TIDMGLIF
RNS Number : 0868U
GLI Finance Limited
31 March 2021
31 March 2021
The information contained within this Announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No.596/2014 as amended by The
Market Abuse (Amendment) (EU Exit) Regulations 2019.
GLI Finance Limited
("GLI", "the Group" or "the Company")
Final Results for the Year Ended 31 December 2020
GLI Finance (AIM: GLIF) announces its audited final results for
the year ended 31 December 2020.
Andy Whelan, Chief Executive Officer of GLI Finance Limited,
commented:
"The Covid-19 pandemic negatively impacted our performance for
the majority of 2020, contributing to an operating loss of GBP5.5m
(2019: loss GBP0.6m) of which GBP4.7m related to an adjustment to
our expected credit loss provision. We have taken a cautious view
of our loan exposure as although we have not seen any losses
materialise we are mindful of the pressures created by Covid-19. We
also took a material write-down on the FinTech Ventures portfolio
with a total net write down of GBP6m for the full year (2019:
GBP7.5m)."
"As announced on 4 December 2020 in conjunction with Somerston
Fintech Limited the Company's largest shareholder, we were
delighted to report that we had completed a successful fund raise
and debt restructuring of the Group. This has ensured the Company
is appropriately capitalised to maximise shareholder value as we
come out of the pandemic and was a fantastic result amidst what has
been a very turbulent time for us all. I would like to thank all
shareholders for their continued support during this time".
Group Highlights
-- Group revenue for the year was GBP10.9m (2019: GBP13.1m)
partly due to the runoff of the BMS UK Fund and on balance sheet
loans, and lower transaction revenue from the impact of
Covid-19;
-- Group operating loss for the year was GBP5.5m (2019: GBP0.6m
loss) with an increase in IFRS 9 adjustments of GBP4.7m as we
factor in expected future impact on loan recoveries;
-- Group retained loss for the year was GBP14.5m (2019: GBP9.9m
loss) which has been impacted materially by the decision to take a
GBP6m write down on the FinTech Ventures portfolio which is now
valued at nil, as well as the reduction in valuation of our holding
in Sancus IOM Holdings Limited due to current market
conditions;
-- Focus on operating costs has continued into 2020 with
headcount reduction and additional cost saving initiatives put in
place following the outbreak of Covid-19, reducing operating costs
by GBP1.4m from the previous year, and
-- A fundraising and debt restructuring, completed in December 2020, included:
o GBP4m of new equity raised at a price of 2.25 pence per
share;
o The Zero Dividend Preference shares ("ZDPs") were extended for
a further two years to 5 December 2022 with an 8% coupon. At 31
December 2020, the amount due was GBP12.4m (2019: GBP16.8m) ;
o The GBP10m bond which was repayable on 30 June 2021 (the "GLI
Bonds") was repaid early on 21 December 2020 and a new five-year
Bond of GBP12.575m was issued at a 7% p.a. coupon with warrants
attached.
o The facility with Honeycomb Investment Trust plc ("HIT") was
increased from GBP45m to GBP75m and extended by three years to 28
January 2024.
Sancus BMS Highlights
-- We continue to divest assets where return on capital, on a
risk adjusted basis, is below other areas of the business in line
with our objective of efficient capital allocation. This has led to
a gradual reduction in our SME lending activities where loans tend
to deserve a higher risk weighting and require significant use of
our own balance sheet. We have redirected resources to our core
asset backed secured lending activities where third-party funding
is more accessible and our balance sheet less utilised;
-- In line with our focus to improve asset efficiency and the
quality of our financials, Sancus's on-balance sheet loan exposure
(excluding BMS) reduced by 44% in the year from GBP12.9m to
GBP7.2m, with Sancus revenue (excluding BMS) falling by far less,
20% from GBP8.1m to GBP6.5m;
-- During the year almost GBP100m was returned to Co-Funders
from the successful repayment of loans;
-- The Sancus team in all jurisdictions have continued working
during the lockdown (primarily from home);
-- We continue to diversify and broaden our sources of capital
and lending capacity. As at 31 December 2020, Sancus had loans
outstanding of GBP171m (2019: GBP199m) with Co-Funders providing
GBP164m, equating to a co-funding ratio of 96% (up from 94% at
December 2019); and
-- Business in the UK and Ireland continues to expand with
strong pipelines and although 2020 was impacted by Covid-19, these
two key jurisdictions saw their revenues increase year on year by
30% in the UK and 139% in Ireland.
For further information, please contact:
GLI Finance Limited
Andy Whelan
+44 (0)1534 708900
Liberum Capital (Nominated Adviser and Corporate Broker)
Chris Clarke
Edward Thomas
+44 (0) 20 3100 2190
Instinctif Partners (PR Advisor)
Tim Linacre
Lewis Hill
George Peele
+44 (0)207 427 1446
CHAIRMAN'S STATEMENT
Overview
2020 has been a challenging year as we, like many businesses,
have had to adapt to the challenges facing our operations. The
Executive Team and wider staff have nevertheless remained committed
and continued to operate as normal as possible under these
challenging conditions. The return of almost GBP100m of loans to
Co-Funders in the year underpins this hard work and dedication of
the team, which has always been focussed on providing the best
service possible to our Borrowers and Co-Funders.
A key milestone this year was the successful new equity raise at
the end of the year as well as restructuring our debt (Bonds and
ZDPs) and increasing and extending the term of our facility with
Honeycomb Investment Trust (HIT). This provides the Group with the
ability to focus on our growth plans where we see great opportunity
within the bridging and development lending space from where many
traditional finance providers are retrenching from. This
transaction had the full support of our largest shareholder
Somerston Group who participated in both the equity raise and new
bond issue. I take this opportunity to thank all our shareholders
and Honeycomb Investment Trust for their support.
As set out in our announcement in November 2020 the Board has
seen diminishing returns from FinTech Ventures, its portfolio of
SME-focussed lending platforms, which has suffered from increased
competition, the impact of the Covid-19 pandemic and, due to its
size, difficulty in raising additional equity. While the pandemic
has impacted the Group's property-backed and SME-lending business,
the Sancus BMS Group trading is recovering and management has
maintained a keen focus on efficient capital allocation and cost
management. We have again seen costs reduce this year by a further
GBP1.4m.
The Board believes that there is potential for substantial
growth in the Sancus BMS Group. The Board noted its intention to
restructure the business, focusing its resources on delivering the
business plan for this secured property focussed lending business.
We have started work on this and expect over the course of 2021 to
simplify the Group and will update shareholders of our progress in
due course.
The Board also intends to rebrand the Company under a new
corporate name to reflect this focus and expects to put a
resolution to Shareholders in that regard at the Company's next
annual general meeting which is scheduled for 11 May 2021.
The overall results for the year are disappointing showing a
retained loss of GBP14.5m, which is partly as a consequence of
taking some further provisions on IFRS 9 that we believe is the
right thing to do in this current market. Hopefully we are close to
the end of this pandemic and we can return to some form of
normality in the near future. We have also taken a full write down
on our FinTech Ventures Portfolio, which accounted for a GBP6m loss
in the year.
Our People
We have seen a reduction in headcount during the year but at the
start of 2021 we expanded the team with two new senior hires based
in the UK with significant real estate sector experience, which
will help the Group realise its ambition to grow our exposure
within the UK market.
Dividend and Shareholders
In line with our dividend policy, it is not proposed to declare
a dividend for this year. We expect the Sancus offices in Ireland
and the UK, together with a further focus on operational matters to
drive free cash flow in future years. We fully intend to recommence
the dividend programme but only at such time as the Company is in a
strong enough position to make such payments. I am grateful to all
our shareholders who have kept confidence with the Group through
what continues to be a challenging period as reflected in the
depressed share price.
Outlook
We have made significant strides to lay the foundation for
growth and operational improvements to create and build shareholder
value in the Sancus BMS Group. The HIT funding facility, Loan Note
and Co-Funder network helps to support this growth, but we are also
continuing to secure a steady flow of new Co-Funders due to the
attractive risk-adjusted returns that are available from our
secured lending opportunities. Cash and Bond yields are at all-time
lows and we believe these are unlikely to materially rise for a
considerable period of time. Our focus for the foreseeable future
is growing the UK and Irish operations and continuing to expand the
offshore jurisdictions.
As noted in the Director's Report, following the successful fund
raise last year and the refinancing of the Company's debt
liabilities (with the support of the Somerston Group), I will be
considering my position during 2021 and am intending to resign from
the Board and a replacement Chairman will be identified and
announced in due course. On behalf of the Board, I thank
shareholders for their continuing support.
Patrick Firth
Chairman
30 March 2021
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
During 2020 we saw the business cope as well as could be
expected with Covid-19. Although revenue was hampered by a lack of
fees from new loans, all staff continued to work successfully from
home during the pandemic and were in close contact with Co-Funders
and Borrowers during this time. As Sancus is a multi-jurisdictional
business we saw differing levels of lockdown in the locations where
our offices are based. We have benefited from a spread of location
risk where in smaller jurisdictions such as Guernsey, Jersey and
Gibraltar the lockdown restrictions did not last as long as we have
seen in the UK and thus have been able to get back to the "new
normal" a little quicker. We ensured that Co-Funders were kept
informed of developments within the business and took an empathetic
approach with Borrowers who requested either extensions of their
loan (if they expired during the period of reporting) or deferred
interest payments. This has meant that coming out of the pandemic
we have a very positive loan origination pipeline and during 2020
we returned almost GBP100m to Co-Funders from the successful
repayment of loans.
We continue to spend considerable time, energy and focus on the
UK and Irish operations to ensure they are well positioned to grow
over the course of 2021. We have started to see these efforts pay
off with the UK in particular showing positive signs of growth,
particularly with respect to development finance opportunities,
notwithstanding the potential headwinds presented by Brexit.
The equity raise and restructuring of our debt and extension of
our credit facility with HIT has hugely improved the Group's
balance sheet position and will allow the business to focus its
resources on delivering the strategy of Sancus BMS Group, the
Group's secured property focussed lending division. Further details
of this are noted in the Chief Financial Officer's report. We are
delighted that Somerston Group has provided further support to the
Company during a period of challenging events both globally with
the global health pandemic and in the UK with Brexit. I would also
like to thank all stakeholders; Ordinary and ZDP shareholders, Bond
holders and Pollen Street Capital (the Manager of Honeycomb
Investment Trust) for their continued support.
Long-term strategy and business objectives
The overall objective remains shaping a capital efficient
business that creates value and enables us to pay dividends.
Sancus BMS is our core operating unit. The coordination across
the executive and senior management team, complemented with strong
new business development expertise, is delivering a healthy flow of
lending opportunities.
We are looking at our options for the FinTech Ventures portfolio
and we will communicate any developments to shareholders as
appropriate. It has certainly been a difficult, challenging and
hugely disappointing journey over the years with the FinTech
Ventures portfolio. Many of the platforms have reached key points
in their development and the market for raising equity and debt
financing is challenging, which has had a material impact on the
latest valuations.
Covid-19 impact
As a Group we already had robust recovery plans in place for
business disruption with a workforce fully equipped with remote
access to enable working from home. This has meant the business has
continued to function well during the prolonged period of
disruption and we have maintained a high level of service. With
regard to our lending practices, we had tightened our credit
criteria prior to the onset of the pandemic, in anticipation of an
increased possibility of a global recession and are applying even
more stringent criteria during this difficult time.
The majority of our lending exposure is asset/property backed,
with only a small percentage of the portfolio exposed to the more
vulnerable sectors such as commercial and retail lending. Our loan
book is exposed primarily to development and bridge financing. The
pandemic has created risks in the supply chain and to property
values. However, the responses of Governments and Central Banks
(globally) in terms of fiscal and monetary support to businesses
adversely affected has been significant and in the main well
thought through.
Communication with our stakeholders is a high priority and we
are in frequent contact with all our Co-Funders to provide an
update on the loans they are invested in and how we expect Covid-19
may impact them.
With interest rates and bond yields at historic lows, the Sancus
syndicated loan model will remain attractive to our Co-Funder base
and, as Bank lending will probably contract further, we don't think
this will adversely affect our pricing model and will present an
opportunity to increase pricing on certain lending proposals.
Summary of Financial Performance
The Group results for 2020 produced revenue of GBP10.9m (2019:
GBP13.1m) and an operating loss of GBP5.5m (2019: loss GBP0.6m).
Revenue decreased year on year, which was expected as we run down
our SME loan book and on-balance sheet loan exposure, but also due
to reduced lending activity during lockdown which impacted
transaction fees.
The Group net assets have reduced in the year from GBP40.4m at
31 December 2019, to GBP29.5m at 31 December 2020 predominantly as
a result of the FinTech write down and as noted earlier the
additional IFRS 9 provisions we have taken in light of the Covid-19
pandemic.
Operations
The Sancus BMS loan book at the end of December 2020 was
GBP171m, a 14% decrease on last year (2019: GBP199m) as we saw
almost GBP100m returned to Co-Funders over this period. As
businesses get back to some sort of normality, we expect to grow
the loan book.
Loan deployment for asset backed lending is a key metric we use
to monitor the performance of the Sancus BMS Group. Over the last
three years we have seen a steady increase in loan deployments from
GBP102m in 2017, GBP115m in 2018 and GBP123m in 2019. We saw loan
deployments in 2020 reduce by 44% down to GBP69m as lockdowns
hampered the completion of new loans. The first quarter of 2021 did
start off relatively slow as most jurisdictions were still in some
sort of lockdown but over the last month, we have seen positive
signs of the industry picking up.
Our relationship with Pollen Street Capital and the HIT facility
has also strengthened our ability to fund larger loan opportunities
with the increase in the facility from GBP45m to GBP75m and the
maturity extended to 28 January 2024.
Our on-balance sheet loans have decreased by 44% from 31
December 2019 to GBP11.8m at the end of 2020, with the continued
focus on improving return on tangible assets ("ROTA").
Sancus BMS - Table 1 2020 2020 v 2019 2018
2019 var
BMS managed loan book GBP14m (59%) GBP34m GBP40m
========= ========== ========= =========
Sancus asset backed lending book GBP171m (14%) GBP199m GBP168m
========= ========== ========= =========
Total Sancus BMS Loan Book GBP185m (21%) GBP233m GBP208m
========= ========== ========= =========
Loan Deployments GBP69m (44%) GBP123m GBP115m
========= ========== ========= =========
On balance sheet loans before IFRS GBP11.8m (44%) GBP21.2m GBP26.0m
9
========= ========== ========= =========
Average loan size GBP2.2m (8%) GBP2.4m GBP2.5m
========= ========== ========= =========
Average loan terms - months 18.5 10% 16.8 18.5
========= ========== ========= =========
Average LTV 63.2% - 63.3% 58.7%
========= ========== ========= =========
As set out in the last Annual Report we monitor performance by
three key performance indicators. These include lending volumes,
return on tangible assets (ROTA) and profitability. Lending volumes
and profitability have been negatively impacted this year by
Covid-19 but we continue to focus on improving these over time. We
have taken the opportunity following the successful capital raise
and debt restructuring to work more closely with the Somerston
Group in aligning our vision for the future. This will help create
a more simplified Group over the course of 2021 and therefore going
forward will be reporting on the new simplified Group basis,
meaning the ROTA reported previously, which was on Sancus BMS Group
only, would not be on a like for like basis. We will commence
reporting ROTA from the end of 2021 once the Group restructuring
has completed.
Sancus Loan Notes and Amberton
The Sancus Loan Notes ("SLNs") comprise a planned series of
Special Purpose Vehicles ("SPVs") designed to act like
securitisation vehicles to help diversify our funding options and
enable additional Co-Funder participation in a diversified loan
portfolio. These are attractive to new clients that want to
participate in a pooled vehicle, delivered across a number of
loans, rather than via direct participation in individual loans. At
31 December 2020 there are two loan notes in place, SLN5 which is
at GBP19.6m and matures on 8 November 2021 and has a coupon of 7%.
SLN6 currently stands at GBP4.4m and also matures on 30 November
2021. As part of the structure of the loan notes, Sancus BMS has
provided a 10% first loss position on SLN5. On SLN6 Sancus BMS has
not provided a first loss position.
In January 2021 Amberton Limited was established as a joint
venture and is located in Jersey. It is the intention to launch
SLN7 in the first half of 2021 and the Board notes that we expect
the majority of investors within SLN5 and SLN6 will roll into this
new SLN7 to create one larger loan note. To facilitate this process
and maximize the take up of SNL7, Sancus may acquire some of the
loans held within SLN5 and SLN6 and take them onto its own balance
sheet. The Board notes that this is deviation away from its stated
strategy of reducing our on balance sheet exposure, ensuring the
Company has adequate funding sources is a key driver for future
growth and we expect these loans to be held on balance sheet for a
relatively short period of time based on the maturity loan date
profile.
