Final Results

RNS Number : 1739I

Orchard Funding Group PLC

01 December 2022

 

Orchard Funding Group PLC

1 December 2022

("Orchard Funding Group" or the "company" or the "group")

Full Year Results

For the 12 months ended 31 July 2022

Orchard Funding Group PLC, the finance company which specialises in insurance premium finance and the professions funding market, is pleased to announce its audited full year results for the year ended 31 July 2022.

Highlights

· The business has recovered well after the Covid-19 pandemic with increases in lending, revenue and profit

· Gross total income in the period increased by 34.6% to £6.19 million for the 12 months to 31 July 2022 (31 July 2021 £4.60 million)

· The loan book increased by 46.4% year on year to £43.74 million

· Profit after tax rose by 81.0% from £0.84 million to £1.52 million

· Earnings Per Share ("EPS") rose in the period by 82.0% to 7.11p (31 July 2021 3.91p)

· The group lent £79.96 million to clients in the 12 months to 31 July 2022 an increase of 31.0% (31 July 2021 £61.02 million)

· We are again proposing a full year dividend per share of 3.0 pence

· We have issued a retail bond through Orchard Bond Finance plc raising £3.90 million before costs.

Ravi Takhar, Chief Executive Officer of the company, stated:

" We are delighted to report our robust performance and return to historic profit levels.

We have grown our business whilst maintaining the historic credit quality of our lending book. We continue to benefit from excellent liquidity from Toyota Financial Services and Nat West. We have also now bolstered our liquidity with access to the listed retail bond market through Orchard Bond Finance.

We continue to invest in and benefit from our software platform, which gives us a number of advantages in underwriting, servicing and marketing our business.

We are very well placed to build on our historic success and looking forward to the continued controlled and profitable growth of our business."

For further information, please contact:
Orchard Funding Group PLC Ravi Takhar, Chief Executive Officer	[phone]
Liberum (Nomad and Broker) Investment banking Neil Patel Lauren Kettle	[phone]

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

Group financial highlights

Until 2019, Orchard grew its lending year on year. From August 2019 to July 2021 lending fell primarily due to the impact of Covid-19. This situation has been reversed this year with lending in all areas experiencing increases, as shown in the table below.

Comparing lending, income and profit for 2022 with 2021:
	2022 (£m)	2021 (£m)	Increase (%)
Lending volume	79.96	61.02	31.04%
Loan book (post ECL provision)	43.74	29.87	46.41%
Borrowing	25.48	12.25	108.00%
Gross total income	6.19	4.60	34.57%
Net total income	4.84	3.44	40.70%
Other operating costs	2.97	2.39	24.27%
Operating profit	1.88	1.05	79.05%

Further detail on the above is given throughout the Group strategic report on pages 4 to 14 of the full financial statements.

Chairman's statement

This has been a good year for our business with Lending volumes and Gross and Net Income at all-time highs. We have seen strong performance from our core insurance business despite ongoing aggressive competition from the two major incumbents. We have continued to build a strong relationship with Toyota Financial Services and have successfully piloted our new Bridging Loan proposition. We believe we can grow a profitable secured lending offering to complement our insurance business, competing on the basis of our experienced staff, and our proven underwriting processes and supporting systems.

The economic backdrop improved significantly following the lifting of all Covid-19 restrictions [in the second half of our financial year], although we do face new headwinds from a weakened economic outlook. We are partly insulated from the current high inflation 'cost of living' challenges as our core insurance products are mainly a non-discretionary purchase for our consumers. We will have a close watch for any increase in arrears and will continue to support our customers through any difficulties as far as possible. We are likely to see pressure on our net interest margins with the majority of our borrowing subject to increases in market rates.

I am pleased to confirm that we continue to be funded by Toyota Financial Services and National Westminster Bank and I thank them for their continued support. We have started to diversify our funding this year with the issue of a 5 year listed Retail Bond as we now start to lend longer term with our Static Caravan HP product.

We have continued with a hybrid working arrangement, with the majority of our staff benefiting from the flexibility to work from home as a result of our investment in IT infrastructure. This ensures we remain an attractive employer for our small loyal workforce.

Despite the headwinds caused by the current geo-political uncertainty the Board remains cautiously optimistic about the future and in our ability to grow and diversify our balance sheet based on our history of profitable performance, our highly experienced executive team and our nimble systems. I am pleased to confirm that we are proposing to maintain the dividend at 3 pence per share continuing our track record of dividend payments since floatation, including during the Covid-19 downturn.

Steven Hicks Chairman

30 November 2022

Chief executive's review

We are pleased to report a complete recovery of our business from the impacts of Covid-19.

Our total lending, balance sheet, income and profits have all materially increased from last year's numbers. This

is a testament to the hard work of the team and proves the resilience of our business model.

As well as the significant improvement in our lending, we have also ensured that we have market leading liquidity to support our business. Our liquidity is provided by Toyota Financial Services PLC, National Westminster Bank PLC and our listed bond programme through Orchard Bond Finance PLC.

We have always managed our expenses carefully and still run a very cost-effective operation.

We have full control and are justly proud of our in-house developed IT, which not only manages all of our loan administration and reporting, but also provides market leading underwriting technology, which will continue to support our conservative lending into the future. We now provide a SaaS service to a number of our customers, which further exemplifies the effectiveness and robustness of our IT platform.

We operate in a very competitive market, dominated by two very large and aggressive financial institutions. Consolidation in the premium finance industry means that we are now the only other lender in the market. Despite significant balance sheet disadvantage, we continue to provide a unique service to our clients and also offer a unique product in the market to insurance companies and brokers wishing to provide in-house finance to their customers.

We enter the new financial year facing many difficult economic headwinds. Our cost of funds has risen significantly. Consumer confidence and spending power are adversely impacted and hence borrowing levels in the general lending market are already in decline. We believe that our business model will see us through these difficult times and still enable us to continue lending on a prudent basis. All lenders will have to remain vigilant and we are no exception.

Whilst insurance premium finance remains our preferred and dominant market, we continue to explore and lend in adjacent markets, which share the credit risk profile of our core market. We keep simple unsecured lending with no other protection to a very limited part of our lending book. We are happy to report that we continue to lend into the professions fee funding market, where we have over 200 accountancy firms on our books, the leisure market, where we have over 100 golf clubs on our books, the school fee funding market and the static caravan market. Most recently we have entered, on a very conservative basis, the property bridge finance market, with our new secured lender, Cherry Orchard Funding Limited. We continue to explore market opportunities carefully and are able to utilise the great experience of our non-executive directors who have both held leading positions in a number of UK banks. Our Chairman, Steven Hicks, is Chair of Risk at two UK banks and with Ketan Malde, a former CFO of a number of highly successful banks, provide a watchful and experienced risk management overview of our business.

We continue to be supported by our experienced and loyal staff. We continue to invest in staff to accommodate the changing nature of our business, ensuring that our partners and borrowers have the excellent support that they deserve. Our senior managers have been with us for more than a decade and this is indicative of the type of business that we are - caring and supportive to our people. We believe our staff to be one of our greatest assets and they enable us to continue to deliver a very high level of service to our clients. We have also been able to ensure that all staff are able to work from home and thank them for ensuring that our customers continue to receive excellent service.

We would like to thank Toyota Financial Services PLC and National Westminster Bank PLC for our current liquidity lines. We have adequate liquidity for our near-term lending aspirations.

