Half-year Report
22 September 2022
Distribution Finance Capital Holdings plc
("DF Capital" or the "Company" together with its subsidiaries the "Group")
Interim Results for six months ended 30 June 2022
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 2022 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 2022 |
30 June 2021 |
31 December 2021 |
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6-month |
6-month |
12-month |
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Financial Highlights |
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Gross revenues (£m) |
10.5 |
6.1 |
13.5 |
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Profit/(Loss) after taxation (£m) |
0.0 |
(2.3) |
(3.7) |
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Loan Book (£m) |
308.7 |
166.8 |
249.5 |
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Net assets (£m) |
87.3 |
87.3 |
86.1 |
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Customer deposits (£m) |
304.4 |
160.0 |
297.0 |
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Regulatory capital (£m) |
82.8 |
84.0 |
82.7 |
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Common Equity Tier 1 capital ratio |
30.6% |
57.1% |
38.2% |
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Gross yield |
7.4% |
7.9% |
7.9% |
|
Net interest margin |
6.1% |
6.8% |
6.5% |
|
Cost of risk |
0.50% |
0.21% |
0.32% |
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Impairment loss coverage on loans to customers |
0.69% |
0.80% |
0.69% |
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Cost income ratio |
92% |
142% |
128% |
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Key Performance Indicators |
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Loans originated in the period (£m) |
439 |
295 |
690 |
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Number of dealer customers |
908 |
706 |
805 |
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Number of manufacturer partners |
85 |
74 |
78 |
|
Total credit available to dealers (£m) |
724 |
467 |
601 |
· Breakeven profitability, a reduction in losses of £2.3m
· Continued c.6% net interest margin, notwithstanding the reduction to gross yield resulting from an increasing proportion of the loan book originated directly through manufacturers with additional security in place
· Further record new loan origination of c£439m during the period, up 49% on 2021, demonstrating the strength of relationships with dealers and manufacturers, as well as the scalability of the platform
· Loan book reached £309m, up 24% on year-end, despite continuing headwinds
· Loan book arrears remains low at 0.2% as a result of direct management and strength of our dealer obligors
· Loan facilities provided to dealers increased 55% to £724m (June 2021: £467m)
· Retail deposits reached £304m. feefo score now increased to 4.7 (2021: 4.6)
Post period end highlights and outlook
· Loan book increased to £313m as at 31 August 2022 with expected continued growth through re-stocking period to achieve year-end loan book range of £400-500m
· Capital actions progressed: negotiating legal documentation in relation to participation in British Business Bank's ENABLE Guarantee scheme, subject to contract and approval; completed pre-work for Tier 2 capital raise ahead of 2023 requirement
· The Group continues to trade in-line with the Board's expectations
Carl D'Ammassa, Chief Executive, commented: "We have continued to deliver momentum throughout the business, achieving record levels of origination and loan book. Despite the macro-economic headwinds and on-going supply chain challenges, it is pleasing to achieve breakeven during the period.
We remain cautious about the global outlook and have taken action to both strengthen and widen the reach of our commercial teams. Scaling the bank, growing in our core products, whilst diversifying our lending activities underpins our confidence to deliver our medium-term objectives and our ambitions to achieve a mid-to-high teens return on allocated capital"
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
As we approach the two-year milestone of receiving our banking licence, we continue to demonstrate solid progress against our strategic objectives. Strength of relationship, a service focused mindset and digitised capabilities underpin the Group's financial performance. It is pleasing to report that, during the six-month period ended 30 June 2022, the Group has achieved breakeven financial performance. Through the period we have seen continued resilience and growth in our lending activity unlocking the latent operational leverage we have across the company as we scale the business. This strong performance has been achieved against the backdrop of continued macro-economic uncertainty and market headwinds. The tail-effects of the global pandemic has continued to impact supply chains across many of the sectors in which we operate, exacerbated by further outbreaks of COVID-19 in China and the war in Ukraine. It is therefore pleasing to share these financial results in this economic context, a clear demonstration that our products continue to resonate with our customers.
Lending activities
The Group saw record loan origination exceeding £439m during the six-month period to 30 June 2022, up 49% on the equivalent period in 2021 (H1 2021: £295m), demonstrating the strength of relationships with dealers and manufacturers, as well as the scalability of the platform.
The Group has continued to increase its reach across its chosen markets supporting 85 manufacturers at 30 June 2022 (30 June 2021: 74 and 31 December 2021: 78) and over 900 dealers (30 June 2021: 706 and 31 December 2021: 805). Aggregate dealer loan facilities at the end of the period totalled £724m, up 55% on the prior year (30 June 2021: £467m) and up 20% on the end of the last financial year end (31 December 2021: £601m).
Whilst we continue to originate record levels of new loans, the pace of overall loan book growth has continued to be constrained by high dealer sales, on-going supply chain issues, and wider macro-economic factors. Whilst we have seen some modest slowdown in stock turn in the six-month period to 30 June 2022 to c110 days (FY 2021: 105 days), this is significantly below the historic average of c.150 days. Despite the stock turn remaining at elevated levels, the Group's loan book ended the period at £309m, up 85% on the equivalent period in the prior year (30 June 2021: £167m) and up 24% on the end of the last financial year (31 December 2021: £249m).
Portfolio By Sector
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30 June 2022 |
30 June 2021 |
31 December 2021 |
|||
|
|
£'000 |
% |
£'000 |
% |
£'000 |
% |
|
Leisure |
|
|
|
|
|
|
|
Lodges and holiday homes |
94,696 |
30.7% |
40,977 |
24.6% |
59,936 |
24.0% |
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Motorhomes and caravans |
58,103 |
18.8% |
34,152 |
20.5% |
47,660 |
19.1% |
|
Marine |
36,786 |
11.9% |
24,060 |
14.4% |
37,061 |
14.9% |
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Motorcycle |
15,730 |
5.1% |
12,940 |
7.8% |
13,197 |
5.3% |
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Specialist and prestige cars |
1,760 |
0.6% |
- |
- |
- |
- |
|
|
207,075 |
67.1% |
112,129 |
67.2% |
157,854 |
63.3% |
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Commercial |
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Transport |
54,489 |
17.7% |
31,708 |
19.0% |
56,283 |
22.6% |
|
Industrial equipment |
27,561 |
8.9% |
17,949 |
10.8% |
25,842 |
10.4% |
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Agricultural equipment |
19,535 |
6.3% |
4,978 |
3.0% |
9,475 |
3.8% |
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|
101,585 |
32.9% |
54,635 |
32.8% |
91,600 |
36.7% |
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Total gross receivables |
308,660 |
100% |
166,764 |
100% |
249,454 |
100% |
The Group successfully launched its inventory finance product to selective specialist and prestige car dealers during the period under review and has a strong pipeline for further growth.
The Group's loan book remains well diversified. The modest reduction in commercial lending as a percentage of portfolio in the six-month period ended 30 June 2022 to 32.9% (31 December 2021: 36.7%) relates to a reduction in the transportation sector which has been adversely impacted by further COVID-19 outbreaks in China and global shipping issues. These challenges are now starting to ease as we head in to the second half of the year.
Financial performance
Summarised Statement of Comprehensive Income
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30 June 2022 |
30 June 2021 |
31 December 2021 |
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|
6-month |
6-month |
12-month |
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|
£'000 |
£'000 |
£'000 |
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|
|
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Gross revenues 1 |
10,511 |
6,122 |
13,641 |
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Interest expense |
(1,865) |
(871) |
(2,338) |
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Net income 2 |
8,646 |
5,251 |
11,303 |
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Impairment charges |
(704) |
(163) |
(556) |
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Other provisions |
- |
25 |
25 |
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Other operating expenses |
(7,926) |
(7,438) |
(14,507) |
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Profit/(Loss) before taxation |
16 |
(2,325) |
(3,735) |
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Taxation |
- |
- |
59 |
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Profit/(Loss) after taxation |
16 |
(2,325) |
(3,676) |
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Other comprehensive loss |
(172) |
(89) |
(162) |
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|
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Total comprehensive loss |
(156) |
(2,414) |
(3,838) |
1 Sum of interest and similar income, fee income, net gains/(losses) on disposal of financial assets, and net losses from derivatives measured at fair value through profit or loss
2 Gross revenues less interest and similar expenses
Summarised Statement of Financial Position
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30 June 2022 |
30 June 2021 |
31 December 2021 |
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|
£'000 |
£'000 |
£'000 |
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|
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Cash and cash equivalents 1 |
67,934 |
34,904 |
29,597 |
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Debt securities |
31,997 |
59,750 |
108,867 |
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Loans and advances to customers |
305,629 |
164,841 |
247,205 |
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Other assets |
4,065 |
3,328 |
2,939 |
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Total assets |
409,625 |
262,823 |
388,608 |
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Customer deposits |
304,377 |
159,988 |
296,856 |
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Financial liabilities |
499 |
604 |
554 |
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Other liabilities |
18,656 |
14,858 |
5,140 |
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Total liabilities |
323,532 |
175,450 |
302,550 |
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Total equity |
86,093 |
87,373 |
86,058 |
1 Includes cash and balances at central banks, and loans and advances to banks which are deemed as cash and cash equivalents. Refer to note 16 for further details.
