TIDMPCF
RNS Number : 5709W
PCF Group PLC
23 December 2021
23 December 2021
PCF Group plc
("PCF", the "Bank" or the "Group")
Annual Results
Publication of Annual Report and Accounts and Notice of
Results
The Company announces that its Annual Report and Financial
Statements for the financial year ended 30 September 2020 (Annual
Report) has been published today. The Annual Report is available on
the Company's website at https://pcf.bank/investors. Printed copies
of the Annual Report will be posted to shareholders in early
January 2022.
Financial and Business summary Following the Group's prior
announcements on the restatement of the 2020 preliminary results,
the Group reports:
-- Underlying loss before tax(1) of GBP (3.1) million (2019 - profit of GBP8.0 million).
-- Underlying profit reduction driven by credit impairment
charges of GBP14.4 million (2019 - GBP3.3 million), including the
incremental cost of potential pandemic related credit losses.
-- Statutory loss before tax was GBP (4.8) million (2019 -
profit of GBP8.0 million), including a partial impairment of
goodwill arising on the acquisition of Azule Limited(2) GBP1.75
million.
-- Focus on portfolio quality with 85% (2019 - 73%) of year to
30 September 2020 originations in the highest quality segments(3)
of the Group's credit grades.
-- Net Loan book increased to GBP427 million (2019 - GBP339 million).
-- Portfolio forbearance has reduced since the early stages of
the pandemic and as at 30 September 2020 only 9% of balances were
in forbearance. The improving trend has continued into 2021.
-- Operating income increased by 15% to GBP26.7 million (2019 - GBP23.3 million).
-- Net interest margin reduced to 6.9% (2019 - 7.8%) reflecting
the focus on higher quality lending partially offset by a cheaper
cost of funds.
-- Cost to income ratio(4) increased to 57.5% (2019 - 51.6%).
-- GBP272 million (2019 - GBP276 million) of new business originations comprising:
o New business origination for 'own portfolio' increasing by 11%
to GBP246 million (2019 - GBP222 million).
o GBP26 million (2019 - GBP54 million) of brokered Azule new
business origination, generating commission income.
o Bridging finance lending of GBP61 million in first full year
of operation (2019 - 9 months - GBP14 million).
-- Total deposits of GBP342 million (2019 - GBP267 million) with
over 7,950 retail deposit customers (2019 - over 6,100).
-- Drawings of GBP62.4 million (2019 - GBP25.0 million) under
the Bank of England's Term Funding Scheme ('TFS') and Term Funding
Scheme with additional incentives for small and medium sized
entities ('TFSME').
-- Earnings per share of (1.7)p (2019 - 2.7p).
-- Underlying return on equity(5) of (4.5)% (2019 - 12.6%).
-- Statutory return on equity of (7.6)% (2019 - 12.6%).
-- CET1 capital ratio of 15.1% (2019 - 18.0%).
-- Liquidity coverage ratio of 673% (2019 - 715%).
-- Leverage ratio(6) of 11.5% (2019 - 14.8%)
-- Total capital ratio of 16.8% (2019 - 18%)
-- Given the statutory loss, the Board is recommending that no
dividend be paid in respect of the year.
-- Ernst & Young LLP (EY) as the auditor do not express an
opinion on the financial statements and the basis for this
disclaimer of opinion is detailed in the Independent Auditor's
report section of the Annual Report.
-- Having now completed their audit and having previously
indicated a prior intention to do so, EY will be resigning as
auditors subject to completing the formalities required of them to
do so and, having undertaken a prior tender exercise, upon that
resignation the directors will appoint MacIntyre Hudson LLP to be
the Group's new auditor.
Notes to summary points
(1 [) Underlying loss before tax is before the deduction of
impairment to goodwill of GBP1.75 million
(2) Azule was acquired in November 2018 and therefore 2019
comparative figures relating to Azule Limited represent 11 months
to 30 September 2019.
(3) Highest quality credit grades refer to internal rating
grades 1 to 4. Refer to the Risk Management Report for further
details
(4) Cost to income ratio excludes impairment of goodwill and
impairment losses on financial assets
(5) Underlying return on equity adds back the impairment of goodwill of GBP1.75 million
(6) Leverage ratio - transitional definition of Tier 1 capital]
PCF's shares remain suspended from trading and it will provide a
further update in due course on this and the publication of the
half-year results for the six months ending 31 March 2021.
Quote from Tim Franklin, Chairman of PCF Group:
"The past nine months have been difficult for the Group, its
stakeholders and shareholders. I would like to take this
opportunity to once again apologise on behalf of the Board and
thank stakeholders for their patience".
"The publication of the Annual Report and Accounts for the
financial year ended 30 September 2020 is an important first step
for the Group as it looks to move forward on stronger foundations
in 2022 and continue to focus on our remediation activities and
preparing for growth whilst seeking to obtain the removal of the
suspension of trading in Group shares"
"The Board are confident that the steps that have been taken
under the remediation plan so far will place the Group in a
stronger position for the future."
- end -
For further information, please visit https://pcf.bank/ or
contact:
PCF Group (via Tavistock Communications) Tel: +44 (0) 20
Garry Stran, Interim Chief Executive 7920 3150
Officer
Caroline Richardson, Chief Financial
Officer
Tavistock Communications Tel: +44 (0) 20
Simon Hudson / Tim Pearson 7920 3150
Peel Hunt (Nominated Advisor and Joint Tel: +44 (0) 20
Broker) 7418 8900
Andrew Buchanan / Rishi Shah /
Sam Milford
Shore Capital (Joint Broker) Tel: +44 (0) 20
Henry Willcocks / Guy Wiehahn 7408 4080
About PCF Group plc ( www.pcf.bank )
Established in 1994, PCF Group plc is the AIM-quoted parent of
the specialist bank, PCF Bank Limited. Since commencing operations
as a bank in 2017. The Group continues to focus on portfolio
quality and lending to the prime segments of its existing markets.
