Final Results

RNS Number : 0319P

Orchard Funding Group PLC

14 November 2016

 

14 November 2016

Orchard Funding Group PLC

('Orchard Funding Group' or the 'Company' or the 'Group')

Full Year Results

For the 12 months ended 31 July 2016

Orchard Funding Group PLC, the finance company which specialises in insurance premium finance and the professions funding market, announces its audited full year results for the year ended 31 July 2016.

Highlights

·      The Group remains cash generative, with revenues in the period increasing by 1.76% to £3.47 million for the 12 months to 31 July 2016 (31 July 2015: £3.41 million)

·      Profit after tax fell, mainly as a result of increased costs associated with the AIM listing, delays by the FCA to authorise brokers and additional investment in our sales function. The fall was to 2.9%.- £1.00 million compared to £1.03 million in the previous year

·      Earnings Per Share ("EPS") fell in the period by 2.9% (on a like for like basis) to 4.70p (31 July 2015 8.77p (adjusted for shares in issue: 4.84p))

·      The Group lent £50.1 million to clients in the 12 months to 31 July 2016 an increase of 14.9% (31 July 2015 £43.6 million)

·      Barclays bank have increased our facility from £10 million to £15 million

·      The Board remains committed to implementing its progressive dividend policy in 2017

Annual Report and Accounts

The Company is pleased to announce that its annual report and accounts ("Annual Report") for the year ended 31 July 2016 is now available on the Company's website at www.orchardfundinggroupplc.com. The Annual Report and Notice of Annual General Meeting will be posted to shareholders in due course.

Ravi Takhar, Chief Executive Officer of Orchard, said: "This has been a year of progress for Orchard Funding Group. The Company continues to increase its lending to a well-established and trustworthy client base and our recent admission to AIM has enabled the Company to raise capital in order to increase lending and reduce finance costs. While the growth has not been as high as we had been expecting, we have created a base from which we can significantly increase the profitability of the Group. We have an extensive, and successful, track record in our markets and I am confident that we are well-placed to further scale the business in the years ahead."

For further information please contact

Orchard Funding Group PLC                                                                        [phone]

Ravi Takhar, Chief Executive Officer

finnCap Limited (Nomad and Broker)                                                      [phone]

Jonny Franklin-Adams (Corporate Finance)

Emily Watts (Corporate Finance)

Jeremy Grime (Research Director)

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

For Investor Relations please go to: www.orchardfundinggroupplc.com

Group financial highlights

2016		2015
	% of sales		% of sales
Sales £3.47m		Sales £3.41m
Gross profit £3.15m	90.8%	Gross profit £2.46m	72.2%
Profit before tax £1.27m	36.6%	Profit before tax £1.29m	37.8%
Profit after tax £1.00m	28.8%	Profit after tax £1.03m	30.3%
EPS (pence) 4.70		EPS (pence) 8.77

Earnings per share is based on the weighted average number of ordinary shares in issue during the period of 21,354,167.

In the previous year the weighted average number was 11,793,664. If all shares had been issued throughout the previous year, the earnings per share figure based on 21,354,167 shares would have been:

2016		2015
EPS (pence) 4.70		EPS (pence) based on 21,354,167 shares in issue. 4.84

Information on subsidiaries

2016
	Consolidated	Parent	Bexhill	Orchard
Capital resources	£12.34m	£12.18m	£2.42m	£0.52m
Loans made in the year	£50.1m	-	£32.8m	£17.3m
Trade receivables	£21.80m	-	£14.10m	£7.70m
Average gross margins	91%	-	86%	100%
2015
Capital resources	£11.64m	£11.60m	£2.27m	£0.54m
Loans made in the year	£43.6m	-	£28.3m	£15.3m
Trade receivables	£17.86m	-	£11.57m	£6.29m
Average gross margins	72%	-	80%	59%

 

Chairman's statement

It is a pleasure to be able to deliver my second report as Chairman of your company.

I am pleased to say that Orchard continues to be very well positioned in its two core markets, namely insurance premium finance and the UK professions fee funding market. All lending continues to be in a prudent and conservative manner and is growing well across the board.

Our organisation has continued to develop over the year with some new key appointments having been made in several areas across the business. We expect these appointments to add significantly to the strength and depth of expertise of the company.

Our market places remain buoyant and demand for our products remains strong. Although we have identified adjacent areas to our well-established markets we remain committed to our core businesses and, while we may involve ourselves in others when a profitable opportunity arises, we are very clear where our main strengths lie and intend to focus clearly on them.

