TIDML
RNS Number : 6791G
Sancus Lending Group Limited
31 March 2022
Sancus Lending Group Limited
(formerly GLI Finance Limited)
Final Results for the Year Ended 31 December 2021
HIGHLIGHTS
Rory Mepham, Chief Executive Officer of Sancus Lending Group
Limited, commented:
" Since my appointment as CEO in June 2021, I have prioritised
the turnaround of the Group's financial performance. 2021 was the
start of a transitional period for the Company. We have rebranded,
strengthened the management team, invested in technology and
expanded our presence in the UK and Ireland. We have also
undertaken a thorough review of the loan book and, where required,
provisioned accordingly.
Our plan is to return the Group to profitability by growing the
Groups loans under management while ensuring that our credit and
other processes are best in class. We will also broaden our funder
base and improve funding terms. The business will continue to focus
on expanding the Group's presence in the UK and Ireland together
with rebuilding its loan book in the Offshore markets of Jersey,
Guernsey and Gibraltar.
We started 2022 with a clear strategy to return the business to
profitability, and a management team committed to achieving
that."
Strategic and Operational Highlights
-- Change of name to Sancus Lending Group Limited, announced on
11 May 2021, reflecting the Group's continued focus on property
lending in residential development and bridge financing;
-- Appointment of Rory Mepham as CEO and Steve Smith as Chairman;
-- Significant investment in the sales and credit teams at the
end of 2021 and into 2022, to support and drive growth over the
coming years;
-- Focus on the maintenance of robust institutional grade credit
processes, smooth loan execution, active loan management, data
integrity and a proactive approach to loans that become stressed or
distressed;
-- Geographic focus remains unchanged, with the UK and Ireland
the key areas of growth for the business whilst the Offshore
markets currently remain the Group's largest market. Core Sancus
revenue growth was 6% in FY21, with UK revenue up 131%;
-- Impressive growth of 60% on new facilities written; from
GBP50m to GBP80m year on year, and a strong pipeline in the Group's
key growth markets for FY22 and beyond;
-- Loan book at year end GBP142m (2020: GBP171m) as a result of
large Offshore loan repayments; and
-- Positive shift in the residential property market presents
the Group with a favourable outlook and an opportunity to focus on
the right strategic steps to support growth in coming years.
Financial Headlines
-- Group revenue for the year was GBP9.0m (2020: GBP10.9m) with
the reduction in Sancus Loans Limited representing a decrease of
GBP2m;
-- Group loss for the year was GBP10.3m (2020: loss GBP14.5m);
-- GBP6.4m of operating losses relates to expected credit losses
under IFRS9 and represents a realistic view on delinquent or
defaulted loans, virtually all of which were written in or prior to
2018; and
-- Increase in operating expenses to GBP6.2m (FY20: GBP5.6m)
reflects investment in sales and credit teams.
Enquires:
Sancus Lending Group Limited via Instinctif Partners
Rory Mepham, CEO
Nominated Adviser and Broker
Liberum Capital Limited +44 (0)203 100 2000
Chris Clarke
Lauren Kettle
Public Relations Adviser
Instinctif Partners
Tim Linacre +44 (0) 7949 939 237
CHAIRMAN'S STATEMENT
Introduction
I was delighted to take on the role of Chairman of the Group on
31 August 2021, having joined Sancus in May 2021, and am looking
forward to the challenge ahead.
A number of key events took place prior to my appointment. The
successful fund raise at the end of 2020 was the first step in what
the Board believes will be a structured change programme which will
reposition the Group for growth. Our target markets continue to
present compelling opportunities and coupled with the reduced
appetite amongst traditional balance sheet lenders, we are
optimistic this will increase the potential to write high quality
new business.
2021 was a busy year. The Group was rebranded as Sancus Lending
Group Limited (from GLI Finance Limited) on 11 May 2021, the change
reflecting the Group's continued focus on lending for residential
property development and bridge financing purposes.
There have also been a number of changes to our senior executive
team, with new appointments expected to drive Group development and
growth, which are outlined more fully below.