The Group will continue to identify opportunities to diversify its
lending products and asset classes by setting up new organic
operations or through acquisition.
PCF Bank currently offers retail savings products for
individuals and then deploys those funds through its four lending
divisions:
-- Business asset finance which provides finance for vehicles, plant and equipment to SMEs;
-- Consumer motor finance which provides finance for motor vehicles to consumers;
-- Azule which provides finance to the broadcast and media industry; and
-- Property bridging finance which provides loans to companies
and sole traders investing in residential and commercial
property.
Extracts from the Annual report & Financial Statements
Strategic Report
The Strategic Report provides a holistic view of PCF Group plc's
('the Group') business model, strategy and performance in the year
ended 30 September 2020 along with its future prospects.
The Group issued its Preliminary Results for 2020 on 9 December
2020. As disclosed on 21 October 2021, a number of items have
caused a reduction to profit before tax of approximately GBP7
million for the twelve months to 30 September 2020, compared with
the preliminary results published in December 2020.
This was driven predominantly by an approximate GBP6 million
revision to the impairment methodology for defaulted receivables,
adjustments principally from the financial controls review,
increased cost of the 2020 audit and audit adjustments as disclosed
in the Regulatory News Service ('RNS') published on 11 March
2021.
Business and Financial highlights
-- Underlying loss before tax(1) of GBP(3.1) million (2019 - profit of GBP8.0 million).
-- Underlying profit reduction driven by credit impairment
charges of GBP14.4 million (2019 - GBP3.3 million), including the
incremental cost of potential pandemic related credit losses.
-- Statutory loss before tax was GBP(4.8) million (2019 - profit
of GBP8.0 million), including a partial impairment of goodwill
arising on the acquisition of Azule Limited(2) GBP1.75 million.
-- Focus on portfolio quality with 85% (2019 - 73%) of year to
30 September 2020 originations in the highest quality segments(3)
of the Group's credit grades.
-- Net Loan book increased to GBP427 million (2019 - GBP339 million).
-- Portfolio forbearance has reduced since the early stages of
the pandemic and as at 30 September 2020 only 9% of balances were
in forbearance. The improving trend has continued into 2021.
-- Operating income increased by 15% to GBP26.7 million (2019 - GBP23.3 million).
-- Net interest margin reduced to 6.9% (2019 - 7.8%) reflecting
the focus on higher quality lending partially offset by a cheaper
cost of funds.
-- Cost to income ratio(4) increased to 57.5% (2019 - 51.6%).
-- GBP272 million (2019 - GBP276 million) of new business originations comprising:
o New business origination for 'own portfolio' increasing by 11%
to GBP246 million (2019 - GBP222 million).
o GBP26 million (2019 - GBP54 million) of brokered Azule new
business origination, generating commission income.
o Bridging finance lending of GBP61 million in first full year
of operation (2019 - 9 months - GBP14 million).
-- Total deposits of GBP342 million (2019 - GBP267 million) with
over 7,950 retail deposit customers (2019 - over 6,100).
-- Drawings of GBP62.4 million (2019 - GBP25.0 million) under
the Bank of England's Term Funding Scheme ('TFS') and Term Funding
Scheme with additional incentives for small and medium sized
entities ('TFSME').
-- Earnings per share of (1.7)p (2019 - 2.7p).
-- Underlying return on equity(5) of (4.5)% (2019 - 12.6%).
-- Statutory return on equity of (7.6)% (2019 - 12.6%).
-- CET1 capital ratio of 15.1% (2019 - 18.0%).
-- Liquidity coverage ratio of 673% (2019 - 715%).
-- Leverage ratio (6) of 11.5% (2019 - 14.8%)
-- Total capital ratio of 16.8% (2019 - 18%) .
(1) Underlying loss before tax is before the deduction of
impairment to goodwill of GBP1.75 million
(2) Azule was acquired in November 2018 and therefore 2019
comparative figures relating to Azule represent 11 months to 30
September 2019.
(3) Highest quality credit grades refer to internal rating
grades 1 to 4. Refer to the Risk Management Report ('RMF') for
further details
(4) Cost to income ratio excludes impairment of goodwill and
impairment losses on financial assets
(5) Underlying return on equity adds back the impairment of goodwill of GBP1.75 million
(6) Leverage ratio - transitional definition of Tier 1 capital
Chairman's Statement
For the year ended 30 September 2020
Before commenting on the financial year ended 30 September 2020,
I begin my statement with an apology on behalf of the Group and the
Board to all stakeholders and shareholders in particular for the
delay in publishing this report and for the reporting, control and
governance shortcomings that caused this delay and the continuing
suspension of trading in the Group's shares on AIM.
Post 30 September 2020 events
Accounting errors and misstatements, initially identified by the
Group's new Chief Financial Officer as a result of audit enquiries,
resulted in trading in the Group's shares being suspended on 19 May
2021 after discussions with the Group's nominated adviser
(NOMAD).
This situation has been deeply concerning, unsatisfactory and a
huge disappointment to your Board. For further details please refer
to the Audit & Risk Committee Report.