I would be remiss not to report on the progress of our recently launched "peer to peer" product - the Orchard Lending Club which was acquired on 1 August 2016, post year end. In a few short months it has attracted over 80 investors and some funds have already been committed to this. We are the first "peer to peer" lender in the Insurance Premium Funding space. I would urge you to visit our website at https://www.orchardlendingclub.com and see for yourself how simple and attractive a proposition it is.

We continue to believe that conditions will remain favourable for our business for some time. We are unaffected by the Brexit vote and following last year's successful float on AIM our financing options have become cheaper.

In addition, we have received approval from Barclay's Bank to increase Orchard's loan facility from £10m to £15m when required. We continue to examine other options in order to finance further growth in our lending book.

That said, we do not get it all our own way. Competition has increased most notably in the professions fee funding market. Finance brokers with the backing of banks and private equity houses are being converted into lending operations and the biggest players in the market have been protecting their positions.

Indeed, some of our competition has been entering into two to three year exclusivity arrangements and paying substantial advance commission payments in return for introducing their business to premium finance providers. We do not pay any advance commissions to brokers and believe this is the sensible, prudent approach. As you would expect we continue to monitor closely product offerings from our competitors.

Your board remains very confident in the company's ability to grow strongly over the next financial year and momentum in the business remains positive.

David A Clark

Chairman

11 November 2016

Chief executive's review

Orchard Blossoming

We have made good progress over this financial year.

We have absorbed all the execution and operational costs of our AIM listing.

Our lending is up across all 3 of our core product ranges.

It has taken us 12 months to get to where we are and our pipeline of new business is now very healthy. We are now converting new clients on a regular basis.

The challenges to our growth have not changed and we believe we are defeating all of those challenges.

Our first challenge is growing our business despite fierce competition and insurance broker inertia. From a competition perspective the only real players are the largest companies in the premium finance industry, Close Brothers PLC and Premium Credit Limited. Both players continue to aggressively protect their patch, but the sheer size of the market means that we are making and will continue to make in-roads into the market.

Another historic challenge for the business has been liquidity. With our AIM listing we have effectively overcome this challenge. This is demonstrated by the number of Banks that are now happy to provide us with funding lines, culminating in the increase of our facility from Barclays Bank PLC to £15m. We are actively engaged with other Banks to further increase the liquidity available to the group.

Capital for the development of our software has always been a challenge for the group. Again the AIM listing has removed this challenge. We have made and continue to make material improvements to our software. We have also been able to launch exciting new software led initiatives such as Orchard Lending Club our entry into the exciting Fin Tech market. Orchard Lending Club is the first Peer to Peer Lender in the World, which guarantees the repayment of all capital invested by Crowd Lenders. Orchard Lending Club has been widely applauded in the Fin Tech press and we are excited about the future growth of our Fin Tech business.

Attracting high quality insurance premium finance specialists to join our team was historically a challenge. The AIM listing again has enabled us to overcome this challenge. We now believe we have the most experienced senior management team in the insurance premium finance industry heading up our company. This has enabled us to open doors to the largest insurance brokers in the UK and led to our continued recognition in the UK insurance industry. We have been nominated for 2 leading awards in 2016 by The Insurance Times and the Insurance Post, both the leading publications for the UK insurance industry.

We are a small, lean, hardworking and profitable finance company in a huge financial services market. We are passionate about our business and have now operated in our market for nearly 15 years. The AIM listing has enabled us to grow and will enable us to continue to grow into the future. We are confident that we will continue to grow as our existing clients are very happy with our service and continue to be our best sales tool.

Insurance premium finance is a multi-billion pound market, which is dominated by 2 large and well managed companies. We will continue to work hard to take a very small portion of the market for the group. We now have the capital, liquidity and a great team to achieve our conservative plans and projections for the business and are looking forward to our continued growth over the coming years.

I am delighted to report that we have had a very exciting and successful year since our AIM listing in July 2015. We believe we now have a sound capital structure, which will enable us to grow our business to become a leading financial institution in the UK market.

We paid a dividend of 1.405p per share in April. I am happy to announce that the board has decided to keep the dividend at the level originally envisaged, as a result of the high level of confidence in the growth in earnings. We shall therefore be paying the same rate of dividend in the coming December.

Ravi Takhar

Chief executive officer

11 November 2016

Group strategic report

Objectives

The group's longer term aim is to further increase our capital base to enable us to support higher levels of borrowing and grow our lending book by following the strategy outlined below. This should lead to increased profitability through better liquidity and economies of scale.

Strategy

Our strategy has not altered from last year.

The insurance premium finance market in which the group operates is expected by the board to grow over the next five years in line with the general insurance market. The market for professional fee finance is also expected to grow as the banks continue to pull out of the market for small-ticket, short-term, unsecured funding.

