          426                  576 
 Paid and accrued to customers                    3,016                3,349 
 Credit-related fees and commission               4,055                3,792 
 Interest expense on lease liabilities               20                    - 
 
 Total interest and similar expense               7,517                7,717 
                                         --------------       -------------- 
 
   8.   Net fees and commission income 
 
 
                                                 Half-year to 
                                         ---------------------------- 
                                              31 March       31 March 
                                                  2021        2020(4) 
                                           (unaudited)    (unaudited) 
                                               GBP'000        GBP'000 
 Fees and commission income 
 Secondary lease income                            178             60 
 Other fees not forming part of EIR(4)             716          1,728 
 Other fees and commission                         413            642 
                                         -------------  ------------- 
                                                 1,307          2,430 
                                         -------------  ------------- 
 Fees and commission expenses 
 Debt recovery and valuation fees                (129)          (383) 
 Credit assessment costs                         (799)          (430) 
                                         -------------  ------------- 
                                                 (928)          (813) 
                                         -------------  ------------- 
 Net fees and commission income                    379          1,617 
                                         -------------  ------------- 
 
   9.   Impairment losses on financial assets 

Impairment losses on financial assets relates to impairment losses on loans and advances to customers. The charge during the six month periods were as follows.

 
                            Consumer Finance   Business      Azule   Bridging        Total 
                                                Finance    Finance    Finance 
                                     GBP'000    GBP'000    GBP'000    GBP'000      GBP'000 
 Half-year to 31 
  March 2021 (unaudited) 
 Impairment charge 
  for the six months 
  on loans and advances 
  to customers                           417      3,083        282       (27)        3,755 
                           -----------------  ---------  ---------  ---------  ----------- 
 
 Half-year to 31 
  March 2020 (unaudited) 
 Impairment charge 
  for the six months 
  on loans and advances 
  to customers(4)                      1,298      3,179        201          8        4,686 
                           -----------------  ---------  ---------  ---------  ----------- 
 
 

10. Income tax

The income tax rate is 21% (31 March 2020: 20%), representing the best estimate of the annual effective tax rate applied to operating profit before tax for the six months period ended 31 March 2021.

11. Loans and advances to customers

 
 
                                                              At 
                                         ------------------------------------------- 
                                              31 March             30 September 2020 
                                                  2021                     (audited) 
                                           (unaudited)                       GBP'000 
                                               GBP'000 
                                         -------------            ------------------ 
 Consumer lending - gross                      186,172                       171,854 
 Business lending - gross                      175,346                       190,462 
 Azule lending - gross                          19,300                        23,001 
 Bridging lending - gross                       64,987                        60,612 
                                               445,169                       445,929 
                                         -------------            ------------------ 
                                               445,805                       445,929 
 Allowance for impairment losses              (20,010)                      (18,632) 
                                         -------------            ------------------ 
 Total Loans and advances to customers         425,795                       427,297 
                                         -------------            ------------------ 
 
 

A reconciliation of the allowance for impairment losses for loans and advances, by class, is as follows:

 
                              Consumer   Business   Azule Finance   Bridging 
                               Finance    Finance                    Finance          Total 
 (Unaudited)                   GBP'000    GBP'000         GBP'000    GBP'000        GBP'000 
 At 1 October 2020               6,921     10,319             912        480         18,632 
 Charge for the period 
  (note 9)                         417      3,083             282       (27)          3,755 
 (Recoveries) / write-offs       (658)    (1,578)           (141)          -        (2,377) 
                             ---------  ---------  --------------  ---------  ------------- 
 At 31 March 2021                6,680     11,824           1,053        453         20,010 
                             ---------  ---------  --------------  ---------  ------------- 
 
 Made up of 
 Individual impairment              40      1,582             263          -          1,885 
 Collective model 
  provisions including 
  overlays and PMAs              6,640     10,242             790        453         18,125 
                             ---------  ---------  --------------  ---------  ------------- 
 Total impairment                6,680     11,824           1,053        453         20,010 
                             ---------  ---------  --------------  ---------  ------------- 
 
 
                                 Consumer   Business   Azule Finance   Bridging 
                                  Finance    Finance                    Finance        Total 
 (Unaudited)                      GBP'000    GBP'000         GBP'000    GBP'000      GBP'000 
 At 1 October 2019(4)               2,571      4,142             121          6        6,840 
 Charge for the period 
  (note 9)(4)                       1,298      3,179             201          8        4,686 
 (Recoveries) / write-offs(4)       (381)      (933)              92          -      (1,222) 
                                ---------  ---------  --------------  ---------  ----------- 
 At 31 March 2020                   3,488      6,388             414         14       10,304 
                                ---------  ---------  --------------  ---------  ----------- 
 
