Interim Results

RNS Number : 5249A
Sancus Lending Group Limited
26 September 2022
 

26 September 2022

 

Sancus Lending Group Limited

("Sancus", the "Company" or "Group")

Interim Results for the six-month period ended 30 June 2022

 

 

HIGHLIGHTS

 

Rory Mepham, Chief Executive Officer of Sancus Lending Group Limited, commented:

 

" We started 2022 with a clear strategy to return the business to profitability, and a management team focussed on execution.  In the first half of the year we have made good progress towards this as well as a number of significant positive achievements. The number of new facilities written is significantly up on last year in the UK and Ireland and I am pleased to report no further IFRS9 provisions have been made during the period, following a thorough review of the loan book last year.

 

Our focus on returning the Group to profitability remains our top priority. We are also looking to broaden our funder base and improve funding terms, expand the Group's presence in the UK and Ireland and grow its loan book in the Offshore markets of the Channel Islands and Gibraltar.

 

The next step of our plan is to address and secure our long-term financing strategy, and our ZDPs remain an integral part of this. The current maturity date of the ZDPs is 5 December 2022 and we will shortly be engaging with the holders to agree a long-term plan meeting the needs of all stakeholders whilst enabling the Group to reinvest for growth."

 

 

Financial Highlights

 

·

Impressive growth of new loan facilities written of £86m in the first half of the year (H1 2021: £53m) and exceeding the full year loans written in 2021 of £83m;

·

Stabilisation of the loan book with no new IFRS9 provisions made in the period (H1 2021: £3.0m loss);

·

Group revenue for the first half of the year was £4.8m (H1 2021: £5.0m); and

·

Group operating loss for the period halved to £2.1m (H1 2021: loss £4.1m).

 

 

Operational Highlights

 

·

Significant investment in the sales and credit teams at the end of 2021 and into 2022, to support and drive growth over the coming years;

·

Focus on the maintenance of robust institutional grade credit processes, smooth loan execution, active loan management, data integrity and a proactive approach to loans that become stressed or distressed; and

·

Geographic focus remains unchanged, with the UK and Ireland the key areas of growth for the business whilst the Offshore markets currently remain the Group's largest market. UK revenue increased by 36% on last year and Ireland is up 227%.

·

Uncertain market outlook may present opportunities for well capitalised alternative lenders.

 

 

The information contained within this Announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No.596/2014 as amended by The Market Abuse (Amendment) (EU Exit) Regulations 2019. By the publication of this Announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.    

 

 

Enquires:

 

Sancus Lending Group Limited 

 via Instinctif Partners

Rory Mepham, CEO




Nominated Adviser and Broker

 

Liberum Capital Limited  

 +44 (0)203 100 2000

Chris Clarke


Lauren Kettle




Public Relations Adviser

 

Instinctif Partners

+44 (0) 7949 939 237

Tim Linacre 
Victoria Hayns


 

 

 

CHAIRMAN'S STATEMENT

 

Introduction

 

Our structured change programme which will reposition the Group for growth is well underway. Our chosen markets continue to present compelling opportunities and with reduced appetite amongst traditional balance sheet lenders, we are confident we can write high quality new business. 

 

The expansion of the sales teams has started to pay dividends with a significant improvement in new loan facilities written in the first half of the year of £86m, versus £53m written in the same period last year.

 

As part of a wider review of the business and the expansion of the credit and recoveries teams, we carried out a detailed review of the Group's loan book last year resulting in impairments of £6.4m in FY 2021 which at the time we believed drew a line under recent losses. I am therefore pleased to report no further IFRS9 provisions in the period.

 

 

Our People

 

Following last year's personnel changes, the team has settled in well and are working collaboratively to deliver our key goals of profitability and growth.  The Group has invested in rebuilding and reinforcing the team and our headcount has increased from 32 at the end of 2021 to 42 at 30 June 2022. We do not envisage further material hires. The new resource is focussed on expansion in our growth markets of the UK and Ireland and our credit and management focus as we deliver new business in the coming years.

 

 

Zero Dividend Preference Shares ("ZDPs")

 

The key milestones at the end of 2020 were the new equity raise, the restructuring of our debt (Bonds and ZDPs) and the increase and extension of our facility with HIT. Somerston Group, our largest shareholder, participated in both the equity raise and new bond issue and I thank them for their continued support.

 

On 15 July 2022 the Group entered into a ZDP share buyback programme to purchase up to £0.5m of the ZDPs pursuant to the authority granted to the Directors by shareholders at the Group's AGM in May 2022. We fully deployed the funds we were looking to return by 19 August 2022.

 

The ZDPs are an integral part of the Group's finance strategy and given the maturity date of 5 December 2022, we will engage with the ZDP shareholders shortly and seek their support to restructure enabling the Group to implement its plan to return to profitability.

 

 

Dividend and Shareholders

 

It is the Board's intention to reinvest surplus resources for growth. As such, the Group does not intend to declare a dividend for the period. The Board intends to revisit this policy at the appropriate time, should the profitability and cash flow profile of the business support the reinstatement of a dividend.

 

On behalf of the Board, I would like to thank shareholders for their continuing support and patience and for the efforts of the management and employees.

 

While the Group has made good progress in the first half of the year, we do not underestimate the scale and continuing challenge ahead. I am firmly of the view that we have the right strategy, systems and personnel to put the business onto a firmer footing and return to profitability and I look forward to reporting more positive developments in the coming period. 

 

Steve Smith

Chairman

 

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Overview

 

The first half of the year saw a number of significant achievements and I am pleased with the progress made.

 

We saw a significant increase in loans written in H1 2022 with £86m written in the six months to June 2022 versus £53m written in the same period in 2021. This will lead to corresponding growth of loans under management as these loans are drawn.

 

This loan book growth has been prevalent in the UK (144% growth versus June 2021) and Irish markets (150% growth versus June 2021) where the Sancus name and reputation continue to develop. In the UK we are particularly proud to have been shortlisted for the award of Development Finance provider of the year at the Bridging & Commercial awards, a clear demonstration of our growing reputation as a straightforward and trusted business partner.

 

It will take time for the loan writing process to deliver revenue uplift as there is a time lag between execution and drawdown, though fees are paid upfront on new deals and we generally receive exit fees when the loan is repaid. At the end of H1 2022 the loan book stood at £147m, a modest increase of £5 million versus FY 2021, but we expect growth in the loan book to increase in the second half of the year as the newly written loans continue to be drawn.

 

 

Strategic KPIs

 

The Board agreed the following KPI's and we have started to see improvements:

 

· Revenue growth

 

4% down on last year due to modest progress on loan deployment. Positive upticks in our growth areas of the UK and Ireland, with the UK revenue up 36% on last year and Ireland up 227%.

 

· Growing loans under management

 

Loan book increase from £142m at the end of 2021 to £147m at the end of June 2022.

 

· Reducing cost of funding

 

This remains a focus for the Group, and we continue to seek cheaper cost of funding. We are cognisant of recent rises in base rates. To address this, we have started to implement a variable rate to borrowers based on Bank of England base rates.

 

· Become a capital efficient business

 

We continue to reduce the amount of own capital within loans, which at 30 June 2022 represented 4.2% of the total loan book, in comparison to 5.9% at the end of June 2021.

 

· Increasing operating profits - by increasing gross margin and reducing costs

 

Operating loss for H1 2022 was £2.1m against an operating loss of £4.1m last June. We have reported no further IFRS9 losses in the period.  

Our cost base has increased on prior year as we focus on growth but in the future we expect the cost ratio to revenue to reduce.

 

· Return on Equity ("ROE")

Going forward we plan to become profitable and increase our ROE.

 

· Ensuring a risk based approach is taken on all decision making

Embedding institutional credit processes and becoming increasingly technology enabled has been a focus of the Group over the last year.

