TIDMDFCH
RNS Number : 6874M
Distribution Finance Cap. Hldgs PLC
23 September 2021
23 September 2021
Distribution Finance Capital Holdings plc
("DF Capital" or the "Company" together with its subsidiaries
the "Group")
Interim Results for six months ended 30 June 2021
and
Trading Update
Distribution Finance Capital Holdings plc, a specialist bank
providing working capital solutions to dealers and manufacturers
across the UK, today announces its results for the six months ended
30 June 2021 and a trading update.
The Group confirms the following financial highlights, and has
provided its full report for the period within this
announcement:-
31 December
30 June 2021 30 June 2020 2020
6-month 6-month 12-month
----------------------------------- ---------------- --------------------- --------------------------------
Financial Highlights
Gross revenues (GBPm) 6.1 7.4 11.5
Loss after taxation (GBPm) 2.3 7.2 13.6
Loan Book (GBPm) 166.8 165.9 113.3
Net assets (GBPm) 87.3 57.0 50.9
Customer deposits (GBPm) 160.0 - 146.0
Regulatory capital (GBPm) 84.0 n/a 47.8
Common Equity Tier 1 capital
ratio 57.1% n/a 50.1%
Gross yield 7.9% 7.6% 7.7%
Net interest margin 6.8% 2.0% 1.5%
Cost of risk 0.21% 0.95% 0.86%
Impairment loss coverage on
loans to customers 0.80% 1.31% 1.14%
Cost income ratio 142% 426% 641%
Key Performance Indicators
Loans advanced to customers
(GBPm) 295 115 253
Number of dealer customers 706 779 623
Number of manufacturer partners 74 77 65
Total credit available to dealers
(GBPm) 467 364 358
-- In excess of 6% net interest margin now flowing through the
Group's financial performance from 1 January 2021, transforming the
Group's financials
-- Loss after tax of GBP2.3m, a reduction of GBP4.9m or 68% (June 2020: GBP7.2m)
-- Record new loan origination of cGBP300m during the period with a strong Q1 performance
-- Loan book exceeded GBP166m at 30 June 2021, up 47% on
year-end, despite supply chain headwinds
-- Loan book arrears of 0.2%, down from 1.5% in June 2020
-- Over 150 new dealers and 10 new manufacturers added in the
eight months ending 31 August 2021
-- Loan facilities provided to dealers increased 28% to GBP467m (June 2020: GBP364m)
-- GBP40m placing concluded in February 2021 gives the Group capacity to grow its loan book to approximately GBP550m
Post period end highlights and trading update
-- Loan book increased to GBP194m as at 20 September 2021 with
growth now normalising as the Group enters the traditional dealer
restocking period
-- Successfully launched full online in-life account management
for retail depositors with feefo customer satisfaction of 4.5 since
this launch
-- Raised over GBP120m of retail deposits at an average rate of
1.3% during August and September 2021 to support expected loan book
growth
-- Retail deposits now exceed GBP280m and 7,200 accounts
-- Evaluating Tier 2 capital to support the Group's future loan book growth
Carl D'Ammassa, Chief Executive, commented: "We are pleased that
momentum has started to build in growing our loan book. Loan
originations are at record levels which gives us confidence in the
strategy and growth potential laid out by the Group, but also the
depth of relationship we have with our customers. Despite the
widely publicised impact of the pandemic on manufacturers and
supply chains, the current pipeline of product scheduled to be
delivered to dealers over the coming months underpins the Board's
expectation that the Group will achieve run-rate profitability on a
monthly basis during Q4 2021.
I'm also delighted that we now have a fully online service
available to our retail depositors which give us a scalable
platform to raise further liquidity to support our lending growth
ambitions."
For further information contact:
Distribution Finance Capital Holdings
plc
Carl D'Ammassa - Chief Executive Officer +44 (0) 161 413 3391
Kam Bansil - Head of Investor Relations +44 (0) 7779 229508
http://www.dfcapital-investors.com
Investec Bank plc (Nomad and Broker) +44 (0) 207 597 5970
David Anderson
Bruce Garrow
Harry Hargreaves
Maria Gomez de Olea
Cautionary Statements:
This Announcement may contain, or may be deemed to contain,
"forward-looking statements" with respect to certain of the
Company's plans and its current goals and expectations relating to
its future financial condition, performance, strategic initiatives,
objectives and results. Forward-looking statements sometimes use
words such as "aim", "anticipate", "target", "expect", "estimate",
"intend", "plan", "goal", "believe", "seek", "may", "could",
"outlook" or other words of similar meaning. By their nature, all
forward-looking statements involve risk and uncertainty because
they relate to future events and circumstances which are beyond the
control of the Company, including amongst other things, United
Kingdom domestic and global economic business conditions,
market-related risks such as fluctuations in interest rates and
exchange rates, the policies and actions of governmental and
regulatory authorities, the effect of competition, inflation,
deflation, the timing effect and other uncertainties of future
acquisitions or combinations within relevant industries, the effect
of tax and other legislation and other regulations in the
jurisdictions in which the Company and its affiliates operate, the
effect of volatility in the equity, capital and credit markets on
the Company's profitability and ability to access capital and
credit, a decline in the Company's credit ratings; the effect of
operational risks; and the loss of key personnel. As a result, the
actual future financial condition, performance and results of the
Company may differ materially from the plans, goals and
expectations set forth in any forward-looking statements. Any
forward-looking statements made in this Announcement by or on
behalf of the Company speak only as of the date they are made.
Except as required by applicable law or regulation, the Company
expressly disclaims any obligation or undertaking to publish any
updates or revisions to any forward-looking statements contained in
this Announcement to reflect any changes in the Company's
expectations with regard thereto or any changes in events,
conditions or circumstances on which any such statement is
based.
No statement in this Announcement is intended to be a profit
forecast or estimate, and no statement in this Announcement should
be interpreted to mean that earnings per share of the Company for
the current or future financial years would necessarily match or
exceed the historical published earnings per share of the
Company.
Neither the content of the Company's website nor any website
accessible by hyperlinks on the Company's website is incorporated
in, or forms part of, this Announcement.
Chief Executive's Statement
Introduction
We are fast approaching DF Capital Bank's first anniversary and
2021 is proving a transformational year for the Group. Despite the
challenges we all faced exiting 2020 due to the global COVID-19
pandemic, DF Capital started 2021 on a solid footing with no
pandemic related legacy credit issues and a lending franchise that
is positively regarded by its customer base.
2021 has seen many of our customers reporting strong demand for
new and used assets, particularly amongst those sectors focused on
the leisure, recreational activities and home delivery markets,
driven by pent-up demand from the impact of the pandemic and
foreign travel restrictions. Manufacturers have worked hard to
fulfil orders which has seen the Group originate record levels of
new lending so far this year. Despite these best efforts, product
demand has outstripped supply which has in turn led to loan
repayments exceeding our normal projections.
Whilst there are still uncertainties relating to supply chains,
the Group is pleased to re-iterate its expectation of achieving
run-rate profitability on a monthly basis during Q4 2021, which is
underpinned by the transformation of the net interest margin
delivered during the year; a strong pipeline of lending
opportunities with both new and existing customers; current
projected manufacturer order banks and lead-times, a solid capital
position; and access to retail deposits to fund lending.
Lending activities
New loan origination has continued at pace, exceeding GBP295m
during the six-month period to 30 June 2021 (H1 2020: GBP115m). The
Group onboarded more than 100 new dealers, offset by a small number
of dealer terminations; this resulted in over 700 dealer
relationships as at 30 June 2021 with aggregate dealer loan
facilities increasing in the period by 30% to GBP467m (31 December
2020: GBP358m).
The Group enjoyed a strong start to 2021 with the loan book
reaching GBP193m at 31 March 2021 (up 70% from 31 December 2021).
Since 1 April 2021, dealers across most sectors experienced
unprecedented demand for their products, particularly amongst those
sectors focused on the leisure, recreational activities and home
delivery markets.
Manufacturer production levels have been exceptionally high
through the period and whilst many dealers within DF Capital's
network reported record sales, inventory replenishment has been
impacted. Many of the Group's manufacturer partners are reporting
increasing commodity prices, challenges in certain parts of their
supply chains and a lack of availability of some key components.
Accordingly, this has materially impacted many manufacturers
ability to meet the full extent of near-term demand from their
dealer network.
Despite our high loan origination through the period, the Group
has seen quicker loan repayments as dealers respond to increased
demand for their products. This has increased the speed stock has
turned beyond management's expectations. As a result, the Group's
stock turn accelerated from c.150 to c.110 days by period end in
line with the speed of product sales, which has slowed the pace of
loan book growth. The loan book was GBP167m at 30 June 2021 (H1
2020: GBP166m).
Portfolio By Sector
30 June 2021 30 June 2020 31 December 2020
GBP'000 % GBP'000 % GBP'000 %
------------------------- -------- ------ -------- ------ ---------- -------
Leisure
Lodges and holiday
homes 40,977 24.6% 43,685 26.3% 28,919 25.5%
Motorhomes and caravans 34,152 20.5% 48,196 29.1% 22,405 19.8%
Marine 24,060 14.4% 30,043 18.1% 21,126 18.7%
Motorsport 12,940 7.8% 6,035 3.6% 8,094 7.2%
-------- ------ -------- ------ ---------- -------
112,129 67.2% 127,959 77.1% 80,544 71.1%
Commercial
Transport 31,708 19.0% 8,828 5.3% 18,011 15.9%
Industrial equipment 17,949 10.8% 19,152 11.5% 9,514 8.4%
Agricultural equipment 4,978 3.0% 9,988 6.0% 5,191 4.6%
-------- ------ -------- ------ ---------- -------
54,635 32.8% 37,968 22.9% 32,716 28.9%
Total gross receivables 166,764 100% 165,927 100% 113,259 100%
------------------------- -------- ------ -------- ------ ---------- -------
The Group's loan book remains highly diversified, and we have
made good progress in developing our commercial lending activities.
At 30 June 2021, commercial lending reached 32.8% (30 June 2020:
22.9%), substantively delivered by increasing lending in the
transportation sector.
