Interim Financial Results

Lendinvest PLC

19 December 2023

 

19 December 2023

LendInvest plc

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2023

LendInvest plc (LSE: LINV; "LendInvest", the "Company" or the "Group") is a leading platform for mortgages in the UK. The LendInvest Mortgages Division provides mortgages to both professional Buy-to-Let landlords and Homeowners as well as a range of Bridging loans. The LendInvest Capital Division provides larger, more structured finance primarily to property developers.  

Today it announces its unaudited results for the six months ended 30 September 2023.

Key features:

●     Net assets at 30 September were £67.5m (31 March 2023: £76.5m). Due to actions taken to strengthen the balance sheet, cash and cash equivalents has increased to £88.0m (31 March 2023: £46.7m)

●   Funds under Management increased by 21% year on year to £4,167.4m (2022: £3,442.1m) with new forward flow arrangements in H1 FY24 of £0.7bn

●     Assets under management increased by 11% year on year to £2,695.1m (2022: £2,431.1m)

●     New lending was 28% lower than the prior year at £415.2m (2022: £575.0m) due to market volatility and limited funding available during the period for new lending in the Capital Division

●     First half loss before tax of £15.1m (2022: profit before tax of £14.8m) reflecting the following:

o  Net interest income £17.7m lower due to reduction in income generating assets on the balance sheet and a reduction in new lending. Prior year comparative includes a £9.2 million gain from the exercise of the call option in our first securitisation, Mortimer 2019-1 BTL plc

o  Net gains on derecognition of financial assets in the period were £0.1m (2022: £3.8m). This includes a net loss of £10.7m realised on the loan book sale to Chetwood Financial Limited. The transaction was completed to strengthen the balance sheet and de-risk the business by reducing dilution of future net interest margin and by reducing group debt

o  Impairment charge increased to £7.1m (2022: £1.9m). This primarily reflects accelerated management of recoveries coupled with an increase in expected credit losses on a small number of larger stage 3 Capital Division loans

o  Administrative expenses increased to £21.1m (2022: £17.1m), driven by a c£0.9m increase in non-cash costs, c£0.9m of non-trading professional advisory costs and an increase in the average headcount compared to prior period.

o  To address this, post period-end the business has restructured its people-related costs, reducing headcount by over 27%. This will reduce current payroll costs by c£5m per annum and, coupled with other cost savings, is expected to reduce administrative expenses to a level similar to those reported in FY23

●     The Board is not recommending the payment of an interim dividend but this position will be reviewed at the year end

Unaudited	6 months ended 30 September 2023	6 months ended 30 September 2022	Change
Funds under management (FuM) (£'m)	4,167.4	3,442.1	21%
Assets under management (AuM) (£'m)	2,695.1	2,431.1	11%
Proportion of AuM on balance sheet	31%	50%	-19pps
New lending (£'m)	415.2	575.0	-28%
Net operating income (£'m)	13.1	33.8	-61%
(Loss) profit before tax (£'m)	(15.1)	14.8	-203%
Net assets (£'m)	67.5	60.2	12%

Strategy overview

The market backdrop has been challenging this year and, against this backdrop, it was deemed appropriate to focus heavily on the fundamentals of strengthening the balance sheet and financial position of the business.

This has resulted in a substantial 88% increase in cash reserves since the last year end; it has delivered a material reduction in the balance sheet credit risk profile, with the proportion of loan assets held on the balance sheet reducing by 19pps to 31%; and funding facilities have also been increased and extended. This has included £700m of new forward flow capacity and, post period end, a refinance of the maturing retail bond, with a reduction in the parent guarantee, coupled with the largest BTL securitisation in the company's history.

However, this has required some difficult decisions that have impacted the results. The disposal of a c£250m low margin loan portfolio resulted in a substantial loss. And a robust approach to debt recovery has boosted cash but has led to a much higher impairment charge. Post period end, the business has also completed a major restructuring exercise, which will contribute to a material reduction in the cost base going forward.

Having strengthened the balance sheet and reduced the cost base, the focus is now on growing new lending and returning the business to profitability. We are confident that the business has strong foundations on which to build, and there are signs that the market backdrop will be more positive in the 2024 calendar year. Performance in the second half of FY24 is also expected to benefit from a sale of the residual interests in the most recent RMBS securitisation, which is in progress, and is expected to generate a pre-tax profit of at least £10m.

Rod Lockhart, Chief Executive of LendInvest, commented:

"After a challenging first half, management is focused on accelerating new lending and returning the business to profitability. The core strengths of our business remain strong and we're beginning to see encouraging signs of improvement in the broader market landscape. Combined with the tough but necessary measures we've implemented to streamline costs; these factors are positioning us well to return to profitability in the 2025 financial year."

Other strategic highlights

●    Successful launch of Residential Mortgages product, and LendInvest Mortgages and LendInvest Capital divisions to better align to our product suite and our customer base

●   Our strong reputation for quality products and excellent customer service continued, reflected by our Trustpilot rating of 4.5

●   Welcomed BNP Paribas to a £300 million funding syndicate with HSBC and Barclays to fund the business's short-term mortgages

●   Wells Fargo joined a £200 million financing syndicate with National Australia Bank (NAB) to support the continued growth of our Buy-to-Let proposition

●    Secured £500 million in funding from Chetwood Finance Limited to strengthen our Residential Mortgages and Buy-to-Let product offering

●    Issued our fourth listed bond from our second Euro Medium Term Note programme, the LendInvest Secured Income II plc bonds due 2027, raising £40 million

●   Completed fifth and largest oversubscribed RMBS transaction of £410m prime Buy-to-Let mortgages ("Mortimer BTL 2023-1 plc") in November, receiving the tightest pricing on a BTL RMBS transaction in the last six months

Analysts and investors presentation: 9.00am on Tuesday 19 December 2023

A webcast for analysts and investors will be hosted by Rod Lockhart, Chief Executive Officer, and David Broadbent, Chief Financial Officer at 9.00am today, Tuesday 19 December 2023. A playback facility will also be available in due course. To access the webcast, please register here

Enquiries:                 

LendInvest via Teneo Rod Lockhart, Chief Executive Officer David Broadbent, Chief Financial Officer Leigh Rimmer, Head of Communications [e-mail]	[phone]
Panmure Gordon (NOMAD and Joint Broker)                               Atholl Tweedie / David Watkins	[phone]
Cavendish (Joint Broker)                                                               Jonny Franklin-Adams / Tim Redfern	[phone]
Teneo (Financial PR)                                               Tom Murray / Ed Cropley / Olivia Lucas	[phone]

Important notices

The information contained within this announcement is deemed by LendInvest to constitute inside
information as stipulated under the UK Market Abuse Regulation. By the publication of this announcement via
a Regulatory Information Service, this inside information is now considered to be in the public domain. The
person responsible for arranging for the release of this announcement on behalf of LendInvest is Rod Lockhart.

Forward-looking statements

Certain statements in this announcement are forward-looking statements. In some cases, these forward looking statements can be identified by the use of forward looking terminology including the terms "anticipate", "believe", "intend", "estimate", "expect", "may", "will", "seek", "continue", "aim", "target", "projected", "plan", "goal", "achieve" and words of similar meaning or in each case, their negative, or other variations or comparable terminology. Forward-looking statements are based on current expectations and assumptions and are subject to a number of known and unknown risks, uncertainties and other important factors that could cause results or events to differ material from what is expressed or implied by those statements. Many factors may cause actual results, performance or achievements of LendInvest to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause actual results, performance or achievements of LendInvest to differ materially from the expectations of LendInvest, include, among other things, general business and economic conditions globally, industry trends, competition, changes in government and changes in regulation and policy, changes in its business strategy, political and economic uncertainty and other factors. As such, undue reliance should not be placed on forward-looking statements. Any forward-looking statement is based on information available to LendInvest as of the date of the statement. All written or oral forward-looking statements attributable to LendInvest are qualified by this caution. Other than in accordance with legal and regulatory obligations, LendInvest undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Nothing in this announcement should be regarded as a profit forecast. 

Operating review

Market backdrop

Since our last results announcement we have seen further increases in base rates and lower levels of mortgage approvals and property market transactions. Swap rates, which are effectively used to price fixed mortgages, continue to be volatile, with markets reacting to major macro events including military conflict, economic data, political uncertainty and bank failures.

When swap rates change, lenders need to change the pricing of the product range that they offer to the market. This volatility creates operational friction making it more challenging to maintain a consistent competitively priced product range in the market.

Alongside this, the cost of mortgages for borrowers has increased substantially over the last 2 years and house prices have been falling. This has had an impact on the overall volume of property transactions and it is estimated by UK Finance that BTL market activity has contracted by approximately 50% over the last 12 months.

The construction sector also remains challenged, with an increase in insolvencies and property developers suffering from both increased borrowing costs and inflationary pressures on both wages and materials. As a result, appetite for development finance is reduced, live developments are taking longer to complete and expected developers' returns are being impacted.

Despite these factors, expected credit losses on our BTL lending remain consistently low. Also, notwithstanding the increase in expected credit losses in the period, the lifetime credit losses on the overall portfolio remain in line with expectations. Also, the credit risk profile of the Group is improving as the proportion of AuM held on the Group's balance sheet continues to reduce.

Since the period end, we have seen potential early signs of a more positive outlook. Swap rates have fallen and improving capital market sentiment has been reflected in both the pricing and over-subscription of our recent RMBS securitisation. We are seeing a pick-up in BTL mortgage loan applications and there is the possibility that base rates may be approaching, or have potentially reached, their peak; and it would appear that the fall in residential house prices may not be as severe as originally thought.

Strategy execution

The market backdrop negatively impacted the performance of the business. However, the business has core fundamental strengths that enables it to navigate the market backdrop, which will be key to returning the business to profitability and sustainable profit growth thereafter.

Continuing to grow and diversify FuM

The business has a strong track record of securing funding from a diverse range of high-quality investors and institutions, which has underpinned continued growth in FuM. The different types of funding, including forward flow arrangements, allows the business to be agile from a product and pricing perspective, enabling it to remain in the market, whilst others with less flexible funding have had to periodically withdraw.

During the first half, the strength of our capital markets operations has been shown with total Funds under Management at 30 September 2023, including committed forward flow arrangements, increasing by c£562m to £4.17bn, a 21% increase on H1 FY23. 

Unaudited	30 September 2023 £'m	31 March 2023 £'m	Growth (%)	30 September 2022 (£'m)	Growth (%)
Funds under Management ("FuM")	4,167.4	3,605.9	+16%	3,442.1	+21%

This increase primarily reflects the previously announced £500m forward-flow agreement with Chetwood Financial Limited for BTL lending, and a further £200m of forward-flow commitments in respect of short-term mortgages.

FuM includes £55m of retail bonds, which matured on 6 October 2023 and carried a coupon of 5.375%. These bonds were refinanced by a new issue of £60m retail bonds. Of the new issuance, c.£20m are currently held in treasury and are included in FuM. The new bonds carry a coupon of 11.5%.

Subsequent to the period end, the business successfully completed its fifth public market securitisation transaction in respect of a £410m BTL loan portfolio. This is the largest securitisation completed by the business to date and received the tightest pricing on a BTL RMBS transaction in the previous six months. This transaction generated a cash inflow of c£34m. Due to the size of the transaction, the business intends to reduce the current surplus capacity in its warehouse facilities for BTL lending by c£355m, thereby reducing ongoing commitment fees.

A potential sale of the residual interests in the securitisation is in progress.

Strengthening the balance sheet

The business has well-embedded processes for product pricing to ensure that our lending delivers an appropriate risk-adjusted margin for each specific product line, which considers the cost of the relevant funding line, interest rate swaps and expected credit losses. Products that carry higher credit risk carry a consequently higher risk-adjusted margin. This pricing strategy reflects our service-led proposition, which is based on speed, agility and flexibility, all supported by our market-leading technology platform. The pricing is not set to achieve a certain market share; nor does the business write unprofitable business as a loss-leader in the expectation that those customers move onto a more profitable product in the future or revert onto a more favourable variable rate.

A core part of the strategy is to minimise the amount of credit risk exposure by maximising the amount of lending originated on behalf of and managed for third parties. We believe that this part of the strategy is particularly important at a time when the market conditions remain difficult. Significant progress has been made in this respect, with balance sheet exposures reducing substantially in the first half.

In this context, total Assets under Management at 30 September 2023 were £2.7bn, which represents a £108m increase since the financial year ended 31 March 2023 ('FY23') and an 11% increase on H1 FY23.

Unaudited	30 September 2023	31 March 2023	Growth (%)	30 September 2022	Growth (%)
Assets under Management ("AuM") (£'m)	2,695.1	2,587.0	+4%	2,431.1	+11%
On balance sheet (£'m)	822.4	1,168.5	-30%	1,213.2	-32%
Off balance sheet (£'m)	1,872.7	1,418.5	+32%	1,217.9	+54%
Proportion of assets on balance sheet	31%	45%	-14pps	50%	-19pps

The forward-flow agreements noted above are a key part of the Group's strategy of becoming more 'capital-lite'. As a result, the proportion of AuM held on the balance sheet has fallen further from 45% at the end of FY23 to 31% at the end of September 2023 (H1 FY23: 50%). The main drivers of that reduction were:

●    The sale in April of the non-risk retention residual economic interest in the Mortimer BTL 2021-1 plc securitisation for a cash consideration of £8.6m. This transaction resulted in a reduction in the Group's gross loans and advances of £236m and generated a net pre-tax profit of £10.8m; and

●   The sale in May of a portfolio of BTL residential mortgages to Chetwood Financial Limited for a cash consideration of £243m inclusive of the proceeds from cancelled interest rate derivatives. The book value of the portfolio was c.£250m and the net pre-tax loss on the sale of the portfolio and the cancellation of the related derivatives was £10.7m. The net interest margin on the loan portfolio that was sold had been impacted by the sharp rise in interest rates in 2022. The decision was therefore taken to sell the portfolio at a loss to ensure that profitability in future periods was not diluted and to use the proceeds from the transaction to reduce debt and finance new lending at a better more normalised risk-adjusted margin.

The business has also taken opportunities to accelerate recoveries in respect of non-performing assets. This has contributed to the increase in impairment in the period but has also boosted cash reserves.

Building our product range: specialist residential mortgage proposition

A core fundamental strength of the business is the breadth of its product range and its ability to develop and bring to market new products and new product lines to take advantage of market opportunities. The most significant of these has been the development and roll out of the new specialist residential mortgage proposition. 