In the short to medium term, the directors believe that the group's aims will be achieved firstly by increasing the number of our insurance broker and professional firm clients and secondly, by increasing the volume of business from our existing insurance broker and professional firm clients.

The two trading companies, Bexhill UK Limited and Orchard Funding Limited, operate in discrete markets - providing funding for insurance premiums and providing funding for payment of professional fees respectively.

The aim going forward is to build strongly on our core markets. The board does consider additional markets to augment its core businesses but will only enter these if, after detailed analysis, it will assist in achieving the overall objectives. In this respect, we have identified a complimentary market (operating on the basis of what amounts to government guarantees) of funding for schools.

Our business model

The group has two main businesses:

·    Bexhill UK Limited provides credit to limited companies, partnerships and consumers to enable them to spread the cost of their insurance premiums, through premium funding companies, owned by independent insurance intermediaries; and

·    Orchard Funding Limited provides credit to like entities to enable them to spread the cost of their professional fees.

Bexhill

Bexhill borrows up to 75% of the amount advanced to each of its clients from Barclays Bank Plc. The balance is provided by Bexhill from receipts from its debtors. Its capital and reserves were £2.4 million as at 31 July 2016. Barclays has renewed Bexhill's facility each year since 2002. Bexhill's current facility has been increased from £10.0 million to £15.0 million during the financial year. Barclays performs regular reviews and supplements these with an audit every six months by external independent auditors. Bexhill has operated within a disciplined lending environment since its inception. Insurance broker borrowing limits are set based on financial information, credit reports, regulatory requirements and other qualitative factors obtained from the broker. In addition, an annual review process, including regulatory permissions and credit checks, is conducted and each broker is monitored monthly for the company's financial exposure to that broker.

Bexhill's external cost of finance was approximately 3.4% in the financial year to 31 July 2016. In its last eight years of lending, Bexhill has not suffered any arrears or losses on its lending book.

Orchard

Orchard, at present, has no borrowings. Prior to the capital received from the recent public offering, Orchard was able to borrow up to 80% of the amount advanced to each of its clients from Bracken Holdings Limited. The remainder was provided by Orchard from its capital resources and reserves. At 31 July 2016 Orchard's capital and reserves were approximately £0.5 million. In the past Orchard's business was subject to regular audits by Bracken. That led to Orchard developing a highly disciplined approach. The directors also set credit limits on professional firm and obtain credit reports as part of the underwriting process. In addition, Orchard performs an annual review process and monitors exposure to each accountancy and professional firm monthly.

Orchard's external cost of finance is nil. It was circa 12% when this was provided by Bracken. The directors believe that the influx of capital from the IPO has given Orchard the ability to increase its borrowing capabilities, at more competitive rates, enabling it to further expand its lending book. Orchard has already received term sheets from a number of well-known banking institutions for the future financing of its business. Since it commenced business in 2010, Orchard has not suffered any arrears or losses on its lending book.

With both companies it is the simplicity of the premise which is the greatest strength - borrow money at one rate and lend it at a higher rate. Cash flow is excellent and overhead is (relatively) small and stable.

The business environment

One of the main trends having an impact on the business is regulation. In May 2015 the FCA released the results of a review carried out into the insurance premium finance market. This revealed that insurer and insurance intermediaries have not always provided customers with clear information about different payment options available when buying general insurance products, including providing clear information about the overall cost of paying for insurance, clear information about the payment options available to them and transparency in the role of the intermediary. The board is confident that our documentation and procedures fulfil the requirements of the FCA, as evidenced by Bexhill UK Limited obtaining full FCA permission in July 2015.

In August this year the Bank of England cut its base rate to 0.25%. Many commentators, picking up on remarks by the Governor, seem to think that this is as low as rates are likely to fall given the buoyant nature of the UK economy at present. However, using the same sources, the directors believe that it is unlikely that there will be any rises until well into next year. Even if rates do increase, the nature of the business will allow fairly quick reaction to this. The board believes that further opportunities will present themselves with liquidity being more important to businesses and individuals.

Of course, we have had a referendum on whether to stay in or leave the European Union. The run up to this saw a certain amount of unsteadiness in markets generally. The outcome may bring its own problems in the future but at least businesses know the direction the country is heading.

The business environment has certainly provided some challenges this year but it still affords a real opportunity for the group, with a growing market for its products and relatively stable interest rates.

Principal risks and uncertainties

The group's activities expose it to a variety of financial risks; cash flow interest rate risk, credit risk and liquidity risk. The group's overall risk management programme focuses on reducing the effect of these risks on the group's financial performance. A robust assessment of the principal risks affecting the group has been carried out by the board of directors. It identifies, evaluates and mitigates financial risks and has written policies for credit risk and liquidity risk.