 Made up of 
 Individual impairment              1,136      1,563             360         14        3,073 
 Collective model 
  provisions including 
  overlays and PMAs(4)              2,352      4,825              54          -        7,231 
                                ---------  ---------  --------------  ---------  ----------- 
 Total impairment(4)                3,488      6,388             414         14       10,304 
                                ---------  ---------  --------------  ---------  ----------- 
 
 
                              Consumer   Business   Azule Finance   Bridging 
                               Finance    Finance                    Finance          Total 
 (Unaudited)                   GBP'000    GBP'000         GBP'000    GBP'000        GBP'000 
 At 1 April 2020                 3,488      6,388             414         14         10,304 
 Charge for the period           3,632      5,228             419        466          9,745 
 (Recoveries) / write-offs       (199)    (1,297)              79          -        (1,417) 
                             ---------  ---------  --------------  ---------  ------------- 
 At 30 September 2020            6,921     10,319             912        480         18,632 
                             ---------  ---------  --------------  ---------  ------------- 
 
   (audited) 
   At 30 September 2020 
 Made up of 
 Individual impairment             776      1,642             767        180          3,365 
 Collective model 
  provisions including 
  overlays and PMAs              6,145      8,677             145        300         15,267 
                             ---------  ---------  --------------  ---------  ------------- 
 Total impairment                6,921     10,319             912        480         18,632 
                             ---------  ---------  --------------  ---------  ------------- 
 
 
 

12. Investment in subsidiary undertakings

The consolidated financial statements include the financial statements of the Company and its subsidiary

undertakings. The Company does not have any joint ventures or associates. Subsidiaries of the Company were as follows.

 
                                                                       Percentage        Percentage 
                                                                               of                of 
                                                                  equity interest   equity interest 
                                                                         31 March      30 September 
 Name of company       Incorporated    Nature of business                    2021              2020 
                                       Banking, hire purchase, 
 PCF Bank Limited      UK               leasing & bridging              100                     100 
 PCF Credit Limited    UK              Leasing & hire purchase               100*              100* 
 Azule Limited         UK              Leasing & hire purchase               100*              100* 
 Azule Finance 
  Limited              Ireland         Leasing & hire purchase               100*              100* 
 Azule Finance 
  GMBH                 Germany         Leasing & hire purchase               100*              100* 
 
 

*Held by a subsidiary of the Company

The registered office of all subsidiaries incorporated in the United Kingdom is Pinners Hall, 105-108 Old Broad Street, London EC2N 1ER.

The registered office of Azule Finance Limited is Suite 104, 4/5 Burton Hall Road, Sandyford, Dublin 18.

The registered office of Azule Finance GMBH is Kirchtruderinger Straße 17, 81829 München, Germany.

All companies have an accounting reference date of 30 September except for Azule Finance GMBH which is 31 December.

Azule Limited, which owns 100% of Azule Finance Limited and Azule Finance GMBH was acquired by PCF Bank Limited on 5 November 2018.

13. Goodwill and other intangibles assets

Goodwill relates partly to the Group's Consumer Finance Division which arises from the acquisition of a subsidiary company, TMV Finance Limited ('TMV'), in November 2000, and the remainder from the acquisition of Azule Limited ('Azule') on 5 November 2018.

In performing the bi-annual impairment test, the Group assesses the economic performance of acquisitions, the future of the business acquired and their useful economic lives. The assessment ensures that growth and profitability are at least the same value as the amount that was paid in excess of the fair value of the assets and liabilities acquired. To assess this, the Board approved forecast (adjusted by the Board's current view of the impact of COVID-19 on the Group) has been used and discounted back to present value.

Both of the cash generating units ('CGUs') acquired are expected to continue to perform, but forecasting is only over the next 5 years. There is, therefore, requirement to capture expected growth and cash flows beyond these dates. To complete this there is a terminal valuation that is required to be performed to assess whether goodwill has been impaired or not. Terminal value often comprises a large percentage of the total assessed value.

The recoverable amount of the TMV and Azule CGU's at 31 March 2021 has been determined based on a value-in-use calculation using cash flow projections from financial budgets approved by the Board covering a five year period, and a terminal valuation based on the previous year's adjusted forecast. The projected cash flows have been updated to reflect the increased business over this current year which is aligned with recent demand and future expected growth in its products and services. The pre-tax discount rate applied to cash flow projections is 12.97% per annum over a five-year period and, for the period beyond, a terminal growth rate of 1% is used, being the expected long-term average growth rate for the Group within the economies in which it operates. It has been concluded that the values in use for TMV and Azule exceed their carrying value in use and the goodwill at 31 March 2021 remains appropriate for the carrying value for the TMV and Azule acquisitions.

The key assumptions used in the value in use calculations and the sensitivity to changes in assumptions are set out in the Annual Report & Financial Statements 2020 note 17.