BMS
Following the sale of the BMS Irish Fund loans in 2018, the BMS
UK Fund entered into run-off in 2019 and the UK Fund balance is now
GBP4.5m (2019: GBP8.2m) with GBP0.9m IFRS 9 provision applied
(2019: GBP1.1m). During the year we sold our holding in the
administrator of the fund, BMS AB for a nominal amount (Note 21).
This is in line with our strategy to simplify the Group and with
the rundown of the Fund this entity was loss making.
Dividend Policy
The Group dividend policy recognises the need to balance
dividend payments in the short term with the opportunities to grow
the business for shareholders in the longer term. As such the
Group's policy is to make dividend payments, which is consistent
with prudent capital and liquidity management, covered by cash
earnings and realised profits on the sale of investments. In line
with this dividend policy, no dividend is being declared for this
period.
Related Party Transactions
Related party transactions are disclosed in Note 24. There have
been no material changes in the related party transactions
described in the last annual report.
Governance, Risk Management and Operations
Effective governance processes both at subsidiary and holding
company level continue to be a priority for the Board. This is
critical to ensuring that only well-considered risks are taken, and
expected returns emerge as planned. At Group level we have
implemented projects to take a more strategic approach to the
assessment, reporting and management of investment risk.
The development of the digital trading platform continues with
increased online functionality for Co- Funders . This has now been
rolled out to Sancus UK clients, allowing them to participate
online in asset backed lending opportunities.
In addition, as part of the capital raise in November we have
signed a relationship Agreement with Somerston Group in order to
ensure that all shareholders rights are protected, and no undue
influence is brought to bear by Somerston on the running of the
Company.
Brexit
Geopolitical tensions and the impact of Brexit on the property
market across all Sancus related jurisdictions (the UK and
Gibraltar in particular) remains to be ascertained. Our view is
that as the UK economy is moving closer to a heightened risk of
recession, and we therefore expect the banking sector to focus more
on the potential impact to their Tier 1 capital ratios, which may
have a negative impact on their appetite for lending.
This creates further opportunity for alternative lenders in
terms of both loan origination and the interest rate. However, the
potential downside is increased risks associated with more volatile
property valuations, demand from buyers of properties contracting
and the potential for more risks of loan defaults.
Outlook
Last year was a year of reorganisation as we built out the
Sancus BMS platform and restored the balance sheet of the Group,
creating a firm foundation for growing the core business and
creating significant value for shareholders. Our target was to
deleverage our balance sheet and become a capital efficient
business, which in turn will enable us to restart our dividend
programme. Management remains focused on these objectives, which it
expects to translate into improved profitability and ROTA over
time. Covid-19 has negatively affected our results this year, but
we are witnessing increased opportunities for alternative lenders,
such as ourselves, and expect to see improvements in 2021.
Finally, I want to thank all shareholders for their continued
support during this period of change. I fully acknowledge that the
journey to date has been disappointing. However, we have
successfully aligned the business to focus on Sancus (which I
co-founded), which through its multi-jurisdictional asset backed
secured lending service, is in a strong position to deliver future
growth, profitability and in due course recommence the dividend
programme.
Please keep safe and look after your loved ones.
Andrew Whelan
Chief Executive Officer
30 March 2021
CHIEF FINANCIAL OFFICER'S REPORT
Overview
2020 was a challenging year for the business as we saw the
impact of Covid-19 negatively hit our revenue growth targets. The
Group during this time did however continue to operate and saw
almost GBP100m being returned to Co-Funders from the repayment of
loans. One key highlight of the year, as announced on the 4
December 2020, was the successful completion of refinancing the
Groups liabilities (ZDPs and Bond), raising GBP4m of new equity and
extending and increasing our funding line with HIT from GBP45m to
GBP75m. This means that the Group is well positioned to come out of
the pandemic on a strong footing and be able to focus on growing
the business. We will be focussed on the UK and Irish
jurisdictions. Although they saw their revenues negatively impacted
by Covid-19 in 2020, both saw an increase in revenue year on year.
The liquidity of the Group has greatly improved following the fund
raise with Group operational cash balance at the end of December
2020 at GBP11.3m. Noted below are the highlights of the debt
restructuring and fund raise and the extension of the HIT
facility.
Fund Raise, Debt Restructuring and Facility Extension and
Increase
New equity raise
On 4 December 2020, 177,777,778 new ordinary shares were issued
at 2.25 pence per share raising GBP4m cash. 77,777,778 shares of
which were under a firm placing by our largest shareholder
Somerston and 100,000,000 shares issued under an open offer raising
GBP2.25m.
Bond
The Group previously issued GBP10m through a Bond that paid 7%
per annum semi-annually, which was due to mature on 30 June 2021.
This was repaid early on the 21 December 2020 and a new GBP12.575m
bond was issued on the 22 December 2020 with a maturity date of 31
December 2025. The coupon remains at 7% with the interest changing
to quarterly. In connection with the Bond issue the Company has
executed a warrant instrument constituting up to 183,691,304
warrants to subscribe in cash for new ordinary shares at a price of
2.25 pence per ordinary share. Somerston participated in the Bond
to the sum of GBP7.7m.
ZDPs
The Group had 20,791,418 ZDP shares in issue of which 12,009,030
ZDP shares were held in Treasury at 31 December 2020 equating to a
GBP12.5m liability. These were due for repayment on the 5 December
2020 but following shareholder approval these have been extended
for a further two years to 5 December 2022 and remain with an 8%
coupon with a final entitlement price of GBP1.6464 per share.
As announced on 26 February 2021, the Group intends to conduct a
tender offer for approximately 25 per cent of the ZDPs due to
complete mid-April 2021. The approximate cash equivalent of this
will be GBP3.2m.
The Group further announced on the 26 February 2021 a Buyback
Programme to purchase up to GBP1m ZDP shares to end no later than
30 April 2021. On 1 March 2021 the Group purchased 40,000 ZDP
shares at a price of 125.5 pence per ZDP share, on the 17 March
2021 15,000 ZDP shares were acquired at a price of 130.0 pence per
ZDP share and on 19 March 2021 a further 40,000 ZDP shares were
acquired at 131.0 pence per ZDP share.
HIT Facility
As announced on 4 December 2020 the HIT credit facility was
increased to GBP75m from GBP45m and the term was extended to 28
January 2025. At 31 December 2020 the total drawn was GBP45.0m (31
December 2019: GBP44.3m).
Review of Income Statement
Revenue
Group revenue for 2020 was GBP10.9m compared to GBP13.1m in
2019, a reduction of 17%. Within this balance we have seen a
continued increase in revenue from the HIT facility which increased
by 25% over the year. The core Sancus operations being Offshore, UK
and Ireland saw their overall revenue decrease by 24% on last
year.
The UK and Ireland asset backed lending businesses are our
primary focus going forward. The UK office only became fully
operational in April 2019 and although growth plans were
constrained in 2020 due to Covid-19, the UK saw the largest new
loans written in the year. Ireland, which was set up in 2018 has
also shown positive growth signs even though there were strict lock
down measures in that jurisdiction.
Total Cost of Sales
Total cost of sales which includes interest and other direct
costs has increased in the year from GBP5.1m in 2019 to GBP6.1m in
2020. This increase is predominantly through the increased
utilisation of the HIT Facility (GBP3.8m in the year to December
2020 vs GBP3.0m for the comparative period). In addition, finance
costs relating to the ZDPs have edged up slightly as the interest
rate increased from 5.5% to 8% on their extension to December 2020.
Broker costs decreased, reflecting lower levels of loan
origination.
To measure business unit performance, finance costs are
allocated to Sancus BMS to recognise its use of the Group's debt
facilities in its lending activities. FinTech Ventures is treated
as being funded by equity. This allocation best matches the risk
profile of each business unit with its capital structure, as well
as recognising that interest costs are effectively serviced by
interest income from Sancus BMS.
Operating expenses
We continue to manage costs carefully across the Group and have
seen total operating expenses reduce again this year by GBP1.4m to
GBP5.6m for the full year 2020, representing a 20% reduction on
2019. Savings relate predominantly to employment costs whereby we
have seen headcount reduce by 25% from 33 at the end of 2019 to 25
heads at the end of 2020. We also brought in some cost saving
initiatives following Covid-19 during 2020 with a pension holiday
for all staff from 1 July 2020 (which has continued into Q1 2021)
and Directors fees were reduced by 10% in the third quarter of
2020. Office costs were also reduced wherever possible and as part
of a continued focus on cost savings for 2021 we will keep this
under review. Over the last three years we have reduced operating
costs by GBP3.5m (39%) from GBP9.1m in 2017 to GBP5.6m in 2020.
IFRS 9
During 2020 we have seen Covid-19 affect the expected credit
losses on our loan portfolio and we have had a movement in expected
credit losses (IFRS 9) of GBP4.7m (GBP1.2m against the loan book,
GBP1.6m against guarantees and GBP1.9m against receivables) in the
year (2019: GBP1.3m against the loan book, GBP0.3m against
receivables) following the methodology as set out in Note 23, which
applies an expected credit loss model. The movement in the year has
increased on previous years as we have factored in the potential
impact of Covid-19 on the probability of default and future loss
given defaults. We also take into account subjective judgement by
the Board which is based on current information available at the
time. With our total loan book of GBP201 million (this includes BMS
and IOM loans) the total provision balance of GBP7.9m represents
3.9% of the loan book. The adjustments made take into account our
first loss positions in HIT and SLN5 as well as our on-balance
sheet exposure.
Other net losses
We have reported a GBP3.0m other net loss in the year (2019:
loss GBP1.6m). A large part of this balance (GBP1.8m) relates to
the impairment to the carrying value of assets down from
acquisition value plus accumulated earnings in Sancus IOM Holdings
Limited. In the half year report, the Directors took a conservative
view and decided, in the light of Covid-19 and lack of deals being
closed in the first half of 2020, it would seem appropriate to
eliminate the implied goodwill. This investment is now being valued
at our share of the net assets of Sancus IOM Holdings Limited with
no uplift for implied goodwill. This entity is in the process of
being wound down and our share of the net assets of IOM (29.3%)
will be returned to the Group over the course of 2021.
Of the remainder, GBP1.0m relates to Sancus Properties Limited
whereby in light of Covid-19 we have reduced the holding value of
this portfolio.
FinTech Ventures
As disclosed in our interim report we wrote down GBP4.2m against
the FinTech Ventures Portfolio and in the second half of the year
we have written down a further GBP1.8m taking the portfolio
valuation to nil. This reflects the continued challenges we have
seen the platforms facing during the pandemic. We are however
hopeful that a couple of the platforms will surprise to the
upside.
Review of the Statement of Financial Position
The Group's net assets have decreased in the year by GBP10.9m to
GBP29.5m. The majority of this movement is due to the GBP6.0m write
down on the FinTech Ventures portfolio, which is now valued at nil,
and IFRS 9 loan impairment adjustments and incurred losses on
financial assets of GBP4.7m.
The Group's liabilities are GBP73.4m (2019: GBP73.6m). With the
debt restructuring at the end of 2020 and the two year extension to
the ZDP maturity date, the Group's current liabilities have reduced
significantly from GBP18.8m in 2019 to GBP3.5m at the end of
2020.
Goodwill
Goodwill remains at GBP22.9m, which relates to t he carrying
amount of goodwill arising on the acquisition of Sancus Jersey and
Sancus Gibraltar. This is assessed by the Board for impairment on
an annual basis or sooner if there has been any indication of
impairment. With the onset of the Covid-19 pandemic in March 2020,
management decided to bring forward the impairment test date to 30
June so that in future periods the annual assessment will be
performed during the preparation of its interim accounts and
calibrated to this key event when assessing performance of the cash
generating units. As a result, the Board carried out a full
impairment review of the carrying amount of goodwill as reported in
the interim accounts. The resultant value in use calculation
indicated that no impairment of goodwill was required in either
Sancus Jersey or Sancus Gibraltar. As described in Note 3, the
timing of a return to 'normal' levels of loan origination is a key
source of estimation uncertainty within these calculations.
Following on from this review the Board have considered whether
there have been any further indicative events of impairment since
June 2020. The Board are cognisant that the pandemic is ongoing as
these financial statements are being written. However, they do not
see this as a further event, more as a continuation of the event
that arose in March 2020. Further details can be found in Notes 2
(h), Note 3 and Note 12.
Sancus BMS on-Balance Sheet Loans and loan equivalents (Table
2)
On-balance sheet loan and loan equivalents have decreased in the
period from GBP64.2m at 31 December 2019 to GBP53.6m at the end of
December 2020. In the table below, we have split out the loan book
held by Sancus Loans Limited ("SLL") which although is consolidated
in our accounts, is not our own equity, except for the GBP5m first
loss. Excluding SLL, the on balance sheet loan book has decreased
from GBP18.3m at 31 December 2019 to GBP8.4m at the end of 2020.
This is from a combination of running down our on balance sheet
loan exposure, and also an increase in the IFRS 9 provision in the
year. As previously noted, the disinvestment from SME lending is
allowing asset utilisation to improve, which will drive an
improvement in ROTA and shareholder value over time. As we have
also seen from our loan book funding, our access to capital has
also improved allowing funding of asset backed secured loans from
other sources such as the HIT facility, SLNs, a US fund under a
forward flow arrangement and Co-Funders.
GBP'000 31 December 31 December
2020 2019
Jersey 5,111 8,434
------------ ------------
Gibraltar 1,753 3,274
------------ ------------
Guernsey 188 1,074
------------ ------------
BMS - Investment in the fund and other loans 4,643 8,273
------------ ------------
Sancus UK 46 91
------------ ------------
Ireland 111 100
------------ ------------
IFRS 9 Provision (3,409) (2,868)
------------ ------------
Sancus BMS on-Balance Sheet Loans and loan
equivalents (ex SLL) 8,443 18,378
------------ ------------
SLL 45,579 45,885
------------ ------------
SLL - IFRS 9 provision (790) -
------------ ------------
Sancus BMS on-balance sheet loans and loan
equivalents including SLL 53,232 64,263
------------ ------------
Investments in joint ventures and associates
This balance relates to our 29.3% holding in Sancus IOM Holdings
Limited. This has reduced from GBP2.7m in December 2019 to GBP0.9m
at the end of 2020. The reduction in the year is predominantly due
to the expected credit losses management have applied to the net
assets of Sancus IOM Holdings Limited taking a cautious approach to
recoverability of some of these loans following the challenges seen
with Covid-19. In addition, the decision has been taken by the
shareholders of Sancus IOM Holdings Limited to wind down this
entity. Sancus has agreed to a GBP0.5m closure fee. The expectation
is as the Isle of Man loan book runs down over 2021 a cash return
will be made to the IOM shareholders.
Other assets
This balance of GBP1m (2019: GBP3.3m) relates to the portfolio
of assets held by Sancus Properties Limited. During the first half
of 2020 we completed the sale of a large block of apartments which
was sold for GBP1.6m cash (net of sale costs) reducing the assets
now held in this entity to a large plot of land and a property
being developed into three apartments which we expect will be
sold/complete for sale by the end of 2021.
FinTech Ventures
Following the write downs in the year the fair value of this
portfolio at 31 December 2020 is valued at GBPnil (31 December
2019: GBP6.3m). The Group still holds an equity stake in seven
platforms and has debt mainly in the form of convertible loan notes
where we retain the potential upside from being able to convert on
favourable terms should the platforms deliver a successful
opportunity for us to exit.
As previously stated, the Board does not consider FinTech
Ventures to be a core part of GLI's future. The Board is therefore
working to realise investments where we can and preserve and defend
value where necessary. During the year we sold our equity stake in
two of the platforms and received a small part payment of an
outstanding debt. This amounted to GBP0.4m. Post year-end GBP0.5m
was redeployed in an existing investment where the particular
circumstances were entirely binary, that on balance, the Board
believed the risk reward was in GLI's shareholders interest.
The valuation methodology employed by the Group is unchanged and
remains compliant with IFRS 13, based on a fair value approach and
taking into account the International Private Equity and Venture
Capital Valuation Guidelines ("IPEV"), which provides guidance on
fair value valuation practices.
Trade and Other receivables
The balance of GBP8.2m (31 December 2019: GBP5.9m) represents
fees and interest receivable on loans as well as a small amount of
prepayments. This balance has increased by GBP2.3m in the year with
GBP1.5m of this from interest receivable within SLL. We have also
seen an increase in loan interest receivables as the majority of
loans are on a rolled-up basis and over the course of the year we
have seen requests for loan extensions. As part of the expected
credit loss review, management have taken a view on the recovery of
these fees and interest, and applied a GBP2.2m provision against
these.