Putting it right
Since the discovery of and in response to these events the Board
has taken, and is in the progress of taking, the following
actions:
1) Discovery and Investigation;
-- Commissioned PricewaterhouseCoopers LLP ('PwC') to conduct
independent forensic investigations into accounting errors and
misstatements.
-- The Group's Finance team then reviewed the output of the PwC
investigations and also performed a further detailed review of the
Group's balance sheet. Details of this finance review, overseen by
the CFO is set out in the Audit & Risk Committee report.
-- Appointed Garry Stran as interim Chief Executive Officer to
lead the Group and the remediation programme.
2) Short-term mitigation;
-- New executive appointments in the key roles of Chief Risk
Officer, Chief Operating Officer, General Counsel, and Chief of
Staff, provide significant industry knowledge and experience.
-- Strengthen the Risk, Finance and Change functions to deliver
the short-term 'repair' activity, whilst supporting the
longer-term, more efficient, sustainable solutions.
-- Instigated cultural change initiatives in advance of a wider culture programme, focusing on understanding personal responsibility for risk, active listening and speaking up. This includes clear and open communications to all our stakeholders whilst adhering to market rules.
-- Initiating longer-term programmes to deliver the required
changes in Corporate Governance, financial control and Culture that
will underpin the Group now and into the future.
3) Longer-term sustainable solutions;
-- Deliver and embed a culture programme across the Group as
part of building back our reputation with key stakeholders.
-- Deliver and embed a comprehensive RMF, embedding this across
the Group, in conjunction with the planned appointment of a Senior
Independent Director to the Board.
-- Deliver the Finance transformation programme focused on
financial controls and the provision of timely and accurate
data.
-- Continue our investment in IT systems to develop a
technologically advanced digital and modern operating platform
replacing residual manual processes.
The discovery and investigation phase is complete, with
short-term mitigation actions in place. We are mobilising the
programmes to deliver sustainable solutions, demonstrating our
long-term commitment to change.
Lifting the suspension of share trading
The remediation phases required to enable the lifting of the
suspension of trading in the Group's shares are well underway, and
the Board and Executive Team continue to work closely with the
Group's NOMAD with the goal of achieving the lifting of that
suspension as soon as possible.
Moreover, we are in the process of updating our Financial
Position and Prospects Procedures memorandum ('FPPP') which will be
completed following publication of this Annual Report &
Financial Statements.
Following publication of this Annual Report & Financial
Statements, we will further communicate progress in lifting the
suspension of trading in the Group's shares once we have more
certainty on its timing towards the end of January 2022.
It should be noted by the shareholders that the London Stock
Exchange can apply and/ or provide derogations to the AIM Rules at
their discretion, including in respect of the suspension of trading
in the Group's shares and its continued listing on AIM. The Group,
through its NOMAD, remains in an ongoing dialogue with the Exchange
on these matters.
Business' performance for the year ended 30 September 2020
Turning to the Group's business performance for the year ended
30 September 2020, the pandemic was completely unforeseen and has
presented individuals, families, businesses and economies with
challenges not seen in living memory. However, with significant
effort and support from all colleagues, the business remained
operational throughout, whilst maintaining customer and colleague
wellbeing.
I therefore thank all my colleagues for their efforts and
dedication to serving the Group's customers through a hugely
challenging period for everyone.
Profitability, balance sheet strength and the effect of the
pandemic
Net operating income increased by 15% in the twelve months
driven by strong loan growth which more than offset the reduction
in the net interest margin which reflected a particular focus on a
tightening of the Group's credit risk appetite throughout the
pandemic. Lending in Consumer finance and Bridging finance was
strong, while Business finance experienced lower demand due to
competing Government support schemes such as the Coronavirus
Business Interruption Loan Scheme ('CBILS'). The continuing
presence of similar schemes will restrict growth in this
segment.
Operating expenses, excluding the impairment of goodwill and
credit impairment charges, were well managed but increased to
support the growth of the business. As a result, profit before tax,
excluding the impairment of goodwill and credit impairment charges,
increased to GBP11.4 million (2019 - GBP11.3 million),
demonstrating that the core business performed well.
The Group's credit impairment charge increased significantly in
2020 to GBP14.4 million (2019 - GBP3.3 million), reflecting the
impact of COVID-19, a more cautious economic outlook on future
expected losses and significant items of GBP8.5 million set out
below. Under IFRS 9, credit impairment charges cover the potential
future losses which would arise from the effects of COVID-19 on the
performance of the loan book. The charge for the year also includes
the previously announced GBP6 million increase to impairments on
defaulted receivables(2) , resulting from revisions to recovery
expectations against those exposures. There are also additional
specific provision increases related to forbearance and COVID-19
provisions (GBP1.1 million) and customer specific provisions
(GBP1.4 million).
This resulted in the Group generating an underlying loss before
tax of GBP(3.1) million (1) (2019 - profit of GBP8.0 million) for
the twelve months to 30 September 2020.
In addition, the Group impaired the value of goodwill in respect
of the purchase of Azule Limited by GBP1.75 million, which meant
that on statutory basis, the Group generated a loss before tax of
GBP(4.8) million (2019 - profit of GBP8.0 million). The loss after
tax was GBP(4.3) million (2019 - a profit of GBP6.4 million),
equivalent to a return on equity of (7.6)% (2019 - 12.6%) and
earnings per share of (1.7)p (2019 - 2.7p).