As part of a wider review of the business and the expansion of
the credit and recoveries teams, we carried out a detailed review
of the Group's loan book in June 2021, resulting in impairments of
GBP3m. Whilst we have seen some improvement in the quality of the
loan book as the worst effects of the pandemic reduced, we have
made an additional GBP3.4m provision in the second half of the year
which we believe draws a line under recent losses. Virtually all of
the provisions relate to loans written in or before 2018.
Finally, after a five-year tenure our auditor, Deloitte LLP
stood down and have been replaced by Moore Stephens following a
tender process.
Our People
There were a number of personnel changes during 2021. Following
the resignation of Andy Whelan, Rory Mepham assumed the role of
Interim CEO on 30 June 2021 and was then confirmed as CEO on 23
November 2021. Rory joined the business in January 2021 with
initial responsibility for funding and origination and has
extensive experience in corporate finance, capital raising, debt
finance, fund management and development. During his transition,
Rory was supported by Dan Walker who originally joined the Group in
2018, and was appointed as Deputy CEO in June 2021. Dan
subsequently left the Group on 31 January 2022, and we thank him
for his contribution. On 8 March 2022 James Waghorn was appointed
as Chief Investment Officer and together with Rory and Emma Stubbs,
our Chief Financial Officer, completes our Executive Management
Team. James has over 14 year's experience in the UK and European
real estate market and has extensive experience across the
corporate real estate, investment and property development
sectors.
On 31 August 2021, Patrick Firth stepped down after sixteen
years with the Group and I would like to thank Patrick for his
invaluable contribution during this time.
As Rory sets out in more detail in his report, the Group has
invested in rebuilding and reinforcing the team and our headcount
has increased from 25 at the end of 2021 to 36 as at 30 March 2022.
The new resource will largely be focussed on expansion in our
growth markets UK and Ireland but will also reinforce our credit
and management focus as we deliver new business in the coming
years.
Dividend and Shareholders
As part of its wider strategic review of the business, the Board
has decided to withdraw its previous dividend policy as the
business plan requires the reinvestment of surplus resources in
order to deliver the planned growth objectives. The Company last
declared a dividend in 2016 and thereafter adopted a policy
consistent with prudent capital and liquidity management,
recognising the need to provide the time and funding necessary for
the various platforms in which the Group was invested to reach
their potential. This followed the transitioning of the business
from an investment company to a trading company, when historically
it was earning positive cashflows from CLO investments which
enabled the business to pay dividends. The Board's decision to
formally withdraw its previous dividend policy is therefore
consistent with the approach that has been adopted over recent
years, to reinvest surplus resources for growth. As such, the Group
does not intend to declare a dividend for the year. The Board
intends to revisit this policy at the appropriate time, should the
profitability and cash flow profile of the business support the
reinstatement of a dividend.
On behalf of the Board, I would like to thank shareholders for
their continuing support and patience. We certainly do not
underestimate the scale and challenge ahead, but with the
continuing support of shareholders and all of our stakeholders and
in the belief that we have the strategy, the systems and the
personnel to put the business onto a firmer footing, I look forward
to reporting more positive developments in the coming period.
Steve Smith
Chairman
CHIEF EXECUTIVE OFFICER'S REVIEW
Outlook
Since my appointment as CEO in June 2021, I have prioritised
planning the turnaround of the Group's financial performance. A
return to Group profitability relies on successfully growing loans
under management whilst widening its range of funders, improving
funding terms and adopting institutional grade processes in all
areas. The business is focused on expanding the Group's presence in
the UK and Ireland, together with rebuilding its loans under
management in the Offshore markets of Jersey, Guernsey and
Gibraltar.
The business has written in excess of GBP1.2 billion of loans
since inception and as at 31 December 2021 the Group loan book
stood at GBP142m. Sancus is targeting significant growth of loans
under management over the coming years. Assembling the team, having
the right structure, effective institutional management systems and
becoming increasingly technology enabled is necessary to achieve
increased scale. The investment in these areas is underway and will
continue in 2022.
The perennial imbalance between supply and demand for housing
continues to offer a favourable landscape for the Group's
anticipated growth in its target markets. Banks having retrenched
from both SME and development financing further provides attractive
opportunities for alternative lenders. We continue to track the
geopolitical situation closely and note the potential for further
supply chain disruption and inflationary risks in the construction
sector.