 

 

Origination

 

We have seen growth in new loan facilities written during the year with £86m written during the first half of 2022 against £53m for the first half of 2021 and a total of £83m in FY 2021, as the benefits of our investment in the sales and origination teams begin to come through.

 

Maintaining a high-quality credit process whilst scaling the quantity of new loans is a priority. We expect to see continued growth in the UK and Ireland as these remain key areas of investment for the Group. We further anticipate that the Offshore business (including the Channel Islands and Gibraltar) will continue to see attractive lending opportunities and we are confident that our businesses in these jurisdictions are well placed to execute against those opportunities as they arise.

 

Standardisation of the loan execution process has been implemented across the Group, including documentation, conditions precedent, conditions subsequent and closing checklists. We have also implemented a new workflow process to expediate the time between the loan credit approval and loan drawdown and are exploring how we can better utilise technology to manage certain elements more efficiently. We expect the onboarding of Salesforce (our chosen CRM software) and its integration with our Loan Management System to be completed in the second half of the year which will create further standardisation and efficiencies. 

 

 

Loan Management

 

The Sancus asset backed lending loan book increased since the end of 2021 from £142m to £147m. With the number of new facilities written and as we see funds deployed, we expect to be reporting a further increase in our loan book at year-end. Further investment has been made in recruiting experienced loan management team members during the period.

 

Continued emphasis has been placed on actively managing loans once the initial drawdown has been made. This has been particularly important during a time when various market related pressures such as cost inflation are impacting our borrowers. Active management is helping us to deal with issues before they become problems and we are pleased to report that the percentage of loan book in recovery continues to reduce.

 

 

Funding

 

We continue to focus on growing the funding capacity of the business on improved terms. This is particularly important in the context of the wider economic climate where we are in a significant inflationary environment. As is widely reported, the Bank of England Bank Rate has increased from 0.1% this time last year to 2.25% at the time of writing this report (with further increases likely). Additionally, we are seeking to work with a diversified mix of funders, both private and institutional, to match funders with loans meeting their varied risk and reward criteria. Currently, th e Group is reliant on four funding sources:

 

· Co-Funders
·
Loan Note program
·
Institutional funders
·
Proprietary capital

 

Co-Funders remain our largest funding channel, with the majority of the loan book in the Offshore markets being Co-Funded. As a proportion of total funding it has reduced from 51% at the end of December 2021 to 44% at 30 June 2022. We continue to nurture relationships with the Co-Funder base, typically being Offshore private individuals and family offices.  In addition to the large pool of Co-Funders that have been working with Sancus for a number of years, the business is actively seeking to widen its net.

 

Loan Notes, managed by Amberton Limited, remain an important funding instrument for the business. Loan Note 8 was launched in January 2022 and currently stands at £3.05 million. Loan Note 8 matures on 1 December 2026 and has a coupon of 5% p.a. (payable quarterly), with Sancus providing a 20% first loss guarantee. Loan Note 7 was launched in May 2021 and currently stands at £17.3 million. Loan Note 7 matures in May 2024 and has a coupon of 7% p.a. (payable quarterly), with Sancus providing a 10% first loss guarantee. As the business matures it is planned to increase the regularity and widen the variety of Loan Note products.

 

Sancus has an institutional funding line from the Honeycomb Investment Trust ("HIT"), which is managed by Pollen Street Capital and is designed to complement our Co-Funder base and Loan Notes. O n 3 December 2020 the HIT credit facility was increased to £75m from £45m and the term was extended to 28 January 2024. At 30 June 2022 the total drawn was £55m and at the date of this report stood at £65m (31 December 2021: £49.9m). The HIT facility continues to be strategic for the business.

 

Sancus has additionally secured a forward flow bridge funding arrangement with a global private equity backed debt acquisition business and continues to explore additional long term financing lines that could sit alongside our syndicated lending strategy.

 

The availability, cost and flexibility of funding is key to achieving our growth ambitions and we are reviewing the capital position of the business with a view to ensuring it is best placed to grow funding capacity on market adjusted improved terms. During the first half of 2022 the loan book funded by institutional funding increased by 5% with the majority of the UK and Irish loan book funded by this channel. We will seek to increase this along with the loan notes over time.

 

 

Finance & Operations

 

A focus on operational efficiencies within Finance & Operations to be driven by technology wherever possible is underway. We continue to drive focus and improvement in relation to corporate governance, Compliance & Risk with the implementation of a developed risk management structure to ensure the business is well set for future growth plans.

 

Sancus has developed, and continues to evolve, its own proprietary loan managements system ("LMS") for the administration of loans. A comprehensive review of the LMS system and our wider Technology strategy has been carried out over the course of the last year and further steps have been undertaken in 2022.

 

We made several hires across the business over the last year, in particular to bolster our Funding and Origination capabilities in the markets in which we are active. At the end of June 2022, the Group headcount was 42 (31 December 2021: 32) with the largest increases in the Origination and Loan Management teams. We believe the business is now well resourced to meet its objectives and are focussing on continuous improvement and development of our people.

 

Realising value from the legacy FinTech Ventures Investments remains a target for the management team. M onitoring and governance of FinTech Ventures continues as we assist our investee platforms with their strategy. Unfortunately, the profitability of many of these companies has failed to meet expectations within an acceptable timeframe and their ability to raise additional capital without proving concept is severely constrained. It remains a challenging market for many of the FinTech platforms.

 

 

Summary of Financial Performance

 

While Group revenue for the first half of 2022 was relatively flat on the comparative period last year at £4.8m (H1 2021: £5.0m) we have seen an increase in the UK and Irish revenues which is showing positive signs of further growth over time.

 

We have reported an operating loss of £2.1m (H1 2021: loss of £4.1m) and no further expected credit losses (IFRS 9) in the period (H1 2021: £3.0m loss). An increase in operating expenses in the period has been driven by the building out of our team. We expect costs to stabilise and we do not envisage growing the team in the foreseeable future.

 

The Group's net assets have reduced in the period from £19.1m at 31 December 2021 to £17.1m as a result of the operating loss in the period.

 

The Board has carried out a full impairment review of the carrying amount of goodwill and the resultant value-in-use calculation which indicated that no impairment of goodwill was required in either Sancus Lending (Jersey) or Sancus Lending (Gibraltar). The g oodwill value therefore remains at £22.9m.

 

Group cash and cash equivalents was £8.6m at 30 June 2022. £5.4m of this related to Group operational cash and £3.2m was within Sancus Loans Limited.

 

We continue to reduce our on balance sheet loans (excluding those loans in Sancus Loans Limited). These amounted to £8.0m before IFRS9 provisions at 30 June 2022 compared to £9.7m at 31 December 2021 (£2.8m net of IFRS9 provisions at 30 June 2022 compared to £4.7m at 31 December 2021). Sancus Loans Limited had loans of £58.4m at 30 June 2022 (31 December 2021: £49.9m).

 

The Group's liabilities consist of the Bond of £12.6m which has a quarterly paid coupon of 7% p.a. and matures on 31 December 2025; and ZDPs of £10.9m with a coupon of 8% which matures on 5 December 2022. We will shortly be engaging with stakeholders to discuss restructuring the ZDPs to enable the Group to have time for its plans to be implemented and return to profitability. The HIT credit facility was increased to £75m from £45m on 4 December 2020 and stood at £55m at 30 June 2022.

 

 

ESG

 

At Sancus, we are committed to taking environmental, social and governance ("ESG") factors seriously. We recognise our responsibility to incorporate sustainability throughout the operations of our business, be custodians of the environment and practice good stewardship of our stakeholders' interests. We are now taking steps to improve our approach to managing these factors.

 

H1 2022 has been focused on starting to define our ESG strategy. Having now established an internal ESG focus group we will also draw on external industry experts as required.

 

It is essential that we understand what ESG factors are most important to our stakeholders, such that we can focus our strategy around improving our approach to these issues. We are well on our way to completing a materiality assessment and intend to engage with stakeholders in the coming period.