The Group's net assets decreased to GBP53.9 million (2019 -
GBP58.8 million). At 30 September 2020, the Group's total capital
ratio of 16.8% (2019 - 18.0%) remain comfortably above the
regulatory requirement. Liquidity was managed in excess of risk
appetite and regulatory requirements throughout the period.
Given the financial performance for the year and to maintain our
capital position, the Board is not recommending a dividend in
respect of the twelve months to 30 September 2020.
1 Underlying loss before tax is before the deduction of
impairment to goodwill of GBP1.75 million
2 receivables that were either seriously in arrears or where the
asset which acted as security for the receivable had been sold and
a balance of the receivable remained outstanding
Governance and culture
The discovery of reporting, control and governance shortcomings
is hugely disappointing. The management team is absolutely focused
on building the tactical initiatives already undertaken into a full
cultural programme of change alongside RMF.
The commitment of colleagues continues to be one of the Group's
greatest strengths. The Board and management have supported and
will continue to support colleagues with a safe, healthy working
environment and with increased communications, training and
development to enable each of them to achieve their potential. The
Board is determined that the Group, alongside cultural change, will
drive programmes around governance and financial control. This will
provide a fit for purpose, long term and sustainable platform to
build long-term value for stakeholders.
Outlook
This outlook should be read in conjunction with the emerging
risks and uncertainties section.
The Group has a well-established business model, which gives the
Board confidence that the business will overcome the current
challenges and return to growth over the medium-term.
Given the current credit environment, including the potential
impact of COVID-19 on impairment losses, and the level of
remediation actions and change underway in the Group, bringing with
it substantial short-term costs, the Board does not believe that it
is appropriate to provide firm guidance on future performance.
Therefore, the Group's previous operating targets remain withdrawn.
The Group will seek to re-establish guidance once its remediation
activity is more fully complete
Moreover, increased operating costs are expected as the Group
significantly increases headcount and the investment in IT to
improve and embed the new reporting controls and systems. In
addition, the Group expects to continue to incur high remediation
costs while it addresses the issues identified and implements the
required remediation actions.
Conclusion
In conclusion, since my last statement the Group has faced
substantial difficulties, your Board is confident that the business
is on the path to recovery from these challenges, after which all
colleagues will be able to turn their full focus to the delivery of
sustainable profits and long-term value for all stakeholders.
T A Franklin
Chairman
22 December 2021
Chief Executive Officer's Review
for the year ended 30 September 2020
This is my first report as your CEO following my appointment in
May 2021. The circumstances that led to my appointment have created
many challenges for the business in addition to those already in
existence due to the COVID-19 pandemic, and these challenges have
dominated my time in the role to date.
I regret that the time since my appointment has been an
uncertain one for shareholders, but it was absolutely essential
that my team and I focused on carrying out the review of the
Group's financial controls and processes to ensure that the Group
could plan for the future with confidence. The issues facing us
were inter-linked and complex and have taken time to resolve. For
further details please refer to 50 to 53 of the Audit & Risk
Committee Report.
I am fully aware that during this period of uncertainty some
shareholders may have been disappointed with the frequency and
granularity of the information that we have supplied. However, I
can assure you that at all times the interests of shareholders were
front of mind for both the executive team and the Board, but the
need to take account of a number of regulatory and legal issues had
an impact on the timing, content and our ability to make these
disclosures.
Moreover, I thank all my colleagues who make up the PCF team for
their commitment and support during a difficult period. Many of
them are long serving and have been devastated by the discovery of
the issues that have so consumed us over the last few months. This,
combined with the challenges of the pandemic, including working
remotely for 18 months, has undoubtedly resulted in many colleagues
experiencing circumstances in their work and personal lives that
they would never wish to see repeated. Their commitment and desire
to see PCF repair its reputation is clear to me and the executive
team.
Turning to business performance, taking account of the pandemic
impacts and before the higher one-off impairment charges the
underlying business performance of our core business was
resilient.
Response to the pandemic
The second half of the financial year to September 2020 was
disrupted by the operational and economic impacts of the pandemic.
The business acted swiftly to deploy home working and, supported by
our technology team, our entire team was working from home within
days without business interruption.
Throughout the pandemic period, our focus has been on protecting
our core assets - our people, our customers and our balance sheet.
These have been challenging times for both our colleagues and our
customers and of particular importance to us was our effort to
support colleague well-being and to assist customers who may have
suffered hardship through no fault of their own.
In respect of our colleagues, we have put in place support
mechanisms and new ways of working which have enabled them to have
the flexibility to continue to contribute fully to our business
whilst ensuring that they are able to dedicate time to take care of
themselves and their loved ones. We are proud of the way they have
risen to the challenges they have faced.
Where our customers have approached us to assist them, we have
met our regulatory obligations. At 30 September 2020, 9% of our
total loan book was in forbearance or COVID-19 related payment
deferral plans. This has reduced since the early stages of the
pandemic and the improving trend has continued into 2021.
Trading and profitability
In the twelve months to 30 September 2020, the Group incurred an
underlying loss before tax of GBP(3.1) million (2019 - profit of
GBP8.0 million). This was driven by a significant increase in
credit impairment charges which more than offset the increase in
net operating income.
Net operating income of GBP26.7 million increased 15% in the
year (2019 - GBP23.3 million) and was sup-ported by loan growth,
particularly in consumer and Bridging finance. Net loans and
advances to customers increased to GBP427 million (2019 - GBP339
million). The quality of new business improved, with 85% of
business written in our highest credit grades, compared to 73% in
2019. Whilst this improved the overall quality of the loan book, it
has led to some compression to the Group's net interest margin
which fell to 6.9% (2019 - 7.8%).