LendInvest entered the UK residential mortgage market on a beta launch basis at the end of 2022. A small group of mortgage brokers were identified to help ensure that all aspects of the proposition were robust and fit for purpose, both in terms of technical capability, but also product and target market fit. After a successful start, distribution was gradually rolled out to the point where the proposition was technically the whole of the market in April 2023. Since then, we have continued to grow broker partners as demonstrated by the recent launch with the Legal & General Mortgage Club, the largest mortgage club in the UK. We have also commenced lending in Scotland.

In line with distribution build, LendInvest has also continued to improve its product offering. Whilst the key target market are those customers who have a more complex income make-up, including the self-employed, other aspects of the proposition are designed to help support Professionals and Key Workers. Additionally, we cater for those consumers who may have had some level of historical credit event but have been able to demonstrate recovery.

Since launch the business has received £128.2m of loan applications; it has built a loan pipeline of £36.5m and has an issued loan book of £40.9m (as at 30 November 2023).

In a highly intermediated market, LendInvest has a substantial distribution network and is a reputable and trusted partner. During the first half our distribution network continued to remain strong with over 300 active broker firms. Importantly, our Trustpilot rating remained high at 4.5, which demonstrates the continued excellent quality of the service we provide.

Further enhancing our market-leading Technology

During the period to 30 September 2023, we continued to invest in the development of our market-leading proprietary technology platform. This is fundamental to both our service proposition and our ability to build our product range.

During the period, additions to Intangible Assets held on the balance sheet were £2.2m (2022: £2.8m) and comprised key enhancements, which are expected to improve our operational effectiveness and have a direct impact on loan origination volumes.

This has included the development of the specialist residential proposition noted above and the launch of our new BTL Broker Portal (Next Gen BTL). Feedback from brokers has been overwhelmingly positive and we are now rolling this across the wider market. This will remove our dependence on certain third-party technology, which will have the twin benefit of reducing operating costs and will also facilitate product switches between Bridging and BTL loans.

Senior Management changes

David Broadbent has resigned as Chief Financial Officer and will leave the business in March to take up a new role. Hugo Davies, our Chief Capital Officer, will take on CFO responsibilities whilst the business conducts a market search for a permanent replacement. He will be supported by Stephen Shipley, who will join the business as Finance Director in January. Stephen was formerly the CFO of Foundation Home Loans and prior to that held various senior positions at Barclays including CFO of Group Treasury. He brings a wealth of market knowledge and experience to the team.

Review of the interim results

Unaudited	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m	Change (%)
Total Gross Assets under Management	2,695	2,431	11%
On balance sheet	822	1,213	-32%
Off balance sheet	1,873	1,218	54%
New lending	415	575	-28%
Net interest income	6.3	24.0	-74%
Net fee income	6.6	5.9	12%
Net gains on derecognition of financial assets	0.1	3.8	-97%
Net other income	0.1	0.1	0%
Net operating income	13.1	33.8	-61%
Administrative expenses	(21.1)	(17.1)	23%
Impairment losses on financial assets	(7.1)	(1.9)	274%
Total operating expenses	(28.2)	(19.0)	48%
(Loss) profit before tax	(15.1)	14.8	-202%

AuM at a group level increased by £264m at H1 FY24, an increase of 4% since the end of the last financial year. This reflects an increase in the BTL portfolio, the building of our new residential mortgage book and a particularly strong performance in respect of our short-term mortgages products which has grown by 44% in the last 12 months. There has also been an increase in the AuM for our more complex and larger structured bridging products, whilst AuM for our Development Finance has reduced by 6% since the year end.

As noted above, the market backdrop has had a negative impact on performance in the first half. This is primarily reflected in new lending volumes, which contracted by 28% when compared with the same period last year. This was partly driven by BTL volumes, which were impacted by swap volatility, resulting in significant friction from repeated re-pricing. This was exacerbated by the dependence on third-party technology which, as noted above, has now been removed. In contrast, short-term mortgage lending in the Mortgages Division was particularly strong, with professional landlords taking advantage of the fall in property prices. As noted above, the new specialist homeowner product is developing well.

Loan origination in the Capital Division in respect of Development Finance and more complex and larger Bridging continues to be impacted by a combination of macroeconomic factors, with demand for development finance reduced as a result of some property developers deferring new projects out of caution, and also the limited capacity for new lending in existing managed funds. With the launch of a new fund expected to take place around the end of Q1 2024, we expect to have more capacity for new lending in respect of these product lines in FY25.

Net interest income in the period has reduced by 74% to £6.3m (2022: £24.0m). This partly reflects the fact that the value of loans and advances held on the balance sheet has reduced by 33%, primarily as a result of the transactions noted in the strategy section above. Net interest income in the prior year also benefited from a £9.2 million gain arising from the cancellation of interest rate swaps on the call of the Mortimer BTL 2019-1 assets.

Net fee income in the period was 12% higher than the prior year at £6.6m (2022: £5.9m). This primarily represents asset management fees of £5.3m (2022: £4.6m). Fee income on origination of loans to third parties reduced in the period to £0.2m (2022: £2.3m) but this was largely offset by fee income on loans and advances, which was £1.3m in the period (2022: £0.7m), with the increase primarily related to extension fees.

As noted above, the net profit from the sale of residual interests in our third securitisation and the loan book sale to Chetwood Financial Limited are included in the £0.1m gain on derecognition of financial assets in the period. The prior year gain on derecognition of financial assets was primarily related to a £3.3 million gain recognised on the sale of the residual economic interest in our fourth securitisation, Mortimer BTL 2022-1 plc.

Administrative expenses

Unaudited	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m	Change (%)
Wages and salaries	10.2	8.9	14%
Share-based payments	1.0	0.7	43%
Depreciation and amortisation	1.9	1.4	36%
Fees payable to the auditors	0.8	0.6	14%
Lease finance expense	0.1	0.2	-50%
Other operating expenses	7.1	5.3	37%
Total administrative expenses	21.1	17.1	23%

Administrative expenses increased by 23% to £21.1 million (2022: £17.1 million). This was partly driven by an increase in wages and salaries with the average headcount in the period c4% higher than the prior year. This also led to a related increase in the cost of share-based payments.

During the six months between March and September 2023, operational headcount has fallen from 275 to 247 employees. This resulted in redundancy costs in respect of permanent employees of c£0.3m, with the business also serving notice on a number of contractors, who also left the business. We have completed further headcount reduction since the period end.

Other operating expenses include c£0.9m of non-trading professional advisory costs. Whilst these are non-recurring costs, they relate to projects that will continue into the second half of FY24, albeit at a lower level.

Impairment

The impairment charge increased in the period to £7.1m (2022: £1.9m) reflecting two main factors. Firstly, the business has been robust in its approach to recoveries, choosing to enforce certain positions to realise cash sooner but with a consequential acceleration in impairment. This accounted for £3.2m of the impairment charge in the period. Secondly, the Capital Division experienced an increase in provisions, with a small number of larger and more complex Structured Bridging and Development Finance loans being impacted by the more challenging macroeconomic backdrop. Whilst the charge in the period is higher than expected, the underlying expected credit losses on the vintages of these products remain in line with expectations at around 1-1.5%. Importantly, the historical portfolio of on-balance sheet lending in this Division continues to mature and the overall exposure continues to reduce.

Expected credit losses have continued to remain low in respect of BTL lending.

Segmental analysis

The LendInvest Mortgages Division provides mortgages to both professional BTL landlords and Residential homeowners as well as a range of Bridging loans. The LendInvest Capital Division provides larger, more structured finance primarily to property developers. An analysis of the first half result based on these segments is presented below.  

In accordance with the provision of paragraphs 29 and 30 of IFRS 8 Operating Segments, the prior year segmental analysis has not been re-stated for the new operating segments because the information is not readily available and the cost to develop it would be excessive.

6 months ended 30 September 2023 £'m
Unaudited	Mortgages £'m	Capital £'m	Central £'m	Group £'m
Total AuM	2,076	619	-	2,695
On balance sheet	635	187	-	822
Off balance sheet	1,441	432	-	1,873
New lending	283	132	-	415
Net interest income	5.3	1.0	-	6.3
Net fee income	2.9	3.7	-	6.6
Net gains on derecognition of financial assets	0.1	-	-	0.1
Net other income	0.1	-	-	0.1
Net operating income	8.4	4.7	-	13.1
Administrative expenses	(5.4)	(2.5)	(13.2)	(21.1)
Impairment losses on financial assets	(0.7)	(6.4)	-	(7.1)
Total operating expenses	(6.1)	(8.9)	(13.2)	(28.2)
(Loss) profit before tax	2.3	(4.2)	(13.2)	(15.1)

Outlook 

The prospect of a more stable and even falling interest rate environment is expected to have a positive impact on performance. However, the business is executing the following proactive strategies to accelerate the return to profitability as soon as possible:

1.     Continued build out of the specialist residential proposition

As noted above, the early development of the specialist residential mortgage proposition has gone to plan, and the business is well placed to build on this through the remainder of FY24 and into FY25. The product range is fully developed and, therefore, the key to growing this product line will be to continue to build awareness across the market, including brokers and mortgage clubs.

2.     Increase BTL loan origination

As noted above, the performance in respect of short-term mortgage loans in the Mortgages Division in the first half was strong and the business has benefitted from the development of its new specialist residential mortgage division. This trend is expected to continue.

However, loan origination in the Mortgages Division was 28% lower in the first half when compared to last year because of a subdued performance in respect of new BTL lending. This was largely related to swap rate volatility impacting our ability to maintain a competitively priced product set in the market. The aim is to increase BTL lending volumes through the technology improvements we have made, particularly the release of our new BTL broker portal, and through building out new and existing relationships with funding partners.

3.     Secure new funding for the Capital Division

The primary source of funding for the Capital Division is the Luxembourg fund, which is then supported by the additional leverage provided by facilities from HSBC, the British Business Bank and Shawbrook Bank. The Funds team is currently in the process of raising a new fund ('Fund 3') that will support new development finance and larger structured bridging lending. At this stage the team is working with potential cornerstone investors with a view to launching the new fund around the end of FY24.

The team is also in discussions with existing and potential new partners with a view to syndicating existing and future loans, thereby freeing up capacity for new lending and providing this division with additional upfront origination and arrangement fees.

4.     Cost restructuring

As noted above, the business has started to reduce its headcount in order to reduce overall administrative expenses. This is illustrated by the following table:

	31 March 2022	30 September 2022	31 March 2023	30 September 2023	30 November 2023
Headcount	227	277	275	247	199

Since the period end, the business has completed a restructuring exercise that has reduced headcount to less than 200 employees. Importantly, the restructuring has been designed so as not to impact the business' capacity for lending, so that it is well placed to take advantage when the market backdrop improves. The majority of the reduction in headcount relates to technology resources, recognising that the core build of our market leading proprietary technology platform is complete and does not require the same rate of investment going forward.

This restructuring will result in further redundancy costs of £1.2m in the second half of FY24 (FY24: £1.5m) and will reduce payroll costs from current levels by c£5m, or c25% per annum. The benefit to the profit and loss account from these changes will be lower, with the majority of costs related to staff working on technology development having been previously capitalised as additions to intangible assets. However, we expect the benefit of this in FY25, coupled with further reductions in third party costs, will return administrative expenses to a level similar to those reported in FY23.  

Outlook summary

In line with previous securitisations, the business is exploring a potential sale of residual interests in the most recent Mortimer 23 transaction. This is likely to be completed in the second half of FY24 and is expected to generate a pre-tax profit of at least £10m.

We then expect to see the benefit of the growth and cost reduction strategies noted above, hopefully coupled with a more positive market backdrop, to have a positive impact on performance with a view to the business returning to profitability by H2 FY25.

Finance Review

Summary of the Condensed consolidated interim statement of profit and loss

The summary of the Condensed consolidated interim statement of profit and loss account for the 6 months' period ended 30 September 2023 is shown below.

As noted at the time of the FY23 results announcement, in order to assist our stakeholders in understanding our financial statements and to be able to more easily compare them to our peer group, we have updated the layout of our Condensed consolidated interim statement of profit and loss. This separately shows net interest income recognised under IFRS 9, net fee income recognised under IFRS 15, net gains on derecognition of financial assets, and net other income. This new presentation helps to split income generated from assets held on our balance sheet from those managed on behalf of third parties. 

Unaudited	6 months ended 30 September 2023  £'m	6 months ended 30 September 2022  £'m	Change  (%)
Net interest income	6.3	24.0	-74%
Net fee income	6.6	5.9	12%
Net gains on derecognition of financial assets	0.1	3.8	-97%
Net other income	0.1	0.1	0%
Net operating income	13.1	33.8	-61%
Administrative expenses	(21.1)	(17.1)	24%
Impairment losses on financial assets	(7.1)	(1.9)	274%
Total operating expenses	(28.2)	(19.0)	48%
(Loss) profit before tax	(15.1)	14.8	-202%
Income tax credit (charge)	3.9	(2.4)	-263%
(Loss) profit after taxation	(11.2)	12.4	-190%
Earnings per share for profit attributable to the ordinary equity holders of the Group:
Basic earnings per share (pence/share)	(8.18)	10.75	-176%
Diluted earnings per share (pence/share)	(8.18)	10.38	-176%

Further information on performance in the period relative to the prior year is contained in the Operating Review and the Notes to the unaudited financial statements included within this announcement.

Basic and dilutive earnings per share are the same value as an exercise of options would lead to a decrease in the loss per share and would not be dilutive.

Cash, Cash Flow, and Free Cash Flow

Despite the first half loss, the business has increased its cash resources from a combination of asset sales coupled with robust management of working capital and debt recovery.

As at 30 September 2023, the business held cash and cash equivalents of £88.0m, an 88% increase during the 6 month period. Of this total, £54.7m is held for loan funding purposes and £3.5m of restricted cash balances is held on behalf of investors in the business's Self-Select Platform.

Unaudited	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m (restated)
Net cash inflow from operations	116.8	10.1
Net cash outflow from investing activities	(2.9)	(21.0)
Net cash (outflow) inflow from financing activities	(72.6)	6.0
Net increase (decrease) in cash and cash equivalents	41.3	(4.9)
Cash and cash equivalents at beginning of the period	46.7	118.2
Cash and cash equivalents at end of the period	88.0	113.3

In the period there was a net cash inflow from operations of £116.8m primarily as a result of a managed reduction in gross loan and advances. There was a net cash outflow from investing activities of £2.9m reflecting capitalised development costs. Additionally, there was a net cash outflow from financing activities of £72.6m, driven by a reduction in interest bearing liabilities and derecognition of securitisation facilities.

Free cash for in the period was also strong, reflecting the factors noted above.