Gross revenues (comprising interest and similar income of £10.0m and fee income of £0.5m) increased by 73% to £10.5m compared to H1 2021 of £6.1m (comprising interest and similar income of £5.9m and fee income of £0.2m). This increase is due to the average loan book balance through the period under review being higher than H1 2021. Gross yield, however, reduced by 50bps to 7.4% (H1 2021: 7.9%) predominantly as a result of an increase in the proportion of loans through manufacturer programmes which tend to have a lower yield than loans originated direct to dealers. Lending through manufacturer programmes have additional security in the form of manufacturer repurchase or redistribution agreements. Net interest margin ("NIM") reduced to 6.1% (H1 2021: 6.8%) reflecting this reduced yield, but remains slightly ahead of our stated target of 6%.
We have continued to effectively manage our cost base and unlock the operational leverage we have in the business given our digital capabilities. We have continued to invest in areas to support growth and scaling of the business, such as API-connections with dealers, robotic process automation (RPA) and character-recognition technologies. During the six months ended 30 June 2022 operating expenses were £7.9m an increase of 7% on the comparative period (H1 2021: £7.4m). We have completed actions to strengthen our commercial team through the period, with many of the new hires joining during the second half of the year. Given our highly digitised client facing processes and on-going investment in automation, we believe we are building further scalability into our operational capabilities and much of the cost we need to support our near-term loan book targets is already embedded. Our cost to income ratio has reduced significantly to 92% during the six months ended 30 June 2022 (H1 2021: 142%) and we expect to see further reductions in this ratio as we scale the business, underpinning the delivery of our return ambitions.
Arrears
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30 June 2022 |
30 June 2021 |
31 December 2021 |
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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 |
541 |
161 |
105 |
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31 - 60 days past due |
145 |
- |
834 |
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61 - 90 days past due |
12 |
- |
- |
|
91 + days past due |
56 |
162 |
164 |
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|
754 |
323 |
1,103 |
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Total % of loan book |
0.2% |
0.2% |
0.4% |
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Associated principal balance |
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1 - 30 days past due |
13,033 |
367 |
951 |
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31 - 60 days past due |
1,866 |
- |
834 |
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61 - 90 days past due |
- |
- |
- |
|
91 + days past due |
138 |
162 |
184 |
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|
15,037 |
529 |
1,970 |
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Total % of loan book |
4.9% |
0.3% |
0.8% |
Loan book arrears have continued to operate at levels better than pre-pandemic. During the period we have seen ongoing strong credit performance with low arrears and default cases. We are pleased with the underlying quality and financial strength of our dealer obligors, many who have come out of the pandemic achieving record levels of sales and profitability. Accordingly, arrears comprised 0.2% of the loan book at the end of June 2022 (30 June 2021: 0.2% and 31 December 2021: 0.4%).
In addition, the Group's lending relative to its security position remains strong with a loan to wholesale value ('LTV') of 90% (30 June 2021: 85% and 31 December 2021: 91%). The increase in loan to value compared to June 2021 relates to an increase in the proportion of loans originated through manufacturer programmes, which generally fund at a higher LTV at inception, but monthly principal repayments usually see the LTV fall quickly through the life of a loan. 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.65% of our loan book.
Our Security Position
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
% |
% |
% |
|
|
|
|
|
|
Loan to wholesale value 1 |
90% |
85% |
91% |
1 Wholesale price is the invoice value paid by the dealer to the manufacturer
Cost of risk for the six months ended 30 June 2022 was 0.50%, well below our through-the-cycle expectations. Whilst this represents an increase against the comparator period (H1 2021: 0.21%), H1 2021 included a reduction in the COVID-19 overlay to our IFRS9 model given the improving economic conditions and outlook for the UK economy at that time.
The combination of a significant increase in Gross revenues well in excess of the increase in Interest expense, a relatively small increase in operating expenses, and low cost of risk, has resulted in a breakeven performance for the 6-month period ended 30 June 2022 compared to a loss of £2.3m for the 6-month period ending June 2021.
Deposit activities
We continue to operate an effective and well-diversified deposit raising capability, entering the best buy tables as necessary. We have focused significantly on existing customer retention as they reach maturity of their fixed rate bond. We have retained c65% of fixed rate bonds that matured during the period and now hold £304m of deposits that support our lending activities. We are pleased that our retail savings proposition has now achieved a feefo score of 4.7 (2021: 4.6).
Delivering future growth.
With our existing manufacturer partners we have access to an additional c2,500 prospective dealers across our core sectors, presenting us with opportunity to increase our market share as we onboard more of them; whilst we recognise we will not convert this entire potential pipeline as it may not meet our credit criteria or may not complete, the associated facility limits total £1.2bn. In addition, we continue to target new manufacturers in our existing sectors, which in turn presents us with additional dealer prospects.
Whilst the Group has a significant runway for growth in its core lending product, we remain committed to diversifying our product range further and lending into adjacencies, such as hire purchase and leasing that will allow us to lend beyond the forecourt. We continue to explore a range of routes for diversifying our product range including inorganic opportunities, through business combinations, partnerships and internal new product development.
Given the strength of pipeline, we have made further investments to strengthen our commercial team allowing us to accelerate the pace of dealer onboarding against current levels, whilst ensuring we continue to offer a high-quality level of service to all of our lending customers.
Ciara Raison joins us from Secure Trust Bank, to lead our sales and commercial activities as Chief Commercial Officer. Ciara's appointment allows Andy Stafferton, co-founder and existing commercial lead, to focus entirely on our product development and partnership strategy.
We have made good progress on our capital strategy. We are negotiating legal documentation in relation to our participation in the British Business Bank's ENABLE Guarantee scheme, which remains subject to contract and the scheme's approval processes. We have already completed pre-work required to move forward our Tier 2 capital raise ahead of the 2023 requirement.
Current trading and outlook
The Group's ability to generate new loan origination has continued through the summer months and for the 8 months to 31 August 2022 the Group originated loans totalling over £585m with dealer loan facilities exceeding £740m at this date. Our loan book exceeded £313m at 31 August 2022. Whilst the economic environment remains uncertain with numerous headwinds, we remain cautious about the macro-economic outlook. We expect discretionary consumer spend to tighten over the coming months, and although we have no direct credit risk to end-users of the assets we finance, we do expect stock turn at dealers to slow, moving towards more normal levels as dealers enter the re-stocking period during the balance of the year. With over £740m of loan facilities now in place, utilisation levels are expected to increase as we head towards the end of the year, thus increasing our loan book balance, and we remain on track to deliver a year end loan book between £400 - 500m.
We are mindful of the inflationary environment we current operate in and expect an increase to costs in H2 2022, in particular given the further investments in our commercial team. Additionally we also expect an increase in cost of risk as the Group's loan book grows given provisions are made at loan inception, together with the uncertain economic outlook potentially impacting our provisioning. Despite these factors the Group continues to trade in line with the Board's expectations.
Scaling the bank, growing in our core products, whilst diversifying our lending activities underpins our confidence to deliver our medium-term objectives and our ambitions to achieve a mid-to-high teens return on allocated capital.
Carl D'Ammassa
Chief Executive Officer
Financial Highlights and Key Performance Indicators
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|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
6-month |
6-month |
12-month |
|
|
|
|
|
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Financial Highlights |
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|
|
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Gross revenues (£m) 1 |
10.5 |
6.1 |
13.5 |
|
Profit/ (Loss) after taxation (£m) |
0.0 |
(2.3) |
(3.7) |
|
Loan book (£m) 2 |
308.7 |
166.8 |
249.5 |
|
Net assets (£m) 3 |
87.3 |
87.3 |
86.1 |
|
Customer deposits (£m) |
304.4 |
160.0 |
297.0 |
|
Regulatory capital (£m) 4 |
82.8 |
84.0 |
82.7 |
|
Common Equity Tier 1 capital ratio |
30.6% |
57.1% |
38.2% |
|
Gross yield 5 |
7.4% |
7.9% |
7.9% |
|
Net interest margin 6 |
6.1% |
6.8% |
6.5% |
|
Cost of risk 7 |
0.50% |
0.21% |
0.32% |
|
Impairment loss coverage on loans to customers 8 |
0.69% |
0.80% |
0.69% |
|
Cost income ratio 9 |
92% |
142% |
128% |
|
|
|
|
|
|
Key Performance Indicators |
|
|
|
|
Loans originated in the period (£m) |
439 |
295 |
690 |
|
Number of dealer customers 10 |
908 |
706 |
805 |
|
Number of manufacturer partners 11 |
85 |
74 |
78 |
|
Total credit available to dealers (£m) 12 |
724 |
467 |
601 |
1 Sum of interest and similar income, fee income, net gains/(losses) on disposal of financial assets, and net losses from derivatives measured at fair value through profit or loss
2 Gross carrying amount of loans and advances to customers
3 The equity held in the Group
4 Regulatory capital is the Common Equity Tier 1 capital held
5 The effective interest rate we charge our customers including fees
6 Gross yield including fees less interest expense
7 Impairments and provisions in the period (annualised) as a % of average gross receivables.
8 Impairment allowance as a % of gross receivables at the period end
9 Operating cost as a % of total operating income.
10 Number of borrower relationships
11 Number of vendors and manufacturers with whom we have programs that support our lending
12 Amount of credit available to our customers to draw (uncommitted)
Alternative Performance Measures
Certain financial measures disclosed in the Interim Financial Report do not have a standardised meaning prescribed by International Financial Reporting Standards (IFRS) and may therefore not be comparable to similar measures presented by other issuers. These measures (defined above) are deemed to be alternative performance measures ("APMs").
