The information contained within this announcement is deemed 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. The person responsible for making this announcement on behalf of the Company is Rory Mepham.

 

31 March 2023

 

 

 

Sancus Lending Group Limited

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

 

Final Results for the year ended 31 December 2022

 

 

 

HIGHLIGHTS

 

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

 

"After 18 months in my post as CEO, the turnaround of the business is on track and we are confident of our ability to deliver profitability. The business has undergone considerable restructuring and simplification during my tenure and we continue to be exclusively focussed on residential property lending in the development and bridging space, a market which remains underserved and offers significant growth possibilities.

 

During the year, we have carried out various cost optimisation projects in an effort to ensure that every pound of cost incurred is geared towards delivering growth. We remain convinced that technological enablement holds one of the keys to our future and are pleased with both the progress that has been made to date and the further enhancements in the pipeline. The robustness of our credit process, institutional quality of our underwriting, due diligence and active loan management means that despite recent inflationary and interest rate pressures we report only a small increase of 3.14% (£0.4m) increase to our previously reported IFRS9 provisions, all of which relate to loans written in 2019 or before.

 

I am excited by the potential in the teams that we have assembled in the UK, Ireland and Offshore and believe that we have the basis from which to become "best in class" in each of these markets.

 

Financial Highlights

 

·      Group revenue increased by 11% to £10.0m FY22 (FY21: £9.0m);

·      Operating losses narrowed to £4.7m (FY21: loss £10.2m);

·      Group PBT loss for the year of £14.1m (FY21: loss £10.3m) impacted by the exceptional write down of goodwill in Gibraltar of £8.6m; and 

·      A small increase of 3.14% (£0.4m) to IFRS9 provisions in 2022, compared to £6.4m charge in 2021, the result of operational improvements within the business.

 

Operational Highlights

 

·      Geographic focus remains unchanged: UK and Ireland the key areas of growth for the business with UK revenue up 81%, Ireland up 132%;

·      Sancus' Offshore business saw a decline of 64% in revenue following the repayment of some large loans and insufficient new loans written to mitigate the reduction in their loan book. Offshore new loan facilities written in 2022 however increased by 47% on 2021;

·      Impressive growth of 88% on total new facilities written, from £83m to £156m year on year with UK up 76% and Ireland up 180%, and a strong pipeline in the Group's key growth markets for FY23; and

·      Loan book at year end £169m (2021: £142m) as a result of continued increase in UK and Irish loan books.

 

Strategic Highlights

 

·      Restructuring of the Group's funding facility, extension of the Zero Dividend Preferences Shares ("ZDPs") and Tender offer, and new equity and bond subscription from Somerston:

o  Increase and extension of the Company's facility arranged by Pollen Street Plc ("Pollen Street") from £75m to up to £125m, not to expire before November 2026, providing additional funding capacity as the Company seeks to grow its lending book;

o  Refinancing and extension of the ZDP shares to December 2027, accompanied by a 15% tender offer

o  Further investment by Somerston through the exercise of warrants over 94,294,869 ordinary shares, for an aggregate subscription price of £2.1m;

o  Somerston subscribed to £2.43m bonds in December 2022, taking the Company's aggregated bond principal to £15m, of which £10.13m is now held by Somerston;

·      The Company announced in January 2023 its decision to rationalise the number of offices from which it operates, from five to three: London, Dublin and Jersey, providing the Group with a footprint reflecting its three core areas of geographic focus: UK, Ireland and Offshore;

·      This rationalisation resulted in the closure of the Company's office in Guernsey and the decision to cease new business activities in Gibraltar, having not identified sufficient quality lending opportunities to merit continued efforts in the region; and

·      Sancus Gibraltar was subsequently sold for £10k, resulting in closure cost savings of around £200k. The departure from the Gibraltar market will result in cost saving, risk reduction and allow dedicated resources to focus on the Group's core markets. Goodwill of £8.64m held in respect of Sancus Gibraltar written down to nil.

 

For further information, please contact:

 

Sancus Lending Group Limited Rory Mepham	+44 (0)1534 708 900
Liberum Capital (Nominated Adviser and Corporate Broker) Lauren Kettle Chris Clarke William King	+44 (0) 20 3100 2000
Instinctif Partners (PR Adviser) Tim Linacre Victoria Hayns	+44 (0)207 457 2020
Sanne Fund Services (Guernsey) Limited (Company Secretary) Matt Falla	+44 (0)1481 755530

 

Introduction

 

We are now a year into a structured change programme which we expect to reposition the Group for growth. Demand in our chosen markets remains firm and the reduced appetite of some traditional balance sheet lenders, may present an opportunity to write good quality new business. 

 

The expansion of the business development team has started to pay dividends with an increase in the volume of new loan facilities written to £156m, versus £83m in the previous year.

 

Last year, as part of a wider review of the business and an expansion of the credit and recovery teams, we carried out a detailed review of the Group's loan book which resulted in an impairment provision of £6.4m (FY 2021). We believe that last year's write down effectively draws a line under recent losses and we are reporting an IFRS9 impairment of £0.4m in 2022, partially the result of ongoing recovery costs. The provisions made to date all relate to loans written in 2019 or before.

 

We have decided to close the Gibraltar office. This will result in cost savings and improved focus in stronger markets. As a result of the decision to close the office, Goodwill (£8.64m) arising from the acquisition of Sancus Lending (Gibraltar) Limited ("Sancus Gibraltar") in 2016, has been written down to nil.

 

Our People

 

Following last year's personnel changes, the team has settled in well and is working hard to deliver our goals of profitability, growth and shareholder value. The Group has invested in rebuilding and reinforcing the team and our headcount has increased from 32 at the end of 2021 to 39 at 31 December 2022. We do not expect to increase headcount in 2023. The new resource is focussed on expansion in our growth markets of the UK and Ireland, credit risk and technology.

 

As announced on 10 January 2023 Emma Stubbs, CFO, will be leaving the business at the end of March 2023 and Tracy Clarke will be appointed as the Group's Interim Chief Financial Officer, for an initial period of 12 months. Emma leaves as a result of our continuing commitment to reduce cost and to switch the focus of our operations to Jersey where we have a significant presence. Emma leaves with our very best wishes and thanks for her time with the Group.

 

Tracy has been a non-executive Director of the Company since March 2022 and is a Fellow of the Institute of Chartered Accountants in England and Wales and holds the CISI Investment Advice Diploma.  Tracy is currently Managing Director of Carlton Management Services Limited ("Carlton"), a licensed Jersey Trust Company business which provides administration and finance services to clients including the Somerston Group (the Company's largest shareholder).

 

With effect from 31 March 2023, as an interim measure which may become permanent, Carlton has been appointed to manage and develop the Group's finance function, including new technology integrations for forecasting, performance and treasury management. Under its service agreement with Carlton, which has a three-year term and covers services including accounts preparation, budgeting and cashflow forecasting, book-keeping, financial KPI analysis and various administrative services, Sancus will pay to Carlton an annual fee of £170k (the "Carlton Agreement"). Furthermore, it has been agreed that Carlton will sub-lease office space from Sancus in the Group's offices in Jersey, pursuant to a sub-lease agreement dated 30 March 2023 to which Sancus, Carlton and the landlord of the Group's Jersey offices are each a party (the "Carlton Sub-lease"). Pursuant to the Carlton Sub-lease, Carlton will be charged approximately £100k, on the same terms as Sancus for the proportion of space occupied, which is not currently being used by Sancus. The Carlton Sub-lease therefore represents cost savings for the Group, while also facilitating a smoother working relationship as envisaged by the Carlton Agreement.

 

Entry by the Company into the Carlton Agreement and the Carlton Sub-lease each represents a related party transaction, pursuant to AIM Rule 13. The independent directors (being the Company's directors except for Tracy Clarke) consider, having consulted with its nominated adviser, Liberum Capital, that the terms of the respective transactions are each fair and reasonable insofar as its independent shareholders are concerned.

 

The Board intend to appoint a permanent CFO in due course and will review these arrangements on a regular basis.

 

Capital Raise and Facility and Debt Restructuring

 

At the end of 2022 we announced an expansion of the Company's Funding Facility with Pollen Street from £75m to up to £125m to expire no earlier than 23 November 2026. This will provide additional funding capacity as the Company seeks to grow its loan book.

 

We also deferred the maturity of the ZDP shares until 5 December 2027 and completed a tender offer for 15% of ZDP shares, excluding those held in treasury, that was fully subscribed. 

 

Somerston, the Group's largest shareholder, invested further equity in the Company on 30 November 2022 by exercising warrants over 94,294,869 ordinary shares for an aggregate subscription price of £2.1m. On 1 December 2022 Somerston subscribed to £2.425m of bonds taking the Company's aggregated bond exposure to £15m (of which £10.13m is held by Somerston).

 

Dividend and Shareholders

 

The Group is engaged in a recovery programme and there is no capacity to declare a dividend this year. The Board will revisit this policy as soon as the cash flow and profitability permit.

 

On behalf of the Board, I would like to thank shareholders for their continuing support and patience. As a result of the continuing efforts of our team the Group has made good progress this year and while the Board do not underestimate the scale of the challenge ahead we believe we have the right strategy, systems and personnel to return the business to profitability.

 

I look forward to reporting positive developments in the coming year.

 

Steve Smith

Chairman

Date: 30 March 2023

 

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Outlook

 

This year saw a number of achievements and I am pleased with the progress made.  There is still more work to do on the road to profitability, but the foundation to meet our goals were built upon during the year.

 

We saw a significant increase in loans written in the year from £83m written in 2021 to £156m in 2022. This will lead to corresponding growth of loans under management, and revenue increase, as these loans are drawn over time.

 

The loan book growth has been prevalent in the UK (129% growth versus 2021) and Irish markets (22% growth versus 2021) where the Sancus name and reputation continues to develop. Following the repayment of several large loans in our Offshore business in the year, the team are working hard to replenish the book with this new loan capacity. 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 2022 the loan book stood at £169m, an 11% increase versus FY 2021 when it was £142m. We expect growth in the loan book to increase during 2023 as the newly written loans continue to be drawn.

 

In addition to growing the revenue side of the Company, during the year we have been seeking to find opportunities to both optimise cost and create efficiencies. This has ultimately culminated in our decisions to close our offices in Gibraltar and Guernsey, whilst retaining our ability to do business in Guernsey. Technological enablement of our systems and processes is further designed to drive efficiency and mitigate cost increases as the business scales up.

 

Strategic KPIs

 

We have seen progress against the Board agreed KPI's:

 

·      Revenue growth

 

o  11% up on last year due to modest increase in loan deployment. Positive upticks in our growth areas of the UK and Ireland, with the UK revenue up 81% on last year and Ireland up 132%.

 

·      Growing loans under management

 

o  Loan book increase from £142m at 31 December 2021 to £169m at 31 December 2022.

 

·      Reducing cost of funding

 

o  This remains a focus for the Group, and we continue to seek cheaper cost of funding. This has been challenging in the macro-economic environment of the year but remains a strategic objective. To address the movements in base rates across our markets, we have implemented variable rate loans with the margin pegged to the relevant base rate.

 

·      Become a capital efficient business

 

o  We continue to reduce the amount of own capital within loans, which at the end of 2022 represented 3.5% of the total loan book, in comparison to 5.6% at the end of 2021.

 

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

 

o  Operating loss for 2022 was £4.7m against an operating loss of £10.2m in 2021. We have a small increase  of £0.4m in relation to IFRS9 losses in the year, whereby £6.5m was reported in 2021.

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 report a positive ROE which the management team will be tasked to improve year-on year.

 

·      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 £156m written during 2022 against £83m in 2021, as the benefits of our investment in the origination teams begin to deliver.

 

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 will continue to see attractive lending opportunities and we are confident that the teams in our three core 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 have now onboarded and integrated Salesforce (our chosen CRM software) with our Loan Management System which will create further standardisation and unlock efficiencies going forward. 