Cash and cash equivalents
The cash and cash equivalents balance of GBP15.8m (2019:
GBP7.2m) includes the cash balance held within SLL which is
excluded from operational cash. Excluding the SLL cash balance, the
Group cash was GBP11.3m at 31 December 2020 (2019: GBP3.2m). The
cash position of the Group has greatly improved following the
successful equity raise and debt restructuring in December
2020.
As announced on 26 February 2021, it is the Group's intention to
conduct a tender offer for approximately 25% of the Company's ZDPs
in April 2021 which would equate to a circa GBP3.2m cash
requirement. This will still leave the Group with sufficient
liquidity to operate the Group and allow it to focus on its growth
plans without cash constraints.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes 2020 2019
GBP'000 GBP'000
Revenue 5 10,861 13,140
Cost of sales 6 (6,118) (5,126)
Gross profit 4,743 8,014
Operating expenses 7 (5,582) (6,953)
Operating (loss)/profit before credit losses (839) 1,061
Changes in expected credit losses 23 (4,665) (1,524)
Incurred losses on financial assets - (116)
Operating Loss (5,504) (579)
FinTech Ventures fair value movement 23 (5,996) (7,493)
Other net losses 8 (3,032) (1,616)
Loss for the year before tax (14,532) (9,688)
Income tax credit/(expense) 18 15 (232)
Loss for the year after tax (14,517) (9,920)
-------- --------
Items that may be reclassified subsequently to profit and loss
Foreign exchange (loss)/gain arising on
consolidation (23) 21
-------- --------
Other comprehensive (loss)/income for the
year after tax (23) 21
-------- --------
Total comprehensive loss for the year (14,540) (9,899)
======== ========
Loss for the year after tax attributable to equity
holders of the company (14,517) (9,920)
======== ========
Total comprehensive loss attributable to equity
holders of the company (14,540) (9,899)
======== ========
Basic Loss per Ordinary Share 10 (4.60)p (3.26)p
Diluted Loss per Ordinary Share 10 (4.19)p (3.26)p
-------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 31 December
2020 2019
ASSETS Notes GBP'000 GBP'000
Non-current assets
Fixed assets 11 774 1,018
Goodwill 12 22,894 22,894
Other intangible assets 13 168 334
Sancus BMS loans and loan equivalents 23 3,863 8,950
FinTech Ventures investments 23 - 6,299
Investments in joint ventures and associates 9 866 2,703
----------- -----------
Total non-current assets 28,565 42,198
----------- -----------
Current assets
Other assets 14 1,015 3,336
Sancus BMS loans and loan equivalents 23 49,369 55,313
Trade and other receivables 15 8,204 5,909
Cash and cash equivalents 15,786 7,244
----------- -----------
Total current assets 74,374 71,802
----------- -----------
Total assets 102,939 114,000
----------- -----------
EQUITY
Share premium 16 116,218 112,557
Treasury shares 16 (1,099) (1,099)
Other reserves (85,625) (71,085)
----------- -----------
Capital and reserves attributable to
equity holders of the Group 29,494 40,373
----------- -----------
Total equity 29,494 40,373
----------- -----------
LIABILITIES
Non-current liabilities
Borrowings 69,450 54,191
Provisions 469 679
----------- -----------
Total non-current liabilities 17 69,919 54,870
----------- -----------
Current liabilities
Trade and other payables 1,638 1,495
Tax liabilities 118 221
Borrowings - 16,825
Provisions 1,542 -
Other liabilities 228 216
----------- -----------
Total current liabilities 17 3,526 18,757
----------- -----------
Total liabilities 73,445 73,627
----------- -----------
Total equity and liabilities 102,939 114,000
=========== ===========
The financial statements were approved by the Board of Directors
on 30 March 2021 and were signed on its behalf by:
Director: Patrick Firth Director: John Whittle
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Note Share Premium Treasury Warrants Foreign Retained Capital and
Shares Outstanding Exchange Earnings/ reserves
Reserve (Losses) attributable
to
equity holders
of
the Company
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2020 112,557 (1,099) - 22 (71,107) 40,373
Warrants issued during
the year 16 - - 847 - (847) -
Equity raised (net of
costs) 16 3,661 - - - - 3,661
Transactions with owners 3,661 - 847 - (847) 3,661
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Total comprehensive loss
for
the year - - - (23) (14,517) (14,540)
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Balance at 31 December
2020 116,218 (1,099) 847 (1) (86,471) 29,494
========================== ===== ============== ========= ============= ========== =========== ================
Balance at 31 December
2018 112,557 (1,162) - 1 (61,169) 50,227
Adjustments in respect of
IFRS
16 - - - - (18) (18)
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Restated at 1 January
2019 112,557 (1,162) - 1 (61,187) 50,209
Transferred to/from
management 16 - 63 - - - 63
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Transactions with owners - 63 - - - 63
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Total comprehensive loss
for
the year - - - 21 (9,920) (9,899)
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Balance at 31 December
2019 112,557 (1,099) - 22 (71,107) 40,373
========================== ===== ============== ========= ============= ========== =========== ================
CONSOLIDATED STATEMENT OF CASH FLOWS
31 December 31 December
2020 2019
Notes GBP'000 GBP'000
Cash flow from operations, excluding
loan movements 19 (3,837) 535(1)
Decrease in Sancus BMS loans 5,060 946
Decrease in loans through platforms 18 846
Decrease/(Increase) in Sancus Loans
Limited loans 472 (20,380)
Decrease in loans to UK SARL 3,581 1,795
Divestment of Sancus Loan Notes - 3,311
----------- -----------
Net Cash flows used in operating activities 5,294 (12,947)
----------- -----------
Investing activities
Net investments in FinTech Ventures 277 89
Divestment in Sancus (IOM) preference
shares - 950
Divestment in Irish SARL - 83
Investment in joint venture (100) -
Cash outflow on disposal of BMS Finance
AB Limited (215) -
Expenditure on SPL Properties (229) (720)
Sale of SPL Properties 1,597 929
Property, equipment and other intangibles
acquired (29) (181)
----------- -----------
Net cash inflow from investing activities 1,301 1,150
----------- -----------
Financing activities
Drawdown of HIT facility 19 4,187 23,395
Repayment of HIT facility 19 (3,500) (2,000)
Purchase of own shares 16 - (336)
Capital element of lease payments 19 (216) (190)
Proceeds from equity issued 3,681 -
Repayment of bonds 19 (6,125) -
Issue of bonds 19 8,700 -
Debt issue costs (314) (80)
Repayment of ZDPs 19 (4,443) (7,632)
----------- -----------
Net cash generated by financing activities 1,970 13,157
----------- -----------
Effects of exchange (23) 21
Net increase in cash and cash equivalents 8,542 1,381
Cash and cash equivalents at beginning
of year 7,244 5,863
Cash and cash equivalents at end of
year 15,786 7,244
=========== ===========
(1) Cash flow from operations excludes the effects of exchange
which are now presented as a separate line on the cash flow
statement.
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
GLI Finance Limited (the "Company"), and together with its
subsidiaries, ("the Group") was incorporated, and domiciled in
Guernsey, Channel Islands, as a company limited by shares and with
limited liability, on 9 June 2005 in accordance with The Companies
(Guernsey) Law, 1994 (since superseded by The Companies (Guernsey)
Law, 2008). Until 25 March 2015, the Company was an Authorised
Closed-ended Investment Scheme and was subject to the Authorised
Closed-ended Investment Scheme Rules 2008 issued by the Guernsey
Financial Services Commission ("GFSC"). On 25 March 2015, the
Company was registered with the GFSC as a Non-Regulated Financial
Services Business, at which point the Company's authorised fund
status was revoked. The Company's Ordinary Shares were admitted to
trading on the AIM market of the London Stock Exchange on 5 August
2005 and its issued ZDPs were listed and traded on the Standard
listing Segment of the main market of the London Stock Exchange
with effect from 5 October 2015.
The Company does not have a fixed life and the Articles do not
contain any trigger events for a voluntary liquidation of the
Company. The Company is an operating company for the purpose of the
AIM rules. The Executive Team is responsible for the management of
the Company.
As at 31 December 2020, the Group comprises the Company and its
subsidiaries (please refer to Note 20 for full details of the
Company's subsidiaries).
The Company has taken advantage of the exemption conferred by
the Companies (Guernsey) Law, 2008, Section 244, not to prepare
company only financial statements.
2. ACCOUNTING POLICIES
(a) Basis of preparation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS"), as adopted by the European Union ("EU"), and all
applicable requirements of Guernsey Company Law. The financial
statements have been prepared under the historical cost convention,
as modified for the measurement of investment at fair value through
profit or loss. With the exception of any new and amended
accounting standards which require policy changes, detailed in note
2 (v), the principal accounting policies of the Group have remained
unchanged from the previous year and are set out below. Comparative
information in the primary statements is given for the year ended
31 December 2019.
The Group does not operate in an industry where significant or
cyclical variations, as a result of seasonal activity, are
experienced during any particular financial period.
Going Concern
The Board has assessed the Group's financial position as at 31
December 2020 and the factors that may impact its performance for
at least the 12 months following approval of the financial
statements. This included cashflow stress testing for a prolonged
period of reduced trading/revenue and delays to loan repayments as
a result of Covid-19. The Board has also considered the unfunded
commitments as described in Note 26 where the expectation is the
majority of these commitments will be filled by Co-Funders,
consistent with historical levels of participation. After
considering the maturity profile of the debt structure of the Group
and projected cash flows which has improved significantly following
the successful equity raise and debt restructuring at the end of
2020, with the operational cash balance at 31 December 2020 of
GBP11.3m, the Directors are of the opinion that it is appropriate
to prepare these financial statements on a going concern basis.
(b) Basis of consolidation
The financial statements comprise the results of GLI Finance
Limited and its subsidiaries for the year ended 31 December 2020.
The subsidiaries are all entities where the Company has the power
to control the investee, is exposed, or has rights to variable
returns and has the ability to use its power to affect these
returns. Subsidiaries are fully consolidated from the date on which
control is transferred to the Company. They are deconsolidated from
the date that control ceases. Profit or loss and other
comprehensive income of subsidiaries acquired or disposed of during
the year is recognised from the effective date of acquisition, or
up to the effective date of disposal, as applicable. Intercompany
transactions, balances and unrealised gains on transactions between
Group companies are eliminated in full on consolidation.
(c) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held on
call with banks and other short term highly liquid investments that
are readily convertible into known amounts of cash and which are
subject to an insignificant risk of changes in value.
(d) Dividends
Dividend distributions are made at the discretion of the
Company. A dividend distribution to shareholders is accounted for
as a reduction in retained earnings. A proposed dividend is
recognised as a liability in the period in which it has been
approved and declared by the Directors.
(e) Expenditure
All expenses are accounted for on an accrual basis. Management
fees, administration fees, finance costs and all other expenses
(excluding share issue expenses which are offset against share
premium) are charged through the Consolidated Statement of
Comprehensive Income.
(f) Financial assets and liabilities
Classifica tion, recognition and initial measurement
Classification and measurement of debt assets is driven by the
business model for managing the financial assets and the
contractual cash flow characteristics of those financial assets.
There are three principal classification categories for financial
assets that are debt instruments: (i) amortised cost, (ii) fair
value through other comprehensive income and (iii) fair value
through profit and loss. Equity investments in the scope of IFRS 9
are measured at fair value with gains and losses recognised in
profit and loss unless an irrevocable election is made to recognise
gains or losses in other comprehensive income.
Given we are a lending business, which participates in financing
to borrowers, Sancus BMS loans, HIT loans, BMS fund investments,
loan equivalents and loans through platforms are held solely for
the collection of contractual cash flows, being interest, fees and
payment of principal. These assets are held at amortised cost using
the effective interest rate method, adjusted for any credit loss
allowance.
FinTech Ventures investments relate to equity, preference shares
and some working capital loans. Whilst some of these investments
attract interest, the assets are held primarily to assist the
development of the entities involved. These investments are held at
fair value with charges recognised in profit and loss.
Trade payables, financial liabilities and trade receivables are
held solely for the collection and payment of contractual cash
flows, being payments of principal and interest where applicable.
Trade receivables are held at amortised cost using the effective
interest rate method, adjusted for any credit loss allowance. Trade
payables and financial liabilities are held at amortised cost with
any interest cost calculated in accordance with the effective
interest rate.
Financial assets and financial liabilities are initially
recognised on the trade date, which is the date on which the Group
becomes party to the contractual provisions of the instrument.
Financial assets and financial liabilities at fair value through
profit or loss are initially recognised at fair value, with
transaction costs recognised in the Consolidated Statement of
Comprehensive Income. Financial assets and financial liabilities
not at fair value through profit or loss are initially recognised
at fair value plus transaction costs that are directly attributable
to their acquisition or issue.
Subsequent to initial recognition, financial assets are either
measured at fair value or amortised cost as noted above. Realised
gains and losses arising on the derecognition of financial assets
and liabilities are recognised in the period in which they arise.
The effect of discounting on trade and other receivables is not
considered to be material.
Fair value measurement
"Fair value" is the price that would be received to sell an
asset or be paid to transfer a liability in an orderly transaction
between market participants at the measurement date in the
principal or, in its absence, the most advantageous market to which
the Group has access at that date. The fair value of a liability
reflects its non-performance risk.
When available, the Group measures the fair value of an
instrument using quoted price in an active market for that
instrument. A market is regarded as "active" if transactions of the
asset or liability take place with sufficient frequency and volume
to provide pricing information on an on-going basis. The Group
measures financial instruments quoted in an active market at a mid
price.
If there is no quoted price in an active market, the Group uses
valuation techniques that maximise the use of relevant observable
inputs and minimise the use of unobservable inputs. The chosen
valuation technique incorporates all of the factors that market
participants would take into account in pricing a transaction.
Please refer to Note 23.
The Group recognises transfers between levels of the fair value
hierarchy as at the end of the reporting period during which the
change has occurred.
If in the case of any investment the Directors at any time
consider that the above basis of valuation is inappropriate or that
the value determined in accordance with the foregoing principles is
unfair, they are entitled to substitute what in their opinion, is a
fair value.
Gains and losses arising from changes in the fair value of the
financial assets and liabilities at fair value through profit or
loss are included in the Consolidated Statement of Comprehensive
Income in the period in which they arise.
Debt and Equity Instruments
Debt and equity instruments issued by a group entity are
classified as either financial liabilities or as equity in
accordance with the substance of the contractual arrangements and
the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities.
Equity instruments are recorded at the proceeds received less
any direct costs of issue.
Derecognition
Sales of all financial assets are recognised on trade date - the
date on which the Group disposes of the economic benefits of the
asset. Financial assets are derecognised when the rights to receive
cash flows from the asset have expired or the Group has transferred
substantially all risks and rewards of ownership.
On derecognition of a financial asset, the difference between
the carrying amount of the asset (or the carrying amount allocated
to the portion of the asset derecognised) and the consideration
received (including any new asset obtained less any new liability
assumed) is recognised in the Consolidated Statement of
Comprehensive Income. Any interest in such transferred financial
assets that is created or retained by the Company is recognised as
a separate asset or liability.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
Derivative financial instruments
The Group enters into foreign exchange forward contracts in
order to manage its exposure to foreign exchange rate movements.
Further details can be found in Note 23.
Forward contracts are initially recognised at fair value at the
date the contract is entered into and are subsequently remeasured
to their fair value at each balance sheet date. Resulting
gains/losses are recognised in profit or loss immediately. Forward
contracts with positive fair value are recognised as financial
assets whereas forward contracts with negative fair value are
recognised as financial liabilities. Contracts are presented as
non-current assets or liabilities if the remaining maturity of the
instrument is more than 12 months and is not expected to be settled
within 12 months. Other contracts are presented as current
assets.
Expected credit losses
Credit risk is assessed at initial recognition of each financial
asset and subsequently re-assessed at each reporting period-end.
For each category of Credit risk loans have been categorized into
Stage 1, Stage 2 and Stage 3 with Stage 1 being to recognise 12
month Expected Credit Losses (ECL), Stage 2 being to recognise
Lifetime ECL not credit impaired and Stage 3 being to recognise
Lifetime ECL credit impaired. When for example LTV exceeds 65% or
amounts become 30 days past due judgement will be used to reassess
whether Credit risk has increased significantly enough to move the
loan from one stage to another. A loan is considered to be in
default when there is a failure to meet the legal obligation of the
loan agreement. This would include provisions against loans that
are considered by management as unlikely to pay their obligations
in full without realisation of collateral.