Cash flow interest rate risk

The group borrows money from its bankers which it lends on. The borrowings are repaid each month and new loans taken out to cover lending to customers. Bank borrowings are linked to base rate. If bank rate increases there is therefore a risk that loans already made and which need to be covered will be effectively charged at a lower margin for part of the borrowing term. The board is in regular contact with its bankers and regularly reviews the financial situation in the economy to assist in mitigating this risk. In addition, the loans made are for relatively short terms (no more than twelve months with the average at ten) so any increase is likely to have a fairly short term impact.

Credit risk

The group operates a robust credit system. Money is only lent for periods up to one year, through regulated introducers who are the effective underwriters of any loans. They guarantee the debt of the customer to whom the loan is made. Borrowing limits are set based on financial information, credit reports, regulatory requirements and other qualitative factors obtained from the of the introducer. In addition, an annual review process including regulatory permissions and credit checks is conducted and each introducer is monitored monthly for the company's financial exposure to that introducer. This process has meant that the incidence of bad debt in the last eight years has been nil.

Liquidity risk

Until recently, one of the trading companies making up the subsidiaries had to borrow money at a relatively high rate of interest. Business was available but it was not always able to be taken up because liquidity was constricted. Since the share offer sufficient capital has been made available to enable further borrowing at better rates leading to the ability to lend more. The risk of insufficient liquidity has therefore been mitigated.

IT systems risk

A further risk identified by the board is that our operations are dependent on IT systems, which could potentially suffer significant disruptions or even failure. The directors, therefore, have in place business continuity procedures and security measures in the event of IT failures or disruption, including backup IT systems for business critical systems.

In summary, cash flow interest rate risk is mitigated by the fact that loans are short term and by regular interaction with our bankers; credit risk is reduced by a robust system of checks on borrowers and by third party guarantees; liquidity risk has been alleviated by the injection of capital, allowing the group to be less reliant on borrowings and enabling it to obtain better borrowing terms; and risk from disruption of the IT system is avoided by thorough continuity procedures.

Our internal control systems ensure that the incidence of fraud or error is kept to a minimum. Much of the process is automated and provided and maintained by a third party.

Development and performance of the business

The fundamental function of the business (whether the insurance side or fee funding side) is to lend money. To do this the group relies on obtaining funding to provide loans to clients of its partners (insurance intermediaries and professional firms). The ability to provide this money is crucial to the business. As a result of the IPO in 2015, liquidity has not been an issue this year. Nonetheless, availability of funds is a key area for future growth.

The ability to find borrowers is also key to the business. There has been no shortage of good quality lending opportunities up to now. At the beginning of the financial year, the directors launched a more formal and extensive marketing plan. In summary the plan encompassed the expansion of the sales team, a focused marketing drive to help increase awareness of the group in the market and an increase in regular electronic and telesales contact with existing and new customers in both our markets. Unfortunately, the benefits which should have flowed from this have been delayed for several reasons, including delays by the FCA in approving brokers and other intermediaries who offer financial services, and finding key personnel. Things are moving a little quicker at the FCA and recent recruits are already contributing substantially to the growth on the group.

Our margin is another key area. Upward changes in base rate could erode our margins. The board reviews this on a monthly basis and liaises with its bankers. Should rates increase, our rates would also increase to reflect this. Our own analysis indicates that the influence on our business would be negligible. Indeed, we have just seen a reduction in rates which has had very little impact.

Overheads in this business are relatively stable. Apart from the increases resulting from becoming a listed company, and those associated with an increased sales function, these should not alter significantly.

The board have identified the following financial key performance indicators (KPIs):

Lending

Margins

The table below gives a breakdown of our KPIs by subsidiary.

	% change	2016	2015
Bexhill
Capital resources	6.6%	£2.42m	£2.27m
Loans made in the year	15.9%	£32.8m	£28.3m
Trade receivables	21.9%	£14.10m	£11.57m
Quarter 4 lending	17.3%	£8.8m	£7.5m
Average gross margins		86%	80%
Orchard
Capital resources	(3.7%)	£0.52m	£0.54m
Loans made in the year	13.1%	£17.3m	£15.3m
Trade receivables	22.4%	£7.70m	£6.29m
Quarter 4 lending	31.4%	£4.6m	£3.5m
Average gross margins		100%	59%

In terms of non-financial indicators, the most important of these is quality of management and staff.

Our three senior members of staff have 28 years between them working in the business. They have taken on additional responsibilities over the years to the extent that they know each area of the business. 