 
 Goodwill 
                                                At 
                                   ---------------------------- 
                                        31 March   30 September 
                                            2021           2020 
                                     (unaudited)      (audited) 
                                         GBP'000        GBP'000 
 TMV Finance Limited acquisition             397            397 
 Azule Limited acquisition                   750            750 
                                   -------------  ------------- 
                                           1,147          1,147 
                                   -------------  ------------- 
 
 
 
                                            Half-year to 
                           --------------------------------------------- 
                                31 March       31 March     30 September 
                                                                    2020 
                                                             (unaudited) 
                                                                 GBP'000 
                                    2021           2020 
                             (unaudited)    (unaudited) 
                                 GBP'000        GBP'000 
 Cost and net book value 
 Opening balance                   1,147          2,897            2,897 
 Write-offs                            -              -          (1,750) 
                           -------------  -------------  --------------- 
 Closing balance                   1,147          2,897            1,147 
                           -------------  -------------  --------------- 
 
 
 

Other intangible assets

The Group's other intangible assets consist solely of computer software and capitalised expenses incurred in the project regarding the Company's application to become a bank.

 
 
                                                     Half-year to 
                                  -------------------------------------------------- 
                                             31 March       31 March    30 September 
                                     2021 (unaudited)           2020            2020 
                                              GBP'000    (unaudited)     (unaudited) 
                                                             GBP'000         GBP'000 
 Cost 
 Opening balance                                6,800          6,149           6,444 
 Additions during the period                      290            295             192 
 Write off - impairment loss 
  on software                                    (45)              -            (88) 
 Software in development                           62              -             252 
                                  -------------------  -------------  -------------- 
 Closing balance                                7,107          6,444           6,800 
                                  -------------------  -------------  -------------- 
 
   Accumulated depreciation 
 Opening balance                                3,620          3,105           3,373 
 Amortisation during the period                   319            268             284 
 Write off - impairment loss 
  on software                                    (31)              -            (37) 
 Closing balance                                3,908          3,373           3,620 
                                  -------------------  -------------  -------------- 
 Net book value                                 3,199          3,071           3,180 
                                  -------------------  -------------  -------------- 
 
 
 
 
 
                                                       At 
                                           ------------------------- 
                                               31 March    September 
                                                   2021         2020 
                                            (unaudited)    (audited) 
                                                GBP'000      GBP'000 
 Net book value of combined goodwill and 
  other intangible assets                         4,346        4,327 
                                           ------------  ----------- 
 

14. Financial instruments

   14.1   Valuation techniques 

The following table summarises the classification of the carrying amounts of the Group's financial assets and liabilities.

 
                                     Amortised 
                                          Cost     FVTPL    FVOCI      Total 
                                       GBP'000   GBP'000   GBP'000   GBP'000 
 At 31 March 2021 (unaudited) 
 Cash and balances at central 
  banks                                 25,858         -         -    25,858 
 Loans and advances to customers       425,795         -         -   425,795 
 Debt instruments at FVOCI                   -         -     2,594     2,594 
 Derivative financial instruments            -        18         -        18 
 Other assets                            2,251         -         -     2,251 
                                    ----------  --------  --------  -------- 
 Total financial assets                453,904        18     2,594   456,516 
                                    ----------  --------  --------  -------- 
 
 Due to banks                           59,615         -         -    59,615 
 Due to customers                      338,336         -         -   338,336 
 Subordinated liabilities                7,224         -         -     7,224 
 Other liabilities                       3,149         -         -     3,149 
                                    ----------  --------  --------  -------- 
 Total financial liabilities           408,324         -         -   408,324 
                                    ----------  --------  --------  -------- 
 
 
                                     Amortised 
                                          Cost     FVTPL     FVOCI     Total 
                                       GBP'000   GBP'000   GBP'000   GBP'000 
 At 30 September 2020 (audited) 
 Cash and balances at central 
  banks                                 24,936         -         -    24,936 
 Loans and advances to customers       427,297         -         -   427,297 
 Debt instruments at FVOCI                   -         -     9,095     9,095 
 Other Assets                            1,264         -         -     1,264 
                                    ----------  --------  -------- 
 Total financial assets                453,497         -     9,095   462,592 
                                    ----------  --------  -------- 
 
 Due to banks                           62,620         -         -    62,620 
 Due to customers                      341,784         -         -   341,784 
 Derivative financial instruments            -        80         -        80 
 Subordinated liabilities                7,126         -         -     7,126 
 Other liabilities                       3,979         -         -     3,979 
 Total financial liabilities           415,509        80         -   415,589 
                                    ----------  --------  --------  -------- 
 

The Group holds certain financial assets at fair value grouped into Levels 1 to 3 of the fair value hierarchy, as explained below.

Level 1 - The most reliable fair values of financial instruments are quoted market prices in an actively traded market. The Group's Level 1 portfolio mainly comprises gilts, fixed rate bonds and floating rate notes for which traded prices are readily available.

Level 2 - These are valuation techniques for which all significant inputs are taken from observable market data. These include valuation models used to calculate the present value of expected future cash flows and may be employed when no active market exists, and quoted prices are available for similar instruments in active markets.