Financial review
Summarised Statement of Comprehensive Income
30 June 30 June 31 December
2021 2020 2020
6-month 6-month 12-month
GBP'000 GBP'000 GBP'000
-------------------------- ----------------------- ----------------------- ----------------------------------
Gross revenues 6,122 7,405 11,511
Interest expense (871) (5,420) (9,174)
Net income 5,251 1,985 2,337
-------------------------- ----------------------- ----------------------- ----------------------------------
Operating expenses (7,438) (8,474) (15,063)
Impairment charges (163) (932) (1,294)
Other provisions 25 193 417
Loss before taxation (2,325) (7,228) (13,603)
-------------------------- ----------------------- ----------------------- ----------------------------------
Taxation - - -
Loss after taxation (2,325) (7,228) (13,603)
-------------------------- ----------------------- ----------------------- ----------------------------------
Other comprehensive loss (89) (1) (22)
Total comprehensive loss (2,414) (7,229) (13,625)
-------------------------- ----------------------- ----------------------- ----------------------------------
Summarised Statement of Financial Position
30 June 30 June 31 December
2021 2020 2020
GBP'000 GBP'000 GBP'000
--------------------------------- -------------------- ----------------------- -------------------------------
Cash held at bank 34,904 26,533 21,233
Loans and advances to customers 164,841 163,704 111,337
Other assets 63,078 10,131 68,752
Total assets 262,823 200,368 201,322
--------------------------------- -------------------- ----------------------- -------------------------------
Customer deposits 159,988 - 145,982
Financial liabilities 604 136,650 107
Other liabilities 14,858 6,751 4,344
Total liabilities 175,450 143,401 150,433
--------------------------------- -------------------- ----------------------- -------------------------------
Total equity 87,373 56,967 50,889
--------------------------------- -------------------- ----------------------- -------------------------------
Given the average loan book balance through the period under
review was lower than H1 2020, gross revenues decreased by 17% to
GBP6.1m (H1 2020: GBP7.4m). Gross yield, however, increased by
30bps to 7.9% (H1 2020: 7.6%) as a result of higher fees generated
on the back of increasing levels of stock turn and fewer facility
fees being waived relative to the first COVID-19 lockdown, which
was necessary to support dealers through the early stages of the
global pandemic.
Net interest margin increased significantly to 6.8% (H1 2020:
2.0%) reflecting the transformational impact of the Group's lending
now being entirely funded by retail deposits compared to solely by
a mezzanine wholesale facility in the six months ended 30 June
2020.
During the six months ended 30 June 2020 we took action to
reduce our cost base due to the pandemic. The benefits of this
flowed through the balance of 2020 and into 2021. As a result of
this, operating expenses reduced during the period by 12% to
GBP7.4m (H1 2020: GBP8.5m).
Arrears
31 December
30 June 2021 30 June 2020 2020
GBP'000 GBP'000 GBP'000
------------------------------ ----------------------- -------------------- ---------------------------------
Arrears - principal repayment, fees and interest
1 - 30 days past due 161 1,351 27
31 - 60 days past due - 112 22
61 - 90 days past due - 141 39
91 + days past due 162 892 132
323 2,496 220
------------------------------ ----------------------- -------------------- ---------------------------------
Total % of loan book 0.2% 1.5% 0.2%
------------------------------ ----------------------- -------------------- ---------------------------------
Associated principal balance
1 - 30 days past due 367 9,777 96
31 - 60 days past due - 822 7
61 - 90 days past due - 216 14
91 + days past due 162 1,250 259
529 12,065 376
------------------------------ ----------------------- -------------------- ---------------------------------
Total % of loan book 0.3% 7.3% 0.3%
------------------------------ ----------------------- -------------------- ---------------------------------
Loan book arrears has continued to operate at levels better than
pre-pandemic. During the period we have seen ongoing strong credit
performance with record low arrears and default cases. Arrears
comprised just 0.2% of the loan book at the end of June 2021 (31
December 2020: 0.2%). In addition, the Group's lending relative to
its security position remains strong with a loan to wholesale value
of 85% (31 December 2020: 80%). We hold additional security in the
form of personal and directors' guarantees as well as having
manufacturer repurchase or redistribution agreements in place
across c.50% of our loan book.
Our Security Position
31 December
30 June 2021 30 June 2020 2020
% % %
------------------------- ------------- ------------- ------------
Loan to wholesale value
(1) 85% 79% 80%
(1) Wholesale price is the invoice value paid by the dealer to
the manufacturer
Given the strong performance of the loan book, positive
financial performance of most dealers, improving economic
conditions and outlook for the UK economy, we have been able to
adjust our loss provision assumptions, reducing the COVID-19
overlay to our IFRS9 model. This has seen cost of risk reduce to
0.21% (H1 2020: 0.95%).
The combination of an improved net interest margin, reduced
operating expenses, and lower cost of risk, has resulted in net
losses for the period significantly reducing by 68% to GBP2.3m (H1
2020: GBP7.2m).
Having raised GBP40 million of capital through an equity placing
of new shares in February 2021, the Group has sufficient regulatory
capital to support a loan book of approximately GBP550m. Regulatory
capital amounted to GBP84.0m at 30 June 2021, which increased the
Group's CET1 ratio to 57.1% (31 December 2020: 50.1%).
Deposit activities
Following the capital raise and strength of deposit raising on
receipt of the banking licence in September 2020, the Group has not
needed to raise significant additional liquidity to support lending
during the period under review. In total GBP20m of retail deposits
was raised during the period to 30 June 2021.
The Group has further enhanced its retail savings proposition,
launching online account management to its depositors during August
2021, allowing savers to track their savings and digitally manage
their account on a self-service basis.
Current trading and outlook
It is undoubted that DF Capital, its dealer and manufacturer
partners as well as the wider economy continue to navigate the
unprecedented impact of the global pandemic on product demand,
supply chains, manufacturing practices, the availability of raw
materials and price inflation. This has caused in some sectors
delays to manufacturing or constraints in output that has in-turn
delayed the fulfilment of dealer orders and extended delivery
dates. Despite this, and the previously reported impact on
near-term loan book growth, the Group is in an enviable position
with a strong pipeline for growth having already delivered record
levels of new loan origination.
The Group's ability to generate new loan origination has
continued through the summer months and to 31 August 2021 DF
Capital originated over GBP400m of new loans and has grown the
number of dealer relationships to 741, added 10 new manufacturer
relationships bringing the total to 75 and dealer loan facilities
now exceed GBP518m. We have continued to strengthen the facility
pipeline, which now exceeds GBP1.5bn with an additional c2,000
prospective new dealers across the existing core sectors.
Despite the Group's loan book sitting at GBP166.8m at 30 June
2021 (31 December 2020: GBP113.3m), the Group is pleased to report
that its loan book reached GBP194m at 20 September 2021. Whilst
there is uncertainty about the on-going impact on supply chains,
both manufacturers and dealers are reporting very strong order
banks and therefore we expect this loan book growth trend to
continue through the balance of the re-stocking period, which runs
until the spring.
In anticipation of this projected loan book growth, we launched
new savings products during August 2021. Despite seeing strong rate
competition in the notice and fixed rate bond markets during this
period, the Group has raised over GBP120m of new retail deposits in
August and September at an average interest rate of 1.3%, with
rates still below pre-pandemic levels. Additionally, leveraging our
new self-service portal, we have offered existing depositors unique
loyalty rates to support the retention of their maturing
deposits.
Having cGBP280m of retail deposits at 20 September 2021, and
with the addition of our own equity, we remain in a strong
liquidity position to support our expected new loan growth through
to the end of the year, whilst also managing the maturity profile
of existing deposits.
Having delivered a solid foundation within our core current
inventory finance lending product and given the significant
opportunity to provide secondary lending on assets beyond the
forecourt, we remain committed to building a multi-product lending
franchise as a platform for growth and a route to deepening
relationships with our manufacturer and dealer partners.
Accordingly, we are continuing to evaluate both organic and
inorganic opportunities, as well as partnerships, to support this
opportunity with a strict emphasis on product capabilities that are
known to resonate with our dealers and manufacturers.
Whilst we continue to navigate the uncertainties of the tail
effects of the global pandemic, we feel positive about the Group's
growth potential as we look towards 2022 and beyond.
Carl D'Ammassa
Chief Executive Officer
Financial Review
31 December
30 June 2021 30 June 2020 2020
6-month 6-month 12-month
----------------------------------- ---------------- --------------------- --------------------------------
Financial Highlights
Gross revenues (GBPm) 6.1 7.4 11.5
Loss after taxation (GBPm) 2.3 7.2 13.6
Loan Book (GBPm) 166.8 165.9 113.3
Net assets (GBPm) (1) 87.3 57.0 50.9
Customer deposits (GBPm) 160.0 - 146.0
Regulatory capital (GBPm) 84.0 n/a 47.8
Common Equity Tier 1 capital
ratio 57.1% n/a 50.1%
Gross yield (2) 7.9% 7.6% 7.7%
Net interest margin (3) 6.8% 2.0% 1.5%
Cost of risk (4) 0.21% 0.95% 0.86%
Impairment loss coverage on
loans to customers (5) 0.80% 1.31% 1.14%
Cost income ratio (6) 142% 426% 641%
Key Performance Indicators
Loans advanced to customers
(GBPm) 295 115 253
Number of dealer customers (7) 706 779 623
Number of manufacturer partners
(8) 74 77 65
Total credit available to dealers
(GBPm) (9) 467 364 358
(1) The equity held in the Group
(2) The effective interest rate we charge our customers
including fees
(3) Gross yield including fees less interest expense
(4) Impairments and provisions in the period (annualised) as a %
of average gross receivables.
(5) Impairment allowance as a % of gross receivables at the
period end
(6) Operating cost as a % of total operating income.
(7) Number of borrower relationships
(8) Number of vendors and manufacturers with whom we have
programs that support our lending
(9) Amount of credit available to our customers to draw
Principal Risks
Based on the Group's strategy and business model, there are six
principal risk categories used to help shape our policy and control
framework. This categorisation creates structure for the risk
policy framework and clear ownership/ responsibility for assessing
and managing risk.
There are certain risk themes that run across many or all of
these risk types and we have chosen at this stage to not pull them
out individually but to manage them across the principal risks
framework. A good example of this are the risks created by climate
change. Whilst these risks may crystallise in full over longer-time
horizons, they are already becoming apparent in our business
operations and cut across more than one of the principal risk
categories below.
Principal
Risks
------------- -------------------------------------------------- -------------------------------------
Operational Operational Risk is defined as the Key Risk Mitigation Tools
risk risk of loss resulting from inadequate : Policies, Procedures,
or failed internal processes, people Risk and Control Self
and systems errors, or from external Assessments ("RCSAs"),
events. We have a framework in place risk event analysis, Business
which sets out our approach to Operational Assurance Testing ("BAT"
Risk, with associated roles and responsibilities i.e. controls testing),
further defined in a number of risk ongoing monitoring of
policies and standard operating procedures risk metrics and limits,
covering the various types of Operational scenario analysis, infosec
Risk. Although the overall scope and cyber defences, operational
of Operational Risk would cover areas risk training, Operations
of Conduct and Reputational risks, Committee and Executive
we believe it makes sense to separate Risk Committee oversight.
these items out as individual principal
risks due the importance of these
risks given the Group's activities
and regulatory environment.