APMs may be considered in addition to, but not as a substitute for, the reported IFRS results. The Group believes that these APMs, when considered together with reported IFRS results, provide stakeholders with additional information to better understand the Group's financial performance.
Based on the Group's strategy and business model, there are six principal risk categories used to help shape our policy and control framework. This categorisation creates structure for the risk policy framework and clear ownership/ responsibility for assessing and managing risk.
There are certain risk themes that run across many or all of these risk types and we have chosen at this stage to not pull them out individually but to manage them across the principal risks framework. A good example of this are the risks created by climate change. Whilst these risks may crystallise in full over longer-time horizons, they are already becoming apparent in our business operations and cut across more than one of the principal risk categories below.
Principal Risks
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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, information security and cyber defences, operational risk training, Operational Forums aligned to defined customer and internal journeys, change management framework, operational resilience framework, physical security and safety, regular risk training, 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: compliance policies, 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.
|
|
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 and inappropriate behaviour. 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 : conduct risk policies, product governance, 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.
Roles, responsibilities, and requirements with respect to Prudential Risk management are outlined in relevant treasury management policies, with the setting of risk appetite further supported by the firm's regulatory documents (ILAAP and ICAAP). |
Key Risk Mitigation Tools: treasury policies, ICAAP, ILAAP, funds transfer pricing policy, additional stress testing, ongoing monitoring of risk metrics and limits, financial planning and forecasting, monitoring of external environment, ALCO and Executive Risk Committee oversight.
|
|
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.
|
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.
|
|
Strategic Risk |
Strategic Risks are 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.
|
Key Risk Mitigation Tools: Executive Committee and Board oversight, comprehensive risk assessments of strategic and financial plans, stress testing, horizon scanning, ongoing monitoring of macro- and microeconomic environment, change management framework. |
Enterprise-wide Key and Emerging Risks
The Enterprise-wide key and emerging risks of the Group are: Macroeconomic risks; Assets sold out of trust; Operational execution and change; Cyber risk; Near-term growth plan; and Climate change. Full details of each emerging risk, including the potential impact of the risk and how the risk is managed, are set out in the 2021 Annual Report and Accounts.
Relevant updates for these risks are provided below.
Macroeconomic risk
The impact of deteriorating economic conditions on the banks customers carries a degree of uncertainty given the still abnormal state of supply chains. Strong performance in prior years is expected to place our dealer customers and manufacturers in a relative benign position to face the forthcoming economic difficulties. Initially, there is upside to our loan book growth to a slowdown in sales. But a prolonged and/or deep recession would ultimately lead to a rise in loan losses. The Group is protected through its various layers of security and is employing enhanced controls in preparation for the expected turn in the credit cycle.
Ukraine conflict
In February 2022, Russia launched an invasion of Ukraine. Although the Group does not have any direct exposure, it does have indirect exposure, for example the impacts of rising energy prices, cost of living and inflation, potential supply chain issues faced by manufacturers and customers and increased cyber security threats. The risks associated with the war are primarily captured by the macroeconomic risk category. However, the Group also notes that cyber threats have heightened since the start of the conflict in Ukraine.
Statement of Directors' Responsibilities
We, the Directors, confirm that to the best of our knowledge:
§ the condensed consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the United Kingdom (UK);
§ the interim report includes a fair review of the performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
§ the interim report and financial statements, taken as a whole, are fair, balanced and understandable.
By order of the Board
Carl D'Ammassa
Director
21 September 2022
Independent Review Report to Distribution Finance Capital Holdings plc
Conclusion
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 which comprises the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 25.
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 2022 is not prepared, in all material respects, in accordance with United Kingdom adopted International Accounting Standard 34 and the AIM Rules of the London Stock Exchange.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with United Kingdom adopted international accounting standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with United Kingdom adopted International Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410; however future events or conditions may cause the entity to cease to continue as a going concern.
Directors' responsibilities
The directors are responsible for preparing the half-yearly financial report in accordance with the AIM rules of the London Stock Exchange.
In preparing the half-yearly financial report, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for expressing to the company a conclusion on the condensed set of financial statements in the half-yearly financial report. Our Conclusion, including our Conclusion Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.
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.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, UK
21 September 2022
Condensed Consolidated Statement of Comprehensive Income
|
|
|
6 months |
6 months |
Year ended |
|
|
|
ended |
ended |
31 December |
|
|
|
30 June 2022 |
30 June 2021 |
2021 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
Note |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
Interest and similar income |
5 |
9,999 |
5,924 |
13,259 |
|
Interest and similar expenses |
6 |
(1,865) |
(871) |
(2,338) |
|
Net interest income |
|
8,134 |
5,053 |
10,921 |
|
|
|
|
|
|
|
Fee income |
|
540 |
234 |
466 |
|
Net (losses)/gains on disposal of financial assets at fair value through other comprehensive income |
(17) |
53 |
(3) |
|
|
Net losses from derivatives and other financial instruments at fair value through profit or loss 22 |
(16) |
- |
- |
|
|
Other operating income/(expense) |
|
5 |
(89) |
(81) |
|
Total operating income |
|
8,646 |
5,251 |
11,303 |
|
|
|
|
|
|
|
Staff costs |
7 |
(5,122) |
(4,781) |
(9,121) |
|
Other operating expenses |
9 |
(2,804) |
(2,657) |
(5,386) |
|
Net impairment loss on financial assets |
11 |
(704) |
(163) |
(556) |
|
Provisions |
10 |
- |
25 |
25 |
|
Total operating profit/(loss) |
|
16 |
(2,325) |
(3,735) |
|
|
|
|
|
|
|
Profit/(Loss) before taxation |
|
16 |
(2,325) |
(3,735) |
|
|
|
|
|
|
|
Taxation |
12 |
- |
- |
59 |
|
Profit/(Loss) after taxation |
|
16 |
(2,325) |
(3,676) |
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
Items that may subsequently be transferred |
|
|
|
|
|
to the income statement: |
|
|
|
|
|
|
|
|
|
|
|
FVOCI debt securities: |
|
|
|
|
|
Amounts transferred to the income statement |
|
17 |
- |
3 |
|
Fair value movements on debt securities |
|
(189) |
(89) |
(165) |
|
Total other comprehensive loss for the period, net of tax |
(172) |
(89) |
(162) |
|
|
|
|
|
|
|
|
Total comprehensive loss for the period |
|
(156) |
(2,414) |
(3,838) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
pence |
pence |
pence |
|
Basic EPS |
23 |
0 |
(1) |
(2) |
|
Diluted EPS |
23 |
0 |
(1) |
(2) |
Condensed Consolidated Statement of Financial Position
|
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
Note |
£'000 |
£'000 |
£'000 |
|
Assets |
|
|
|
|
|
Cash and balances at central banks |
|
47,586 |
- |
- |
|
Loans and advances to banks 1 |
|
20,898 |
34,904 |
29,597 |
|
Debt securities |
|
31,997 |
59,750 |
108,867 |
|
Loans and advances to customers |
13 |
305,629 |
164,841 |
247,205 |
|
Fair value adjustment for portfolio hedged risk |
|
8 |
- |
- |
|
Trade and other receivables |
14 |
1,870 |
1,427 |
1,133 |
|
Property, plant and equipment |
|
122 |
94 |
99 |
|
Right-of-use assets |
15 |
543 |
748 |
641 |
|
Intangible assets |
|
972 |
1,059 |
1,066 |
|
Total assets |
|
409,625 |
262,823 |
388,608 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Customer deposits |
18 |
304,377 |
159,988 |
296,856 |
|
Financial liabilities |
19 |
499 |
604 |
554 |
|
Derivatives held for risk management |
22 |
24 |
- |
- |
|
Trade and other payables |
|
18,557 |
14,729 |
5,067 |
|
Provisions |
10 |
75 |
129 |
73 |
|
Total liabilities |
|
323,532 |
175,450 |
302,550 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Issued share capital |
17 |
1,793 |
1,793 |
1,793 |
|
Share premium |
17 |
39,273 |
39,273 |
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 |
|
(28,911) |
(27,631) |
(28,946) |
|
Total equity |
|
86,093 |
87,373 |
86,058 |
|
|
|
|
|
|
|
Total equity and liabilities |
|
409,625 |
262,823 |
388,608 |
1 Since the Group's latest annual audited financial statements for the year ended 31 December 2021, the 'Cash and cash equivalents' line has been renamed to 'Loans and advances to banks'. In the period ended 30 June 2022, the Group now has exposures with central banks which are disclosed separately as 'Cash and balances at central banks'. Refer to note 16 for further details on the Group's cash and cash equivalents balances
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 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 |
|
|
|
|
|
|
|
|
|
|
Loss after taxation |
- |
- |
- |
- |
- |
(1,351) |
(1,351) |
|
Other comprehensive loss |
- |
- |
- |
- |
- |
(73) |
(73) |
|
Share-based payments |
- |
- |
- |
- |
- |
110 |
110 |
|
Balance at 31 December 2021 (Audited) |
1,793 |
39,273 |
94,911 |
(20,609) |
(364) |
(28,945) |
86,059 |
|
|
|
|
|
|
|
|
|
|
Profit after taxation |
- |
- |
- |
- |
- |
16 |
16 |
|
Other comprehensive loss |
- |
- |