 

We will report more fully on this in our 2022 Annual Report.

 

 

Outlook

 

Despite the uncertain outlook for the economy, the perennial imbalance between supply and demand for housing continues to offer a favourable landscape for the Group's anticipated growth in its target markets. The economic uncertainty is likely to lead to the continued retrenchment of Banks from both SME and development financing which further provides attractive opportunities for alternative lenders. We continue to track the geopolitical situation closely and note the potential for further supply chain disruption and inflationary risks in the construction sector.

 

We continue to be enthusiastic about the opportunities that lie ahead of us and look forward to delivering profitability. 

 

Rory Mepham

Chief Executive Officer

 

 

RISKS, UNCERTAINTIES AND RESPONSIBILITY STATEMENT

 

Risks and uncertainties

 

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remainder of the financial year. These include, but are not limited to, Capital and liquidity risk, Regulatory and compliance risk, Market risk, Credit risk with respect to the loan book (primarily bridging loans and, increasingly, development loans), Operational risk and the execution of Sancus strategy. These risks remain unchanged from December 2021 and are not expected to change in the 6 months to the end of the financial year. Further details on these risks and uncertainties can be found in the December 2021 Annual Report.

 

 

Responsibility statement

 

The Directors confirm that to the best of their knowledge:

 

· The Interim Report has been prepared in accordance with the AIM rules of the London Stock Exchange;

 

· This financial information has been prepared in accordance with IAS 34 as adopted by the UK;

 

· The interim results include a fair review of the important events during the first half of the financial year and their impact on the financial information as required by DTR 4.2.7R; and

 

· The interim results include a fair review of the disclosure of related party transactions as required by DTR 4.2.8R.

 

 

Approved and signed on behalf of the Board of Directors

 

 

INDEPENDENT REVIEW REPORT ON INTERIM FINANCIAL INFORMATION

 

Conclusion

 

We have been engaged by Sancus Lending Group Limited (the 'Company') to review the condensed set of consolidated financial statements in the Interim Report for the six months ended 30 June 2022 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in shareholders' equity, the condensed consolidated statement of cash flows and related Notes 1 to 19.

 

We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Consolidated Financial Statements.

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2022 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the UK and the AIM Rules of the London Stock Exchange.

 

Basis for Conclusion

 

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

As disclosed in note 2 of the interim condensed consolidated financial statements, the financial statements of the Company are prepared in accordance with IFRSs as adopted by the UK. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the International Accounting Standard 34, "Interim Financial Reporting", as adopted by the UK.

 

Conclusions Relating to Going Concern

 

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.

 

This conclusion is based on the review procedures performed in accordance with this ISRE, however future events or conditions may cause the entity to cease to continue as a going concern.

 

Responsibilities of directors

 

The Interim Report is the responsibility of, and has been approved by, the Directors.  The Directors are responsible for preparing the Interim Report in accordance with the AIM Rules of the London Stock Exchange.

 

In preparing the half-yearly financial report, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

 

Auditor's Responsibilities for the review of the financial information

 

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of consolidated financial statement in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

 

Moore Stephens Audit and Assurance (Guernsey) Limited

Level 2 Park Place

Park Street

St Peter Port

Guernsey, GY1 3HZ

 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

For the period ended 30 June 2022

 

 

 

Notes

Period ended

Period ended

 

 

30 June 2022

(unaudited)

 

£'000

30 June 2021

(unaudited)

 

£'000


 



Revenue

4

4,823

5,002

Cost of sales

5

(3,560)

(3,386)

Gross profit

 

1,263

1,616

Operating expenses

6

(3,350)

(2,671)

Changes in expected credit losses

17

-

(3,028)

Operating loss

 

(2,087)

(4,083)

FinTech Ventures fair value movement

17

114

8

Other net losses

 

(9)

(95)

Loss for the period before tax

 

(1,982)

(4,170)

Income tax expense

 

-

(58)

Loss for the period after tax

 

(1,982)

(4,228)

 

 

 


Items that may be reclassified subsequently to profit and loss

 

 


Foreign exchange arising on consolidation

 

10

9

Other comprehensive income for the period after tax

 

10

9

Total comprehensive loss for the period

 

(1,972)

(4,219)

 

 

 

 


 

 

 


Basic loss per Ordinary Share

7

(0.41)p

(0.88)p

Diluted loss per Ordinary Share

 

(0.41)p

(0.81)p

 

The accompanying Notes form an integral part of these financial statements.

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

As at 30 June 2022

 

 

 

30 June 2022

(unaudited)

31 December 2021 (audited)

ASSETS

Notes

£'000

£'000

Non-current assets

 



Fixed assets

8

549

660

Goodwill

9

22,894

22,894

Other intangible assets

10

21

53

Sancus loans and loan equivalents

17

43,111

6,643

FinTech Ventures investments

17

850

500

Investments in joint ventures and associates

 

-

500

Other investments

 

100

100

Total non-current assets

 

67,525

31,350

 

 

 


Current assets

 

 


Other assets

12

674

496

Sancus loans and loan equivalents

17

16,480

46,602

Trade and other receivables

11

5,242

6,075

Cash and cash equivalents

 

8,609

12,436

Total current assets

 

31,005

65,609

 

 

 


Total assets

 

98,530

96,959

 

 

 

 

EQUITY

 

 


Share premium

13

116,218

116,218

Treasury shares

13

(1,172)

(1,172)

Other reserves

 

(97,924)

(95,952)

Total Equity

 

17,122

19,094

 

 

 

 

LIABILITIES

 

 

 

Non-current liabilities

 

 


Borrowings

 

67,260

64,677

Other liabilities

 

253

364

Total non-current liabilities

14

67,513

65,041

 

 

 


Current liabilities

 

 


Borrowings

14

10,944

10,532

Trade and other payables

14

1,859

1,628

Tax liabilities

14

104

86

Provisions

14

70

-

Other liabilities

14

918

578

Total current liabilities

 

13,895

12,824

 

 

 


Total liabilities

 

81,408

77,865

 

 

 


Total equity and liabilities

 

98,530

96,959

 

The financial statements were approved by the Board of Directors on 23 September 2022 and were signed on its behalf by:

Director: John Whittle


 

The accompanying Notes form an integral part of these financial statement.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)

For the period ended 30 June 2022

 


 

 

 

Share

Premium

Treasury Shares

Warrants Outstanding

Foreign Exchange Reserve

Retained Earnings/

(Losses)

Total
Equity


 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 December 2021 (audited)

 

 

116,218

(1,172)

385

11

(96,348)

19,094

Fair value of warrants

 

 

-

-

(385)

-

385

-

Transactions with owners

 

 

 

-

-

(385)

-

385

-

Total comprehensive profit/(loss) for the period

 

 

-

-

-

10

(1,982)

(1,972)

Balance at 30 June 2022 (unaudited)

 

 

 

116,218

(1,172)

-

21

(97,945)

17,122

 


 

 

 

 

 

 

 


 


 

 

 

 

 

 

 


Balance at 31 December 2020 (audited)

 

116,218

(1,099)

847

(1)

(86,471)

29,494

Acquired on sale of BMS Finance AB

 

-

(73)

-

-

-

(73)

Fair value of warrants

 

-

-

616

-

(616)

-

Transactions with owners


 

 

-

(73)

616

-

(616)

(73)

Total comprehensive profit/(loss) for the period

 

 

-

-

-

9

(4,228)

(4,219)

Balance at 30 June 2021 (unaudited)

 

 

 

116,218

(1,172)

1,463

8

(91,315)

25,202

 


 

 

 

 

 

 

 


 

The accompanying Notes form an integral part of these financial statements.


