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 | |
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
o 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
o Loan book increase from £142m at the end of 2021 to £147m at the end of June 2022.
· Reducing cost of funding
o 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
o 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
o 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.
o 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")
o Going forward we plan to become profitable and increase our ROE.
· Ensuring a risk based approach is taken on all decision making
o 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, the 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. On 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. Monitoring 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 goodwill 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) | TotalEquity |
|
|
| | £'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.
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| Reconciliation to Consolidated Financial Statements | |||||
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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 |
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Revenue | 658 | 1,386 | 752 | (251) | - | 2,545 |
| - | 2,278 | - | - |
| 4,823 |
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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 | - | - | - | - | - | - | | - | - | - | - | | - |
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Profit After Tax | (266) | (319) | 472 | (484) | (860) | (1,457) |
| (613) | - | 155 | (67) |
| (1,982) |
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Six months to 30 June 2021
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Revenue | 1,883 | 1,018 | 230 | (239) | - | 2,892 | | - | 2,033 | - | 77 | | 5,002 |
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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) |
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Profit After Tax | (1,547) | 138 | (34) | (993) | (1,000) | (3,436) | | (693) | - | (4) | (95) | | (4,228) |
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* 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).
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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 | |||||||
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Total Assets | 43,991 | 11,908 | 534 | 63,252 | 119,685 | | 42,820 | - | 850 | 477 | (65,302) | | 98,530 | |||||||
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Total Liabilities | (40,295) | (13,055) | (180) | (67,659) | (121,189) | | (24,194) | - | - | (1,327) | 65,302 | | (81,408) | |||||||
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Net Assets/(liabilities) | 3,696 | (1,147) | 354 | (4,407) | (1,504) |
| 18,626 | - | 850 | (850) | - |
| 17,122 | |||||||
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At 31 December 2021 |
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Total Assets | 45,397 | 11,127 | 586 | 60,504 | 117,614 | | 43,129 | 500 | 500 | 793 | (65,577) | | 96,959 |
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Total Liabilities | (40,503) | (12,599) | (714) | (64,355) | (118,171) | | (23,978) | - | - | (1,293) | 65,577 | | (77,865) |
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Net Assets/(liabilities) | 4,894 | (1,472) | (128) | (3,851) | (557) | | 19,151 | 500 | 500 | (500) | - | | 19,094 |
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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 |
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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 |
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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) |
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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 |
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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 |
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Net book value 30 June 2022 | 463 | 86 | 549 |
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Net book value 31 December 2021 | 561 | 99 | 660 |
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9. GOODWILL
Goodwill at 30 June 2022 and 31 December 2021 comprises: |
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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 | ||
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Jersey £'000 |
Gibraltar £'000 |
Total £'000 |
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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
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Cost |
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At 30 June 2022 and 31 December 2021 | 1,584 |
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Amortisation |
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At 31 December 2021 | 1,531 |
Charge for the period | 32 |
At 30 June 2022 | 1,563 |
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Net book value at 30 June 2022 | 21 |
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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
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| Development properties |
Cost |
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| £'000 |
At 31 December 2020 | | | 1,015 |
Additions | | | 157 |
Disposals | | | (676) |
At 31 December 2021 | | | 496 |
Additions | | | 178 |
At 30 June 2022 |
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| 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
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Number of Ordinary Shares - nil par value | |
At 30 June 2022 (unaudited) and 31 December 2021 (audited) | 489,843,477 |
Share Premium
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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 |
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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 |
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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 |
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Loss for the period | | (1,982) | (4,228) |
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Adjustments for: | | | |
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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 |
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Changes in working capital: | | | |
Trade and other receivables | | 82 | (1,793) |
Trade and other payables | | 319 | (540) |
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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 |
1These 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 Responsibilities ("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) |
Non-current | £'000 | £'000 |
|
|
|
Sancus loans | 786 | 447 |
Sancus Loans Limited loans | 42,325 | 6,196 |
Total Non-current Sancus loans and loan equivalents | 43,111 | 6,643 |
| | |
Current | | |
| | |
Sancus loans | 2,059 | 4,269 |
Sancus Loans Limited loans | 14,421 | 42,333 |
Total Current Sancus loans and loan equivalents | 16,480 | 46,602 |
| | |
Total Sancus loans and loan equivalents | 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
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Counterparty | Settlement date | Buy Currency | Buy Amount £'000 | Sell currency | Sell amount €'000 | Unrealised loss £'000 | |||||||||||||
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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) | |||||||||||||
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| (321) |
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December 2021 |
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Counterparty | Settlement date | Buy Currency | Buy Amount £'000 | Sell currency | Sell amount €'000 | Unrealised gain £'000 |
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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 |
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| | | | | | |
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| 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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