Free cash flow is defined as the net cash outflow from operating activities, less purchases of property, plant and equipment and capitalisation of internally developed software. Additionally, an adjustment has been made to reverse movements in loans and advances. This reflects the operating model of the business to finance increases in loan and advances through increases in interest bearing liabilities, which are excluded from this calculation. Further to this, there was a reduction in restricted cash held on behalf of Platform investors of £2.8m which has been reversed, and a net cash outflow of £0.9m from lease-related financing activities.

Unaudited	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m (restated)
Net cash flow from operations	116.8	7.9
Reverse movements in loans and advances	(81.5)	4.8
Adjusted net cash flow from operations	35.3	12.7
Capitalisation of internally developed software	(2.2)	(2.8)
PPE additions	-	(0.2)
Reverse movement in restricted cash from Platform investors	2.8	12.1
Cash outflows from lease related financing activities	(0.9)	(0.7)
Free cash flow	35.0	23.8

The free cash flow in the six months to 30 September 2023 was £35.0 million. A full year dividend of 4.5 pence per share (approximately £4.5 million) was approved at the AGM on 18 September 2023, and paid on 13 October 2023 in respect of the financial year ended 31 March 2023.

 
Net assets

Unaudited	30 September 2023 £'m	30 September 2022 £'m
Net assets	67.5	60.2

Net assets at 30 September were £67.5m (31 March 2023: £76.5m; 30 September 2022: £60.2m) with the increase on prior year primarily reflecting fair value gains on loans and advances recognised in H2 FY23.

Going Concern

The interim results have been prepared on a going concern basis. To assess the appropriateness of this basis, the Directors considered a wide range of information relating to present and future conditions, including the Group's current financial position and future projections of profitability, cash flows and capital resources.

The information included financial forecasts that have been prepared across a range of potential scenarios as well as detailed consideration of potential risks, including the impact of funding lines maturing in the next 12 months from the date of approval of these financial statements. The Directors believe that the Group will be able to refinance facilities falling due within the next 12 months either with the existing funding provider or with new third parties to continue its growth trajectory. If these facilities were not to be refinanced, the Group would be able to sell individual loans or portfolio of loans to facilitate the repayment of the outstanding amounts. This strategy is in line with the existing approach of the Group to both hold assets on its balance sheet and sell to third parties. The Directors do not consider that this creates a material uncertainty in the going concern assessment of the Group.

The Directors have also considered the factors likely to affect its future development, as set out in the Operating Review, and any associated risks alongside the Group's financial plan. Having reviewed these plans and other relevant information, the Directors consider the Group to have sufficient resources to continue to operate for a period of at least 12 months from the signing of these accounts and it is on this basis that the Directors have continued to prepare the accounts on a going concern basis.

Responsibility statement of the directors in respect of the interim consolidated financial statements for the six-month period ended 30 September 2023

We confirm that to the best of our knowledge:

·      the condensed set of financial statements has been prepared in accordance the UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority 

Approved on behalf of the board:    

Roderick Lockhart

Director

18 December 2023

INDEPENDENT REVIEW REPORT TO LendInvest PLC

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2023 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the London Stock Exchange AIM Rules for Companies.

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 September 2023 which comprises the Condensed consolidated interim statement of profit or loss, Condensed consolidated interim statement of other comprehensive income, Condensed consolidated interim statement of financial position, Condensed consolidated interim statement of changes in equity, condensed interim statements of cash flows and notes to the condensed interim financial statements.

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" ("ISRE (UK) 2410"). A review of interim financial information consists of making enquiries, 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 1.2, the annual financial statements of the group are prepared in accordance with UK adopted international accounting standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with UK adopted International Accounting Standard 34, "Interim Financial Reporting.

Conclusions 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 group to cease to continue as a going concern.

Responsibilities of directors

The directors are responsible for preparing the half-yearly financial report in accordance with

the London Stock Exchange AIM Rules for Companies which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts.

In preparing the half-yearly financial report, the directors are responsible for assessing the company'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 report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statement in the half-yearly financial report. Our conclusion, including our Conclusions 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.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange AIM Rules for Companies for no other purpose.  No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent.  Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

BDO LLP

Chartered Accountants

London, UK

18 December 2023

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT AND LOSS

	Note	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m (restated)
		(Unaudited)	(Unaudited)
Interest income calculated using the effective interest rate	4	34.1	31.6
Other interest and similar income	4	(0.3)	2.5
Interest expense and similar charges	5	(27.5)	(10.1)
Net interest income		6.3	24.0
Fee income	6	7.7	7.6
Fee expenses	6	(1.1)	(1.7)
Net fee income	6	6.6	5.9
Net gains on derecognition of financial assets	7	10.8	3.8
Loss on sale of loan portfolio	7	(10.7)	-
Net other operating income		0.1	0.1
Net operating income		13.1	33.8
Administrative expenses		(21.1)	(17.1)
Impairment losses on financial assets	13	(7.1)	(1.9)
Total operating expenses		(28.2)	(19.0)
Profit (loss) before tax		(15.1)	14.8
Income tax (charge) credit		3.9	(2.4)
Profit (loss) after taxation		(11.2)	12.4
Earnings per share for profit attributable to the ordinary equity holders of the Group:
Basic earnings per share (pence/share)	24	(8.18)	10.75
Diluted earnings per share (pence/share)	24	(8.18)	10.38

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF OTHER COMPREHENSIVE INCOME

	Note	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m (restated)
		(Unaudited)	(Unaudited)
(Loss) Profit for the period		(11.2)	12.4
Other comprehensive income:
Items that will or may be reclassified to profit or loss:
Cash flow hedge adjustment recycled to profit or loss	25	(21.5)	-
Cash flow hedge adjustment recorded in OCI	25	-	26.5
Fair value gain (loss) on loans and advances and hedge items measured at fair value through OCI	25	37.2	(81.5)
Cumulative gain (loss) on financial assets reclassified to profit or loss upon disposal and reclassification from FVTOCI to FVTPL	25	(7.2)	27.4
Deferred tax charge on gross movements through OCI	25	(2.1)	6.9
Other comprehensive income (loss) for the period		6.4	(20.7)
Total comprehensive (loss) for the period		(4.8)	(8.3)

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION                                                                                                     

	Note	As at 30 September 2023 £'m	As at 31 March 2023 £'m
Assets		(Unaudited)	(Audited)
Cash and cash equivalents	12	88.0	46.7
Trade and other receivables	11	4.5	6.1
Loans and advances	13	807.5	1,122.9
Fair value adjustment for portfolio hedged risk		0.2	0.1
Investment securities	14	23.5	23.9
Property, plant and equipment	15	1.8	2.2
Intangible assets	17	11.3	10.5
Derivative financial assets	22	12.0	46.0
Net investment in sublease		0.8	1.0
Investment in joint venture		0.2	0.2
Investment in third parties		2.0	2.0
Corporate tax receivable	10	2.7	-
Deferred taxation asset	10	-	1.2
Total assets		954.5	1,262.8
Liabilities
Trade and other payables	18	(30.3)	(23.7)
Interest bearing liabilities	19	(853.3)	(1,159.3)
Lease liabilities	16	(2.8)	(3.3)
Deferred taxation liability	10	(0.6)	-
Total liabilities		(887.0)	(1,186.3)
Net assets		67.5	76.5

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION (continued)

Equity		As at 30 September 2023 £'m	As at 31 March 2023 £'m
Share capital	23	0.1	0.1
Share premium	23	55.2	55.2
Employee share reserve	25	4.3	3.3
Own Share Reserve	25	(0.6)	(0.6)
Fair value reserve	25	6.0	(16.5)
Cash flow hedge reserve		-	16.1
Retained earnings	25	2.5	18.9
Total equity		67.5	76.5

These condensed consolidated interim financial statements of LendInvest plc, with registered number 08146929, were approved by the Board of Directors and authorised for issue on 19 December 2023. Signed on behalf of the Board of Directors by:

Roderick Lockhart

Director

18 December 2023

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

	Own share reserve £'m	Share capital £'m	Share premium £'m	Employee Share Reserve £'m	Fair value reserve net of deferred tax £'m	Cash flow hedge reserve net of deferred tax £'m	Retained earnings £'m	Total £'m
	(Unaudited)
Balance as at 1 April 2023	(0.6)	0.1	55.2	3.3	(16.5)	16.1	18.9	76.5
Profit (loss) after taxation	-	-	-	-	-	-	(11.2)	(11.2)
Recognition of employee share options schemes	-	-	-	1.0	-	-	-	1.0
Deferred tax on employee share option scheme deduction	-	-	-	-	-	-	(0.7)	(0.7)
FY23 final dividend declared	-	-	-	-	-	-	(4.5)	(4.5)
Fair value adjustments on loan & advances through OCI	-	-	-	-	22.5	-	-	22.5
Cash flow hedge adjustments through OCI	-	-	-	-	-	(16.1)	-	(16.1)
Balance as at 30 September 2023	(0.6)	0.1	55.2	4.3	6.0	-	2.5	67.5

 

 

 

 

 

 

 

 

 

 

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY (continued)

	Own share reserve £'m	Share capital £'m	Share premium £'m	Employee Share Reserve £'m	Fair value reserve net of deferred tax £'m (re-stated)	Cash flow hedge reserve net of deferred tax £'m	Retained earnings £'m	Total £'m (re-stated)
	(Unaudited)
Balance as at 1 April 2022	-	0.1	55.2	2.7	3.8	19.8	15.9	97.5
Profit after taxation	-	-	-	-	-	-	12.4	12.4
Recognition of employee share options schemes	-	-	-	0.7	-	-	-	0.7
Transfer from share reserve to retained earnings	-	-	-	(1.2)	-	-	1.2	-
Dividends paid	-	-	-	-	-	-	(6.2)	(6.2)
Shares purchased by EBT	(3.0)	-	-	-	-	-	-	(3.0)
Shares issued from own share reserve	1.8	-	-	-	-	-	(1.8)	-
Fair value adjustments on loan & advances through OCI	-	-	-	-	(40.6)	-	-	(40.6)
Cash flow hedge adjustments through OCI	-	-	-	-	-	20.0	-	20.0
Balance as at 30 September 2022	(1.2)	0.1	55.2	2.2	(36.8)	39.8	21.5	80.8

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

	Note	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m (restated)
		(Unaudited)	(Unaudited)
Cash flows from operating activities
(Loss) profit for the period		(11.2)	14.8
Adjusted for:
Depreciation of property, plant and equipment	15	0.1	0.2
Amortisation of intangible fixed assets	17	1.4	0.8
Share-based payment expenses to reserves	9	1.0	0.7
Finance income		-	(0.2)
Income tax expense		(3.9)	-
Derivative unrealised (loss)/gain and hedge accounting		0.3	(2.5)
Derivative fair value gains reclassified to profit and loss		-	(21.2)
Fair value re-cycled to line item 'loss on sale of loan portfolio' in profit or loss		(20.0)	-
Derivative settlements		-	19.3
Impairment provision1	13	7.1	2.0
Income from sublease		(0.1)	-
Depreciation of right of use asset	15	0.3	0.3
Interest expense of right of use asset		0.2	0.2
Loss/(gain) on disposal of portfolios		30.6	(3.8)
Gain on disposal of residual interest		(10.8)	-
Proceeds from sale of residual notes		8.6	5.7
Income tax (paid)		-	(2.1)
Change in working capital
Decrease/(increase) in loans and advances	13	81.5	(4.8)
Decrease/(increase) in trade and other receivables	11	1.7	(6.4)
Increase in trade and other payables	18	2.4	7.1
Derivative settlements		27.6	-
Net cash inflow from operations		116.8	10.1

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS (continued)

Cash flow from investing activities
Purchase of property, plant and equipment	15	-	(0.2)
Capitalisation of internally developed software	17	(2.2)	(2.8)
Interest received		-	0.2
Swap initial exchange costs		(0.8)	(18.2)
Income from sublease		0.1	-
Net cash outflow from investing activities		(2.9)	(21.0)
Cash flow from financing activities
Cash receipt from interest bearing liabilities	19	164.9	38.7
Proceeds to fund securitisation repayments		-	437.3
Redemption of securitisation facilities	19	-	(444.4)
Repayment of funding line post sale of loan portfolio	19	(236.8)	-
Repayment of retail bonds		-	(28.1)
Proceeds from issuance of retail bonds		-	9.3
Principal elements of finance lease payments	16	(0.5)	(0.5)
Interest expense of right of use asset	16	(0.2)	(0.2)
Dividends paid	26	-	(6.1)
Net cash (outflow) from financing activities		(72.6)	6.0
Net (decrease)/increase in cash and cash equivalents		41.3	(4.9)
Cash and cash equivalents at beginning of the period	12	46.7	118.2
Cash and cash equivalents at end of the period2	12	88.0	113.3

¹The non-cash movement in the impairment provision differs from the charge to the statement of profit and loss in respect to the impairment provision for the six-month period ended 30 September 2022. This is due to the charge to the statement of profit and loss including a credit of 0.1m in respect of cash amounts recovered in the period on loans that have previously been written off.

²Cash and cash equivalents include restricted cash of £3.5m received from Platform Investors.

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. Basis of preparation

1.1 General information

LendInvest plc is a public company incorporated on 17 July 2012 in the United Kingdom under the Companies Act. The company listed on AIM on 14 July 2021. The address of its registered office is Two Fitzroy Place, 8 Mortimer Street, London W1T 3JJ.

These Condensed consolidated interim financial statements of LendInvest plc, for the six-month period ended 30 September 2023, comprise the results of the Company and its subsidiaries (together referred to as "the Group") (collectively "these financial statements").

1.2 Basis of accounting

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" and have been prepared on a historical cost basis, except as required in the valuation of certain financial instruments which are carried at fair value. These condensed consolidated interim financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published financial statements for the year ended 31 March 2023.

These condensed consolidated interim financial statements are not statutory accounts. The Group statutory accounts for the year ended 31 March 2023 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.

All amounts are presented in pounds sterling, which is the functional currency of the Company and all its subsidiaries. Amounts are rounded to the nearest million, except where otherwise indicated.

1.2.1 Going Concern

The Group's business activities together with the factors likely to affect its future development and position are set out in the Operating Review. The Directors have a reasonable expectation that the Group will have adequate resources to continue to operate for a period of at least 12 months from the signing of these accounts and therefore it is on this basis that the Directors have continued to prepare the accounts on a going concern basis.

The Directors believe that the Group will be able to refinance facilities falling due within the next 12 months either with the existing funding provider or with new third parties to continue its growth trajectory. If these facilities were not to be refinanced, the Group would be able to sell individual loans or portfolio of loans to facilitate the repayment of the outstanding amounts. This strategy is in line with the existing approach of the Group to both hold assets on its balance sheet and sell to the third parties. The Directors do not consider that this creates a material uncertainty in the going concern assessment of the Group. More information on the Directors' assessment of going concern is set out in the Finance Review.