- |
- |
- |
(172) |
(172) |
|
Share-based payments |
- |
- |
- |
- |
- |
190 |
190 |
|
Balance at 30 June 2022 (Unaudited) |
1,793 |
39,273 |
94,911 |
(20,609) |
(364) |
(28,911) |
86,093 |
Condensed Consolidated Cash Flow Statement
|
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
Note |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
Profit/(loss) before taxation |
|
16 |
(2,325) |
(3,735) |
|
Adjustments for non-cash items and other adjustments included in the income statement |
16 |
1,629 |
653 |
1,446 |
|
Increase in operating assets |
16 |
(60,775) |
(53,899) |
(136,244) |
|
Decrease in operating liabilities |
16 |
21,025 |
24,474 |
151,711 |
|
Taxation paid |
|
- |
- |
- |
|
Net cash (used in)/generated from operating activities |
|
(38,105) |
(31,097) |
13,178 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
Purchase of debt securities |
|
- |
(42,367) |
(350,980) |
|
Proceeds from sale and maturity of debt securities |
|
76,070 |
49,182 |
307,958 |
|
Interest received on debt securities |
|
603 |
- |
549 |
|
Purchase of property, plant and equipment |
|
(65) |
(199) |
(253) |
|
Purchase of intangible assets |
|
(95) |
(409) |
(586) |
|
Net cash from/(used in) investing activities |
|
76,513 |
6,207 |
(43,312) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
Issue of new shares |
17 |
- |
38,645 |
38,645 |
|
Repayment of lease liabilities |
20 |
(71) |
(84) |
(147) |
|
Net cash (used in)/from financing activities |
|
(71) |
38,561 |
38,498 |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
38,337 |
13,671 |
8,364 |
|
Cash and cash equivalents at start of the period |
16 |
29,597 |
21,233 |
21,233 |
|
Cash and cash equivalents at end of the period |
16 |
67,934 |
34,904 |
29,597 |
Notes to the Interim Financial Report
1. Basis of preparation
1.1 General information
The interim condensed consolidated financial statements of Distribution Finance Capital Holdings plc (the "Company" or "DFCH plc") include the assets, liabilities and results of its wholly owned subsidiary, DF Capital Bank Limited ("the Bank"), together form the "Group".
DFCH plc is registered and incorporated in England and Wales under company registration number 11911574. The registered office is St James' Building, 61-95 Oxford Street, Manchester, M1 6EJ. The Company's ordinary shares are admitted to trading on AIM, a market operated by the London Stock Exchange.
The principal activity of the Company is that of an investment holding company. The principal activity of the Group is as a specialist personal savings and commercial lending bank group. The Group provides niche working capital funding solutions to dealers and manufacturers across the UK, enabled by competitively priced personal savings products.
The interim report is presented in pounds sterling, which is the currency of the primary economic environment in which the Group operates, and are rounded to the nearest thousand pounds, unless stated otherwise.
1.2 Basis of accounting
The condensed consolidated set of consolidated financial statements included in this Interim Financial Report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' ('IAS 34').
The condensed set of financial statements included within this Interim Financial Report for the six months ended 30 June 2022 should be read in conjunction with the annual audited financial statements of Distribution Finance Capital Holdings plc for the year ended 31 December 2021.
The annual consolidated financial statements of Distribution Finance Capital Holdings plc are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and the UK adopted IFRS.
The condensed consolidated financial information for the six months ended 30 June 2022 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 2022 and 30 June 2021 are unaudited but has been reviewed by the Company's auditor, Deloitte LLP, and their report appears on page 14 of this Interim Financial Report. The comparative figures for the year ended 31 December 2021 are the Group's statutory accounts and have been reported on by its auditor and delivered to the Registrar of Companies. The report of the auditor on those statutory accounts was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.
1.3 Principal accounting policies
The principal accounting policies adopted in the preparation of this financial information are set out below. These policies have been applied consistently to all the financial periods presented.
1.4 Going concern
The financial statements are prepared on a going concern basis as the Directors are satisfied that the Group has adequate resources to continue operating in the foreseeable future. In making this assessment the Directors have considered the Group's current available capital and liquidity resources, the business financial projections and the outcome of stress testing. Based on this review, the Directors believe that the Group is well placed to manage its business risks successfully within the expected economic outlook. Accordingly, the Directors have adopted the going concern basis in preparing the Interim Financial statements.
1.5 Critical accounting estimates and judgements
In accordance with IFRS, the Directors of the Group are required to make judgements, estimates and assumptions in certain subjective areas whilst preparing these financial statements. The application of these accounting policies may impact the reported amounts of assets, liabilities, income and expenses and actual results may differ from these estimates.
Any estimates and underlying assumptions used within the statutory financial statements are reviewed on an ongoing basis, with revisions recognised in the period in which they are adjusted, and any future periods affected.
Further details can be found in note 3 of these financial statements on the critical accounting estimates and judgements used within these financial statements.
1.6 Foreign currencies
The financial statements are expressed in Pounds Sterling, which is the functional and presentational currency of the Group.
Transactions in foreign currencies are translated to the Group's functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign exchange differences arising on translation are recognised in the statement of income.
1.7 New accounting standards issued but not yet effective
The Group assesses on an ongoing basis the impact of new accounting standards which are not yet effective at the reporting date and the likely impact of the new accounting standard on the financial statements. At 30 June 2022, 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 2021. Changes to accounting policies, including any additional significant accounting policies applied in the current period that were not detailed in the 2021 Annual Report and Accounts, are detailed below:
2.1. Hedge accounting
The Group has entered into an interest rate swap derivative facility in order to manage risks arising from fair value changes in its loans and advances portfolio and customer deposits book. These derivatives are only utilised by the Group for interest rate risk management purposes so designates these derivatives as hedging instruments in qualifying hedge relationships.
At inception of the hedge relationship, the Bank formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the risk management objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship at inception and on an ongoing basis. In designating financial instruments as qualifying hedge relationships, the Bank has determined that it expects the hedge to be highly effective over the life of the hedging instrument. Hedge effectiveness is assessed on an ongoing basis during the period for which the hedge is designated.
Fair value hedge accounting for portfolio hedges of interest rate risk
The Group applies fair value hedge accounting for a portfolio of interest rate risk by identifying portfolios with similar repricing characteristics and whose interest rate risk it comes to hedge. The portfolios comprise either only assets or only
liabilities. The Group analyses each portfolio into repricing time periods based on expected repricing dates, by scheduling cash flows into the periods in which they are expected to occur. Using this analysis, the Group designates as the hedged item an amount of the assets or liabilities from each portfolio that it wishes to hedge.
The Group measures monthly the movements in fair value of the portfolio relating to the interest rate risk that is being hedged. Provided that the hedge has been highly effective, the Group recognises the change in fair value of each hedged item in the Income Statement with the cumulative movement in their value being shown on the statement of financial position as a separate item, 'Fair value adjustment for portfolio hedged risk', either within assets or liabilities as appropriate.
If a derivative no longer meets the criteria for hedge accounting, the cumulative fair value hedging adjustment is amortised over the period to maturity of the previously designated hedge relationship. If the underlying hedged item is sold or repaid, the unamortised fair value adjustment is recognised in the Income Statement.
2.2. Cash and cash equivalents
The accounting policy relating to the treatment of cash and cash equivalents has been treated consistently for all presented periods with the Group's latest annual audited financial statements for the year ended 31 December 2021.
Since the Group's latest annual audited financial statements for the year ended 31 December 2021, the 'Cash and cash equivalents' line on the statement of financial position has been renamed to 'Loans and advances to banks'.
In the period ended 30 June 2022, the Group now has exposures with central banks which are disclosed separately as 'Cash and balances at central banks'.
For the purposes of the statement of cash flows, cash and cash equivalents is the aggregate of cash and balances at central banks (less mandatory deposits with central banks), and loans and advances to banks with less than three months to maturity from the date of acquisition.
Both cash and balances at central banks and loans and advances to banks are classified as financial assets measured at amortised cost.
3. Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial information in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The areas involving the most complex and subjective judgements and areas where assumptions and estimates are considered to have the most significant effect on the financial statements are the same as those set out in Note 3 of the 2021 Annual Report and Accounts. A summary and updates regarding these critical accounting estimates and judgements are set out below.