All our staff are fully trained for the role which they take. Customer care is of paramount importance in our business culture and this aspect is a constant part of staff training for all staff. Feedback from our partners in this area has been very positive. Performance targets set for our staff have all been met.

People are happy to contribute towards our success and their views are always listened to by senior management. In many cases ideas which come forward are put into action and in all cases explanations are given when this does not happen.

Going concern

The directors continually assess the prospects of the group. Forecasts are prepared for a five year period, on a rolling basis. These are also subject to sensitivity analysis, the main aspect of which is the value of loans made. In all scenarios, there is no indication that there will be a problem in continuing as a going concern. However, it is important to appreciate that the further away (in time) the estimate, the less reliable it is. The forecasts are prepared on the basis that bank base rate will remain where it is. This is clearly highly unlikely in the longer term. However, should rates from the bank rise we are in a position to react (as mentioned in the section on cash flow interest rate risk on page 5 in the statutory accounts), within a short period of time, with relatively little impact on our margins.

The key assumptions and bases used in the forecasts are:

·    Funding provided will grow from circa £50m in 2016 to circa £120m in 2020;

·    Liquidity will be available to fund those loans;

·    Margins will remain stable on corporate business and will increase slightly on direct business;

·    Overhead will increase at the rate of inflation with stepped increases at certain points (when capacity constraints are hit);

·    The funding system will be able to accommodate the increased business.

The consolidated statement of financial position on page 16 of the statutory accounts shows the situation at the period end in detail.

 The two subsidiaries have traded for a number of years and have grown at a rate commensurate with finance available at a given point in time and within other recent constraints (e.g. delays by the FCA).

The financial statements have been prepared on a going concern basis which assumes that the group will be able to continue its operations for the foreseeable future.

The directors have prepared and reviewed financial projections for the 12 month period from the date of signing of these financial statements. Based on the level of existing cash and the projected income and expenditure, the directors have a reasonable expectation that the company and group have adequate resources to continue in business for the foreseeable future. Accordingly the going concern basis has been used in preparing the financial statements.

Environmental, social responsibility, community and human rights issues

The group is a small group. It does not manufacture or need physical distribution channels. The impact of the group on the environment consists of power used in an office environment and fuel used for getting to and from work. Environmental issues are therefore negligible.

The group operates out of an office in Luton. Most of our employees are based in the local area. We therefore contribute to the economy of the community. We are an ethical employer and believe in paying well for good performance. None of our employees earn less than £10 per hour (before any bonuses). We provide health club membership for any staff who wish it. We review the background of our suppliers and will not use any supplier which breaches our own high standards as regards human rights.

Gender diversity

The main board of directors is currently all male. The main reason for this situation is taking in outside board members who were best suited to the positions. The board of the two subsidiaries consist of one male and two females each.

Males make up 36% of the employees in total (30% in 2015).

Consolidated income statement for the year ended 31 July 2016      

			2016		2015
		Notes	£		£
Continuing operations
Revenue		3	3,468,864		3,409,859
Finance costs		5	(238,079)		(854,929)
Other operational costs			(76,025)		(92,650)
Gross profit			3,154,760		2,462,280
Administrative expenses			(1,884,030)		(1,169,028)
Operating profit and profit before income tax			1,270,730		1,293,252
Income tax expense		6	(266,653)		(258,839)
Profit for the period from continuing operations			1,004,077		1,034,413
Other comprehensive income			-		-
Total comprehensive income for the year attributable to the owners of the parent			1,004,077		1,034,413
Earnings per share attributable to the owners of the parent during the period (pence)
Basic and diluted		7	4.70		8.77

Consolidated statement of financial position as at 31 July 2016

				2016	2015
			Notes	£	£
Assets
Non-current assets
Property, plant and equipment				95,058	4,427
Intangible assets				43,873	-
				138,931	4,427
Current assets
Trade and other receivables			9	22,003,868	17,914,997
Tax receivable				-	1,410
Cash and cash equivalents:
Bank balances and cash in hand				1,390,098	2,901,960
Bank overdrafts				-	(47,159)
				23,393,966	20,771,208
Total assets				23,532,897	20,775,635
Equity and liabilities
Equity attributable to the owners of the parent
Called up share capital				213,542	213,542
Share premium				8,691,910	8,691,910
Merger reserve				890,725	890,725
Retained earnings				2,545,449	1,841,398
Total equity				12,341,626	11,637,575
Liabilities
Non-current liabilities
Borrowings			11	27,318	-
Deferred tax				10,078	590
				37,396	590
Current liabilities
Trade and other payables			10	1,657,030	1,835,908
Borrowings			11	9,207,927	7,015,155
Tax payable				288,918	286,407
				11,153,875	9,137,470
Total liabilities				11,191,271	9,138,060
Total equity and liabilities				23,532,897	20,775,635