1.3 Accounting policies

The accounting policies and methods of computation are consistent with those set out in the Annual Report 2023.

1.4 Changes in the presentation of the Consolidated interim statement of profit and loss

The purpose of IAS 1 - Presentation of Financial Statements - is to prescribe the basis of general-purpose financial statements, to ensure comparability both within the entity's financial statements of previous periods and the financial statements of other entities. During the year, the composition of the Consolidated interim statement of profit and loss has been amended to more clearly reflect the nature of the profits from operations and to align the Consolidated interim statement of profit and loss to wider industry standards to enable comparability.

The cost of sales and gross profit lines items as reported in the Consolidated interim statement of profit and loss in prior periods are not terms generally associated with financial services entities and the components of this line item has been reclassified to enhance comparability to our peers.

The interest expense and funding line costs line items are directly related to the derivation of interest on loans and advances under IFRS 9 - Financial Instruments and are reported as an element of net interest income. Origination fees, and asset management and fund fees, relate to fee income under IFRS 15 - Revenue recognition, and are reported as a component of net fee income. Please refer to notes 4-7 for enhanced disclosure of the composition of the amended line items.

The revised layout is a truer reflection of these two main categories of profit drivers:

·      Net interest income: reflective of profits/losses from interest and similar charges accounted for under the effective interest rate basis as prescribed by IFRS 9 - Financial Instruments.

·      Net fee income: reflective of profits from fees and similar income accounted for under IFRS 15 - Revenue from Contracts with Customers.

The table below shows the comparative position for those items which have been reclassified and where those amounts have been reclassified to in the Consolidated interim statement of profit and loss.

Consolidated interim statement of profit and loss extract	6 months ended 30 September 2022 £'m
Gain on derecognition of financial assets	3.8
- Report as gain on derecognition of financial assets	3.8
Cost of sales	(11.4)
- Amounts reclassified to interest expense and similar charges	(9.7)
- Amounts reclassified to fee expenses	(1.7)
Finance income	2.7
- Amounts reclassified to interest and similar income	2.7

This change has no effect on the Group's profits or net assets.

1.5  Prior period adjustments

i)              For the prior period adjustment noted during FY23 in relation to fair value hedge accounting, the Group restated its FY22 Condensed consolidated interim statement of financial position, Condensed consolidated interim statement of other comprehensive income, and Condensed consolidated interim statement of changes in equity, in accordance with IFRS 9. Please refer to Note 1.26 in FY23 Annual Report. The Group considered the prior period adjustment for interim reporting at 30th September 2023 as per IAS 34 disclosure requirements. For the period ending H1 FY24, the Group has correctly reclassified amounts relating to changes in the hedged risk from OCI to profit or loss over the hedged period for macro portfolio hedging. This is in line with the hedge accounting policy referred to in the FY23 Annual Report. In line with the above, the Group restated its September 2022 Condensed consolidated interim statement of other comprehensive income and Condensed consolidated interim statement of changes in equity in accordance with IAS 8 and IFRS 9. This change does not impact the Condensed consolidated interim statement of profit and loss or Condensed consolidated interim statement of financial position for the reporting period. There is no change to the earnings per share of the Group.

ii)             During a review of the H1 FY23 interim financial statements, it was identified that non-cash transactions related to the issuance and redemption of bonds were included in the Condensed consolidated statement of cashflows. There is no change to the Condensed consolidated interim statement of profit and loss and Consolidated statement of financial position. However, a change in the Consolidated statement of cash flows statement is included in respect of the six months to 30 September 2022. The audited financial statements at 31 March 2023 takes into account the non-cash transaction treatment related to financing activities.

Restated Condensed consolidated interim statement of other comprehensive income	As at 30 September 2022 £'m (reported)	Adjustment (i)                   £'m	As at 30 September 2022 £'m (restated)
Profit after taxation	12.4	-	12.4
Other comprehensive (loss)/income:
Fair value loss on loans and advances measured at fair value through other comprehensive income	(81.5)		(81.5)
Cumulative gain (loss) on financial assets reclassified to profit or loss upon disposal and reclassification from FVTOCI to FVTPL	-	27.4	27.4
Cash flow hedge adjustment	26.5	-	26.5
Deferred tax credit on gross movements through OCI	13.7	(6.9)	6.8
Other comprehensive (loss)/income for the year	(41.3)	20.5	(20.8)
Total comprehensive income for the year	(28.9)	20.5	(8.4)

Restated Condensed consolidated interim statement of changes in equity	Share capital £'m	Share premium £'m	Own share reserve £'m	Employee share reserve £'m	Fair value reserve net of deferred tax £'m	Cash flow hedge reserve net of deferred tax £'m	Retained earnings £'m	Total £'m
Balance as at 30 September 2022 (reported)	0.1	55.2	(1.2)	2.2	(57.4)	39.8	21.5	60.2
Adjustment (i)	-	-	-	-	20.6	-	-	20.6
Balance as at 30 September 2022 (restated)	0.1	55.2	(1.2)	2.2	(36.8)	39.8	21.5	80.8

Restated Consolidated statement of cash flows (extract)	As at 30 September 2022 £'m (reported)	Adjustment (i)                 £'m	Adjustment (ii) £'m	As at 30 September 2022 £'m (restated)
Cash generated from financing activities
Repayment of retail bonds	(57.7)	-	29.6	(28.1)
Proceeds from issuance of retail bonds	38.9	-	(29.6)	9.3
Cash generated from financing activities	6.0	-	-	6.0

2. Financial risk management

General objectives, policies and processes

The Board has the overall responsibility for the establishment and oversight of the Group's risk management framework. The Group's risk management activities and exposure to credit, liquidity and market risk are consistent with those set out in the Annual Report 2023. The tables below analyse the Group's contractual undiscounted cash flows of its financial assets and liabilities:

As at 30 September 2023	Carrying amount £'m	Gross nominal inflow/ (outflow) £'m	Amounts due in less than 6 months £'m	Amounts due in 6 - 12 months £'m	Amounts due between one and five years £'m	Amounts due in more than 5 years £'m
	(Unaudited)
Financial assets
Cash and cash equivalents	88.0	88.0	88.0	-	-	-
Trade and other receivables	1.9	1.9	1.9	-	-	-
Derivative financial asset	12.0	12.0	0.1	2.4	4.5	5.0
Loans and advances	807.5	1,099.2	219.8	161.2	186.0	532.3
Investment securities	23.5	27.0	0.8	0.8	25.4	-
	932.9	1,228.9	310.6	164.4	215.9	537.3
Financial liabilities
Trade and other payables	29.1	29.1	29.1	-	-	-
Interest bearing liabilities1	853.3	921.4	214.6	21.2	653.2	32.4
Lease liability	2.8	3.0	0.7	0.7	1.6	-
	885.2	953.5	244.4	21.9	654.8	32.4

¹The maturity profile of the loan note liability is based on the asset recall option exercise date, as the asset recall triggers the repayment of the outstanding loan notes. The maturity profile of the loan notes does not match the maturity profile of the loans and advances which is based on the expected redemptions of the underlying mortgages which will be transferred on to another entity when the asset recall option is exercised.

As at 31 March 2023	Carrying amount £'m	Gross nominal inflow/ (outflow) £'m	Amounts due in less than 6 months £'m	Amounts due in 6 - 12 months £'m	Amounts due between one and five years £'m	Amounts due in more than 5 years £'m
	(Audited)
Financial assets
Cash and cash equivalents	46.7	46.7	46.7	-	-	-
Trade and other receivables	4.2	4.2	3.0	-	1.2	-
Loans and advances	1,122.9	1,927.1	205.3	164.6	203.9	1,353.3
Derivative financial asset	46.0	46.0	9.1	7.9	26.4	2.6
Investment securities	23.9	25.6	11.1	0.4	14.1	-
	1,243.7	2,049.6	275.2	172.9	245.6	1,355.9
Financial liabilities
Trade and other payables	(22.3)	(22.3)	(22.3)	-	-	-
Interest bearing liabilities	(1,159.3)	(1,371.6)	(257.8)	(305.9)	(415.9)	(392.0)
Lease liability	(3.3)	(3.8)	(0.7)	(0.7)	(2.4)	-
	(1,184.9)	(1,397.7)	(280.8)	(306.6)	(418.3)	(392.0)

Lease liability	2.8	3.0	0.7	0.7	1.6	-
	885.2	953.5	244.4	21.9	654.8	32.4

3. Segmental analysis

In prior periods the business has been managed on the basis of two core segments, namely short-term lending and BTL lending. From the beginning of this financial period, the management structure of the business has changed to better reflect the service and operating model of the Group's different product propositions:

·      Mortgages Division: provides mortgages to both professional BTL landlords and Homeowners as well as a range of Bridging loans. These are typically higher volume, lower value transactions that rely on technology supporting a highly efficient underwriting and onboarding process.

·      Capital Division: provides larger, more structured finance primarily to property developers. These are typically higher value, lower volume transactions that require more bespoke management and a more in-depth underwriting analysis.

In accordance with the provision of paragraphs 29 and 30 of IFRS 8 Operating Segments, due to the information to restate prior periods not being available, and because the costs to develop would be excessive, the prior year segmental analysis has not been re-stated. 

Current year

The Group's lending operations are carried out solely in the UK, and effective from 1^st April 2023, were carried out solely from the Group's LendInvest Mortgages and Capital Divisions, reflective of the product offerings. The results and net assets of the Group are derived from the provision of property related loans only. The following describes the operations of the two reportable segments for the 6 months ended 30 September 2023:

LendInvest Mortgages

LendInvest Mortgages provides mortgages to both professional BTL landlords and Homeowners as well as a range of short-term Bridging loans.

LendInvest Capital

The LendInvest Capital division provides larger, more structured finance primarily to property developers and larger Bridging loans & houses the Fund and Self-Select Platform.

In prior periods the Group's lending operations were previously carried out alongside the two main lending products: short-term lending and BTL mortgages. Due the costs associated with restating the prior period, management have made the decision to not restate prior period results in the new reportable segments.

The segmental analysis of the condensed consolidated interim statement of profit and loss is as follows:

6 months ended 30 September 2023	Mortgages £'m	Capital £'m	Central £'m	Total £'m
Statement of Profit and Loss Information	(Unaudited)
Interest income calculated using the effective interest rate	26.3	7.8	-	34.1
Other interest and similar income	(0.3)	-	-	(0.3)
Interest charges and similar charges	(20.7)	(6.8)	-	(27.5)
Net interest income	5.3	1.0	-	6.3
Fee income	3.4	4.3	-	7.7
Fees expenses	(0.5)	(0.6)		(1.1)
Net fee income	2.9	3.7	-	6.6
Gain on derecognition of financial assets	10.8	-	-	10.8
Loss on sale of loan portfolio	(10.7)	-	-	(10.7)
Net other income	0.1	-	-	0.1
Net segment operating income	8.4	4.7	-	13.1
Administrative expenses	(5.4)	(2.5)	(13.2)	(21.1)
Impairment losses on financial assets	(0.7)	(6.4)	-	(7.1)
Total segment operating expenses	(6.1)	(8.9)	(13.2)	(28.2)
Segment profit/ (loss) before tax	2.3	(4.2)	(13.2)	(15.1)

Central administrative expenses represent the cost of providing central services that are not directly attributable to the operating segments.

The segmental analysis of the condensed consolidated interim statement of financial position is as follows:

As at 30 September 2023	Mortgages £'m	Capital £'m	Central £'m	Total £'m
Statement of Financial Position Information	(Unaudited)
Loans and advances	635.8	171.7	-	807.5
Derivative financial asset	12.0	-	-	12.0
Fair value adjustment for portfolio hedged risk asset	0.2	-	-	0.2
Investment in securities	23.5	-	-	23.5
Total segment assets	671.5	171.7	-	843.2
Cash and cash equivalents	-	-	88.0	88.0
Trade and other receivables	-	-	4.5	4.5
Property, plant and equipment	-	-	1.8	1.8
Net investment in sublease	-	-	0.8	0.8
Intangible fixed assets	-	-	11.3	11.3
Investment in joint venture	-	-	0.2	0.2
Investment in third parties	-	-	2.0	2.0
Corporate tax receivable	-	-	2.7	2.7
Total Assets	671.5	171.7	111.3	954.5
Liabilities
Interest bearing liabilities	(675.8)	(177.5)	-	(853.3)
Total segment liabilities	(675.8)	(177.5)	-	(853.3)
Trade and other payables	-	-	(30.3)	(30.3)
Lease liabilities	-	-	(2.8)	(2.8)
Deferred taxation	-	-	(0.6)	(0.6)
Total liabilities	(675.8)	(177.5)	(33.7)	(887.0)

For comparative purposes the current year results have been included in the reportable segments which were used in the prior year.

6 months ended 30 September 2023	Short Term Lending £'m	Buy-to-Let £'m	Total £'m
Statement of Profit and Loss Information	(Unaudited)
Interest revenue	19.1	12.6	31.7
Fee and other income	8.8	4.6	13.4
Gain on derecognition of financial asset	-	0.1	0.1
Segment Revenue	27.9	17.3	45.2
Interest expense	(13.1)	(13.1)	(26.2)
Cost of sales (other)	(4.4)	(1.7)	(6.1)
Impairment provision	(6.9)	(0.2)	(7.1)
Finance income	0.4	-	0.4
Finance expense	-	(0.2)	(0.2)
Segment Profit	3.9	2.1	6.0
Operating expenses	-	-	(21.1)
Profit before tax	3.9	2.1	(15.1)

Central administrative expenses represent the cost of providing central services that are not directly attributable to the operating segments.