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

For the period ended 30 June 2022

 

 

 

Period ended

Period ended

 

 

30 June 2022

(unaudited)

30 June 2021

(unaudited)


Notes

£'000

£'000

 

Cash outflow from operations, excluding loan movements

 

 

15

 

(626)

 

(2,654)

 

Decrease / (Increase) in Sancus loans

 

195

(2,298)

Decrease in loans to UK and Irish SARLS

 

-

1,796

(Increase) / Decrease in loans through the HIT facility

 

(5,840)

4,518

Investment in Sancus Loan notes

 

-

(50)

Net cash (outflow)/inflow from operating activities

 

(6,271)

1,312

 

Cash inflows / (outflows) from investing activities

 

 


Divestment / (Investment) in IOM Preference Shares

 

516

(16)

Net (Investments) / Repayments in FinTech Ventures

 

(236)

(492)

(Investment) / Divestment in joint ventures

 

(50)

9

Expenditure on SPL Properties

12

(178)

(52)

Sale of SPL Properties

 

-

51

Expenditure on fixed assets and intangibles

 

(14)

(4)

Net cash inflow / (outflow) from investing activities

 

38

(504)

 

 

 


Cash inflows / (outflows) from financing activities

 

 


Draw down of HIT facility

15

2,500

2,496

Capital element of lease payments

15

(104)

(97)

Repayment of ZDPs

15

-

(2,756)

Net cash inflow / (outflow) from financing activities

 

2,396

(357)


 

 


Effects of Exchange

 

10

9

 

 

 


Net (decrease) / increase in cash and cash equivalents

 

(3,827)

460

 

 

 


Cash and cash equivalents at beginning of period

 

12,436

15,786

 

 

 


Cash and cash equivalents at end of period

 

8,609

16,246

 

£3.2m of the £8.6m cash held at 30 June 2022 is for the exclusive use of Sancus Loans Limited (June 2021: £12.4m of the £16.2m).

 

The accompanying Notes form an integral part of these financial statements.

 

 

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

 

1.  GENERAL INFORMATION

 

Sancus Lending Group Limited (the "Company"), together with its subsidiaries, ("the Group") was incorporated, and domiciled in Guernsey, Channel Islands, as a company limited by shares and with limited liability, on 9 June 2005 in accordance with The Companies (Guernsey) Law, 1994 (since superseded by The Companies (Guernsey) Law, 2008). Until 25 March 2015, the Company was an Authorised Closed-ended Investment Scheme and was subject to the Authorised Closed-ended Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission ("GFSC"). On 25 March 2015, the Company was registered with the GFSC as a Non-Regulated Financial Services Business, at which point the Company's authorised fund status was revoked. The Company's Ordinary Shares were admitted to trading on the AIM market of the London Stock Exchange on 5 August 2005 and its issued zero dividend preference shares were listed and traded on the Standard listing Segment of the main market of the London Stock Exchange with effect from 5 October 2015.

 

The Company does not have a fixed life and the Company's Memorandum and Articles of Incorporation (the "Articles") do not contain any trigger events for a voluntary liquidation of the Company. The Company is an operating company for the purpose of the AIM rules. The Executive Team is responsible for the management of the Company.

 

The Company has taken advantage of the exemption conferred by the Companies (Guernsey) Law, 2008, Section 244, not to prepare company only financial statements which is consistent with the 2021 Annual Report.

 

 

2.   ACCOUNTING POLICIES

 

(a)  Basis of preparation

 

These condensed consolidated financial statements ("financial statements") have been prepared in accordance with International Financial Reporting Standard (IAS) 34 'Interim Financial Reporting', as adopted by the United Kingdom and all applicable requirements of Guernsey Company Law.  They do not include all the information and disclosures required in annual financial statements and should be read in conjunction with the Company's annual audited financial statements for the year ended 31 December 2021, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the United Kingdom.

 

The Group does not operate in an industry where significant or cyclical variations, as a result of seasonal activity, are experienced during any particular financial period.

 

These financial statements were authorised for issue by the Company Directors on 23 September 2022.

 

(b)  Principal accounting policies

 

The same accounting policies and methods of computation are followed in these financial statements as in the last annual financial statements for the year ended 31 December 2021.

 

(c)  Going Concern

 

The Directors have considered the going concern basis in the preparation of the financial statements as supported by the Director's assessment of the Company's and Group's ability to pay its debts as they fall due and have assessed the current position and the principal risks facing the business with a view to assessing the prospects of the Company.

 

Liabilities which fall due in the next 12 months include the final capital entitlement of the Company's ZDPs which are repayable on 5 December 2022 at £10.7m.

 

As part of the Group's growth plan the Company is considering its options regarding this liability which may include re-financing, part repayment and/or extension of the ZDPs and an equity raise. This will require consultation with the relevant stakeholders, including ordinary shareholders and ZDP shareholders and regulatory approvals and consents. Accordingly, there can be no certainty that the proposals will proceed.

 

These factors and assumptions constitute a material uncertainty that may cast significant doubt over the Company's ability to continue as a going concern, such that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The Directors expect that if they are able to action the mitigations in accordance with the plan outlined above, the material uncertainty will be extinguished. The Directors are therefore of the opinion that the Company will have adequate financial resources to continue in operation and meet its liabilities as they fall due for the foreseeable future and continue to adopt the going concern basis in preparing the financial statements.

(d)  Critical accounting estimates and judgements in applying accounting policies

 

The critical accounting estimates and judgements are as outlined in the financial statements for the year ended 31 December 2021.

 

 

3.   SEGMENTAL REPORTING

 

Operating segments are reported in a manner consistent with the manner in which the Executive Team reports to the Board, which is regarded to be the Chief Operating Decision Maker (CODM) as defined under IFRS 8. The main focus of the Group is Sancus. Bearing this in mind the Executive team have identified 4 segments based on operations and geography.

 

Finance costs and Head Office costs are not allocated to segments as such costs are driven by central teams who provide, amongst other services, finance, treasury, secretarial and other administrative functions based on need. The Group's borrowings are not allocated to segments as these are managed by the Central team. Segment assets and liabilities are measured in the same way as in these financial statements and are allocated to segments based on the operations of the segment and the physical location of those assets and liabilities.

 

The four segments based on geography, whose operations are identical (within reason), are listed below. Note that Sancus Loans Limited, although based in the UK, is reported separately as a stand-alone entity to the Board and as such is considered to be a segment in its own right.

 

1.  Offshore

 

Contains the operations of Sancus Lending (Jersey) Limited, Sancus Lending (Guernsey) Limited, Sancus Lending (Gibraltar) Limited, Sancus Properties Limited and Sancus Group Holdings Limited.

 

2.  United Kingdom (UK)

 

Contains the operations of Sancus Lending (UK) Limited and Sancus Holdings (UK) Limited.

 

3.  Ireland

 

Contains the operations of Sancus Lending (Ireland) Limited.

 

4.  Sancus Loans Limited

 

Contains the operations of Sancus Loans Limited.


 

 

 

 

 

 

 

 

 

Reconciliation to Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Six months to 30 June 2022

 

Offshore

UK

Ireland

Sancus Loans Limited (SLL)

Sancus Debt Costs

Total Sancus

 

Head Office

SLL Debt Costs

FinTech Ventures Fair Value & Forex

Other

 

Consolidated Financial Statements

 

£'000

£'000

£'000

£'000

£'000

£'000

 

£'000

£'000

£'000

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

658

1,386

752

(251)

-

2,545

 

-

2,278

-

-

 

4,823

 






 







 

Operating Profit/(loss) *

(481)

(319)

467

(259)

-

(592)


(618)

-

-

(17)


(1,227)

Credit Losses

191

-

-

(191)

-

-


-

-

-

-


-

Debt Costs

-

-

-

-

(860)

(860)


-

-

-

-


(860)

Other Gains/(losses)

24

-

5

(34)

-

(5)


5

-

155

-


155

Loss on JVs and associates

-

-

-

-

-

-


-

-

-

(50)


(50)

Taxation

-

-

-

-

-

-


-

-

-

-


-

 






 







 

Profit After Tax

(266)

(319)

472

(484)

(860)