Operating expenses, excluding the impairment of goodwill and
credit impairment charges, increased to GBP15.4 million from
GBP12.0 million in 2019. The Group's cost:income(1) ratio increased
to 57.5% (2019 - 51.6%).
Profit before tax, excluding the impairment of goodwill and
credit impairment charges, increased to GBP11.4 million (2019 -
GBP11.3 million).
The Group's credit impairment charge increased significantly in
2020 to GBP14.4 million (2019 - GBP3.3 million), reflecting the
impact of COVID-19 and a more cautious economic outlook on future
expected losses. Under IFRS 9, credit impairment charges cover the
potential future losses which would arise from the effects of
COVID-19 on the performance of the loan book. The charge for the
year also includes the previously announced GBP6 million increase
to impairments on 'defaulted receivables' (receivables that were
either seriously in arrears or where the asset which acted as
security for the receivable had been sold and a balance of the
receivable remained outstanding), resulting from revisions to
recovery expectations against those exposures. There are also
additional specific provision increases related to forbearance and
COVID-19 provisions (GBP1.1 million) and client specific provisions
(GBP1.4 million).
The Group's impairment charge for the year, as a percentage of
average gross loan balances was 3.6% (2019 - 1.1%). The IFRS 9
expected credit loss provision on the balance sheet, as a
percentage of gross loan balances, increased to 4.2% (2019 -
2.0%).
As a result, the Group generated an underlying loss before tax
of GBP(3.1) million (2019 - profit of GBP8.0 million) for the
year.
The Group partially impaired the goodwill paid on the
acquisition of Azule, the broadcast and media specialist finance
business acquired in 2018, by GBP1.75 million. This impairment of
goodwill was driven by the likelihood of reduced profitability in
the near-term, as a result of the impact of COVID-19 and lower new
business originations on the future expected cash-flows relating to
the Azule business.
On a statutory basis, therefore, the Group generated a loss
before tax of GBP(4.8) million (2019 - profit of GBP8.0 million).
This represents a return on equity of (7.6)% (2019 - 12.6%) and an
earnings per share of (1.7)p (2019 - 2.7p).
Business lines and portfolio quality
New business origination in the year fell slightly to GBP272
million (2019 - GBP276 million) which is a strong performance in
the context of the pandemic with the diversification into Bridging
finance contributing to that success. The quality of new business
origination continued to improve with 85% of originations in our
highest credit grades, compared to 73% in the previous year.
The total gross loan book grew to GBP446 million (2019 - GBP345
million) and the overall quality of the loan book improved, with
78% of the portfolio in our highest credit grades (2019 - 68%).
The Group continued to be cash generative through all trading
months by way of a combination of the embedded recurring cashflows
from our loan book and a continued focus on cost control.
Segmental business review
Consumer finance division
The used motor vehicle finance market has proved resilient
throughout the period. After an initial fall in demand following
lockdown in March 2020, new business origination picked up in May
2020 and further increased when dealerships re-opened on 1 June
2020. This is consistent with data on used car sales and used car
asset values. The leisure market has also been buoyant, in
particular for motorhome finance, as a greater number of people
took holidays in the UK.
New business originations in the year were GBP91 million (2019 -
GBP73 million), an increase of 24%, and the loan book grew by 31%
to GBP172 million (2019 - GBP131 million). Credit quality was
strong with 93% of originations in our highest credit grades (2019
- 80%), and we have maintained cautious underwriting terms in
respect of loan to values.
Levels of forbearance and COVID-19 related payment deferrals in
this portfolio are relatively low at less than 4% of balances at 30
September 2020. The impairment charge for the year was GBP4.9
million (2019 - GBP1.0 million).
(1 Cost:income ratio calculated excluding impairment of goodwill
and credit impairment losses on financial assets.)
Business finance division
New business origination in this division has been more
noticeably affected by lower demand. Sole traders and small
companies understandably deferred investment decisions and, where
working capital can be accessed through one of the Government's
support schemes at preferential terms, our asset finance products
have become less competitive. We remain focused on prudent
underwriting as the difficult trading conditions for most small and
medium-sized enterprises ('SME') raises questions about the
long-term sustainability of SME financial commitments.
New business originations in the year were GBP81 million (2019 -
GBP120 million), a decrease of 33%. However, the gross loan book
grew to GBP190 million (2019 - GBP181 million) with 78% of
origination in our highest credit grades (2019 - 71%).
Levels of forbearance and COVID-19 related payment deferrals
have been high in this portfolio but had reduced to 13% of balances
at 30 September 2020. The impairment charge for the year was GBP8.4
million (2019 - GBP2.2 million).
Azule
Azule Limited, PCF's specialist broker of funding for the
broadcast and media sector, has been particularly affected by the
lockdown with TV, film, sports, and live events all severely
impacted. In the second half of the year the division focused its
activity on assisting customers with applications under the UK
Government's CBILS scheme. The business has more recently seen
increased activity as the sector returns to business as usual.
Despite the goodwill impairment for this division, we expect it
to recover over time as the need for content to support on-demand
streaming services drives investment in new equipment.
New business originations in the year were GBP39 million (2019 -
GBP69 million), a decrease of 43%, and the loan book in relation to
the broadcast and media sector stands at GBP23 million (2019 -
GBP20 million).
The impairment charge for the year was GBP0.6 million (2019 -
GBPnil).