In summary, we have recovered from Covid-19. We now enter into another period of financial and economic uncertainty, secure in the knowledge that we have a robust business model and a controlled operational cost base that will continue to support our staff, liquidity providers and investors.

We paid a dividend of 2 pence per share in December 2021 and an interim of 1 penny per share in April 2022. I am happy to announce that the board has proposed a final dividend of 2 pence per share to be paid in December 2022, subject to shareholder approval.

Ravi Takhar

Chief executive officer 30 November 2022

Group strategic report

Strategy and objectives

The group's principal objective remains to increase our profitability in a prudent, sustainable manner, having due regard for the interests of all stakeholders. The term stakeholders in this respect is wide ranging and includes employees, shareholders, our introducing partners, other customers, creditors, regulators, other parts of government and the local and wider community. Each of these groups has different, sometimes conflicting, interests, and it is the responsibility of the board to ensure that all stakeholders are treated fairly. This concept of fairness to all permeates through the decision making process.

We have six strategic drivers behind our objective of increasing profitability and these have remained the same for some years:

· to differentiate our business from that of our competitors, based on service excellence, fair pricing and robust underwriting procedures;

· to increase lending in a responsible manner;

· to preserve and, where deemed necessary, increase our sources of liquidity;

· to innovate;

· to continually improve our IT systems;

· to support our excellent staff in their work.

Differentiation covers a number of factors: the ease of transfer of business from other lenders to us; taking time to fully understand our introducing partners' businesses; being easily contactable by all our customers; providing flexible funding arrangements; reducing our partners costs and giving them regular training and assistance.

The directors still believe in our two pronged approach to lending - to increase the number of partners who fit in with our business values (brokers, accountants and other third party introducers) as well as to increase the volume of business from each of these partners, while always having regard to the risks associated with lending and keeping fair treatment of customers at the heart of our business.

Our approach to innovation is to review markets and product lines which we believe are appropriate for our lending criteria - safe lending and sensible returns. How we have achieved this during the year is detailed later.

Our IT system is fully in-house, providing stability for our future business, the ability to increase lending in our core markets where IT system integration is required and the ability to enter new markets. It gives us much more control over, and thereby reduces risks in, the development of the system. We work with our supplier in the further development of an open banking system, pushing down costs and giving greater security in lending.

Our sales team are our first line in dealing with our partners, arranging prospect meetings and, where required, making use of senior personnel to help them close a deal. They are ably supported by other members of the team who ensure that proper care is taken of our partners. Care of our partners is of paramount importance in our business culture and this aspect is a constant part of training for all staff. Feedback from our partners in this area remains positive.

Our aim is to continue to build strongly to achieve our principal objective by maintain and enhancing the strategies listed above.

Our business model

Our core business remains providing credit to businesses and consumers to enable them to spread the cost of their insurance premiums, professional fees or other service fees over a period of up to one year. We began expanding last year into longer term loans (up to seven years) for asset finance and up to three years for gap insurance. We have introduced a bridging loan product this year. Our business model is a "hold to collect" model in which financial assets are held to maturity to collect cash flows of principal and interest, rather than holding them for sale. More detail on this is given in note Error! Reference source not found. on page 38 of the full financial statements.

Despite the fact that we now have longer term lending, the nature of our products remains so alike in terms of risk, reward and processes that any segregation would not give meaningful information to users of the financial statements. In most cases our lending is covered by recourse to a guaranteeing partner. Our underwriting and debt management procedures are similar enough that we have not found it necessary to disaggregate results arising from our several markets. We believe that to do so would obscure material information and reduce the understandability of the financial statements. We therefore still report a single trading segment - lending. All of our lending is within the UK.

Lending limits to our customers are set by reference to financial information (credit reports, regulatory and other requirements) and by reference to other qualitative information for both our introducing partners and for the end borrowers. In addition, an annual review process, including regulatory permissions and credit checks, is conducted for each introducing partner and each partner is monitored monthly for the group's financial exposure to that entity. The majority of our lending gives us recourse to the introducing partner, is through regulated introducers and no cash is passed over until at least the first repayment is received. In the case of insurance, the customer can have their cover withdrawn for non-payment with any refunds being paid to Orchard. In the case of longer term lending, the procedure is more vigorous, making use of open banking technology (as mentioned earlier) to further mitigate the risk of default. We have in the past turned down potential borrowers because they did not fulfil our strict requirements. Indeed, we shall continue to do so. In terms of bridging finance, our maximum loan compared to the value of the property ("LTV") is 75%, with no loan this year being more than 70% LTV.

Last year the year the group refinanced its borrowings. The interest rates charged (excluding associated costs) were lower than was previously being charged.

A retail listed bond was issued on 2 March 2022. Full details of the bond plus the prospectus published in connection with the issue are available on the company's website at https://www.orchardfundinggroupplc.com/bonds. This raised £3.90m up to 31 July 2022 and has given us further secure liquidity.

Excluding the bond, the group has borrowing facilities up to up to a maximum of £25.00m for general lending. In addition Orchard Finance has a facility of up to £10.00m to be used exclusively for lending in respect of products from the provider of those funds.

Of the general facility, £8.58m was unused at the year end. Of the restricted facility, £4.64m was unused.

The balance of lending is provided both from group resources. At 31 July 2022 the group had net current financial assets (receivables plus cash in hand less current liabilities) amounting to £12.26m.

The group's average cost of finance (calculated by interest payments over borrowings in the period) was 3.57% in the financial year to 31 July 2022 (6.03% on the same basis in the year to 31 July 2021). Cost of funds includes arrangement and legal fees payable for access to funding and fees for non-use of the facility. There was some distortion last year as costs were incurred for a facility which was not used by the year end but which has since been used. If only interest were included in cost of finance the percentages would be 2.95% for 2022 and 3.03% for 2021.

Principal risks and uncertainties

The group's activities expose it to a variety of risks.

The board has identified the following principal risks, their potential impact on Orchard, an assessment of change in risk year-on-year, our risk appetite and how we mitigate risk. Principal risks are those which could have most impact on our ability to continue in business. Indicators of those risks (key risk indicators or KRIs) are shown below. Orchard's sole business is lending money and therefore the risks apply to this area. Since issuing the retail bond further risks have arisen. In addition, turbulence in world markets has led indirectly to interest rate rises.

Credit risk

Explanation of the risk  The risk that debtors or guarantors will default

Impact on the group  A major loss could have a serious effect on group profits - the whole of the capital loss will impact on profit.

Year-on-year change in risk

Risk has changed in that a worsening economy may lead to higher: inflation, interest rates, unemployment and business collapses. In addition, we are now lending at fixed rates (although the majority of these loans are currently repayable within one year).

Risk appetite  Our aim is to limit reported credit losses to below 0.5% of income generating assets.

Mitigation of risk  In most cases, money is only lent for periods up to one year predominantly through introducers who guarantee the loans and who are regulated businesses themselves. Borrowing limits are set based on prudent underwriting principles. Impairment reviews are regularly conducted to identify potential problems early. Note Error! Reference source not found. gives further details of mitigation of credit risk.

In addition, our documentation is reviewed regularly by our legal team to ensure that debts are not subject to challenge at a later date.

Liquidity risk

Explanation of the risk  A lack of funding to finance our business.

Impact on the group  Without adequate funding we cannot conduct our business.

Year-on-year change in risk

Risk has fallen. We refinanced last year and the providers of those funds have increased our facility. We obtained longer term funding by issuing a five year retail bond.

Risk appetite  We aim to have 5% more funds than would be sufficient to enable our plans to be met.