(1,457)

 

(613)

-

155

(67)

 

(1,982)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months to 30 June 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

1,883

1,018

230

(239)

-

2,892


-

2,033

-

77


5,002

 














Operating Profit/(loss) *

685

136

(8)

(248)

-

565


(693)

-

-

73


(55)

Credit Losses

(2,270)

-

-

(746)

-

(3,016)


-

-

-

(12)


(3,028)

Debt Costs

-

-

-

-

(1,000)

(1,000)


-

-

-

-


(1,000)

Other Gains/(losses)

96

2

(26)

1

-

73


-

-

(4)

(49)


20

Loss on JVs and associates

-

-

-

-

-

-


-

-

-

(107)


(107)

Taxation

(58)

-

-

-

-

(58)


-

-

-

-


(58)

 














Profit After Tax

(1,547)

138

(34)

(993)

(1,000)

(3,436)


(693)

-

(4)

(95)


(4,228)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Operating Profit/(loss) before credit losses and debt costs

 

Sancus Loans Limited is consolidated into the Group's results as it is 100% owned by Sancus Group. However, the reality is that Sancus Loans Limited is a Co-Funder the same as any other Co-Funder. As a result the Board reviews the economic performance of Sancus Loans Limited in the same way as any other Co-Funder, with revenue being stated net of debt costs. Operating expenses include recharges from UK to Offshore £220,000, Offshore to Ireland £37,000, Head Office to Offshore £62,500 and UK to Head Office £31,000. "Other" includes FinTech (excluding fair value and forex).

 

 

 

 

 

 

 

 

Reconciliation to Financial Statements

 

 

 

 

 

 

 

 

At 30 June 2022

 

Offshore

UK

Ireland

Sancus Loans Limited (SLL)

Total Sancus

 

Head Office

Investment in IOM

Fintech Portfolio

Other

Inter Company Balances

 

Consolidated Financial Statements

 

£'000

£'000

£'000

£'000

£'000

 

£'000

£'000

£'000

£'000

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

43,991

11,908

534

63,252

119,685


42,820

-

850

477

(65,302)


98,530




























Total Liabilities

(40,295)

(13,055)

(180)

(67,659)

(121,189)


(24,194)

-

-

(1,327)

65,302


(81,408)




























 

Net Assets/(liabilities)

3,696

(1,147)

354

(4,407)

(1,504)

 

18,626

-

850

(850)

-

 

17,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

45,397

11,127

586

60,504

117,614


43,129

500

500

793

(65,577)


96,959

 















 















 

Total Liabilities

(40,503)

(12,599)

(714)

(64,355)

(118,171)


(23,978)

-

-

(1,293)

65,577


(77,865)

 















 















 

Net Assets/(liabilities)

4,894

(1,472)

(128)

(3,851)

(557)


19,151

500

500

(500)

-


19,094

 

 

Head Office liabilities include borrowings £23.4m (December 2021: £23m).  Other FinTech assets and liabilities are included within "Other"


4.  REVENUE

 

 

30 June 2022

(unaudited)

30 June 2021

(unaudited)


£'000

£'000

Co-Funder fees

767

777

Earn out (exit) fees

260

270

Transaction fees

1,711

1,662

Total revenue from contracts with customers

2,738

2,709


 

 

Interest on loans

58

117

HIT interest income

2,027

1,794

Other income

-

382

Total Revenue

4,823

5,002

 

 

5.   COST OF SALES

 

 

30 June 2022

(unaudited)

30 June 2021

(unaudited)


£'000

£'000

Interest costs

881

1,016

HIT interest costs

2,278

2,033

Other cost of sales

401

337

Total cost of sales

3,560

3,386

 

 

6.   OPERATING EXPENSES

 

 

30 June 2022

(unaudited)

30 June 2021

(unaudited)


£'000

£'000


 

 

Administration and secretarial fees

61

67

Amortisation and depreciation

157

195

Audit fees

69

84

Corporate Insurance

69

27

Directors Remuneration

64

69

Employment costs

2,201

1,719

Investor relations expenses

30

37

Legal and professional fees

82

123

Marketing expenses

126

20

NOMAD fees

38

38

Other office and administration costs

385

247

Pension costs

51

28

Registrar fees

15

15

Sundry

2

2

Total operating expenses

3,350

2,671

 

 

7.    LOSS PER ORDINARY SHARE

 

Consolidated loss per Ordinary Share has been calculated by dividing the consolidated loss attributable to Ordinary Shareholders in the period by the weighted average number of Ordinary Shares outstanding (excluding treasury shares) during the period.

 

Note 13 describes the warrants in issue which are currently out of the money, and therefore have not been considered to have a dilutive effect on the calculation of Loss per Ordinary Share.

 

 

30 June 2022

(unaudited)

30 June 2021

(unaudited)

 

 

 

Number of shares in issue

489,843,477

489,843,477

Weighted average number of shares outstanding

477,990,801

478,294,522

Loss attributable to Ordinary Shareholders in the period

£1,982,000

£4,228,000

Basic Loss per Ordinary Share

(0.41)p

(0.88)p

Diluted Loss per Ordinary Share

(0.41)p

(0.81)p

 

 

 

 

 

 

8.    FIXED ASSETS

 

 

Right of use assets

Property & Equipment

Total

Cost

£'000

£'000

£'000

At 31 December 2021

1,247

463

1,710

Additions in the period

-

14

14

Disposals

-

(15)

(15)

At 30 June 2022

1,247

462

1,709

 

Accumulated depreciation

£'000

£'000

£'000

At 31 December 2021

686

364

1,050

Charge in the period

98

27

125

Disposals

-

(15)

(15)

At 30 June 2022

784

376

1,160





Net book value 30 June 2022

463

86

549





Net book value 31 December 2021

561

99

660





 

 

9. GOODWILL

 

Goodwill at 30 June 2022 and 31 December 2021 comprises:

 

 

 

£'000

 

 

 

Sancus Lending (Jersey)

 

14,255

Sancus Lending (Gibraltar)

 

8,639

Total

 

22,894

 

 

Impairment tests

 

The carrying amount of goodwill arising on the acquisition of certain subsidiaries is assessed by the Board for impairment on an annual basis or sooner if there has been any indication of impairment. The annual review is due on 30 June each year. As a result the Board has assessed the Goodwill for impairment on 30 June 2022.

 

The value in use of Sancus Lending (Jersey) and Sancus Lending (Gibraltar) was based on an internal Discounted Cash Flow ("DCF") value-in-use analysis using cash flow forecasts for the years 2022/23 to 2026/27. The starting point for each of the cash flows was the revised forecast for the year 2022/23 produced by Jersey and Gibraltar management. Management's revenue forecasts applied a compound annual growth rate (CAGR) to revenue of 25.5% and 11.2% for Jersey and Gibraltar respectively. A cost of equity discount rate of 13.5% was employed in the valuation model for Jersey and 14.0% for Gibraltar. The resultant valuation indicated that no impairment of goodwill was required in either Jersey or Gibraltar, with significant headroom.

 

 

Goodwill valuation sensitivities

 

When the discounted cash flow valuation methodology is utilised as the primary goodwill impairment test, the variables which influence the results most significantly are the discount rates applied to the future cash flows and the revenue forecasts. The table below shows the impact on the Consolidated Statement of Comprehensive Income of stress testing the period end goodwill valuation with a decrease in revenues of 10% and an increase in cost of equity discount rate of 3%. These potential changes in key assumptions fall within historic variations experienced by the business (taking other factors into account) and are therefore deemed reasonable. The current model reveals that a sustained decrease in revenue of circa 13% for Jersey and circa 20% for Gibraltar or a sustained increase of circa 9% in the cost of Equity discount rate for Jersey and circa 11% for Gibraltar would remove the headroom.