 

Loan Management

 

The loan book increased from £142m at the end of 2021 to £169m at the end of 2022. 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 over the coming year. The increase was driven by the UK loan book increasing by 129% and Ireland by 22% in the year, with Offshore decreasing by 14%. New facilities written in total increased by 88% year on year. We have a strong pipeline and expect to see the loan book continue to increase. At the year end, the asset backed loan book comprised Offshore at £82m (31 December 2021: £96m) UK at £66m (31 December 2021: £29m) and Ireland at £21m (31 December 2021: £17m).

 

Continued emphasis has been placed on actively managing loans once the initial drawdown has been made and further investment has been made in recruiting experienced loan management team members during the year. 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 increasing the funding capacity and diversifying the funding sources 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. 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 Offshore loan book being co-funded. The percentage of the loan book funded by co-funders continues to reduce from 50% at the end of 2021 to 39% at the end of 2022, as the proportion of co-funding from institutional funding lines increases. 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 and has recruited team members in its Offshore team to be exclusively focused on targeting and building relationships with potential new Co-Funders.

 

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 £2.7m. 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 £14.8m. 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. We are in the process of re-launching Loan Note 8, with an improved coupon of 8%, to reflect the current interest rate environment.

 

Sancus has secured an increase and extension to the institutional funding line arranged by Pollen Street Capital ("Pollen Street") and is designed to be complementary to our Co-Funder base and Loan Note program. As announced on 24 November 2022 the credit facility was increased to £125m from £75m and the term was extended such that it will expire at least four years from the date of the Agreed Terms, being not before 23 November 2026. At 31 December 2022 the total drawn was £67.75m (31 December 2021: £49.9m). The Pollen Street facility continues to be strategic for the business and is generally utilized in relation to funding development loans.

 

Sancus also has 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 approach.

 

The availability, cost and flexibility of funding is key to achieving our growth ambitions and we are continually reviewing the capital position of the business with a view to ensuring it is best placed to grow funding capacity on improved terms. Over the course of 2022 the loan book funded by institutional funding increased by 69%, with the majority of the UK and Irish loan book funded by this channel which now makes up 48% of the loan book. We will seek to increase institutional funding alongside building the loan note program and co-funder network over time.

 

Finance & Operations

 

A focus on operational efficiency within Finance and Operations, driven by technology wherever possible, commenced during 2022 and will continue into 2023. Sancus has continued to develop its own proprietary loan managements system ("LMS") for the administration of loans and has completed the integration of this system with a CRM system provided by a third party.

 

The Executive team continue to improve Corporate Governance and Compliance and Risk management as these are the bedrock for the business to achieve future growth targets.

 

We made some selective hires across the business over the last year with the focus of bolstering our Funding and Origination capabilities in our active markets. At the end of 2022, the Group headcount was 39 (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.

 

As announced on 10 January 2023 Emma Stubbs, CFO, will be leaving the business at the end of March 2023 and Tracy Clarke will be appointed as the Group's Interim Chief Financial Officer, for an initial period of 12 months.  Tracy, who has been a non-executive Director of the Company since March 2022, is a Fellow of the Institute of Chartered Accountants in England and Wales and holds the CISI Investment Advice Diploma.  Tracy is currently Managing Director of Carlton Management Services Limited ("Carlton"), a licensed Jersey Trust Company business which provides administration and finance services to clients including the Somerston Group (the Company's largest shareholder). With effect from 31 March 2023, Carlton has been appointed to augment and support the development of the Group's finance function, including new technology integrations for forecasting, performance and treasury management and reporting, further detail on which is set out in the Chairman's Statement. It is ultimately the intention of the Board to appoint a permanent CFO in due course and intends to review these arrangements in 12 months.

 

A key milestone at the end of 2022 was the successful increase and extension of the term of our facility with Pollen Street, as well as restructuring our ZDPs and raising further capital from an equity raise as well as restructuring our debt (Bonds and ZDPs). This transaction had the full support of our largest shareholder Somerston Group who participated in both the equity raise and new bond issue. With the ZDP's intended to play a long-term part of the Group's finance strategy, the extension of the maturity date from 5 December 2022 to 5 December 2027 allows the Group time to focus on its growth plans.

 

Realising value from the legacy FinTech Ventures Investments remains a target for the management team albeit we now only hold stakes in four platforms. Monitoring and governance of FinTech Ventures is ongoing and we continue to assist our investee platforms with their strategy. Unfortunately, the profitability of many of these companies have failed to meet expectations within an acceptable timeframe and their ability to raise additional capital without proving concept is severely constrained and we have fully written down our portfolio to nil at the end of 2022. It remains a challenging market for many of the FinTech platforms.

 

Summary of Financial Performance

 

Group revenue increased by 11% year on year from £9.0m in 2021 to £10.0m in 2022. Note 3 Segmental Reporting sets out the results by Offshore, UK and Ireland and we can start to see revenue growth in our growth target markets, with the UK revenue up by 81% and Ireland up 132% over the course of 2022.

 

We have seen Offshore revenue decrease by 64% in the year, partly due to some large exit fees received in 2021 and a reduction in administration and transactional fees as the total loan book in the region decreased over the last few years. The Offshore team has seen significant change in senior management personnel in the last two years, and the new team are focussed on re-building the loan book over the coming years. Offshore continues to be a core market.

 

We have reported an operating loss of £4.7m (FY 2021: loss of £10.2m) and a small increase of £0.4m of expected credit losses (IFRS 9) in the year (FY 2021: £6.5m loss).

 

The Group's net assets have reduced in the year from £19.1m at 31 December 2021 to £7.2m as a result of the operating loss in the year and the goodwill impairment in Gibraltar of £8.6m. We did see £2.1m of new equity come into the Group from Somerston at the end of November 2022, who exercised the balance of their existing warrants.

 

Group cash and cash equivalents was £4.1m at 31 December 2022 of which £2.5m related to Group operational cash and £1.6m was within Sancus Loans Limited.

 

As announced on 10 January 2023 in reviewing its operations in Gibraltar during 2022, the Company has not identified sufficient quality lending opportunities to merit continued efforts in the region.  Leaving the Gibraltar market will result in cost saving, risk reduction and allow dedicated resources to focus on the Group's core markets.  As a result, the Goodwill (£8.64 million), held by the Company since the acquisition of Sancus Lending (Gibraltar) Limited ("Sancus Gibraltar") in 2016, has consequently been written down to nil in the 2022 results. We announced post year-end on 15 March 2023 that we have sold Sancus Gibraltar for £10,000.

 

Goodwill remains on the balance sheet at £14.3m. This relates to the carrying amount of goodwill arising on the acquisition of Sancus Jersey. This is assessed by the Board for impairment on an annual basis (or sooner if there has been any indication of impairment). A full testing for impairment of the carrying amount of goodwill was reported in the June 2022 interim accounts. The resultant value in use calculation indicated that no impairment of goodwill was required in Sancus Jersey. Following on from this review the Board have considered whether there have been any further indicative events of impairment since June 2022, and they have concluded that there have not. The next full testing impairment review will take place in the 2023 Interim Report.

 

We continue to reduce our on balance sheet loans (excluding those loans in Sancus Loans Limited). These amounted to £8.2m before IFRS9 provisions at 31 December 2022 compared to £9.7m at 31 December 2021 (£3.0m net of IFRS9 provisions at 31 December 2022 compared to £4.7m at 31 December 2021). Sancus Loans Limited had loans of £74.7m at 31 December 2022 (31 December 2021: £49.9m).

 

The Group's liabilities consist of the Bond instrument which now stands at £15m of principal following a further subscription by Somerston in 2022. This has a quarterly paid coupon of 7% p.a. and matures on 31 December 2025; and ZDPs of £9.1m with a coupon now of 9% following the restructure and refinance in the year (previously 8%) and matures on 5 December 2027 (previous maturity date was 5 December 2022). The Pollen credit facility which was increased to £125m from £75m on 26 November 2022, stood at £67.75m drawn at 31 December 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.

 

During 2022 we have been focused on defining our ESG strategy. Having now established an internal ESG focus group we have also drawn 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 have completed a materiality assessment and have engaged with stakeholders during the year.

 

I am pleased to report these results in detail in our ESG report.

 

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. Following the extension of the ZDPs at the end of 2022, for a further 5 years to 5 December 2027 and with the Bonds maturity date not until 31 December 2025, the Company does not have any debt liabilities that fall due within the next 12 months.  Based on this, the Directors are of the opinion that the Company has adequate financial resources to continue in operation and meet its liabilities as they fall due for the foreseeable future.

 

It is however expected, whereby equity is required to facilitate an increase in drawdown from institutional funding lines that the Company will require growth capital to fund the continued growth of the loan book. The Company's largest shareholder, Somerston has indicated their willingness to support the Company's growth plans. The Company will be looking at options available to raise additional growth capital over the course of the year, which may include a form of equity raise or sale by the Company of ZDP shares held in treasury.

 

The Directors therefore believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

Outlook

 

The economic uncertainty is likely to lead to the continued retrenchment of major Banks from both SME and development financing and during Q4 we have observed a reduction in the number of active competitors in both the UK and Ireland, further providing attractive opportunities for alternative lenders such as Sancus. We continue to track the economic and geopolitical situation closely as the potential for supply chain disruption and inflationary risks continue to be a concern.

 

We remain optimistic about the outlook for our business and continue to look forward to delivering both profitability and a "best in class" offer to our clients. 

 

Rory Mepham

Chief Executive Officer

 

 

PRINCIPAL RISKS, UNCERTAINTIES AND RELATED INTERNAL CONTROLS

 

The Group aims to carefully manage the risks which are inherent across its business activities in order to deliver an appropriate risk adjusted commercial return. The principal risks which the Group has consciously accepted in the pursuit of value creation are liquidity risk, regulatory and compliance risk, market risk, credit risk, strategic risk, and investment risk. With regard to the FinTech activities, exposure to investment risk is a factor of the strategic, liquidity, credit and operational risks assumed by the platforms in which the Group is invested.

 

This section on the Group's Principal Risks should be read together with the sections on the Group's Governance Framework, the operation of the Audit and Risk Committee, as well as Note 22 which describes the sensitivity of the Group's financial results to its Financial Risk exposures. These sections explain how these risks are being managed, monitored and governed.

 

The table below describes the Group's assessment of the principal risks being those which have the potential to have a significant impact on the Group's business model, future performance, solvency or liquidity.