Compliance Compliance Risk is defined as the Key Risk Mitigation Tools:
Risk risk of loss or imposition of penalties, Regulatory monitor, enterprise-wide
damages, or fines from the failure compliance and financial
of the firm to meets its legal and crime risk assessments,
regulatory obligations. DF Capital compliance monitoring
operates within the context of the plan, ongoing monitoring
UK legal and regulatory environment. of risk metrics and limits,
Our Compliance Framework sets out customer risk assessments,
the responsibilities within the firm regulatory compliance
to ensure awareness of both current training, Executive Risk
and upcoming legal and regulatory Committee oversight.
changes and how the firm plans and
implements those requirements appropriately.
It also covers the Group's exposure
to financial crime risks for which
associated risk management policies
and procedures are in place.
------------- -------------------------------------------------- -------------------------------------
Conduct Risk We define Conduct Risk as the risk Key Risk Mitigation Tools:
of detriment caused to DF Capital's New & amended product
customers or wider financial markets approval process, enterprise-wide
due to inappropriate execution of conduct risk assessment,
its business activities and processes, ongoing monitoring of
including the sale of unsuitable risk metrics and limits,
products. Our Conduct Risk Framework monitoring of complaints
outlines the Group's approach and and customer feedback,
process for ensuring good customer BAT, Code of Ethics, conduct
conduct outcomes. It is supported risk training, Executive
by specific policies on Product Governance, Risk Committee oversight.
Market Abuse, Complaints, and Whistleblowing
which detail the specific steps and
responsibilities across the Group.
The scope of conduct risk coverage
also includes our AIM reporting and
disclosure requirements.
------------- -------------------------------------------------- -------------------------------------
Prudential Prudential Risk covers three types Key Risk Mitigation Tools:
Risk of risks relating to the Group maintaining ICAAP, ILAAP, additional
sufficient financial resources to stress testing, ongoing
ensure it is financially resilient. monitoring of risk metrics
-- Funding and Liquidity Risk: The and limits, monitoring
risk that DF Capital is not able of external environment,
to meet its financial obligations Asset and Liability Management
as they fall due or that it does Committee ("ALCO") and
not have the tenor and composition Executive Risk Committee
of funding and liquidity to support oversight.
its assets.
-- Capital Risk: The risk that DF
Capital has an insufficient amount
or quality of capital to support
the regulatory requirements of its
business activities through normal
and stressed conditions.
-- Market Risk (including Interest
Rate Risk): The risk of financial
loss through un-hedged or mismatched
asset and liability positions due
to interest rate changes. This also
includes the risk that assets and
liabilities reference different interest
rate bases and the risk of adverse
financial impact from movements in
market prices in the value of assets
and liabilities. The Group currently
does not have any appetite to run
market risk other than interest rate
risk.
Roles, responsibilities and requirements
for Liquidity and Capital management
are outlined in the Treasury Policy
with risk appetite taking into account
the results of the Group's Internal
Liquidity Adequacy Assessment Process
("ILAAP") and Internal Capital Adequacy
Assessment Process ("ICAAP"). The
Treasury Policy also outlines the
roles and responsibilities required
for identifying, measuring, monitoring
and controlling any interest rate
risk which arises due to the mismatch
between assets and liabilities. DF
Capital does not have a trading book
and any investments in securities
are exclusive to the management of
the firm's liquidity buffers.
------------- -------------------------------------------------- -------------------------------------
Credit Risk Credit Risk is the risk of financial Key Risk Mitigation Tools:
loss arising from a customer or counterparty C redit underwriting criteria,
failing to meet their financial obligations asset audits, sector deep-dive
to DF Capital. Credit Risk is considered reviews, portfolio monitoring,
the most significant risk faced by ongoing monitoring of
DF Capital and can be broken down risk metrics and limits,
into the following categories: hindsight reviews of default
-- Client Default Risk: The risk events, monitoring of
of loss arising from a failure of external environment,
a borrower to meet their obligations Credit Committee and Executive
under a credit agreement. Risk Committee oversight.
-- Credit Concentration Risk: The
risk of loss due to the concentration
of credit risk to a specific customer,
counterparty, geography, or industry.
-- Repurchase Risk: The risk of loss
arising from the failure of a third-party
to meet a claim under a repurchase
agreement.
-- Security Risk: The risk that an
asset used as security to mitigate
a credit loss does not provide the
protection to the Company that is
expected, leading to unanticipated
losses.
-- Counterparty Risk: The failure
of a Group counterparty or derivative
provider.
A number of risk policies are in
place setting the key risk controls
and covering the roles and responsibilities
of the Group's lending and investment
activities.
------------- -------------------------------------------------- -------------------------------------
Strategic Strategic Risk covers the risks which Key Risk Mitigation Tools:
Risk can adversely impact the ability St rategic and financial
of DF Capital in achieving its strategic plans, ICAAP, ILAAP, horizon
objectives. These risks may impact scanning, monitoring of
shareholder value, earnings or growth external environment,
from poor strategic decisions, improper Executive Committee ("ExCo")
implementation of business strategies oversight.
or from external events.
The level 2 principal risks which
fall under this category include:
-- Strategic Planning Risk: The risk
of strategic plans being unachievable
or unrealistic.
-- Execution Risk: The risk of failing
to execute the Group's strategy and
failing to deliver key strategic
initiatives required to meet the
financial and commercial targets
of the Group.
-- Strategic Projects Risk: The risk
of delay or failure of strategic
projects and programmes.
-- External Environment: The risk
of failing to address the impact
of external events and competitive
threats.
Strategic risk is not managed through
a policy but rather by the Board
and management considering and making
strategic decisions. Strategic risks
are considered as part of DF Capital's
strategic and financial plans. Stress
scenarios are modelled as part of
the ICAAP and ILAAP to determine
what level of capital and liquidity
the Group will need to hold in support
of its strategic and financial plans.
------------- -------------------------------------------------- -------------------------------------
Statement of Directors' Responsibilities
We, the Directors, confirm that to the best of our
knowledge:
-- the condensed consolidated financial statements has been
prepared in accordance with IAS 34 'Interim Financial Reporting' as
adopted by the United Kingdom (UK);
-- the interim report includes a fair review of the performance
of the business and the position of the Group and the undertakings
included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they
face; and
-- the interim report and financial statements, taken as a
whole, are fair, balanced and understandable.
By order of the Board
.................................
Carl D'Ammassa
Director
23 September 2021
Independent Review Report to Distribution Finance Capital
Holdings plc
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the condensed
consolidated statement of comprehensive income, statement of
financial position, statement of changes in equity, statement of
cash flows and the related notes 1 to 23. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the AIM Rules of the London Stock Exchange.
As disclosed in note 1, the annual financial statements of the
company will be prepared in accordance with United Kingdom adopted
International Financial Reporting Standards as issued by the IASB.
The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
United Kingdom adopted International Accounting Standard 34,
"Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the AIM Rules of the London Stock Exchange.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, UK
23 September 2021
Condensed Consolidated Statement of Comprehensive Income
6 months 6 months Year ended
ended ended 31 December
30 June 30 June
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
Note GBP'000 GBP'000 GBP'000
--------------------------------------- ----- ------------ ------------ ------------
Interest and similar income 5 5,924 7,230 11,233
Interest and similar expenses 6 (871) (5,420) (9,174)
Net interest income 5,053 1,810 2,059
--------------------------------------- ----- ------------ ------------ ------------
Fee income 234 97 168
Net gains on disposal of financial assets
at fair value through other comprehensive
income 53 15 15
Other operating (loss)/income (89) 63 95
Total operating income 5,251 1,985 2,337
--------------------------------------- ----- ------------ ------------ ------------
Staff costs 7 (4,781) (6,101) (9,805)
Other operating expenses 9 (2,657) (2,352) (5,182)
Net impairment loss on financial
assets 11 (163) (932) (1,294)
Provisions 25 193 417
Other losses - (21) (76)
Total operating loss (2,325) (7,228) (13,603)
---------------------------------------------- ------------ ------------ ------------
Loss before taxation (2,325) (7,228) (13,603)
--------------------------------------- ----- ------------ ------------ ------------
Taxation 12 - - -
Loss after taxation - attributable to
equity holders of the Group (2,325) (7,228) (13,603)
---------------------------------------------- ------------ ------------ ------------
Other comprehensive loss:
Items that may subsequently be transferred
to the income statement:
Fair value movements on debt securities (89) (1) (22)
Total other comprehensive loss for the
period, net of tax (89) (1) (22)
---------------------------------------------- ------------ ------------ ------------
Total comprehensive loss for the period
attributable
to equity holders of the Group (2,414) (7,229) (13,625)
---------------------------------------------- ------------ ------------ ------------
Earnings per share: pence pence pence
Basic EPS 21 (1) (7) (13)
Diluted EPS 21 (1) (7) (13)
Condensed Consolidated Statement of Financial Position
30 June 31 December
2021 30 June 2020 2020
(Unaudited) (Unaudited) (Audited)
Note GBP'000 GBP'000 GBP'000
--------------------------------- ----- ------------ ----------------------- ----------------------------------
Assets
Cash and cash equivalents 34,904 26,533 21,233
Debt securities 59,750 6,341 66,601
Loans and advances to customers 13 164,841 163,704 111,337
Trade and other receivables 14 1,427 2,361 1,154
Property, plant and equipment 94 199 139
Right-of-use assets 15 748 388 64
Intangible assets 1,059 842 794
Total assets 262,823 200,368 201,322
--------------------------------- ----- ------------ ----------------------- ----------------------------------
Liabilities
Customer deposits 159,988 - 145,982
Financial liabilities 18 604 136,650 107
Trade and other payables 14,729 6,414 4,261
Provisions 10 129 337 83
Total liabilities 175,450 143,401 150,433
--------------------------------- ----- ------------ ----------------------- ----------------------------------
Equity
Issued share capital 17 1,793 1,066 1,066
Share premium 17 39,273 - -
Merger relief 17 94,911 94,911 94,911
Merger reserve (20,609) (20,609) (20,609)
Own shares 17 (364) (364) (364)
Retained (loss) (27,631) (18,037) (24,115)
Total equity 87,373 56,967 50,889
--------------------------------- ----- ------------ ----------------------- ----------------------------------
Total equity and liabilities 262,823 200,368 201,322
--------------------------------- ----- ------------ ----------------------- ----------------------------------
Condensed Consolidated Statement of Changes in Equity
Issued Share Merger Merger Retained
share capital premium relief reserve Own shares (loss) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================== =============== ========= ======== ========== =========== ========= =========
Balance at 31 December
2019 (Audited) 1,066 - 94,911 (20,609) - (10,812) 64,556
------------------------ --------------- --------- -------- ---------- ----------- --------- ---------
Loss after taxation - - - - - (7,228) (7,228)