The successful delivery of Sancus's growth objectives will be
driven by the four key pillars of the Group's business:
Origination, Loan Management, Funding and Finance &
Operations.
Origination
Originating sufficient lending volumes across the target
jurisdictions and product types will provide the business with the
scale and diversification it needs to deliver sustainable
profitable growth. Significant investment has been made in
recruiting experienced business development team members in each of
our markets during 2021, an initiative which will continue in
2022.
In the 15 months to March 2022, we took the total business
development heads from 8.5 to 15, with a particular focus on our
sales activity in the UK with business development heads in this
region going from 2 to 8 over the last 15 months. The new team
members come from experienced backgrounds in the industry and bring
with them a large pool of potential sources of new business. Team
members will be incentivised to deliver quality new business with a
focus on the business earning an appropriate return for where a
given loan sits on the risk / return spectrum.
Whilst it is possible that further hiring will be required in
the future, we consider that this recruitment drive provides the
team that can substantially deliver against the Group's required
targets. The Board will remain alert to market dynamics and future
opportunities as they present themselves and will look to add to
the team in line with business requirements.
As part of the risk management process, no members of the credit
committee have an origination function. This ensures an appropriate
separation between the origination and credit functions.
We have seen growth in new loan facilities written during the
year with GBP80m written during FY21 against GBP50m for FY20. Loan
deployments saw a 10% increase from GBP69m at the end of 2020 to
GBP76m for 2022. We have a strong pipeline for 2022.
Arrangement fees and commitments fees are received on the full
value of loan facility written and therefore a key metric in
monitoring the performance of our sales team. We continue to see
significant demand for development finance and are increasing our
presence in the bridging market with a couple of key hires.
We envisage origination growth in the UK and Ireland in 2022 and
the years beyond and is a key area of investment for the Group. We
further anticipate that the Offshore business (including the
Channel Islands and Gibraltar) will continue to offer lending
opportunities and we are confident that our businesses in those
jurisdictions are well placed to execute against those
opportunities as they arise.
During the year, we have placed a greater emphasis on
diversifying and growing our origination channels to include a
wider variety of brokers, other introducers, and a greater range of
marketing tools utilised in a targeted fashion. We have also
established a working group to explore the extent to which
technology may be able to support our growth in origination.
Loan Management
Scaling the business successfully necessitates a focus on the
maintenance of robust institutional grade credit processes, smooth
loan execution, active loan management, data integrity and a
proactive approach to loans that become stressed or distressed.
-- Maintaining a high-quality credit process whilst scaling the
quantity of new loans is a priority. During 2021 our experienced
credit team has been supplemented by new members with a track
record in the property sector and qualifications as Chartered
Surveyors. We have standardised our approach across all
jurisdictions including valuation, legal title, borrower, market
due diligence and monitoring surveyor standards.
-- Standardisation of the loan execution process has been
implemented across the Group, including documentation, conditions
precedent, conditions subsequent and closing checklists. We have
also implemented a new workflow process to expediate the time
between the loan credit approval and loan drawdown and exploring
how we can better utilise technology to better manage certain
elements. The business is both actively engaging with external
suppliers of software packages together with continuing to invest
our own loan management system. The required investment in terms of
possible subscription charges and additional technology staff has
been budgeted in our forecasts.
-- Greater emphasis has been placed on actively managing loans
once the initial drawdown has been made. This has been particularly
important during a time when various market related pressures such
as cost inflation, are impacting our borrowers. Active management
is helping us to deal with issues before they become problems.
-- Where loans unavoidably become delinquent or defaulted Sancus
is adopting a proactive approach to minimise the risk of loss. The
period of time during which loans become stressed can lead to
further strain on loan covenants, so decisive action is often
required without compromising on the integrity of decision
making.
-- Due consideration is always afforded to the interests of all stakeholders in a given loan.
-- Further investment has been made in recruiting experienced
loan management team members in each of our markets during 2021,
and this will continue in 2022.