Level 3 - These are valuation techniques for which one or more significant inputs are not based on observable market data. Valuation techniques include net present value by way of discounted cash flow models. Assumptions and market observable inputs used in valuation techniques include risk-free and benchmark interest rates, similar market products, foreign currency exchange rates and equity index prices. Critical judgement is applied by management in utilising unobservable inputs including expected price volatilities and prepayment rates, based on industry practice or historical observation. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date that would have been determined by market participants acting at arm's length.

The following table shows an analysis of financial instruments recorded at amortised cost by level of the fair value hierarchy.

 
                                    Carrying                                 Fair value 
                                      value      Level     Level     Level 
                                                   1           2         3 
                                    GBP'000    GBP'000   GBP'000   GBP'000    GBP'000 
 Financial instruments held 
  at amortised cost 
  At 31 March 2021 (unaudited) 
 Cash and balances at central 
  banks                               25,858    25,858         -         -       25,858 
 Loans and advances to customers     425,795         -         -   425,795      479,810 
                                   ---------  --------  --------  --------  ----------- 
                                     451,653    25,858         -   425,795      505,668 
                                   ---------  --------  --------  --------  ----------- 
 
 Due to banks(7)                      59,615    59,615         -         -       59,615 
 Subordinated liabilities              7,224         -         -     7,224        8,346 
 Due to customers(7)                 338,336         -         -   338,336      338,336 
                                     405,175    59,615         -   345,560      406,297 
                                   ---------  --------  --------  --------  ----------- 
 
 
                                    Carrying                                  Fair 
                                      value      Level     Level     Level    Value 
                                                   1           2         3 
                                    GBP'000    GBP'000   GBP'000   GBP'000   GBP'000 
 Financial instruments held 
  at amortised cost 
  At 30 September 2020 (audited) 
 Cash and balances at central 
  banks                               24,936    24,936         -         -    24,936 
 Loans and advances to customers     427,297                   -   427,297   485,880 
                                   ---------  --------  --------  --------  -------- 
                                     452,233    24,936         -   427,297   510,816 
                                   ---------  --------  --------  --------  -------- 
 
 Due to banks(7)                      62,620    62,620         -         -    62,620 
 Subordinated liabilities              7,126         -         -     7,126     8,289 
 Due to customers(7)                 341,784         -         -   341,784   341,784 
                                     411,530    62,620         -   348,910   412,693 
                                   ---------  --------  --------  --------  -------- 
 

The following table shows an analysis of financial instruments recorded at FVOCI by level of the fair value hierarchy:

 
                                                                         Fair 
                                            Level     Level     Level    Value 
                                              1         2         3 
                                          GBP'000   GBP'000   GBP'000   GBP'000 
 Financial instruments at fair value 
  though 
  other comprehensive income ('FVOCI') 
 At 31 March 2021 (unaudited) 
 Quoted debt instruments                    2,594         -         -     2,594 
                                         --------  --------  --------  -------- 
 
 At 30 September 2020 (audited) 
 Quoted debt instruments                    9,095         -         -     9,095 
                                         --------  --------  --------  -------- 
 

The following table shows an analysis of financial instruments recorded at FVTPL by level of the fair value hierarchy:

 
                                     Level 1    Level 2   Level 3   Fair value   Notional 
                                     GBP'000    GBP'000   GBP'000    GBP'000     GBP'000 
 Derivative financial instruments 
 
 31 March 2021 (unaudited) 
 Derivative Financial assets                -        18         -           18      2,500 
                                    ---------  --------  --------  -----------  --------- 
 Derivative Financial liabilities           -         -         -            -          - 
                                    ---------  --------  --------  -----------  --------- 
 
 
 
 30 September 2020 (audited) 
 Derivative Financial assets          -    -   -    -        - 
                                    ---  ---      ---  ------- 
 Derivative Financial liabilities     -   80   -   80   15,770 
                                    ---  ---      ---  ------- 
 
   14.2   Impairment allowance for loans and advances to customers 

The table below shows the credit quality and the maximum exposure to credit risk based on the Bank's internal credit rating system and stage classification. The amounts presented are gross of impairment allowances.