 

Consolidated statement of changes in equity

		Called up
		Share	Retained	Share	Merger	Total
		capital	earnings	premium	Reserve	equity
		£	£	£	£	£
Balance at 1 August 2014		109,375	944,485	-	890,725	1,944,585
Changes in equity
Total comprehensive income		-	1,034,413	-	-	1,034,413
Transactions with owners:
Dividends paid		-	(137,500)	-	-	(137,500)
Issue of share capital		104,167	-	9,895,834	-	10,000,001
Items expensed through share premium		-	-	(1,203,924)	-	(1,203,924)
Balance at 31 July 2015		213,542	1,841,398	8,691,910	890,725	11,637,575
Changes in equity
Total comprehensive income		-	1,004,077	-	-	1,004,077
Transactions with owners:
Dividends paid		-	(300,026)	-	-	(300,026)
Balance at 31 July 2016		213,542	2,545,449	8,691,910	890,725	12,341,626

 

Retained earnings consist of accumulated profits and losses of the group. They represent the amounts available for further investment in group activities. Only the element which constitutes profits of the parent company are available for distribution.

The share premium account arose on the IPO on 1 July 2015 at a premium of 95p per share. Costs of the IPO have been deducted from the account as permitted by IFRS.

The merger reserve arose through the formation of the group on 23 June 2015 using the capital reorganisation method as shown in note 2.2 on page 22 of the statutory accounts.

 

 

Consolidated statement of cash flows

		2016		2015
	Notes	£		£
Cash flows from operating activities:
Profit before income tax		1,270,730		1,293,252
Adjustment for depreciation and amortisation		20,520		8,301
		1,291,250		1,301,553
(Increase)/decrease in trade and other receivables		(4,088,870)		1,527,966
Decrease in trade and other payables		(178,878)		(400,666)
		(2,976,498)		2,428,853
Income tax paid		(253,245)		(251,229)
Net cash (absorbed)/generated by operating activities		(3,229,743)		2,177,624
Cash flows from investing activities
Purchases of property, plant and equipment		(61,924)		(828)
Expenditure in software development		(50,949)		-
Net cash absorbed by investing activities		(112,873)		(828)
Cash flows from financing activities
Proceeds of issuance of ordinary shares		-		10,000,001
Items expensed through the share premium account		-		(1,203,924)
Dividends paid		(300,026)		(137,500)
Proceeds from borrowings		2,185,099		17,430,476
Borrowings repaid		(7,160)		(25,338,253)
Net cash generated by financing activities		1,877,913		750,800
Net (decrease)/increase in cash and cash equivalents		(1,464,703)		2,927,596
Cash at the beginning of the period		2,854,801		(72,795)
Cash and cash equivalents at the end of period		1,390,098		2,854,801

1.     Preliminary announcement

Orchard Funding Group plc ("Orchard") is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the AIM market of the London Stock Exchange. The registered office is 721 Capability Green, Luton, Bedfordshire LU1 3LU and the principal place of business is the United Kingdom.

The preliminary announcement set out above does not constitute Orchard's statutory financial statements for the years ended 31 July 2016 or 2015 within the meaning of section 434 of the Companies Act 2006 but is derived from those audited financial statements. The auditor's report on the consolidated financial statements for the year ended 31 July 2016 and 2015 is unqualified and does not contain statements under s498(2) or (3) of the Companies Act 2006. 

The accounting policies used for the year ended 31 July 2016 are unchanged from those used for the statutory financial statements for the year ended 31 July 2015. The 2016 statutory accounts will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

2.     Compliance with accounting standards

While the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS.

Accounting standards adopted in the year

No new accounting standards that have become effective and adopted in the year have had a significant effect on the Group's Financial Statements.

Accounting standards issued but not yet effective

At the date of authorisation of the Financial Statements, there were a number of other Standards and Interpretations (International Financial Reporting Interpretation Committee - IFRIC) which were in issue but not yet effective, and therefore have not been applied in these Financial Statements. The Directors have not yet assessed the impact of the adoption of these standards and interpretations for future periods, but do not expect them to have any significant impact on the Group's financial statements. 

3.     Going concern

The financial statements have been prepared on a going concern basis which assumes that the Group will be able to continue its operations for the foreseeable future. The Directors have prepared and reviewed financial projections for the 12 month period from the date of signing of these financial statements. Based on the level of existing cash and the projected income and expenditure, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in business for the foreseeable future. Accordingly the going concern basis has been used in preparing the financial statements.