 

Sensitivity Applied

 

Reduction in headroom implied by sensitivity


 

 

 

 

Jersey

 '000

 

Gibraltar

 '000

 

Total

£'000


 

 

 

 

10% decrease in revenue per annum


5,026

2,483

7,509

3% increase in cost of Equity discount rate


2,490

1,619

4,109

 

Neither a 10 % decrease in revenue nor a 3% increase in the cost of Equity discount rate implies a reduction of Goodwill in Jersey or Gibraltar.

 

 

10.   OTHER INTANGIBLE ASSETS

 

 

 

£'000

Cost

 

At 30 June 2022 and 31 December 2021

1,584


 

Amortisation

 

At 31 December 2021

1,531

Charge for the period

32

At 30 June 2022

1,563



Net book value at 30 June 2022

21

 

 

Net book value at 31 December 2021

53

 

 

Intangible assets comprise capitalised contractors' costs and costs related to core systems development. No impairment provision has been recorded. The amortisation charge has been recorded within Operating Expenses.

 

 

11.   TRADE AND OTHER RECEIVABLES

 

 

30 June 2022

(unaudited)

 

31 December 2021

(audited)

 

Current

£'000

£'000

Loan fees, interest and similar receivable

3,285

4,146

Receivable from associated companies

12

10

Taxation

32

40

Derivative contracts (Note 17)

-

759

Other trade receivables and prepaid expenses

1,913

1,120


5,242

6,075

 

12.    OTHER ASSETS

 

 

 

 

Development properties

Cost

 

 

£'000

At 31 December 2020



1,015

Additions



157

Disposals



(676)

At 31 December 2021



496

Additions



178

At 30 June 2022

 

 

674

 

Other assets are developments which were previously held as security against certain loans which have defaulted. These assets are held at the lower of cost and net realisable value. The remaining £674,000 comprises of one development property which is held at cost.

 

 

13 .   SHARE CAPITAL, SHARE PREMIUM & DISTRIBUTABLE RESERVE

 

Sancus Lending Group Limited has the power under the Articles to issue an unlimited number of Ordinary Shares of nil par value.

 

No Ordinary Shares were issued in the period to 30 June 2022 (Period to 30 June 2021: Nil).

 

Share Capital

 

 

Number of Ordinary Shares - nil par value

 

At 30 June 2022 (unaudited) and 31 December 2021 (audited)

489,843,477

 

 

Share Premium

 

 

Ordinary Shares - nil par value

£'000

At 30 June 2022 (unaudited) and 31 December 2021 (audited)

116,218

 

Ordinary shareholders have the right to attend and vote at Annual General Meetings and the right to any dividends or other distributions which the Company may make in relation to that class of share.

 

 

Treasury Shares

 

 

30 June 2022

(unaudited)

Number of shares

31 December 2021

(audited)

Number of shares

 

 

 

Balance at start of the period/year

11,852,676

7,925,999

Sancus Lending Group shares acquired on the sale of BMS Finance AB 

-

3,926,677

Balance at end of period/year

11,852,676

11,852,676

 

 

 

30 June 2022

(unaudited)

£'000

31 December 2021

(audited)

£'000

 

 

 

Balance at start of the period/year

1,172

1,099

Sancus Lending Group shares acquired on the sale of BMS Finance AB 

-

73

Balance at end of period/year

1,172

1,172

 

 

Warrants in Issue

 

On 22 December 2020, in connection with the issue of new bonds, the Company issued 153,994,543 Warrants to subscribe in cash for new Ordinary Shares at a subscription price of 2.25 pence per Ordinary Share. The Warrants will be exercisable on at least 30 days notice in the period to 31 December 2025. As at 30 June 2022 and up to the date of signing these condensed interim financial statements none of these warrants have been exercised. The warrants are classified as equity instruments because a fixed amount of cash is exchangeable for a fixed amount of equity, there being no other features which could justify a financial liability classification. The fair value of the Warrants at 30 June 2022 is £Nil (31 December 2021: £385,000).  

 

 

14.   LIABILITIES

 

Non-current liabilities

30 June  2022

(unaudited)

31 December 2021

(audited)


£'000

£'000

Corporate bond (1)

12,487

12,474

HIT facility (2)

54,773

52,203

Lease Creditor

253

364

Total non-current liabilities

67,513

65,041

 

 

Current liabilities

30 June  2022  (unaudited)

31 December  2021  (audited)


£'000

£'000

ZDPs (3)

10,944

10,532

Accounts payable

160

93

Accruals and other payables

 1,699

1,519 

Taxation

104

86

Payable to associated companies

-

16

Interest payable

378

366

Derivative contracts (note 17)

321

-

Provisions

70

-

Lease creditor

219

212

Total current liabilities

13,895

12,824

 

Movement on provision for financial guarantees

 

 

 

 

£'000

At 31 December 2020

 

1,542

Profit and loss credit in the year

 

(1,542)

At 31 December 2021

 

-

Profit and loss charge in the period

 

70

At 30 June 2022

 

70

 

Provisions for financial guarantees are recognised in relation to Expected Credit Losses ("ECLs") on off-balance sheet loans and debtors where the Company has provided a subordinated position or other guarantee (see Note 18). The fair value is determined using the exact same methodology as that used in determining ECLs (Note 17).

 

(1)  Corporate Bond

 

On 22 December 2020 Sancus Lending Group issued £12,575,000 corporate bonds of which £3,875,000 were rolled from  the existing £10m bonds (the remaining £6,125,000 being repaid) and £8,700,000 issued for cash. Over the term of the bonds £15m may be issued. The bond maturity date is 31 December 2025 and they bear interest at 7% (2021: 7%).

 

(2)  HIT Facility

 

On 29 January 2018, Sancus Lending (UK) Limited signed a new funding facility with Honeycomb Investment Trust plc (HIT). The funding line had a term of 3 years and comprised of a £45m accordion and revolving credit facility. On 3 December 2020 the term of the facility was extended to 28 January 2024. On the same date the facility was increased to £75m. The facility bears interest at 7.25%. The HIT facility has portfolio performance covenants including that actual loss rates are not to exceed 4% in any twelve month period and underperforming loans are not to exceed 10% of the portfolio. Sancus Group has an obligation to maintain a 10% first loss position on the HIT facility. Sancus Lending Group has also provided HIT with a guarantee, capped at £2m that will continue to ensure the orderly wind down of the loan book, in the event of the insolvency of Sancus Group, given its position as facility and security agent.

 

(3)  ZDPs

 

The ZDPs have a maturity date of 5 December 2022 with a final capital entitlement of £1.6464 per ZDP share, and bear interest at an average rate of 8.0% (2021: 8.0%).

 

Refer to the Company's Memorandum and Articles of Incorporation for full detail of the rights attached to the ZDPs. This document can be accessed via the Company's website www.sancus.com.

 

In accordance with article 7.5.5 of the Articles, the Company may not incur more than £30m of long term debt without the prior approval from the ZDP shareholders. The Articles also specify that two debt cover tests must be met in relation to the ZDPs. At 30 June 2022 the Company was in compliance with these covenants as Cover Test A was 3.14 (minimum of 1.7) and Cover Test B was 5.65 (minimum of 3.25).

 

At the period end senior debt borrowing capacity amounted to £17.4m. The HIT facility does not impact on this capacity as this is non-recourse to the Company.

 

The number of ZDPs in issue at 30 June 2022 and 31 December 2021 was 19,101,384 of which 12,235,748 (31 December 2021: 12,235,748) with an aggregate value of £19,522,833 (31 December 2021: £18,810,266) are held by the Company.