Azule was acquired in November 2018 and therefore 2019
comparative figures relating to Azule represent 11 months to 30
September 2019.
Bridging finance
This division has seen strong demand. The Group took advantage
of several non-bank competitors withdrawing from the market in the
early months of the pandemic and this has allowed us to build
relationships with new introducers. We are pleased with the quality
and terms of business in this market and encouraged by the
performance and outlook for this sector.
Originations in the year were GBP61 million (2019 9 months -
GBP14 million) and from a small base this division has been a key
contributor to the Group's asset growth with a gross loan book of
GBP61 million (2019 - GBP13 million). We lend primarily on
residential property with first charge security and conservative
loan to values.
While the portfolio experienced no actual losses in the year,
the IFRS 9 Expected Credit Loss provision for potential future
losses was GBP0.5 million (2019 - GBPnil).
Savings
We continued to offer a range of good value savings products
through the year, increasing savings balances to GBP342 million
(2019 - GBP267 million) demonstrating our ability to raise funds as
required at rates which facilitate our business objectives. The
Group offers a range of fixed term and notice accounts that are
designed to offer good value to our retail customers whilst meeting
our need to manage the liquidity and interest rate risks associated
with our loan books. Savings customer numbers grew to over 7,950 in
2020, from just over 6,100 in 2019.
Capital management and treasury
The Group entered the pandemic period with a diversified funding
model utilising retail deposits, wholesale debt and drawings from
the Bank of England's Term Funding Schemes. At 30 September 2020,
we had drawn GBP62.4 million (2019 - GBP25 million) from TFS and
TFSME and held GBP342 million in retail deposits (2019 - GBP267
million). Our retail deposits have been relatively consistent, with
an average balance of GBP42,500 (2019 - GBP42,200).
The Group's cost of funding fell to 1.7% (2019 - 2.2%) and we
retain a strong liquidity position with a Liquidity Coverage Ratio
of 673% at 30 September 2020 (2019 - 715%).
The Group had a total capital ratio of 16.8% (2019 - 18.0%)
which exceeds our regulatory minimum total capital requirement. The
Group has utilised its Tier 2 capital facility, issuing a total of
GBP7 million of subordinated notes to British Business Investments
Limited (BBI) between November 2019 and May 2020 (2019 - GBPnil).
Prudent management of capital resources has been a particular focus
since the start of the pandemic.
Regulatory capital and ratios are set out in the Risk Management
Report.
2021 strategic objectives, current trading and outlook
This outlook should be read in conjunction with the emerging
risks and uncertainties section.
The objectives for 2021 were to maintain and stabilise the
business following the pandemic, to maintain credit quality and to
continue to invest in our IT infrastructure. Events have overtaken
a significant part of our strategic objectives and whilst we have
remained focused on the credit quality of our lending and continued
investment in our IT infrastructure, a significant amount of
management time has inevitably been directed to the remediation
activities highlighted elsewhere in this report.
As a result of the current position in respect of our controls
framework and the pandemic, we have taken the decision to manage
our lending volumes carefully to ensure that the next stage of our
development is built on firm governance, culture, systems and
controls, and we continue to focus on maintaining credit
quality.
However, once our planned remedial actions have been completed,
we will be well placed to return to a strategy of controlled and
prudent growth.
Delayed interim financial report and completion of the Annual
Report & Financial Statements
The Chairman's report sets out the steps that led to the share
trading suspension and a RNS detailing the initial findings was
issued on 28 June 2021. The work undertaken is set out in more
detail in the Audit & Risk Committee (ARC) Report which
highlights how these developments have delayed the finalisation of
these Annual Report & Financial Statements as well as impacting
the issuance of our interim results for the current year.
Since my appointment as Interim Chief Executive Officer in May
2021, my immediate focus has been to develop a remediation plan to
address the issues set out above and start its implementation.
Implementation of the remediation plan
I anticipate the implementation of our remediation plan by the
executive team will take a further 18-24 months to fully
complete.
The aim of this plan is to build firm foundations for the future
growth of the business, restore confidence with our investors and
our regulators and following the suspension of the trading of our
shares on 19 May 2021, move as quickly as possible to meet the
requirements for this suspension to be lifted.
The Group's transformation programme started with experienced
financial services hires joining my executive team including a
General Counsel, a Chief Risk Officer, and Chief of Staff, and a
replacement Chief Operating Officer. This strengthened executive
team is already making significant change.
Conclusion
Despite the challenges, the core competencies within our
customer-facing business remain strong and we have long established
relationships with our customers and intermediaries.
Our core operating platform and balance sheet are robust and
through utilisation of an increased headcount, assistance from our
external advisers, and close governance, we will successfully
deliver the transformation required. Combining this with a new
progressive ethos, the underlying strength of the business model
and the direction that the executive team will give will make the
Group unrecognisable when compared to the past. This will be
supported by a data driven, automated and digitalised operating
platform providing remarkable service and products to drive
shareholder value.
We remain confident that the opportunity for growth will return
once our remediation is complete. We have relatively small shares
of our chosen lending markets and the potential to grow them and to
develop new products remains unchanged.
I am proud to be leading the PCF team towards a brighter future
and thank all my colleagues at PCF and our investors, regulators,
and all stakeholders for the patience they have shown during these
difficult times. Finally, I join the Chairman in apologising once
again for the legacy challenges faced by the business and the
impact on shareholders and other stakeholders.