4.     Segment information

The group operates wholly within the United Kingdom therefore there is no meaningful information that could be given on a geographical basis. It does have, however, two discrete operating segments - insurance premium funding and professional fee funding.

The board assesses the performance of each sector based on operating profit (before tax and exceptional items, but after interest which is a cost of sale). The relative revenues, operating costs and operating profit are shown below.

2016	Total	Central	Insurance premium funding	Professional fee funding
	£	£	£	£
Revenue	3,468,864	-	2,259,577	1,209,287
Interest payable	(238,079)	-	(238,079)	-
Operational costs and administrative expenses	(1,960,055)	(514,161)	(961,771)	(484,123)
Operating profit/(loss) before tax	1,270,730	(514,161)	1,059,727	725,164
Current tax expense	(266,653)	-	(121,831)	(144,822)
Profit/(loss) for the period after tax	1,004,077	(514,161)	937,896	580,342

2015	Total	Central	Insurance premium funding	Professional fee funding
	£	£	£	£
Revenue	3,409,859	-	2,132,387	1,277,472
Interest payable	(854,929)	-	(330,459)	(524,470)
Operational costs and administrative expenses	(1,261,678)	(60,655)	(808,349)	(392,674)
Operating profit/(loss) before tax	1,293,252	(60,655)	993,579	360,328
Current tax expense	(258,839)	-	(192,952)	(65,887)
Profit/(loss) for the period after tax	1,034,413	(60,655)	800,627	294,441

5.     Expenses by nature

					2016	2015
					£	£
Interest payable in cost of sales					238,079	854,929
Employee costs (including directors)				(note 7)	838,544	321,521
Advertising and selling costs					151,791	117,824
Bank fees					353,577	315,542
Other expenses					616,143	506,791
Total cost of sales, other operational costs and administrative expenses					2,198,134	2,116,607

6.     Finance income and costs

The group's income comes from making loans.

Interest payable on borrowings to finance these loans is therefore included as a cost of sale. The amount included was £238,079 (2015 £854,929).

7.     Income tax expense

7.1  Current period tax charge:

	2016	2015
	£	£
Current tax expense	250,616	271,780
Adjustment re previous year tax expense	6,549	(11,905)
Deferred tax expense relating to the origination and reversal of temporary differences	9,488	(1,036)
	266,653	258,839

7.2  Tax reconciliation

The tax assessed for the period differs from the main corporation tax rates in the UK (20%, 2015 - 21% and 20%).

The differences are explained below.

	2016	2015
	£	£
Profit for the financial period	1,270,730	1,293,252
Applicable rate - 20% (2015 21% and 20%)	20.00%	20.67%
Tax at the applicable rate	254,146	267,315
Effects of:
Expenses not deductible for tax	7,737	3,949
Marginal relief	-	(80)
Adjustment re previous year tax expense	6,549	(11,905)
Deferred tax not adjusted	-	(440)
Reduced rate of tax (17%) on reversing timing differences	(1,779)	-
Tax charge for the period	266,653	258,839

8.     Earnings per share

Earnings per share is based on the profit for the year of £1,004,077 (2015 £1,034,413) and the weighted average number of ordinary shares in issue during the year of 21,354,167 (2015 11,793,664). There are no options or other factors which would dilute these therefore the fully diluted earnings per share is identical.

9.     Dividends

A dividend of 1.405p per share was paid to shareholders on 27 April 2016 to shareholders on the register at 22 April 2016. The directors are proposing the payment of a further dividend of the same amount to be paid on 23 December 2016 to shareholders on the register at 16 December 2016.

Dividends paid in the previous year, as shown in the statement of changes in equity for that year, were all paid to the previous owners of the subsidiaries, prior to the new group being formed.

10.   Trade and other receivables

	2016			2015
	Group	Company		Group	Company
	£	£		£	£
Trade receivables	21,799,397	-		17,857,768	-
Intercompany receivables	-	9,388,427		-	8,827,607
Other receivables	170,947	19,892		34,637	-
Prepayments	33,524	13,927		22,592	6,439
	22,003,868	9,422,246		17,914,997	8,834,046

    Standard credit terms for trade receivables are based on the length of the loan but payments are due on a monthly basis. The directors consider that the carrying amount of trade and other receivables approximates their fair value. There are no impaired debts. The value of debts which were past due but not impaired at year end was £Nil (2015 £Nil)

11.   Trade and other payables

	2016		2015
	Group	Company	Group	Company
	£	£	£	£
Trade payables	1,469,707	-	1,447,922	-
Other payables	33,584	-	26,766	-
Other tax and social security costs	34,187	15,786	42,512	15,287
Accrued expenses	119,552	26,224	318,708	24,336
	1,657,030	42,010	1,835,908	39,623

            The directors consider that the carrying value of trade and other payables approximates their fair value.