 

Principal Risks	Internal controls mitigating Risks	Current Rating of Risks
Group
1. Capital and liquidity Risk		Medium
Sancus's own funding is sourced primarily from the ZDP shares and the Corporate Bond (as detailed in Note 17).   Expansion of lending and investment activities will be constrained to the extent of retained profits unless further sources of funding are secured.	Sancus has a Treasury Committee which meets once a month to manage its capital and liquidity position, and forecasts over several years to predict longer term funding requirements.   Management of each of the operating companies balance their lending and funding and proposals to advance lending are typically contingent on sufficient funding having been secured in advance.   The business seeks to maintain a material liquidity buffer at all times.	Completion of the fundraising and liability management exercise over the last couple of years has significantly improved the Group's capital and liquidity position.   Management at Group and subsidiary level are focussed on raising additional on and off balance sheet funding in order to grow lending activities and support funding commitments.
2. Regulatory and Compliance Risk		Medium
As a Financial Services business, compliance with regulation is considered paramount within the Group, particularly with regard to the various regulators in the jurisdictions that Sancus operating entities conduct business within, the Financial Conduct Authority (FCA) Handbook (UK) and the various Anti Money Laundering (AML) regulations with the regulatory landscape in all jurisdictions continually evolving   The Company has chosen to comply with the provisions of the QCA Corporate Governance Code.	All entities have developed and implemented appropriate policies and procedures relating to regulatory compliance and Anti Money Laundering.   The Executive Risk Committee monitors these risks, and forthcoming regulations, with appropriate reporting from the Risk and Compliance Director and Money Laundering Reporting Officers.  External, independent partners complete additional regulatory horizon scanning reviews and conduct periodic reviews of internal compliance including AML file reviews.   The Company has an appointed NOMAD, Liberum, whom it liaises with regularly, to ensure compliance with the AIM rules, including the Market Abuse Regulations.   Boards receive quarterly reports from the Risk & Compliance Director and where appropriate, Money Laundering Reporting Officers on compliance monitoring plans and any breaches identified.	The compliance framework as described is considered to be operating effectively and has recently been enhanced to increase oversight of all risks within the Sancus lending business through the Executive Risk Committee   Measures are in place to monitor clients against various databases to identify if any sanctions (including the recent increase in sanctions relating to the Ukraine/Russia conflict).
3. Market risk		High
The primary market risks are considered to be interest rate and foreign exchange risk. Given the nature of the business operations, with relatively short-term lending and currencies on lending opportunities being matched (or hedged) the exposure is considered to have limited impact on its position as a Going Concern.   Foreign exchange risk primarily arises from the USD and Euro investments in the FinTech portfolio and Euro loans held in the Irish lending book.	Exposures to these risks are monitored regularly by the Sancus Treasury Committee and reported to the Board on a quarterly basis.   These risks are identified and assessed at the time of entering into new transactions.	More information on the sensitivity to these risks is contained in Note 22.   Macro-economics including increased inflation and bank base rate and euro margin fluctuations may have an effect on margin. The introduction of variable base rate loans and foreign exchange hedging are having an impact on mitigating the risk.   With the increase in bank base rate, Co-Funders might look elsewhere to invest; however, variable rate Co-Funder returns should minimise this risk with investors continuing to receive attractive risk adjusted returns on asset backed lending.
4. Credit Risk		High
The Group has direct credit exposures through its on balance sheet lending and credit support. Indirect credit risk (potential losses to Co-Funders) could impact further business development.	Each operational entity has its own credit policies and procedures which are the subject of at least annual review by operating entity Boards.   The respective Credit Committees take all credit decisions, monitor credit exposures on an ongoing basis and manage recoveries situations. Following Covid-19 tighter lending criteria has been implemented.	The IFRS 9 provision increased substantially during 2021 however, no further material provisions were required this year. The credit performance across the Group remains resilient with actual losses incurred being less than 1% of loans advanced.    See Note 22 (5) for further details.          Increases in material costs, base rate and inflation have created downside risk through potential delays in loan repayments and reduced recoveries.  Increased loan management oversight will help mitigate this risk.
5. Operational Risk - Execution of the Sancus strategy		Medium
The majority of Sancus's capital has been deployed into the Sancus Group. There is a risk that the planned growth of these businesses will not be realised primarily as a result of sub optimal levels of loan origination and funding.	The Board and Executive Committee of Sancus Group recognise the challenge of building the business to meet the financial targets and actively manage all aspects of the business on an ongoing basis. Plans and budgets are in place and performance against these is monitored regularly by the management team and the Executive Committee.   There continues to be strong demand from both Borrowers and Co-Funders for the lending products offered across the business, and the risk adjusted returns available to Co-Funders.	By its nature, this risk remains an on-going area of focus for the Board, particularly with respect to business development in the UK and Ireland.   The emergence of Covid-19 created downside risk on new loan origination levels although we believe this risk has now reduced.   IT capabilities for Sancus were further enhanced during 2021 and 2022, providing Co-Funders with online interactive services and creating operational efficiencies.
6. Operational Risk - Operating entities		High
Loan funding is provided by a blend of institutional and co-funding models, with jurisdictional variations in the utilisation of these models. The limited availability of diverse funding presents an operational risk to continued growth of the lending model.   With the recent focus on increasing the loan book and resourcing the operation effectively, there is a risk that management of the existing loan book is under resourced and key milestones in the loan lifecycle are missed.   With reliance on various proprietary and third-party IT systems to conduct the lending operations, whilst ensuring these systems remain effective for the business, enable automation, are utilised to maximum effect, maintain data integrity and remain secure from external factors remains an ongoing challenge and presents potential risks.	The Executive Committee of Sancus Group are in active engagement with additional institutional funding lines to increase diversity and consider cost of funds and continue to evolve the co-funder model with the view to increase exposure across the lending operation.   The lending operation is mitigating this through the introduction of technology improving oversight of key milestones and is actively engaged in acquiring additional resource for loan management.   Introduction of new technology to compliment the existing operational framework ensures elements of these risks are mitigated with effective automation and data resilience. Continual development of the existing technology and enhancements to the back-office systems ensures the systems remain secure.	Oversight of these risks is completed by the Executive Risk Committee, with agreement on the mitigation necessary to minimise the risks and monitoring to ensure these controls are effective.
7. Investment risk - FinTech Ventures Platform Valuations		Low
Across the majority of the FinTech portfolio, the growth rates historically have been slower than originally anticipated and the business models have proved more capital intensive.    Many of the FinTech platforms require additional capital to fund their ongoing growth to enable them to reach profitability. There remains a risk that some platforms may not be successful in the longer term, either as a result of lack of loan funding, lack of working capital funding or difficulties in establishing a competitive position in their chosen markets	The Group has board observer rights on most of the remaining investee company boards and thus is able to participate in the strategic discussions and monitor the progress on each platform.   The Group regularly monitors the  progress of each business, with regular review of financial and KPI reporting.   Quarterly valuations are conducted for all investments in platforms. These are based on a variety of factors including the pricing for any recent relevant capital transactions by the respective platform or using an appropriate valuation methodology.	As a result of the platforms taking longer to reach profitability, and given that several are seeking additional capital, the Board has valued our holding of the FinTech portfolio at Nil at the end of 2022 (2021: £0.5m).   The valuations are also subject to a number of material estimation uncertainties, refer to Note 22 (4).

 

 

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

 

Introduction

 

Sancus is pleased to present its first Environmental, Social, and Governance (ESG) report, marking the start of our journey towards greater transparency and sustainability. This report highlights our progress and achievements in the areas of environmental protection, social responsibility, and governance, as well as the challenges and opportunities that we have faced.

 

As a firm, we acknowledge our imperative to act to become a more responsible and sustainable business. We recognise the impact that we have on the environment and society, as well as the effect of our operations and financial performance. We are committed to continuing our efforts to embed ESG principles into our operations, investments and build our capability and capacity to respond to these challenges and create long-term value for our stakeholders.

 

ESG is a continuous process of assessment and refinement. At Sancus, we recognise that we are at the beginning of our ESG journey and that we still have much to learn and improve upon. This journey requires a commitment to ongoing education, regular reflection, and a willingness to adapt and change as needed. We understand that ESG is not a one-time project or initiative, but rather an ongoing exercise of improvement.

 

We believe transparency is essential to this process. It allows us to be honest and open about our progress, challenges, and failures. It also enables our stakeholders to hold us accountable and provide feedback on our ESG efforts to enable us to support the long-term success and viability of our business.

 

We hope that this report will provide insight into Sancus' approach to ESG and our efforts to make a positive impact on the world around us. We look forward to continuing our journey and to sharing our progress with our stakeholders.

 

Our Approach to ESG

 

At Sancus, we are committed to a data-driven approach to ESG that is informed by our stakeholders views.

 

To guide our efforts, we conducted a materiality assessment - drawing on both qualitative and quantitative insight data - to help us to identify the most important ESG issues for our business and our stakeholders.

 

We have established baseline performance criteria across material ESG topics, and the assessment has allowed us to set specific ESG objectives and goals that are aligned with our current maturity, ambition and stakeholder expectations.

 

The detail below summarises our ESG roadmap, which outlines the measures and initiatives we will undertake to close the gap between the baseline and our objectives and goals. This roadmap includes key performance indicators (KPIs) that will facilitate monitoring and reporting of our progress.

 

A key outcome of this process is that we have an understanding of where we stand today and where we need to be in the future. This means we are able to prioritise our ESG efforts in a way that is relevant, actionable and address the most critical challenges and opportunities we face.

 

Our Headline Objectives

 

1.     Environmental

Promote the efficient use of resources by improving our understanding of the environmental impacts associated with our operations, including carbon emissions, waste and water use.

 

2.     Social

Enhance our approach to Social Impact and Diversity, Equity and Inclusion (DE&I) by aligning with relevant measures in the National Themes, Outcomes and Measures (TOMs) Framework.

 

3.     Governance

Strengthen our data management, internal capability and reporting maturity to support our internal and external stakeholders to deliver on our ESG goals.

 

Best practice guidance and frameworks

 

·      GHG Protocol: We have established a carbon accounting system for greenhouse gases (GHGs) following the methodology set out in the GHG Protocol corporate Standard.

·      National TOMs: We are using the National TOMs Framework to identify, measure and report on our social value.

·      Sustainable Development Goals (SDG): We have used the SDGs framework to inform our materiality assessment to support identifying priority areas where we can contribute to sustainable development.

 

Our Impact

 

Our strategic ESG priorities are focused on three main areas: commitment to reducing our environmental impact, focus on improving our social impact, and enhancing the responsibility of our governance practices.

 

We are committed to reducing our carbon emissions and promoting sustainable practices throughout our operations. We also aim to improve the communities we operate in through investment in local economies and delivery of voluntary programmes. Finally, we will prioritise good governance practices, work towards a more diverse and inclusive leadership approach and maintain high ethical standards across all aspects of our business.

 

We will measure and report our progress against these priorities on an annual basis. Transparency and honesty will form fundamental principles of our ESG reporting - we are committed to providing accurate and comprehensive information about our ESG performance, both positive and negative, to all of our stakeholders. To make this possible, we will ensure our reporting is guided by industry best practices and standards and informed by stakeholder feedback to guide our decision-making.

 

Our Plan

 

This is only the beginning of Sancus's ESG programme. As outlined above, we have embedded fundamental processes and frameworks into our operations which will help shape our roadmap. Firstly, having established a team focused on ESG supported by external industry experts, Clarasys. The ESG team has direct reporting responsibilities and the full support of the Executive team. Producing our first ESG report has been a significant milestone allowing us to assess our current status and set realistic targets for the next period and beyond.

 

A core focus for the next year will be improving our data collection and reporting processes, so that we can better understand our capacity to deliver. It has been a challenging year, so we will be taking steps to make next year's report more detailed and aligned to our wider and longer ambitions. Employee health and wellbeing is a focus in the coming period. We have set up a working group to lead initiatives in this area, which we believe is a critical part of our company culture and ultimately business success.

 

We endeavour to achieve all of our business targets and these ESG targets are no different, but equally, we understand that ESG is a continuing journey and not a destination. We will ensure that sufficient resources will be available to make progress against each area, commensurate with our overall ESG strategy. Additionally, our people working on the initiatives will have targets embedded in their performance management to ensure accountability.

 

Beyond 2024

 

Our overriding ambition is that ESG becomes an integral and integrated part of Sancus, which runs through the business as a whole, both in our practices and our people. As we move forward and mature our ESG approach and capabilities, we will leverage this to continue to deliver positive impacts for our stakeholders, while driving long-term value creation and growth for Sancus.

 

Key enables

 

·      Data - optimising our systems and processes to ensure we can capture better quality data to improve confidence in our measurement, target-setting and reporting.

·      Employee engagement - undertake a follow-up survey to the one carried out in October 2022; enabling us to monitor progress and inform our employee wellbeing initiatives.

·      Technology strategy - our focus on integrating technology will be at a broader, business transformation scale. This will enhance the delivery of our ESG strategy in data collection and processing, but also in the business's ability to streamline operations.

·      Training - providing training to our people to improve knowledge of ESG generally and Sancus's journey. Focus on building a centre of excellence within the business to further our initiatives.