The segmental analysis of the condensed consolidated interim statement of financial position is as follows:

As at 30 September 2023	Short Term Lending £'m	Buy-to-Let £'m	Central £'m	Total £'m
Statement of Financial Position Information	(Unaudited)
Loans and advances	359.5	448.0	-	807.5
Derivative financial asset	-	12.0	-	12.0
Fair value adjustment for portfolio hedged risk asset	-	0.2	-	0.2
Total segment assets	359.5	460.2	-	819.7
Cash and cash equivalents	-	-	88.0	88.0
Trade and other receivables	-	-	4.5	4.5
Property, plant and equipment	-	-	1.8	1.8
Investment in securities	-	-	23.5	23.5
Net investment in sublease	-	-	0.8	0.8
Intangible fixed assets	-	-	11.3	11.3
Investment in joint venture	-	-	0.2	0.2
Corporation Tax Receivable	-	-	2.7	2.7
Investment in third parties	-	-	2.0	2.0
Total Assets	359.5	460.2	134.8	954.5
Liabilities
Interest bearing liabilities	(374.5)	(478.8)	-	(853.3)
Total segment liabilities	(374.5)	(478.8)	-	(853.3)
Trade and other payables	-	-	(30.3)	(30.3)
Lease liabilities	-	-	(2.8)	(2.8)
Deferred Taxation	-	-	(0.6)	(0.6)
Total liabilities	(374.5)	(478.8)	(33.7)	(887.0)

Prior year

The Group's lending operations were carried out solely in the UK with two main lending products: short-term lending and Buy-to-Let mortgages. The results and net assets of the Group are derived from the provision of property related loans only. The following summary describes the operations of the two reportable segments:

Short term lending

Provides finance for borrowers who need to quickly secure property, generate cash flow or fund works through the Group's bridging products, and provides property developers with funding to start or exit a project through development products. The term of these loans is up to 24 months.

Buy-to-let lending

Provides finance for professional portfolio landlords looking to purchase or remortgage BTL investment properties in England, Wales and Scotland. The mortgages are available to both individual and corporate borrowers, and funds are lent against standard properties as well as houses in multiple occupation and multi-unit freehold blocks. The term of these loans is up to 30 years.

The segmental analysis of the condensed consolidated interim statement of profit and loss is as follows:

6 months ended 30 September 2022	Short Term Lending £'m	Buy-to-Let £'m	Total £'m
Statement of Profit and Loss Information	(Unaudited)
Interest revenue	10.5	20.7	31.2
Fee and other income	4.7	2.8	7.5
Gain on derecognition of financial asset	0.5	3.3	3.8
Segment Revenue	15.7	26.8	42.5
Interest expense	(6.4)	(2.1)	(8.5)
Cost of sales (other)	(1.1)	(1.8)	(2.9)
Impairment Provision	(1.4)	(0.5)	(1.9)
Finance income	-	2.7	2.7
Finance expense	-	-	-
Segment Profit	6.8	25.1	31.9
Operating expenses	-	-	(17.1)
Profit before tax	-	-	14.8

All other cost lines in the condensed consolidated interim statement of profit and loss were centrally incurred and were not allocated to either operating segment. These centrally incurred costs were not included in the measure of segment profit and loss reviewed management.

The segmental analysis of the condensed consolidated interim statement of financial position is as follows:

As at 31 March 2023	Short Term Lending £'m	Buy-to-Let £'m	Central £'m	Total £'m
Statement of Financial Position Information	(Audited)
Loans and advances	329.9	793.0	-	1,122.9
Derivative financial asset	-	46.0	-	46.0
Fair value adjustment for portfolio hedged risk asset	-	0.1	-	0.1
Total segment assets	329.9	839.1	-	1,169.0
Cash and cash equivalents	-	-	46.7	46.7
Trade and other receivables	-	-	6.1	6.1
Property, plant and equipment	-	-	2.2	2.2
Investment in securities	-	-	23.9	23.9
Net investment in sublease	-	-	1.0	1.0
Intangible fixed assets	-	-	10.5	10.5
Investment in joint venture	-	-	0.2	0.2
Investment in third parties	-	-	2.0	2.0
Deferred taxation	-	-	1.2	1.2
Total Assets	329.9	839.1	93.8	1,262.8
Liabilities
Interest bearing liabilities	(331.5)	(827.8)	-	(1,159.3)
Total segment liabilities	(331.5)	(827.8)	-	(1,159.3)
Trade and other payables	-	-	(23.7)	(23.7)
Lease liabilities	-	-	(3.3)	(3.3)
Total liabilities	(331.5)	(827.8)	(27.0)	(1,186.3)

All other lines in the condensed consolidated interim statement of financial position are centrally allocated and are not allocated to either operating segment.

4.    Interest and similar income

	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m
	(Unaudited)	(Unaudited)
Interest income calculated using the effective interest rate method
On loans and advances to customers	32.7	31.3
On investment securities	0.9	0.1
On cash deposits	0.5	0.2
Total interest income calculated using the effective interest rate method	34.1	31.6
Other interest and similar income
On derivative financial instruments and hedge accounting	(0.3)	2.5
Total other interest and similar income	(0.3)	2.5
Total interest and similar income	33.8	34.1

5.    Interest expense and similar expense

	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m
	(Unaudited)	(Unaudited)
On amounts due to funding partners	(22.6)	(7.0)
On debt securities in issue	(3.6)	(1.3)
Funding line cost amortisation	(1.3)	(1.8)
Total interest expense and similar charges	(27.5)	(10.1)

6.    Net fee income

	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m
	(Unaudited)	(Unaudited)
Fee income on loans and advances	1.7	0.7
Fee income on asset management	5.9	4.6
Fee income on origination of loans to third parties	0.2	2.3
Fee income	7.7	7.6
Fee expense on origination of loans to third parties	(0.5)	(1.3)
Fee expense on asset management	(0.6)	(0.4)
Fee expense	(1.1)	(1.7)
Net fee and commission income	6.6	5.9

7. Derecognition of financial assets

	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m
	(Unaudited)	(Unaudited)
Net gains on sale of loans and loan portfolios	-	0.5
(Loss) on sale of loan portfolio	(10.7)	-
Profit on derecognition of securitised loan portfolios	10.8	3.3
Net gains on derecognition of financial assets	0.1	3.8

On 14 April 2023, the Group sold its non-risk retention residual economic interest in the Mortimer BTL 2021-1 plc securitisation for a cash consideration of £8.6m. This transaction resulted in a reduction in the Group's gross loans and advances of £236m, a reduction in interest-bearing liabilities of £228m and generated a net pre-tax profit of £10.8m. Please refer to note 25 reserves for the related cash flow hedge reserve movement due to sale of residual notes.

On 26 May 2023, the Group sold a portfolio of BTL residential mortgages to Chetwood Financial Limited for a cash consideration of £243m inclusive of the proceeds from cancelled interest rate derivatives. The book value of the portfolio was c.£250m and the net pre-tax loss on the sale of the portfolio and the cancellation of the related derivatives was £10.7m. £234m of interest-bearing liabilities were re-paid on completion of the transaction. Please refer to note 25 reserves for the related fair value reserve movement due to sale of BTL mortgage portfolio.

8. (Loss) / profit before taxation

(Loss) / profit before taxation has been stated after charging:

	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m
	(Unaudited)	(Unaudited)
Wages and salaries	10.3	8.9
Depreciation and amortisation	1.9	1.4
Audit related assurance services	0.7	0.6
Fees payable to the auditors for other assurance services	0.1	0.1
Share-based payments	1.0	0.7
Lease finance expense	0.1	0.2

9. Share-based payments

Company Share Option Plans

During the six months ended 30 September 2023, the Group issued awards under the Long-Term Incentive Plan (LTIP), the Deferred Bonus Plan (DBP, which forms part of the LTIP) and the Share Incentive Plan (SIP), to certain employees.

The number of options/awards made under the plans are as follows:

LTIP: 2,719,000

DBP: 1,358,755

SIP: 1,020,559

There were no options or awards which vested in the LTIP or SIP share-based plan respectively in the period. Under the DBP, a total of 161,001 options vested in the period.

The grant of shares or options under these schemes may be made on an annual or on an ad hoc basis. The DBP and LTIP options awards aforementioned are pro-rated due to leavers during the period.

Share Option expense recognised

During the six months ended 30 September 2023, the Group recognised a £1.0 million expense as a result of issued share options vesting.

	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m
	(Unaudited)	(Unaudited)
The expense is included in administrative expenses	1.0	0.7

10. Taxation on profit on ordinary activities

The Group is subject to all taxes applicable to a commercial company in the United Kingdom. The UK business profits of the Group are subject to UK income tax at the prevailing basic rate of 25% (2022: 19%).

As of 30 September 2023, the Group had a deferred tax liability of £(0.6)m (31 March 2023: net deferred tax asset of £1.2m). The deferred tax (liability) / asset include:

●     Asset of £0.8m (31 March 2023: Asset of £1.4m) related to temporary differences arising between the tax base of share-based payments and the carrying amount;

●     Liability of £(0.1)m (31 March 2023: Liability of £(0.1)m) related to temporary differences arising between the tax base of property, plant and equipment and the carrying amount;

●     Liability of £(2.0)m (31 March 2023: Asset of £0.2m) related to the fair value reserve on loans and advances and cash flow hedge reserve;

●     Asset of £0.1m (31 March 2023: Asset of £0.1m) related to the ECL provision on transition to IFRS 9;

●     Asset of £0.1m (31 March 2023: Asset of £0.1m) related to transition to IFRS 16;

●     Asset of £0.7m (31 March 2023: nil) related to recognised tax losses available for offset against future taxable profits; and

●     Liability of £0.2m (31 March 2023: Liability of £(0.5)m) related to accelerated deductions from research and development activity.

11. Trade and other receivables

	As at 30 September 2023 £'m	As at 31 March 2023 £'m
	(Unaudited)	(Audited)
Due within one year
Trade receivables	1.7	0.5
Other receivables:
Prepayments and accrued income	2.6	1.9
Other receivables	0.2	2.5
Due after one year
Rent deposit	-	1.2
	4.5	6.1

12. Cash and cash equivalents

	As at 30 September 2023 £'m	As at 31 March 2023 £'m
	(Unaudited)	(Audited)
Cash	84.5	40.4
Cash equivalents	-	-
Trustee's account	3.5	6.3
	88.0	46.7

Trustees' accounts relate to monies held on account for the benefit of our investors in the Self-select Platform, prior to them either investing in loans or withdrawing their capital. Operationally, the Company does not treat the Trustees' balances as available funds. An equal and opposite payable amount is included within the trade payables balance (see note 18).

13. Loans and advances

On 14 April 2023, the Group sold its non-risk retention residual economic interest in the Mortimer BTL 2021-1 plc securitisation. This transaction resulted in a reduction in the Group's gross loans and advances of £236m.

On 26 May 2023, the Group sold a portfolio of BTL residential mortgages to Chetwood Financial Limited. The book value of the portfolio was c.£250m.

	As at 30 September 2023 £'m	As at 31 March 2023 £'m
	(Unaudited)	(Audited)
Gross loans and advances	822.4	1,168.5
ECL provision	(15.5)	(9.1)
Fair value adjustment (*)	0.6	(36.5)
Loans and advances	807.5	1,122.9

 (*) Fair value adjustment to gross loans and advances due to classification as FVTOCI. Fair value adjustments are a function of changes in discount rates on the Group's loan assets. The changes in the underlying variables during the period and effect on fair value is discussed in Note 25.

 ECL provision

Movement in the period	£'m
Under IFRS 9 at 1 April 2023 (Audited)	(9.1)
Additional provisions made during the period1	(8.1)
Utilised in the period2	1.2
Recoveries of amounts previously written off	0.5
Under IFRS 9 at 30 September 2023 (Unaudited)	(15.5)

Movement in the period	£'m
Under IFRS 9 at 1 April 2022 (Audited)	(11.0)
Additional provisions made during the period1	(2.8)
Utilised in the period2	-
Recoveries of amounts previously written off	0.1
Under IFRS 9 at 30 September 2022 (Unaudited)	(13.7)

¹The increase in provision during the period primarily related to individual assessments in respect of a small number of larger and more complex structured bridging and development finance loans. The increased provision therefore reflects idiosyncratic factors on particular loans, rather than a systemic increase in the risk profile of the overall loan portfolio. Additional provisions made during the period include £0.5m (2022: £0.7m) of expected credit losses incurred on the interest income recognised on stage 3 loans and advances.

²The provision utilised in the period includes £0.5m in respect of loans that have been written off. Loans that are written off can still be subject to enforcement activities in order to comply with the Group's procedures for recovery of amounts due. The contractual amount outstanding on loans and advances that have previously been written off and are still subject to enforcement activity is £4.8m (2022: £9.0m). The remaining balance of the provision utilised in the period of £0.7m represents the ECL provision that was being carried in respect of the loan portfolio that was sold to Chetwood Financial Limited. This has been recycled to the related loss on derecognition of financial assets.

The net movement on the ECL provision for the period to 30 September 2023 that has impacted the condensed consolidated interim statement of profit and loss is £6.4m (2022: £2.7m). The impairment charge for the period is £7.1m (2022: £1.9m), the difference being the £0.7m of provision related to the loan portfolio sale referenced above.

Analysis of loans and advances by stage

As at 30 September 2023	Stage 1 £'m	Stage 2 £'m	Stage 3 £'m	Total £'m
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Gross loans and advances	614.3	150.8	57.3	822.4
ECL provision	(0.3)	(1.7)	(13.5)	(15.5)
Fair value adjustment	-	0.6	-	0.6
Loans and advances	614.0	149.7	43.8	807.5

The maximum LTV on stage 1 loans is 90%. The maximum LTV on stage 2 loans is 92%. The maximum LTV on Stage 3 loans is 103% and the total value of collateral (capped at the gross loan value) held on stage 3 loans is £54.9m.

As at 31 March 2023	Stage 1 £'m	Stage 2 £'m	Stage 3 £'m	Total £'m
	(Audited)	(Audited)	(Audited)	(Audited)
Gross loans and advances	935.7	196.7	36.1	1,168.5
ECL provision	(0.5)	(1.3)	(7.3)	(9.1)
Fair value adjustment	(32.9)	(3.6)	-	(36.5)
Loans and advances	902.3	191.8	28.8	1,122.9

The maximum LTV on stage 1 loans is 82%. The maximum LTV on stage 2 loans is 87%. The maximum LTV on Stage 3 loans is 247% and the total value of collateral (capped at the gross loan value) held on stage 3 loans is £34.3m.

The fair value adjustments on Stage 3 loans are not applied. Loans and Advances recognised as Stage 3 are credit impaired and their carrying value represents the discounted cashflows which could be recovered after assessing the likelihood of the borrower rehabilitating or the alternative outcome which involves reliance on the proceeds from the sale of security The discounted cash flows are arrived based on a proprietary model which considers macroeconomic as well as behavioural factors.

Credit risk on gross loans and advances

The table below provides information on the Group's loans and advances by stage and risk grade.

Risk grades detailed in the table range from 1 to 10 with a risk grade of 1 being assigned to cases with the lowest credit risk and 10 representing cases in default. Equifax Risk Navigator (RN) scores are used to assign the initial Risk Grade score with additional SICR rules used to generate the final Risk Grade.