Sancus BMS loans and loan equivalents are assessed for credit
risk based on information available at initial recognition,
predominantly (but not solely) using Loan to Value (LTV). With
respect to the loan to the UK SARL there is no direct exposure to
individual loans. As a result this loan has been assessed for
credit risk based upon the Net Asset Value (NAV) of the SARL, and
its ability to repay the loan. For trade and other receivables, the
Group has applied the simplified approach to recognise lifetime
expected credit losses although loan interest receivable is
included in the gross carrying value when determining ECL.
Provision for ECL is calculated using the credit risk, the
probability of default and the probability of loss given default,
all underpinned by the LTV, historical position, forward looking
considerations and on occasion subsequent events, and the
subjective judgement of the Board. ECL assumes the life of the loan
is consistent with contractual term.
Financial guarantee contracts
Financial guarantee contracts are only recognised as a financial
liability when it becomes probable that the guarantee will be
called upon in the future. The liability is measured at fair value
and subsequently in accordance with the expected credit loss model
under IFRS 9. The fair value of financial guarantees is determined
based on the present value of the difference in cash flows between
contracted payments required under the debt instrument and the
payments that would be required without the guarantee, or the
estimated amount that would be payable to a third party for
assuming the obligations.
(g) Foreign currency translation
Functional and presentation currency
The financial statements of the Group are presented in the
currency of the primary economic environment in which the Company
operates (its functional currency). The Directors have considered
the primary economic currency of the Company and considered the
currency in which finance is raised, distributions made, and
ultimately what currency would be returned if the Company was wound
up. The Directors have also considered the currency to which the
underlying investments are exposed. On balance, the Directors
believe Sterling best represents the functional currency of the
Company. Therefore, the books and records are maintained in
Sterling and for the purpose of the financial statements, the
results and financial position of the Group are presented in
Sterling, which is also the presentation currency of the Group.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the Consolidated Statement
of Comprehensive Income. Non-monetary items measured at historical
cost are translated using the exchange rates at the date of the
transaction (not retranslated). Non-monetary items measured at fair
value are translated using the exchange rates at the date when fair
value was determined.
All subsidiaries are presented in Sterling, which is the primary
currency in which they operate with the exception of Sancus BMS
(Ireland) Limited whose primary currency is the Euro. Translation
differences on non-monetary items are reported as part of the fair
value gain or loss reported in the Consolidated Statement of
Comprehensive Income.
Foreign exchange differences arising on consolidation of the
Group's foreign operations are taken direct to reserves. The rates
of exchange as at the year-end are GBP1: USD1.3664 (31 December
2019 USD1.3259) and GBP1: EUR1.1202 (31 December 2019
EUR1.1815)
(h) Goodwill
Goodwill represents the future economic benefits arising from a
business combination that are not individually identified and
separately recognised. Goodwill is measured as the excess of (a)
the aggregate of: (i) the consideration transferred measured in
accordance with IFRS 3, which generally requires acquisition-date
fair value; (ii) the amount of any non-controlling interest in the
acquiree measured in accordance with IFRS 3; and (iii) in a
business combination achieved in stages, the acquisition-date fair
value of the acquirer's previously held equity interest in the
acquiree; over (b) the net of the acquisition-date amounts of the
identifiable assets acquired and the liabilities assumed measured
in accordance with IFRS 3. Goodwill is carried at cost less
accumulated impairment losses. Refer to Note 2 (k) for a
description of impairment testing procedures.
(i) Interest costs
Interest costs are recognised when economic benefits are due to
debt holders. Interest costs are accrued on a time basis, by
reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts
estimated future cash payments through the expected life of the
financial liability to the liability's net carrying amount on
initial recognition.
(j) Other intangible assets
Intangible assets with finite useful lives are amortised to
profit or loss on a straight-line basis over their estimated useful
lives. Useful lives and amortisation methods are reviewed at the
end of each annual reporting period, or more frequently when there
is an indication that the intangible asset may be impaired, with
the effect of any changes accounted for on a prospective basis.
Amortisation commences when the intangible asset is available for
use. The residual value of intangible assets is assumed to be
zero.
Computer software
Costs associated with maintaining computer software programmes
are recognised as an expense as incurred. Development costs that
are directly attributable to the design and testing of identifiable
and unique software products controlled by the Company are
recognised as intangible assets when the following criteria are
met:
-- it is technically feasible to complete the software product
so that it will be available of use;
-- management intends to complete the software product and use or sell it;
-- there is an ability to use or sell the software product;
-- it can be demonstrated how the software product will generate
probable future economic benefits;
-- adequate technical, financial and other resources to complete
the development and to use or sell the software product are
available; and
-- the expenditure attributable to the software product during
its development can be reliably measured.
Directly attributable costs that are capitalised as part of the
software product include the software development employee costs
and third party contractor costs. Other development expenditures
that do not meet these criteria are recognised as an expense as
incurred. Development costs previously recognised as an expense are
not recognised as an asset in a subsequent period. Capitalised
development costs are recorded as intangible assets and amortised
from the point at which the asset is ready for use over their
estimated useful lives, which does not exceed four years.
(k) Impairment testing of goodwill, intangible assets and property and equipment
An impairment loss is recognised for the amount by which the
asset's or cash-generating unit's carrying amount exceeds its
recoverable amount, which is the higher of fair value less costs of
disposal and value-in-use. To determine the value-in-use,
management estimates expected future cash flows from each
cash-generating unit and determines a suitable discount rate in
order to calculate the present value of those cash flows. The data
used for impairment testing procedures are directly linked to the
Group's latest approved budget, adjusted as necessary to exclude
the effects of future reorganisations and asset enhancements.
Discount factors are determined individually for each
cash-generating unit and reflect management's assessment of
respective risk profiles, such as market and asset-specific risk
factors.
Impairment losses for cash-generating units reduce first the
carrying amount of any goodwill allocated to that cash-generating
unit. Any remaining impairment loss is charged pro rata to the
other assets in the cash-generating unit. With the exception of
goodwill, all assets are subsequently reassessed for indications
that an impairment loss previously recognised may no longer exist.
An impairment loss is reversed if the asset's or cash-generating
unit's recoverable amount exceeds its carrying amount.
All impairments or subsequent reversals of impairments are
recognised in the Consolidated Statement of Comprehensive
Income.
(l) Investment in Joint Venture and associates
A joint venture is a joint arrangement over which the Group has
joint control. An associate is an entity over which the Group has
significant influence but is not a subsidiary.
An investment in a joint venture or associate is accounted for
by the Group using the equity method except for certain FinTech
Ventures associates as described in Note 3. These are measured at
fair value through profit or loss in accordance with policy Note 2
(f).
Any goodwill or fair value adjustment attributable to the
Group's share in the joint venture or associate is not recognised
separately and is included in the amount recognised as an
investment.
The carrying amount of the investment in a joint venture or
associate is increased or decreased to recognise the Group's share
of the profit or loss and other comprehensive income of the joint
venture or associate and adjusted where necessary to ensure
consistency with the accounting policies of the Group.
Unrealised gains and losses on transactions between the Group
and its joint venture or associate are eliminated to the extent of
the Group's interest in the entity. Where unrealised losses are
eliminated, the underlying asset is also tested for impairment.
(m) Non-Current Liabilities
Loans payable are recognised initially at fair value less
directly attributable transaction costs. Subsequent to initial
recognition, loans payable are stated at amortised cost using the
effective interest rate method.
The ZDPs are contractually required to be redeemed on their
maturity date and they will be settled in cash, thus, ZDP shares
are classified as liabilities (refer to Note 17) in accordance with
IAS 32 Financial Instruments: Presentation. After initial
recognition, these liabilities are measured at amortised cost,
which represents the initial proceeds of the issuance plus the
accrued entitlement to the reporting date. Any ZDPs acquired by the
group, as noted in Note 17, are held in Treasury and shown as a
reduction in carrying value.
(n) Property and equipment
Tangible fixed assets include computer equipment, furniture and
fittings stated at cost less accumulated depreciation. Depreciation
is provided at rates calculated to write off the cost of tangible
property and computer equipment on a straight-line basis over its
expected useful economic life as follows:
Furniture and fittings 3 to 5 years
Computer equipment 2 to 4 years
(o) Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for
services provided in the normal course of business, net of
discounts, VAT and other sales-related taxes where applicable in
the Group. Revenue is reduced for estimated rebates and other
similar allowances. The Group has five principal sources of revenue
and related accounting policies are outlined below:
Interest on loans
Interest income is recognised in accordance with IFRS 9.
Interest income is accrued over the contractual life of the loan,
by reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the
financial asset to that asset's net carrying amount on initial
recognition.
Dividend income
Dividend income from investments is recognised when the
shareholders' rights to receive payment have been established
(provided that it is probable that the economic benefits will flow
to the Group and the amount of revenue can be measured
reliably).
Fee income on syndicated and non-syndicated loans
In accordance with the guidance in IFRS 15 Revenue, the Group
distinguishes between fees that are an integral part of the
effective interest rate of a financial instrument, fees that are
earned as services are provided, and fees that are earned on the
execution of a significant act.
i) Commitment and arrangement fees
Commitment and arrangement fees earned for syndicated loans are
recognised on origination of the loan as compensation for the
service of syndication. This is a reflection of the commercial
reality of the operations of the business to arrange and administer
loans for other parties i.e. the execution of a significant act and
satisfying the Group's performance obligation at the point of
arranging the loan.
Consistent with the policy outlined above, commitment and
arrangement fees earned on loans originated for the sole benefit of
the Group are also recorded in revenue on completion of the service
of analysing or originating the loan. Whilst this is not in
accordance with the requirements of the effective interest rate
method outlined in IFRS 9 Financial Instruments, this is not
considered to have a material impact on the financial performance
or financial position of the Group.
ii) Exit fees
Where a loan is syndicated and has standard terms the exit fee
is recognised as part of the arrangement fee, reflecting the costs
of syndication at the start of the loan. Where a loan is syndicated
and has milestones or conditions which determine if the fee becomes
payable and/or the magnitude of the fee the exit fee is treated as
variable consideration in line with IFRS 15 and is only recognised
when the relevant milestones/conditions are met. Where loans are
not syndicated the exit fee is deemed to be part of the effective
interest rate and recognised over the term of the loan.
Fee income earned by peer-to-peer subsidiary platforms
Fee income earned by subsidiaries whose principal business is to
operate online lending platforms that arrange financing between Co-
Funders and Borrowers includes arrangement fees, trading
transaction fees, repayment fees and other lender related fees.
Revenue earned from the arrangement of financing is classified as a
transaction fee and is recognised immediately upon acceptance of
the arrangement by borrowers. Other transaction fees, including
revenue from Co- Funders in relation to the sale of their loan
participations in platform secondary markets is also recognised
immediately.
Loan repayment fees are charged on a straight-line basis over
the repayments of the borrower's financing arrangement.
Advisory fees
Advisory fee income is invoiced and recognised on an accruals
basis in accordance with the relevant investment advisory
agreement.
(p) Share based payments
As explained in the Remuneration Report, the Company provides a
discretionary bonus, part of which is satisfied through the
issuance of the Company's own shares, to certain senior management.
The cost of such bonuses is taken to the Consolidated Statement of
Comprehensive Income with a corresponding credit to Shareholders'
Equity. The fair value of any share options granted is determined
at the grant date and the expense is spread over the vesting period
in accordance with IFRS 2.
(q) Taxation
Current tax, including corporation tax in relevant jurisdictions
that the Group operates in, is provided at amounts expected to be
paid (or recovered) using the tax rates and laws that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences
that have originated but not reversed at the balance sheet date
where transactions or events that result in an obligation to pay
more tax in the future or a right to pay less tax in the future
have occurred at the balance sheet date. Timing differences are
differences between the Group's taxable profits, and its results as
stated in the financial statements, that arise from the inclusion
of gains and losses in tax assessments in periods different from
those in which they are recognised in the financial statements.
(r) Treasury shares
Where the Company purchases its own Share Capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from Share Premium.
When such shares are subsequently sold or reissued to the
market, any consideration received, net of any directly
attributable incremental transaction costs, is recognised as an
increase in Share Premium. Where the Company cancels treasury
shares, no further action is required to the Share Premium account
at the time of cancellation.
(s) Warrants
Warrants are accounted for as either equity or liabilities based
upon the characteristics and provisions of each instrument and are
recorded at fair value as of the date of issuance. In subsequent
periods an amount representing the difference between the warrant
exercise price and the prevailing market price of the company's
shares is transferred from/to retained earnings to/from warrants
outstanding.
(t) Inventories - Development properties
Inventories are stated at the lower of cost and net realisable
value. Cost comprises initial outlay and, where applicable,
additional costs that have been incurred in bringing the
inventories to their present location and condition. Net realisable
value represents the estimated selling price less all estimated
costs of completion and costs to be incurred in marketing and
selling. Repossessed assets are accounted for under IAS 2:
Inventories because the Group will either immediately seek to
dispose of those assets which are readily marketable or pursue the
original development plans to sell for those that are not readily
marketable. Such assets are classed as "Other Assets" within
current assets on the balance sheet.
(u) Leases
The Group assesses whether a contract is or contains a lease, at
inception of the contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less)
and leases of low value assets. For these leases, the Group
recognises the lease payments as an operating expense on a
straight-line basis over the term of the lease unless another
systematic basis is more representative of the time pattern in
which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted by using the incremental borrowing rate.
Lease payments included in the measurement of the lease
liability comprise fixed lease payments (including in-substance
fixed payments) less any lease incentives receivable, variable
lease payments that depend on an index or rate (initially measured
using the index or rate at the commencement date), the amount
expected to be payable by the lessee under residual value
guarantees, the exercise price of purchase options (if the lessee
is reasonably certain to exercise the options) and payments of
penalties for terminating the lease if the lease term reflects the
exercise of an option to terminate the lease.
The lease liability is presented within current and non-current
liabilities in the consolidated statement of financial position. It
is subsequently measured by increasing the carrying amount to
reflect interest on the lease liability ( using the effective
interest method) and by reducing the carrying amount to reflect the
lease payments made. The Group remeasures this liability ( and
makes a corresponding adjustment to the related right-of-use asset
) whenever the lease term has changed or there is a change in the
lease payments used on inception to measure the liability as
described above.
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or before the
commencement day, less any lease incentives received and any
initial direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of
lease term and useful life of the underlying asset. If a lease
transfers ownership of the underlying asset or the cost of the
right-of-use asset reflects that the Group expects to exercise a
purchase option, the related right-of-use asset is depreciated over
the useful life of the underlying asset. The depreciation starts at
the commencement date of the lease.
The Group applies IAS 36 to determine whether a right-of-use
asset is impaired and accounts for any identified impairment loss
as described in the 'Property, Plant and Equipment' policy.
Variable rents that do not depend on an index or rate are not
included in the measurement of the lease liability and the
right-of-use asset. The related payments are recognised as an
expense in the period in which the event or condition that triggers
those payments occurs and are included in 'Operating expenses' in
profit or loss.
(v) Adoption of new and revised Standards
Amendments to IFRSs and IASs that are mandatorily effective for
the current year
In the current year, the Group has applied a number of
amendments to IFRSs and IASs issued by the International Accounting
Standards Board (IASB) that are mandatorily effective for an
accounting period that begins on or after 1 January 2020. These
have been listed below. Their adoption has not had any material
impact on the disclosures or on the amounts reported in these
financial statements.