Mitigation of risk  Our borrowing facilities are due for renewal in April 2023 for Bexhill and June 2023 for Orchard. Our funders have indicated, so far as they are able, that they have no wish to withdraw their support. Excess available credit plus our net current financial assets amounted to £20.84m at 31 July 2022 (excluding borrowings restricted to Toyota products). Our operating costs for the year were £2.91m (excluding impairment allowance) giving more than sufficient headroom to operate well into the future.

Interest rate risk

Explanation of the risk  The risk that we lend at one rate and borrow at a rate higher than anticipated.

Impact on the group  Reduced margins mean reduced profit.

Year-on-year change in risk

Risk has changed substantially. Since July 2021 Bank of England base rate has increased from 0.10% to 1.25% by 31 July 2022. At the time of writing there have been three further increases taking the rate to 3.00% - a staggering 2,900% increase (albeit from a very low starting point). In this environment we look closely at all new lending to ensure that our margins remain stable. We have longer term fixed rate lending but it still represents a small proportion of our total lending (5.06% of our 2022 lending). However, had base rates been at 3.00% for the whole of the previous year and we still lent money at the rate which we did, the additional cost would have been £252k -13.43% of reported PBT.

Risk appetite  Our risk appetite in the past was 25% above the interest rate that we were paying when a loan was made, without being able to pass this on to our customers. Clearly this is unsustainable in the current climate when rates are rising to counter high levels of inflation. Our appetite now is to ensure that the net interest margin on new lending remains above 10%.

Mitigation of risk  Management is in regular contact with its funders and routinely reviews the financial situation in the economy. The majority of loans made are relatively short term (no more than twelve months with the average at ten) so any increase is likely to have a fairly short-term impact. Longer term loans are still a very small percentage of the business.

Non-use risk

Explanation of the risk  This is the risk that money raised through the retail bond will not be used to the extent that income arising covers the bond interest.

Impact on the group  Having money "sitting idle" will not generate enough income to enable the loans to be serviced. In this situation there will be a drain on the group's resources.

Year-on-year change in risk

This is a new risk for us as we have not had long-term fixed interest borrowings before.

Risk appetite  It was accepted that once the money was received it would take time to make use of it for lending. The appetite is to lend this money within a reasonable time frame (six months of receipt) for products with a rate of return in excess of the rate being paid.

Mitigation of risk  This risk is mitigated by the fact that our subsidiaries are all trading companies currently with a number of sources of funding. Bond money could replace that borrowing if need be.

Non-repayment risk

Explanation of the risk  The retail bond is a five year bond. At the end of that term the money will need to be repaid to the bond holders. This is the risk that there will be insufficient cash in the system to make those repayments.

Impact on the group  The amount raised on the market was approx. £3.90m. Should the company which raised the money not be able to repay this it would lead to the group having to find

£0.39m under a guarantee but, more importantly, lead to reputational risk which might cause other funders to consider renewing facilities.

Year-on-year change in risk

This is, again, a new risk for us as we have not had long-term fixed interest borrowings before.

Risk appetite  There is no risk appetite for non-repayment. The costs to the group could be significant.

Mitigation of risk  This risk is mitigated by the fact that the amounts involved could easily be covered by the likely cash position at the time that repayment is due.

Systems risk

Explanation of the risk  Disruption to or failure of our IT systems.

Cyber threats - data being accessed illegally.

Impact on the group  Persistent or serious failures could lead to lack of confidence in our system and reduce our operational capabilities.

Penalties for allowing data breaches are severe and could lead to us not being able to operate at all.

Year-on-year change in risk

Our new system has been fully operational for almost two years now and we are over the settling down period. The system is proving robust.

The risk of cyber-crime has not increased.

Risk appetite  There is no risk appetite for either failure or cyber-crime.

Mitigation of risk  Remote support access enables prompt resolution of incidents. Internet connection provides guaranteed access.

We have commissioned a risk assessment of our system by external IT specialists.

Our controls are such that even a minor disruption is very quickly picked up and action taken. Systems are covered by a support contract which enables quick identification of any problems.

The group continues to develop its processes for prevention of cyber threats. If prevention is not guaranteed, the systems in place give us the capability to detect, respond and recover from those attacks.

All our staff are well trained in the use of our systems and are well placed to notice and unusual activity.

Conduct risk

Explanation of the risk  Any action that leads to unfair customer outcomes.

Any action that has an adverse effect on market stability or effective competition. Fraud.

Impact on the group  Failing to deal effectively with conduct risk faces regulatory action, fines, and reputational damage.

Year-on-year change in risk

Risk has not changed.

Risk appetite  The board has no appetite for non-compliance with regulation or for any instance of fraud within or on the organisation.

Mitigation of risk  The board sets standards which comply with regulation and best practice. The CEO monitors staff compliance with those standards, reports deficiencies to the board and provides staff with advice on the interpretation of the standards.

Controls are in place to prevent internal fraud with day to day supervision by the CEO.

Regular monitoring of introducing partners is conducted including a review of sources of loan repayments.

Our documentation is reviewed by our legal team to ensure that it is meets the requirements of the FCA.

The group's overall risk management programme focuses on reducing the effect of these risks on its financial performance. A risk appetite (the level at which risk is accepted by the group before action needs to be taken) is established for the key risk areas. A regular assessment of the principal risks affecting the group, based on a traffic light classification, is carried out by the executive directors who then pass this on to the full board of directors. The board identifies, evaluates and mitigates financial risks and there are written policies for all major risk areas at subsidiary company level (where the activity takes place). The tables above show the group's principal risk appetite and how risk is mitigated. A risk register is maintained in which any instances of any of the aforementioned risks are recorded and, where necessary, acted upon.

We are committed to maintaining the highest standards of ethics and integrity in the way we do business. We adopt a zero tolerance approach to bribery and fraud and expect our business partners to do the same. Our staff are encouraged to contact the board if they have any concerns in this regard. We are committed to behaviour that results in fair outcomes for our customers (both introducers and end borrowers).

In summary:

· credit risk is reduced by a robust system of checks on introducers, borrowers and by third party guarantees;

· liquidity risk is alleviated by borrowing facilities from our funders;

· interest rate risk is mitigated by the fact that most loans are short term, by regular interaction with our bankers and by reviewing the net interest margin;

· risks attaching to the bond (both non-use and non-repayment) are alleviated by our normal business processes of finding markets which can give a profitable return and generate sufficient cash. If need be we can replace other borrowings with money raised from the issue:

· risk from disruption to the IT system and cyber-crime is avoided by thorough business continuity procedures and procedures designed to prevent, detect, respond and recover from malicious attacks; and

· conduct risk is mitigated by staff training, board oversight and monitoring of introducing partners.

The nature of the business is that loans are made either to finance companies or to clients of our introducing partners. Although there is some significant lending to individual finance companies, the underlying debts making up these loans are collected by Orchard and assigned to Orchard. At 31 July 2022, the largest nominal exposure was £6.69m to one finance company representing 15.25% of our loans (before expected credit loss provisions "ECL"). The highest exposure to a non-finance company was £2.15m and consisted of advances comprising many smaller loans (the average amount for each loan was £211). The reality, therefore, is that our exposure is low. At 31 July 2022 total outstanding loans were £43.87m before ECL (at 30 September 2021 £30.60m), of which the highest individual loan (not a block loan to a premium finance company) was £186.39k. This was for asset finance and represented less than 0.43% of total outstanding loans. This is likely to remain the situation in the near future.