The Sancus asset backed lending loan book decreased by 17% since
the end of 2020 from GBP171m to GBP142m. This decrease was driven
by some large Offshore loan repayments in the period and the
knock-on effect of Covid-19 on loan closures, and masks promising
improvements in the UK and Irish business, where we saw new
facilities written in these two businesses combined of GBP60m in
2021, a 76% increase from GBP34m in 2020. We have a strong pipeline
and expect to see an increase in the loan book by the end of 2022.
At the year end, the asset backed loan book comprised Offshore at
GBP96m (Dec 2021: GBP147m) UK at GBP29m (Dec 2021: GBP15m) and
Ireland at GBP17m (Dec 2021: GBP9m).
Under the leadership of the Senior Management Team, a detailed
evaluation of the Group's loan book has been completed. Particular
focus has been on reviewing historic loans that are either
delinquent or defaulted. As a result of this exercise, the Group is
reporting an increase in expected credit loss provisions of GBP6.4m
for the financial year (FY20: GBP4.7m). Virtually all of the
provisions made relate to legacy loans written in 2018 or before.
For all of these positions, the new senior management team have put
together deliverable workout strategies, and these are now
underway. These strategies have been shared in a transparent manner
with our funding sources and feedback has been incorporated into
our plans. The seasoned property professionals within the new
Sancus team have proven track records in the Groups markets and
will continue to be involved in working hard to recover value for
all participants in these positions.
Funding
We continue to focus on growing the funding capacity of the
business on improved terms. Additionally, we are seeking to work
with a diversified mix of funders, both private and institutional,
to match funders with the loans meeting their varied risk and
rewards criteria. Currently, th e Group continues to be supported
by four sources of funding:
-- Co-Funders
-- Loan Note program
-- Institutional funders
-- Proprietary Capital
Co Funders remain our largest funding channel, with the majority
of the loan book in the Channel Islands and Gibraltar being
co-funded , though its share reduced in the year from 64% of the
total to 50% as a result of large loan repayments. We continue to
nurture relationships with the Co-Funder base, typically being
Offshore private individuals and family offices. In addition to the
large pool of Co-Funders that have been working with Sancus for a
number of years, the business is actively seeking to widen its net
and has recruited team members in its Offshore team to be
exclusively focused on targeting and building relationships with
potential new Co-Funders.
During the year w e have continued to launch further loan notes
through Amberton Asset Management with the successful launch of
Loan Note 7, raising GBP16.7 million. Loan Note 7 matures on 10 May
2024 and has a coupon of 7% p.a. (payable quarterly), with Sancus
providing a 10% first loss guarantee. On 31 January 2022 Sancus
Loan Note 8 launched with GBP2.0m of assets and a target of GBP20
million. Loan Note 8 has a term of five years and a coupon of 5%
p.a. (payable quarterly), with Sancus providing a 20% first loss
guarantee. As the business matures it is planned to increase the
regularity and widen the variety of Loan Note products.
Sancus has a secured institutional funding line from the
Honeycomb Investment Trust ("HIT"), which is managed by Pollen
Street Capital and is designed to be complementary to our Co-Funder
base and Loan Notes. As announced on 4 December 2020 the HIT credit
facility was increased to GBP75m from GBP45m and the term was
extended to 28 January 2024. At 31 December 2021 the total drawn
was GBP49.9m (31 December 2020: GBP45.0m). The HIT facility
continues to be strategic for the business and is generally
utilized in relation to funding development loans.
Sancus has additionally secured a forward flow bridge funding
arrangement with a global private equity backed debt acquisition
business and continues to explore additional long term financing
lines that could sit alongside our syndicated lending approach.
The availability, cost and flexibility of funding is key to
achieving our growth ambitions and we are reviewing the capital
position of the business with a view to ensuring it is best placed
to grow funding capacity on improved terms. Over the course of 2021
the loan book funded by institutional funding increased by 22% with
the majority of the UK and Irish loan book funded by this channel.
We will seek to increase this along with the loan notes over
time.
Own capital has fluctuated around GBP7m/GBP8m over the course of
the year inline with our strategy to increase our Return on
Tangible Assets ("ROTA").
Finance & Operations
A focus on operational efficiencies within Finance and
Operations to be driven by technology wherever possible is
underway, linking into the technology strategy noted above.