 

Key milestones

 

·      Office move - our UK operations will be relocating to a new office in 2023. This represents an opportunity for us to build ESG into our contracts and relationship more generally with suppliers. We envisage this will allow us to navigate some of the challenges we have faced to date around the collection of data on energy, waste, and water.

·      Gibraltar business sale and Guernsey office closure - the consolidation of our Channel Islands businesses to Jersey will result in greater efficiencies with office spaces and reduced travel, two key areas of our carbon footprint.

 

Our ESG Landscape

 

We are cognizant of the evolving ESG landscape and how this will continue to influence our ability to bring our ambition into reality. As part of our initial efforts, we have evaluated key drivers of ESG, including regulatory, voluntary and broader stakeholder pressures, to shape our roadmap.

 

●      PRESENT - Our biggest institutional funding line has become increasingly focused on ESG over the last few years. A proprietary scoring matrix now forms part of our access to investment - meaning improvements in ESG performance are rewarded by reductions in our cost of funding. We believe that this trend to reward appropriate behaviours is gathering moment amongst financial institutions and we see this as a key priority, to remain attractive to current and potential funders.

●      PRESENT - Section 172 AIM (Alternative Investment Market) listed companies required to report on the impact of their operations on communities and the environment.

●      Early 2023 - Updated Modern Slavery Bill (proposing amendments to the Modern Slavery Act 2015) expected to be published in early 2023, which is likely to introduce additional criminal offences designed to encourage businesses to address problem suppliers and make more accurate and complete statements.

●      April 2023 - Minimum Energy Efficiency Standard (MEES) Regulation. For commercial properties there will be a prohibition on continuing to let properties with an EPC rating of "F" or less. Whilst there is no express obligation to bring relevant properties up to a compliant standard under the MEES Regulations, local authorities will have enforcement powers, including the ability to impose penalties.

●      June 2023 - Consultation on Future Buildings Standard. Expected date of further consultation on the detailed technical aspects of the UK Government's Future Buildings Standard which will set out more stringent efficiency standards, to ensure that new buildings are 'zero carbon ready' from 2025.

●      November 2023 - UK Biodiversity Net Gain requirement applies to new developments in UK. The UK's Environment Act 2021 will require all new real estate developments to deliver a 10% 'biodiversity net gain' from November 2023, which will effectively become a requirement of its planning permission. This can be delivered through on-site or off-site measures or a combination.

●      April 2025 - EPC Rules for rented properties. A move to more sustainable buildings generally across the real estate sector. We believe that dwellings and homes being built to be more energy efficient and sustainable, which will ultimately impact the value of homes not meeting standards. We have already seen a significant move towards this in Minimum EPC rating to be raised from E to C. The plan is to enforce this from 1 April 2025 for new tenancies, and from 1 April 2028 for existing tenancies.

●      2025 - UK's Future Buildings Standard implemented. The Future Buildings Standard, which will set out more stringent efficiency standards, to ensure that new non-domestic buildings are zero carbon ready from 2025, is expected to be implemented in 2025 for all new non-domestic developments.

●      2025 - Mandatory Task Force on Climate-related Financial Disclosures (TCFD) compliance will be required.

●      2025 - EU Corporate Sustainability Reporting Directive (CSRD) to set sustainability reporting requirements for 'large' (two of following: >250 employees; >€20 million balance sheet; >€40 million net turnover) companies with operations in the EU. This will impose also mandatory third-party assurance requirements on ESG disclosure.

 

ENVIRONMENT
Focus Area	2022 Progress What we have done so far	2023 Commitment Where we want to be	Actions How we will get there
Carbon Emissions	Completed our first carbon footprint calculation	Identified, prioritised and implementing 'low hanging fruit' measures to reduce our footprint.   An enhanced view of our carbon footprint through improving its scope and data quality.	Establish approach to office energy efficiency   Update systems and processes to fill data gaps
Waste and circularity	Captured data on our waste generation at our facilities	Identified waste hot spots and opportunities for reduction	Engage property management at our facilities to enable detailed waste audit   Establish separate waste streams
Business travel	Identified gaps in data availability and opportunities to improve	Establish a sustainable business travel policy	Update systems and processes to fill data gaps   Gather insight into employee travel attitudes and behaviours
Climate resilience	Undertaken research to better understand climate resilience	Deeper understanding of what climate resilience means to Sancus	Set-up climate resilience audit   Draft a Sancus Climate Resilience Framework
SOCIAL
Focus Area	2022 Progress What we have done so far	2023 Commitment Where we want to be	Actions How we will get there
Community building	Evaluated existing practices to identify opportunities for social value creation	A clearly defined set of social value measures (using National TOMs) for community building	Develop a plan to measure and evaluate Sancus's performance against National TOMs
Diversity, equity and inclusion (DE&I)	Developed an initial view of how our current practices impact DE&I	An informed view of our performance across key DE&I metrics	Collect baseline performance data across gender pay gap, ethnic representation and social mobility (quantitative)   Deliver internal DE&I training and carry out surveys (qualitative)
Employee health and wellbeing	Mental Health First Aid Training - 2 people fully trained.   First employee engagement survey.   Embedded a wellbeing awareness email newsletter to better educate our people.	An informed view of our employee health and wellbeing to inform future initiatives	Continue bi-annual employee engagement surveys to ensure we are providing health and wellbeing initiatives that are important to our staff
Local economic growth	Review of existing practices' impact on local economic growth and identified data gaps in ability to measure.	A clearly defined set of social value measures (using National TOMs) for local economic growth	Develop a plan to measure and evaluate Sancus's performance against National TOMs
GOVERNANCE
Focus Area	2022 Progress What we have done so far	2023 Commitment Where we want to be	Actions How we will get there
Ethical business practices	Developed Anti-Bribery and Corruption and Modern Slavery policies	Promote ethical business practices throughout supply chain	Evaluate enhancements to policy and processes in line with learnings and best practice   Educate our employees on the identification and management of risks on ethical business topics
ESG management	Established our ESG strategy, identified data and governance requirements and started to build internal capability	Embed ESG into risk and data management approach and have grown ESG awareness and knowledge	Explore ESG risk frameworks   Integrate carbon accounting software in broader processes/ systems   Deliver ESG training and embed into wider decision-making forums
Responsible investment	Identified responsible investment as an ESG priority	ESG is integrated into our funding decisions	Research enabling standards and frameworks, such as the UN Principles for Responsible Investment   Establish ESG Funding Policy
Transparency and reporting	Developed an understanding of Sancus's ESG reporting and disclosure context	Explore alignment of ESG reporting and disclosure with relevant industry frameworks	Develop ESG communications plan   Explore additional ESG reporting frameworks

 

ESG report

 

This section is an executive summary of Sancus' full ESG report, which will be made available on the website shortly.

 

CORPORATE GOVERNANCE

 

Board of Directors and Executive Management Team

 

Introduction

 

The Board recognises the importance of a strong corporate governance culture.

 

The composition of the Board is the subject of ongoing review. Somerston Group had the right to nominate a candidate for appointment to the Board and took up this right in 2019 with the appointment of Nick Wakefield. On the 8 March 2022 it was announced that Nick Wakefield has been replaced by Tracy Clarke (bio noted below).

 

Board of Directors

 

The Company operates a unitary Board Structure, comprised of both Executive and Non-Executive Directors. Biographical details of the Directors can be found below. The terms of Directors' appointments are available from the Company Secretary.

 

On joining the Board, any new director will have received an induction through face to face meetings with existing directors, senior management and the Company Secretary.

 

The Chairman leads the Board and is responsible for its overall effectiveness in directing the Company, its corporate governance responsibilities, and addressing any training or development needs of the directors.

 

Steve Smith - Independent Non-Executive Director

 

Mr Smith was formerly an Executive Director and the Chief Investment Officer of The British Land Company plc, the FTSE 100 real estate investment trust, with responsibility for the group's property and investment strategy, standing down in 2013. Prior to this, Mr Smith was Global Head of Asset Management and Transactions at AXA Real Estate Investment Managers, where he was responsible for the asset management of a portfolio of assets valued at more than €40 billion on behalf of life funds, listed property vehicles, unit linked and closed end funds. Prior to joining AXA in 1999, Mr Smith was Managing Director at Sun Life Properties for over five years. Over the last decade, Mr Smith has worked extensively in governance related roles for a number of real estate focused organisations. Mr Smith is Chairman of the Board and is a member of the Audit and Risk Committee and Remuneration and Nomination Committee. Mr Smith was appointed to the Board on 11 May 2021. He is resident in the UK.

 

John Whittle - Independent Non-Executive Director

 

Mr Whittle has a background in large third party Fund Administration. He has worked extensively in high tech service industries and has in-depth experience of strategic development and mergers/acquisitions. He has experience of listed company boards as well as the private equity, property and fund of funds sectors. He is currently Chairman of Starwood European Real Estate Finance Limited and Director and Audit Chair of The Renewable Infrastructure Group Ltd ("TRIG") (both listed on the main market of the London Stock Exchange) and Director and Audit Chair of Chenavari Toro Income Fund Limited (admitted to trading on the Specialist Fund Segment of the London Stock Exchange). Mr Whittle, a Chartered Accountant, has also served as Finance Director of Close Fund Services Limited (responsible for internal finance and client financial reporting), Managing Director of Hugh Symons Group PLC and Finance Director and Deputy MD of Talkland International Limited (now Vodafone Retail).

 

Mr Whittle was appointed to the Board, the Audit and Risk Committee and the Remuneration and Nomination Committee on 23 September 2016, after having served as an Alternate Director since December 2015. He is resident in Guernsey. Mr Whittle is Chairman of the Audit and Risk Committee, and of the Remuneration and Nomination Committee.

 

Tracy Clarke - Non-Executive Director

 

Ms Clarke is a representative of the Somerston group of companies ("Somerston"), the Company's largest shareholder which has the right to nominate one individual for appointment to the Board. Ms Clarke joined Somerston in 2016 and acts as the group's Chief Operating Officer.  Ms Clarke is also Managing Director of Carlton Management Services Limited, a licensed Jersey trust company business. Prior to joining Somerston, Ms Clarke worked for Deutsche Bank in Jersey and Zurich for  over 10 years, specialising in financial Intermediary and external asset manager business. Ms Clarke is a Fellow of the Institute of Chartered Accountants in England and Wales and holds the CISI Investment Advice Diploma. Ms Clarke was appointed to the Board on 8 March 2022 and is a member of the Company's Audit and Risk Committee and Remuneration and Nomination Committee.

 

Rory Mepham - Executive Director

 

Rory joined Sancus in January 2021, assuming the role of Interim CEO on 1 July 2021 and was then confirmed as CEO and board member on 23 November 2021. Joining Sancus from The Somerston Group where he managed their European real estate platform which includes businesses in the hotel, retail, land development, student housing and PRS sectors. Rory has over 20 years experience in the UK and European property market. He has spent his career working with institutional capital and has an extensive track record in M&A, corporate finance, capital raising, debt finance, investment management and property development. Rory holds an MBA from the Cranfield School of Management, a BSc(Hons) in Land Management from the University of Reading and qualified as a member of the Royal Institute of Chartered Surveyors (MRICS).

 

Emma Stubbs - Executive Director

 

Emma joined the Group in November 2013 as Chief Financial Officer and was appointed to the Board on 16 September 2014. Emma is also a Board member of Sancus Group Holdings Limited and a number of the subsidiary entities. Emma was appointed as a Non Executive Director on Funding Options Limited on 24 March 2020 until 24 November 2022. Emma is also a Non-Executive Director of Amberton Limited. Emma is a Fellow member of the Association of Chartered Certified Accountants and qualified with Deloitte in 2004. She graduated from the University of the West of England with a BA Hons degree in Accounting and Finance. Emma is resident in Guernsey.

 

Executive Management Team

 

Rory Mepham - Chief Executive Officer

See above.