We have experienced late payments in the past. The majority of these are through our customers changing banking details. We make charges for late payments and this reduces our expected credit losses.

We review debts for impairment and make provision where necessary. As part of this process, we have increased the provision by £63k during the year to 31 July 2022, net of reversal of previous provisions and items written off against those provisions (£131k was released in the year to 31 July 2021). This has been charged (2021 credited) to the income statement below operating costs. The provision this year is £135k carried forward at 31 July 2022 (£72k at 31 July 2021). As our loan book grows so does the provision. Note Error! Reference source not found. of the full financial statements outlines the approach to credit impairments.

The main uncertainties in these financial statements are those connected with the level of expected credit losses. Although objective evidence is obtained where possible (macroeconomic factors etc.), these still require a good deal of management judgement. They are detailed in note Error! Reference source not found. to the full financial statements.

The business environment

Having come out of the market turbulence caused by Covid-19, businesses appear to have been thrust into another period of instability. The effect of oil and gas price rises, changes in government and the commotion caused by the invasion of Ukraine have led to further unrest in the markets and pressure on the pound.

As a result of the above we are seeing rates of inflation not seen for many years with the Bank of England increasing interest rates to combat these high inflation rates. Bank of England base rate has increased five times since our last year end with another three increases since 31 July 2022. These eight increases make up an astonishing 2,900% on the rate in force at 31 July 2021.

In this environment, individuals and businesses are more likely to try to conserve cash and spread expenditure over a period of time. Insurance is one type of expenditure which lends itself to this approach. It is also a purchase which is needed (a "distress purchase") either for legal reasons or for security. Orchard's core business is exactly that - providing funds for the spreading of insurance payment. We are in an ideal position to provide help to our introducers and their customers in these difficult times by providing this service.

Development and performance of the business Overview

Lending was already beginning to grow by the end of our last financial year and this pattern continued in every month this year except December. Overall growth in lending was 30.98% over the previous year.

Most of our premium finance growth will come from the direct insurance side (this was up 39.34% compared to the previous year) rather than from broker premium funding companies ("PFC"'s). PFCs still remain our largest market and, after lending to them fell from £33.8m in 2020 to £29.58m last year, it has grown again to £37.03m in this financial year. The demand for professional fee finance seems to have stabilised this year at £4.38m.

Product lines already introduced are reviewed regularly to evaluate the impact they are having on the business. To date that impact has been encouraging. We continue to use the same disciplined approach when evaluating potential new markets.

We began lending into longer term markets, as mentioned last year and these are going well. We intend to grow these further. Details are shown in future developments later on in this section.

To summarise: it remains our intention to increase our sales in existing markets and expand into adjacent markets, always having regard to returns that are needed to keep the business financially healthy. We shall continue to control costs, only spending where we believe it will increase our profitability. We have sufficient liquidity at present but this is always kept under review.

Financial indicators

The function of the group remains to lend money safely. Good quality customers are therefore central to the development of the business. We have continued to add to our introducing partner base and have continued to sell more through this base. Despite hard economic conditions, this continues to work well.

Our margin is an important area. Some of our borrowing is fixed to bank base rate and some to the Sterling Overnight Index Average, "SONIA." As these rates alter so will our borrowing costs. Given the short term nature of most of our lending any likely changes would make a small impression on margins. Our own analysis indicated that, under what could be described as "normal" circumstances, the influence on our business would be negligible. However, as pointed out in

Principal risks and uncertainties, these are not normal circumstances. We now ensure that as base rate or SONIA rises, we are faster to readjust our pricing. This was not needed to be done before because rates were low and stable. There remains greater risk with our longer term products that rate increases would erode margins.

Most other operating costs in this business are relatively stable. We have increases resulting from an increased sales function. Exhibition costs are up because we have been unable to attend during the last two years because of Covid-19 but now can. The other main increase is in consultancy fees in setting up the bridging loan system. Overall, operating costs (including ECL) are 24.27% higher than in 2021. Details of these costs are shown in note 5.

Financial key performance indicators (KPIs)

The table below gives a breakdown of group KPIs as well as indicators not considered KPIs but which give a better understanding of the figures.

We have seen increases in lending, revenue and profit this year compared to last. Last year Covid-19 impacted our business for approximately eight months. This year we have seen increases in all markets in which we operate except school fees. We have also seen increases in our costs. Other operating costs rose from £2.52m in 2021 to

£2.91 this year (see Consolidated statement of comprehensive income). With a profit before tax of 79.05% higher than in 2021 the board are satisfied with the results this year.

All £m unless obviously otherwise KPIs	2022	2021	2020	2019	2018
Lending volume	£79.96	£61.02	£65.53	£72.99	£68.73
Average interest earning assets1	£36.81	£28.59	£29.72	£31.54	£29.68
Total revenue	£6.19	£4.60	£5.28	£5.49	£5.18
Average external funding	£15.77	£9.28	£12.82	£14.35	£11.49
Cost of external funds	£0.59	£0.56	£0.62	£0.70	£0.63
Cost of funds/funds ratio	3.57%	6.03%	4.84%	4.88%	4.79%
Own resources (net current financial assets)	£12.26	£14.15	£15.50	£14.82	£13.92
Operating costs (pre ECL)	£2.91	£2.52	£2.44	£2.20	£1.92
Net interest margin2	11.98%	11.26%	13.26%	13.19%	13.01%
ROAE (Return on average equity)	9.36%	5.35%	8.31%	10.90%	11.10%
Other performance indicators
Net interest income	£4.41	£3.22	£3.94	£4.16	£3.86
Profit before tax	£1.88	£1.05	£1.56	£1.97	£1.89
Profit after tax	£1.52	£0.84	£1.27	£1.58	£1.51
Gross interest margin	13.58%	13.22%	15.34%	15.41%	15.13%
EPS (pence) 3	7.11	3.91	5.96	7.67	7.07
DPS (pence) 4	3.00	3.00	3.00	3.00	3.00
Return on capital employed	5.19%	4.33%	6.74%	7.24%	6.77%

1.  Average interest earning assets consist of the average of the opening and closing loan book after taking account of the impairment provision.

2.  This has become more important than in the past. As explained in Principal risks and uncertainties, in the light of rising interest rates it gives both a quick indicator of the level of profitability in the loans made and will be used to evaluate whether the interest rate risk on loans made falls within our risk appetite. It is now a KPI.

3.  There are no factors which would dilute earnings therefore fully diluted earnings per share are identical.

4.  Dividends per share are based on interim dividends paid in the year and proposed final dividend for the year.

Net total income (as shown in the Consolidated statement of comprehensive income) has recovered after a fall last year. Operating costs before ECL are up by £382k. Included in operating costs are consultancy costs of which the major increase was for amounts paid to get Cherry Orchard lending. Staff costs were £110k higher, reflecting the fact that we have to pay more for good people. Last year we had a credit to the income statement for impairment allowance amounting to £131k. This year there is a charge of £63k. Other operating costs (excluding impairment allowance) were up by £52k or 2.18%.

Non-financial indicators Staffing

The most important non-financial indicator remains quality of management and staff.

Our senior members of staff are all fully trained in every facet of the business and have good relationships with more junior staff members whom they able and willing to assist when required. They have been with us for many years.

Customer care is of paramount importance in our business culture and this aspect is a constant part of training for everyone in the organisation. Feedback from our partners in this area has been very positive. Non-financial performance targets set for our staff have all been met. These include, but are not limited to, ensuring that our partners and end-user customers receive prompt responses to any queries they raise.

