Half-year Report
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:-
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30 June 2021 |
30 June 2020 |
31 December 2020 |
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6-month |
6-month |
12-month |
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Financial Highlights |
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Gross revenues (£m) |
6.1 |
7.4 |
11.5 |
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Loss after taxation (£m) |
2.3 |
7.2 |
13.6 |
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Loan Book (£m) |
166.8 |
165.9 |
113.3 |
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Net assets (£m) |
87.3 |
57.0 |
50.9 |
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Customer deposits (£m) |
160.0 |
- |
146.0 |
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Regulatory capital (£m) |
84.0 |
n/a |
47.8 |
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Common Equity Tier 1 capital ratio |
57.1% |
n/a |
50.1% |
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Gross yield |
7.9% |
7.6% |
7.7% |
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Net interest margin |
6.8% |
2.0% |
1.5% |
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Cost of risk |
0.21% |
0.95% |
0.86% |
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Impairment loss coverage on loans to customers |
0.80% |
1.31% |
1.14% |
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Cost income ratio |
142% |
426% |
641% |
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Key Performance Indicators |
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Loans advanced to customers (£m) |
295 |
115 |
253 |
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Number of dealer customers |
706 |
779 |
623 |
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Number of manufacturer partners |
74 |
77 |
65 |
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Total credit available to dealers (£m) |
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 £2.3m, a reduction of £4.9m or 68% (June 2020: £7.2m)
· Record new loan origination of c£300m during the period with a strong Q1 performance
· Loan book exceeded £166m 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 £467m (June 2020: £364m)
· £40m placing concluded in February 2021 gives the Group capacity to grow its loan book to approximately £550m
Post period end highlights and trading update
· Loan book increased to £194m 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 £120m 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 £280m 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:
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Distribution Finance Capital Holdings plc |
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Carl D'Ammassa - Chief Executive Officer |
+44 (0) 161 413 3391 |
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Kam Bansil - Head of Investor Relations |
+44 (0) 7779 229508 |
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Investec Bank plc (Nomad and Broker) |
+44 (0) 207 597 5970 |
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David Anderson Bruce Garrow Harry Hargreaves Maria Gomez de Olea |
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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 £295m during the six-month period to 30 June 2021 (H1 2020: £115m). 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 £467m (31 December 2020: £358m).
The Group enjoyed a strong start to 2021 with the loan book reaching £193m 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 £167m at 30 June 2021 (H1 2020: £166m).
Portfolio By Sector
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30 June 2021 |
30 June 2020 |
31 December 2020 |
|||
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£'000 |
% |
£'000 |
% |
£'000 |
% |
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Leisure |
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Lodges and holiday homes |
40,977 |
24.6% |
43,685 |
26.3% |
28,919 |
25.5% |
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Motorhomes and caravans |
34,152 |
20.5% |
48,196 |
29.1% |
22,405 |
19.8% |
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Marine |
24,060 |
14.4% |
30,043 |
18.1% |
21,126 |
18.7% |
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Motorsport |
12,940 |
7.8% |
6,035 |
3.6% |
8,094 |
7.2% |
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112,129 |
67.2% |
127,959 |
77.1% |
80,544 |
71.1% |
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Commercial |
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Transport |
31,708 |
19.0% |
8,828 |
5.3% |
18,011 |
15.9% |
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Industrial equipment |
17,949 |
10.8% |
19,152 |
11.5% |
9,514 |
8.4% |
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Agricultural equipment |
4,978 |
3.0% |
9,988 |
6.0% |
5,191 |
4.6% |
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54,635 |
32.8% |
37,968 |
22.9% |
32,716 |
28.9% |
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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
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30 June 2021 |
30 June 2020 |
31 December 2020 |
|
|
6-month |
6-month |
12-month |
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|
£'000 |
£'000 |
£'000 |
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|
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Gross revenues |
6,122 |
7,405 |
11,511 |
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Interest expense |
(871) |
(5,420) |
(9,174) |
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Net income |
5,251 |
1,985 |
2,337 |
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Operating expenses |
(7,438) |
(8,474) |
(15,063) |
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Impairment charges |
(163) |
(932) |
(1,294) |
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Other provisions |
25 |
193 |
417 |
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Loss before taxation |
(2,325) |
(7,228) |
(13,603) |
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Taxation |
- |
- |
- |
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Loss after taxation |
(2,325) |
(7,228) |
(13,603) |
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Other comprehensive loss |
(89) |
(1) |
(22) |
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Total comprehensive loss |
(2,414) |
(7,229) |
(13,625) |
Summarised Statement of Financial Position
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30 June 2021 |
30 June 2020 |
31 December 2020 |
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£'000 |
£'000 |
£'000 |
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|
|
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Cash held at bank |
34,904 |
26,533 |
21,233 |
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Loans and advances to customers |
164,841 |
163,704 |
111,337 |
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Other assets |
63,078 |
10,131 |
68,752 |
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Total assets |
262,823 |
200,368 |
201,322 |
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Customer deposits |
159,988 |
- |
145,982 |
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Financial liabilities |
604 |
136,650 |
107 |
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Other liabilities |
14,858 |
6,751 |
4,344 |
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Total liabilities |
175,450 |
143,401 |
150,433 |
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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 £6.1m (H1 2020: £7.4m). 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 £7.4m (H1 2020: £8.5m).