-- Amendments to References to the Conceptual Framework in IFRS
Standards: Amendments to IFRS 2, 3, 6, 14, IAS 1, 8, 34, 37, 38,
IFRIC 12, 19, 20, 22 and SIC-32
-- Amendments to IFRS 3: Amendments to clarify the definition of a business
-- Amendments to IFRS 7: Amendments regarding pre-replacement
issues in the context of the IBOR reform
-- Amendments to IFRS 9: Amendments regarding pre-replacement
issues in the context of the IBOR reform
-- Amendments to IAS 16: Amendment to provide lessees with an
exemption from assessing whether Covid-19 related rent concession
is a lease modification
-- Amendments to IAS 1: Amendments regarding the definition of material
-- Amendmnets to IAS 8: Amendments regarding the definition of material
-- Amendments to IAS 39: Amendments regarding pre-replacement
issues in the context of the IBOR reform
-- Amendments to IAS 41: Amendments resulting from 'Annual
Improvements to IFRS Standards 2018-2020'
IFRSs, IASs and amendments that are in issue but not yet
effective
At the date of approval of these Consolidated Financial
Statements, the following IFRSs, IASs and amendments, which have
not been applied in these Consolidated Financial Statements and are
not envisaged to have a material impact on the financial statements
when they are applied, were in issue but not yet effective:
-- Amendments to IFRS 1: Amendments resulting from 'Annual
Imrpovements to IFRS Standards 2018-2020'
-- Amendments to IFRS 3: Amendments updating a reference to the 'Conceptual Framework'
-- Amendments to IFRS 4: Amendments regarding the expiry date of the deferral approach
-- Amendments to IFRS 4: Amendments regarding replacement issues
in the context of the IBOR reform
-- Amendments to IFRS 7: Amendments regarding replacement issues
in the context of the IBOR reform
-- Amendments to IFRS 9: Amendments resulting from 'Annual
Improvement to IFRS Standards 2018-2020'
-- Amendments to IFRS 9: Amendments regarding replacement issues
in the context of the IBOR reform
-- Amendments to IFRS 16: Amendments regarding replacement
issues in the context of the IBOR reform
-- IFRS 17: Insurance Contracts
-- Amendments to IFRS 17: Amendments to address concerns and
implementation challenges that were identified after IFRS 17 was
published
-- Amendments to IAS 1: Amendments regarding the classification of liabilities
-- Amendments to IAS 1: Amendments to defer the effective date of the January 2020 amendments
-- Amendments to IAS 1: Amendments regarding the disclosure of Accounting Policies
-- Amendments to IAS 8: Amendments regarding the definition of accounting estimates
-- Amendments to IAS 15: Amendments prohibiting a company from
deducting from the cost of property, land and equipment amounts
received from selling items produced while the company is
prepapring the asset for its intended use
-- Amendments to IAS 37: Amendments regarding the costs to
include when assessing whether a contract is onerous
-- Amendments to IAS 39: Amendments regarding replacement issues
in the context of the IBOR reform
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
In the application of the Group's accounting policies, which are
described in Note 2, the directors are required to make judgements
(other than those involving estimations) that have a significant
impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates. There is no change
in applying accounting policies for critical accounting estimates
and judgments from the prior year. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision
affects both current and future periods.
Critical judgements in applying the group's accounting
policies
The following are the critical judgements, apart from those
involving estimations (which are dealt with separately below), that
the directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements.
Fair value accounting for FinTech Ventures investments
Some of the Group's FinTech Ventures investments meet the
definition of an associate. However, the Group has applied the
exemption available under IAS 28.18 which states that when an
investment in an associate is held by, or is held indirectly
through, an entity that is a venture capital organisation, the
entity may elect to measure investments in those associates at fair
value through profit or loss in accordance with IAS 39 - Financial
Instruments.
The Directors consider that the Group is of a nature similar to
a venture capital organisation on the basis that FinTech Ventures
investments form part of a portfolio which is monitored and managed
without distinguishing between investments that qualify as
associate undertakings. Furthermore, the most appropriate point in
time for exit from such investments is being actively monitored as
part of the Group's investment strategy.
The Group therefore designates those investments in associates
which qualify for this exemption as fair value through profit or
loss. Refer to Note 23 for fair value techniques used. If the Group
had not applied this exemption the investments would be accounted
for using the equity method of accounting. This would have the
impact of taking a share of each investment's profit or loss for
the year and would also affect the carrying value of the
investments.
The Directors consider that equity and loan stock share the same
investment characteristics and risks and they are therefore treated
as a single unit of account for valuation purposes and a single
class for disclosure purposes.
Exit fees
The Directors consider that the economic measurement of fee
revenues that arise and become due on the completion of a loan
(exit fees and warrants) should be accounted for as variable
consideration and the exit fee constrained to the extent that it is
highly probable that a significant reversal in the amount of
cumulative revenue recognised will not occur. Variable
consideration is included based on the expected value or most
likely amount, with the estimated transaction price associated with
syndication services (being the performance obligation to which
these fees are attributable) due on collection of the loan, updated
at the end of each reporting period to represent the circumstances
present and any changes in circumstances during the reporting
period. This includes factors such as timing risk, liquidity risk,
quantum uncertainty and conditions precedent in the syndicated
finance contract. The Directors consider that this treatment best
reflects the commercial operations of the Group as an administrator
of loan arrangements.
IFRS 10 Control Judgements
Judgement is sometimes required to determine whether after
considering all relevant factors, the Group has control, joint
control or significant influence over an entity or arrangement.
Other companies may make different judgements regarding the same
entity or arrangement. The Directors have assessed whether or not
the Group has control over Sancus Loan Notes 5 and 6 based on
whether the Group has the practical ability to direct the relevant
activities unilaterally. In making their judgement, the directors
considered the rights associated with its investment in preference
shares. After assessment, the directors concluded that the Group
does not have the ability to affect returns through voting rights
(the preference shares do not have voting rights) or other
arrangements such as direct management of these entities (the Group
does not have control over the investment manager). If the
Directors had concluded that the ownership of preference shares was
sufficient to give the Group control, these entities would instead
have been consolidated with the results of the Group.
IFRS 9 Credit Risk
Credit risk and determining when a significant increase in
credit risk has occurred are critical accounting judgements and are
assessed at each reporting period end. Credit risk is used to
calculate estimated credit losses (ECL). Further details on credit
risk can be found in Note 23.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period, that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Impairment of goodwill
As detailed in Note 12, the Directors carry out an impairment
review annually to assess whether goodwill is impaired. In doing
so, the Directors assess the value in use of each cash generating
unit through an internal discounted cash flow analysis. The last
impairment review was carried out for the June 2020 interim
reporting, which will be the annual test date for future reporting
periods.
Given the nature of the Group's operations, the calculation of
value in use is sensitive to the estimation of future cash flows
and the discount rates applied. During the annual impairment
review, the value in use calculations modelled a significant
downturn in revenue cash flows, driven by low levels of lending
activity in the 6 months from June 2020. Following this 6 month
period of low activity, it was modelled that loan origination in
quarter 4 2020 would start to pick up and return to pre-pandemic
levels in quarter two 2021. It is noted that with the pandemic
ongoing, probably into quarter 3 2021, and second waves of
infection having been experienced across the globe, loan
origination has remained low as the underlying projects in the
pipeline of borrowers have been delayed or paused in response.
The Board, at this point in time, continue to believe that once
jurisdictions come fully out of lockdown and the vaccination
programme is rolled out, further lending opportunities will arise
and loan origination will return to pre-pandemic levels in
accordance with the pattern described above, so by the end of 2021.
The timing of recovery is therefore considered to be a key source
of estimation uncertainty when determining the recoverable amount
of the Group's cash generating units. The impairment test results
and further details are included in Note 12. Accounting policies
relating to the valuation and impairment of goodwill can be found
at Notes 2 (h) and (k).
IFRS 9 ECL
Key areas of estimation and uncertainty are the probabilities of
default (PD) and the probabilities of loss given default (PL) which
are used along with the credit risk in the calculation of ECL.
Further details on ECLs, PD and PL can be found in Note 22. Should
the estimates of PD or PL prove to be different from what actually
happens in the future, then the recoverability of loans could be
higher or lower than the accounts currently suggest, although this
should be mitigated by the levels of LTV which are, in the main,
less than 70%. Where loans are in default and classified within
stage 3, the Directors estimate of the present value of amounts
recoverable through enforcement or other repayment plans could be
materially different to the actual proceeds received to settle the
balances due. In respect of certain loans held by the Group, the
range of outcomes is significant and has a material impact on the
calculation of ECL.
Fair Value of the FinTech Ventures investments
The Group invests in financial instruments which are not quoted
in active markets and measures their fair values as detailed in
Note 23.
All of the FinTech Ventures investments are categorised as Level
3 in the fair value hierarchy and in the past, the Directors have
estimated the fair value of financial instruments using discounted
cash flow methodology, comparable market transactions, recent
capital raises and other transactional data including the
performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held
by the Group in the FinTech Ventures investments, as well as the
challenges that have faced the platforms during the pandemic, this
has eroded the Board's estimate of liquidation value of these
assets to GBPnil at 31 December 2020. Changes in the performance of
these businesses and access to future returns via its current
holdings could affect the amounts ultimately realised on the
disposal of these investments, which may be greater than
GBPnil.
4. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the
manner in which the Executive Team reports to the Board, which is
regarded to be the Chief Operating Decision Maker (CODM) as defined
under IFRS 8. The FinTech Ventures Portfolio has been written down
to GBPnil during the year. The main focus of the Group is Sancus
BMS. Bearing this in mind the Executive Team have identified 4
segments based on operations and geography within the previous
Sancus BMS segment on which they report to the Board separately.
Segmental reporting has been amended in this set of financial
statements to reflect this.
Finance costs and Head Office costs are not allocated to
segments as such costs are driven by Central teams who provide,
amongst other services, finance, treasury, secretarial and other
administrative functions based on need. The Group's borrowings are
not allocated to segments as these are managed by the Central team.
Segment assets and liabilities are measured in the same way as in
these financial statements and are allocated to segments based on
the operations of the segment and the physical location of those
assets and liabilities.
The four segments based on geography, whose operations are
identical (within reason), are listed below. Note that Sancus Loans
Limited, although based in the UK, is reported separately as a
stand-alone entity to the Board and as such is considered to be a
segment in its own right.
1 Offshore
Contains the operations of Sancus (Jersey) Limited, Sancus
(Guernsey) Limited, Sancus (Gibraltar) Limited, Sancus Properties
Limited and Sancus BMS Group Limited.
2 United Kingdom (UK)
Contains the operations of Sancus Funding Limited and Sancus
Finance Limited.
3 Ireland
Contains the operations of Sancus BMS (Ireland) Limited.
4 Sancus Loans Limited
Contains the operations of Sancus Loans Limited
Reconciliation to Consolidated Financial
Statements
Year to 31 Fintech
December Sancus Ventures
2020 Loans Sancus SLL Fair Consolidated
Limited Debt Total Head Debt Value Financial
Offshore UK Ireland (SLL) Costs Sancus Office Costs & Forex Other Statements
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 4,338 638 628 876 - 6,480 - 3,785 - 596 10,861
--------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------------
Operating
Profit/(loss)
* 1,916 (672) 201 859 - 2,304 (890) - - (302) 1,112
Credit Losses (3,923) - - (965) - (4,888) - - - 223 (4,665)
Debt Costs - - - - (1,952) (1,952) - - - - (1,952)
Other
Gains/(losses) 4 - - - - 4 - - (6,022) (1,072) (7,090)
Loss on JVs and
associates - - - - - - - - - (1,937) (1,937)
Taxation 15 - - - - 15 - - - - 15
Profit After
Tax (1,988) (672) 201 (106) (1,952) (4,517) (890) - (6,022) (3,088) (14,517)
========= ======== ======== ======== ======== ======== ======== ======== ========= ======== =============
Year to 31
December
2019
Revenue 6,621 490 263 723 - 8,097 - 3,015 - 2,028 13,140
------ -------- ------ ---- -------- -------- ------ ------ -------- -------- --------
Operating
Profit/(loss)
* 3,431 (1,066) (225) 707 - 2,847 (938) - - 832 2,741
Credit Losses (552) - - - - (552) - - - (1,088) (1,640)
Debt Costs - - - - (1,680) (1,680) - - - - (1,680)
Other
Gains/(losses) - - - - - - - - (7,543) (1,669) (9,212)
Profit on JVs
and
associates - - - - - - - - - 103 103
Taxation (269) 37 - - - (232) - - - - (232)
Profit After
Tax 2,610 (1,029) (225) 707 (1,680) 383 (938) - (7,543) (1,822) (9,920)
====== ======== ====== ==== ======== ======== ====== ====== ======== ======== ========
* Operating Profit/(loss) before credit losses and debt
costs
Sancus Loans Limited is consolidated into the Group's results as
it is 100% owned by Sancus Group. However, the reality is that
Sancus Loans Limited is a co-funder the same as any other
Co-Funder. As a result the Board reviews the economic performance
of Sancus Loans Limited in the same way as any other Co-Funder,
with revenue being stated net of debt costs. Operating expenses
include recharges from UK to Offshore GBP110,000, Offshore to
Ireland GBP74,000, Head Office to "Other" GBP52,000 and Head Office
to Offshore GBP120,000. "Other" includes Fintech (excluding fair
value and forex) and Sancus BMS Holdings operations.
Reconciliation to Financial Statements
At 31 December Sancus
2020 Loans Inter Consolidated
Limited Total Head Investment Fintech Company Financial
Offshore UK Ireland (SLL) Sancus Office in IOM Portfolio Other Balances Statements
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Total Assets 44,486 7,203 488 54,131 106,308 47,137 866 - 4,177 (55,549) 102,939
--------- -------- -------- --------- ---------- --------- ----------- ---------- -------- --------- -------------------
Total Liabilities (38,720) (8,214) (679) (53,255) (100,868) (27,774) - - (352) 55,549 (73,445)
--------- -------- -------- --------- ---------- --------- ----------- ---------- -------- --------- -------------------
Net
Assets/(liabilities) 5,766 (1,011) (191) 876 5,440 19,363 866 - 3,825 - 29,494
========= ======== ======== ========= ========== ========= =========== ========== ======== ========= ===================
At 31 December
2019
Total Assets 53,338 5,800 270 52,708 112,116 50,212 2,703 6,299 8,503 (65,833) 114,000
--------- -------- ------ --------- ---------- ----------- ------ ------ -------- --------- ---------
Total Liabilities (46,064) (6,123) (640) (51,702) (104,529) (27,658) - - (7,273) 65,833 (73,627)
--------- -------- ------ --------- ---------- ----------- ------ ------ -------- --------- ---------
Net
Assets/(liabilities) 7,274 (323) (370) 1,006 7,587 22,554 2,703 6,299 1,230 - 40,373
========= ======== ====== ========= ========== =========== ====== ====== ======== ========= =========
Head Office liabilities include borrowings GBP24,897,000 (2019:
GBP26,825,000). Other Fintech assets and liabilities, and Sancus
BMS Holdings assets and liabilities are included within
"Other".
5. REVENUE
2020 2019
GBP'000 GBP'000
Co-Funder fees 1,836 1,903
Earn out (exit) fees 1,863 1,337
Advisory fees 399 565
Transaction fees 1,434 2,095
--------- ---------
Total revenue from contracts with customers 5,532 5,900
Interest on Loans 456 2,995
HIT Interest income 4,660 3,737
Sundry income 213 508
--------- ---------
Total Revenue 10,861 13,140
========= =========
The disaggregation of revenue reflects the different performance
obligations in contracts with customers as described in the
accounting policy Note 2(o) and the typical timing of payment for
those relevant revenue streams.
6. COST OF SALES
2020 2019
GBP'000 GBP'000
Interest costs 2,016 1,750
HIT interest costs 3,785 3,015
Other cost of sales 317 361
Total cost of sales 6,118 5,126
======== ========
7. OPERATING EXPENSES
2020 2019
GBP'000 GBP'000
Amortisation and depreciation 428 519
Audit fees 231 231
Company Secretarial 78 132
Corporate Insurance 72 73
Employment costs 3,573 4,406
Independent valuation fees - 56
Investor relations expenses 67 65
Legal & Professional 222 156
Marketing expenses 38 55
NOMAD fees 75 76
Other office and administration costs 620 818
Pension costs 145 321
Registrar fees 23 35
Sundry 10 10
-------- --------
5,582 6,953
======== ========
8. OTHER NET LOSSES
The GBP3,032,000 Other net losses is predominantly made up of
the write down of other assets GBP892,000 (Note 14) and loss on
joint ventures and associates GBP1,937,000 (Note 9). (2019
GBP1,616,000: predominantly made up of the write down of other
assets GBP987,000 (Note 14), net loss on joint ventures and
associates GBP152,000 (Note 9) and the write down of equity in the
UK Sarl GBP228,000).
9. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
31 December 31 December
2020 2019
GBP'000 GBP'000
At beginning of year 2,703 2,855
Additions 100 -
Share of (loss)/profit of associate (574) 103
Share of loss in joint venture (100) (121)
Write down joint venture/associate (1,263) (134)
------------ ------------
At end of year 866 2,703
============ ============
The investment in joint venture relates to a 50% share in
Amberton Asset Management Limited.
Details of material associates
Principal Activity Place of Incorporation Proportion of ownership interest/voting
rights held by the group
31 December 31 December
2020 2019
-------------------- ------------------------ -------------------- --------------------
Sancus (Isle Holding Company
of Man) Holdings for Sancus (IOM)
Limited Limited Guernsey 29.32% 29.32%
-------------------- ------------------------ -------------------- --------------------
The above associate is accounted for using the equity method in
these consolidated financial statements as set out in the Group's
accounting policies in Note 2.
Summarised financial information in respect of Sancus (Isle of
Man) Holdings is set out below. The summarised financial
information represents amounts in associates' financial statements
prepared in accordance with IFRSs.