12.   Borrowings

	2016		2015
	Group	Company	Group	Company
	£	£	£	£
Non Current:
Other loans	1,100	-	-	-
Hire purchase contracts	26,218	-	-	-
	27,318	-	-	-
Current:
Bank loans	9,174,044	-	7,015,155	-
Other loans	25,110	-	-	-
Hire purchase contracts	8,773	-	-	-
	9,207,927	-	7,015,155	-

12.1   Terms and debt repayment schedule:

The bank loan is due within one year.

The other loan falls due as follows:

	2016		2015
	Group	Company	Group	Company
	£	£	£	£
Within 1 year	25,110	-	-	-
Later than 1 year but no later than 3	100	-	-	-
Later than 3 years but no later than 5	1,000	-	-	-
	26,210	-	-	-

The minimum payments under hire purchase contracts are as follows:

	2016		2015
	Group	Company	Group	Company
	£	£	£	£
Within 1 year	11,036	-	-	-
Later than 1 year but no later than 5	29,144	-	-	-
	40,180	-	-	-
Future finance charges	(5,189)	-	-	-
	34,991	-	-	-

The present value of hire purchase liabilities are as follows:

Within 1 year	8,773	-	-	-
Later than 1 year but no later than 5	26,218	-	-	-
Future finance charges	34,991	-	-	-

Bank borrowings are secured by a fixed and floating charge over all the assets of Bexhill UK Limited, bear interest at rates of 1.75 per cent. above LIBOR plus any associated costs rates, and are repayable within one year of the advances. The maximum drawdown facility is currently £15m therefore at 31 July 2016 approximately £6m was undrawn.

Other borrowings, which were from Orchard Finance Limited, are unsecured and bear interest at varying rates between 4% and 6.25%.

Hire purchase liabilities are secured on the assets that they finance and bear interest at varying rates.

13.   Financial instruments

The company is exposed to the risks that arise from its use of financial instruments. The objectives, policies and processes of the company for managing those risks and the methods used to measure them are detailed in note 3.

13.1   Principal financial instruments                

The principal financial instruments used by the company, from which financial instrument risk arises, are as follows:

● Cash and cash equivalents

● Trade and other receivables

● Trade and other payables

● Borrowings

13.2   Financial instruments by category

The group held the following financial assets at the reporting date:

	2016		2015
	Group	Company	Group	Company
	£	£	£	£
Loans and receivables:
Trade and other receivables: current	21,970,344	9,408,319	17,892,405	8,827,607
Cash and cash equivalents:
Bank balances and cash in hand	1,390,098	-	2,901,960	-
Bank overdrafts	-	-	(47,159)	-
	23,360,442	9,408,319	20,747,206	8,827,607

The group held the following financial liabilities at the reporting date:

	2016		2015
	Group	Company	Group	Company
	£	£	£	£
Other financial liabilities at amortised cost:
Interest bearing loans and borrowings:
Borrowings payable: non current	27,318	-	-	-
Borrowings payable: current	9,207,927	-	7,015,155	-
Trade and other payables	1,537,478	15,786	1,517,200	15,287
	10,772,723	15,786	8,532,355	15,287

13.3   Fair value of financial instruments

The fair values of the financial assets and liabilities are not materially different to their carrying values due to the short term nature of the current assets and liabilities.

13.4   A Financial risk management

The company is exposed through its operations to the following financial risks:

● Interest rate risk

● Credit risk

● Liquidity risk

The company's policies for financial risk management are outlined in note 3 on page 25 of the statutory accounts.

14.  Treatment of borrowings

The group borrows money from its bankers and lends this on, together with its own funds, to its customers.

Any increase in activity leads to an increase in debtors and an associated increase in borrowings. If the company was one which bought and sold goods or services the money borrowed would be similar to the company's stock in trade and the change in creditors would be shown as part of operating cash flows. However, accounting standards require cash flows from financing to be shown separately and this means that there appears to be a large outflow of cash from the company's operations which is then covered by borrowings. For reasons stated above this is not the case.

15.  Post balance sheet event

On 1 August 2016, Orchard Funding Group plc purchased all the share capital of Orchard Finance Limited for £100 from Mr R Takhar, the sole shareholder. The assets Orchard Finance Limited consist mainly of loans made to the group, as disclosed in note 24 to the statutory accounts, and its liabilities of consist mainly of cash borrowed. The directors are therefore of the opinion that the fair values of the assets and liabilities equate to the net book values of the same. The book values amount to £816.

 

END

 

 

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