Orchard is a small group with 16 non-parent direct employees. Although no employee is on the main board, there is no formal workforce advisory panel, nor is there a designated workforce non-executive director, all employees have access to the executive directors at any time and can raise any issues with them. They are also able to contact the Chairman should they wish to discuss a matter which they feel may not be appropriate for the executive. There are two non-main board directors as directors of the subsidiaries.

Partner retention

Partner retention is another significant area in our business. This couples well with another non-financial indicator, brand preference. As our partner base grows, so does awareness of who we are and what we do. We review our partner base regularly to establish whether they are increasing or decreasing the amount of business they do with us. Action is taken if business from one source is unexpectedly dropping.

Innovation

A key non-financial strategy is innovation (see Strategy and objectives on page 5 of the full financial statements). Innovation is the ability to continually evolve and grow our business in our chosen markets. When looking at new products we stay within our risk parameters and examine whether the returns justify the resources expended. If new products fit our return and risk expectations, we proceed to the testing stage - relatively small amounts of lending. We believe that innovation is fundamental to growth.

IT systems

A robust, reliable and secure IT system is crucial to the business. We work closely with external outsource partners to continually review and develop our IT systems. Our system and has been tried and tested for a number of years. We began taking advantage of the open banking system as part of our risk strategy and this has been invaluable. Our customers have seen advantages of this, making it easier to manage their agreements. We continue to upgrade the system in response to customer requirements.

Quality of lending

Our lending has been based on sound underwriting since we began - we carefully assess any person or body to whom we lend. In addition, we receive at least one instalment before we pay out (eliminating first payment default); the direct debit establishes timely collection and an electronic link to our borrowers; in most cases our partners guarantee the payment should the end borrower default; and, if the partner fails, many of our end borrowers are protected by the financial services compensation scheme thereby ensuring that we are paid. In addition, the open banking system has helped ensure quality of lending.

Good governance

The role of the board is set out in the Error! Reference source not found. on pages Error! Bookmark not defined. to Error! Bookmark not defined. of the full financial statements. Among its objectives is to protect and enhance long-term value for all stakeholders. It sets the overall strategy for the group and supervises executive management. The non-executive directors are there to challenge the executives. The board also ensures that good corporate governance policies and practices are implemented within the group. In the course of discharging its duties, the board acts in good faith, with due diligence and care, and in the best interests of the group and its shareholders.

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 continually assess the prospects of the group. Forecasts are prepared for a four year period, on a rolling basis. These are also subject to stress testing, the main aspects of which are the value of loans made, the return on those loans and the level of expected credit losses. In these scenarios, there is no indication that there will be a problem in continuing as a going concern. We are, however, in turbulent times when some of the most respected forecasters seem to find difficulty in assessing what lies ahead. It is therefore important to appreciate that the further away in time the estimate, the less reliable it is. Our forecasts assume a base rate of 3.00% in the short term, although if this increased further there would be little impact because of the short term nature of most of our lending.

The character of our lending is such as to permit us to react to any changes in base rate within a relatively short period of time other than with those loans that can be up to three or seven years ahead. These are relatively small in value, amounting to 5.10% of total loans made in the year and of these 4.38% are 36months or less. Not included in these figures are loans made by Orchard Finance where, although longer term, the risk is taken by the provider of the funds.

As a result of our estimate of the impact of the current, and likely short term future, financial situation, we have revised our forecasts downwards.

The key assumptions and bases used in the forecasts are now:

· Loans through our partners will grow to circa £92m in 2023/24;

· Liquidity will be available to fund those loans;

· Margins on lending will fall slightly to an average of 5.05%;

· Overheads will increase at the rate of inflation with stepped increases at certain points, e.g. when capacity constraints are hit or when project spending is required;

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

The directors have prepared and reviewed the financial projections covering a period of almost four years from the date of signing of these financial statements. In each year, and in particular in the 12 to 18 month period from signing, there is sufficient cash and there are sufficient reserves to enable the group to pay its debts as they fall due. In addition, they have further stress tested these projections to a point which they believe is unlikely to happen (reducing lending, reducing margins and increasing bad debt) to give a confidence buffer. Even in this scenario, based on the level of existing cash, the projected income and expenditure and the excess of our loan book over external debt, 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.

Future developments

There has been little change in how we wish to grow the business in the future. We shall continue to grow our core markets and look at adjacent markets. Last year I said that we had tested a small amount of longer term lending for static caravans and we grew this lending to £344k. We continue to review this given its longer term nature but it has been successful so far with no arrears. We began providing short term property finance this year (bridging loans) and we intend to expand this if it continues to go well. The nature of this lending is that we have to wait to be paid until the property is sold. Although this would ordinarily indicate a higher risk business, as already stated our systems are robust. In addition, our LTV is set at less than 75%, giving some comfort in the present economy.

We shall, of course, continue to look at other markets which fit our risk and return profile. We have not identified any at present which would fit our lending criteria.

We took an investment in Open B Banking in 2020 and increased our investment in that company in 2021. We have been working with this supplier to further develop the system to benefit both parties. This will continue.

Despite the fact that we have secure sources of funding at present, we shall continue to look at alternative sources of liquidity as this is of key importance to what we do.

Environmental, social responsibility, community, human rights issues and gender diversity

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 (see SECR reporting on the next page).

The group operates out of an office in Luton. During the Covid-19 pandemic, most employees worked from home. This proved remarkably successful from the perspective of both employee and employer and this situation has continued. This has meant that our carbon footprint as a business in the area has fallen (although there will be some impact on the environment from home working).

We provide health club membership and childcare vouchers for any staff who wish them.

We provide equal opportunities for all applicants and members of staff, irrespective of race, colour, sex, disability or marital status.

The composition of the main board of directors is currently all male. The boards of the subsidiaries consist of one or two males and two females each. Males make up 61.90% of the employees in total (68.42% in 2020).

We review the background of our suppliers and will not use any supplier which, as far as we are aware, breaches our own high standards as regards human rights.

Section 172(1) Statement

Section 172(1) requires a director of a company to act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard to:

(a) the likely consequences of any decision in the long term,

(b) the interests of the company's employees,

(c) the need to foster the company's business relationships with suppliers, customers and others,

(d) the impact of the company's operations on the community and the environment,

(e) the desirability of the company maintaining a reputation for high standards of business conduct, and

(f) the need to act fairly as between members of the company.

All matters brought to the board for consideration are reviewed in the light of how they will impact on stakeholders. This review involves balancing the interests of all stakeholders and includes having regard to:

· profitability;

· risk associated with the proposal (see

· Principal risks and uncertainties);

· how the decision will impact on our employees (both in financial terms and how the quality of their work life and outside life will be affected). Further detail on how we engage with our workforce is shown under Environmental, social responsibility, community, huma rights issues and gender diversity above;

· what impact it will have on our partners and other customers (as mentioned under Non-financial indicators. Proper customer care, particularly in avoiding unfair outcomes, is of overriding importance to Orchard;

· our reputation (the impact of loss of reputation is dealt with under Conduct risk);

· either the CEO and/or CFO are in contact with major investors at least twice a year (albeit by Zoom or telephone) to discuss the group's progress and overall plans. This gives us an insight into how our investors perceive us. All reports and other documents are on our website and any investor may request a meeting with any member of the board.