3.1. Impairment losses on receivables
Impairment model assumptions
See the Group's Annual Report for the year ended 31 December 2021 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 2022, however certain assumptions have been updated to reflect changes in circumstances.
Probability of Default ("PD")
During 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 2022, the Group released the remaining COVID overlay of c£175,000 to reflect the reduction in risk given the successful vaccine roll-out. At the same time the Group introduced a model overlay of a similar quantum to reflect the significant macroeconomic uncertainties as at 30 June 2022 where these were not addressed by limitations in the impairment models used to calculate ECL.
A 100% deterioration in PDs (excluding stage 3 exposures, which are already in default) would result in an additional impairment charge of £871,000 at 30 June 2022 (30 June 2021: £734,000; 31 December 2021: £881,000).
Loss Given Default ("LGD")
The Group reviewed its LGD modelling assumptions as at 30 June 2022 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 2022.
A 10% reduction in the expected discounted cashflows from the collateral held by the Group would result in an additional impairment charge of £956,000 at 30 June 2022 (30 June 2021: £490,000; 31 December 2021: £618,000).
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.
|
Scenario |
Probability Weighting |
ECL Impairment |
ECL Coverage |
|
|
|
|
|
|
30 June 2022 (Unaudited): |
|
|
|
|
Upside |
15% |
1,098 |
0.35% |
|
Base |
60% |
1,695 |
0.55% |
|
Downside |
20% |
3,311 |
1.07% |
|
Severe downside |
5% |
5,889 |
1.90% |
|
Weighted Total |
100% |
2,138 |
0.69% |
|
Scenario |
Probability Weighting |
ECL Impairment |
ECL Coverage |
|
|
|
|
|
|
30 June 2021 (Unaudited): |
|
|
|
|
Upside |
30% |
801 |
0.48% |
|
Base |
45% |
1,179 |
0.70% |
|
Downside |
20% |
2,001 |
1.19% |
|
Severe downside |
5% |
3,131 |
1.87% |
|
Weighted Total |
100% |
1,328 |
0.79% |
|
Scenario |
Probability Weighting |
ECL Impairment |
ECL Coverage |
|
|
|
|
|
|
31 December 2021 (Audited): |
|
|
|
|
Upside |
15% |
898 |
0.36% |
|
Base |
60% |
1,315 |
0.52% |
|
Downside |
20% |
2,753 |
1.10% |
|
Severe downside |
5% |
4,868 |
1.94% |
|
Weighted Total |
100% |
1,718 |
0.68% |
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 2022 |
30 June 2021 |
31 December 2021 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
Scenario |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Upside |
(1,040) |
(862) |
(820) |
|
Base |
(443) |
(243) |
(403) |
|
Downside |
1,173 |
608 |
1,035 |
|
Severe downside |
3,751 |
1,604 |
3,150 |
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 |
9,895 |
5,922 |
13,296 |
|
|
On loans and advances to banks |
112 |
2 |
5 |
|
|
On debt securities - measured at FVOCI |
(8) |
- |
(42) |
|
|
Total interest and similar income |
9,999 |
5,924 |
13,259 |
|
6. Interest and similar expenses
|
|
6 months ended |
6 months ended |
Year ended |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
On financial liabilities not at fair value through profit or loss: |
|
|
|
|
Customer deposits |
1,873 |
871 |
2,338 |
|
|
|
|
|
|
On financial liabilities at fair value through profit or loss: |
|
|
|
|
Net interest expense on financial instruments hedging liabilities |
(8) |
- |
- |
|
Total interest and similar expenses |
1,865 |
871 |
2,338 |
7. Staff costs
|
|
6 months ended |
6 months ended |
Year ended |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Wages and salaries |
4,166 |
3,793 |
7,372 |
|
Share based payments |
190 |
252 |
362 |
|
Contractor costs |
4 |
24 |
24 |
|
Social security costs |
515 |
511 |
921 |
|
Pension costs arising on defined contribution schemes |
247 |
201 |
442 |
|
Total staff costs |
5,122 |
4,781 |
9,121 |
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 2022.
8. Share-based payments
Summary of movements in long-term incentive schemes during the period:
|
|
Options outstanding at start of period |
Options granted during the period |
Options forfeited during the period |
Options exercised during the period |
Options outstanding at end of the period |
|
Plan |
No. |
No. |
No. |
No. |
No. |
|
|
|
|
|
|
|
|
Six-month period ended 30 June 2022 |
|
|
|
|
|
|
General Award 2020 |
287,500 |
- |
(50,000) |
- |
237,500 |
|
General Award 2021 |
216,000 |
- |
(33,000) |
- |
183,000 |
|
General Award 2022 |
- |
450,000 |
(15,000) |
- |
435,000 |
|
Manager CSOP Award |
385,298 |
- |
- |
- |
385,298 |
|
Manager PSP Award |
853,334 |
- |
- |
- |
853,334 |
|
CEO Recruitment Award |
900,000 |
- |
- |
- |
900,000 |
|
Senior Manager Award 2020 |
885,000 |
- |
- |
- |
885,000 |
|
Senior Manager Award 2021 |
114,370 |
30,000 |
- |
- |
144,370 |
|
Senior Manager Award 2022 |
- |
1,365,000 |
- |
- |
1,365,000 |
|
Leader & High Performer Award 2022 |
- |
220,000 |
- |
- |
220,000 |
|
Total |
3,641,502 |
2,065,000 |
(98,000) |
- |
5,608,502 |
|
|
|
|
|
|
|
|
Year ended 31 December 2021 |
|
|
|
|
|
|
General Award 2020 |
320,000 |
- |
(32,500) |
- |
287,500 |
|
General Award 2021 |
- |
240,000 |
(24,000) |
- |
216,000 |
|
Manager CSOP Award |
385,298 |
- |
- |
- |
385,298 |
|
Manager PSP Award |
853,334 |
- |
- |
- |
853,334 |
|
CEO Recruitment Award |
900,000 |
- |
- |
- |
900,000 |
|
Senior Manager Award 2020 |
985,000 |
- |
(100,000) |
- |
885,000 |
|
Senior Manager Award 2021 |
- |
114,370 |
- |
- |
114,370 |
|
Total |
3,443,632 |
354,370 |
(156,500) |
- |
3,641,502 |
During the six-month period ended 30 June 2022, the Group granted the following to employees:
General Award
Nil cost options over 450,000 ordinary shares of 0.01 each of the current share capital of the Company were granted to all employees (excluding Directors) in May 2022. These options vest over a 3-year period and are not subject to specific performance conditions.
Senior Manager Award
Members of the Group's Executive Committee and other senior managers were granted nil-cost options over 1,365,000 ordinary shares of £0.01 each of the current share capital of the Company in May 2022. These options vest over a 3-year period and are subject to specific non-market performance conditions.
Two Directors of the Group were granted options as part of this award. Carl D'Ammassa and Gavin Morris were granted 400,000 and 200,000 shares respectively.
Leader & High Performer Award
Managers and high performers (excluding Directors) were granted nil-cost options over 220,000 ordinary shares of £0.01 each of the current share capital of the Company in May 2022. These options vest over a 3-year period and are not subject to specific performance conditions.
9. Other operating expenses
|
|
6 months ended |
6 months ended |
Year ended |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Finance costs |
10 |
6 |
19 |
|
Depreciation |
147 |
132 |
259 |
|
Amortisation of intangible assets |
189 |
144 |
314 |
|
Loss on disposal of fixed assets |
- |
2 |
3 |
|
Professional services expenses |
782 |
945 |
1,858 |
|
IT-related expenses |
889 |
821 |
1,688 |
|
Other operating expenses |
787 |
607 |
1,245 |
|
Total other operating expenses |
2,804 |
2,657 |
5,386 |
10. Provisions
Analysis for movements in other provisions:
|
|
Leasehold dilapidations |
Onerous supplier contracts |
Total |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
6 months ended 30 June 2022 (Unaudited) |
|
|
|
|
At start of period |
73 |
- |
73 |
|
Additions |
- |
- |
- |
|
Utilisation of provision |
- |
- |
- |
|
Unused amounts reversed |
- |
- |
- |
|
Unwinding of discount |
2 |
- |
2 |
|
At end of period |
75 |
- |
75 |
|
|
|
|
|
|
6 months ended 30 June 2021 (Unaudited) |
|
|
|
|
At start of period |
58 |
25 |
83 |
|
Additions |
70 |
- |
70 |
|
Utilisation of provision |
- |
(16) |
(16) |
|
Unused amounts reversed |
- |
(9) |
(9) |
|
Unwinding of discount |
1 |
- |
1 |
|
At end of period |
129 |
- |
129 |
|
|
|
|
|
|
Year ended 31 December 2021 (Audited) |
|
|
|
|
At start of period |
58 |
25 |
83 |
|
Additions |
70 |
- |
70 |
|
Utilisation of provision |
(29) |
(16) |
(45) |
|
Unused amounts reversed |
(29) |
(9) |
(38) |
|
Unwinding of discount |
3 |
- |
3 |
|
At end of period |
73 |
- |
73 |
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 |
513 |
11 |
384 |
|
Write-offs |
191 |
152 |
173 |
|
Write-back of amounts written-off |
- |
- |
(1) |
|
Total net impairment losses on financial assets |
704 |
163 |
556 |
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 2022 (30 June 2021: 19%, 31 December 2021: 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 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.