 

Emma Stubbs - Chief Financial Officer

See above.

 

Helen Trott - Chief Operating Officer & Legal Counsel (joined Executive Management Team on 29 November 2022)

 

Helen was appointed to the Executive Management Team on 29 November 2022. Helen is a Finance Executive/qualified Lawyer with over 20 years experience in various aspects of retail financial services, private banking and insurance law. This includes regulatory, compliance, governance and company secretariat activities. She is currently responsible for the legal, risk and compliance, people, IT and ESG functions within Sancus Group.

 

Dan Walker - Chief Operating Officer (left Company on 31 January 2022)

 

James Waghorn - Chief Investment Officer (joined Executive Management Team on 8 March 2022)

 

James was appointed to the Executive Management Team on 8 March 2022. James has over 14 years experience in the UK and European real estate market. James has extensive experience across the corporate real estate, investment and property development sectors. For the past 6 years James has led Somerston's land development business, a strategic land and

development focused business with capacity for in excess of 2,350 units within its strategic portfolio. James holds a BSc in Investment and Finance in Property from the University of Reading and is MRICS accredited. James joined Sancus in January 2021.

 

 

GOVERNANCE FRAMEWORK

 

The Board is committed to maintaining high standards of corporate governance throughout the Company's operations and to ensuring that all of its practices are conducted transparently, ethically and efficiently. The Board believes that scrutinising all aspects of the Company's business and reflecting, analysing and improving its procedures will minimise the potential for downside risk and will preserve shareholder value. In compliance with the AIM Rules for Companies, published March 2018, the Company has chosen to comply with the provisions of the QCA Corporate Governance Code (the "QCA Code"). The Company is also mindful of the provisions of the Finance Sector Code of Corporate Governance, as amended by the Guernsey Financial Services Commission in November 2021.

 

The Board believes that applying the principles and reporting against the provisions of the QCA Code accurately reflects the nature, scale and complexity of the business and enables the Board to provide information to shareholders on its activities in accordance with the principles set out in a recognised governance framework. Furthermore, through applying the relevant provisions the Company is better positioned to mitigate downside risk and in doing so, preserve long-term shareholder value. The Company's corporate governance framework has been based on these principles and is designed to deliver the Group's strategy, and the application of such principles to the operation of the Board ensures that its decision-making processes remain focussed on the long-term sustainable success of the Company. 

 

As at 31 December 2022, the Company complied substantially with the relevant provisions of the QCA Code and it is the intention of the Board that the Company will comply with these provisions throughout the year ending 31 December 2023, save with regard to the following:

 

·      The appointment of a Senior Independent Director: Given the size and composition of the Board, the Board does not consider it is necessary to appoint a Senior Independent Director. The Board considers that all the independent Directors have different qualities and areas of expertise on which they may lead where issues arise and to whom concerns can be referred.

 

·      Internal audit function: The Board has considered the need for an internal audit function and is satisfied that the compliance policies, procedures and reporting mechanisms in place throughout the group are sufficient, and that implementing a separate internal audit function would be unnecessary. This requirement is assessed annually by the Audit and Risk Committee. 

 

How we apply the QCA Code

 

The Company has established specific formally constituted committees and implemented certain policies, to ensure that:

 

·      It is led by an effective Board which is collectively responsible for the long-term sustainable success of the Company and establishes a culture whereby the tone is set from the top which is consistent with the objectives, strategy and business model of the Group;

 

·      the Board and its committees have the appropriate balance of skills, experience, independence, and knowledge of the Company to enable them to discharge their respective duties and responsibilities effectively;

 

·      the Board establishes a formal and transparent arrangement for considering how it applies the corporate reporting, risk management, and internal control principles and for maintaining an appropriate relationship with the Company's auditors; and

 

·      there is a dialogue with shareholders based on the mutual understanding and alignment of objectives, conducted primarily through the CEO and the Corporate Broker.

 

Risk management remains a key area of focus during Board meetings.

 

Composition and Independence of the Board of Directors

 

The Board of Directors is responsible for ensuring the affairs of the Company are properly managed through formulating, reviewing and approving the Company's strategy, budgets, and corporate actions and that oversight, scrutiny and challenge is applied to Executives responsible for the day-to-day activities of the Group. The Company seeks to deliver long-term growth for shareholders and maintain a flexible, efficient and effective management framework within an entrepreneurial environment.

 

It is important that the Board itself contains the right mix of skills and experience in order to deliver the strategy of the Company. As such, the Board is comprised of:

 

·      Two Independent Non-Executive Directors, one of which serves as the Chairman, who is responsible for leadership of the Board and ensuring its effectiveness on all aspects of its role;

 

·      One Non-Executive Director who, whilst sharing the fiduciary and statutory duties of the independent directors, is also an executive director of the Somerston Group, a significant shareholder of the Company, and therefore not considered independent under the QCA Code; and

 

·      Two Executive Directors, who are also members of the Group's Executive Committee and are therefore not considered independent under the QCA Code.

 

The Board is comprised of individuals holding professional qualifications and experience relevant to the activities of the Company. The time requirement expected from each of the Directors is set out in writing in their respective appointment letters.

 

Liberum Capital has been appointed as the Company's Corporate Broker and Nominated Adviser under the AIM Rules and advises on compliance with the AIM Rules, corporate communications and acts as financial adviser to corporate actions. Additionally, the Company has appointed a professional Company Secretary who assists the Board of Directors in preparing for and running effective board meetings, including the timely dissemination of appropriate information. The Company Secretary provides guidance to the extent required by the Board on certain aspects of the legal and regulatory environment, within which the Company operates.

 

The Board believes that long serving Directors should not be prevented from forming part of the Board or from acting as Chairman and no limit has been imposed on the overall length of service of the Directors. Each Director will retire and seek reappointment at every third annual general meeting, with those serving for nine years or more subject to reappointment annually. The Board meets on at least a quarterly basis during the financial year.

 

The Board has appointed several committees to support it in different areas of the business; each with formal terms of reference, with specific roles as set out below.

 

The Board undertakes an annual evaluation of its own performance, the performance of its formally constituted committees and that of individual Directors. This includes a formal process of self-appraisal reviewing the balance of skills, experience, independence and diversity present on the Board, and individual director performance, contribution and commitment to the Group to ensure that the Board and its committees continue to operate effectively, or to identify areas where action is required. The remainder of the Board is responsible for evaluating the performance of the Chairman. The Chairman also has responsibility for assessing the individual Board members' training requirements. No significant findings were identified in the 2022 evaluation which required further action. 

 

The Directors remain mindful of the benefits which can flow from increasing the level of diversity represented on the Board including, but not limited to, cultural, gender, experience and background. Such factors will be taken into consideration by the Nomination Committee during any selection process.

 

Executive Management Team

 

As at the year end, the Company's Executive Management Team comprised Rory Mepham (Chief Executive Officer), Emma Stubbs (Chief Financial Officer), James Waghorn (Chief Investment Officer) and Helen Trott (Chief Operating Officer and Legal Counsel) (together the "Executive Management Team" or "Management"). Management are responsible for the day-to-day management of the Company's operations. The non-executive independent Directors monitor and evaluate the performance of the Management Team on an ongoing basis. James Waghorn was appointed to the Executive Management Team as Chief Investment Officer on 8 March 2022 and Helen Trott was appointed as Chief Operating Officer and Legal counsel on 29 November 2022.

 

 

BOARD COMMITTEE STRUCTURE

 

Audit and Risk Committee

The Audit and Risk Committee conducts formal meetings at least twice a year. The Audit and Risk Committee's key duties include:

 

·      monitoring the integrity of the financial statements of the Group, including its annual and half-yearly reports and any other formal announcement relating to its financial performance, reviewing, challenging (where necessary) and reporting to the Board on significant financial reporting issues and judgements which they contain having regard to matters communicated to it by the auditor, and how they were addressed;

·      reviewing the Group's internal financial controls and the Group's internal control and risk management systems;

·      making recommendations to the Board for it to put to the shareholders for their approval in general meeting in relation to the appointment, re-appointment or removal of the external auditor and to recommend the remuneration and terms of engagement of the external auditor;

·      monitoring the external auditor's independence and objectivity and the effectiveness of the audit process, taking into account relevant professional and regulatory requirements;

·      in conjunction with executive management, advise the Board on the overall risk appetite, tolerance and strategy of the Group, current risk exposures and future risk strategy; and

·      keep under review the Group's overall risk assessment processes that inform the Board's decision making, ensuring both qualitative and quantitative metrics are used.

·              The Audit and Risk Committee has three members, two of whom are independent, non-executive directors and one of whom is a non-executive director, and at least one member has recent and relevant financial experience. The current members of the Committee are John Whittle as the Chairman, Steve Smith and Tracy Clarke.  

·              The Audit and Risk Committee is supported by a risk management and oversight process employed by the Executive Management Team and receives reports twice a year on key risks and developments during the period, or as otherwise required in the case of a material development.

·              The terms of reference of the Audit and Risk Committee are available from the Company Secretary.

Remuneration and Nomination Committee

The purpose of the Remuneration and Nomination Committee is to determine and agree with the Board the framework or broad policy for the remuneration of the Company's Directors, senior executives, and any bonus-related arrangements in place by the Company as well as to consider the structure, size and composition of the Board. The key duties of the Remuneration and Nomination Committee include:

 

·      determining and agreeing with the Board the framework or broad policy for the remuneration of the Company's Chairman, executive and non-executive directors and such other members of the management as it is designated to consider;

·      reviewing the ongoing appropriateness and relevance of the remuneration policy;

·      reviewing the structure, size and composition of the Board;

·      considering the succession planning for Directors and the Executive Management Team;

·      reviewing the leadership needs of the organisation; and

·      identifying candidates for appointment to the Board. 

 

The Remuneration and Nomination Committee has three members, all of whom are non-executive directors and two are independent. The current members of the committee are John Whittle as the Chairman, Steve Smith and Tracy Clarke.

 

The terms of reference of the Remuneration and Nomination Committee are available from the Company Secretary. 

Please refer to the Remuneration Report for details of fees paid to the Directors during the year.

 

Meetings and attendance

The Directors meet on a quarterly basis ('Quarterly' meetings per the table below) and at other unscheduled times ('Other' meetings per the table below) when necessary to assess Group operations and the setting and monitoring of strategy and performance.

                               

The table below, details the attendance of the Board at eligible Board and Committee meetings during the year, noting that certain Directors retired or were appointed during the course of the year as set out below the table:

 

	Board
	Quarterly	Other	Remuneration & Nomination Committee	Audit and Risk Committee
Total number of meetings held during the year	4	14	1	3
Stephen Smith (Chairman)	4 of 4	9 of 14	1 of 1	3 of 3
John Whittle	4 of 4	14 of 14	1 of 1	3 of 3
Nicholas Wakefield (1)	1 of 1	1 of 1 (plus 4 as Observer when resigned)	1 of 1	N/A
Tracy Clarke (2)	3 of 3 (plus 1 as Observer pre-appointment)	9 of 13	N/A	3 of 3
Emma Stubbs	4 of 4	13 of 14	N/A	N/A
Rory Mepham	4 of 4	12 of 14	N/A	N/A

 

·      Nicholas Wakefield resigned from the Board on 8 March 2022.

·      Tracy Clarke was appointed to the Board on 8 March 2022.

 

Relations with Stakeholders

The Board's advisers and the Executive Management Team maintain regular dialogue with key shareholders, the feedback from which is reported to the Board and the Chairman. Shareholders who wish to communicate with the Board should contact the Company Secretary in the first instance.

 

The Board also regularly monitors the shareholder profile of the Company. All shareholders have the opportunity to and are encouraged to attend the Company's annual general meeting at which members of the Board are available in person to meet shareholders and answer questions.