In a wider sense:

· Orchard does not deal unfairly with its suppliers and business associates and ensures that payment terms are adhered to. In fact, in many cases it assists those associates to expand their business. For example, we increased our investment in Open B Gateway Limited last year, so that they could have the benefit of finance to further develop their software platform;

· it behaves as a good neighbour, helping the local community where it is able and employing people from the locality - which also assists in reducing our carbon footprint;

· in its dealings with government, particularly the revenue authorities, it is completely open, paying what it owes on time;

· it has had no instances from the FCA of non-compliance with regulations;

Environmental, social responsibility, community, human rights issues and gender diversity are discussed on the previous page.

The board considers whether proposals put to it have long-term outcomes which affect its stakeholders. In most cases the proposals have no material long-term consequences. However, where there are potential consequences, the board takes account of the long-term nature of its decisions. For example, some years ago decisions were made both to change our IT system and to apply for a banking licence. Both decisions were long term in nature and required resources to be provided. The board agreed to both, seeing the benefits in the longer term for most of our stakeholders. The company withdrew its application for the banking licence last year but has continued to develop its IT system.

Streamlined Energy and Carbon Reporting (SECR)

The directors believe that the company is exempt from reporting under the SECR framework as its energy use is below the threshold for reporting.

Approved by the directors and signed by order of the board

Liam McShane, Company secretary

30 November 2022

Directors' report

The directors present their annual report together with the audited accounts of the group and the company for the year ended 31 July 2022.

Results and dividends

The group profit for the year after taxation was £1.52m (2021 £0.84m). This is shown on page 17 of the full financial statements. The directors consider that the going concern basis is appropriate, supported by the profitability of the group and the significant cash balances. During the year the group paid dividends amounting to £641k to shareholders (2021 £641k) - note Error! Reference source not found. of the full financial statements. The board is pleased to propose a final dividend of 2 pence per share to be paid on 6 January 2023 to shareholders on the register on 30

December 2022, with an ex-dividend date of 29 December 2022. The final dividend is subject to shareholder approval at the company's upcoming annual general meeting on 29 December 2022.

Future developments

Future developments and a fuller business review are contained in the Chief executive's review and the Group strategic report.

Directors and their interests

The directors who served during the year and their beneficial interests in the share capital of the company are shown in the remuneration report on pages Error! Bookmark not defined.and Error! Bookmark not defined. of the full financial statements. There is a directors' and officers' indemnity insurance policy in existence. There were no other third party indemnity provisions for the directors.

Directors' responsibilities

The directors are responsible for preparing the strategic report, directors' report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare group and company financial statements for each financial year. The directors have elected under company law and the AIM Rules of the London Stock Exchange to prepare the group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and have elected under company law to prepare the company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and applicable law.

The group and company financial statements are required by law and international accounting standards in conformity with the requirements of the Companies Act 2006 to present fairly the financial position of the group and the company and the financial performance of the group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that period.

In preparing each of the group and company financial statements, the directors are required to:

a)  select suitable accounting policies and then apply them consistently;

b)  make judgements and accounting estimates that are reasonable and prudent;

c)  state whether they have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006;

d)  prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group's and the company's transactions and disclose with reasonable accuracy at any time the financial position of the group and the company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Orchard Funding Group plc website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Research and development

During the financial year nothing was spent on research and development (2021 £Nil).

Financial instruments

Detailed information on the group's financial instruments is stated in notes Error! Reference source not found.

and Error! Reference source not found.of the full financial statements. The group's objectives and policies for managing risk are shown under

Principal risks and uncertainties in the Group strategic report.

Employees and environmental issues

The group is an equal opportunity employer. Details of the group's approach to employee and environmental matters are shown in the Group strategic report under Environmental, social responsibility, community, human rights issues and gender diversity.

Statement as to disclosure of information to auditor

The directors who were in office on the date of approval of these financial statements have confirmed, as far as they are aware, that there is no relevant audit information of which the auditor is unaware. Each of the directors have confirmed that they have taken all of the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.

Approved by the directors and signed by order of the board

Liam McShane, Company secretary

30 November 2022

Consolidated statement of comprehensive income

		2022	2021
	Notes	£000	£000
Continuing operations Interest receivable and similar income	4	5,003	3,783
Interest payable and similar charges	5	(587)	(559)
Net interest income		4,416	3,224
Other trading income	4	1,187	817
Other direct costs	5	(756)	(603)
Net other income		431	214
Net total income		4,847	3,438
Other operating costs	5	(2,905)	(2,516)
Net impairment (losses)/gains on financial assets	5	(63)	131
Operating profit		1,879	1,053
Interest receivable	6	1	-
Interest payable	6	(2)	(3)
Profit before tax		1,878	1,050
Tax	7	(360)	(211)
Profit for the year from continuing operations attributable to the owners of the parent		1,518	839
Earnings per share attributable to the owners of the parent during the year (pence)
Basic and diluted	9	7.11	3.91

Consolidated statement of financial position
		2022	2021
	Notes	£000	£000
Non-current assets Property, plant and equipment		13	23
Right of use assets		16	56
Intangible assets		7	4
Investment at fair value through profit and loss		81	81
Loans to customers	10	6,594	2,257
		6,711	2,421
Current assets Loans to customers	10	37,143	27,616
Other receivables and prepayments Cash and cash equivalents:	10	189	233
Bank balances  4,796			2,170
		42,128	30,019
Total assets		48,839	32,440
Liabilities
Current liabilities Trade and other payables	12	6,337	4,182
Borrowings	11	19,468	11,439
Tax payable		299	138
		26,104	15,759
Non-current liabilities
Borrowings	11	6,057	878
Deferred tax liabilities		1	3
		6,058	881
Total liabilities		32,162	16,640
Equity attributable to the owners of the parent Called up share capital		214	214
Share premium		8,692	8,692
Merger reserve		891	891
Retained earnings		6,880	6,003
Total equity		16,677	15,800
Total equity and liabilities		48,839	32,440

Consolidated statement of changes in equity

	Called up share capital	Retained earnings	Share Premium	Merger reserve	Total equity
	£000	£000	£000	£000	£000
Balance at 1 August 2020	214	5,805	8,692	891	15,602
Profit and total comprehensive income	-	839	-	-	839
Transactions with owners: Dividends paid	-	(641)	-	-	(641)
Balance at 31 July 2021	214	6,003	8,692	891	15,800
Profit and total comprehensive income Transactions with owners:	-	1,518	-	-	1,518
Dividends paid	-	(641)	-	-	(641)
Balance at 31 July 2022	214	6,880	8,692	891	16,677

Retained earnings consist of accumulated profits less 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. There are no restrictions on payment of dividends by the subsidiaries to the parent or by the parent to shareholders.

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.

Consolidated statement of cash flows

	2022	2021
Cash flows from operating activities:	£000	£000
Operating profit	1,879	1,053
Depreciation and amortisation	63	71
	1,942	1,124
Increase in loans to customers, other receivables and prepayments	(13,820)	(2,679)
Increase in trade and other payables	2,155	1,243
	(9,723)	(312)
Tax paid	(201)	(337)
Net cash absorbed by operating activities	(9,924)	(649)
Cash flows from investing activities Interest received	1	-
Purchases of property, plant and equipment	(4)	(3)
Purchase of intangible assets	(12)	(75)
Proceeds of sale of assets	-	-
Net cash absorbed by investing activities	(15)	(78)
Cash flows from financing activities Dividends paid	(641)	(641)
Net receipts from borrowings	13,236	12,245
Net borrowings repaid	-	(10,977)
Lease repayments	(30)	(30)
Net cash generated by financing activities	12,565	597
Net increase/(decrease) in cash and cash equivalents	2,626	(130)
Cash and cash equivalents at the beginning of the year	2,170	2,300
Cash and cash equivalents at the end of year	4,796	2,170

Notes to the consolidated financial statements

1.  Preliminary announcement

The preliminary announcement set out above does not constitute Orchard's statutory financial statements for the years ended 31 July 2022 or 2021 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 years ended 31 July 2022 and 2021 is unqualified and does not contain statements under s498(2) or (3) of the Companies Act 2006.