At 31 March 2021 (unaudited)

 
 Gross carrying amounts        Stage 1    Stage 2    Stage 3      Total 
                               GBP'000    GBP'000    GBP'000    GBP'000 
                             ---------  ---------  ---------  --------- 
 Performing 
 High grade                    318,058     31,368        942    350,368 
 Standard grade                 32,508      4,367          -     36,875 
 Sub-standard grade             25,181      5,222          -     30,403 
 Non-performing 
 Individually impaired               -      1,056      2,251      3,307 
 Collectively impaired               -      6,623     18,229     24,852 
                             ---------  ---------  ---------  --------- 
 Total                         375,747     48,636     21,422    445,805 
                             ---------  ---------  ---------  --------- 
 Allowance for impairment 
  loss                         (2,715)    (3,947)   (13,348)   (20,010) 
                             ---------  ---------  ---------  --------- 
 Net total                     373,032     44,689      8,074    425,795 
                             ---------  ---------  ---------  --------- 
 Undrawn commitments             4,125          -          -      4,125 
                             ---------  ---------  ---------  --------- 
 

At 30 September 2020 (audited)

 
 Gross carrying amounts        Stage 1    Stage 2    Stage 3      Total 
                               GBP'000    GBP'000    GBP'000    GBP'000 
                             ---------  ---------  ---------  --------- 
 Performing 
 High grade                    276,241     60,360        896    337,497 
 Standard grade                 40,436      7,110          -     47,546 
 Sub-standard grade             33,034      7,273          -     40,307 
 Non-performing 
 Individually impaired               -        643      2,458      3,101 
 Collectively impaired               -      1,285     16,193     17,478 
                             ---------  ---------  ---------  --------- 
 Total                         349,711     76,671     19,547    445,929 
                             ---------  ---------  ---------  --------- 
 Allowance for impairment 
  loss                         (3,179)    (3,300)   (12,153)   (18,632) 
                             ---------  ---------  ---------  --------- 
 Net total                     346,532     73,371      7,394    427,297 
                             ---------  ---------  ---------  --------- 
 Undrawn commitments            17,270          -          -     17,270 
                             ---------  ---------  ---------  --------- 
 

An analysis of changes in the gross carrying amount and the corresponding expected credit losses ('ECLs') is, as follows:

 
 Gross carrying amounts      Stage 1      Stage      Stage      Total 
                             GBP'000          2          3    GBP'000 
                                        GBP'000    GBP'000 
                           ---------  ---------  ---------  --------- 
 (unaudited) 
 At 1 October 2020           349,711     76,671     19,547    445,929 
 New assets originated 
  or purchased                99,759        992          -    100,751 
 Assets de-recognised 
  or matured                (17,660)   (75,334)    (5,504)   (98,498) 
 Transfers to Stage 1            565      (553)       (12)          - 
 Transfers to Stage 2       (49,146)     49,517      (371)          - 
 Transfers to Stage 3        (7,482)    (2,657)     10,139          - 
 Amounts written off               -          -    (2,377)    (2,377) 
                           ---------  ---------  ---------  --------- 
 At 31 March 2021            375,747     48,636     21,422    445,805 
                           ---------  ---------  ---------  --------- 
 
 
 ECL allowance                        Stage 1      Stage      Stage      Total 
                                      GBP'000          2          3    GBP'000 
                                                 GBP'000    GBP'000 
                                    ---------  ---------  ---------  --------- 
 (unaudited) 
 At 1 October 2020                      3,179      3,300     12,153     18,632 
 New assets originated 
  or purchased                            393         17                   410 
 Assets de-recognised 
  or matured, and remeasurements        1,784    (1,116)      2,677      3,345 
 Transfers to Stage 1                      11       (11)          -          - 
 Transfers to Stage 2                 (1,974)      2,078      (104)          - 
 Transfers to Stage 3                   (678)      (321)        999          - 
 Amounts written off                        -          -    (2,377)    (2,377) 
                                    ---------  ---------  ---------  --------- 
 At 31 March 2021                       2,715      3,947     13,348     20,010 
                                    ---------  ---------  ---------  --------- 
 
 
 Gross carrying amounts      Stage 1      Stage      Stage      Total 
                             GBP'000          2          3    GBP'000 
                                        GBP'000    GBP'000 
                           ---------  ---------  ---------  --------- 
 (unaudited) 
 At 1 October 2019(4)        307,294     22,424     15,625    345,343 
 New assets originated 
  or purchased               138,923          -          -    138,923 
 Assets de-recognised 
  or matured(4)             (68,025)    (2,242)    (1,223)   (71,490) 
 Transfers to Stage 1          1,615    (1,615)          -          - 
 Transfers to Stage 2       (23,857)     23,857          -          - 
 Transfers to Stage 3        (1,885)    (3,579)      5,464          - 
 Amounts written off               -          -    (1,616)    (1,616) 
                           ---------  ---------  ---------  --------- 
 At 31 March 2020(4)         354,065     38,845     18,250    411,160 
                           ---------  ---------  ---------  --------- 
 
 
 ECL allowance                           Stage 1      Stage      Stage      Total 
                                         GBP'000          2          3    GBP'000 
                                                    GBP'000    GBP'000 
                                       ---------  ---------  ---------  --------- 
 (unaudited) 
 At 1 October 2019(4)                      1,576      1,458      3,806      6,840 
 New assets originated 
  or purchased                               763          -          -        763 
 Assets de-recognised 
  or matured, and remeasurements(4)        1,911        803      1,209      3,923 
 Transfers to Stage 1                         19       (19)          -          - 
 Transfers to Stage 2                    (1,360)      1,360          -          - 
 Transfers to Stage 3                      (509)    (1,067)      1,576          - 
 ECL transfers                                 -          -          -          - 
 Amounts written off(4)                        -          -    (1,222)    (1,222) 
                                       ---------  ---------  ---------  --------- 
 At 31 March 2020(4)                       2,400      2,535      5,369     10,304 
                                       ---------  ---------  ---------  --------- 
 