Continued focus and improvement on Corporate Governance, Compliance
and Risk via way of policy and procedures to ensure the business is
well set for future growth plans.
Effective compliance and corporate governance remains a priority
for the Board. This is critical to ensuring that only
well-considered risks are taken, and expected returns emerge as
planned.
Sancus has developed, and continues to evolve, its own
proprietary loan managements system ("LMS") for the administration
of loans. A comprehensive review of the LMS system and our wider
Technology strategy has been carried out during the year and
further steps will be undertaken in 2022.
As highlighted above, we have made a number of recent hires
across the business, in particular to bolster our Funding and
Origination capabilities in the markets in which we are active. At
the end of December 2021, the Group headcount was 35 (31 December
2020: 25) with the largest increase in the Sales and Credit teams
and as we build our presence across the UK and Ireland, we expect
this to increase over time.
A key milestone at the end of 2020 was the successful new equity
raise as well as restructuring our debt (Bonds and ZDPs) and
increasing and extending the term of our facility with HIT. This
transaction had the full support of our largest shareholder
Somerston Group who participated in both the equity raise and new
bond issue. With the ZDP's intended to play a long-term part the
Group's finance strategy, given the current maturity date of 5
December 2022, we intend to engage with the ZDP holders in due
course in order to seek their support at this critical time in the
Group's turnaround and as it embarks on a redefined growth
strategy.
Realising value from the legacy FinTech Ventures Investments
remains a target for the management team. M onitoring and
governance of FinTech Ventures is ongoing and we continue to assist
our investee platforms with their strategy. Unfortunately, the
profitability of many of these companies have failed to meet
expectations within an acceptable timeframe and their ability to
raise additional capital without proving concept is severely
constrained. It remains a challenging market for many of the
FinTech platforms.
Strategic KPIs
The Board have agreed the following KPI's with the senior
management team. These have been selected based on their link to
the successful delivery of our strategy and the executive
management team will be monitored against these throughout the
year. The composition of KPI's are further monitored by the Board
on a regular basis and upon their successful delivery are designed
to create shareholder value.
-- Revenue growth.
-- Growing loans under management.
-- Reducing cost of funding.
-- Become a capital efficient business.
-- Increasing operating profits - by increasing gross margin and reducing costs.
-- Return on Equity.
-- Ensuring a risk based approach is taken on all decision making.
Summary of Financial Performance
Our full year 2021 financial results have been overshadowed by
the ongoing impact of Covid-19 as we saw a reduction in our loan
book and revenue as delays to loan completions impacted the
results. This resulted in revenue of GBP9.0m for the year compared
to GBP10.9m last year.
2021 was the start of what we expect will be a transitional
period for the Group, where we saw the Group rebrand, a number of
changes to senior management and continued expansion of our
presence in the UK and Ireland. From the delays we saw over the
last few years on development sites and following a full review of
our loan books, we have seen an increase in IFRS 9 provisions in
the year of GBP6.4m. Coupled with an increase in operating costs as
we have started to build out the team for our growth plans, this
has resulted in an overall loss for the year of GBP10.3m for the
year (2020: loss of GBP14.5m).
Although headline revenue showed a decrease, Note 3 Segmental
Reporting sets out the results by Offshore, UK and Ireland and we
can start to see revenue growth in our growth target markets, with
the UK revenue up by 132% over the course of 2021.
Ireland results are relatively flat (revenue up 6%) against last
year however strict Covid-19 restrictions in Ireland during 2021
did cause some delays to loan closures. However, we have seen a
good start to 2022 and with most restrictions now largely lifted
and further resources allocated to Ireland we expect 2022 to show a
good growth story.
We have seen Offshore revenue decrease by 12% in the year,
partly due to some large exit fees which were received in 2020 but
also a reduction in administration fees as we saw the loan book in
this region decrease over the last few years. The Offshore team has
been rebuilt over the course of 2021 and into 2022 following some
changes in senior management and they are focussed on building the
loan book over the next few years.
Operating costs in the year were GBP6.2m (2020: GBP5.6m) with a
breakdown shown in Note 7. The increase we have seen this year is
largely around employment costs where we have started to build out
the UK and Irish operations as well as building up the credit team
in particular. We have also been through a period of change in
senior management during the year which has contributed to the
increase in these costs.