As at 30 September 2023	Stage 1 £'m	Stage 2 £'m	Stage 3 £'m	Total £'m
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Risk Grades 1 - 5	612.9	120.5	-	733.4
Risk Grades 6 - 9	1.4	30.3	-	31.7
Default	-	-	57.3	57.3
Total	614.3	150.8	57.3	822.4

As at 31 March 2023	Stage 1 £'m	Stage 2 £'m	Stage 3 £'m	Total £'m
	(Audited)	(Audited)	(Audited)	(Audited)
Risk Grades 1 - 5	934.2	170.2	-	1,104.4
Risk Grades 6 - 9	1.5	26.5	-	28.0
Default	-	-	36.1	36.1
Total	935.7	196.7	36.1	1,168.5

Impairment provisions are calculated on an expected credit loss ('ECL') basis. Financial assets are classified individually into one of the categories below:

Stage 1 - assets are allocated to this stage on initial recognition and remain in this stage if there is no significant increase in credit risk since initial recognition. Impairment provisions are recognised to cover 12-month ECL, being the proportion of lifetime ECL arising from default events expected within 12 months of the reporting date.

Stage 2 - assets where it is determined that there has been a significant increase in credit risk since initial recognition, but where there is no objective evidence of impairment. Impairment provisions are recognised to cover lifetime probability of default.

Stage 3 - assets where there is objective evidence of impairment, i.e. they are considered to be in default. Impairment provisions are recognised against lifetime ECL. For assets allocated to stage 3, interest income is recognised on the balance net of impairment provision.

Purchased or originated credit impaired ('POCI') - POCI assets are financial assets that are credit impaired on initial recognition. On initial recognition, they are recorded at fair value. ECLs are only recognised or released to the extent that there is a subsequent change in the ECLs. Their ECLs are always measured on a lifetime basis.

Where there is objective evidence that asset quality has improved, assets will be allocated to a lower risk category. For example, loans no longer in default (stage 3) will be allocated to either stage 2 or stage 1. Evidence that asset quality has improved will include:

·      repayment of arrears;

·      improved credit worthiness; and

·      term extensions and the ability to service outstanding debt.

If a loss is ultimately realised, it is written off against the provision previously provided for with any excess charged to the impairment provision in the statement of profit and loss.

Movement analysis of net loans by stage

	Stage 1 £'m	Stage 2 £'m	Stage 3 £'m	Total £'m
As at 1 April 20231	902.2	191.8	28.9	1,122.9
Transfer to stage 1	21.6	(21.6)	-	-
Transfer to stage 2	(75.7)	75.9	(0.2)	-
Transfer to stage 3	(10.7)	(21.6)	32.3	-
New financial assets originated	300.7	-	-	300.7
New financial assets originated and transferred to stage 2 or 3	(23.5)	23.0	0.5	-
Financial assets which have repaid	(109.0)	(48.8)	(2.5)	(160.3)
Balance movement in loans	(391.6)	(49.0)	(15.2)	(455.8)
Total movement in loans and advances	(288.2)	(42.1)	14.9	(315.4)
As at 30 September 2023	614.0	149.7	43.8	807.5

Movement analysis of gross loans by stage

	Stage 1 £'m	Stage 2 £'m	Stage 3 £'m	Total £'m
As at 1 April 20231	935.7	196.7	36.1	1,168.5
Transfer to stage 1	22.5	(22.5)	-	-
Transfer to stage 2	(77.2)	77.4	(0.3)	(0.1)
Transfer to stage 3	(10.6)	(21.5)	32.2	0.1
New financial assets originated	296.6	-	-	296.6
New financial assets originated and transferred to stage 2 or 3	(23.1)	22.6	0.5	-
Financial assets which have repaid	(109.2)	(49.2)	(2.8)	(161.2)
Balance movement in loans	(420.4)	(52.7)	(7.9)	(481.0)
Write offs	-	-	(0.5)	(0.5)
Total movement in loans and advances	(321.4)	(45.9)	21.2	(346.1)
As at 30 September 2023	614.3	150.8	57.3	822.4

Movement analysis of ECL by stage

	Stage 1 £'m	Stage 2 £'m	Stage 3 £'m	Total £'m
As at 1 April 20231	0.5	1.2	7.4	9.1
Transfer to stage 1	0.2	(0.2)	-	-
Transfer to stage 2	-	0.1	(0.1)	-
Transfer to stage 3	-	-	-	-
New financial assets originated	0.5	-	-	0.5
New financial assets originated and transferred to stage 2 or 3	(0.4)	0.3	0.1	-
Financial assets which have repaid	(0.1)	(0.2)	(0.4)	(0.7)
Changes in models/risk parameters	(0.4)	0.5	6.5	6.6
Adjustments for interest on impaired loans	-	-	0.5	0.5
Write offs	-	-	(0.5)	(0.5)
Total movement in impairment provision	(0.2)	0.5	6.1	6.4
As at 30 September 2023	0.3	1.7	13.5	15.5

Critical accounting estimates relating to the impairment of financial assets:

The calculation of ECLs requires the Company to make a number of assumptions and estimates. The accuracy of the ECL calculation would be impacted by movements in the forward-looking economic scenarios used, or the probability weightings applied to these scenarios and by unanticipated changes to model assumptions that differ from actual outcomes.

The key assumptions and estimates that, depending on a range of factors, could result in a material adjustment in the next financial year relate to the use of forward-looking information in the calculation of ECLs and the inputs and assumptions used in the ECL models.

Forward-looking information

The Company incorporates forward-looking information into the calculation of ECLs and the assessment of whether there has been a significant increase in credit risk ('SICR'). The use of forward-looking information represents a key source of estimation uncertainty. The Company uses three forward-looking economic scenarios:

1.     a central scenario aligned to the Company's business plan;

2.     a downside scenario as modelled in the Company's risk management process; and

3.     an upside scenario representing the impact of modest improvements to assumptions used in the central scenario.

The probability weightings applied to the above scenarios are another area of estimation uncertainty. They are generally set to ensure that there is an asymmetry in the ECL. The probability weightings applied to the three economic scenarios used are as follows:

	As at 30 September 2023	As at 31 March 2023
Base	40%	40%
Upside	40%	40%
Downside	20%	20%

The macroeconomic data inputs applied in determining the Group's expected credit losses are sourced from Oxford Economics (a third-party provider of global economic forecasting and analysis). Oxford Economics combines two decades of forecast errors with its quantitative assessment of the current risks facing the global and domestic economy to produce robust forward-looking distributions for the economy.

Using specific percentile points in the distribution of several key metrics such as GDP, unemployment, house prices and commercial real estate prices, three alternative scenarios are derived, relating to a base case (most likely), downside (broadly equivalent to a one-in-ten years event) and a moderate upside scenario. Assumptions on the likely out-turn represent a weighted average of these three scenarios provided by Oxford Economics, and are detailed below:

As at 30 September 2023

Macro Assumptions	2024	2025	2026	2027	2028	2029	2030	2031	2032
Real GDP growth (% growth YoY)
Base	0.38%	1.47%	2.26%	1.54%	1.65%	1.53%	1.40%	1.36%	1.36%
Upside	4.89%	3.07%	3.25%	1.62%	1.51%	1.38%	1.26%	1.21%	1.21%
Downside	-3.23%	0.62%	1.87%	1.56%	1.76%	1.64%	1.52%	1.47%	1.47%
Unemployment %
Base	4.60%	4.40%	3.90%	3.90%	3.80%	3.80%	3.80%	3.70%	3.70%
Upside	3.55%	2.74%	2.23%	2.26%	2.30%	2.37%	2.49%	2.60%	2.71%
Downside	5.80%	6.80%	7.00%	6.80%	6.60%	6.30%	6.10%	5.90%	5.70%
House price inflation %
Base	-7.10%	-2.84%	4.62%	7.06%	5.98%	4.51%	3.65%	2.90%	2.97%
Upside	-2.84%	0.70%	7.74%	6.79%	5.71%	4.24%	3.38%	2.64%	2.71%
Downside	-12.60%	-7.52%	1.01%	7.43%	6.34%	4.86%	3.99%	3.26%	3.32%
Commercial real estate (% growth YoY)
Base	2.04%	3.73%	3.21%	2.86%	2.18%	1.66%	1.28%	1.15%	0.91%
Upside	9.94%	4.95%	2.80%	1.01%	0.52%	0.26%	0.17%	0.16%	0.25%
Downside	-3.41%	3.53%	3.84%	4.52%	3.67%	2.65%	2.22%	1.69%	1.54%

As at 31 March 2023

Macro Assumptions	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032
Real GDP growth (% growth YoY)
Base	0.01%	0.60%	2.40%	2.62%	1.43%	1.44%	1.33%	1.36%	1.37%	1.38%
Upside	0.00%	5.90%	3.80%	3.80%	1.30%	1.30%	1.20%	1.20%	1.20%	1.20%
Downside	0.01%	-3.84%	1.70%	2.25%	1.54%	1.56%	1.44%	1.47%	1.49%	1.49%
Unemployment %
Base	3.87%	4.26%	4.04%	3.76%	3.75%	3.75%	3.75%	3.75%	3.75%	3.75%
Upside	3.87%	3.22%	2.40%	2.12%	2.16%	2.27%	2.39%	2.50%	2.61%	2.73%
Downside	3.87%	5.58%	6.60%	6.93%	6.71%	6.50%	6.29%	6.08%	5.88%	5.67%
House price inflation %
Base	1.16%	-7.15%	-2.06%	2.68%	5.93%	5.07%	3.70%	3.39%	3.37%	3.40%
Upside	1.16%	-1.45%	1.59%	6.38%	5.68%	4.82%	3.45%	3.14%	3.11%	3.15%
Downside	1.16%	-13.37%	-6.72%	-2.58%	6.32%	5.45%	4.07%	3.77%	3.74%	3.77%
Commercial real estate (% growth YoY)
Base	-10.08%	3.34%	2.16%	3.11%	1.80%	1.68%	1.29%	1.22%	1.11%	1.02%
Upside	-10.08%	15.5%	4.08%	3.83%	-0.48%	-0.15%	-0.17%	0.04%	0.16%	0.25%
Downside	-10.08%	-6.39%	1.63%	3.44%	3.56%	3.09%	2.42%	2.12%	1.83%	1.60%

GDP, unemployment rates and HPI are key metrics that indicate the appetite for credit within the economy, the ability of borrowers to service debt and the value of underlying securities that underpin credit risk management; all of which directly impact the Group's operational activities and success.

The Company undertakes a review of its economic scenarios and the probability weightings applied at least quarterly, and more frequently if required.

As at 30 September 2023

Scenario	ECL provision £'m
Expected credit losses - 100% upside scenario	13.5
Expected credit losses - 100% downside scenario	16.9

As at 31 March 2023

Scenario	ECL provision £'m
Expected credit losses - 100% upside scenario	7.9
Expected credit losses - 100% downside scenario	10.0

The results of this review are recommended to the Audit & Risk Committee and the Group's Board. Given the steep rise in the Bank of England Base Rate, the impairment charge for Buy-to-Let loans includes a post model adjustment to account for an increased risk of default as borrowers' revert to materially higher variable rates, from low fixed rates, over the next 12 months resulting in an additional impairment charge of £0.2m (2022: £0.6m). This is the only post model adjustment.

Model estimations

ECL calculations are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. The Group considers the key assumptions impacting the ECL calculation to be the Probability of Default ('PD') and Loss Given Default ('LGD'). Sensitivity analysis is performed by the Group to assess the impact of changes in these key assumptions on the expected credit loss provision recognised on loans and advances. A summary of the key assumptions and sensitivity analysis as at 30 September 2023 is provided in the following table:

Assumption	Sensitivity analysis	Impact on ECL £'m
Unemployment	20% increase in the unemployment rate	0.0
Forced sale discount	10% absolute increase in the forced sale discount	0.7

As at 31 March 2023

Assumption	Sensitivity analysis	Impact on ECL £'m
Unemployment	20% increase in the unemployment rate	0.1
Forced sale discount	10% absolute increase in the forced sale discount	0.2

Critical judgements relating to the impairment of financial assets

The Company reviews and updates the key judgements relating to impairment of financial assets bi-annually, in advance of the Interim Financial Report and the Annual Report and Accounts. All key judgements are reviewed and recommended to the Audit & Risk Committee for approval prior to implementation.

Assessing whether there has been a significant increase in credit risk ('SICR')

If a financial asset shows a SICR, it is transferred to Stage 2 and the ECL recognised changes from a 12-month ECL to a lifetime ECL. The assessment of whether there has been a SICR requires a high level of judgement. The assessment of whether there has been a SICR also incorporates forward-looking information. The Company considers that a SICR has occurred when any of the following have occurred:

1. The overall creditworthiness of the borrower has materially worsened, indicated by a migration to a higher risk grade (see below for risk grades and probability of default ("PDs") by product);

2. Where a borrower is currently one month or more in arrears;

3. Where a borrower has sought some form of forbearance;

4. Where the overall leverage of the account has surpassed a predetermined level. 75% Loan to Gross Development Value for bridging loans and 85% for all other products;

5. Where a short-term bridging loan has less than one month before maturity; and

6. Where there is a material risk that a development loan will not reach practical completion on time.

These factors reflect the credit lifecycle for each product and are based on prior experience as well as insight gained from the development of risk ratings models (probability of default).

Stage 2 criteria are designed to be effective indicators of a SICR. As part of the bi-annual review of key impairment judgements, the Company undertakes detailed analysis to confirm that the Stage 2 criteria remain effective. This includes (but is not limited to):

·      Criteria effectiveness: this includes the emergence to default for each Stage 2 criterion when compared to Stage 1; Stage 2 outflow as a percentage of Stage 2; percentage of new defaults that were in Stage 2 in the months prior to default; time in Stage 2 prior to default; and percentage of the book in Stage 2 that are not progressing to default or curing.

·      Stage 2 stability: this includes stability of inflows and outflows from Stage 2 and 3.

·      Portfolio analysis: this includes the percentage of the portfolio that is in Stage 2 and not defaulted; the percentage of the Stage 2 transfer driven by Stage 2 criterion other than the backstops; and back-testing of the defaulted accounts.

For low credit risk exposures, it is permitted to assume, without further analysis, that the credit risk on a financial asset has not increased significantly since initial recognition if the financial asset is determined to have low credit risk at the reporting date. The Group has opted not to apply this low credit risk exemption.

A summary of the Risk grade distribution is provided in the table below. As the Company utilises three different risk rating models, three separate PDs have been provided for each portfolio. Risk Grades 1-9 are for non-defaulted accounts with 10 indicating default. Therefore, all Stage 3 loans are assigned to this grade. As stated above, degradation in a borrower's creditworthiness is an indication of SICR. Therefore, as shown in the table below, Stage 2 loan distributions are in the main assigned to risk grades higher than Risk Grade 1.