On 24 May 2021, the Government substantively enacted legislation to increase the corporation tax rate from 19% to 25% from 1 April 2023. In November 2021, the government announced that the bank surcharge would reduce from 8% to 3% from 1 April 2023, together with an increase in the surcharge annual allowance from £25m to £100m. These changes were not substantively enacted into legislation at the reporting date and so have not been reflected in these financial statements.
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 the period given the uncertainty in relation to generating future taxable profits which can be offset against unused taxable losses. As at 30 June 2022, the Group has estimated £7.3 million (30 June 2021: £7.5m, 31 December 2021: £7.3 million) of unused tax credits for which a deferred tax asset has not been recognised against.
13. Loans and advances to customers
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Gross carrying amount |
308,660 |
166,764 |
249,454 |
|
less: impairment allowance |
(2,138) |
(1,328) |
(1,718) |
|
less: effective interest rate adjustment |
(893) |
(595) |
(531) |
|
Total loans and advances to customers |
305,629 |
164,841 |
247,205 |
Refer to note 11 for further details on the impairment losses recognised in the periods.
Ageing analysis of gross loan receivables:
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
Not in default: |
|
|
|
|
Not yet past due |
304,834 |
165,856 |
247,974 |
|
Past due: 1 - 30 days |
307 |
158 |
105 |
|
Past due: 31 - 60 days |
- |
- |
834 |
|
Past due: 61 - 90 days |
- |
- |
- |
|
Past due: 90+ days |
- |
- |
- |
|
|
305,141 |
166,014 |
248,913 |
|
Defaulted: |
|
|
|
|
Impaired, not yet past due and past due 1 - 90 days |
3,463 |
588 |
377 |
|
Impaired, past due 90+ days |
56 |
162 |
164 |
|
|
3,519 |
750 |
541 |
|
|
|
|
|
|
Total gross carrying amount |
308,660 |
166,764 |
249,454 |
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 2022 (Audited) |
239,327 |
9,585 |
542 |
249,454 |
|
Transfer to Stage 1 |
1,316 |
(1,306) |
(10) |
- |
|
Transfer to Stage 2 |
(8,639) |
8,643 |
(4) |
- |
|
Transfer to Stage 3 |
(1,522) |
(2,388) |
3,910 |
- |
|
Net lending/(repayment) |
56,546 |
3,597 |
(753) |
59,390 |
|
Write-offs |
(17) |
- |
(167) |
(184) |
|
Total movement in receivables |
47,684 |
8,546 |
2,976 |
59,206 |
|
|
|
|
|
|
|
As at 30 June 2022 (Unaudited) |
287,011 |
18,131 |
3,518 |
308,660 |
|
|
|
|
|
|
|
Loss allowance coverage at 30 June 2022 |
0.41% |
0.40% |
25.07% |
0.69% |
|
|
Stage 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 receivables |
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 2021 (Audited) |
103,823 |
8,726 |
710 |
113,259 |
|
|
|
|
|
|
|
Transfer to Stage 1 |
2,038 |
(2,038) |
- |
- |
|
Transfer to Stage 2 |
(19,388) |
19,388 |
- |
- |
|
Transfer to Stage 3 |
(134) |
(569) |
703 |
- |
|
Net lending/(repayment) |
152,993 |
(15,922) |
(778) |
136,293 |
|
Write-offs |
(5) |
- |
(93) |
(98) |
|
Total movement in receivables |
135,504 |
859 |
(168) |
136,195 |
|
|
|
|
|
|
|
As at 31 December 2021 (Audited) |
239,327 |
9,585 |
542 |
249,454 |
|
|
|
|
|
|
|
Loss allowance coverage at 31 December 2021 |
0.48% |
1.62% |
77.68% |
0.69% |
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 2022 (Audited) |
1,142 |
155 |
421 |
1,718 |
|
|
|
|
|
|
|
Transfer to Stage 1 |
18 |
(17) |
(1) |
- |
|
Transfer to Stage 2 |
(60) |
60 |
- |
- |
|
Transfer to Stage 3 |
(10) |
(43) |
53 |
- |
|
Remeasurement of impairment allowance |
- |
64 |
624 |
688 |
|
Net lending/(repayment) |
93 |
(146) |
(48) |
(101) |
|
Write-offs |
- |
- |
(167) |
(167) |
|
Total movement in loss allowance |
41 |
(82) |
461 |
420 |
|
|
|
|
|
|
|
As at 30 June 2022 (Unaudited) |
1,183 |
73 |
882 |
2,138 |
|
|
Stage 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 2021 (Audited) |
645 |
49 |
594 |
1,288 |
|
|
|
|
|
|
|
Transfer to Stage 1 |
20 |
(20) |
- |
- |
|
Transfer to Stage 2 |
(139) |
139 |
- |
- |
|
Transfer to Stage 3 |
- |
(1) |
1 |
- |
|
Remeasurement of impairment allowance |
(13) |
93 |
77 |
157 |
|
Net lending/(repayment) |
629 |
(105) |
(175) |
349 |
|
Write-offs |
- |
- |
(76) |
(76) |
|
Total movement in loss allowance |
497 |
106 |
(173) |
430 |
|
|
|
|
|
|
|
As at 31 December 2021 (Audited) |
1,142 |
155 |
421 |
1,718 |
14. Trade and other receivables
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Trade receivables |
919 |
356 |
355 |
|
Impairment allowance |
(168) |
(93) |
(75) |
|
|
751 |
263 |
280 |
|
|
|
|
|
|
Other debtors |
271 |
309 |
278 |
|
Taxation asset |
59 |
- |
59 |
|
Accrued income |
33 |
118 |
192 |
|
Prepayments |
756 |
737 |
324 |
|
|
1,119 |
1,164 |
853 |
|
|
|
|
|
|
Total trade and other receivables |
1,870 |
1,427 |
1,133 |
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 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Not in default: |
|
|
|
|
Not yet past due |
617 |
246 |
276 |
|
Past due: 1 - 30 days |
149 |
23 |
7 |
|
Past due: 31 - 60 days |
1 |
- |
1 |
|
Past due: 61 - 90 days |
1 |
1 |
- |
|
Past due: 90+ days |
- |
- |
- |
|
|
768 |
270 |
284 |
|
Defaulted: |
|
|
|
|
Impaired, not yet past due and past due 1 - 90 days |
49 |
19 |
10 |
|
Impaired, past due 90+ days |
102 |
67 |
61 |
|
|
151 |
86 |
71 |
|
|
|
|
|
|
Total trade receivables |
919 |
356 |
355 |
Analysis of movement of impairment losses on trade receivables:
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Balance as at 1 January |
75 |
121 |
121 |
|
|
|
|
|
|
Amounts written off |
(4) |
(21) |
(26) |
|
Amounts recovered |
- |
- |
- |
|
Change in loss allowance due to new trade and other receivables originated net of those derecognised due to settlement |
97 |
(7) |
(20) |
|
|
|
|
|
|
Balance as at 31 December |
168 |
93 |
75 |
15. Right-of-use assets
|
|
Buildings |
|
|
£'000 |
|
|
|
|
Cost |
|
|
31 December 2020 |
407 |
|
Additions |
787 |
|
Disposals |
- |
|
Lease modifications |
(30) |
|
As at 30 June 2021 |
1,164 |
|
Additions |
2 |
|
Disposals |
- |
|
Lease modifications |
(28) |
|
As at 31 December 2021 |
1,138 |
|
Additions |
1 |
|
Disposals |
- |
|
Lease modifications |
6 |
|
As at 30 June 2022 |
1,145 |
|
|
|
|
Accumulated depreciation |
|
|
31 December 2020 |
343 |
|
Charge for the year |
73 |
|
Eliminated on disposals |
- |
|
As at 30 June 2021 |
416 |
|
Charge for the year |
81 |
|
Eliminated on disposals |
- |
|
As at 31 December 2021 |
497 |
|
Charge for the year |
105 |
|
Eliminated on disposals |
- |
|
As at 30 June 2022 |
602 |
|
|
|
|
Carrying amount |
|
|
At 30 June 2021 |
748 |
|
At 31 December 2021 |
641 |
|
At 30 June 2022 |
543 |
16. Notes to the cash flow statement
Cash and cash equivalents:
For the purpose of the statement of cash flows, cash and cash equivalents comprise cash on demand and overnight deposits classified as cash and balances at central banks (unless restricted) and balances within loans and advances to banks. The following balances have been identified as being cash and cash equivalents:
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Cash and balances at central banks |
47,586 |
- |
- |
|
Loans and advances to banks |
20,348 |
34,904 |
29,597 |
|
Total cash and cash equivalents |
67,934 |
34,904 |
29,597 |
Adjustments for non-cash items and other adjustments included in the income statement:
|
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
Note |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
Depreciation of property, plant and equipment |
9 |
42 |
59 |
105 |
|
Depreciation of right-of-use assets |
9 |
105 |
73 |
154 |
|
Loss on disposal of property, plant and equipment |
9 |
- |
2 |
3 |
|
Amortisation of intangible assets |
9 |
189 |
144 |
314 |
|
Loss on disposal of intangible assets |
9 |
0 |
- |
- |
|
Share based payments |
7 |
190 |
252 |
362 |
|
Impairment allowances on receivables |