31 December 2020 31 December
2019
GBP'000 GBP'000
----------------- ------------
Non-current assets 2 2
----------------- ------------
Current assets 4,821 6,675
----------------- ------------
Current liabilities (164) (55)
----------------- ------------
Equity attributable to owners of the company 4,659 6,622
================= ============
Revenue 278 347
-----------------------------------------------------
Profit from continuing operations 250 233
----------------------------------------------------- ----------------- ------------
Reconciliation of the above summarised financial information to the
carrying amount of the interest in Sancus (Isle of Man) Holdings Limited
recognised in the consolidated financial statements:
31 December 2020 31 December
2019
----------------- ------------
GBP'000 GBP'000
----------------- ------------
Net assets of associate 4,659 6,622
----------------- ------------
Proportion of the Group's ownership interest
in the associate 1,366 1,940
----------------- ------------
Goodwill arising on acquisition 763 763
----------------- ------------
Write down of carrying value (1,263) -
----------------- ------------
Carrying amount of the Group's interest
in the associate 866 2,703
================= ============
10. LOSS PER ORDINARY SHARE
Consolidated loss per Ordinary Share has been calculated by
dividing the consolidated loss for the year after tax attributable
to Ordinary Shareholders of GBP14,517,000 (31 December 2019: loss
of GBP9,920,000) by the weighted average number of Ordinary Shares
(excluding treasury shares) outstanding during the period o f
315,797,259 (31 December 2019: 304,328,347).
Note 16 describes the warrants in issue. Taking these warrants
into account the weighted average number of Ordinary Shares used in
calculating the diluted loss per share was 346,046,187. There was
no dilutive effect in the prior year.
31 December 2020 31 December 2019
Number of shares 489,843,477 312,065,699
Weighted average no. of shares in issue
throughout the year 315,797,259 304,328,347
Basic Loss per share (4.60)p (3.26)p
Diluted Loss per share (4.19)p (3.26)p
11. FIXED ASSETS
Right-of-use Property Total
assets & Equipment
GBP'000 GBP'000 GBP'000
Cost
At 31 December 2019 1,089 433 1,522
Additions in the year - 29 29
Leases expired (75) - (75)
Lease variations 253 - 253
------------- ------------- ---------
At 31 December 2020 1,267 462 1,729
============= ============= =========
GBP'000 GBP'000 GBP'000
Accumulated depreciation
At 31 December 2019 231 273 504
Charge in the year 208 54 262
Leases expired (75) - (75)
Lease variations 264 - 264
-------- --------- --------
At 31 December 2020 628 327 955
======== ========= ========
Net book value 31 December 2020 639 135 774
======== ========= ========
Net book value 31 December 2019 858 160 1,018
======== ========= ========
12. GOODWILL
GBP'000
At 31 December 2020 and 31 December 2019 goodwill comprises:
Sancus Jersey 14,255
Sancus Gibraltar 8,639
22,894
========
Impairment tests
The carrying amount of goodwill arising on the acquisition of
Sancus Jersey and Sancus Gibraltar is assessed by the Board for
impairment on an annual basis or sooner if there has been any
indication of impairment. With the onset of the Covid-19 pandemic
in March 2020 management decide to bring forward the impairment
test date to 30 June so that in future periods the annual
assessment will be performed during the preparation of the interim
accounts. As a result, the Board carried out a full impairment
review of the carrying amount of goodwill as reported in the
interim accounts. Full details of this review are detailed
below:
The value in use of Sancus Jersey and Sancus Gibraltar was based
on an internal Discounted Cash Flow ("DCF") value in use analysis
using cash flow forecasts for the years 2020/21 to 2024/25. The
starting point for each of the cash flows was the revised forecast
for 2020 produced by Sancus Jersey and Gibraltar management.
Management's revenue forecasts applied a compound annual growth
rate (CAGR) to revenue of 7.3% and 8.4% for Jersey and Gibraltar
respectively. A cost of equity discount rate of 12.8% was employed
in the valuation model for Sancus Jersey and 13.3% for Sancus
Gibraltar. The resultant valuation indicated that no impairment of
goodwill was required in either Sancus Jersey or Sancus Gibraltar,
with significant headroom. Following on from this review the Board
have considered whether there have been any further indicative
events of impairment since June 2020. The Board are cognisant that
the pandemic is ongoing as these financial statements are being
written. However, they do not see this as a further event, more as
a continuation of the event that arose in March 2020. The Board has
concluded that there have been no further impairment indicators and
that the annual test date (as required) has formally been moved to
the interim reporting date of 30 June.
Goodwill valuation sensitivities
When the discounted cash flow valuation methodology is utilised
as the primary goodwill impairment test, the variables which
influence the results most significantly are the discount rates
applied to the future cash flows and the revenue forecasts. The
table below shows the impact on the Consolidated Statement of
Comprehensive Income of stress testing the period end goodwill
valuation with a decrease in revenues of 10% and an increase in
cost of equity discount rate of 3%. These potential changes in key
assumptions fall within historic variations experienced by the
business (taking other factors into account) and are therefore
deemed reasonable. The current model reveals that a sustained
decrease in revenue of circa 20% for Jersey and circa 25% for
Gibraltar or a sustained increase of circa 8% in the cost of Equity
discount rate for Jersey and circa 12% for Gibraltar would remove
the headroom. The model assumes that the downturn relating to
Covid-19 is a temporary downturn and that once things get back to
normal, activity in each of Jersey and Gibraltar will get back to
more normal levels within a year.
Sensitivity Applied Reduction in headroom implied
by sensitivity
Sancus Sancus
Jersey Gibraltar Total
GBP'000 GBP'000 GBP'000
10% decrease in revenue per annum 5,526 3,359 8,885
3% increase in cost of Equity
discount rate 5,054 3,091 8,145
Covid-19 restricts revenue for
the whole of 2021 2,800 1,800 4,600
Neither a 10 % decrease in revenue, a 3% increase in the cost of
Equity discount rate or the suppression of revenue for a year
implies a reduction of Goodwill in Jersey or Gibraltar.
The value in use models do not use any backward-looking
information, with only future cash flows considered in the
calculations. As such were the models to be run again the Board
believes that the cash flows would be similar with only modest
reductions (well within the current headroom), due to the period of
inactivity being extended within the models.
The Board has also considered the discount rates used in the
models. The discount rates already had both Brexit uncertainty and
the Covid-19 pandemic built into them. It is expected that with
Brexit uncertainty subsiding and the roll out of the vaccine in
respect of Covid-19 the discount rates should fall back to more
'normal' levels.
13. OTHER INTANGIBLE ASSETS
Cost GBP'000
At 31 December 2020 and 31 December 2019 1,584
=======
Amortisation GBP'000
At 31 December 2019 1,250
Charge for the year 166
At 31 December 2020 1,416
=======
Net book value 31 December 2020 168
===
Net book value 31 December 2019 334
===
Other Intangible assets comprise capitalised contractors' costs
and other costs related to core systems development. No impairment
provision has been recorded. The amortisation charge has been
recorded in Operating expenses.
14. OTHER ASSETS
Development
properties
GBP'000
At 31 December 2019 3,336
Additions 236
Disposals (1,665)
Write downs (892)
------------
At 31 December 2020 1,015
============
Properties Development Total
held for properties
sale GBP'000 GBP'000 GBP'000
At 31 December 2018 1,377 3,027 4,404
Transfers (509) 509 -
Additions 17 787 804
Disposals (885) - (885)
Write downs - (987) (987)
-------------- ------------- ---------
At 31 December 2019 - 3,336 3,336
============== ============= =========
Other assets comprise of a number of repossessed properties and
developments which were previously held as security against certain
loans which have defaulted. The write down in the year and the
prior year is that necessary to bring the assets to the lower of
cost and net realisable value. The remaining GBP1.0m comprises of
one development property which is held at cost plus the net
realisable value of a development plot.
15. TRADE AND OTHER RECEIVABLES
31 December 31 December
2020 2019
GBP'000 GBP'000
Dividend income receivable - 68
Loan fees, interest and similar receivable 7,438 5,140
Receivable from associated companies 49 13
Derivative contracts (note 23) 94 156
Other trade receivables and prepaid expenses 623 532
----------- -------------
8,204 5,909
=========== =============
16. SHARE CAPITAL, SHARE PREMIUM & DISTRIBUTABLE RESERVE
GLI Finance Limited has the power under its articles of
association to issue an unlimited number of Ordinary Shares of no
par value.
177,777,778 (2019: Nil) additional Ordinary shares were issued
during the year for a consideration of GBP4,000,000 (2019:
GBPNil).
Share Capital - ordinary shares of nil par value Shares in issue
At 31 December 2019 312,065,699
Issued during the year 177,777,778
At 31 December 2020 489,843,477
===============
Share Premium - Ordinary shares of nil par value GBP'000
At 31 December 2019 112,557
Issued during the year 4,000
Costs of issue (339)
--------
At 31 December 2020 116,218
========
Ordinary shareholders have the right to attend and vote at
Annual General Meetings and the right to any dividends or other
distributions which the company may make in relation to that class
of share.
Treasury Shares
31 December 31 December
2020 Number 2019 Number
of shares of shares
Balance at start of the year 7,925,999 6,154,102
GLI shares transferred to key members
of management(1) - (2,788,577)
GLI shares purchased from BMS management(2) - 4,560,474
------------ ------------
Balance at end of year 7,925,999 7,925,999
============ ============
31 December 31 December
2020 2019
GBP'000 GBP'000
Balance at start of the year 1,099 1,162
GLI shares transferred to key members
of management(1) - (399)
GLI shares purchased from BMS management(2) - 336
----------- -----------
Balance at end of year 1,099 1,099
=========== ===========
(1) represents bonus amounts paid in shares
(2) represents shares purchased from former members of BMS
Finance AB's management team
Warrants in Issue
On 22 December 2020, in connection with the issue of the New
Bonds, the Company issued 153,994,543 Warrants to subscribe in cash
for new Ordinary Shares at a subscription price of 2.25 pence per
Ordinary Share. The Warrants will be exercisable on at least 30
days notice in the period to 31 December 2025. As at 31 December
2020 and up to the date of signing these accounts none of these
warrants have been exercised. All warrants existing at 31 December
2019 have now expired. The warrants in issue are classified as
equity instruments because a fixed amount of cash is exchangeable
for a fixed amount of equity, there being no other features which
could justify a financial liability classification. The fair value
of the warrants at 31 December 2020 is GBP847,000 (2019:
GBPNil).
17. LIABILITIES
31 December 31 December
2020 2019
Non-current liabilities GBP'000 GBP'000
ZDP shares (1) 12,424 -
Corporate Bond (2) 12,473 10,000
HIT Facility (3) 44,553 44,191
Lease creditors (notes 2(u), 2(v) & 25) 469 679
69,919 54,870
=========== ===========
31 December 31 December
2020 2019
Current liabilities GBP'000 GBP'000
ZDP shares (1) - 16,825
Accounts payable 436 91
Accruals and other payables 1,202 1,404
Taxation 118 221
Deferred income 40 5
Provisions for financial guarantees 1,542 -
Lease creditors (notes 2(u), 2(v) & 25) 188 211
3,526 18,757
=========== ===========
Provisions for financial guarantees have been recognised in
relation to ECLs on off-balance sheet loans and debtors where the
company has provided a subordinated position or other guarantee
(note 26). The fair value is determined using the exact same
methodology as that used in determining ECLs (note 2(f) and note
23). The amount charged to operating profit in the year was
GBP1,542,000 (2019: GBPNil), there being no other movements (2019:
GBPNil provision and no movements).
31 December 31 December
Interest costs on debt facilities 2020 2019
GBP'000 GBP'000
ZDP shares (1) 1,246 980
Corporate Bond (2) 706 700
HIT Facility (3) 3,785 3,015
Lease Interest 64 70
5,801 4,765
=========== ===========
(1) ZDP shares
The ZDP Shares have a maturity date of 5 December 2022 with a
final capital entitlement of GBP1.6464 per ZDP Share.
Under the Companies (Guernsey) Law, 2008 shares in the Company
can only be redeemed if the Company can satisfy the solvency test
prescribed under that law. Refer to the Company's Memorandum and
Articles of Incorporation for full detail of the rights attached to
the ZDP Shares. This document can be accessed via the Company's
website www.glifinance.com .
The ZDP shares bear interest at an average rate of 8% (2019:
5.5% until 5 December 2019, 8% thereafter). In accordance with
article 7.5.5 of the Company's Memorandum and Articles of
Incorporation, the Company may not incur more than GBP30m of long
term debt without the prior approval from the ZDP shareholders. The
Memorandum and Articles also specify that two debt cover tests must
be met in relation to the ZDPs. At 31 December 2020 the Company was
in compliance with these covenants as Cover Test A was 2.83
(minimum of 1.7) and Cover Test B was 4.42 (minimum of 3.25). At 31
December 2020 senior debt borrowing capacity amounted to GBP17.4m.
The HIT facility does not impact on this capacity as it is
non-recourse to GLI.
In addition to a tender offer in March 2020, whereby the company
acquired 3,437,000 ZDP shares, the company purchased a further
637,570 ZDP shares throughout the year. At 31 December 2020 the
Company held 12,009,030 shares (31 December 2019: 7,934,460) with
an aggregate value of GBP17,051,409 (31 December 2019:
GBP10,428,955). Additional ZDPs were acquired post year end as
described in Note 27.
(2) Corporate Bond
GBP6,125,000 of the existing GBP10m bonds were repaid early on
21 December 2020 (maturity was 30 June 2021). The remaining
GBP3,875,000 were rolled into new bonds which were issued on 22(nd)
December 2020. In addition to these a further GBP8,700,000 new
bonds were issued for cash on 22(nd) December 2020 giving a total
amount of new bonds issued GBP12,575,000 (GBP15m may be issued over
the life of the bonds). The bonds bear interest at 7% (2019: 7%).
The new bonds have a maturity date of 31 December 2025.
(3) HIT Facility
On 29 January 2018, GLI Finance signed a new funding facility
with Honeycomb Investment Trust plc (HIT). The funding line had a
term of 3 years and comprises a GBP45m accordion and revolving
credit facility. On 3 December 2020 this facility was extended to
28(th) January 2024. In addition to the extension the facility was
increased to GBP75m. The facility bears interest at 7.25%.
The HIT facility has portfolio performance covenants including
that actual loss rates are not to exceed 4% in any twelve month
period and underperforming loans are not to exceed 10% of the
portfolio. Sancus BMS Group has a GBP5m first loss position on the
HIT facility. GLI has also provided HIT with a guarantee, capped at
GBP2m that will continue to ensure the orderly wind down of the
loan book, in the event of the insolvency of Sancus BMS Group,
given its position as facility and security agent.
18. TAXATION
The Company is exempt from Guernsey taxation under the Income
Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed annual fee
of GBP1,200 (31 December 2019: GBP1,200) is payable to the States
of Guernsey in respect of this exemption.
Reconciliation of tax charge
2020 2019
GBP'000 GBP'000
Accounting loss before tax (14,532) (9,688)
Gibraltar Corporation Tax at 10% (2019: 10%) - 186
Jersey Corporation Tax at 10% (2019: 10%) - 57
UK R&D Tax credit - (37)
Adjustment in respect of prior years (15) 26
Tax (credit)/expense (15) 232
======== =======
Certain of the Group's subsidiaries have an estimated GBP13.0m
of losses between them available to carry forward to offset against
qualifying future trading profits. The Group does not recognise
deferred tax assets in respect of losses arising because in the
opinion of the directors the quantum and timing of any suitable
profits which can utilise these losses is unknown.
19. NOTES TO THE CASH FLOW STATEMENT
Cash generated from operations (excluding loan movements)
2020 2019
GBP'000 GBP'000
Loss for the year (14,517) (9,920)
Adjustments for:
Net losses on FinTech Ventures 5,936 7,566
Other net losses (221) (86)
ZDP finance costs 1,039 980
Fair Value joint ventures and associates 1,937 152
Changes in expected credit losses 4,665 1,524
Impairment of financial assets - 116
Amortisation/depreciation of fixed assets 428 519
Amortisation of debt issue costs 201 118
SPL Properties 960 987
Changes in working capital:
Trade and other receivables (4,303) (537)
Trade and other payables 38 (884)
Cash (outflow)/inflow from operations (excluding
loan movements) (3,837) 535
======== =======
Changes in liabilities arising from financing activities
The tables below detail changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be classified
in the Group's consolidated cash flow statement as cash flows from
financing activities.