As at 30 September 2023

	Balances (£'m)			ECL (£'m)			Probability of default
Risk Grade	Stage 1	Stage 2	Stage 3	Stage 1	Stage 2	Stage 3	Bridging	Development	BTL	Residential
RG1	560.0	0.9	-	(0.3)	-	-	7%	0%	0%	0%
RG2	30.0	56.0	-	-	(0.8)	-	12%	1%	0%	0%
RG3	13.7	23.6	-	-	(0.3)	-	19%	2%	1%	1%
RG4	3.9	12.9	-	-	(0.2)	-	30%	3%	1%	1%
RG5	5.4	27.1	-	-	(0.1)	-	45%	4%	2%	2%
RG6	1.3	23.1	-	-	(0.2)	-	69%	6%	4%	4%
RG7	-	2.0	-	-	-	-	79%	8%	7%	7%
RG8	-	0.4	-	-	-	-	88%	11%	12%	12%
RG9	-	4.8	-	-	(0.1)	-	93%	15%	19%	19%
RG10	-	-	57.3	-	-	(13.5)	100%	100%	100%	100%
Total	614.3	150.8	57.3	(0.3)	(1.7)	(13.5)	-	-	-	-

As at 31 March 2023

	Balances (£'m)			ECL (£'m)			Probability of default
Risk Grade	Stage 1	Stage 2	Stage 3	Stage 1	Stage 2	Stage 3	Bridging	Development	BTL
RG1	882.1	0.9	-	(0.4)	-	-	7%	0%	0%
RG2	34.1	93.9	-	(0.1)	(0.4)	-	12%	1%	0%
RG3	7.3	37.7	-	-	(0.3)	-	19%	2%	1%
RG4	4.3	24.7	-	-	(0.2)	-	30%	3%	1%
RG5	6.4	13.0	-	-	(0.1)	-	45%	4%	2%
RG6	1.2	21.1	-	-	(0.1)	-	69%	6%	4%
RG7	0.3	1.5	-	-	(0.1)	-	79%	8%	7%
RG8	-	0.5	-	-	-	-	88%	11%	12%
RG9	-	3.4	-	-	(0.1)	-	93%	15%	19%
RG10	-	-	36.1	-	-	(7.3)	100%	100%	100%
Total	935.7	196.7	36.1	(0.5)	(1.3)	(7.3)	-	-	-

Determining whether a financial asset is in default or credit impaired

When there is objective evidence of impairment and the financial asset is considered to be in default, or otherwise credit-impaired, it is transferred to Stage 3. The Company's definition of default follows product-specific characteristics allowing for the provision to reflect operational management of the portfolio. Below is a short description of each product type and the Company's definition of default as specific to each product.

Bridging Loans - Bridging loans are short-term loans designed for customers requiring timely access to funds to facilitate property purchases. Typically, loans involve residential securities, however, commercial, semi-commercial and land is also taken as security. A bridging loan is considered to be in default if a borrower fails to repay their loan after 30 days and does not seek an authorised extension; or it is structured and the loan is two months in arrears.

Development Loan - Development loans support borrowers looking to undertake a significant property or site development. The resulting site should be for residential purposes only. Loan terms are typically for the short term (less than three years) with no structured repayments. A development loan is defined as being in default if it has not been redeemed 60 days after the maturity of the loan.

Buy-to-let (BTL) Loans - BTL loans are extended to borrowers looking to purchase a new rental property or refinance an existing rental property. A BTL loan is considered to be in default if the loan is three months in arrears.

Specialist Residential - Residential loans support borrowers looking to purchase or refinance their primary residence. A residential loan defined as in default if the loan is three months in arrears; or if the borrower has been declared bankrupt.

The Company does not apply the rebuttable presumption that default does not occur later when a financial asset is 90 days past due.

Improvement in credit risk or cure

There is no cure period assumed for loans showing improvement in credit risk. This means that any loan that does not meet the SICR criteria is assigned to Stage 1.

14. Investment securities

	As at 30 September 2023 £'m	As at 31 March 2023 £'m
	(Unaudited)	(Audited)
Retained interest in
Mortimer BTL 2020-1 PLC	-	10.7
Mortimer BTL 2021-1 PLC	10.7	-
Mortimer BTL 2022-1 PLC	12.8	13.2
Total	23.5	23.9

The Group sold its residual interest it held in Mortimer BTL 2020 - PLC on 1 March 2023. The sale of the certificate and Mortimer 2020 asset being called on March 1 2023 resulted in a derecognition event, as substantially all of the risk, rewards and control of the vehicle passed to the Purchaser. As the variable returns, and control of the vehicle had been transferred, the Mortimer BTL 2020-1 plc entity has also been deconsolidated from the Group's results. Subsequent to this, Mortimer BTL 2020-1 plc was called by the certificate holder in June 2023, redeeming all notes at par value. Therefore, the retained interest was repaid at par value such that there is no longer any retained interest in Mortimer BTL 202-1 Plc held by the Group.

The Group sold its holding of the certificate for Mortimer BTL 2021 - PLC on the 19 April 2023. The sale of the certificate represents the excess spreads in the securitisation vehicle as well as an option to repurchase the asset from the vehicle on June 25 2026. The sale of the certificate and call options resulted in a derecognition event as substantially all the risks, rewards, and control of the vehicle passed to the purchaser. As the variable returns and control of the vehicle had been transferred, the Mortimer BTL 2021-1 plc entity has also been deconsolidated from the Group's results. The investment securities of £10.7m represent the retained risk retention in the form of debt securities issued by unconsolidated structured entities as part of the securitisation transactions that are retained by the Group.

The Group securitised a portfolio of mortgage loans on 12 May 2022. On 14 August 2022, the Group sold its holdings of residual notes in the securitisation vehicle, Mortimer BTL 2022-1 plc. The sale of the residual notes represented the excess spreads in the securitisation vehicle as well as an option to repurchase the assets from the vehicle on 23 June 2025. The sale of the residual notes and call options resulted in a derecognition event as substantially all of the risks, rewards and control of the vehicle passed to the purchaser. As the variable returns and control of the vehicle had been transferred, the Mortimer BTL 2022-1 plc entity has also been deconsolidated from the Group's results. The investment securities of £12.8m represent the retained risk retention in the form of debt securities issued by unconsolidated structured entities as part of the securitisation transactions that are retained by the group.

15. Property, plant and equipment

Cost	Computer equipment £'m	Furniture and fittings £'m	Leasehold improvements £'m	Right of use asset £'m	Total £'m
Balance as at 31 March 2023	0.4	0.1	0.4	5.2	6.1
Additions	-	-	-	-	-
Balance as at 30 September 2023	0.4	0.1	0.4	5.2	6.1
Accumulated depreciation and impairment	Computer equipment £'m	Furniture and fittings £'m	Leasehold improvements £'m	Right of use asset £'m	Total £'m
Balance as at 31 March 2023	0.2	0.1	0.2	3.4	3.9
Charge for the period	0.1	-	-	0.3	0.4
Balance as at 30 September 2023	0.3	0.1	0.2	3.7	4.3
Net carrying value as at 30 September 2023	0.1	-	0.2	1.5	1.8
Net carrying value as at 31 March 2023	0.2	-	0.2	1.8	2.2

16. Lease arrangements

Future minimum payments under non-cancellable leases:

Premises	As at 30 September 2023 £'m	As at 31 March 2023 £'m
Due within a year	0.6	1.1
Due between 1-5 years	2.2	2.2
Due later than 5 years	-	-
	2.8	3.3

The Group has a dilapidation requirement to return the leased office to the specification as per the lease agreement. The total dilapidation is expected to be £9.54 per square foot. The Group and the Company have no significant contingent liabilities at the period end.

17. Intangible fixed assets

Internally developed software has been capitalised as an intangible fixed asset and is being amortised over a useful economic life of five years. During this period, the Group capitalised internal costs of £2.2m (the six months ended 30 September 2022: £2.8m). Amortisation: During the six months ended 30 September 2023, the Group amortised £1.4m against intangible fixed assets (the six months ended 30 September 2022: £0.8m).

Cost	Software licences £'m	Internally developed software £'m	Total £'m
Balance as at 31 March 2023	0.7	18.3	19.0
Additions	-	2.2	2.2
Balance as at 30 September 2023	0.7	20.5	21.2
Accumulated amortisation and impairment	Software licences £'m	Internally developed software £'m	Total £'m
Balance as at 31 March 2023	0.7	7.8	8.5
Charge for the period	-	1.4	1.4
Balance as at 30 September 2023	0.7	9.2	9.9
Net carrying value as at 30 September 2023	-	11.3	11.3
Net carrying value as at 31 March 2023	-	10.5	10.5

18. Trade and other payables

	As at 30 September 2023 £'m	As at 31 March 2023 £'m
	(Unaudited)	(Audited)
Trade payables	14.5	15.1
Other payables:
Taxation and social security costs	1.4	1.4
Accruals and deferred income	9.7	7.0
Sub - lease deposit rent payable	0.2	0.2
FY23 Final Dividend placeholder	4.5	-
	30.3	23.7

The trade payables balance includes Trustees' balances of £3.5m in respect of uninvested cash held on the self-select platform, which may be withdrawn by investors at any time. The Company has no non-current trade and other payables. The carrying value of trade and other payables approximates fair value.

The accruals and deferred income balance includes a £4.5m accrual for the FY23 dividend declared on 18 September 2023 but paid on 13 October 2023.

19. Interest bearing liabilities         

	As at 30 September 2023 £'m	As at 31 March 2023 £'m
	(Unaudited)	(Audited)
Funds from investors and partners	853.4	1,159.6
Accrued Interest	3.4	4.3
Funding line costs	(3.5)	(4.6)
	853.3	1,159.3

On 14 April 2023, the Group sold its non-risk retention residual economic interest in the Mortimer BTL 2021-1 plc securitisation for a cash consideration of £8.6m. This transaction resulted in a reduction in the Group's interest-bearing liabilities of £234m.

On 26 May 2023, the Group sold a portfolio of BTL residential mortgages to Chetwood Financial Limited for a cash consideration of £243m inclusive of the proceeds from cancelled interest rate derivatives. £237m of interest-bearing liabilities were re-paid on completion of the transaction.

During the six-month period, the Group drew down £165m from funding lines to finance new originations.

The Group's interest on funding has ranged between 1% to 8% in the 6 months period ended 30 September 2023.

Funding line costs are amortised on an effective interest rate basis. Interest bearing liabilities are secured by charges over the assets and operations of the Group.

20. Reconciliation of liabilities arising from financing activities

	Interest bearing liabilities £'m	Leases £'m	Derivatives £'m
31 March 2022 (Audited)	(1,214.1)	(4.1)	32.5
Cash flows	54.8	1.4	(8.4)
Fair value changes	-	-	21.9
Reinstatement of dilapidations provision	-	(0.1)	-
Lease liability interest	-	(0.5)	-
31 March 2023 (Audited)	(1,159.3)	(3.3)	46.0
Cash flows	71.8	0.7	26.6
Fair value changes	-	-	(60.6)
Leases finance expense	-	(0.2)	-
De-consolidation	234.2	-	-
30 September 2023 (Unaudited)	(853.3)	(2.8)	12.0

21. Financial instruments

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises, are loans and advances, trade and other receivables, cash and cash equivalents, loans and borrowings, derivatives, and trade and other payables.

Categorisation of financial assets and financial liabilities

With the exception of loan commitments classified as fair value through profit or loss, all financial assets of the Group are carried at amortised cost or fair value through other comprehensive income as at 30 September 2023 and 31 March 2023 depending on the business model under which the Group manages the financial assets. All financial liabilities of the Group are carried at amortised cost as at 30 September 2023 and 31 March 2023 due to the nature of the liability.            

Financial instruments measured at amortised cost, rather than fair value, include cash and cash equivalents, trade and other receivables, trade and other payables, rent deposit and interest-bearing liabilities. Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, and trade and other payables approximates their fair value.

(a)  Carrying amount of financial instruments

A summary of the financial instruments held by category is provided below:

	As at 30 September 2023 £'m	As at 31 March 2023 £'m
	(Unaudited)	(Audited)
Financial assets at amortised cost
Cash and cash equivalents	88.0	46.7
Trade and other receivables	4.5	4.2
Loans and advances1	148.2	174.2
Investment securities	23.5	23.9
Financial assets at fair value through other comprehensive income
Loans and advances	659.3	948.7
Fair value adjustment for portfolio hedged risk	0.2	0.1
Financial assets at fair value through profit and loss
Derivative financial asset	12.0	46.0
Total financial assets	935.7	1,243.8
Financial liabilities at amortised cost
Trade and other payables	(30.3)	(22.3)
Interest bearing liabilities	(853.3)	(1,159.3)
Lease liabilities	(2.8)	(3.3)
Total financial liabilities	(886.4)	(1,184.9)

¹The balance relates to a portfolio of loans which was repurchased from the Mortimer 2019-1 BTL plc securitisation vehicle. This portfolio is managed under a hold to collect business model and therefore measured at amortised cost.

(b)  Carrying amount versus fair value

The following table compares the carrying amounts and fair values of the Group's financial assets and financial liabilities.

	As at 30 September 2023 £'m	As at 30 September 2023 £'m	As at 31 March 2023 £'m	As at 31 March 2023 £'m
	Carrying Amount	Fair Value	Carrying Amount	Fair Value
	(Unaudited)		(Audited)
Financial assets
Cash and cash equivalents	88.0	88.0	46.7	46.7
Trade and other receivables	4.5	4.5	4.2	4.2
Loans and advances	807.5	812.4	1,122.9	1,122.9
Investment securities	23.5	22.6	23.9	23.9
Derivative financial asset	12.0	12.0	46.0	46.0
Fair value adjustment for portfolio hedged risk asset	0.2	0.2	0.1	0.1
Total financial assets	935.7	939.7	1,243.8	1,243.8
Financial liabilities
Trade and other payables	(30.3)	(30.3)	(22.3)	(22.3)
Interest bearing liabilities	(853.3)	(847.0)	(1,159.3)	(1,157.9)
Lease liabilities	(2.8)	(2.8)	(3.3)	(3.3)
Total financial liabilities	(886.4)	(880.1)	(1,184.9)	(1,183.5)

The fair value of the Retail Bond 2 interest bearing liability is calculated based on the mid-market price of £99.50 on 30 September 2023 (31 March 2023: £98.1).

The fair value of the Retail Bond 3 interest bearing liability is calculated based on the mid-market price of £85.50 on 30 September 2023 (31 March 2023: £98.7).