11 |
704 |
163 |
556 |
|
Movement in other provisions |
10 |
0 |
46 |
(10) |
|
Interest income on debt securities |
5 |
8 |
(53) |
42 |
|
Realised loss on debt securities |
|
17 |
- |
- |
|
Finance costs |
9 |
10 |
6 |
19 |
|
Unwind of discount |
10 |
2 |
- |
3 |
|
Interest in suspense |
|
362 |
(39) |
(102) |
|
Total non-cash items and other adjustments |
|
1,629 |
653 |
1,446 |
Net change in operating assets:
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Increase in loans and advances to customers |
58,968 |
53,646 |
136,202 |
|
Increase in other assets |
1,807 |
253 |
42 |
|
Increase in operating assets |
60,775 |
53,899 |
136,244 |
Net change in operating liabilities:
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Increase in customer deposits |
7,521 |
14,006 |
150,874 |
|
Increase in other liabilities |
13,488 |
10,468 |
837 |
|
Fair value adjustments for portfolio hedged risk |
(8) |
- |
- |
|
Increase in derivative financial liabilities |
24 |
- |
- |
|
Increase in operating liabilities |
21,025 |
24,474 |
151,711 |
17. Equity
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
No. |
No. |
No. |
£'000 |
£'000 |
£'000 |
|
Authorised: |
|
|
|
|
|
|
|
Ordinary shares of 1p each |
179,369,199 |
179,369,199 |
179,369,199 |
1,793 |
1,793 |
1,793 |
|
Allotted, issued and fully paid: Ordinary shares of 1p each |
179,369,199 |
179,369,199 |
179,369,199 |
1,793 |
1,793 |
1,793 |
Analysis of the movements in share capital:
|
|
Date |
No. of shares |
Issue Price |
Share Capital |
Share Premium |
Merger Relief |
Total |
|
|
|
# |
£ |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2021 (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 |
|
|
|
|
|
|
|
|
|
|
|
No transactions within the period |
- |
- |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2021 (Audited) |
179,369,199 |
|
1,793 |
39,273 |
94,911 |
135,977 |
|
|
|
|
|
|
|
|
|
|
|
No transactions within the period |
- |
- |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
Balance at 30 June 2022 (Unaudited) |
179,369,199 |
|
1,793 |
39,273 |
94,911 |
135,977 |
|
Own shares:
Own shares represent 2,963,283 (30 June 2021: 2,963,283; 31 December 2021: 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 2022 was £1,037,149 (30 June 2021: £1,807,603; 31 December 2021: £1,452,009).
18. Customer deposits
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Retail deposits |
304,377 |
159,988 |
296,856 |
|
Total customer deposits |
304,377 |
159,988 |
296,856 |
|
|
|
|
|
|
Amounts repayable within one year |
273,445 |
92,747 |
249,930 |
|
Amounts repayable after one year |
30,932 |
67,241 |
46,926 |
|
|
304,377 |
159,988 |
296,856 |
19. Financial liabilities
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Lease liabilities |
449 |
554 |
504 |
|
Preference Shares |
50 |
50 |
50 |
|
Total financial liabilities |
499 |
604 |
554 |
Lease liabilities:
Refer to note 20 for further details on movements of lease liabilities during the six-month period ended 30 June 2022.
20. Lease liabilities
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Current |
118 |
109 |
109 |
|
Non-current |
331 |
445 |
395 |
|
Total lease liabilities |
449 |
554 |
504 |
The maturity analysis of lease liabilities is as follows:
|
|
30 June 2022 |
|
|
£'000 |
|
Maturity Analysis: |
|
|
6 months to 31 December 2022 |
65 |
|
1 year to 31 December 2023 |
161 |
|
1 year to 31 December 2024 |
184 |
|
1 year to 31 December 2025 |
79 |
|
After 31 December 2025 |
- |
|
Total lease payments |
489 |
|
|
|
|
Finance charges |
(40) |
|
Lease liabilities |
449 |
Movements in lease liabilities in the period:
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
At period start |
504 |
57 |
57 |
|
Additions |
- |
605 |
604 |
|
Repayments |
(71) |
(84) |
(147) |
|
Finance costs |
10 |
6 |
19 |
|
Lease modification |
6 |
(30) |
(29) |
|
At period end |
449 |
554 |
504 |
21. 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 2022 (Unaudited) |
|
|
|
|
|
|
Financial assets not measured at fair value |
|
|
|
|
|
|
Loans and advances to customers |
305,629 |
305,629 |
- |
- |
305,629 |
|
Trade receivables |
751 |
751 |
- |
- |
751 |
|
Other receivables |
330 |
330 |
- |
- |
330 |
|
Cash and balances at central banks |
47,586 |
47,586 |
47,586 |
- |
- |
|
Loans and advances to banks |
20,898 |
20,898 |
20,898 |
- |
- |
|
Total financial assets |
375,194 |
375,194 |
68,484 |
- |
306,710 |
|
|
|
|
|
|
|
|
30 June 2022 (Unaudited) |
|
|
|
|
|
|
Financial liabilities not measured at fair value |
|
|
|
|
|
|
Preference shares |
50 |
50 |
- |
- |
50 |
|
Customer deposits |
304,377 |
303,640 |
- |
- |
303,640 |
|
Other financial liabilities |
449 |
449 |
- |
- |
449 |
|
Trade payables |
172 |
172 |
- |
- |
172 |
|
Other payables |
16,882 |
16,882 |
- |
- |
16,882 |
|
Total financial liabilities |
321,930 |
321,193 |
- |
- |
321,193 |
|
|
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 |
|
Loans and advances to banks |
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 |
|
|
|
|
|
|
|
|
31 December 2021 (Audited) |
|
|
|
|
|
|
Financial assets not measured at fair value |
|
|
|
|
|
|
Loans and advances to customers |
247,205 |
247,205 |
- |
- |
247,205 |
|
Trade receivables |
280 |
280 |
- |
- |
280 |
|
Other receivables |
337 |
337 |
- |
- |
337 |
|
Loans and advances to banks |
29,597 |
29,597 |
29,597 |
- |
- |
|
Total financial assets |
277,419 |
277,419 |
29,597 |
- |
247,822 |
|
|
|
|
|
|
|
|
31 December 2021 (Audited) |
|
|
|
|
|
|
Financial liabilities not measured at fair value |
|
|
|
|
|
|
Preference shares |
50 |
50 |
- |
- |
50 |
|
Customer deposits |
296,856 |
296,856 |
- |
- |
296,856 |
|
Other financial liabilities |
504 |
504 |
- |
- |
504 |
|
Trade payables |
282 |
282 |
- |
- |
282 |
|
Other payables |
2,753 |
2,753 |
- |
- |
2,753 |
|
Total financial liabilities |
300,445 |
300,445 |
- |
- |
300,445 |
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 and instant 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 2022 (Unaudited) |
|
|
|
|
Financial assets measured at fair value |
|
|
|
|
Debt securities |
31,997 |
- |
- |
|
Total financial assets |
31,997 |
- |
- |
|
|
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 |
|
|
|
|
|
|
31 December 2021 (Audited) |
|
|
|
|
Financial assets measured at fair value |
|
|
|
|
Debt securities |
108,867 |
- |
- |
|
Total financial assets |
108,867 |
- |
- |
Debt securities
The debt securities carried at fair value by the Company are treasury bills and government gilts. Treasury bills and government gilts are traded in active markets and fair values are based on quoted market prices.
There were no transfers between levels during the periods, all debt securities have been measured at level 1 from acquisition.
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 2021 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 2021 for further details of the Group's approach to credit risk management and impairment provisioning.
Collateral held as security:
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Fully collateralised |
|
|
|
|
Loan-to-value* ratio: |
|
|
|
|
Less than 50% |
3,955 |
3,704 |
1,698 |
|
51% to 70% |
20,957 |
7,539 |
13,106 |
|
71% to 80% |
34,002 |
24,364 |
29,724 |
|
81% to 90% |
36,212 |
17,956 |
29,302 |
|
91% to 100% |
213,203 |
112,139 |
175,125 |
|
Total collateralised lending |
308,329 |
165,702 |
248,955 |
|
|
|
|
|
|
|
|
|
|
|
Partially collateralised lending |
- |
9 |
- |
|
|
|
|
|
|
Unsecured lending |
331 |
1,053 |
499 |
* Calculated using wholesale collateral values. Wholesale collateral values represent the invoice total (including applicable VAT) from the invoice received from the supplier of the product. The wholesale amount is less than the recommended retail price (RRP) of the product.