 
 Gross carrying amounts      Stage 1    Stage 2    Stage 3      Total 
                             GBP'000    GBP'000    GBP'000    GBP'000 
                           ---------  ---------  ---------  --------- 
 (unaudited) 
 At 1 April 2020             354,065     38,845     18,250    411,160 
 New assets originated 
  or purchased                80,870          -          -     80,870 
 Assets de-recognised 
  or matured                (18,794)   (17,647)    (8,637)   (45,078) 
 Transfers to Stage 1          2,651    (2,650)        (1)          - 
 Transfers to Stage 2       (61,584)     61,584          -          - 
 Transfers to Stage 3        (7,497)    (3,461)     10,958          - 
 Amounts written off               -          -    (1,023)    (1,023) 
                           ---------  ---------  ---------  --------- 
 At 30 September 2020        349,711     76,671     19,547    445,929 
                           ---------  ---------  ---------  --------- 
 
 
 ECL allowance                        Stage 1    Stage 2    Stage 3      Total 
                                      GBP'000    GBP'000    GBP'000    GBP'000 
                                    ---------  ---------  ---------  --------- 
 (unaudited) 
 At 1 April 2020                        2,400      2,535      5,369     10,304 
 New assets originated 
  or purchased                          1,513          -          -      1,513 
 Assets de-recognised 
  or matured, and remeasurements      (1,345)      (780)      4,757      2,632 
 Impact on ECL of transfers             (158)      1,714      4,044      5,600 
 Transfers to Stage 1                     205      (205)          -          - 
 Transfers to Stage 2                     477      (477)          -          - 
 Transfers to Stage 3                      87        513      (600)          - 
 Amounts written off                        -          -    (1,417)    (1,417) 
                                    ---------  ---------  ---------  --------- 
 At 30 September 2020                   3,179      3,300     12,153     18,632 
                                    ---------  ---------  ---------  --------- 
 

Forborne and modified loans

 
 The following tables provide a summary of the Group's forborne assets. 
 
 
 At 31 March 
 2021                              Gross carrying amount of forborne 
 (unaudited)                                     loans 
                                       Stage 1         Stage 2          Stage 3 
                                     - Performing    - Performing    Non-performing 
                   Gross Carrying      forborne        forborne         forborne      Total forborne   Forbearance 
 In GBP 000s           Amount           loans           loans            loans            loans           ratio 
 Due from banks          -                -               -                -                -               - 
 Loans and 
 advances to 
 customers 
 CFD                      186,172           2,151           1,181               178            3,510         1.89% 
 BFD                      175,346           4,468           5,376               424           10,268         5.86% 
 Azule                     19,300           2,444             114               304            2,862        14.83% 
 Bridging                  64,987               -               -                 -                -         0.00% 
 Total loans and 
  advances to 
  customers               445,805           9,063           6,671               906           16,640         3.73% 
                  ===============  ==============  ==============  ================  ===============  ============ 
 
 
 
  At 30 
  September 2020                   Gross carrying amount of forborne 
  (audited)                                      loans 
                                       Stage 1         Stage 2          Stage 3 
                                     - Performing    - Performing    Non-performing 
                   Gross Carrying      forborne        forborne         forborne      Total forborne   Forbearance 
 In GBP 000s           Amount           loans           loans            loans            loans           ratio 
 Due from banks          -                -               -                -                -               - 
 Loans and 
 advances to 
 customers 
 CFD                      171,854           4,512           1,664                68            6,244         3.63% 
 BFD                      190,462          11,290          13,634               197           25,121        13.19% 
 Azule                     23,001           6,662           2,223               166            9,051        39.35% 
 Bridging                  60,612               -               -                 -                -         0.00% 
 Total loans and 
  advances to 
  customers               445,929          22,464          17,521               431           40,416         9.06% 
                  ===============  ==============  ==============  ================  ===============  ============ 
 
 
 
 At 31 March 2021 (unaudited)                                    ECLs on forborne loans 
                                    Stage 1      Stage 1      Stage 2      Stage 2      Stage 3      Stage 3 
 In GBP 000s                       Individual   Collective   Individual   Collective   Individual   Collective   Total 
 Due from banks                             -            -            -            -            -            -       - 
 Loans and advances to customers 
 CFD                                        4           20           34           73            -           63     194 
 BFD                                       19           45           90          528            -          176     858 
 Azule                                    146            8           22           64            -          174     414 
 Bridging                                   -            -            -            -            -            -       - 
 Total loans and advances to 
  customers                               169           73          146          665            -          413   1,466 
                                  ===========  ===========  ===========  ===========  ===========  ===========  ====== 
 