 

Whilst the primary duty of the Directors is owed to the Company as a whole, the Board takes into consideration the interests of all key stakeholder groups as part of its decision-making process and particular consideration is given to the impact of any decision on holders of its securities, the Co-Funders to the underlying loan businesses, and providers of the Group's long-term debt capital. The Board also recognises the crucial roles played by those involved throughout the Group's operations who contribute to delivering strategy, including staff and key service providers, to ensure a continued alignment of interests between their activities and those of the Company.

 

 

Terms of Reference of Committees

Committee Terms of Reference are available from the Company Secretary.

 

 

AUDIT AND RISK COMMITTEE REPORT

 

The Audit and Risk Committee

 

The Audit and Risk Committee has a formal terms of reference mandate documenting the duties and responsibilities which it has been delegated by the Board. These are available from the Company Secretary.

The Audit and Risk Committee has been in operation throughout the year under review.

 

Chairman and Membership

 

The Audit and Risk Committee comprises of John Whittle as Chairman, Steve Smith and Tracy Clarke. Only Non-Executive Directors serve on the Audit and Risk Committee and members of the Audit and Risk Committee have no links with the Company's external auditor and are independent of the Executive Management Team. The Audit and Risk Committee meets not less than three times a year in Guernsey and meets the external auditor at least twice a year in Guernsey. The identity of the Chairman of the Audit and Risk Committee is reviewed on an annual basis and the membership of the Audit and Risk Committee, and its terms of reference are kept under review. Regular attendees at the Audit and Risk Committee include the CEO, CFO and CIO.

 

Duties

 

The Audit and Risk Committee is responsible for monitoring the financial reporting process, including the appropriateness of the Company's accounting policies and the effectiveness of the Company's risk management and internal control systems. The Committee continues to spend a considerable amount of time reviewing significant risks and areas of judgement. In particular, the Committee conducts detailed reviews and analysis of the valuations prepared by the Executive Management Team of the FinTech Ventures investments, the Subsidiary Goodwill value in use models to assess if any impairment might be required and the Expected Credit Loss model. These valuations are key elements in the Group's financial statements and the Audit and Risk Committee questions these carefully.

 

External Audit

 

The Audit and Risk Committee is responsible for overseeing the relationship with the external auditor, including the ongoing assessment of the auditor's independence. The Committee makes recommendations to the Board with regard to the appointment of the external auditor and approves their terms of engagement and fees. The Committee discusses and agrees the nature and scope of the audit as set out in the audit engagement letter, reviews the results of the audit as described in the auditors' management letter and the ongoing independence and objectivity of the external auditor. Following a tender process, Moore Stephens were appointed as the Company's auditor in 2021, taking over from Deloitte who held this position since 2016.

 

Processes are in place to safeguard the independence of the external auditor, including controls around the use of the external auditor for non-audit services.  The external auditor also provides the Audit and Risk Committee with further assurance as to the procedures that it maintains to preserve objectivity and confirmation that it remains independent.  All non-audit services are pre-approved by the Audit and Risk Committee.   

 

Effectiveness of External Auditor

 

The Committee assessed the effectiveness of the external auditor and the external audit process for 2022 through a number of steps, including:

 

·      agreement of their engagement letter and fees;

·      review of the external audit plan; 

·      meetings with the external auditors;

·      considering the extent of any non-audit services provided by the external auditors;

·      considering the external auditors' fulfilment of the agreed audit plan and variations from it;

·      considering the report from the auditor highlighting any major issues that arose during the course of the audit; and

·      conducting interviews to obtain feedback from the Executive Management Team to evaluate the performance of the audit team.

 

For the audit for the year ended 31 December 2022, the Audit and Risk Committee was satisfied that the audit was effective and that there were no factors which had any bearing on the independence or effectiveness of the external auditor. 

 

 

Financial Reporting

 

The Audit and Risk Committee reviews, considers and, if thought appropriate, recommends to the Board the approval of the contents of the half yearly report and annual report and audited financial statements together with the external auditor's report thereon. It focuses particularly on compliance with legal requirements, accounting standards and the relevant Listing Rules. The ultimate responsibility for reviewing and approving the half year report and annual report and audited financial statements remains with the Board.

 

The Audit and Risk Committee provides a forum through which the external auditor reports to the Board and the external auditor is invited to attend Audit and Risk Committee meetings at which annual and half yearly financial statements are considered. After discussions with the Executive Management Team and external auditor, the Audit and Risk Committee determined that the key risks of misstatement of the Group's financial statements relate to the valuation of financial assets at fair value through profit or loss, the valuation and recoverability of goodwill, loan impairments and revenue.

 

Freely tradeable market prices are not available for the majority of the Group's financial assets, including the carrying value of goodwill arising on consolidation, which are therefore based on a discounted cash flow basis. Goodwill impairment testing is carried out annually or sooner where an indicative event of impairment has been identified. As announced on 10 January 2023 in reviewing its operations in Gibraltar during 2022, the Company has not identified sufficient quality lending opportunities to merit continued efforts in the region.  As a result, the Goodwill (£8.64 million), held by the Company since the acquisition of Sancus Lending (Gibraltar) Limited ("Sancus Gibraltar") in 2016, has consequently been written down to nil in the 2022 results. There have been no indicative events of impairment for the goodwill held for Jersey since the last annual review which coincided with the preparation of the 2022 interim accounts. The next annual review will coincide with the preparation of the 2023 interim accounts. Full details can be found in Note 2 (h), Note 3 and Note 12 to the financial statements.

 

For the valuations of the FinTech Ventures portfolio, the Executive Management Team provides a detailed valuation report on a quarterly basis. The Executive Management Team has confirmed to the Audit and Risk Committee that the valuation methodology has been applied consistently during the year. The accounting policies are described in detail in Note 2 (f) to the financial statements.

 

The Audit and Risk Committee has assessed the processes around the expected credit loss provisions recorded in respect of the Group's loan assets and reviewed the IFRS 9 model adopted at year-end which had also gone through the credit committee for approval.

 

The accounting policies for revenue recognition are described in detail in Note 2 (o) to the financial statements. The Audit and Risk Committee has reviewed the revenue recognition policies of the Group and has determined that they are in accordance with the accounting standards and have been applied consistently.

 

After due consideration, the Audit and Risk Committee recommends to the Board that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's performance, business model and strategy.

 

Non-Audit and audit related fees paid to the External Auditors

 

During 2022 no non-audit fees were paid to Moore Stephens, the external auditors. £15,000 was paid to Moore Stephens for audit related services, being the half year review. There is no perceived threat to auditor independence given the nature of the services provided and the safeguards in place.

 

Risk Management and Internal Control Systems

 

During 2022, management continued to enhance its reporting on risk management to the Board and the Audit and Risk Committee, which cover the operation of the Company and its wholly owned subsidiaries. The Audit and Risk Committee has received and considered these reports on three occasions, which has been the basis for its conclusion below.

 

In addition to the review of risk management reports, and in accordance with the guidance published in the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting by the Financial Reporting Council (the "FRC"), the Audit and Risk Committee has reviewed the Company's internal control procedures and concluded that these are adequate to manage the current risk profile.

 

A robust, ongoing process of Risk Management and Internal Control

 

The Board and Executive Management Team are responsible for safeguarding the assets of the Group through establishing effective systems of risk management and internal control. This responsibility is shared by the Directors of subsidiary companies, who are similarly responsible for safeguarding the assets of these companies.

 

The Board is also responsible for deciding on whether the nature and extent of risks taken within the Group are within its risk appetite. Such risks have been formally defined, setting the basis for the design and implementation of the Group's internal control framework.

 

On behalf of the Board, the Audit and Risk Committee oversees the Group's risk management and internal control systems. These systems are designed to ensure proper accounting records are maintained and that internal and published financial information is reliable, and that the assets of the Group are safeguarded. Such a system of internal controls can only provide reasonable and not absolute assurance against misstatement or loss.

 

Critical components of the Group's internal control framework include the documented policies which describe how each risk is to be managed and governed and the governance committees established in terms of such policies, which have mandates describing how they should operate, what reports they should receive and how they should govern the management of principal risks. Such policies have been implemented at Company as well as subsidiary levels.

 

On a semi-annual basis, the Executive Management Team review the key risks across the Group to ensure they are being managed within the Company's risk appetite.  Action plans are drawn up if any risks are considered to be outside of the Company's risk appetite and these are monitored on a regular basis until they return to levels back within the risk appetite. 

 

On a semi-annual basis, the Board and/or Audit and Risk Committee receive reports on risk management, the key risks and the exposures outstanding. Also included in these reports are the results of the Executive Management Team's risk and issue identification discussions noted above. These meetings also provide the Directors with the opportunity to consider any other issues which management may not have identified and give direction on any additional risk management actions which might be required.

 

Insurance

 

The Sancus and subsidiaries insurance programme is subject to annual review each year, with cover generally renewed in April of the following year. A significant amount of Insurance cover is held for Public Indemnity, Directors' and Officers' liability, Cyber, and Crime. Appropriate office and travel insurance is also in place. 

 

During 2022, the Committee did not receive any reports relating to whistleblowing across the Group.

 

On behalf of the Audit and Risk Committee

 

John Whittle

Chairman

Audit and Risk Committee

 

 

REMUNERATION REPORT

 

Introduction

 

An ordinary resolution for the approval of the annual remuneration report will be put to the shareholders at the annual general meeting to be held in 2023.

 

Remuneration and Nomination Committee

 

The Remuneration and Nomination Committee comprises of John Whittle as Chairman, Steve Smith and Tracy Clarke. The key duties include, but are not limited to, agreeing a framework for Director remuneration, ensuring management staff are appropriately incentivised to enhance performance, and reviewing the effectiveness of the remuneration policy on an on-going basis. No Director is involved in determining their own remuneration.

 

Remuneration Policy

In February 2020 the Remuneration Policy was last approved and adopted. The Company is committed to the objective of maximising shareholder return in the longer term. The remuneration policy aims to be competitive, aligned with shareholder interests and relatively simple and transparent. The Board takes into consideration the views of significant shareholders when determining the remuneration of directors.

 

The objective is to put in place a remuneration package that, as a whole:

 

·      aligns the interests of employees with that of shareholders and the success of the Company;

·      is appropriately benchmarked, such that it aids retention and recruitment; and

·      meets applicable legal or regulatory requirements, is tax efficient and simple to implement and administer.

 

The Board is reviewing the Remuneration Policy against these objectives.

 

The Policy is divided into two parts; the first part in relation to the remuneration of the Non-Executive directors of the Company, and the second part in relation to the remuneration of the Executive Directors of the Company.

 

 

Part 1 - Remuneration Policy of Non-Executive Directors

 

Each Non-Executive Director receives a xed fee per annum based on their role and responsibility within the Company and the time commitment required. It is not considered appropriate that Non-Executive Directors' remuneration should be performance related and none of the Non-Executive Directors are eligible for pension benets, share options, long-term incentive schemes or other benets in respect of their services as Non-Executive directors of the Company. Shares held by the Non-Executive Directors are disclosed in the Annual Report.

 

Pursuant to Article 30.3 of the Company's Articles of Incorporation (the "Articles") the Board may award additional remuneration to any Director engaged in exceptional work at the request of the Board on a time spent basis to compensate for the additional time spent over their expected time commitment.

 

The total remuneration of the Non‑Executive Directors has not exceeded the £300,000 per annum limit (excluding amounts payable in respect of any out-of-pocket expenses pursuant to Article 30.2 or any additional remuneration awarded pursuant to Article 30.3) pursuant to an ordinary resolution passed at the Annual General Meeting of the Company held on 19 May 2016.

 

The Articles provide that Non-Executive Directors retire and offer themselves for re‑election at the rst annual general meeting after their appointment and at least every three years thereafter. A Non-Executive Director's appointment may at any time be terminated by and at the discretion of either party upon three months' written notice. A Non-Executive Director's appointment will terminate immediately without notice (or payment in lieu of notice) if such director is not re-appointed at a General Meeting of the Company (if required under the Articles), if such director is removed as a director at a General Meeting of the Company, or if such director resigns or ceases to be a director in accordance with the provisions of the Articles.