Other comprehensive
loss - - - - - (1) (1)
Employee Benefit
Trust - - - - (364) - (364)
Share-based payments - - - - - 4 4
Balance at 30 June
2020 (Unaudited) 1,066 - 94,911 (20,609) (364) (18,037) 56,967
------------------------ --------------- --------- -------- ---------- ----------- --------- ---------
Loss after taxation - - - - - (6,375) (6,375)
Other comprehensive
loss - - - - - (21) (21)
Share-based payments - - - - - 318 318
Balance at 31 December
2020 (Audited) 1,066 - 94,911 (20,609) (364) (24,115) 50,889
------------------------ --------------- --------- -------- ---------- ----------- --------- ---------
Loss after taxation - - - - - (2,325) (2,325)
Other comprehensive
loss - - - - - (89) (89)
Share-based payments - - - - - 252 252
Issue of new shares 727 39,273 - - - (1,354) 38,646
Balance at 30 June
2021 (Unaudited) 1,793 39,273 94,911 (20,609) (364) (27,631) 87,373
------------------------ --------------- --------- -------- ---------- ----------- --------- ---------
Condensed Consolidated Cash Flow Statement
30 June 30 June 31 December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
Note GBP'000 GBP'000 GBP'000
--------------------------------------- ----- ------------ ------------ ------------
Cash flows from operating activities:
Loss before taxation (2,325) (7,228) (13,603)
Adjustments for non-cash items
and other
adjustments included in the income
statement 16 653 1,013 2,059
(Increase)/decrease in operating
assets 16 (53,900) 43,783 96,764
Increase/(decrease) in operating
liabilities 16 24,474 (26,628) (19,073)
Taxation paid - - -
Net cash (used in)/from operating
activities (31,098) 10,940 66,147
--------------------------------------- ----- ------------ ------------ ------------
Cash flows from investing activities:
Purchase of debt securities (42,367) (20,598) (120,721)
Proceeds from sale and maturity
of debt securities 49,182 22,265 62,107
Purchase of property, plant and
equipment (199) (25) (32)
Purchase of intangible assets (409) (96) (226)
Net cash from/(used in) investing
activities 6,207 1,546 (58,872)
--------------------------------------- ----- ------------ ------------ ------------
Cash flows from financing activities:
Issue of new shares 38,646 - -
Repayment of lease liabilities 19 (84) (75) (164)
Net cash from/(used in) financing
activities 38,562 (75) (164)
--------------------------------------- ----- ------------ ------------ ------------
Net increase in cash and cash
equivalents 13,671 12,411 7,111
Cash and cash equivalents at
start of the period 21,233 14,122 14,122
Cash and cash equivalents at
end of the period 34,904 26,533 21,233
--------------------------------------- ----- ------------ ------------ ------------
Notes to the Interim Financial Report
1. Basis of preparation
1.1 General information
The condensed interim financial report of Distribution Finance
Capital Holdings plc (the "Company" or "DFCH plc") include the
assets, liabilities and results of its wholly owned subsidiary, DF
Capital Bank Limited ("the Bank"), together form the "Group".
DF Capital Bank Limited was granted its banking licence in
September 2020, and subsequently changed its name from Distribution
Finance Capital Ltd ("DFC Ltd") to DF Capital Bank Limited (the
"Bank").
DFCH plc is registered and incorporated in England and Wales
under company registration number 11911574. The registered office
is St James' Building, 61-95 Oxford Street, Manchester, M1 6EJ. The
Company's ordinary shares are admitted to trading on AIM, a market
operated by the London Stock Exchange.
The principal activity of the Company is that of an investment
holding company. The principal activity of the Group is as a
specialist personal savings and commercial lending bank group. The
Group provides niche working capital funding solutions to dealers
and manufacturers across the UK, enabled by competitively priced
personal savings products.
The interim report is presented in pounds sterling, which is the
currency of the primary economic environment in which the Group
operates, and are rounded to the nearest thousand pounds, unless
stated otherwise.
1.2 Basis of accounting
The condensed consolidated set of financial statements included
in this Interim Financial Report has been prepared in accordance
with International Accounting Standard 34 'Interim Financial
Reporting' ('IAS 34').
The condensed set of financial statements included within this
Interim Financial Report for the six months ended 30 June 2021
should be read in conjunction with the annual audited financial
statements of Distribution Finance Capital Holdings plc for the
year ended 31 December 2020.
The annual financial statements of Distribution Finance Capital
Holdings plc are prepared in accordance with International
Financial Reporting Standards ('IFRS').
The condensed consolidated financial information for the six
months ended 30 June 2021 has been prepared using accounting
policies consistent with IFRS. The interim information does not
constitute statutory financial statements within the meaning of
section 434 of the Companies Act 2006. The financial information
for the periods ending 30 June 2021 and 30 June 2020 are unaudited
but has been reviewed by the Company's auditor, Deloitte LLP, and
their report appears on page 12 of this Interim Financial Report.
The comparative figures for the year ended 31 December 2020 are the
Group's statutory accounts and have been reported on by its auditor
and delivered to the Registrar of Companies. The report of the
auditor on those statutory accounts was unqualified, did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report, and
did not contain a statement under Section 498(2) or (3) of the
Companies Act 2006.
1.3 Principal accounting policies
The principal accounting policies adopted in the preparation of
this financial information are set out below. These policies have
been applied consistently to all the financial periods
presented.
1.4 Going concern
The financial statements are prepared on a going concern basis
as the Directors are satisfied that the Group has adequate
resources to continue operating in the foreseeable future. In
making this assessment the Directors have considered the Group's
current available capital and liquidity resources, the business
financial projections and the outcome of stress testing. This
stress testing has considered the potential impact of COVID-19 on
our dealers, in particular, in respect of credit losses. Based on
this review, the Directors believe that the Group is well placed to
manage its business risks successfully within the expected economic
outlook. Accordingly, the Directors have adopted the going concern
basis in preparing the Interim Financial statements.
1.5 Critical accounting estimates and judgements
In accordance with IFRS, the Directors of the Group are required
to make judgements, estimates and assumptions in certain subjective
areas whilst preparing these financial statements. The application
of these accounting policies may impact the reported amounts of
assets, liabilities, income and expenses and actual results may
differ from these estimates.
Any estimates and underlying assumptions used within the
statutory financial statements are reviewed on an ongoing basis,
with revisions recognised in the period in which they are adjusted,
and any future periods affected.
Further details can be found in note 3 of these financial
statements on the critical accounting estimates and judgements used
within these financial statements.
1.6 Foreign currencies
The financial statements are expressed in Pounds Sterling, which
is the functional and presentational currency of the Group.
Transactions in foreign currencies are translated to the Group's
functional currency at the foreign exchange rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are retranslated to
the functional currency at the foreign exchange rate ruling at that
date. Non-monetary assets and liabilities that are measured in
terms of historical cost in a foreign currency are translated using
the exchange rate at the date of the transaction. Foreign exchange
differences arising on translation are recognised in the statement
of income.
1.7 New accounting standards issued but not yet effective
The Group assesses on an ongoing basis the impact of new
accounting standards which are not yet effective at the reporting
date and the likely impact of the new accounting standard on the
financial statements. At 30 June 2021, the Group has applied all
new IFRS and foresees no additional standards with a likely
material impact to consider at this time.
2. Summary of significant accounting policies
The same accounting policies, presentation and methods of
computation are followed in the condensed consolidated set of
financial statements as applied in the Group's latest annual
audited financial statements for the year ended 31 December 2020.
There was no adoption of any new and amended standards within the
six-month period ended 30 June 2021.
The preparation of interim condensed consolidated financial
statements in compliance with IAS 34 requires the use of certain
critical accounting judgements and key sources of estimation
uncertainty. It also requires the exercise of judgement in applying
the Group's accounting policies. There have been no material
revisions to the nature and the assumptions used in estimating
amounts reported in the annual audited financial statements of DFCH
plc for the year ended 31 December 2020.
3. Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial information in accordance with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and reported
amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The judgements and estimates that have a significant effect on
the amounts recognised in the historical financial information are
noted below.
3.1 Critical accounting judgements
There has been no material change to the nature and application
of critical accounting judgement since the latest audited accounts
of Distribution Finance Capital Holdings plc for the year ended 31
December 2020.
3.2 Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period, that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below:
3.2.1 Expected Credit Losses (ECL) loan impairment
Impairment model assumptions
See the Group's Annual Report for the year ended 31 December
2020 which outlines the assumptions the Group includes to best
estimate the probability of default ("PD"), exposure at default
("EAD"); and loss given default ("LGD") inputs within the
impairment model in order to calculate the expected credit loss
("ECL"). The general design of the impairment model remains
unchanged for the period ended 30 June 2021, however certain
assumptions have been updated to reflect changes in circumstances,
predominantly due to changes in the potential impact of
COVID-19.
COVID-19
In 2020 the Group materially revised its assumptions which feed
into the ECL impairment modelling in order to reflect the potential
impact of COVID-19. At the time the Group had limited historical
loss data, and in any case the potentially extreme economic impact
brought about by COVID-19 cannot be accurately correlated to
historic data, requiring the use of model overlays to effectively
forecast the impact of the pandemic on expected credit losses.
During 2021 the Group has seen record low arrears and default
cases, resultantly, the Group has revised its ECL assumptions and
improved its economic outlook for the following 12-month period
from the balance sheet date. The Group remains cautious in respect
to future credit losses given current events are not an accurate
predictor of future events.
Probability of Default ("PD")
At the beginning of the COVID-19 pandemic in the UK, the Group
applied an overlay to its PD assumptions to reflect the likely
increase in stage 1 and 2 PDs. In the six-month period ended 30
June 2021, the Group partially released this overlay to reflect
improvement in economic conditions for the UK economy and,
specifically, the Group's customer base. The Group conducted a
12-month PD roll rate analysis to calculate actual PD rates and
validated its assumptions against recent empirical findings
published by leading credit rating agencies.
A 100% deterioration in PDs (excluding stage 3 exposures, which
are already in default) would result in an additional impairment
charge of GBP734,000 at 30 June 2021 (30 June 2020: GBP630,000; 31
December 2020: GBP540,000).
Loss Given Default ("LGD")
The Group reviewed its LGD modelling assumptions as at 30 June
2021 by comparing actual loss given default values against modelled
LGD. The Group concluded its current LGD modelling was closely
aligned to recent historical actuals and the Group's management
anticipate these LGD rates to continue into the foreseeable future.