 

 

15. NOTES TO THE CASH FLOW STATEMENT  

 

Cash outflow from operations (excluding loan movements)

 

30 June 2022

(unaudited)

30 June 2021

(unaudited)


 

£'000

£'000


 

 

 

Loss for the period

 

(1,982)

(4,228)


 

 

 

Adjustments for:

 

 

 


 

 

 

Net gain on FinTech Ventures

 

(114)

(8)

Other net losses / (gains)

 

417

88

Adjustment in carrying value of Sancus IOM Holdings Limited

 

-

116

Accrued interest on ZDPs

 

400

468

Impairment of financial assets

 

-

3,028

Gain on SPL assets

 

-

(51)

Gain on purchase of ZDPs

 

-

(34)

Amortisation / depreciation of fixed assets

 

157

195

Amortisation of debt issue costs

 

95

105


 

 

 

Changes in working capital:

 

 

 

Trade and other receivables

 

82

(1,793)

Trade and other payables

 

319

   (540)


 

 

 

Cash outflow from operations, excluding loan movements

 

(626)

(2,654)

 

 

Changes in liabilities arising from financing activities

 

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be classified in the Group's consolidated cash flow statement as cash flows from financing activities.

 

 

1 January 2022

Financing cash flows1

Amortisation of debt issue costs

Non-cash

Other

Non-cash

30 June 2022

 

£'000

£'000

£'000

£'000

£'000

ZDPs

10,532

-

12

4002

10,944

Corporate Bond

12,474

-

13

-

12,487

HIT Facility

52,203

2,500

70

-

54,773

Lease Liability

576

(104)

-

-

472

Total liabilities from financing activities

75,785

2,396

95

400

78,676

 

 

1 January 2021

Financing cash flows1

Amortisation of debt issue costs

Non-cash

Other

Non-cash

30 June 2021

 

£'000

£'000

£'000

£'000

£'000

ZDPs

12,424

(2,756)

12

4342

10,114

Corporate Bond

12,473

-

12

(24)2

12,461

HIT Facility

44,553

2,496

81

-

47,130

Lease Liability

657

(97)

-

(16)3

544

Total liabilities from financing activities

70,107

(357)

105

394

70,249

 

1 These amounts can be found under financing cash flows in the cash flow statement.

2 Interest accruals.

3 Lease variation.

 

 

16.   RELATED PARTY TRANSACTIONS

 

Transactions with the Directors/Executive Team

 

Non-executive Directors

 

As at 30 June 2022, the non-executive Directors' annualised fees, excluding all reasonable expenses incurred in the course of their duties which were reimbursed by the Company, were as detailed in the table below:

 


30 June 2022

 

30 June 2021


£'000

 

£'000





Patrick Firth (Previous chairman - resigned 31 August 2021)

-


50,000

Stephen Smith (Chairman)

50,000


35,000

John Whittle 

42,500


42,500

Nick Wakefield (resigned 8 March 2022)

-


35,000

Tracy Clarke (appointed 9 March 2022)

35,000


-





 

On 9 March 2022 Tracy Clarke was appointed as a non-executive Director to the Board. Tracy's directorships were listed in the RNS issued on 9 March 2022.

 

Tracy Clarke is a director of a number of Somerston Group companies. The Somerston Group of companies collectively holds 200,349,684 ordinary shares in the Company, representing 40.9 per cent of the current issued share capital. From time to time, the Somerston Group may participate as a Co-Funder in Sancus loans. Other than this and the Directors' fees and expenses in relation to Tracy's (and previously Nick's) appointment as a Director of the Group, the Group has not recorded any transactions with any Somerston Group companies for the period ended 30 June 2022 (30 June 2021: none).

 

Total Directors' fees charged to the Company for the period ended 30 June 2022 were £63,750 (30 June 2021: £68,640).

 

 

Executive Team

 

For the period ended 30 June 2022, the Executive Team members' remuneration from the Company, excluding all reasonable expenses incurred in the course of their duties which were reimbursed by the Company, were as detailed in the table below:

 


30 June 2022

30 June 2021


£'000

£'000




Aggregate remuneration in respect of qualifying service - fixed salary

238

303

Aggregate amounts contributed to Money Purchase pension schemes

10

8

Aggregate bonus paid

-

125

 

All amounts have been charged to Operating Expenses.

 

 

Directors' and Persons Discharging Managerial R esponsibilities ("PDMR") shareholdings in the Company

 

As at 30 June 2022, the Directors had the following beneficial interests in the Ordinary Shares of the Company:

 


30 June 2022

31 December 2021


No. of Ordinary Shares Held

% of total issued Ordinary Shares

No. of Ordinary Shares Held

% of total issued Ordinary Shares






John Whittle

138,052

0.03

138,052

0.03

Emma Stubbs

1,380,940

0.28

1,380,940

0.28

Dan Walker1

-

-

911,300

0.19

 

1 Dan Walker resigned 31 January 2022

 

In the six month period to June 2022 and the year to December 2021, none of the above received any amounts relating to their shareholding.

 

 

Transactions with connected entities

 

The following significant transactions with connected entities took place during the current period:

 

Receivable from/(payable to) related parties

 

30 June 2022

31 December 2021

 

 

 

£'000

£'000

Sancus (IOM) Holdings Limited1



-

(16)

Amberton Limited



12

10

 

1 Sancus (IOM) Holdings Limited ceased to be a connected entity on 31 January 2022 when the Group sold its interest.

 


 

 

Net Cost recharges

 

 

 

30 June 2022

30 June 2021

Amberton Limited

4

18

 

There is no ultimate controlling party of the Company.

 

 

17.   FINANCIAL INSTRUMENTS - Fair values and risk management

 

Sancus loans and loan equivalents

 

30 June 2022 (unaudited)

31 December 2021 (audited)

£'000

£'000

 

 

786

447

42,325

6,196

43,111

6,643







2,059

4,269

14,421

42,333

16,480

46,602



59,591

53,245

 

 

Fair Value Estimation

 

The financial assets and liabilities measured at fair value in the Consolidated Statement of Financial Position are grouped into the fair value hierarchy as follows:

 


30 June 2022

(unaudited)

31 December 2021 (audited)


Level 2

Level 3

Level 2

Level 3


£'000

£'000

£'000

£'000






Fintech Ventures investments

-

850

-

500

Derivative contracts

(321)

-

759

-

Total assets / liabilities at fair value

(321)

850

759

500

 

The classification and valuation methodology remains as noted in the 2021 Annual Report.

 

All of the FinTech Ventures investments are categorised as Level 3 in the fair value hierarchy. In the past the Directors have estimated the fair value of financial instruments using discounted cash flow methodology, comparable market transactions, recent capital raises and other transactional data including the performance of the respective businesses. Having considered the terms, rights and characteristics of the equity and loan stock held by the Group in the FinTech Ventures investments, as well as the challenges that have faced the platforms during the pandemic, the Board's estimate of liquidation value of these assets is £0.85m at 30 June 2022 (31 December 2021: £0.5m) following £0.35m deployed into an existing investment in March 2022. Changes in the performance of these businesses and access to future returns via its current holdings could affect the amounts ultimately realised on the disposal of these investments, which may be greater or less than £0.85m. There have been no transfers between levels in the period (2021: None).

 

 

Assets at Amortised Cost

 

30 June 2022

31 December 2021

 

(unaudited)

(audited)

 

£'000

£'000

Sancus loans and loan equivalents

59,591

53,245

Trade and other receivables

3,329

4,196

Cash and cash equivalents

8,609

12,436

Total assets at amortised cost

71,529

69,877

 

 

Liabilities at Amortised Cost

 

30 June 2022

31 December 2021

 

(unaudited)

(audited)

 

£'000

£'000

ZDPs

10,944

10,532

Corporate Bond

12,487

12,474

HIT facility

54,773

52,203

Trade and other payables

3,204

2,656

Total liabilities at amortised cost

81,408

77,865

 

Refer to Note 14 for further information on liabilities.