 

The terms and conditions of appointment of each Non-Executive Director are available for inspection at the Company's registered ofce.

 

The last independent remuneration review was carried out in July 2014. The Directors intend to put in place a Long-Term Incentive Plan for Senior Management during the course of 2023 which will also include a remuneration review.

 

For comparative purposes the table below sets out the Non-Executive Directors' remuneration approved and actually paid for the year to 31 December 2021 as well as that proposed for the year ending 31 December 2022 (to be approved at the 2023 AGM).

 

Director	Role	Base for 2022	Additional fees for 2022	Total fees for 2022	Base for 2021	Additional fees for 2021	Total fees for 2021
Patrick Firth*	Non-Executive Director and Chairman of the Board	-	-	-	£23,333	£10,000 for Chairman of the Board	£33,333
Steve Smith**	Non-Executive Director and Chairman of the Board	£35,000	£15,000 for Chairman of the Board	£50,000	£22,446	£5,000 for Chairman of the Board	£27,446
John Whittle	Non-Executive Director, Chairman of the Audit and Risk Committee and Chairman of the Remuneration Committee	£35,000	£5,000 for Chairman of the ARC and £2,500 for Chairman of Rem & Nom Co	£42,500	£35,000	£5,000 for Chairman of the ARC and £2,500 for Chairman of Rem & Nom Co	£42,500
Nicholas Wakefield***	Non-Executive Director	£6,329	-	£6,329	£35,000	Nil	£35,000
Tracy Clarke***	Non-Executive Director	£28,671	Nil	£28,671	-	-	-
Total		£105,000	£22,500	£127,500	£115,779	£22,500	£138,279

 

* Pro rata for 2021 as Mr Firth resigned as a Non-Executive Director and Chairman of the Board on 31 August 2021.

** Pro rata for 2021 as Mr Smith was appointed to the Board on 11 May 2021 and succeeded Mr Firth as Board Chairman following his resignation.

*** Pro rata for 2022 as Mr Wakefield was succeeded by Ms Clark on 8 March 2022.

 

 

Part 2 - Remuneration Policy of Executive Directors

 

Base Remuneration

 

For the year ended 31 December 2022, the Executive Directors' base salary 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:

 

	31 December 2022	31 December 2021
Andrew Whelan1	-	£260,981
Rory Mepham2	£220,000	£220,000
Emma Stubbs	£170,000	£170,000
Dan Walker3	-	£200,000
James Waghorn4	£135,000	-
Helen Trott5	£135,000	-

 

¹ Mr Whelan resigned on 30 June 2021, and his contract ended on 28 February 2022.

² Mr Mepham was appointed Interim CEO on 30 June 2021 and permanent CEO on 23 November 2022.

³ Mr Walker resigned on 31 January 2022.

⁴ Mr Waghorn was appointed CIO on 8 March 2022. In addition to his Sancus salary Mr Waghorn also receives £35k p.a. from Somerston         Capital Limited as Managing Director of Healthcare & Development for Somerston.

⁵ Mrs Trott was appointed COO and Legal Counsel on 29 November 2022 and is on a 4 day a week contract.

 

In addition to fixed salary payments, in 2022 the Executive Management Team members received pension contributions of £11,000 Rory Mepham, £8,500 Emma Stubbs, £1,076 James Waghorn and £117 Helen Trott. (2021: £3,278 Andrew Whelan, £7,045 Rory Mepham, £6,299 Emma Stubbs and £7,581 Dan Walker).

 

Long Term Incentives

 

The Board intends to introduce a Long Term Incentive Plan for Senior Management during 2023 and an external advisor will be engaged to assist with this.

 

Discretionary Executive Bonus

 

There was one discretionary bonus awarded to James Waghorn of £50,000 relating to 2022. (In the year to 2021: £125,000, £50,000, £75,000 and £75,000 were paid to Andrew Whelan, Rory Mepham, Emma Stubbs and Dan Walker respectively).

 

On behalf of the Remuneration Committee

 

John Whittle

Remuneration Committee Chairman

 

 

DIRECTORS' REPORT

 

The Directors submit their Report together with the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Shareholders' Equity, the Consolidated Statement of Cash Flows and the related Notes for the year ended 31 December 2022, which have been prepared in accordance with International Financial Reporting Standards as adopted by the UK, in accordance with any relevant enactment for the time being in force, and are in agreement with the accounting records, which comply with Section 238 of The Companies (Guernsey) Law, 2008.

 

Principal Activities

The Company was incorporated and domiciled in Guernsey, 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). From January 2023 the Company changed its management and control from Guernsey to Jersey. Until 25 March 2015, the Company was Authorised as a 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 the AIM market of the London Stock Exchange on 5 August 2005. The ZDPs were listed and traded on the main market of the London Stock Exchange with effect from 5 October 2015 and following shareholder approval now have a maturity date of 5 December 2027. The Company's 2021 bonds were repaid on 21 December 2021 and a total of £12.575m principal of new bonds (the "New Bonds") were issued on 22 December 2021. Somerston subscribed to a further £2.425m bonds on 1 December 2022 taking the Company's aggregated bond principal to £15m of which £10.13m is now held by Somerston. The New Bonds are not listed and have an interest rate of 7%.

 

The Company does not have a fixed life and the Articles do not contain any trigger events for a voluntary liquidation of the Company.

 

Following the approval by Shareholders at the Company AGM on 19 May 2016, the Company changed its status from being an investing company for the purpose of the AIM rules to a trading Company. 

 

The Executive Management Team is responsible for the day-to-day management of the Company.

 

The Group

As at 31 December 2022, the Group comprises the Company and the entities disclosed in Note 20 to the financial statements.

 

Directors and Executive Management Team of the Company

A list of the Directors and the Executive Management Team who served the Company during the year and as at the date of this report is shown in the Corporate Governance report.

 

Results and Dividends

The Group results for the year are set out in the consolidated statement of comprehensive income. No Dividends were paid during the year (31 December 2021: Nil). 

 

Substantial Shareholdings

As at 31 December 2022, the Company was aware of the following substantial shareholders who held 3% or more of issued share capital of the Company:

 

	Number of Ordinary Shares  held	Percentage of total  ordinary shares  issued held
Somerston Group	294,644,553	50.44%
Philip J Milton & Company plc	94,215,644	16.13%

 

Directors' Interests

 

As at 31 December 2022, the Directors had the following beneficial interests in the Ordinary Shares of the Company:

 

	31 December 2022		31 December 2021
	No. of Ordinary Shares Held	% of Ordinary Shares Held	No. of Ordinary Shares Held	% of Ordinary Shares Held
John Whittle	138,052	0.03	138,052	0.03
Nick Wakefield	-	-	-	-
Emma Stubbs	1,380,940	0.28	1,380,940	0.28
Steve Smith (Chairman)	-		-	-
Rory Mepham	-	-	-	-
Tracy Clarke	-	-	-	-

 

 

Statement of Directors' Responsibilities

 

The Directors are responsible for preparing the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the United Kingdom (UK), and The Companies (Guernsey) Law, 2008 for each financial period to give a true and fair view of the state of affairs of the Group as at the end of the financial year and of the profit or loss for that period.  International Accounting Standard 1 requires that financial statements present fairly for each financial period the Group's financial position, financial performance and cash flows. This requires faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's "Framework for the preparation and presentation of financial statements".  In virtually all circumstances a fair presentation will be achieved by compliance with all IFRSs as adopted by the UK. 

 

In preparing these financial statements, the Directors are required to:

 

·       Ensure that the financial statements comply with the Memorandum and Articles of Incorporation and IFRSs, as adopted by the United Kingdom;

·       Select suitable accounting policies and apply them consistently;

·       Present information including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·       Make judgements and estimates that are reasonable and prudent; and

·       Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.

 

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

 

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements have been properly prepared in accordance with The Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors also confirm that the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's performance, business model and strategy.

 

Internal Controls Review

 

Taking into account the ongoing work of the Audit and Risk Committee in monitoring the risk management and internal control systems on behalf of the Board the Directors, the latter has conducted a robust assessment of the principal risks and uncertainties faced by the Group as set out in the risk table and is satisfied that each of these has been properly identified and is being effectively managed through the operation of appropriate internal controls and risk management systems, within the constraints of the resources of the Group.

 

Statement as to Disclosure of Information to Auditor

 

The Directors who held office at the date of approval of this Directors' Report confirm that:

 

· There is no relevant audit information of which the Company's auditors are unaware; and

· The Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

 

Auditor

 

Moore Stephens have indicated their willingness to continue in office and a resolution to re-appoint Moore Stephens will be tabled at the forthcoming AGM.

 

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. Following the extension of the ZDPs at the end of 2022, for a further 5 years to 5 December 2027 and with the Bonds maturity date not until 31 December 2025, the Company does not have any debt liabilities that fall due within the next 12 months.  Based on this, the Directors are of the opinion that the Company has adequate financial resources to continue in operation and meet its liabilities as they fall due for the foreseeable future.

 

It is however expected, whereby equity is required to facilitate an increase in drawdown from institutional funding lines that the Company will require growth capital to fund the continued growth of the loan book. The Company's largest shareholder, Somerston has indicated their willingness to support the Company's growth plans. The Company will be looking at options available to raise additional growth capital over the course of the year, which may include a form of equity raise or sale by Company of ZDP shares held in treasury.

 

The Directors therefore believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

 

Board Succession

 

The Directors remain focussed on ensuring the Board is comprised of individuals with the requisite skills, knowledge, experience and diversity to operate effectively and to meet the future leadership needs of the Company. The Board welcomed the appointment of Ms Tracy Clarke who succeeded Mr Nick Wakefield in March 2022 as the Somerston appointed Board representative.  It is noted that Emma Stubbs will resign on 30 March 2023 and will be replaced by Tracy Clarke, who will become an executive Director and cease to be Somerston's appointed Board representative.  At this time no replacement is deemed necessary for Tracy Clarke's Non Executive position, but this will be kept under review.

 

Approved and signed on behalf of the Board of Directors on 30 March 2023.

 

 

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF SANCUS LENDING GROUP LIMITED

 

Opinion

 

We have audited the financial statements of Sancus Lending Group Limited (the 'company' or the 'parent company and its subsidiaries together as the 'group') for the year ended 31 December 2022 which comprise of the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the United Kingdom and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

 

In our opinion:

 

·      the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 31 December 2022 and of the group's loss for the year then ended;

·      the group financial statements have been properly prepared in accordance with IFRSs as adopted by the United Kingdom; and

·      the financial statements have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

 

Basis for opinion

 

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the audit of the financial statements section of our report. We are independent of the Group, in accordance with the ethical requirements that are relevant to our audit of the financial statements in Guernsey, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Conclusions relating to Going Concern

 

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

 

Our evaluation of the directors' assessment of the company's ability to continue to adopt the going concern
basis of accounting included:

 

·      comprehensive analysis of the Entity's financial position; and

·      cash flows, including the key assumptions underlying the Entity's forecasted cash flows.

 

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's ability to continue as a going concern.

 

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group's ability to continue as a going concern.