Resultantly, the Group has not revised its LGD modelling
assumptions during the six-month period ended 30 June 2021.
A 10% reduction in the expected discounted cashflows from the
collateral held by the Group would result in an additional
impairment charge of GBP490,000 at 30 June 2021 (30 June 2020:
GBP620,000; 31 December 2020: GBP400,000).
Economic Stress Scenarios
The Group considers four economic stress scenarios within its
impairment modelling whereby the Group stresses PD and LGD inputs
in accordance with expected macro-economic outlooks. This provides
an ECL impairment allowance for each scenario which is multiplied
by the likelihood of occurrence over the next 12-month period from
the balance sheet date to give a probability weighted ECL. As part
of the model update, the Group has changed the probability
weighting to take into account our latest forecasts for the
likelihood of these different scenarios occurring.
Due to recent improvements in recovery from the COVID-19
pandemic, the Group has improved its economic outlook for 30 June
2021 from the scenarios followed at 31 December 2020. See below for
the updated economic stress scenarios:
30 June 2021 (Unaudited):
Probability ECL Coverage
Weighting ECL Impairment (1)
Scenario Economic Outlook (%) (GBP'000) (%)
---------- ------------------------------------- ------------ --------------- --------------
Macro-economic factors recover
Improved to pre-COVID-19 position 30% 801 0.48%
---------- ------------------------------------- ------------ --------------- --------------
Current economic climate which
is aligned to the Group's internal
Base decision-making processes 45% 1,179 0.70%
---------- ------------------------------------- ------------ --------------- --------------
Deterioration in economic outlook
to midway point between base
Poor scenario and severe scenario 20% 2,001 1.19%
---------- ------------------------------------- ------------ --------------- --------------
Aligned to equivalent financial
sector losses during the 2008/09
Severe financial crisis 5% 3,131 1.87%
----------
Total 100% 1,328 0.79%
------------------------------------------------- ------------ --------------- --------------
30 June 2020 (Unaudited):
Probability ECL Coverage
Weighting ECL Impairment (1)
Scenario Economic Outlook (%) (GBP'000) (%)
---------- ------------------------------------- ------------ --------------- --------------
Macro-economic factors recover
Improved to pre-COVID-19 position 25% 1,307 0.78%
---------- ------------------------------------- ------------ --------------- --------------
Current economic climate which
is aligned to the Group's internal
Base decision-making processes 40% 1,926 1.15%
---------- ------------------------------------- ------------ --------------- --------------
Deterioration in economic outlook
to midway point between base
Poor scenario and severe scenario 25% 2,777 1.66%
---------- ------------------------------------- ------------ --------------- --------------
Aligned to equivalent financial
sector losses during the 2008/09
Severe financial crisis 10% 3,773 2.26%
----------
Total 100% 2,169 1.30%
------------------------------------------------- ------------ --------------- --------------
31 December 2020 (Audited):
Probability ECL Coverage
Weighting ECL Impairment (1)
Scenario Economic Outlook (%) (GBP'000) (%)
---------- ---------------------------------------- ------------ --------------- --------------
Macro-economic factors recover
Improved to pre-COVID-19 position 30% 874 0.77%
---------- ---------------------------------------- ------------ --------------- --------------
Current economic climate which
is aligned to the Group's internal
Base decision-making processes 40% 1,131 0.99%
---------- ---------------------------------------- ------------ --------------- --------------
Deterioration in economic outlook
to midway point between base
Poor scenario and severe scenario 20% 1,679 1.47%
---------- ---------------------------------------- ------------ --------------- --------------
Aligned to equivalent financial
sector losses during the 2008/09
Severe financial crisis 10% 2,380 2.09%
---------- ----------------------------------------
Total 100% 1,288 1.13%
------------------------------ -------------------- ------------ --------------- --------------
(1) ECL Coverage is calculated by dividing the ECL impairment by
the Exposure At Default (EAD). EAD is typically higher than the
gross loan receivable balance.
In the event one of the above scenarios occurs and applied a
100% probability weighting the impact on the impairment allowances
would be as follows:
30 June 2020 31 December
30 June 2021 2020
(Unaudited) (Unaudited) (Audited)
Scenario GBP'000 GBP'000 GBP'000
---------- ------------------------------------------------------- ------------- ------------
Improved 527 862 414
Base 149 243 157
Poor (673) (608) (391)
Severe (1,803) (1,604) (1,091)
---------- ------------------------------------------------------- ------------- ------------
4. Operating segments
It is the Directors' view that the Group's products and the
markets to which they are offered are so similar in nature that
they are reported as one class of business. All customers are
currently UK-based only. As a result, it is considered that the
chief operating decision maker uses only one segment to control
resources and assess the performance of the entity, while deciding
the strategic direction of the Group.
5. Interest and similar income
6 months
6 months ended ended Year ended
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------- --------------------------------- ---------------------------- --------------------------------
On loans and
advances to
customers 5,922 7,208 11,206
On loans and
advances to banks 2 14 17
On employee loan
agreements - 8 10
Total interest and
similar
income 5,924 7,230 11,233
------------------- --------------------------------- ---------------------------- --------------------------------
6. Interest and similar expenses
6 months
6 months ended ended Year ended
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------------- --------------------------------- ----------------------------- ------------------------------
Customer deposits 871 - 279
Interest paid to
related
parties - 325 913
Wholesale funding
interest - 5,095 7,982
Total interest and
similar
expenses 871 5,420 9,174
-------------------- --------------------------------- ----------------------------- ------------------------------
7. Staff costs
6 months
ended 6 months ended Year ended
30 June 31 December
2021 30 June 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
---------------------------------- -------------- --------------- --------------
Wages and salaries 3,793 5,168 7,959
Contractor costs 24 69 75
Social security costs 511 646 1,054
Pension costs arising on defined
contribution schemes 201 214 395
Share based payments 252 4 322
Total staff costs 4,781 6,101 9,805
---------------------------------- -------------- --------------- --------------
Contractor costs are recognised within personnel costs where the
work performed would otherwise have been performed by employees.
Contractor costs arising from the performance of other services is
included within other operating expenses.
Refer to note 8 for further details on the share option schemes
introduced by the Group in the six-month period ended 30 June
2021.
8. Share-based payments
Summary of long-term incentive schemes granted in current
period:
Options
exercised
Options granted Options forfeited in six-month Options
Options outstanding in six-month in six-month period ended outstanding
at 31 December period ended period ended 30 June at 30 June
2020 30 June 2021 30 June 2021 2021 2021
(Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Plan No. No. No. No. No.
-------------------- -------------------- ---------------- ------------------ -------------- -------------
General Award 320,000 240,000 (5,000) - 555,000
Manager CSOP Award 385,298 - - - 385,298
Manager PSP Award 853,334 - - - 853,334
CEO Recruitment
Award 900,000 - - - 900,00
Senior Manager
2020 Award 985,000 - - - 985,000
Senior Manager
2021 Award - 114,370 - - 114,370
Total 3,443,632 354,370 (5,000) - 3,793,002
-------------------- -------------------- ---------------- ------------------ -------------- -------------
During the six-month period ended 30 June 2021, the Group
granted the following to employees:
General Award
Nil cost options over ordinary shares of GBP0.01 each of the
current share capital of the Company were granted to all employees
(excluding Directors) in June 2021. These options vest over a
3-year period and are not subject to specific performance
conditions.
Senior Manager Award 2021
Senior Managers who recently joined the Group or were promoted
were granted nil-cost share options. These have no performance
conditions and vest over a period of 1 to 3 years.
9. Other operating expenses
6 months
6 months ended ended Year ended
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------------------------- --------------- -------------- --------------
Finance costs 6 10 17
Depreciation 132 139 290
Amortisation of intangible
assets 144 111 237
Loss on disposal of fixed
assets 2 2 3
Loss on disposal of intangible
assets - 5 57
Professional services expenses 945 876 2,009
IT-related expenses 821 651 1,379
Other operating expenses 607 558 1,190
Total other operating expenses 2,657 2,352 5,182
-------------------------------- --------------- -------------- --------------
10. Provisions
Analysis for movements in other provisions:
Onerous
Social security Severance Leasehold supplier
payments payments dilapidations contracts Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------------------------- ---------- ---------------------- ----------- --------
6 months ended 30 June 2021 (Unaudited)
At start of period - - 58 25 83
Additions - - 70 - 70
Utilisation of provision - - - (16) (16)
Unwinding of discount - - 1 - 1
Unused amounts reversed - - - (9) (9)
At end of period - - 129 - 129
-------------------------- -------------------------- ---------- ---------------------- ----------- --------
6 months ended 30 June 2020 (Unaudited)
At start of period 105 337 91 - 533
Additions - - - - -
Utilisation of provision - (193) - - (193)
Unused amounts reversed - - (3) - (3)
At end of period 105 144 88 - 337
-------------------------- -------------------------- ---------- ---------------------- ----------- --------
Year ended 31 December 2020 (Audited)
At start of period 105 337 91 - 533
Additions - 1 - 25 26
Utilisation of provision - (338) (26) - (364)
Unused amounts reversed (105) - (7) - (112)
At end of period - - 58 25 83
-------------------------- -------------------------- ---------- ---------------------- ----------- --------
Leasehold dilapidations
During the six-month period ended 30 June 2021, the Group signed
two new office premise leases and recognised leasehold
dilapidations of GBP70,000 within the initial recognition of the
corresponding right-of-use assets. See note 15 for further details
regarding the right-of-use assets.
Onerous supplier contracts
At 31 December 2020 the Group was in the process of cancelling
an unused supplier contract and recognised GBP25,000 for expected
residual cost. Since the Group has settled this obligation with the
supplier at GBP16,000 and released GBP9,000 as unused
provision.
11. Net impairment loss on financial assets
6 months
6 months ended ended Year ended
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------------------- --------------- -------------- --------------
Movement in impairment allowance
in the period 11 755 (107)
Write-offs 152 179 1,403
Write-back of amounts written-off - (2) (2)
Total net impairment losses
on financial assets 163 932 1,294
----------------------------------- --------------- -------------- --------------
See note 13 on further analysis of the movement in impairment
allowances on loans and advances to customers.
12. Taxation
Analysis of tax charge recognised in the period:
6 months
6 months ended ended Year ended
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
---------------- ------------------------------ -------------------------------- ----------------------------------
Current tax
charge/
(credit) - - -
Deferred tax
(credit)/
charge - - -
Total tax
(credit)/
charge - - -
---------------- ------------------------------ -------------------------------- ----------------------------------
Current tax on profits reflects UK corporation tax levied at a
rate of 19% for the period ended 30 June 2021 (31 December 2020:
19%) and the banking surcharge levied at a rate of 8% on the
profits of banking companies chargeable to corporation tax after an
allowance of GBP25.0 million per annum.