Amortisation
Debt of debt
1 issue issue 31
January Payments Receipts costs Additions costs Other December
2020 (1) (1) (1) Non-cash Non-cash Non-cash 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ZDP Shares 16,825 (4,443) - (44) (829)(2) 76 839(3) 12,424
Corporate
Bond 10,000 (6,125) 8,700 (111) - 1 8(3) 12,473
HIT Facility 44,191 (3,500) 4,187 (159) - 124 (290)(3) 44,553
Lease
Liability 890 (216) - - - - (17)(4) 657
---------- ---------- ---------- --------- ----------- ------------- ---------- ----------
Total
liabilities 71,906 (14,284) 12,887 (314) (829) 201 540 70,107
========== ========== ========== ========= =========== ============= ========== ==========
Amortisation
Debt of debt
1 issue issue Interest 31
January Payments Receipts costs Additions costs Accruals December
2019 (1) (1) (1) Non-Cash Non-cash Non-cash 2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ZDP Shares 24,059 (7,632) - (80) - 6 472 16,825
Corporate
Bond 10,000 - - - - - - 10,000
HIT Facility 22,684 (2,000) 23,395 - - 112 - 44,191
Lease
Liability 847 (190) - - 233 - - 890
---------- ---------- ---------- --------- ----------- ------------- ---------- ----------
Total
liabilities 57,590 (9,822) 23,395 (80) 233 118 472 71,906
========== ========== ========== ========= =========== ============= ========== ==========
(1) These amounts can be found under financing cash flows in the
cash flow statement.
(2) A loan to the value of GBP829,000 which sat within Sancus
BMS loans and loan equivalents was swapped for 621,586 ZDP
shares.
(3) Comprises interest accruals and unpaid debt issue costs.
(4) Lease variations.
20. CONSOLIDATED SUBSIDIARIES
The Directors consider the following entities as wholly owned
subsidiaries of the Group as at 31 December 2020. Their results
and financial positions are included within its consolidated results.
Subsidiary entity Date of Country Nature of % held
incorporation of holding
incorporation
---------------- ---------------- --------------------- -------
Directly held
Sancus BMS Group 27 December -Equity
Limited 2013 Guernsey Shares 100%
---------------- ---------------- --------------------- -------
Sancus BMS Holdings 5 November Indirectly held -
Limited 2012 Guernsey Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus (Jersey) Indirectly held -
Limited 1 July 2013 Jersey Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus (Guernsey) Indirectly held -
Limited 18 June 2014 Guernsey Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus (Gibraltar) Indirectly held -
Limited 10 March 2015 Gibraltar Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus BMS
(Ireland) Indirectly held -
Limited 10 April 2017 Ireland Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus Funding 17 February Indirectly held -
Limited 2011 UK Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus Finance 7 January Indirectly held -
Limited 2011 UK Equity Shares 100%
---------------- ---------------- --------------------- -------
Directly held -
FinTech Ventures 9 December Equity
Limited 2015 Guernsey Shares 100%
---------------- ---------------- --------------------- -------
Sancus Properties 21 August Indirectly held -
Limited 2018 Guernsey Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus Loans Indirectly held -
Limited 3 July 2017 UK Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus BMS Group Limited and Sancus Finance Limited act as
holding companies. Sancus Properties Limited engages in property
development. Fintech Ventures Limited is an investment company,
investing in Fintech companies. The activities of the remaining
companies named above relate to the core business of lending.
21. DISPOSALS
On 18 December 2020 the Group sold the entire share capital of
BMS Finance AB Limited for consideration of GBP1. In the period 1
January 2020 to 17 December 2020 BMS Finance AB generated revenue
of GBP399,000 and had operating costs of GBP526,000 making a loss
of GBP128,000 for the period. This loss has been consolidated into
these Financial Statements. As at the date of disposal BMS Finance
AB Limited held cash of GBP215,000, current assets of GBP15,000 and
current liabilities of GBP129,000. Loss on disposal was GBP101,000
which has been charged to Other net losses in the statement of
comprehensive income.
22. FINTECH VENTURES AND OTHER INVESTMENTS
The Directors consider the following entities as associated
undertakings of the Group as at 31 December 2020.
Name of Investment: Nature of holding Country of incorporation Percentage Measurement
holding
FinTech Ventures:
------------------------- ------------------------- ----------- ------------
LiftForward Inc Indirectly held United States 18.41% Fair Value
- Equity of America
------------------------- ------------------------- ----------- ------------
Finexkap Indirectly held France 10.89% Fair Value
- Equity
------------------------- ------------------------- ----------- ------------
Ovamba Solutions Indirectly held United States 20.18% Fair Value
Inc - Equity of America
------------------------- ------------------------- ----------- ------------
Funding Options Indirectly held United Kingdom 21.4% Fair Value
Limited - Equity and Preference
Shares
------------------------- ------------------------- ----------- ------------
TradeRiver Finance Indirectly held United Kingdom 46.70% Fair Value
Limited - Equity and Preference
Shares
------------------------- ------------------------- ----------- ------------
Open Energy Group Indirectly held United States 22.71% Fair Value
Inc - Equity of America
------------------------- ------------------------- ----------- ------------
Finpoint Limited Indirectly held United Kingdom 12.95% Fair Value
- Equity
------------------------- ------------------------- ----------- ------------
Other Investments:
------------------------- ------------------------- ----------- ------------
BMS Finance (UK) Indirectly held Luxembourg 25.25% Fair Value
Sarl - Equity
------------------------- ------------------------- ----------- ------------
The percentage holdings in the above table are on a fully
diluted basis, assuming any warrants and management options all
vest. During 2020, the equity stakes in MyTripleA and TradeRiver
USA Inc were sold in total for GBP0.4m.
23. FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT
Sancus BMS loans and loan equivalents 31 December 31 December
2020 2019
GBP'000 GBP'000
Non-current
Sancus BMS loans 442 3,099
Sancus Loans Limited loans 3,421 5,851
------------ ------------
Total non-current Sancus BMS loans and
loan equivalents 3,863 8,950
------------ ------------
Current
Sancus BMS loans 7,873 15,145
Loan equivalents 117 134
Sancus Loans Limited loans 41,379 40,034
------------ ------------
Total current Sancus BMS loans and loan
equivalents 49,369 55,313
------------ ------------
Total Sancus BMS loans and loan equivalents 53,232 64,263
============ ============
Fair Value Estimation
The financial assets and liabilities measured at fair value in
the Consolidated Statement of Financial Position are grouped into
the fair value hierarchy as follows:
31 December 2020 31 December 2019
Level 2 Level 3 Level 2 Level 3
Assets GBP'000 GBP'000 GBP'000 GBP'000
FinTech Ventures investments - - - 6,299
Derivative contracts 94 - 156 -
Total assets at Fair Value 94 - 156 6,299
========= ======== ========= ========
All of the FinTech Ventures investments are categorised as Level
3 in the fair value hierarchy. In the past, the Directors have
estimated the fair value of financial instruments using discounted
cash flow methodology, comparable market transactions, recent
capital raises and other transactional data including the
performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held
by the Group in the FinTech Ventures investments, as well as the
challenges that have faced the platforms during the pandemic, this
has eroded the Board's estimate of liquidation value of these
assets to GBPnil at 31 December 2020. Changes in the performance of
these businesses and access to future returns via its current
holdings could affect the amounts ultimately realised on the
disposal of these investments, which may be greater than GBPnil.
There have been no transfers between levels in the year (2019:
None).
FinTech Ventures investments
31 December 2020 Equity Loans Total
GBP'000 GBP'000 GBP'000
Opening fair value 4,500 1,799 6,299
Net new investments/ divestments - (277) (277)
Unrealised losses recognised in
profit and loss (4,500) (1,496) (5,996)
Foreign exchange loss - (26) (26)
Closing fair value - - -
======== ======== ========
31 December 2019 Equity Loans Total
GBP'000 GBP'000 GBP'000
Opening fair value 11,608 2,196 13,804
New investments/loans advanced 12 26 38
Unrealised losses recognised in
profit and loss (7,115) (378) (7,493)
Foreign exchange loss (5) (45) (50)
Closing fair value 4,500 1,799 6,299
======== ======== ========
Assets at Amortised Cost
31 December 31 December
2020 2019
GBP'000 GBP'000
Sancus BMS loans and loan equivalents 53,232 64,263
Trade and other receivables 7,487 5,221
Cash and cash equivalents 15,786 7,244
Total assets at amortised cost 76,505 76,728
============ ============
Due to the relatively short-term nature of the above assets,
their carrying amount is considered to be the same as their fair
value.
Liabilities at Amortised Cost
31 December 31 December
2020 2019
GBP'000 GBP'000
ZDP Shares 12,424 16,825
Corporate Bond 12,473 10,000
HIT Facility 44,553 44,191
Trade and other payables 2,453 2,611
Provisions in respect of guarantees 1,542 -
Total liabilities at amortised cost 73,445 73,627
============ ============
Refer to Note 17 for further information on liabilities.
Risk Management
The Group is exposed to financial risk through its investment in
a range of financial instruments, i.e.. in the equity and debt of
investee companies and through the use of debt instruments to fund
its investment in loans. Such risks are categorised as capital
risk, liquidity risk, investment risk, credit risk, and market risk
(market price risk, interest rate risk and foreign currency
risk).
Comments supplementary to those on risk management in the
Corporate Governance section of this report are included below.
(1) Capital Risk Management
The Group's capital comprises ordinary shares as well as a
number of debt instruments. Its objective when managing this
capital is to enable the Group to continue as a going concern in
order to provide a consistent appropriate risk-adjusted return to
shareholders, and to support the continued development of its
investment activities. Details of the Group's equity is disclosed
in Note 16 and of its debt in Note 17.
The Group and its subsidiaries (with the exception of Sancus
Funding Limited, which is regulated by the FCA) are not subject to
regulatory or industry specific requirements to hold a minimum
level of capital, other than the legal requirements for Guernsey
incorporated entities. The Group considers the amount and
composition of its capital is currently in proportion to its risk
profile.
The Group monitors the ratio of debt (loans payable, bonds and
ZDP Shares) to other capital which, based upon shareholder
approval, is limited to 5 to 1 (or 500%). At year-end this ratio
increased to 235% (31 December 2019: 176%) due to the HIT facility.
The HIT facility is non-recourse to GLI. Excluding HIT, the ratio
at year-end was 84% (31 December 2019: 66%).
(2) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient
cash and the availability of funding through an adequate amount of
committed credit facilities to meet obligations when due. At the
end of the reporting period the group held cash of GBP15,786,000.
The Group Treasury Committee monitors rolling forecasts of the
group's cash position in relation to its obligations as they become
due on a fortnightly basis. In addition, the group's liquidity
management involves projecting cash flows and considering the level
of liquid assets necessary to meet obligations. Where necessary
contingency plans are made to realise assets which are reasonably
liquid in the short term.
The following table analyses the Group's financial liabilities
into relevant maturity groupings based on the period to the
contractual maturity date. The amounts in the table are the
contractual undiscounted cash flows.
Contractual maturities of financial Between Between
liabilities Within 1 and 2 2 and 5
12 months years years Total
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2020
ZDP shares - 12,424 - 12,424
Corporate bond - - 12,473 12,473
Sancus Loans Limited - - 44,553 44,553
Trade and other payables 3,526 200 269 3,995
-----------
Total liabilities 3,526 12,624 57,295 73,445
=========== ========= ========= ========
Between Between
Within 1 and 2 2 and 5
12 months years years Total
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2019
ZDP shares 16,825 - - 16,825
Corporate bond - 10,000 - 10,000
Sancus Loans Limited - 44,191 - 44,191
Trade and other payables 1,932 188 491 2,611
-----------
Total liabilities 18,757 54,379 491 73,627
=========== ========= ========= ========
(3) Interest rate risk
Interest rate risk is the risk that the value of financial
instruments will fluctuate due to changes in market interest rates
and that mismatches in the interest rates applying to assets and
liabilities will impact on the Group's earnings.
The Group's cash balances, debt instruments and loan notes are
exposed to interest rate risk.
The Group did not enter into any interest rate risk hedging
transactions during the current or prior years. The table below
summarises the Group's exposure to interest rate risk:
Floating Fixed Rate
rate Financial Financial
Instruments Instruments Total
31 December 2020 GBP'000 GBP'000 GBP'000
Assets
Sancus BMS Loans and loan equivalents 3,693 49,539 53,232
Cash and cash equivalents 15,786 - 15,786
Total assets 19,479 49,539 69,018
================ ============= ========
Liabilities
ZDP shares - 12,424 12,424
Corporate Bond - 12,473 12,473
Sancus Loans Limited - 44,553 44,553
--------- -------
Total liabilities - 69,450 69,450
------- --------- -------
Total interest sensitivity gap 19,479 (19,911) (432)
======= ========= =======
31 December 2019 GBP'000 GBP'000 GBP'000
Assets
Sancus BMS Loans and loan equivalents 7,135 57,128 64,263
Financial assets at fair value
through profit and loss - 1,799 1,799
Cash and cash equivalents 7,244 - 7,244
Total assets 14,379 58,927 73,306
======== ======== ========
Liabilities
ZDP shares - 16,825 16,825
Corporate Bond - 10,000 10,000
Sancus Loans Limited - 44,191 44,191
--------- -------
Total liabilities - 71,016 71,016
------- --------- -------
Total interest sensitivity gap 14,379 (12,089) 2,290
======= ========= =======
Interest rate sensitivities
The floating rate financial instruments (excluding cash)
comprises of an investment in the UK Sarl. This investment attracts
a fixed coupon and a variable coupon. The variable coupon is
dependent on the performance of the Sarl as opposed to general
interest rates. As a result, there is no exposure to interest rate
movements (2019: Nil exposure).
The Group currently holds GBP15,786,000 in cash deposits,
predominantly in pound sterling. Whilst interest rates are
currently negligible there is a risk that these could go negative.
At the current level of cash deposits this could cost the group
GBP158,000 per annum for every 1% decrease in interest rates. The
Group does not hold significant amounts in foreign currencies for
any period of time.
The GLI Treasury Committee reviews interest rate risk on an
ongoing basis, and the exposure is reported quarterly to the Board
and/or Audit and Risk Committee.
(4) Investment risk
Investment risk is defined as the risk that an investment's
actual return will be different to that expected. Investment risk
primarily arises from the Group's exposure to its FinTech Ventures
portfolio (see Note 3). This risk in turn is driven by the
underlying risks taken by the platforms themselves - their own
strategic, liquidity, credit and operational risks.
The Group's framework for the management of this risk includes
the following:
-- Seats on the Boards of most of the platforms, which allow
input into strategy and monitoring of progress;
-- pre-emptive rights on participation in capital raises, or the
support for capital raises, to protect against dilution;
-- regular monitoring of the financial results of platforms;
-- bi-annual reviews of the valuations of platforms, which
provide an opportunity to test the success of platforms'
strategies; and
-- quarterly reporting to the Board on these matters.
The Group measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements.
-- Level 1 - Inputs that are quoted market prices (unadjusted)
in active markets for identical instruments. A market is regarded
as "active" if transactions of the asset or liability take place
with sufficient frequency and volume to provide pricing information
on an on-going basis. The Group measures financial instruments
quoted in an active market at a bid price.
-- Level 2 - Inputs other than quoted prices included within
Level 1 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category includes
instruments valued using: quoted market prices in active markets
for similar instruments; quoted prices for identical or similar
instruments in markets that are considered less than active; or
other valuation techniques in which all significant inputs are
directly or indirectly observable from market data. The chosen
valuation technique incorporates all of the factors that market
participants would take into account in pricing a transaction.
-- Level 3 - Inputs that are unobservable. This category
includes all instruments for which the valuation technique includes
inputs not based on observable data and the unobservable inputs
have a significant effect on the instrument's valuation. This
category includes instruments that are valued based on quoted
prices for similar instruments but for which significant
unobservable adjustments or assumptions are required to reflect
differences between the instruments. If in the case of any
investment the Directors at any time consider that the above basis
of valuation is inappropriate or that the value determined in
accordance with the foregoing principles is unfair, they are
entitled to substitute what in their opinion, is a fair value. In
this case, the fair value is estimated with care and in good faith
by the Directors in consultation with the Executive Team with a
view to establishing the probable realisation value for such shares
as at close of business on the relevant valuation day.
All FinTech Ventures investments are fair valued at Level 3. No
use of the discounted cash flow methodology has been utilized as at
31 December 2020 or 31 December 2019. All investments have been
valued at zero (2019: GBP6,299,000) using the Directors opinion as
noted above, after taking into account all factors noted above.
Following this valuation it is possible that in future years there
may be some upside from this valuation given the company retains
rights and positions in various instruments related to these
investments.
(5) Credit risk
Credit risk is defined as the risk that a borrower/debtor may
fail to make required repayments within the contracted time scale.
The Group invests in senior debt, senior subordinated debt, junior
subordinated debt and secured loans. Credit risk is taken in direct
lending to third party borrowers , investing in loan funds ,
lending to associated platforms and loans arranged by associated
platforms.