Arrears
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30 June 2021 |
30 June 2020 |
31 December 2020 |
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£'000 |
£'000 |
£'000 |
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Arrears - principal repayment, fees and interest |
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1 - 30 days past due |
161 |
1,351 |
27 |
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31 - 60 days past due |
- |
112 |
22 |
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61 - 90 days past due |
- |
141 |
39 |
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91 + days past due |
162 |
892 |
132 |
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|
323 |
2,496 |
220 |
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Total % of loan book |
0.2% |
1.5% |
0.2% |
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Associated principal balance |
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1 - 30 days past due |
367 |
9,777 |
96 |
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31 - 60 days past due |
- |
822 |
7 |
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61 - 90 days past due |
- |
216 |
14 |
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91 + days past due |
162 |
1,250 |
259 |
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|
529 |
12,065 |
376 |
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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
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30 June 2021 |
30 June 2020 |
31 December 2020 |
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% |
% |
% |
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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 £2.3m (H1 2020: £7.2m).
Having raised £40 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 £550m. Regulatory capital amounted to £84.0m 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 £20m 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 £400m 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 £518m. We have continued to strengthen the facility pipeline, which now exceeds £1.5bn with an additional c2,000 prospective new dealers across the existing core sectors.
Despite the Group's loan book sitting at £166.8m at 30 June 2021 (31 December 2020: £113.3m), the Group is pleased to report that its loan book reached £194m 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 £120m 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 c£280m 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
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30 June 2021 |
30 June 2020 |
31 December 2020 |
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6-month |
6-month |
12-month |
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Financial Highlights |
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Gross revenues (£m) |
6.1 |
7.4 |
11.5 |
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Loss after taxation (£m) |
2.3 |
7.2 |
13.6 |
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Loan Book (£m) |
166.8 |
165.9 |
113.3 |
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Net assets (£m) 1 |
87.3 |
57.0 |
50.9 |
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Customer deposits (£m) |
160.0 |
- |
146.0 |
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Regulatory capital (£m) |
84.0 |
n/a |
47.8 |
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Common Equity Tier 1 capital ratio |
57.1% |
n/a |
50.1% |
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Gross yield 2 |
7.9% |
7.6% |
7.7% |
|
Net interest margin 3 |
6.8% |
2.0% |
1.5% |
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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% |
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|
|
|
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Key Performance Indicators |
|
|
|
|
Loans advanced to customers (£m) |
295 |
115 |
253 |
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Number of dealer customers 7 |
706 |
779 |
623 |
|
Number of manufacturer partners 8 |
74 |
77 |
65 |
|
Total credit available to dealers (£m) 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.
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Principal Risks |
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Operational risk |
Operational Risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems errors, or from external events. We have a framework in place which sets out our approach to Operational Risk, with associated roles and responsibilities further defined in a number of risk policies and standard operating procedures covering the various types of Operational Risk. Although the overall scope of Operational Risk would cover areas of Conduct and Reputational risks, we believe it makes sense to separate these items out as individual principal risks due the importance of these risks given the Group's activities and regulatory environment. |
Key Risk Mitigation Tools : Policies, Procedures, Risk and Control Self Assessments ("RCSAs"), risk event analysis, Business Assurance Testing ("BAT" i.e. controls testing), ongoing monitoring of risk metrics and limits, scenario analysis, infosec and cyber defences, operational risk training, Operations Committee and Executive Risk Committee oversight. |
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Compliance Risk |
Compliance Risk is defined as the risk of loss or imposition of penalties, damages, or fines from the failure of the firm to meets its legal and regulatory obligations. DF Capital operates within the context of the UK legal and regulatory environment. Our Compliance Framework sets out the responsibilities within the firm to ensure awareness of both current and upcoming legal and regulatory 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. |
Key Risk Mitigation Tools: Regulatory monitor, enterprise-wide compliance and financial crime risk assessments, compliance monitoring plan, ongoing monitoring of risk metrics and limits, customer risk assessments, regulatory compliance training, Executive Risk Committee oversight.