Expenses that are not deductible in determining taxable
profits/losses include impairment losses, amortisation of
intangible assets, depreciation of fixed assets, client and staff
entertainment costs, and professional fees which are capital in
nature.
In the March 2020 Budget, it was announced that the cuts in
corporation tax rate to 18% and then to 17% previously enacted
would not occur with the corporation tax rate held at 19%. On 3
March 2021, the government announced that the corporation tax rate
will increase from 19% to 25% from 1 April 2023. This rate change
was not substantively enacted at the balance sheet date and so has
not been reflected in these financial statements. The government
has also acknowledged that this increase in the main rate will
result in an uncompetitive position for UK banks which are also
subject to the 8% Bank Surcharge, and so has also announced a
review of the Bank Surcharge will take place in Autumn 2021.
A deferred tax asset is only recognised to the extent the Group
finds it probable that future taxable profits will be available
against which to be utilised against prior taxable losses. Deferred
tax assets are reviewed at each reporting date and are reduced to
the extent that it is no longer probable that the related tax
benefit will be realised. The Group has not recognised a deferred
tax asset in any period given it does not have sufficient evidence
at the respective balance sheet date that the Group will make
taxable profits which can be offset against unused taxable losses.
As at 30 June 2021, the Group has estimated GBP7.5 million (31
December 2020: GBP7.05 million) of unused tax credits for which a
deferred tax asset has not been recognised against.
13. Loans and advances to customers
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
--------------------------- --------------------------- --------------------------- -------------------------------
Gross carrying amount 166,764 165,927 113,259
less: impairment allowance (1,328) (2,169) (1,288)
less: effective interest
rate
adjustment (595) (54) (634)
Total loans and advances
to
customers 164,841 163,704 111,337
--------------------------- --------------------------- --------------------------- -------------------------------
Refer to note 11 for further details on the impairment losses
recognised in the periods.
Ageing analysis of gross loan receivables:
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------------- -------------- -------------- -------------
Unimpaired:
Not yet past due 165,856 161,743 112,510
Past due: 1 - 30 days 158 1,185 21
Past due: 31 - 60 days - 7 5
Past due: 61 - 90 days - 5 14
Past due: 90+ days - - -
166,014 162,940 112,550
Impaired:
Impaired, not yet past due
and past due 1 - 90 days 588 2,095 578
Impaired, past due 90+ days 162 892 131
750 2,987 709
Total gross carrying amount 166,764 165,927 113,259
----------------------------- -------------- -------------- -------------
Analysis of gross loan receivables in accordance with impairment
losses:
Stage
Stage 1 Stage 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------------------------ ---------------- -------- ---------------------
As at 1 January 2021 (Audited) 103,823 8,726 710 113,259
Transfer to Stage 1 1,857 (1,857) - -
Transfer to Stage 2 (15,755) 15,755 - -
Transfer to Stage 3 - - - -
Net lending/(repayment) 65,395 (11,886) 99 53,608
Write-offs (44) - (59) (103)
Total movement in loss allowance 51,453 2,012 40 53,505
As at 30 June 2021 (Unaudited) 155,276 10,738 750 166,764
---------------------------------- ------------------------------ ---------------- -------- ---------------------
Loss allowance coverage at
30 June 2021 0.50% 0.91% 59.73% 0.80%
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ----------------------- --------------------- --------------------- ----------
As at 1 January 2020 (Audited) 201,993 4,585 2,871 209,449
Changes in IFRS 9 model &
parameters - - - -
Transfer to Stage 1 29,513 (28,769) (744) -
Transfer to Stage 2 (55,365) 57,453 (2,088) -
Transfer to Stage 3 (2,536) (2,434) 4,970 -
Net lending/(repayment) (30,998) (10,502) (1,944) (43,444)
Write-offs - - (78) (78)
Total movement in loss allowance (59,386) 15,748 116 (43,522)
As at 30 June 2020 (Unaudited) 142,607 20,333 2,987 165,927
---------------------------------- ----------------------- --------------------- --------------------- ----------
Loss allowance coverage at
30 June 2020 0.47% 0.81% 44.66% 1.31%
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ---------- ---------- --------- ----------
As at 1 January 2020 (Audited) 201,993 4,585 2,871 209,449
Transfer to Stage 1 3,639 (2,597) (1,042) -
Transfer to Stage 2 (36,584) 38,725 (2,141) -
Transfer to Stage 3 (3,152) (2,418) 5,570 -
Net lending/(repayment) (62,048) (29,569) (3,367) (94,984)
Write-offs (25) - (1,181) (1,206)
Total movement in loss allowance (98,170) 4,141 (2,161) (96,190)
As at 31 December 2020 (Audited) 103,823 8,726 710 113,259
---------------------------------- ---------- ---------- --------- ----------
Loss allowance coverage at
31 December 2020 0.62% 0.56% 83.66% 1.14%
Analysis of impairment losses on loans and advances to
customers:
Stage
Stage 1 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------------------------------ ---------------- -------- ---------------------
As at 1 January 2021 (Audited) 645 49 594 1,288
Transfer to Stage 1 17 (17) - -
Transfer to Stage 2 (120) 120 - -
Transfer to Stage 3 - - - -
Remeasurement of impairment
allowance (11) 65 - 54
Net lending/(repayment) 251 (119) (70) 62
Write-offs - - (76) (76)
Total movement in loss allowance 137 49 (146) 40
As at 30 June 2021 (Unaudited) 782 98 448 1,328
---------------------------------- ------------------------------ ---------------- -------- ---------------------
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ----------------------- --------------------- -------------------- --------
As at 1 January 2020 (Audited) 340 41 1,028 1,409
Changes in IFRS 9 model &
parameters 613 180 131 924
Transfer to Stage 1 124 (103) (21) -
Transfer to Stage 2 (98) 107 (9) -
Transfer to Stage 3 (41) (17) 58 -
Net lending/(repayment) (268) (43) 218 (93)
Write-offs - - (71) (71)
Total movement in loss allowance 330 124 306 760
As at 30 June 2020 (Unaudited) 670 165 1,334 2,169
---------------------------------- ----------------------- --------------------- -------------------- --------
Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- -------- --------- ---------
As at 1 January 2020 (Audited) 340 41 1,028 1,409
Transfer to Stage 1 309 (57) (252) -
Transfer to Stage 2 (80) 89 (9) -
Transfer to Stage 3 (97) (16) 113 -
Remeasurement of impairment
allowance 408 247 884 1,539
Net lending/(repayment) (224) (255) (6) (485)
Write-offs (11) - (1,164) (1,175)
Total movement in loss
allowance 305 8 (434) (121)
As at 31 December 2020
(Audited) 645 49 594 1,288
-------------------------------- -------- -------- --------- ---------
14. Trade and other receivables
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------------------- -------------- -------------- -------------
Trade receivables 356 305 261
Impairment allowance (93) (103) (121)
263 202 140
Other debtors 309 313 207
Employee loans - 701 -
Accrued income 118 101 63
Prepayments 737 1,044 744
Total trade and other receivables 1,427 2,361 1,154
----------------------------------- -------------- -------------- -------------
All trade receivables are due within one year and typically due
for payment within 30 days of invoice.
The trade receivable balances are assessed for expected credit
losses (ECL) under the 'simplified approach', which requires the
Group to assess all balances for lifetime ECLs and is not required
to assess significant increases in credit risk.
Ageing analysis of trade receivables:
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------------- -------------- -------------- -------------
Unimpaired:
Not yet past due 246 200 106
past due: 1 - 30 days 23 6 15
past due: 31 - 60 days - - 11
past due: 61 - 90 days 1 - 13
past due: 90+ days - - -
270 206 145
Impaired:
Impaired, not yet past due
and past due 1 - 90 days 19 47 45
Impaired, past due 90+ days 67 52 71
86 99 116
Total trade receivables 356 305 261
----------------------------- -------------- -------------- -------------
Analysis of movement of impairment losses on trade
receivables:
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
--------------------------------------- ------------------------------ -------------- -------------
Balance as at 1 January 121 107 107
Changes in IFRS 9 model & parameters - - -
Amounts written off (21) - (6)
Amounts recovered - - -
Change in loss allowance due
to new trade and other receivables
originated net of those derecognised
due to settlement (7) (4) 20
Balance as at 31 December 93 103 121
--------------------------------------- ------------------------------ -------------- -------------
15. Right-of-use assets
Buildings
GBP'000
-------------------------- -------------------
Cost
31 December 2019 823
Additions -
Disposals -
Lease modifications (177)
As at 30 June 2020 646
-------------------------- -------------------
Additions -
Disposals -
Lease modifications (239)
As at 31 December 2020 407
-------------------------- -------------------
Additions 787
Disposals -
Lease modifications (30)
As at 30 June 2021 1,164
-------------------------- -------------------
Accumulated depreciation
31 December 2019 185
Charge for the period 73
Eliminated on disposals -
As at 30 June 2020 258
-------------------------- -------------------
Charge for the period 85
Eliminated on disposals -
As at 31 December 2020 343
-------------------------- -------------------
Charge for the period 73
Eliminated on disposals -
As at 30 June 2021 416
-------------------------- -------------------
Carrying amount
At 30 June 2020 388
At 31 December 2020 64
At 30 June 2021 748
-------------------------- -------------------
During the six-month period ended 30 June 2021, the Group signed
two new office premise leases in Manchester and London. The
Manchester office at St James' Building, 61-95 Oxford Street,
Manchester, M1 6EJ being the new headquarters of the Group. At
initial recognition of the two leases, the Group recognised
additions to the right-of-use asset of GBP786,726. When assessing
the future lease payments of each lease, the Group has used the
most likely termination date of the lease either up to the
contractual break date or contractual term end date. The Group has
estimated the restoration costs at the end of the office to return
the premise to as found condition and added this into the
right-of-use initial recognition amount. The corresponding amount
of which is added into provisions - see note 10 for further
details. Any directly attributable costs for acquiring the
right-of-use assets has been added to the right-of-use asset.
Furthermore, a lease modification of GBP30,000 was made due to a
rent-free period being granted on a prior existing lease which is
due to lapse in 2021.