 
 At 30 September 2020 (audited)                                  ECLs on forborne loans 
                                    Stage 1      Stage 1      Stage 2      Stage 2      Stage 3      Stage 3 
 In GBP 000s                       Individual   Collective   Individual   Collective   Individual   Collective   Total 
 Due from banks                             -            -            -            -            -            -       - 
 Loans and advances to customers 
 CFD                                       62           14          117            -           16            -     209 
 BFD                                      151           66          392          407            -           47   1,063 
 Azule                                    278           22          103            -            -           36     439 
 Bridging                                   -            -            -            -            -            -       - 
 Total loans and advances to 
  customers                               491          102          612          407           16           83   1,711 
                                  ===========  ===========  ===========  ===========  ===========  ===========  ====== 
 

15. Subordinated liabilities

 
                                           At 
                            ------------------------------- 
                                 31 March      30 September 
                                     2021              2020 
                              (unaudited)         (audited) 
                                  GBP'000           GBP'000 
 
 Subordinated liabilities           7,224          7,126 
 
                                    7,224          7,126 
                            -------------  ------------- 
 
 

GBP7.0 million subordinated notes issued by PCF Bank Limited

At 31 March 2021, PCF Bank Limited had a GBP15.0 million subordinated note facility from British Business Investments Limited (30 September 2020: GBP15.0 million). The notes may be issued once per quarter in tranches of between GBP1.0 million and GBP5.0 million, and each tranche has a fixed coupon of 8% per annum, a final maturity ten years from the date of issue and is callable by the issuer five years from the date of issue. These notes meet the conditions for Tier 2 capital and at 31 March 2021 GBP7.0 million of notes had been issued (30 September 2020: GBP7.0 million).

16. Issued capital and reserves

 
 
                               31 March   30 September       31 March   30 September 
                                   2021           2020           2021           2020 
                            (unaudited)      (audited)    (unaudited)      (audited) 
                             '000 units     '000 units        GBP'000        GBP'000 
 Ordinary share issued 
  and fully paid 
 Opening balance at 
  1 October                     250,240        250,197         12,512         12,510 
 Issuance of new shares 
  during the period                 750              -             38              - 
 Dividend reinvestment                -             43              -              2 
 Closing balance                250,990        250,240         12,550         12,512 
                          -------------  -------------  -------------  ------------- 
 
 
                                                                     31 March     30 September 
                                                                         2021             2020 
                                                                  (unaudited)        (audited) 
                                                                      GBP'000          GBP'000 
 Share premium 
 Opening balance at 1 October                                          17,625           17,619 
 Issuance of new shares during the period                                  54                6 
                                                              ---------------  --------------- 
 Closing balance                                                       17,679           17,625 
                                                              ---------------  --------------- 
 
                                                                    Change in 
                                                                share capital 
                                                                    at 5p per        Change in 
                                           No. of      Issue            share    share premium 
 Date of Issue                              shares     Price          GBP'000          GBP'000 
 9 April 2020     Dividend reinvestment     43,499   5.0p                   2                6 
                                                              ---------------  --------------- 
 
 

17. Earnings per share

Basic earnings per share ('EPS') is calculated by dividing the net profit for the period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period.

The following table shows the income and share data used in the basic and diluted EPS calculations:

 
                                                           At 
                                               -------------------------- 
 
                                                   31 March      31 March 
                                                       2021          2020 
                                                (unaudited)   (unaudited) 
                                                    GBP'000       GBP'000 
                                               ------------  ------------ 
 Net Company profit attributable to ordinary 
  shareholders adjusted for the effect of 
  dilution                                              965         2,043 
                                               ------------  ------------ 
 
                                                           At 
                                               -------------------------- 
 
                                                   31 March      31 March 
                                                       2021          2020 
                                                (unaudited)   (unaudited) 
                                                 '000 units    '000 units 
                                               ------------  ------------ 
 Basic and diluted weighted average number 
  of shares                                         250,335       250,197 
                                               ------------  ------------ 
 
 Basic and diluted earnings per 5p ordinary 
  share                                                0.4p          0.8p 
 

18. Commitments, contingent liabilities, and contingent assets

At 31 March 2021, the Group had undrawn commitments to lend to customers of GBP4.13 million (30 September 2020: GBP17.27 million).

The Group's subsidiary, PCF Bank Limited, operates in a regulatory and legal environment that, by nature, has a heightened element of litigation risk inherent in its operations. The Group and the Bank have formal controls and policies for managing legal claims. Based on professional legal advice, the Group provides and/or discloses amounts in accordance with its accounting policies described in note 1 of the Annual Report & Financial Statements 2020. From time to time the Group and the Bank receive legal claims relating to its business activities. The total value of claims at 31 March 2021, assessed to have a greater than remote likelihood of economic outflow, is GBPnil (30 September 2020: GBP135,000).