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Conduct Risk |
We define Conduct Risk as the risk of detriment caused to DF Capital's customers or wider financial markets due to inappropriate execution of its business activities and processes, including the sale of unsuitable products. Our Conduct Risk Framework outlines the Group's approach and process for ensuring good customer conduct outcomes. It is supported by specific policies on Product Governance, 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. |
Key Risk Mitigation Tools: New & amended product approval process, enterprise-wide conduct risk assessment, ongoing monitoring of risk metrics and limits, monitoring of complaints and customer feedback, BAT, Code of Ethics, conduct risk training, Executive Risk Committee oversight. |
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Prudential Risk |
Prudential Risk covers three types of risks relating to the Group maintaining sufficient financial resources to ensure it is financially resilient. · Funding and Liquidity Risk: The risk that DF Capital is not able to meet its financial obligations as they fall due or that it does not have the tenor and composition of funding and liquidity to support 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.
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Key Risk Mitigation Tools: ICAAP, ILAAP, additional stress testing, ongoing monitoring of risk metrics and limits, monitoring of external environment, Asset and Liability Management Committee ("ALCO") and Executive Risk Committee oversight.
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Credit Risk |
Credit Risk is the risk of financial loss arising from a customer or counterparty failing to meet their financial obligations to DF Capital. Credit Risk is considered the most significant risk faced by DF Capital and can be broken down into the following categories: · Client Default Risk: The risk of loss arising from a failure of a borrower to meet their obligations under a credit agreement. · 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.
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Key Risk Mitigation Tools: C redit underwriting criteria, asset audits, sector deep-dive reviews, portfolio monitoring, ongoing monitoring of risk metrics and limits, hindsight reviews of default events, monitoring of external environment, Credit Committee and Executive Risk Committee oversight.
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Strategic Risk |
Strategic Risk covers the risks which can adversely impact the ability of DF Capital in achieving its strategic objectives. These risks may impact shareholder value, earnings or growth from poor strategic decisions, improper implementation of business strategies 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.
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Key Risk Mitigation Tools: St rategic and financial plans, ICAAP, ILAAP, horizon scanning, monitoring of external environment, Executive Committee ("ExCo") oversight.
|
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 2021 |
30 June 2020 |
2020 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
Note |
£'000 |
£'000 |
£'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 2021 |
30 June 2020 |
31 December 2020 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
Note |
£'000 |
£'000 |
£'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 capital |
Share premium |
Merger relief |
Merger reserve |
Own shares |
Retained (loss) |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'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 2021 |
30 June 2020 |
31 December 2020 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
Note |
£'000 |
£'000 |
£'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 £734,000 at 30 June 2021 (30 June 2020: £630,000; 31 December 2020: £540,000).
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 £490,000 at 30 June 2021 (30 June 2020: £620,000; 31 December 2020: £400,000).
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):
|
Scenario |
Economic Outlook |
Probability Weighting |
ECL Impairment |
ECL Coverage 1 (%) |
|
|
|
|
|
|
|
Improved |
Macro-economic factors recover to pre-COVID-19 position |
30% |
801 |
0.48% |
|
Base |
Current economic climate which is aligned to the Group's internal decision-making processes |
45% |
1,179 |
0.70% |
|
Poor |
Deterioration in economic outlook to midway point between base scenario and severe scenario |
20% |
2,001 |
1.19% |
|
Severe |
Aligned to equivalent financial sector losses during the 2008/09 financial crisis |
5% |
3,131 |
1.87% |
|
Total |
|
100% |
1,328 |
0.79% |
30 June 2020 (Unaudited):
|
Scenario |
Economic Outlook |
Probability Weighting |
ECL Impairment |
ECL Coverage 1 (%) |
|
|
|
|
|
|
|
Improved |
Macro-economic factors recover to pre-COVID-19 position |
25% |
1,307 |
0.78% |
|
Base |
Current economic climate which is aligned to the Group's internal decision-making processes |
40% |
1,926 |
1.15% |
|
Poor |
Deterioration in economic outlook to midway point between base scenario and severe scenario |
25% |
2,777 |
1.66% |
|
Severe |
Aligned to equivalent financial sector losses during the 2008/09 financial crisis |
10% |
3,773 |
2.26% |
|
Total |
|
100% |
2,169 |
1.30% |
31 December 2020 (Audited):
|
Scenario |
Economic Outlook |
Probability Weighting |
ECL Impairment |
ECL Coverage 1 (%) |
|
|
|
|
|
|
|
|
|
Improved |
Macro-economic factors recover to pre-COVID-19 position |
30% |
874 |
0.77% |
|
|
Base |
Current economic climate which is aligned to the Group's internal decision-making processes |
40% |
1,131 |
0.99% |
|
|
Poor |
Deterioration in economic outlook to midway point between base scenario and severe scenario |
20% |
1,679 |
1.47% |
|
|
Severe |
Aligned to equivalent financial sector losses during the 2008/09 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 2021 |
30 June 2020 |
31 December 2020 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
Scenario |
£'000 |
£'000 |
£'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 ended |
6 months ended |
Year ended |
|
|
£'000 |
£'000 |
£'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 ended |
6 months ended |
Year ended |
|
|
£'000 |
£'000 |
£'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 |
|
|
£'000 |
£'000 |
£'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 outstanding at 31 December 2020 |
Options granted in six-month period ended 30 June 2021 |
Options forfeited in six-month period ended 30 June 2021 |
Options exercised in six-month period ended 30 June 2021 |
Options outstanding at 30 June 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 0.01 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 ended |
6 months ended |
Year ended |
|
|
£'000 |
£'000 |
£'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:
|
|
Social security payments |
Severance payments |
Leasehold dilapidations |
Onerous supplier contracts |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'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 £70,000 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 £25,000 for expected residual cost. Since the Group has settled this obligation with the supplier at £16,000 and released £9,000 as unused provision.