16. Notes to the cash flow statement
Adjustments for non-cash items and other adjustments included in
the income statement:
30 June 30 June 31 December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
Note GBP'000 GBP'000 GBP'000
-------------------------------------- ----- ------------ ------------ ------------
Depreciation of property, plant
and equipment 59 66 132
Depreciation of right-of-use
assets 15 73 73 158
Loss on disposal of property,
plant and equipment 9 2 2 3
Amortisation of intangible
assets 9 144 111 237
Loss on disposal of intangible
assets 9 - 5 57
Share based payments 7 252 4 322
Impairment allowances on receivables 11 163 932 1,294
Movement in other provisions 10 46 (196) (450)
Interest income on debt securities (53) (15) (15)
Finance costs 9 6 10 17
Lease modifications - 21 76
Interest in suspense (39) - 228
Total non-cash items and other
adjustments 653 1,013 2,059
-------------------------------------- ----- ------------ ------------ ------------
Net change in operating assets:
30 June 30 June 31 December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ------------ ------------
Decrease/(increase) in loans and
advances to customers (53,646) 43,223 94,321
Decrease/(increase) in other
assets (254) 560 2,443
(Increase)/decrease in operating
assets (53,900) 43,783 96,764
----------------------------------- ------------ ------------ ------------
Net change in operating liabilities:
30 June 30 June 31 December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------------------ ------------ ------------ ------------
Increase in customer deposits 14,006 - 145,982
Increase/(decrease) in other
liabilities 10,468 1,064 (1,332)
Increase in financial liabilities - 12,283 12,283
Repayment of financial liabilities - (39,975) (176,006)
Increase/(decrease) in operating
liabilities 24,474 (26,628) (19,073)
------------------------------------- ------------ ------------ ------------
17. Equity
30 June 30 June 31 December 30 June 30 June 31 December
2021 2020 2020 2021 2020 2020
No. No. No. GBP'000 GBP'000 GBP'000
------------------ ------------ ------------ ------------ -------- -------- ------------
Authorised:
Ordinary shares
of 1p each 179,369,199 106,641,926 106,641,926 1,794 1,066 1,066
Allotted, issued
and fully paid:
Ordinary shares
of 1p each 179,369,199 106,641,926 106,641,926 1,794 1,066 1,066
Analysis of the movements in share capital:
No. of Issue Share Share Merger
Date shares Price Capital Premium Relief Total
# GBP GBP'000 GBP'000 GBP'000 GBP'000
--------------- ----------- ------------- ------- --------- --------- -------- ---------
Balance at 1 January
2020 (Audited) 106,641,926 1,066 - 94,911 95,977
---------------------------- ------------- ------- --------- --------- -------- ---------
No transactions within
the period - - - - - -
Balance at 30 June 2020
(Unaudited) 106,641,926 1,066 - 94,911 95,977
---------------------------- ------------- ------- --------- --------- -------- ---------
No transactions within
the period - - - - - -
Balance at 31 December
2020 (Audited) 106,641,926 1,066 - 94,911 95,977
---------------------------- ------------- ------- --------- --------- -------- ---------
Issue of new
shares 22-Feb-21 72,727,273 0.55 727 39,273 - 40,000
Balance at 30 June 2021
(Unaudited) 179,369,199 1,793 39,273 94,911 135,977
---------------------------- ------------- ------- --------- --------- -------- ---------
In February 2021 the Group executed a conditional placing of new
ordinary shares with certain new and existing institutional and
other investors in respect of 72,727,273 new ordinary shares of one
penny each ("Ordinary Shares") in Distribution Finance Capital
Holdings plc at a price of 55 pence per placing share. The placing
raised GBP40.0 million of additional capital before expenses and
approximately GBP38.6 million after expenses. The placing was
subject to shareholder approval at a general meeting on 22 February
2021 by which all of the Resolutions were duly passed on a poll at
the General Meeting. The enlarged share capital is comprised of
179,369,199 ordinary shares with one voting right per share and
50,000 non-voting redeemable preference shares of GBP1 each.
Own shares:
Own shares represent 2,963,283 ordinary shares held by the
Group's Employee Benefits Trust to meet obligations under the
Company's share and share option plans. The shares are stated at
cost and their market value at 30 June 2021 was GBP1,807,603 (31
December 2020: GBP1,896,501).
30 June 31 December
30 June 2021 2020 2020
GBP'000 GBP'000 GBP'000
------------------------ --------------------- --------------------- -----------------------
At start of period (364) - -
Employee Benefit Trust - (364) (364)
At end of period (364) (364) (364)
------------------------ --------------------- --------------------- -----------------------
18. Financial liabilities
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
----------------------- ---------------------------- --------------------------- ----------------------------------
Loans with related
parties - 8,902 -
Wholesale funding - 127,378 -
Lease liabilities 554 320 57
Preference Shares 50 50 50
Total financial
liabilities 604 136,650 107
----------------------- ---------------------------- --------------------------- ----------------------------------
Loans with related parties:
During the year ended 31 December 2020, following the granting
of the Group's banking licence by the PRA, the Group fully repaid
the loan agreement (inluding accrued interest) to TruFin Holdings
Limited in December 2020. For the period ended 30 June 2021, the
Group is now solely funded by customer deposits and equity.
Wholesale funding:
Following the Group being granted the banking licence, the Group
raised sufficient customer deposits to fully repay its wholesale
funders in November 2020.
Lease liabilities:
Refer to note 19 for further details on movements of lease
liabilities during the six-month period ended 30 June 2021.
19. Lease liabilities
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------- -------------------------------- -------------- -------------
Current 109 122 57
Non-current 445 198 -
Total lease liabilities 554 320 57
------------------------- -------------------------------- -------------- -------------
During the six-month period ended 30 June 2021, the Group signed
two new office premise lease agreements. In the period the Group
added GBP605,000 at initial recognition to the lease liabilities.
See note 15 for further details. During the six-month period ended
30 June 2021, the Group made lease repayments of GBP84,000 and
recognised finance costs of GBP6,000. Furthermore, as disclosed in
note 15, the Group recognised a lease modification of GBP30,000 due
to a rent concession granted in the period.
The maturity analysis of lease liabilities is as follows:
30 June 2021
(Unaudited)
GBP'000
------------------------------ ---------------------------------
6 months to 31 December 2021 63
1 year to 31 December 2022 130
1 year to 31 December 2023 160
1 year to 31 December 2024 184
1 year to 31 December 2025 80
Total lease payments 617
------------------------------ ---------------------------------
Finance charges (63)
Lease liabilities 554
------------------------------ ---------------------------------
20. Financial instruments
Analysis of financial instruments by valuation model
The Group measures fair values using the following hierarchy of
methods:
-- Level 1 - Quoted market price in an active market for an identical instrument
-- Level 2 - Valuation techniques based on observable inputs.
This category includes instruments valued using quoted market
prices in active markets for similar instruments, quoted prices for
similar instruments that are considered less than active, or other
valuation techniques where all significant inputs are directly or
indirectly observable from market data
-- Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
Financial assets and liabilities that are not measured at fair
value:
Carrying Level Level
amount Fair value Level 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------- ----------- -------- -------- ---------
30 June 2021 (Unaudited)
Financial assets not measured
at fair value
Loans and advances to
customers 164,841 164,841 - - 164,841
Trade receivables 263 263 - - 263
Other receivables 309 309 - - 309
Cash and equivalents 34,904 34,904 34,904 - -
Total financial assets 200,317 200,317 34,904 - 165,413
------------------------------- --------- ----------- -------- -------- ---------
30 June 2021 (Unaudited)
Financial liabilities
not measured at fair value
Preference shares 50 50 - - 50
Customer deposits 159,988 158,872 - - 158,872
Other financial liabilities 554 554 - - 554
Trade payables 154 154 - - 154
Other payables 13,177 13,177 - - 13,177
Total financial liabilities 173,923 172,807 - - 172,807
------------------------------- --------- ----------- -------- -------- ---------
Carrying Level Level
amount Fair value Level 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------- ----------- -------- -------- ---------
30 June 2020 (Unaudited)
Financial assets not measured
at fair value
Loans and advances to
customers 163,704 163,704 - - 163,704
Trade receivables 202 202 - - 202
Other receivables 1,014 1,014 - - 1,014
Cash and equivalents 26,533 26,533 26,533 - -
Total financial assets 191,453 191,453 26,533 - 164,920
------------------------------- --------- ----------- -------- -------- ---------
30 June 2020 (Unaudited)
Financial liabilities
not measured at fair value
Preference shares 50 50 - - 50
Other financial liabilities 136,600 136,600 - - 136,600
Trade payables 459 459 - - 459
Other payables 4,287 4,287 - - 4,287
Total financial liabilities 141,396 141,396 - - 141,396
------------------------------- --------- ----------- -------- -------- ---------
Carrying Level Level
amount Fair value Level 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------- ----------- -------- -------- ---------
31 December 2020 (Audited)
Financial assets not measured
at fair value
Loans and advances to
customers 111,337 111,337 - - 111,337
Trade receivables 140 140 - - 140
Other receivables 207 207 - - 207
Cash and equivalents 21,233 21,233 21,233 - -
Total financial assets 132,917 132,917 21,233 - 111,684
------------------------------- --------- ----------- -------- -------- ---------
31 December 2020 (Audited)
Financial liabilities
not measured at fair value
Preference shares 50 50 - - 50
Customer deposits 145,982 145,982 - - 145,982
Other financial liabilities 57 57 - - 57
Trade payables 624 624 - - 624
Other payables 2,928 2,928 - - 2,928
Total financial liabilities 149,641 149,641 - - 149,641
------------------------------- --------- ----------- -------- -------- ---------
Fair values for level 3 assets were calculated using a
discounted cash flow model and the Directors consider that the
carrying amounts of financial assets and liabilities recorded at
amortised cost are approximate to their fair values.
Loans and advances to customers
Due to the short-term nature of loans and advances to customers,
their carrying value is considered to be approximately equal to
their fair value. These items are short term in nature such that
the impact of the choice of discount rate would not make a material
difference to the calculations.
Trade and other receivables, other borrowings and other
liabilities
These represent short-term receivables and payables and as such
their carrying value is considered to be equal to their fair
value.
There are no financial liabilities included in the statement of
financial position that are measured at fair value.
Customers deposits
Fair value is estimated using discounted cash flows applying
either market rates where practicable, or rates offered with
similar characteristics by other financial institutions. The timing
of cash flows for fixed term accounts is aligned to the contractual
maturity date of the product and notice accounts is at the earliest
withdrawal date from the reporting end date.
Financial assets and liabilities included in the statement of
financial position that are measured at fair value:
Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000
-------------------------- -------------------------------- -------- ---------------------
30 June 2021 (Unaudited)
Financial assets measured
at fair value
Debt securities 59,750 - -
Total financial assets 59,750 - -
-------------------------- -------------------------------- -------- ---------------------
Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000
-------------------------- ---------------------------------- -------- ---------------------
30 June 2020 (Unaudited)
Financial assets measured
at fair value
Debt securities 6,341 - -
Total financial assets 6,341 - -
-------------------------- ---------------------------------- -------- ---------------------
Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000
--------------------------- -------------------------------- -------- ---------------------
31 December 2020 (Audited)
Financial assets measured
at fair value
Debt securities 66,601 - -
Total financial assets 66,601 - -
--------------------------- -------------------------------- -------- ---------------------
Debt securities
The debt securities carried at fair value by the Group are UK
Treasury Bills and UK Gilts. These securities are traded in active
markets and fair values are based on quoted market prices.