GG Stran
Interim Chief Executive Officer
22 December 2021
Consolidated Income Statement
for the year ended 30 September 2020
Year ended Year ended
30 September 30 September
2020 2019*
Note GBP'000 GBP'000
Interest income calculated using the
effective interest method 3 42,237 34,499
Interest expense calculated using the
effective interest method 4 (15,953) (12,884)
Net interest income 26,284 21,615
Fees and commission income* 2,122 2,896
Fees and commission expense (1,602) (1,154)
-------------- ----------------
Net fees and commission income 5 520 1,742
Net loss on financial instruments classified
at fair value through profit or loss (55) (63)
-------------- ----------------
Net operating income 26,749 23,294
Impairment losses on financial assets* 6 14,431 3,256
Personnel expenses 7 8,296 7,640
Other operating expenses 9 5,268 3,827
Depreciation of office equipment, motor
vehicles and right-of-use assets 16 1,206 137
Amortisation of intangible assets 17 552 416
Impairment loss on software 17 51 -
Impairment losses on goodwill 17 1,750 -
Total operating expenses 31,554 15,276
-------------- ----------------
(Loss)/Profit before tax (4,805) 8,018
Income tax credit/(charge) 10 547 (1,624)
-------------- ----------------
(Loss)/Profit after tax (4,258) 6,394
Earnings per 5p ordinary share - basic
and diluted 11 (1.7p) 2.7p
*Comparatives for the recoverable amount of fees charged on
credit impaired accounts have been re-presented from Impairment
losses on financial assets to Fees and commission income to make
the Income statement more relevant following a review of
the disclosures and accounting policies applied (please see note
1.9).
The accounting policies and notes on pages 93 to 158 form part
of, and should be read in conjunction with, these financial
statements. All activities in the current and prior year relate to
continuing operations.
Consolidated Statement of Comprehensive Income
for the year ended 30 September 2020
Year ended Year ended
30 September 30 September
2020 2019
GBP'000 GBP'000
(Loss)/Profit after taxation (4,258) 6,394
Other comprehensive income that will be reclassified
to the income statement
Fair value gain/(loss) on FVOCI financial
instruments (see note 1.5.3) 53 (10)
Deferred tax (charge)/income (7) 2
Total items that will be reclassified to
the income statement 46 (8)
-------------- ---------------
Total comprehensive income, net of tax (4,212) 6,386
-------------- ---------------
The accounting policies and notes on pages 93 to 158 form part
of, and should be read in conjunction with, these financial
statements. All activities in the current and prior year relate to
continuing operations.
Consolidated Balance Sheet
at 30 September 2020
Group Company
30 September 30 September 30 September 30 September
2020 2019 2020 2019
Note GBP'000 GBP'000 GBP'000 GBP'000
Assets
Cash and balances at central
banks 12 24,936 7,371 278 123
Debt instruments at FVOCI 13 9,095 19,638 - -
Loans and advances to customers 14 427,297 338,503 - -
Due from group companies 19 - - 8,759 6,927
Investment in subsidiary undertakings 15 - - 32,000 32,000
Office equipment, motor vehicles
and right-of-use assets 16 3,144 579 1,582 -
Goodwill and other intangible
assets 17 4,327 5,941 - -
Deferred tax assets 18 1,810 1,105 117 135
Current tax assets - - 116 -
Other assets 20 2,051 4,932 770 896
------------- ------------- ------------- -------------
Total assets 472,660 378,069 43,622 40,081
------------- ------------- ------------- -------------
Liabilities
Due to customers 22 341,784 267,070 - -
Due to banks 21 62,620 44,412 - -
Due to group companies 19 - - 5,242 3,239
Derivative financial instruments 28 80 63 - -
Lease liabilities 25 1,604 - 1,525 -
Current tax liabilities 125 1,521 - -
Other liabilities 26 5,446 6,248 2,226 1,692
Subordinated liabilities 24 7,126 - - -
------------- ------------- ------------- -------------
Total liabilities 418,785 319,314 8,993 4,931
------------- ------------- ------------- -------------
Equity
Issued capital 27 12,512 12,510 12,512 12,510
Share premium 27 17,625 17,619 17,625 17,619
Other reserves 27 53 7 - -
Own shares 27 (147) (355) (147) (355)
Retained earnings 23,832 28,974 4,639 5,376
------------- ------------- ------------- -------------
Total equity 53,875 58,755 34,629 35,150
------------- ------------- ------------- -------------
Total liabilities and equity 472,660 378,069 43,622 40,081
------------- ------------- ------------- -------------
The financial statements were approved and authorised for issue
by the Board on 22 December 2021.
On behalf of the Board
GG Stran C Richardson
Director Director
The accounting policies and notes on pages 93 to 158 form part
of, and should be read in conjunction with, these financial
statements.