Loans and advances are classified as fair value through other comprehensive income and any changes to fair value are calculated based on a fair value model using level 3 inputs and recognised through the Statement of Other Comprehensive Income. Interest bearing liabilities are classified at amortised cost and the fair value measured using level 1 inputs in the table above is for disclosure purposes only.

22. Derivatives held for risk management and hedge accounting

	As at 30 September 2023		As at 31 March 2023
	(Unaudited)		(Audited)
Instrument type	Asset £'m	Liability £'m	Asset £'m	Liability £'m
Interest rate swap	12.0	-	46.0	-

The Condensed consolidated interim statement of financial position as at 30 September 2023 includes a balance for derivative financial assets of £12.0m. This includes the £12.0m fair value of interest rate swap derivatives held for risk management.

All derivatives are accounted for at fair value for the purpose of hedging fair value risk exposures associated with the BTL and Homeowner mortgage portfolios. The net notional principal amount of the outstanding interest rate swap contracts at 30 September 2023 was £358.3m (31 March 2023: £779.1m).

During the period, the fair value of the derivatives positions decreased by £34m (six months ended 30 September 2022: £64.6m increase).

23. Share capital

	As at 30 September 2023 number	As at 31 March 2023 number
	(Unaudited)	(Audited)
Issued and fully paid up
Ordinary shares of £0.0005 each	141,032,025	139,631,046
	141,032,025	139,631,046

	As at 30 September 2023  £'m	As at 31 March 2023 £'m
Issued and fully paid up	(Unaudited)	(Audited)
Ordinary Shares of £0.0005 each	0.1	0.1
	0.1	0.1

Share premium	As at 30 September 2023 £'m	As at 31 March 2023 £'m
	(Unaudited)	(Audited)
Closing balance	55.2	55.2

The balance on the share capital account represents the aggregate nominal value of all ordinary and preferred shares in issue. There is no maximum number of shares authorised by the articles of association.

The balance on the share premium account represents the amounts received in excess of the nominal value of the ordinary and preferred shares. All ordinary and preferred shares have a nominal value of £0.0005.

Reconciliation of movements during the period

	Ordinary Shares
As at 1 April 2023	139,631,046
Shares issued on exercise of company share option scheme options	1,400,979
As at 30 September 2023	141,032,025

On 5 September 2023, the company issued and allotted the remaining 67,592 ordinary shares from its existing block admission (completed in August 2021) for the purposes of granting share awards under the company's SIP. The remainder of the shares granted under the SIP were sourced from the EBT.

On 25 September 2023, the company issued a further 1,333,387 ordinary shares into the EBT to satisfy the expected exercise of vested share options held by employees under the Company's share plans.

24. Earnings per share

(a)

Basic earnings per share	6 months ended 30 September 2023 (Unaudited)	6 months ended 30 September 2022 (Unaudited)
	Pence/share	Pence/share
Total basic earnings per share attributable to the ordinary equity holders of the Group	(8.18)	10.75

(b)

Diluted earnings per share	6 months ended 30 September 2023 (Unaudited)	6 months ended 30 September 2022 (Unaudited)
	Pence/share	Pence/share
Total diluted earnings per share attributable to the ordinary equity holders of the Group	(8.18)	10.38

(c)

Number of shares used as denominator	6 months ended 30 September 2023 (Unaudited)	6 months ended 30 September 2022 (Unaudited)
Number of ordinary shares used as the denominator in calculating basic earnings per share	137,965,198	137,500,867
Adjustments for calculations of diluted earnings per share: Options	-	4,895,852
Number of ordinary shares and potential ordinary shares used as denominator in calculating diluted earnings per share	137,965,198	142,396,719

The loss after tax reported in the Condensed consolidated interim statement of profit and loss, £11.2m (30 September 2022: profit after tax £12.4m), is the numerator (earnings) used in calculating earnings per share.

25. Reserves

Fair value hierarchy

The​ ​level​ ​in​ ​the​ ​fair​ ​value​ ​hierarchy​ ​within​ ​which​ ​the​ ​financial​ ​asset​ ​or​ ​financial​ ​liability​ ​is​ ​categorised​ ​is determined​ ​on​ ​the​ ​basis​ ​of​ ​the​ ​lowest​ ​level​ ​input​ ​that​ ​is​ ​significant​ ​to​ ​the​ ​fair​ ​value​ ​measurement. Financial​ ​assets​ ​and​ ​liabilities​ ​are​ ​classified​ ​in​ ​their​ ​entirety​ ​into​ ​only​ ​one​ ​of​ ​the​ ​three​ ​levels. ​ ​The​ ​fair​ ​value hierarchy​ ​has​ ​the​ ​following​ ​levels:  

1.     ​Quoted​ ​prices​ ​(unadjusted)​ ​in​ ​active​ ​markets​ ​for​ ​identical​ ​assets​ ​or​ ​liabilities;  

2.     ​Inputs​ ​other​ ​than​ ​quoted​ ​prices​ ​included​ ​within​ ​Level​ ​1​ ​that​ ​are​ ​observable​ ​for​ ​the​ ​asset​ ​or liability, ​ ​either​ ​directly​ ​(i.e.​ ​​prices)​ ​or​ ​indirectly​ ​(i.e.​ ​derived​ ​from​ ​prices); and

3.     Inputs​ ​for​ ​the​ ​asset​ ​or​ ​liability​ ​that​ ​are​ ​not​ ​based​ ​on​ ​observable​ ​market​ ​data​ ​(unobservable inputs).    

The​ ​objective​ ​of​ ​valuation​ ​techniques​ ​is​ ​to​ ​arrive​ ​at​ ​a​ ​fair​ ​value​ ​measurement​ ​that​ ​reflects​ ​the​ ​price​ ​that would​ ​be​ ​received​ ​to​ ​sell​ ​the​ ​asset​ ​or​ ​paid​ ​to​ ​transfer​ ​the​ ​liability​ ​in​ ​an​ ​orderly​ ​transaction​ ​between​ ​market participants​ ​at​ ​the​ ​measurement​ ​date.

Financial instruments	As at 30 September 2023                                     £'m	Level 1 £'m	Level 2 £'m	Level 3 £'m
Interest rate swap* (Unaudited)	12.0	-	12.0	-
Loans and advances* (Unaudited)	659.3	-	-	659.3

 *Measured at fair value

For all other financial instruments, the fair value is equal to the carrying value and has not been included in the table above.

Financial instruments	As at 31 March 2023 £'m	Level 1 £'m	Level 2 £'m	Level 3 £'m
Interest rate swap* (Audited)	46.0	-	46.0	-
Loans and advances* (Audited)	948.7	-	-	948.7

 *Measured at fair value 

Level 2 instruments include interest rate swaps which are either two, three or five years in length. These lengths are aligned with the fixed interest periods of the underlying loan book. These interest rate swaps are valued using models used to calculate the present value of expected future cash flows and may be employed when there are no quoted prices available for similar instruments in active markets.

Level 3 instruments include loans and advances. The valuation of the asset is not based on observable market data (unobservable inputs). Valuation techniques include net present value and discounted cash flow methods. The assumptions used in such models include benchmark interest rates and borrower risk profile. The objective of the valuation technique is to determine a fair value that reflects the price of the financial instrument that would have been used by two counterparties in an arm's length transaction.

Financial instrument	Valuation techniques used	Significant unobservable inputs	Range at 30 September 2023	Range at 31 March 2023
Loans and advances	Discounted cash flow valuation	Prepayment Rate Probability of default Discount Rate	2% - 14% 16% - 84% 2.5% - 10%	2% - 12.4% 16% - 84% 2.5% - 10%

Financial assets and liabilities at fair value: Level 3 analysis:

The following section provides additional analysis of the Group's financial instruments measured at fair value that are categorised as Level 3:

Six months ended 30 September 2023 (Unaudited)	Loans and advances to customers at FVOCI:
As at 1 April 2023	948.7
Additions1	300.6
Movement in expected credit losses	(6.4)
Net fair value gains/(losses) recognised in other comprehensive income	0.6
Balance movements	(448.0)
Settlements/repayments	(136.2)
As at 30 September 2023	659.3

¹Additions include new financial assets originated, additional drawdowns and accrued interest.

Information about sensitivity to change in significant unobservable inputs

The significant unobservable inputs used in the fair value measurement of the reporting entity's loans and advances are prepayment rates, probability of default and discount rates. Significant increase / (decrease) in any of those inputs in isolation would result in a lower / (higher) fair value measurement. A change in the assumption of these inputs will not correlate to a change in the other inputs.

Sensitivity Analysis

Impact of changes in unobservable inputs	Gain or (loss) at 30 September 2023 £'m	+100bps £'m	-100bps £'m
Prepayment rates (Unaudited)	0.6	0.4	0.8
Discount rate (Unaudited)	0.6	(12.0)	13.9

Reserves are comprised of retained earnings, own share reserve, the employee share reserve, fair value reserve and cashflow hedge reserve.

Retained earnings represent all net gains and losses of the Group less directly attributable costs associated with the issue of new equity and dividends paid out to shareholders.

The employee share reserve represents the fair value of share options issued to employees but not exercised.

The own share reserve represents treasury shares held in the Group's Employee Benefit Trust which are held to be provided to staff on the exercising of options, or to be granted as part of the Group's bonus scheme.

Cash flow hedge reserve

The cash flow hedge reserve is the deferred portion of the change in the fair value of the hedging instrument that is deemed to be effective.

Six months ended 30 September 2023	Financial Liabilities £'m	Deferred tax £'m	Cash Flow Hedge Reserve £'m
Balance as at 1 April 2023 (Audited)	21.5	(5.4)	16.1
Cash flow hedge adjustment through other comprehensive income	(21.5)	5.4	(16.1)
Cash flow hedge reserve at 30 September 2023 (Unaudited)	-	-	-

On 14 April 2023, the Group sold its non-risk retention residual economic interest in the Mortimer BTL 2021-1 plc securitisation for a cash consideration of £8.66m. The sale of the certificate (residual notes) resulted in a derecognition event as substantially all the risks, rewards, and control of the vehicle passed to the investor. As the control of the vehicle (Mortimer BTL 2021-1) had been transferred, the vehicle has been deconsolidated from the Group's results. This also resulted in the re-cycling of a loss of £21.5m from the cash flow hedge reserves to the line item 'Net gain on derecognition of financial assets' in the profit and loss.

Fair value reserve

The fair value reserve represents movements in the fair value of the financial assets classified as FVTOCI. The movements in fair value are a function of changes in credit spreads, interest rate curves and size of the loan portfolio. A significant change in any of these variables will have a consequential effect on fair value movements and therefore the Group's reported reserves.

Six months ended 30 September 2023	Gross £'m	Deferred tax £'m	Net £'m
Balance as at 1 April 2023 (Audited)	(22.0)	5.5	(16.5)
Fair value movement on loans and advances during the period	37.2	(9.3)	27.9
Fair value on hedged items	12.8	(3.2)	9.6
Fair value re-cycled to line item 'loss on sale of loan portfolio' in profit or loss	(20.0)	5.0	(15.0)
Fair value reserve at 30 September 2023 (Unaudited)	8.0	(2.0)	6.0

On 26 May 2023, the Group sold a portfolio of BTL residential mortgages to Chetwood Financial Limited. On completion of the sale, the associated fair value adjustment amounting to £20m was recycled to the line item 'loss on sale of loan portfolio' in the profit and loss.

26. Dividends

No dividends (2022: £6.2mil) were paid during the period. The final dividend in respect of the year ended 31 March 2023 of 4.5 pence per share (amounting to £4.5m) was approved on 18 September 2023, and paid on 13 October 2023.

The Board is not recommending the payment of an interim dividend in respect of the 6 months ended 30 September 2023.

27. Related party transactions

Key management personnel compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group. Key management is defined as the directors of LendInvest plc.

	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m
	(Unaudited)	(Unaudited)
Salary & bonus	0.5	0.7
Defined contribution pension cost	-	-
Share based payments	-	0.1
Total	0.5	0.8

28. Events after reporting date

On 6 October 2023 £55m of retail bonds matured, which carried a coupon of 5.375%. These bonds were refinanced by a new issue of £60m retail bonds. Of the new issuance, c.£20m are currently held in treasury and are included in FuM. The new bonds carry a coupon of 11.5%.

On 29 November 2023, the business successfully completed its fifth public market securitisation transaction in respect of a £410m BTL loan portfolio. This transaction generated a cash inflow of c£34m which was used to repay c£17m of third-party mezzanine debt, with the remainder available for new lending and general business purposes. Due to the size of the transaction, the business intends to reduce the current surplus capacity in its warehouse facilities for BTL lending by c£355m, thereby reducing ongoing commitment fees. This will have a corresponding impact on FuM.

Glossary

Alternative Performance Measures

In the reporting of financial information, the Directors have adopted various alternative performance measures (APMs). APMs should be considered in addition to IFRS measurements. The Directors believe that these APMs assist in providing useful information on the underlying performance of the Group, enhance the comparability of information between reporting periods, and are used internally by the Directors to measure the Group's performance. They are not necessarily comparable to other entities' APMs.

Assets under Management ('AuM')

The Group defines AuM as the sum of (i) the total amount of outstanding loans and advances (including accrued interest, before impairment provisions and fair value adjustments), as reported on an IFRS basis in the notes to the accounts in the Group's Financial Statements, and (ii) off-balance sheet assets, which represents the total amount of outstanding loans and advances (including accrued interest) that the Group originates but does not hold on its balance sheet, comprising those loans that are held by its off-balance sheet entities. Off-Balance Sheet Assets are not presented net of any impairment provisions relating thereto.

The Directors view AuM as a useful measure because it is used to analyse and evaluate the volume of revenue-generating assets of the platform on an aggregate basis and is therefore helpful for understanding the performance of the business.

The following table provides a reconciliation from the Group's reported gross loans and advances.

	6 months ended 30 September 2023 £'m	6 months ended 30 September 2022 £'m
	(Unaudited)	(Unaudited)
Gross Loans and advances	822.4	1,213.2
Off-Balance sheet Assets	1,872.7	1,217.9
Total	2,695.1	2,431.1

Funds under Management ('FuM')

The Group defines FuM as the aggregate sum available to the Group under each of its funding lines. The Group's FuM are used to originate revenue generating AuM. The Directors view the difference between the Group's FuM and Platform AuM as the headroom for future growth.

New lending/loan origination

The Group defines new lending as the total new money lent on loans which have originated in the period, or when an existing product has been refinanced with a new loan.

Diluted earnings per share

The Group defines diluted earnings per share as earnings per share divided by the weighted average number of dilutive shares including adjustments for share options.

 

END