Subject to the disclosures in note 2 below, the accounting policies used for the year ended 31 July 2022 are unchanged from those used for the statutory financial statements for the year ended 31 July 2021. The 2022 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 International Accounting Standards in conformity with the Companies Act 2006, this announcement does not itself contain sufficient information to comply with International Accounting Standards in conformity with the Companies Act 2006.

Effect of new, or changes to financial reporting standards

At the date of authorisation of these financial statements, all of the new or amended Accounting Standards and Interpretations issued by the International Accounting Standards Board ('IASB') that are mandatory for the current reporting period and are relevant to the group's operations have been applied.

There are a number of new standards, amendments and interpretations that been issued but are not effective for these financial statements. They are not expected to impact the financial statements as either they are not relevant to the group's activities or are consistent with accounting policies already followed by the group.

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, on an annual basis, covering a period of almost four years from the date of signing of these financial statements, with a particular focus on the period of 12 to 18 months from the date of signing. Based on the level of existing cash, the projected income and expenditure and the excess of our loan book over external debt (amounting to approximately

£18.26m at the year end), 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. This is discussed more fully in the Group strategic report under Going concern.

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. Since 2017 the board has only recognised one segment - lending. This is because the risks, rewards and management of the debt are so similar, or that certain other lending is immaterial in terms of income, assets or lending, that any segregation (other than central costs) would not give meaningful information to users of the financial statements.

The board therefore assesses the entire business based on operating profit (before tax and exceptional items, but after finance costs which form part of Interest payable and similar charges and other direct costs).

The group has no single major customer. All income is from financing. Revenue can be analysed as follows:

	2022	2021
	£000	£000
Revenue
Interest revenue	5,003	3,783
Other revenue	1,187	817
	6,190	4,600
Timing of revenue recognition: At a point in time - direct debit charges	672	573
At a point in time - non utilisation fees	794	189
Over time - loan administrative fees	374	101
At a point in time - default and settlement fees	46	-
Over time - licence fees	141	143
Over time - interest revenue outside the scope of IFRS 15	4,163	3,594
	6,190	4,600

5.	Expenses by nature
		2022	2021
		£000	£000
	Interest payable and similar charges Interest payable in direct costs	464	281
	Bank fees in direct costs	123	278
		587	559
	Other direct costs Bank fees in direct costs	756	592
	Other direct costs	-	11
		756	603
	Other operating costs Employee costs (including directors)	1,377	1,267
	Advertising and selling costs	544	518
	Professional and legal fees	418	194
	IT costs	165	152
	Cost of listing	79	84
	Depreciation and amortisation	63	71
	Other net expenses	259	230
		2,905	2,516
	Impairment losses/(gains) (note 0)	63	(131)

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 under interest payable and similar charges. The amount included was £464k (2021 £281k).

The group receives a small amount of interest from its bank balances. This year it amounted to £1k (2021

£Nil).

Interest payable is in respect of right-of-use assets and amounted to £2k (2021 £3k).

7.  Tax expense

7.1  Current year tax charge:

2022  2021

£000  £000

Current tax expense  360  202

Adjustment re previous year tax expense  2  12

Deferred tax expense relating to the origination and reversal of

temporary differences  (2)  (3)

360  211

7.2  Tax reconciliation

The tax assessed for the year differs from the main corporation tax rate in the UK -19% for 2022 and 2021.

The differences are explained below.

	2022	2021
	£000	£000
Profit before tax for the financial year	1,878	1,050
Applicable rate - 19.00% (2021 19.00%)	19.00%	19.00%
Tax at the applicable rate	357	199
Effects of: Expenses not deductible for tax	1	-
Adjustment re previous year tax expense	2	12

Tax charge for the year  360  211

8.  Dividends

Amounts recognised as distributions to equity holders in the period:

Final dividend for the year ended 31 July 2021 of 2p (2020 2p) per

2022  2021

£000  £000

share  427  427

Interim dividend for the year ended 31 July 2022 of 1p (2021 1p)

per share  214  214

641  641

Proposed final dividend for the year ended 31 July 2022 of 2p

(2021 2p) per share  427  427

9.  Earnings per share

Earnings per share is based on the profit for the year of £1.52m (2021 £0.84m) and the weighted average number of the ordinary shares in issue during the year of 21.35m(2021 21.35m). There are no options or other factors which would dilute these therefore the fully diluted earnings per share is identical.

10.  Loans to customers and other receivables

2022  2021

	Group	Company	Group	Company
	£000	£000	£000	£000
Non-current Financial assets at amortised cost
Loans to customers:
Gross	6,595	-	2,259	-
Impairment provision	(1)	-	(2)	-
	6,594	-	2,257	-
Current Financial assets at amortised cost Loans to customers: Gross	37,277	-	27,686	-
Impairment provision	(134)	-	(70)	-
	37,143	-	27,616	-
Financial assets at amortised cost Intercompany receivables	-	9,864	-	9,888
Other receivables	127	-	124	-
	127	9,864	124	9,888
	37,270	9,864	27,740	9,888
Prepayments	62	30	109	25
	37,332	9,894	27,849	9,913

Loans to customers

Standard credit terms for loans to customers are based on the length of the loan but repayments are due on a monthly basis. Detail of impairment reviews are shown in note Error! Reference source not found. to the full financial statements.

The expected credit losses on receivables not past due have been assessed as very low, because of the following factors:

· With the majority of our lending (99.55% this year), no loan is made until the first repayment has been received by the group;

· In the event of default, the group has recourse to the underlying borrower;

· In the case of insurance receivables, the Financial Services Compensation Scheme provides additional cover to the group;

· For insurance receivables, the cover ceases, premiums paid are refunded, and the group has access to these refunds.

Loans to customers can be analysed as follows. The reference to stage 1, 2 and 3 refer to those stages explained in note Error! Reference source not found. to the full financial statements.

The figures refer to the group as the company has no loans to customers.

	Gross	2022 Impairment allowance	Net	Gross	2021 Impairment allowance	Net
	£000	£000	£000	£000	£000	£000
Amount receivable - stage 1	43,652	(39)	43,613	29,882	(29)	29,853
Amount receivable - stage 2	126	(9)	117	18	-	18
Amount receivable - stage 3	94	(87)	7	45	(43)	2
	43,872	(135)	43,737	29,945	(72)	29,873

Included in amounts receivable above are stage 1 receivables due after more than one year amounting to

£6,587k on which the impairment allowance was £1k (2021 £2,309k and £2k respectively). There are also stage 2 debts due after more than one year amounting to £8k (2021 £Nil) on which there was no impairment allowance (2021 £Nil).

An amount of £86k is due after more than five years (2021 £31k). It is stage 1 debt and there is no impairment allowance on the amount this year or last.

Over 99% of customer receivables are subject to recourse to the introducing partner in the event of default by the borrower.