The Group's lending activities are asset based so it expects that the majority of its exposure is secured by the collateral value of the asset that has been funded under the loan agreement. The Group has title to the collateral which is funded under loan agreements. The collateral includes boats, motorcycles, recreational vehicles, caravans, light commercial vehicles, industrial and agricultural equipment. The collateral has low depreciation and is not subject to rapid technological changes or redundancy. There has been no change in the Group's assessment of collateral and its underlying value in the reporting period.
The assets are generally in the counterparty's possession, but this is controlled and managed by the asset audit process. The audit process checks on a periodic basis that the asset is in the counterparty's possession and has not been sold out of trust or is otherwise not in the counterparty's control. The frequency of the audits is initially determined by the risk rating assessed at the time that the borrowing facility is first approved and is assessed on an ongoing basis.
Additional security may also be taken to further secure the counterparty's obligations and further mitigate risk. Further to this, in many cases, the Group is often granted, by the counterparty, an option to sell-back the underlying collateral.
Based on the Group's current principal products, the counterparty repays its obligation under a loan agreement with the Group at or before the point that it sells the asset. If the asset is not sold and the loan agreement reaches maturity, the counterparty is required to pay the amount due under the loan agreement plus any other amounts due. In the event that the counterparty does not pay on the due date, the Group's customer management process will maintain frequent contact with the counterparty to establish the reason for the delay and agree a timescale for payment. Senior Management will review actions on a regular basis to ensure that the Group's position is not being prejudiced by delays.
In the event the Group determines that payment will not be made voluntarily, it will enforce the terms of its loan agreement and recover the asset, initiating legal proceedings for delivery, if necessary. If there is a shortfall between the net sales proceeds from the sale of the asset and the counterparty's obligations under the loan agreement, the shortfall is payable by the counterparty on demand.
Concentration of credit risk:
The Group maintains policies and procedures to manage concentrations of credit at the counterparty level and industry level to achieve a diversified loan portfolio. The Group's gross receivable balance for loans and advances to customers is split by industry as follows:
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|||
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
|||
|
|
£'000 |
% |
£'000 |
% |
£'000 |
% |
|
|
|
|
|
|
|
|
|
Lodges and holiday homes |
94,696 |
31% |
40,977 |
25% |
59,936 |
24% |
|
Motorhomes and caravans |
58,103 |
19% |
34,152 |
20% |
47,660 |
19% |
|
Transport |
54,489 |
18% |
31,708 |
19% |
56,283 |
23% |
|
Marine |
36,786 |
12% |
24,060 |
14% |
37,061 |
15% |
|
Industrial equipment |
27,561 |
9% |
17,949 |
11% |
25,842 |
10% |
|
Motor vehicles |
17,490 |
6% |
12,940 |
8% |
13,197 |
5% |
|
Agricultural equipment |
19,535 |
6% |
4,978 |
3% |
9,475 |
4% |
|
Total gross receivables |
308,660 |
100% |
166,764 |
100% |
249,454 |
100% |
Credit quality of borrowers:
An analysis of the Group's credit risk exposure for loan and advances per class of financial asset, internal rating and "stage" is provided in the following tables. Refer to the audited financial statements of the Group for the year ended 31 December 2021 for description of the meanings of Stages 1, 2 and 3.
|
30 June 2022 (Unaudited) |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
Credit rating |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
Above average (Risk rating 1-2) |
188,489 |
- |
- |
188,489 |
|
Average (Risk rating 3-5) |
72,424 |
17,279 |
710 |
90,413 |
|
Below average (Risk rating 6+) |
26,098 |
852 |
2,808 |
29,758 |
|
Gross carrying amount |
287,011 |
18,131 |
3,518 |
308,660 |
|
|
|
|
|
|
|
Loss allowance |
(1,183) |
(73) |
(882) |
(2,138) |
|
Carrying amount |
285,828 |
18,058 |
2,636 |
306,522 |
|
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 |
|
31 December 2021 (Audited) |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
Credit rating |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
Above average (Risk rating 1-2) |
142,119 |
- |
- |
142,119 |
|
Average (Risk rating 3-5) |
77,286 |
8,758 |
- |
86,044 |
|
Below average (Risk rating 6+) |
19,922 |
827 |
542 |
21,291 |
|
Gross carrying amount |
239,327 |
9,585 |
542 |
249,454 |
|
|
|
|
|
|
|
Loss allowance |
(1,142) |
(155) |
(421) |
(1,718) |
|
Carrying amount |
238,185 |
9,430 |
121 |
247,736 |
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 2022 |
30 June 2021 |
31 December 2021 |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Status at balance sheet date |
|
|
|
|
Not past due, nor impaired |
617 |
246 |
276 |
|
Past due but not impaired |
151 |
24 |
8 |
|
Impaired |
151 |
86 |
71 |
|
Total gross carrying amount |
919 |
356 |
355 |
|
|
|
|
|
|
Loss allowance |
(168) |
(93) |
(75) |
|
Carrying amount |
751 |
263 |
280 |
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 2021 for further details of the Group's approach to liquidity risk management.
Market risk
Market risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, credit spreads, equity prices and commodity prices will reduce the Group's income or the value of its assets.
The principal market risk to which the Group is exposed is interest rate risk.
The Group's treasury function is responsible for managing the Group's exposure to all aspects of market risk within the operational limits set out in the Group's treasury policies, with the overall objective of managing market risk in line with the Group's risk appetite. The Asset and Liability Committee approves the Group's treasury policies and receives regular reports on all aspects of market risk exposure, including interest rate risk.
During the six-month period to 30 June 2022 the Group has incepted interest rate swaps for interest rate risk management purposes in order to minimise the impact of movements in interest rates.
Refer to the audited financial statement of the Group for the year ended 31 December 2021 for further details of the Group's approach to market risk management.
22. Derivative financial instruments and hedge accounting
Derivative financial instruments
Derivative financial instruments are used by the Group for risk management purposes in order to minimise or eliminate the impact of movements in interest rates and foreign exchange rates. Derivatives are not used for trading or speculative purposes.
The following table analyses the Group's derivative financial instruments by instrument type and specifies whether the instruments are designated as hedging instruments in qualifying hedging relationships:
|
|
30 June 2022 |
30 June 2021 |
31 December 2021 |
|||
|
|
Assets |
Liabilities |
Assets |
Liabilities |
Assets |
Liabilities |
|
Instrument type |
|
|
|
|
|
|
|
Interest rate swaps - in hedging relationship |
- |
24 |
- |
- |
- |
- |
|
Total derivative financial instruments |
- |
24 |
- |
- |
- |
- |
Interest rate swaps are used to manage interest rate risk associated with the Group's customer deposits portfolio. As at 30 June 2022, the Group did not hedge against the Group's loan and advances to customers portfolio.
The tables below summarise the derivatives designated as hedging instruments in qualifying portfolio hedges of interest rate risk:
|
|
Nominal amount of the hedging instruments |
Carrying amount of the hedging instruments |
Line item in the statement of financial position where the hedging instrument is located |
Changes in fair value used for calculating hedge ineffectiveness |
|
|
|
30 June 2022 (unaudited) |
30 June 2022 (unaudited) |
30 June 2022 (unaudited) |
||
|
Fair value hedges |
£'000 |
Assets |
Liabilities |
£'000 |
|
|
Interest rate swaps |
5,000 |
- |
24 |
Derivatives held for risk management |
(16) |
|
Total |
5,000 |
- |
24 |
|
(16) |
The Group did not have exposure to derivative financial instruments in the periods ending 30 June 2021 and 31 December 2021.
At the period ended 30 June 2022, the Group executed only one derivative transaction. The interest rate swap transaction has a £5 million notional amount, which was executed in March 2022 with a 1-year term so is due to mature in March 2023. The interest rate swap is being used to hedge against interest rate risk on the Group's customer deposits balances.
23. Earnings per share
|
|
6 months ended |
6 months ended |
Year ended |
|
|
|
|
|
|
Number of shares |
# |
# |
# |
|
At period end |
179,369,199 |
179,369,199 |
179,369,199 |
|
Basic |
|
|
|
|
Weighted average number of shares in issue during period |
179,369,199 |
158,475,176 |
168,808,800 |
|
Diluted |
|
|
|
|
Effect of weighted average number of options outstanding for the period |
- |
- |
- |
|
Diluted weighted average number of shares and options for the period |
179,369,199 |
158,475,176 |
168,808,800 |
|
|
|
|
|
|
Earnings attributable to ordinary shareholders |
£'000 |
£'000 |
£'000 |
|
Profit/(Loss) after tax attributable to the shareholders |
16 |
(2,325) |
(3,676) |
|
|
|
|
|
|
Earnings per share |
pence |
pence |
pence |
|
Basic |
0 |
(1) |
(2) |
|
Diluted |
0 |
(1) |
(2) |
24. Related party disclosures
In the six-month period ended 30 June 2022, Directors Carl D'Ammassa and Gavin Morris were awarded share options as a long-term incentive plan, refer to note 8 for further details.
Otherwise, during the six months period ended 30 June 2022, 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 2021.
25. Subsequent events
There have been no significant events between 30 June 2022 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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