There were no transfers between levels during the periods, all
debt securities have been measured at level 1 from acquisition.
Capital management
The Group manages its capital to ensure that it will be able to
continue as a going concern while providing an adequate return to
shareholders.
Refer to the audited financial statement of the Group for the
year ended 31 December 2020 for further details of the Group's
approach to capital management.
Financial risk management
The Group's activities and the existence of the above financial
instruments expose it to a variety of financial risks.
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies. The overall
objective of the Board is to set policies that seek to reduce
ongoing risk as far as possible without unduly affecting the
Group's competitiveness and flexibility.
The Group is exposed to the following financial risks:
-- Credit risk
-- Liquidity risk
-- Interest rate risk
Credit risk
Credit risk is the risk that a customer or counterparty will
default on its contractual obligations resulting in financial loss
to the Group. One of the Group's main income generating activities
is lending to customers and therefore credit risk is a principal
risk. Credit risk mainly arises from loans and advances to
customers. The Group considers all elements of credit risk exposure
such as counterparty default risk, geographical risk and sector
risk for risk management purposes.
Refer to the audited financial statement of the Group for the
year ended 31 December 2020 for further details of the Group's
approach to credit risk management and impairment provisioning.
Collateral held as security:
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
--------------------------------- -------------- -------------- -------------
Fully collateralised
Loan-to-value* ratio:
Less than 50% 3,704 6,420 3,285
51% to 70% 7,539 23,058 9,166
71% to 80% 24,364 43,238 20,269
81% to 90% 17,956 20,349 27,143
91% to 100% 112,139 71,016 52,804
Total collateralised lending 165,702 164,081 112,667
--------------------------------- -------------- -------------- -------------
Partially collateralised lending 9 435 68
--------------------------------- -------------- -------------- -------------
Unsecured lending 1,053 1,411 524
--------------------------------- -------------- -------------- -------------
* Calculated using wholesale collateral values. Wholesale
collateral values represent the invoice total (including applicable
VAT) from the invoice received from the supplier of the product.
The wholesale amount is less than the recommended retail price
(RRP) of the product.
The Group's lending activities are asset based so it expects
that the majority of its exposure is secured by the collateral
value of the asset that has been funded under the loan agreement.
The Group has title to the collateral which is funded under loan
agreements. The collateral comprises boats, motorcycles,
recreational vehicles, caravans and industrial and agricultural
equipment. The collateral has low depreciation and is not subject
to rapid technological changes or redundancy. There has been no
change in the Group's assessment of collateral and its underlying
value in the reporting period.
The assets are generally in the counterparty's possession, but
this is controlled and managed by the asset audit process. The
audit process checks on a periodic basis that the asset is in the
counterparty's possession and has not been sold out of trust or is
otherwise not in the counterparty's control. The frequency of the
audits is initially determined by the risk rating assessed at the
time that the borrowing facility is first approved and is assessed
on an ongoing basis.
Additional security may also be taken to further secure the
counterparty's obligations and further mitigate risk. Further to
this, in many cases, the Group is often granted, by the
counterparty, an option to sell-back the underlying collateral.
Based on the Group's current principal products, the
counterparty repays its obligation under a loan agreement with the
Group at or before the point that it sells the asset. If the asset
is not sold and the loan agreement reaches maturity, the
counterparty is required to pay the amount due under the loan
agreement plus any other amounts due. In the event that the
counterparty does not pay on the due date, the Group's customer
management process will maintain frequent contact with the
counterparty to establish the reason for the delay and agree a
timescale for payment. Senior Management will review actions on a
regular basis to ensure that the Group's position is not being
prejudiced by delays.
In the event the Group determines that payment will not be made
voluntarily, it will enforce the terms of its loan agreement and
recover the asset, initiating legal proceedings for delivery, if
necessary. If there is a shortfall between the net sales proceeds
from the sale of the asset and the counterparty's obligations under
the loan agreement, the shortfall is payable by the counterparty on
demand.
Concentration of credit risk:
The Group maintains policies and procedures to manage
concentrations of credit at the counterparty level and industry
level to achieve a diversified loan portfolio.
30 June 2021 30 June 2020 31 December 2020
GBP'000 % GBP'000 % GBP'000 %
------------------------- -------- ------- -------- ------- ---------- -------
Lodges and holiday
homes 40,977 24.57% 43,685 26.33% 28,919 25.53%
Motorhomes and caravans 34,152 20.48% 48,196 29.05% 22,405 19.78%
Marine 24,060 14.43% 30,043 18.11% 21,126 18.65%
Transport 31,708 19.01% 8,828 5.32% 18,011 15.90%
Industrial equipment 17,949 10.76% 19,152 11.54% 9,514 8.40%
Motorsport 12,940 7.76% 6,035 3.64% 8,094 7.15%
Agricultural equipment 4,978 2.98% 9,988 6.02% 5,191 4.58%
Total gross receivables 166,764 100% 165,927 100% 113,259 100%
------------------------- -------- ------- -------- ------- ---------- -------
Credit quality of borrowers:
An analysis of the Group's credit risk exposure for loan and
advances per class of financial asset, internal rating and "stage"
is provided in the following tables. A description of the meanings
of Stages 1, 2 and 3 was given in the accounting policies set out
above.
Stage Stage
30 June 2021 (Unaudited) Stage 1 2 3 Total
Credit rating GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------------------------- ---------------- -------- ----------------
Above average (Risk rating
1-2) 86,587 - - 86,587
Average (Risk rating 3-5) 52,190 8,766 - 60,956
Below average (Risk rating
6+) 16,499 1,972 750 19,221
Gross carrying amount 155,276 10,738 750 166,764
---------------------------- -------------------------- ---------------- -------- ----------------
Loss allowance (782) (98) (448) (1,328)
Carrying amount 154,494 10,640 302 165,436
---------------------------- -------------------------- ---------------- -------- ----------------
30 June 2020 (Unaudited) Stage 1 Stage 2 Stage 3 Total
Credit rating GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- -------------------- --------------------- ------------------ ---------
Above average (Risk rating
1-2) 79,904 - 25 79,929
Average (Risk rating 3-5) 50,340 15,017 688 66,045
Below average (Risk rating
6+) 12,363 5,316 2,274 19,953
Gross carrying amount 142,607 20,333 2,987 165,927
---------------------------- -------------------- --------------------- ------------------ ---------
Loss allowance (670) (165) (1,334) (2,169)
Carrying amount 141,937 20,168 1,653 163,758
---------------------------- -------------------- --------------------- ------------------ ---------
31 December 2020 (Audited) Stage 1 Stage 2 Stage 3 Total
Credit rating GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- -------- -------- ---------
Above average (Risk rating
1-2) 52,978 - - 52,978
Average (Risk rating 3-5) 42,271 8,092 - 50,363
Below average (Risk rating
6+) 8,574 634 710 9,918
Gross carrying amount 103,823 8,726 710 113,259
---------------------------- --------- -------- -------- ---------
Loss allowance (645) (49) (594) (1,288)
Carrying amount 103,178 8,677 116 111,971
---------------------------- --------- -------- -------- ---------
See note 13 for analysis of the movements in gross loan
receivables and impairment allowances in terms of IFRS 9
staging.
Analysis of credit quality of trade receivables:
30 June 31 December
30 June 2021 2020 2020
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------------ -------------- -------------- -------------
Status at balance sheet date
Not past due, nor impaired 246 200 106
Past due but not impaired 24 6 39
Impaired 86 99 116
Total gross carrying amount 356 305 261
------------------------------ -------------- -------------- -------------
Loss allowance (93) (103) (121)
Carrying amount 263 202 140
------------------------------ -------------- -------------- -------------
See note 14 for analysis of the movements in gross trade
receivables and impairment allowances in terms of IFRS 9
staging.
Liquidity risk
Liquidity risk is the risk that the Group does not have
sufficient financial resources to meet its obligations as they fall
due or will have to do so at an excessive cost. This risk arises
from mismatches in the timing of cash flows which is inherent in
all finance operations and can be affected by a range of
Group-specific and market-wide events.
Refer to the audited financial statement of the Group for the
year ended 31 December 2020 for further details of the Group's
approach to liquidity risk management.
Market risk
Market risk is the risk that movements in market factors, such
as foreign exchange rates, interest rates, credit spreads, equity
prices and commodity prices will reduce the Group's income or the
value of its assets.
The principal market risk to which the Group is exposed is
interest rate risk.
Refer to the audited financial statement of the Group for the
year ended 31 December 2020 for further details of the Group's
approach to market risk management.
21. Earnings per share
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
(Unaudited) (Unaudited) (Audited)
---------------------------------------- -------------- -------------- --------------
Number of shares # # #
At period end 179,369,199 106,641,926 106,641,926
---------------------------------------- -------------- -------------- --------------
Basic
Weighted average number of shares
in issue during period 158,475,176 106,641,926 106,641,926
---------------------------------------- -------------- -------------- --------------
Diluted
Effect of weighted average number
of options outstanding for the period - - -
Diluted weighted average number
of shares and options for the period 158,475,176 106,641,926 106,641,926
---------------------------------------- -------------- -------------- --------------
Earnings attributable to ordinary
shareholders GBP'000 GBP'000 GBP'000
Loss after tax attributable to the
shareholders (2,325) (7,228) (13,603)
Earnings per share pence pence pence
Basic (1) (7) (13)
Diluted (1) (7) (13)
22. Related party disclosures
In the six-month period ended 30 June 2021, a number of
Directors agreed to subscribe for an aggregate of 381,464 ordinary
shares through the placing on 22 February 2021. Furthermore,
Watrium AS and Arrowgrass Master Fund Ltd, both of which are
classified as significant shareholders with shareholdings over 10%
of voting rights, were allocated 18,181,818 and 7,272,727 shares
respectively. See note 17 for further details on the placing
transaction.
Otherwise, during the six months period ended 30 June 2021, all
other related party transactions have had no material effect on the
financial position or performance of the Group. The related party
transactions remain similar in nature to those disclosed in the
audited financial statements of the Group for the year ended 31
December 2020.
23. Post balance sheet events
There have been no significant events between 30 June 2021 and
the date of approval of the Interim Financial Report that require a
change or additional disclosure in the condensed consolidated
interim financial statements.
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END
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