11. Net impairment loss on financial assets
|
|
6 months ended |
6 months ended |
Year ended |
|
|
£'000 |
£'000 |
£'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 ended |
6 months ended |
Year ended |
|
|
£'000 |
£'000 |
£'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 £25.0 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 £7.5 million (31 December 2020: £7.05 million) of unused tax credits for which a deferred tax asset has not been recognised against.
13. Loans and advances to customers
|
|
30 June 2021 |
|
|
|
|
£'000 |
£'000 |
£'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 2021 |
|
|
|
|
£'000 |
£'000 |
£'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 1 |
Stage 2 |
Stage 3 |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'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 |
|
|
£'000 |
£'000 |
£'000 |
£'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 |
|
|
£'000 |
£'000 |
£'000 |
£'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 1 |
Stage 2 |
Stage 3 |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'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 |
|
|
£'000 |
£'000 |
£'000 |
£'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 |
|
|
£'000 |
£'000 |
£'000 |
£'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 2021 |
|
|
|
|
£'000 |
£'000 |
£'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 2021 |
|
|
|
|
£'000 |
£'000 |
£'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 2021 |
|
|
|
|
£'000 |
£'000 |
£'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 |
|
|
£'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 £786,726. 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 £30,000 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 2021 |
30 June 2020 |
31 December 2020 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
Note |
£'000 |
£'000 |
£'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 2021 |
30 June 2020 |
31 December 2020 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
|
£'000 |
£'000 |
£'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 2021 |
30 June 2020 |
31 December 2020 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
|
£'000 |
£'000 |
£'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 2021 |
30 June 2020 |
31 December 2020 |
30 June 2021 |
30 June 2020 |
31 December 2020 |
|
|
No. |
No. |
No. |
£'000 |
£'000 |
£'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:
|
|
Date |
No. of shares |
Issue Price |
Share Capital |
Share Premium |
Merger Relief |
Total |
|
|
|
# |
£ |
£'000 |
£'000 |
£'000 |
£'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 £40.0 million of additional capital before expenses and approximately £38.6 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 £1 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 £1,807,603 (31 December 2020: £1,896,501).
|
|
30 June 2021 |
30 June 2020 |
31 December 2020 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
At start of period |
(364) |
- |
- |
|
Employee Benefit Trust |
- |
(364) |
(364) |
|
At end of period |
(364) |
(364) |
(364) |
18. Financial liabilities
|
|
30 June 2021 |
|
|
|
|
£'000 |
£'000 |
£'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 2021 |
|
|
|
|
£'000 |
£'000 |
£'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 £605,000 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 £84,000 and recognised finance costs of £6,000. Furthermore, as disclosed in note 15, the Group recognised a lease modification of £30,000 due to a rent concession granted in the period.
The maturity analysis of lease liabilities is as follows:
|
|
30 June 2021 |
|
|
£'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 amount |
Fair value |
Level 1 |
Level 2 |
Level 3 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'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 amount |
Fair value |
Level 1 |
Level 2 |
Level 3 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'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 amount |
Fair value |
Level 1 |
Level 2 |
Level 3 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'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 |
|
|
£'000 |
£'000 |
£'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 |
|
|
£'000 |
£'000 |
£'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 |
|
|
£'000 |
£'000 |
£'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 2021 |
|
|
|
|
£'000 |
£'000 |
£'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 |
|||
|
|
£'000 |
% |
£'000 |
% |
£'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.
|
30 June 2021 (Unaudited) |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
Credit rating |
£'000 |
£'000 |
£'000 |
£'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 |
£'000 |
£'000 |
£'000 |
£'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 |
£'000 |
£'000 |
£'000 |
£'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 2021 |
|
|
|
|
£'000 |
£'000 |
£'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 ended |
6 months ended |
Year ended |
|
|
|
|
|
|
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 |
£'000 |
£'000 |
£'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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