Consolidated Statement of Changes in Equity
For the year ended 30 September 2020
Attributable to equity holders of the Group
Non-distributable Distributable
---------------------------------------
Issued Share Own Other Retained Total
Capital Premium Shares Reserves Earnings Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------- --------- --------
Group
Balance at 1 October
2019 12,510 17,619 (355) 7 28,974 58,755
Loss for the year - - - - (4,258) (4,258)
Issuance of new shares
/ scrip
dividend 2 6 - - (8) -
Reclassification to
cash - - 208 - - 208
Fair value gain on
FVOCI
financial instruments - - - 46 - 46
Share-based payments - - - - 117 117
Cash dividends - - - - (993) (993)
------- ------- ------ ---- -------- --------
Balance at 30 September
2020 12,512 17,625 (147) 53 23,832 53,875
------- ------- ------ ---- -------- --------
Balance at 1 October
2018 10,611 8,527 (355) 15 23,753 42,551
Impact on transition
to IFRS 9 - - - - (502) (502)
------- ------- ------ ---- -------- --------
Re-presented balance
as at 1
October 10,611 8,527 (355) 15 23,251 42,049
Profit for the year - - - - 6,394 6,394
Issuance of new shares 1,899 9,092 - - - 10,991
Fair value loss on
FVOCI
financial instruments - - - (8) - (8)
Share-based payments - - - - 79 79
Cash dividends - - - - (750) (750)
------- ------- ------ ---- -------- --------
Balance at 30 September
2019 12,510 17,619 (355) 7 28,974 58,755
------- ------- ------ ---- -------- --------
The accounting policies and notes on pages 93 to 158 form part
of, and should be read in conjunction with, these financial
statements.
Consolidated Statement of Changes in Equity (Cont'd)
Attributable to equity holders of
the Group
Non-distributable Distributable
-----------------------------
Issued Share Own Retained Total
Capital premium Shares Earnings Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- -------- -------- -------------- ----------
Company
Balance at 1 October 2019 12,510 17,619 (355) 5,376 35,150
Profit for the year - - - 147 147
Issuance of new shares /
scrip dividend 2 6 - (8) -
Reclassification to cash - - 208 - 208
Share-based payments - - - 117 117
Cash dividends - - - (993) (993)
------- ------- ------ ------ -------
Balance at 30 September 2020 12,512 17,625 (147) 4,639 34,629
------- ------- ------ ------ -------
Balance at 1 October 2018 10,611 8,527 (355) 5,602 24,385
Profit for the year - - - 445 445
Issuance of new shares 1,899 9,092 - - 10,991
Share-based payments - - - 79 79
Cash dividends - - - (750) (750)
------- ------- ------ ------ -------
Balance at 30 September 2019 12,510 17,619 (355) 5,376 35,150
------- ------- ------ ------ -------
The accounting policies and notes on pages 93 to 158 form part
of, and should be read in conjunction with, these financial
statements.
Consolidated Statement of Cash Flows
for the year ended 30 September 2020
Group Company
30 30 30 30
September September September September
2020 2019 2020 2019
Note GBP'000 GBP'000 GBP'000 GBP'000
Operating activities
(Loss)/Profit before tax (4,805) 8,018 206 558
Other non-cash items included
in profit/(loss) before
tax
Depreciation of Office equipment,
motor
vehicles and right-of-use
assets 16 1,206 137 724 -
Gain on sale of motor vehicles 16 (22) - - -
Amortisation of other intangible
assets 17 552 416 - -
Impairment loss on goodwill 17 1,750 - - -
Interest on lease liabilities 25 55 - 50 -
Accrued finance costs 23 138 - - -
Impairment loss on software 17 51 - - -
Share-based payments 117 79 117 79
Net change in FVOCI Financial - (8) - -
Instruments
Impairment Losses on financial
assets(1) 14,431 3,256 - -
Income tax paid (1,554) (633) (41) (113)
Adjustment for change in
operating
assets
Net change in loans and
advances(1) 14 (103,225) (107,429) - -
Net change in group company
lending 19 - - (1,832) (4,015)
Net change in other assets 20 2,796 (2,231) 45 (18)
Change in operating liabilities
Net change in derivative
financial
instruments 28 17 63 - -
Net change in amounts due
to customers 22 74,714 75,931 - -
Net change in group company
borrowing 19 - - 1,887 3,239
Net change in other liabilities 26 (993) (1,492) 362 141
----------- ----------- ----------- -----------
Net cash flows (used in)
/ from operating activities (14,772) (23,893) 1,518 (129)
----------- ----------- ----------- -----------
Investing activities
Cash paid for Investment
in subsidiary - (2,283) - (10,000)
Net sale of debt instruments
at FVOCI 13 10,589 20,264 - -
Purchase of Office equipment,
motor
vehicles 16 (1,344) (384) - -
Reclassification from own
shares to cash 208 - 208 -
Proceeds from the sale of
motor vehicles 16 25 - - -
Purchase of intangible assets 17 (739) (900) - -
----------- ----------- ----------- -----------
Net cash flows from / (used
in) investing activities 8,739 16,697 208 (10,000)
----------- ----------- ----------- -----------
Financing activities
Proceeds from subordinated
borrowings 23 7,000 - - -
Proceeds from share issue
during the year 27 - 10,991 - 10,991
Net proceeds/(repayments)
from borrowings 22 18,196 (17,012) - -
Repayment of capital element
of leases 25 (605) - (578) -
Dividends paid to equity
holders (993) (750) (993) (750)
----------- ----------- ----------- -----------
Net cash flows from / (used
in) financing activities 23,598 (6,771) (1,571) 10,241
----------- ----------- ----------- -----------
Net increase / (decrease)
in cash and cash equivalents 17,565 (13,967) 155 112
Cash and cash equivalents
brought forward 7,371 21,338 123 11
----------- ----------- ----------- -----------
Cash and cash equivalents carried
forward 24,936 7,371 278 123
----------- ----------- ----------- -----------
1. Comparatives for the recoverable amount of fees charged on
credit impaired accounts have been re-presented from Allowance for
Impairment losses to Loans and advances to make the Loans and
advances to customers note more relevant following a review of the
disclosure and accounting policies applied (please see note
1.9).
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