The Group has begun to seek recovery of remuneration-related payments and other consequential losses suffered in relation to the events that led to the delay of the Annual Report & Financial Statements 2020 and the shares being suspended from trading on AIM. The amount of any recoveries cannot currently be quantified.

19. Related parties

The non-executive directors held a total of GBP105,471 in savings accounts in the Group at 31 March 2021 (30 September 2020: GBP167,932).

Key management personnel of the Group are the Board Directors.

20. Non adjusting events after the balance sheet date

COVID-19

As the COVID-19 pandemic evolves, the UK Government is implementing additional measures to address the resulting public health issues and the economic impact. The Group continues to monitor the COVID-19 pandemic situation and will take further action as necessary in response to economic disruption. There may be further adverse effects on revenue and impairments depending on severity and duration of the additional measures.

Brexit

Along with COVID-19 economic impacts, there remains the continued uncertainty of the implications for the UK economy by reason of leaving the EU. Although a trade deal was agreed on 24 December 2020, the Group continues to monitor Brexit and the potential economic impact on credit risk.

Sale of credit impaired loans

On 30 September 2021, the Group sold GBP12.4 million of gross credit impaired loans (GBP1.7 million net of ECL impairments) for GBP2.8 million, realising a profit on disposal of GBP1.1 million.

GBP30.0 million revolving credit facility granted to PCF Bank by Leumi ABL Limited

This facility, when drawn as a loan, has a variable rate linked to overnight LIBOR plus a margin and a maturity date of up to five years. The facility is secured by a charge over specified loans and receivables and the guarantee of the Company. At 31 March 2021 this facility was undrawn (30 September 2020: GBPnil) and the facility was terminated on 21 December 2021.

(4) Comparatives for: the recoverable amount of fees charged within the Income statement on credit impaired accounts have been re-presented from Impairment losses on financial assets to Fees and commission income; and the recoverable amount of accrued fees charged on credit impaired accounts have been re-presented from Allowance for Impairment losses to Loans and advances to customers. These re-presentations were adopted to make the Income Statement, segmental analysis, net fee and commission income note, and Loans and advances to customers disclosure notes more relevant following a review of the disclosures and accounting policies applied (please see note 4).

(5) Comparatives for the net change in FVOCI financial instruments included in Other non-cash-items have been re-presented to Net sale/(purchase) of debt instruments at FVOCI within Investing activities to make the consolidated statement of cash flows more relevant following a review of the disclosure and accounting policies applied (please see note 4).

(6) Comparatives for credit related fees and commission have been re-presented from Paid and accrued to customers to make the Total interest and similar expense note more relevant following a review of the disclosure.

(7) Carrying value is assessed to approximate fair value.

- end -

For further information, please visit https://pcf.bank/ or contact:

 
 PCF Group (via Tavistock Communications)     Tel: +44 (0) 20 
  Garry Stran, Interim Chief Executive         7920 3150 
  Officer 
  Caroline Richardson, Chief Financial 
  Officer 
 Tavistock Communications                     Tel: +44 (0) 20 
  Simon Hudson / Tim Pearson                   7920 3150 
 Peel Hunt (Nominated Advisor and Joint       Tel: +44 (0) 20 
  Broker)                                      7418 8900 
  Andrew Buchanan / Rishi Shah / 
  Sam Milford 
 Shore Capital (Joint Broker)                 Tel: +44 (0) 20 
  Henry Willcocks / Guy Wiehahn                7408 4080 
 

About PCF Group plc ( www.pcf.bank )

Established in 1994, PCF Group plc is the AIM-quoted parent of the specialist bank, PCF Bank Limited. Since commencing operations as a bank in 2017, the Group continues to focus on portfolio quality and lending to the prime segments of its existing markets. The Group will continue to identify opportunities to diversify its lending products and asset classes by setting up new organic operations or through acquisition.

PCF Bank currently offers retail savings products for individuals and then deploys those funds through its four lending divisions:

   --    Business asset finance which provides finance for vehicles, plant and equipment to SMEs; 
   --    Consumer motor finance which provides finance for motor vehicles to consumers; 
   --    Azule which provides finance to the broadcast and media industry; and 

-- Property bridging finance which provides loans to companies and sole traders investing in residential and commercial property.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

IR PPUQPGUPPUUA

(END) Dow Jones Newswires

January 25, 2022 02:00 ET (07:00 GMT)

Pcf (LSE:PCF)
Gráfica de Acción Histórica
De May 2022 a Jun 2022 Haga Click aquí para más Gráficas Pcf.
Pcf (LSE:PCF)
Gráfica de Acción Histórica
De Jun 2021 a Jun 2022 Haga Click aquí para más Gráficas Pcf.