 

 

FinTech Ventures Investments

 

Total Portfolio

30 June 2022

£'000

At 31 December 2021

500

Net new investments / loan repaid

236

Realised gain recognised in profit and loss

114

At 30 June 2022

850

 

 

 

Total Portfolio

31 December 2020

£'000

At 31 December 2020

-

Net new investments / (divestments)

66

Realised gain recognised in profit and loss

434

At 31 December 2021

500



 

Credit Risk

 

Credit risk is defined as the risk that a borrower/debtor may fail to make required repayments within the contracted timescale. The Group invests in senior debt, senior subordinated debt, junior subordinated debt and secured loans. Credit risk is taken in direct lending to third party borrowers, investing in loan funds, lending to associated platforms and loans arranged by associated platforms. The Group mitigates credit risk by only entering into agreements related to loan instruments in which there is sufficient security held against the loans or where the operating strength of the investee companies is considered sufficient to support the loan amounts outstanding.

 

Credit risk is determined on initial recognition of each loan and re-assessed at each balance sheet date. It is categorized into Stage 1, Stage 2 and Stage 3 with Stage 1 being to recognise 12 month ECLs, Stage 2 being to recognise Lifetime ECLs not credit impaired and Stage 3 being to recognise Lifetime ECLs credit impaired.

 

 

Foreign Exchange Risk - Derivative instruments

 

The Treasury Committee Team monitors the Group's currency position on a regular basis, and the Board of Directors reviews it on a quarterly basis. Loans denominated in Euros which are taken out through the HIT facility are hedged. Forward contracts to sell Euros at loan maturity dates are entered into when loans are drawn in Euros. At 30 June 2022 the following forward foreign exchange contracts were open:

 

 

June 2022

 

 

 

 

 

 

 

 

Counterparty

Settlement date

Buy Currency

Buy Amount £'000

Sell currency

Sell amount €'000

Unrealised loss £'000

 

 

 

 

 

 

 

EWealthGlobal Group

July 2022 to May 2023

GBP

7,883

Euro

9,245

(149)

Lumon Risk Management

July 2022 to May 2023

GBP

13,557

Euro

15,839

(172)









(321)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Counterparty

Settlement date

Buy Currency

Buy Amount £'000

Sell currency

Sell amount €'000

Unrealised gain £'000

 

 

 

 

 

 

 

 

 

EWealthGlobal Group

Feb 2022 to May 2023

GBP

14,769

Euro

16,817

623

 

Liberum Wealth

Feb 2022

GBP

1,183

Euro

1,299

92

 

Lumon Risk Management

Apr 2022 to May 2023

GBP

5,148

Euro

6,046

44

 








 


759

 

 

No hedging has been taken out against investments in the FinTech Ventures platforms (2021: £Nil).

 

 

Provision for ECL

 

Provision for ECL is made using the credit risk, the probability of default (PD) and the probability of loss given default (PL) all of which are underpinned by the Loan to Value (LTV), historical position, forward looking considerations and on occasion, subsequent events and the subjective judgement of the Board. Preliminary calculations for ECL are performed on a loan by loan basis using the simple formula: Outstanding Loan Value x PD x PL and are then amended as necessary according to the more subjective measures as noted above.

 

A probability of default is assigned to each loan. This probability of default is arrived at by reference to historical data and the ongoing status of each loan which is reviewed on a regular basis. The probability of loss is arrived at with reference to the LTV and consideration of cash that can be redeemed on recovery.

 

 

Movement of provision for ECL


 

Loans

 '000

Trade Debtors £'000

 

Guarantees £'000

 

 

Total

 '000

Loss allowance at 31 December 2020

4,199

2,190

1,542

7,931

Charge/(credit) for the year 2021

3,076

4,865

(1,542)

6,399

Utilised in the year 2021

(866)

-

-

(866)

Loss allowance at 31 December 2021

6,409

7,055

-

13,464

Charge/(credit) for the period to June 2022

372

(442)

70

-

Utilised in the period to June 2022

-

(141)

-

(141)

Loss allowance at 30 June 2022

6,781

6,472

70

13,323

 

 

18.   GUARANTEES

 

The Group undertakes a number of Guarantees and first loss positions which are not deemed to be contingent liabilities under IAS37 as there is no present obligation for these guarantees and it is considered unlikely that these liabilities will crystallise.  

 

HIT Facility

Sancus Group has a 10% first loss position as part of the HIT facility. Sancus Group has also provided HIT with a guarantee, capped at £2m that it will continue to ensure the orderly wind down of the HIT related loan book, in the event of the insolvency of Sancus Group Holdings Limited, given its position as facility and security agent.

 

Sancus Loan Notes

SLN7 launched on 10 May 2021. At the end of June 2022 it had £17.4m of assets. Sancus Group Holdings Limited has a 10% first loss position on this loan note .

 

SLN8 launched on 10 March 2022. At the end of June 2022 it had £3.0m of assets. Sancus Group Holdings Limited has a 20% first loss position on this loan note .

 

Commitments

As at 30 June 2022 the Group has unfunded commitments of £69.4m (31 December 2021: £47.3m). These unfunded commitments primarily represent the undrawn portion of development finance facilities. Drawdowns are conditional on satisfaction of specified conditions precedent, including that the borrower is not in breach of its representations or covenants under the loan or security documents. The figure quoted is the maximum exposure assuming that all such conditions for drawdown are met. Directors expect the majority of these commitments to be filled by Co-Funders and/or by our secured funding lines.

 

 

19.   POST BALANCE SHEET EVENTS

 

Between 30 June 2022 and the signing of these financial statements the Company purchased the following ZDPs:

 

Date of Purchase

Number of shares purchased

Purchase price per share (£)

 

 

 

19 July 2022

25,000

1.38

21 July 2022

35,000

1.39

22 July 2022

17,993

1.41

28 July 2022

10,000

1.42

8 August 2022

5,000

1.46

9 August 2022

43,200

1.44

12 August 2022

6,000

1.48

15 August 2022

10,000

1.50

16 August 2022

5,000

1.50

17 August 2022

5,000

1.49

19 August 2022

176,764

1.54

 

Following these transactions, the Company has 19,101,384 ZDPs in issue of which 12,574,705 are held by the Company. The total number of ZDP share voting rights is therefore 6,526,679.  

 

 

OFFICERS AND PROFESSIONAL ADVISERS

 

Directors

 

Non-executive:

Steve Smith (Chairman - appointed 31 August 2021)

John Richard Whittle

Tracy Clarke



Executive

Rory Mepham

Emma Stubbs

 

The address of the Directors is the Company's registered office.  

 

Executive Team:

 

Chief Executive Officer:

Rory Mepham

 


Chief Financial Officer:

Emma Stubbs

 


Chief Investment Officer:

James Waghorn

 


Registered office:

Block C

Hirzel Court

St Peter Port

Guernsey, GY1 2NL

Channel Islands

 


Nominated Adviser and Broker:

Liberum Capital Limited

Ropemaker Place

25 Ropemaker Street

London, EC2Y 9LY

United Kingdom

 


Company Secretary:

Sanne Fund Services (Guernsey) Limited

Sarnia House

Le Truchot

St Peter Port

Guernsey, GY1 1GR

Channel Islands

 


Legal Advisers,

Carey Olsen

Channel Islands:

P.O. Box 98

Carey House

Les Banques

St Peter Port

Guernsey, GY1 4BZ

Channel Islands

 


Legal Advisers, UK

Stephenson Harwood

1 Finsbury Circus

London, EC2M 7SH

United Kingdom

 


Legal Advisers, US

Troutman Pepper

3000 Two Logan Square

Eighteenth and Arch Streets

Philadelphia, PA 19103-2799

United States

 


Bankers:

Barclays International

1st Floor, 39041 Broad Street

St Helier

Jersey, JE4 8NE

 


Auditors:

Moore Stephens

P.O. Box 146, Park Place

Park Street

St Peter Port

Guernsey, GY1 3HZ

Channel Islands

 


Registrar:

Link Market Services Limited

The Registry, 34 Beckenham Road

Beckenham

Kent, BR3 4TU

United Kingdom

 


Public Relations:

Instinctif Partners Limited

65 Gresham Street

London, EC2V 7NQ

United Kingdom

 

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