This announcement contains inside information as stipulated under the UK version of the Market Abuse Regulation (EU no. 596/2014) as it forms part of UK law by virtue of the European Union (Withdrawal) Act 2018 (as amended from time to time).

29 November 2023

Distribution Finance Capital Holdings plc

("DF Capital" or the "Company" together with its subsidiaries the "Group")

Trading and Capital Strategy Update

Distribution Finance Capital Holdings plc, a specialist bank providing working capital solutions to dealers and manufacturers across the UK, provides an update in relation to its single large obligor arrears balance, a trading update and a change to its medium-term capital strategy.

Update relating to large single obligor's arrears balance

The Group previously reported that as at 30 June 2023 the Group's arrears included £10.4m of balance outstanding in respect of a large single obligor; RoyaleLife and associated companies ("RoyaleLife"), a customer of the Company since June 2018, representing c.2 per cent of the Group's loan book as at 30 September 2023. Whilst the refinancing and restructuring of RoyaleLife was in progress, it had been delayed, and at that time the Group's assessment, following engagement with key stakeholders, was that the Group would be repaid should the proposed refinance complete as planned.

The Group is aware of a significant number of assets which have been sold out of trust or are missing from confirmed locations and following continued work with various stakeholders, it is now clear that RoyaleLife's financial situation and operation is much opaquer and more complex than originally determined, adversely impacting, to a greater degree than expected, a larger number of secured lenders and other creditors.

Whilst the Group understands that action to refinance RoyaleLife remains in progress, there is no certainty at this stage given the elapsed time and new information that this will lead to a satisfactory outcome and successful refinance, which will see the Group being substantively repaid.

Whilst the Group will continue to work with stakeholders to effect a good outcome, pursuing recovery of the outstanding debt to the fullest extent possible, the Group intends to make an appropriate credit loss provision in its full year accounts for the year ending 31 December 2023. Due to the unique circumstances associated with RoyaleLife and the one-off nature of any provision, the Group does not anticipate any further impact to its results for the next financial year ending 31 December 2024.

The Group maintains a highly cautious and vigilant approach to credit risk management and the circumstances surrounding RoyaleLife facility are unique in the context of the Group's loan book. 

Trading update and capital strategy

As reported in the results for six months ended 30 June 2023 the Group delivered pre-tax profit, including impairment provisions, of £3.2m in the first half, more than the entire previous financial year. Additionally, new loan origination remained strong, stock turn extended further and the Group continued to generate elevated net interest margin. However, in light of any expected credit loss provision in relation to RoyaleLife, the Group now expects to deliver a pre-tax profit of no less than £2.0m for the year ending 31 December 2023.

Given the strong underlying momentum combined with the Group's expectations of further loan book growth, the Company has determined that, in the medium term, it will remain flexible and pragmatic in the pursuit of its growth strategy, balancing this against its ability to generate retained earnings as a route to organic capital accretion.

As previously announced the Group believes it has capacity to grow its current loan book to the envisaged level of approximately £800m based on current capital, a full drawdown of the £20m Tier 2 Capital Facility as announced on 8 September 2023 and upsizing of the previously announced ENABLE Guarantee from £250m to £350m. At a c£800m loan book the financial characteristics of the Group would allow it to achieve further organic growth at a slower, but healthy rate without the need to raise additional Tier 1 capital.  The Group remains committed to becoming a multi-product lender in the near-term, considering organic and inorganic product development strategies which underpin the Group's longer-term earnings potential.

Carl D'Ammassa, Chief Executive, commented: "Despite our best efforts, it is very disappointing that we have not been able to resolve the RoyaleLife situation. This is a complex, demanding and unique exposure that we have been working through over many months alongside other lenders and creditors. Despite the material changes to the landscape most recently, we continue to seek recovery, but feel prudency and transparency of approach is critical at this time and central to our model".

"Notwithstanding this situation, the Group is seeing strong underlying financial momentum and we remain well placed to build a diverse multi-product lending proposition, without the pressing need to raise Tier 1 capital through an equity raise."

The person responsible for arranging the release of this announcement on behalf of the Company is Karen D'Souza (Company Secretary).

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