The Group mitigates credit risk by only entering into agreements
related to loan instruments in which there is sufficient security
held against the loans or where the operating strength of the
investee companies is considered sufficient to support the loan
amounts outstanding.
Credit risk is determined on initial recognition of each loan
and re-assessed at each balance sheet date. The risk assessment is
undertaken by the Executive Team at the time of the agreements, and
the Executive Team continues to evaluate the loan instruments in
the context of these agreements. Credit risk is categorized into
Stage 1, Stage 2 and Stage 3 with Stage 1 being to recognize 12
month Expected Credit Losses (ECL), Stage 2 being to recognise
Lifetime ECL not credit impaired and Stage 3 being to recognise
Lifetime ECL credit impaired.
Credit risk is initially evaluated using the LTV and the
circumstances of the individual borrower. For the majority of loans
security takes the form of real estate. There has been no
significant change in the quality of this security over the prior
year. When determining credit risk macro-economic factors such as
GDP, unemployment rates, the impact of Covid19 on real estate and
other relevant factors are also taken into account. A loan is
considered to be in default when there is a failure to meet the
legal obligation of the loan agreement. Having regards to the
principles of IFRS 9 this would also include provisions against
loans that are considered by management as unlikely to pay their
obligations in full without realisation of collateral. Once
identified as being in default a re-assessment of the credit risk
of that loan will be undertaken using the factors as noted above. A
decision will then be made as to whether to credit impair that
asset.
In some instances borrowers will request loan modifications,
extensions or renegotiation of terms. Any such event will trigger a
reassessment of the credit risk of that loan where the reasons for
the modification, extension or renegotiation will be carefully
assessed and may result in that asset being credit impaired.
The entities in the Sancus BMS Group operate Credit Committees
which are responsible for evaluating and deciding upon loan
proposals, as well as monitoring the recoverability of loans, and
taking action on any doubtful accounts. All lending undertaken by
Sancus BMS is secured. The credit committee reports to the Sancus
BMS Board on a quarterly basis.
Provision for ECL
A probability of default is assigned to each loan. This
probability of default is arrived at by reference to historical
data and the ongoing status of each loan which is reviewed on a
regular basis. The loss given default is deemed to be nil where LTV
is equal to or less than 65%, as it is assumed that the asset can
be sold and full recovery made.
Provision for ECL is made using the credit risk, the probability
of default (PD) and the loss given default (PL) all of which are
underpinned by the Loan to Value (LTV), historical position,
forward looking considerations and on occasion, subsequent events
and the subjective judgement of the Board. Preliminary calculations
for ECL are performed on a loan by loan basis using the simple
formula Outstanding Loan Value (exposure at default) x PD x PL and
are then amended as necessary according to the more subjective
measures as noted above.
To reflect the time value of money ECL is discounted back to the
reporting date using the effective interest rate of the asset (or
an approximation thereof) that was determined at initial
recognition.
The following tables provide information on amounts reserved for
ECL on loans and loan equivalents as at 31 December 2020 and 31
December 2019 based on the model adopted by management. Loans
through platforms have been added to the table in 2020 (previously
disclosed separately and not included in the below analysis).
Sancus BMS loans and loan Stage 1 Stage 2 Stage 3 Total
equivalents at 31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000
Closing loans at 31 December
2019 * 54,188 8,849 1,195 64,232
Add loans through platforms 31 - - 31
--------- --------- --------- ---------
54,219 8,849 1,195 64,263
New Loans 19,168 - - 19,168
Loans Repaid (25,267) (3,582) (19) (28,868)
Transfers from Stage 1 to Stage
2 (380) 380 - -
Transfers from Stage 1 to Stage
3 (5,768) - 5,768 -
Transfers from Stage 2 to Stage
3 - (1,910) 1,910 -
Movement in ECL - 310 (1,641) (1,331)
--------- --------- --------- ---------
Closing loans at 31 December
2020 41,972 4,047 7,213 53,232
========= ========= ========= =========
Loss allowance Stage 1 Stage 2 Stage 3 Total
at 31 December 2020 GBP'000 GBP'000 GBP'000 GBP'000
Closing loss allowance at 31
December 2019 * - 1,213 1,655 2,868
Transfers from Stage 2 to Stage
3 - (125) 125 -
(Decrease)/Increase in provision - (222) 503 281
Individual financial assets
transferred to Stage 3 - - 1,013 1,013
Individual financial assets
transferred to Stage 2 - 37 - 37
Closing loss allowance at 31
December 2020 903 3,296 4,199
========= ========= =========
* Restated see below.
Assets transferred to Stage 2 and Stage 3 relate to loans where,
on the balance of probabilities, full recovery may not be made.
Sancus BMS loans and loan Stage 1 Stage 2 Stage 3 Total
equivalents at 31 December 2019 GBP'000 GBP'000 GBP'000 GBP'000
Closing loans at 31 December
2018 44,602 3,449 4,266 52,317
New Loans 43,513 - - 43,513
Loans Repaid (22,399) (3,605) (4,266) (30,270)
Transfers from Stage 1 to Stage
2 * (9,762) 9,762 - -
Transfers from Stage 1 to Stage
3 (1,650) - 1,650 -
Transfers from Stage 2 to Stage
3 - (1,200) 1,200 -
Loans written off (116) - (941) (1,057)
Movement in ECL - 443 (714) (271)
--------- --------- --------- ---------
Closing loans at 31 December
2019 54,188 8,849 1,195 64,232
========= ========= ========= =========
Loss allowance Stage 1 Stage 2 Stage 3 Total
at 31 December 2019 GBP'000 GBP'000 GBP'000 GBP'000
Closing loss allowance at 31
December 2018 - 1,656 941 2,597
Transfer from Stage 2 to Stage
3 - (1,200) 1,200 -
Increase in provision - 89 - 89
Financial assets transferred
to Stage 3 - - 455 455
Financial assets transferred
to Stage 2 * - 1,088 - 1,088
Write Offs - - (941) (941)
Provision no longer required
(loans repaid) - (420) - (420)
---------- --------- --------- ---------
Closing loss allowance at 31
December 2019 - 1,213 1,655 2,868
========== ========= ========= =========
* An amount of GBP8,152,000 has been reclassified as Stage 2 in
the prior year (previously classified as Stage 3 in the 2019
Financial statements). This related to trading difficulties which
one of the borrowers had been experiencing. Trading is now back on
track but full recovery of the loan is not expected.
Financial assets transferred to Stage 3 relate to two loans
where the security does not cover the outstanding loan value. Loans
written off relates to a loan which was fully provided in the prior
year.
Reconciliation of Provision for ECLs to charge in the statement
of comprehensive income
Loans Trade Debtors Guarantees Total
Loss allowance at 31 December
2019 2,868 311 - 3,179
Charge for the year 2020 1,238 1,885 1,542 4,665
Utilizations 93 (6) - 87
------ -------------- ----------- ------
Loss allowance at 31 December
2020 4,199 2,190 1,542 7,931
====== ============== =========== ======
For certain loans the range of outcomes for loss given default
considered by the Directors is significant and therefore has a
material impact on the calculation of ECL. If the probability
weighting on each of the loans included in Stage 3 were increased
by 20% or decreased by 20%, the total provision of GBP7.9m would
increase by GBP1. 3m or reduce by GBP2.1m respectively.
(6) Market price risk
The Group has no exposure to market price risk of financial
assets valued on a Level 1 basis as disclosed earlier in this
note.
(7) Foreign exchange risk
Foreign exchange risk is the risk that the value of financial
instruments will fluctuate due to changes in foreign exchange
rates. Investments made in currencies other than Sterling are
currently valued at GBPNil and therefore there is no exposure.
The exchange rates used by the Group to translate foreign
currency balances are as follows:
Currency 31 December 30 June 31 December 30 June 31 December
2020 2020 2019 2019 2018
EUR 1.1202 1.1039 1.1815 1.1170 1.1094
------------ -------- ------------ -------- ------------
USD 1.3664 1.2399 1.3259 1.2697 1.2743
------------ -------- ------------ -------- ------------
The Treasury Committee monitors the Group's currency position on
a regular basis, and the Board of Directors reviews it on a
quarterly basis. During the year the Treasury Committee and the
Board have taken the decision to hedge loans denominated in Euros
which are taken out through the HIT facility. Forward contracts to
sell Euros at loan maturity dates are entered into when loans are
drawn in Euros. The following forward foreign exchange contracts
were open at the respective dates:
At 31 December 2020
Counterparty Settlement Buy Currency Buy Amount Sell currency Sell amount Unrealised
date GBP'000 EUR'000 gain GBP'000
January 2021
EWealthGlobal to February
Group Limited 2022 GBP 4,121 Euro 4,641 (50)
Liberum January 2021
Wealth to December
Limited 2021 GBP 8,062 Euro 8,854 144
--------------
Unrealised gain on forward foreign contracts 94
==============
At 31 December 2019
Counterparty Settlement Buy Currency Buy Amount Sell currency Sell amount Unrealised
date GBP'000 EUR'000 gain GBP'000
December
EWealthGlobal 2020 to January
Group Limited 2021 GBP 2,252 Euro 2,590 38
Liberum February 2020
Wealth to November
Limited 2020 GBP 3,467 Euro 3,951 118
--------------
Unrealised gain on forward foreign contracts 156
==============
No hedging has been taken out against investments in the FinTech
Ventures platforms (2019: GBPNil).
24. RELATED PARTY TRANSACTIONS
Transactions with the Directors/Executive Team
Non-executive Directors
As at 31 December 2020, the non-executive Directors' annualised
fees, excluding all reasonable expenses incurred in the course of
their duties which were reimbursed by the Company, were as detailed
in the table below:
31 December 31 December
2020 2019
GBP GBP
Patrick Firth (Chairman) 48,750 50,000
John Whittle 41,438 42,500
Nick Wakefield 34,125 35,000
On 4 June 2019 Mr Wakefield was appointed as a non-executive
Director to the Board. Mr Wakefield's directorships were listed in
the RNS issued on 5 June 2019 and can be found on the Group's
website. Golf Investments Limited ('Golf'), a subsidiary of
Somerston, of which Mr Wakefield is a Director, holds 200,349,684
ordinary shares in the Company, representing 40.9 per cent of the
current issued share capital. From time to time, the Somerston
Group may participate as a Co-Funder in Sancus BMS loans. Other
than this and the directors' fees and expenses in relation to Mr
Wakefield's appointment as a director the Group does not transact
with either Golf or Somerston.
Directors' fees were reduced in the third quarter of the year by
10%. Total Directors' fees charged to the Company for the year
ended 31 December 2020 were GBP124,313 (31 December 2019:
GBP112,589) with GBPNil (31 December 2019: GBP31,875) remaining
unpaid at the year-end.
Executive Team
The Executive team consists of Andrew Whelan, Emma Stubbs, Aaron
Le Cornu (resigned 16 April 2020) and Dan Walker. The Executive
Team members' remuneration from the Company, excluding all
reasonable expenses incurred in the course of their duties which
were reimbursed by the Company, was as detailed in the table
below:
2020 2019
GBP'000 GBP'000
-------- --------
Aggregate remuneration in respect of qualifying
service - fixed salary 646 727
-------- --------
Aggregate amounts contributed to Money Purchase
pension schemes 48 101
-------- --------
Aggregate bonus paid (shares and cash) 210 -
-------- --------
See remuneration report for further details. All amounts have
been charged to Operating Expenses.
Directors' and Persons Discharging Managerial Responsibilities
("PDMR") shareholdings in the Company
The Directors and PDMRs had the following beneficial interests
in the Ordinary Shares of the Company:
31 December 2020 31 December 2019
No. of Ordinary % of Ordinary No. of Ordinary % of Ordinary
Shares Held Shares Shares Held Shares
---------------- -------------- ---------------- --------------
Patrick Firth (Chairman) 367,966 0.08 278,669 0.09
---------------- -------------- ---------------- --------------
John Whittle 138,052 0.03 104,550 0.03
---------------- -------------- ---------------- --------------
Andrew Whelan 9,553,734 1.95 9,553,734 3.06
---------------- -------------- ---------------- --------------
Emma Stubbs 1,380,940 0.28 1,380,940 0.44
---------------- -------------- ---------------- --------------
Dan Walker 911,300 0.19 911,300 0.29
---------------- -------------- ---------------- --------------
During the year and prior year no directors received dividends
on their Ordinary Share holdings in the Company.
During the year Mr Whelan received GBP54,466 in relation to the
coupon on his holding of GBP800,000 GLI Bonds which were repaid in
full on 21 December 2020.
Mr Walker has an outstanding unsecured loan from a subsidiary in
the amount of GBP31,053. The loan is interest free and repayable on
demand.
From time to time members of key management personnel
participate as co-funders in loans originated by the Group.
Transactions with connected entities
The following transactions with connected entities took place
during the year:
31 December 2020 31 December 2019
Balance Interest Balance Interest
GBP'000 accrued GBP'000 accrued
in the in the
year GBP'000 year GBP'000
---------- -------------- ----------------- --------------
Platform loans & corresponding
interest
---------- -------------- ----------------- --------------
GLIF and investments in FinTech
Ventures - - 1,800 448
---------- -------------- ----------------- --------------
31 December 31 December
2020 GBP'000 2019 GBP'000
Receivable from related parties
Sancus (IOM) Holdings Limited 2 -
Sancus (IOM) Limited 36 1
Amberton Asset Management Limited 11 12
Office and staff costs recharges
Amberton Asset Management Limited 41 35
Sancus (IOM) Limited 125 125
There is no ultimate controlling party of the Company. All
platform loans and preference shares bear interest at a commercial
rate.
25. LEASES
The Group as Lessee
Maturity Analysis - contracted undiscounted cash flows
31 December 31 December
2020 GBP'000 2019 GBP'000
Within one year 240 267
In the second to fifth years inclusive 569 809
After five years - -
-------------- --------------
809 1,076
============== ==============
All lease commitments relate to office space.
Lease liabilities included in the statement of financial
position
31 December 31 December
2020 GBP'000 2019 GBP'000
Current 188 211
Non-current 469 679
657 890
============== ==============
Amounts recognised in the statement of comprehensive income
2020 2019
GBP'000 GBP'000
Depreciation expense on right-of-use assets 208 231
Interest expense on lease liabilities 64 70
Expense related to short term leases 137 192
Income received from sub-leasing right-of-use
assets - (19)
--------- ---------
26. COMMITMENTS AND GUARANTEES
The Group's commitments and guarantees are described below.
HIT Facility
Sancus BMS Group has invested GBP6.3m (2019: GBP5m) of its own
capital in Sancus Loans Limited which sits in a GBP5m first loss
position as part of the HIT facility. GLI has also provided HIT
with a guarantee, capped at GBP2m that it will continue to ensure
the orderly wind down of the HIT related loan book, in the event of
the insolvency of Sancus BMS Group, given its position as facility
and security agent. Nothing has been provided in the accounts for
this (2019: GBPNil).
Sancus Loan Notes
SLN5 was launched during 2018. Sancus BMS has no capital
invested but has a 10% first loss position. At 31 December 2020 the
loan note was GBP19.4m with a maximum raise limit of GBP50m.
Unfunded Commitments
As at 31 December 2020 the Group has unfunded commitments of
GBP28.4m (31 December 2019: GBP21.4m). These unfunded commitments
primarily represent the undrawn portion of development finance
facilities. Drawdowns are conditional on satisfaction of specified
conditions precedent, including that the borrower is not in breach
of its representations or covenants under the loan or security
documents. The figure quoted is the maximum exposure assuming that
all such conditions for drawdown are met. Directors expect the
majority of these commitments to be filled by Co-Funders.
27. POST YEAR END EVENTS
Post year-end ZDP buybacks
On the 1 March 2021 t he Company purchased 40,000 ZDPs at a
price of 125.5 pence per ZDP Share and on the 17 March 2021 a
further 15,000 ZDPs at a price of 130.0 pence per ZDP Share. On the
19 March 2021, 40,000 ZDPs were acquired at a price of 131.0 pence
per share. Following these transactions, the Company has 20,791,418
ZDP Shares in issue, of which 12,104,030 ZDP Shares are held by the
Company as treasury shares. The total number of voting rights
associated with the ZDP Shares is therefore 8,687,388.
Post year-end investment in FinTech Ventures
Post year-end GBP0.5m was redeployed in an existing investment
where the particular circumstances were entirely binary, that on
balance, the Board believed the risk reward was in GLI's
shareholders interest.
Change of Name - Sancus BMS Group Limited
On the 17 March 2021 Sancus BMS Group Limited changed its name
to Sancus Group Holdings Limited.
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END
FR EASDFDLFFEEA
(END) Dow Jones Newswires
March 31, 2021 02:00 ET (06:00 GMT)
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