Intercompany receivables

The holding company is owed a substantial amount by its two largest subsidiaries. These debts are interest free and due on demand. Neither subsidiary has the cash to repay these immediately and therefore, under the requirements of IFRS 9, provision may need to be made in the financial statements of the holding company. However, the board does not see any need for a provision because:

· the loans to customers which each subsidiary has made will generate sufficient cash to repay these loans (after payment of other liabilities) on a "run off" basis (as cash is collected it could be paid across to the parent). The majority of loans to customers in the subsidiaries are all repayable within 12 months; and

· any risk of loss is considered remote (not expected) and therefore no impairment provision is necessary.

11.	Borrowings
		2022	2021
		£000	£000
	Non-current: Borrowings	6,042	834
	Borrowings arising from right-of-use assets	15	44
		6,057	878
	Current: Borrowings	19,439	11,411
	Borrowings arising from right-of-use assets	29	28
		19,468	11,439

Borrowings other than those arising from right-of-use are secured. The parent company has no external borrowings.

11.1  Terms and debt repayment schedule

The group refinanced its borrowings during the previous financial year, resulting in Bexhill repaying

£9.48m of its loan and Orchard Funding £1.50m of its loan to their respective funders. The total amount of

£10.98m is shown as being repaid in the 2021 column of the Consolidated statement of cashflows.

Bexhill's current facility was increased during the year from £15.00m to £20.00m and is renewable in April 2023. Orchard Funding's facility is renewable in June 2023 and November 2023 for Orchard Finance. There is no indication that these facilities will not be renewed.

Borrowings by Bexhill of £14.92m (2021 £10.17m) are secured by a fixed and floating charge over all the assets of Bexhill, bear interest at an average rate of 3.10% excluding associated costs (2021 2.92% on the same basis) and are repayable within one year of the advance. The maximum drawdown on the facility is currently £20.00m (2021 £15.00m) of which £5.08m was undrawn at the year-end (2021 £4.83m).

Orchard Funding borrowings are secured by a fixed and floating charge over all the assets of Orchard Funding, bear interest at an average rate of 3.53% pa excluding associated costs (2021 5.28% on the same basis) and are repayable within one year of the advance. The maximum drawdown facility is currently

£5.00m (2021 £5.00m) of which £3.50m was undrawn at the year-end (2021 £5.00m).

Orchard Finance has access to a maximum drawdown borrowing facility of £7.50m (2021 £7.50m) of which

£4.64m was undrawn at the year end (2021 £5.43m). This facility can only be used for products of the lender, bears no interest, is secured by a fixed and floating charge and is repayable as monies are received by Orchard Finance from loans made by it.

On 3 March 2022 a five year, retail bond was issued. The bond raised £3.90m in 5 tranches. These were issued at between 0.9965 discount and 1.006 premium. The total amount issued was also £3.90m. Costs of the issue amounting to £0.21m were offset against the proceeds and amortised over five years. The market value of the bonds was £3.99m at 29 July 2022, the last trading day of the financial year.

The directors consider that the terms of these facilities closely match the maturity dates of the group's

receivables.

No amounts are due after five years on any of the facilities.

Liabilities in respect of right-of-use assets are unsecured, bear interest at the group's marginal cost of

borrowing on inception of the lease. This was 3.60%.

The minimum payments under lease liabilities are as follows:
	2022 Group £000	2021 Group £000
Within 1 year	30	30
Later than 1 year but no later than 5	15	45
	45	75
Future finance charges	(1)	(3)
	44	72
The present value of lease liabilities are as follows:

Within 1 year	29	28
Later than 1 year but no later than 5	15	44
	44	72

11.2  Reconciliation of liabilities arising from financing activities

The information given below relates to the group. The parent has no cash-flows from financing activities as all its costs are paid for by its subsidiaries.

At 1

	August 2020	Cash flows	At 31 July 2021	Cash flows	At 31 July 2022
	£000	£000	£000	£000	£000
Non-current:
Other loans	-	834	834	5,208	6,042
Borrowings arising from
right-of-use assets - leases	72	(28)	44	(29)	15
	72	806	878	5,179	6,057
Current: Bank loans	10,977	434	11,411	8,028	19,439
Borrowings arising from
right-of-use assets - leases	27	1	28	1	29
	11,004	435	11,439	8,029	19,468
Total liabilities from
financing activities  11,076		1,241	12,317	13,208	25,525
Interest on right-of-use assets
included in liabilities	(3)		(2)
Cashflows from financing
activities	1,238		13,206
Comprising:
Net receipts from borrowings	12,245		13,236
Borrowings repaid	(10,977)		-
Lease repayments	(30)		(30)
	1,238		13,206

12.  Trade and other payables

Current liabilities  2022  2021

	Group	Company	Group	Company
	£000	£000	£000	£000
Trade payables	4,522	-	3,274	-
Other payables	55	-	32	-
Other tax and social security costs	32	15	31	15
Accruals and deferred income	1,728	276	845	100
	6,337	291	4,182	115

Trade payables are unsecured and are usually paid within 30 days of recognition. Included within accruals and deferred income is deferred income of £699k (2021: £104k) related to income received in advance for loan administration services. The majority of this balance is expected to reverse within the next 12 months.

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 Error! Reference source not found. of the full financial statements.

13.1  Principal financial instruments

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

· Loans to customers

· Other receivables

· Cash and cash equivalents

· Trade payables

· Borrowings

· Financing for right-of-use assets

13.2	Financial instruments by category
	The group held the following financial assets at the reporting date: 2022			2021
		Group	Company	Group	Company
		£000	£000	£000	£000
Non-current assets Financial assets at fair value through consolidated income statement: Investments		81	-	81	-
Financial assets at amortised cost: Investments		-	2,938	-	2,888
Loans to customers Current assets Financial assets at amortised cost: Loans to customers		6,594 37,143	- -	2,257 27,616	- -
Other receivables: current Cash and cash equivalents:		127	9,864	124	9,888
Bank balances and cash in hand		4,796	-	2,170	-
		48,741	12,802	32,248	12,776

The group held the following financial liabilities at the reporting date: 2022			2021
	Group	Company	Group	Company
	£000	£000	£000	£000
Financial liabilities at amortised cost: Interest bearing loans and borrowings: Borrowings payable: non-current	6,057	-	878	-
Borrowings payable: current	19,468	-	11,439	-
Trade and other payables	6,305	276	4,151	100
	31,830	276	16,468	100

13.3  Fair value of financial instruments

The board does not consider the fair value of financial assets and liabilities to be materially different to their carrying values.

13.4  Financial risk management

The group's activities expose it to a variety of financial risks. These risks are dealt with in detail in the Group strategic report under Principal risks and uncertainties.

14.  Treatment of borrowings

The group borrows money 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 inflow or outflow of cash from the company's operations (depending on whether lending to customers decreases or increases in the year) which is then covered by borrowings. For reasons stated above this is not the case.

15.  Post balance sheet events

There were no post balance sheet events which fall to be disclosed in these financial statements.

16.  Availability of annual report and accounts and notice of AGM

A copy of the report and accounts for the year ended 31 July 2022 will shortly be posted to shareholders and a copy will be available to download from the company's website at www.orchardfundinggroupplc.com. Accompanying the report and accounts is a notice convening the company's annual general meeting, to be held at 10.00am on Thursday 29 December 2022, at 1st Floor, 721 Capability Green Luton, Bedfordshire LU1 3LUA. A copy of the notice of AGM will also be available to download from the company's website.

 

END

 

 

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