 

Key audit matters

 

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

The key audit matters that we identified in the current year are:

 

Audit Matter	Procedures
Impairment of Goodwill   As at 31 December 2022, the Group has recorded goodwill of £14.3m (2021: £22.9m) representing 22.64% (2021: 23.1%) of group total assets at year end. Discounted cash flow models are prepared by management to assist the Board and Audit Committee in determining whether indicators of impairment exist and estimating the recoverable amount of goodwill, based on information available at 30 June 2022. The management believes that there is no further change till 31 December 2022. The risk is explained further in the Strategic report where this is included as a key risk of misstatement. Note 2(h) and Note 3 set out the associated accounting policy and disclosure in respect of critical judgements and key sources of estimation uncertainty, with Note 12 setting out details of the impairment tests and goodwill valuation sensitivities.	We obtained our understanding of how the discounted cash flow forecasts are modelled as part of the Board's processes to identify and recognise impairment. With regards to valuation, we performed the following procedures: We obtained an understanding of the relevant controls over the impairment assessment process;   We have reviewed and checked the key assumptions to the cash flows including revenue growth rates, discount rates, and future income and expenditure cash flows, and tested for any inconsistencies with our understanding of the group's business model;   We internally performed stress testing on the key assumptions to determine the impact on the recoverable amount of goodwill and whether this would lead to any impairment;   We checked the critical model assumptions related to the cash flow and growth rate assumptions, which were used in the forecast to model the recovery to pre-Covid-19 levels of loan origination, by assessing trends in external sector reports, evaluating the expected cash flows from the loan pipeline and loans originated post impairment test date;   We agreed inputs to supporting evidence where appropriate;   We reviewed the models prepared by management for consistency with the requirements of IAS 36;   We challenged management's assertion that no further impairment triggers exist at the balance sheet date, considering the sources of information to identify such indicators as listed in IAS 36 Impairment of Assets; and   We reviewed the disclosures made per requirements of IAS 36.   Based on our audit work, we concur with management that the goodwill balance was not impaired as at 31 December 2022.   As described in Note 12 to the financial statements, we noted that management have assumed that Sancus Lending (Jersey) does not require impairment as of 31 December 2022.   Note 12 to the financial statements describes the underlying sensitivity of the key inputs used.
Impairment and recoverability of loans receivable   As at 31 December 2022. the aggregate value of loans and loan equivalents amounted to £76.13m (2021: £53.24m) representing 74.97% of total assets (2021: 54.89%). The loan portfolio comprises of property-backed loans (Sancus). Through Sancus, the group has direct exposure to loans through co-investment alongside third-party lenders.   The group has also provided a first loss guarantee as part of the Sancus Loan Note structures. The value of these assets are also supported by the underlying loan book. Management is required to assess loans for impairment, including the application of the expected credit loss ('ECL') model under IFRS 9.   In making this assessment, management makes several significant judgements. These include determining appropriate assumptions for calculating the loss allowance under IFRS 9 (including probability of default and loss given default), as well as loan-specific matters including cash flow forecasts and covenant compliance, specifically related to loan to value (LTV) ratio. As a result, errors or deliberate manipulation of these determining factors could result in material misstatement of the financial statements, as such it is considered as a fraud key audit matter.   The risk is explained further in the strategic report where this is included as a key risk of misstatement. Note 2(f) and Note 3 set out the associated accounting policy and disclosure in respect of critical judgements and key sources of estimation uncertainty, with Note 23 setting out details of the associated risk factors, including credit risk.	We have performed the following procedures: We have obtained an understanding of significant controls over the loans impairment process;   Performed a walkthrough of relevant controls in the valuation process to confirm they were appropriately designed and implemented;   We have tested, on a sample basis, inputs used in the 'Loans Monitoring Report', including the accuracy of covenant calculations, such as loan to value ratios, collateral values, and other financial and non-financial information;   We have checked the reasonableness of management's significant judgments relating to the categorisation of loans into the various credit stages required under IFRS 9. We have considered this in relevance to management's definition of a significant increase in credit risk ('SICR') and the definition of default and performed a review of the Loan Monitoring Report to assess evidence of changes in credit risk resulting from factors such as: - exceedances in LTV; - covenant breaches; - delinquencies in payments; or - other signs of financial stress.   We also checked the reasonableness of management's assumptions related to the recoverable value of any non-performing loans in light of available evidence and the underlying collateral;   We have checked the reasonableness of management's assumptions relating to their capital market expectations, such as Covid-19, including any overlays required to compensate for the change in the market environment not reflected in the ECL model;   We have evaluated the reasonableness of management's judgements and estimates in deriving the probability of default (PD), determining the loss given default (LGD) and exposure at default (EAD) for each stage within which loans are classified and their compliance with IFRS 9 requirements;   We tested the numerical accuracy of the ECL calculation based on the above inputs; and   We evaluated the adequacy of disclosures made in the financial statements in light of the requirements of IFRS 7 and IFRS 9.   We have concluded that the overall carrying value of loans is reasonable.   As described in note 3 to the financial statements, IFRS 9 requires the application of a probability-weighted unbiased estimate in determining the ECL on loans. There are therefore certain loans where the amounts recovered could be materially different to the estimate at 31 December 2022.   Note 23 to the financial statements describes the underlying sensitivity of the key inputs used.
Revenue recognition   The Group's revenue for the year ended 31 December 2022 was £9.98m (2021: £9.02m) of which £5.48m (2021: £5.39m) sourced from interest income and fees enforced as per lending agreements and £4.5m (2021: £3.62m) was from interest on loans.   We consider revenue as a presumed fraud risk and have directed our tests towards this risk	We have performed the following procedures: We have obtained reports from LMS, related to interest income and tested on sample basis by recalculating interest income and comparing it with the amounts accounted in the general ledger.   We also performed analytical review to test the reasonableness of interest income.   For fee income, we have verified on sample basis, fee from various contracts and tested for accuracy.   We have concluded that the reported revenue is presented fairly.

 

Our application of materiality

 

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

 

Group Materiality	£393k
Basis	2% of net assets
Rationale	considered as most appropriate based on the significance of the on balance sheet lending and goodwill balances.
	In determining performance materiality, we considered the following significant judgements:   ·      Our risk assessment, including our assessment of the Group's overall control environment; and ·      No past audit experience with the Group.

 

We have also adopted a lower level of materiality for revenue balances consistent with the prior year audit. We consider revenue to be a critical performance measure for the group as it is expected to be a key driver for future distributions from profits now the group has further developed its SME and property backed lending business.

 

The lower-level materiality applied was £199.6k (2021: £180k), being approximately 2% (2021: 2%) of total revenue. We agreed with the Audit Committee that this was appropriate as revenue balances are relatively low compared to our overall group materiality set out above, yet there is an increasing focus on these as performance measures.

 

Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 60% of group materiality for the 2022 audit (2021: 60%). In determining performance materiality, we considered the following factors:

·      Our risk assessment, including our assessment of the group's overall control environment and that we consider it appropriate to rely on controls on a key business process;

·      Our past experience of the audit, which has indicated a low number of uncorrected misstatements identified in prior periods; and

 

 

Error reporting threshold

 

We would report to the Committee all audit differences in excess of £19.6k (2021: £23k), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

 

An overview of the scope of our audit

 

Our audit was scoped by obtaining an understanding of the group and its environment, including internal control, and assessing the risks of material misstatement for the company and its subsidiaries. Audit work to respond to the risks of material misstatement was performed directly by the group audit team for both the parent entity and its subsidiaries.

 

Audit work performed for the subsidiaries was executed by the group audit team at levels of materiality applicable to each subsidiary, which in all instances was lower than group materiality and ranged between £53k and £184k (2021: between £4.4k and £1,006k).

 

Other information

 

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

 

We have nothing to report in this regard.

 

Matters on which we are required to report by exception

 

In the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

 

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

 

·      adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

·      the consolidated financial statements are not in agreement with the accounting records and returns; or

·      certain disclosures of directors' remuneration specified by law are not made; or

·      we have not received all the information and explanations we require for our audit.

 

Responsibilities of directors

 

As explained more fully in the directors' responsibilities statement set out in the Directors' Report, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the financial statements, the directors are responsible for assessing the group's and the parent 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 group or the parent company or to cease operations, or have no realistic alternative but to do so.

 

Auditor's responsibilities for the audit of the financial statements

 

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.  A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

 

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

 

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

 

The objectives of our audit in respect of fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses to those assessed risks; and to respond appropriately to instances of fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both management and those charged with governance of the company.

 

Our approach was as follows:

 

·      We obtained an understanding of the legal and regulatory requirements applicable to the company and considered that the most significant are the Companies (Guernsey) Law, 2008, International Financial Reporting Standards as adopted by the UK, and taxation legislation.

 

·      We obtained an understanding of how the company complies with these requirements by discussions with management and those charged with governance.

 

·      We assessed the risk of material misstatement of the financial statements, including the risk of material misstatement due to fraud and how it might occur, by holding discussions with management and those charged with governance.

 

·      We inquired of management and those charged with governance as to any known instances of non-compliance or suspected non-compliance with laws and regulations.

 

·      Based on this understanding, we designed specific appropriate audit procedures to identify instances of non-compliance with laws and regulations. This included making enquiries of management and those charged with governance and obtaining additional corroborative evidence as required.

 

As part of an audit in accordance with ISAs (UK) we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

 

·      Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

·      Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the group's internal control.

 

·      Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

 

·      Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group's or the parent company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the group or the parent company to cease to continue as a going concern.

 

·      Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

·      Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

Use of our report

 

This report is made solely to the company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

 

Jeff Vincent (Senior Statutory Auditor)

for and on behalf of Moore Stephens Audit and Assurance (Guernsey) Limited                                 

Level 2 Park Place

Park Street

St Peter Port

Guernsey

GY1 3HZ

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

	Notes	2022 £'000	2021 £'000
Revenue	5	9,989	9,022
Cost of sales	6	(7,609)	(6,537)
Gross profit		2,380	2,485
Operating expenses	7	(6,674)	(6,231)
Operating loss before credit losses		(4,294)	(3,746)
Changes in expected credit losses	22	(418)	(6,399)
Incurred losses on financial assets		-	(90)
Operating Loss		(4,712)	(10,235)
FinTech Ventures fair value movement	22	(894)	434
Other net gains/(losses)	8	233	(557)
Goodwill impairment		(8,639)	-
Loss for the year before tax		(14,012)	(10,358)
Income tax	18	(50)	19
Loss for the year after tax		(14,062)	(10,339)
Items that may be reclassified subsequently to profit and loss
Foreign exchange gain arising on consolidation		20	12
Other comprehensive income for the year after tax		20	12
Total comprehensive loss for the year		(14,042)	(10,327)
Loss for the year after tax attributable to equity holders of the company		(14,062)	(10,339)
Total comprehensive loss attributable to equity holders of the company		(14,042)	(10,327)
Basic Loss per Ordinary Share	10	(2.89)p	(2.16)p
Diluted Loss per Ordinary Share	10	(2.89)p	(2.09)p

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

ASSETS	Notes	31 December 2022 £'000	31 December 2021 £'000
Non-current assets
Fixed assets	11	425	660
Goodwill	12	14,255	22,894
Other intangible assets	13	-	53
Sancus loans and loan equivalents	22	23,864	6,643
FinTech Ventures investments	22	-	500
Other investments		100	100
Investments in joint ventures and associates	9	-	500
Total non-current assets		38,644	31,350
Current assets
Other assets	14	706	496
Sancus loans and loan equivalents	22	52,261	46,602
Trade and other receivables	15	5,806	6,075
Cash and cash equivalents		4,134	12,436
Total current assets		62,907	65,609
Total assets		101,551	96,959
EQUITY
Share premium	16	118,340	116,218
Treasury shares	16	(1,172)	(1,172)
Other reserves		(109,994)	(95,952)
Capital and reserves attributable to equity holders of the Group		7,174	19,094
Total equity		7,174	19,094
LIABILITIES
Non-current liabilities
Borrowings		90,868	64,677
Lease liabilities		152	364
Total non-current liabilities	17	91,020	65,041
Current liabilities
Borrowings		-	10,532
Trade and other payables		1,708	1,628
Hedging contracts		398	-
Tax liabilities		145	86
Provisions		413	-
Lease liabilities		212	212
Interest payable		481	366
Total current liabilities	17	3,357	12,824
Total liabilities		94,377	77,865
Total equity and liabilities		101,551	96,959