Following a thorough review of the loan book we have seen an
increase in the expected credit loss provisions (IFRS 9) of GBP6.4m
in the year (2020: GBP4.7m). This brings the total loan and debtor
provision balance to GBP13.5m. The majority of this provision
figure relates to loans written in or before 2018. As disclosed in
Note 22 the total loan and debtor provision balance is GBP13.5m at
31 December 2021 (2020: GBP7.9m). On a total loan and debtor
exposure including first loss positions within HIT and the loan
notes this represents 15.7% (2020: 7.0%).
The Group's net assets have reduced in the year from GBP29.5m at
31 December 2020 to GBP19.1m as a result of the operating loss in
the year which includes an increase in the expected credit loss
provision of GBP6.4m.
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. A full impairment review of the carrying amount of
goodwill was reported in the June 2021 interim accounts. The
resultant value in use calculation indicated that no impairment of
goodwill was required in either Sancus Jersey or Sancus Gibraltar.
Following on from this review the Board have considered whether
there have been any further indicative events of impairment since
June 2021, and they have concluded there have not. The next full
impairment review will take place in the 2022 Interim Report.
Group cash remains healthy. Within the GBP12.4m of cash and cash
equivalents balance at 31 December 2021, GBP4.9m relates to Group
operational cash with GBP7.5m within Sancus Loans Limited.
On balance sheet loans (excluding those loans in Sancus Loans
Limited) were GBP11.6m before IFRS 9 provisions at 31 December 2021
compared to GBP11.8m at 31 December 2020. During the year a
provision of GBP6.4m has been made against loans and loan debtors.
Sancus Loans Limited had loans of GBP49.9m at 31 December 2021 (31
December 2021: GBP45.0m).
The Group's liabilities consist of the Bond of GBP12.5m which
has a quarterly coupon of 7% p.a. and matures on 31 December 2025;
and ZDPs of GBP10.6m with a coupon of 8% and payable on 5 December
2022. The HIT credit facility was increased to GBP75m from GBP45m
on 4 December 2020 and at 31 December 2021 was GBP49.9m (GBP52.5m
including IOM loans) ((31 December 2020: GBP45.0m (GBP45.6m
including IOM loans)). The Directors are considering their options
regarding the ZDPs inline with the growth strategy of the business
as noted above.
Going Concern
The Directors have considered the going concern basis in the
preparation of the financial statements as supported by the
Director's assessment of the Company's and Group's ability to pay
its debts as they fall due and have assessed the current position
and the principal risks facing the business with a view to
assessing the prospects of the Company.
Liabilities which fall due in the next 12 months include the
final capital entitlement of the Company's ZDP shares, which are
repayable on 5 December 2022 at GBP11.3m.
As part of the Group's growth plan the Company is considering
its options regarding this liability which may include
re-financing, part repayment and/or extension of the ZDPs and an
equity raise. This will require consultation with the relevant
stakeholders, including ordinary shareholders and ZDP shareholders
and regulatory approvals and consents. Accordingly, there can be no
certainty that the proposals will proceed.
These factors and assumptions constitute a material uncertainty
that may cast significant doubt over the Company's ability to
continue as a going concern, such that it may be unable to realise
its assets and discharge its liabilities in the normal course of
business. The Directors expect that if they are able to action the
mitigations in accordance with the plan outlined above, the
material uncertainty will be extinguished. The Directors are
therefore of the opinion that the Company will have adequate
financial resources to continue in operation and meet its
liabilities as they fall due for the foreseeable future and
continue to adopt the going concern basis in preparing the
financial statements.
Outlook
The Group has been through a substantial period of change with a
new chief executive and other new members of the senior executive
team now in place. This new senior executive team have a clearly
defined strategy to return the business to profitability. The road
map to achieving this goal has been clearly communicated to the
whole team and all members of the Sancus team are clear on the
vision for the business together with understanding the role that
they have to play in delivering this target. While a great deal of
hard work lies ahead, I am certain the team are up to the challenge
and are excited about the future.
I want to thank all shareholders for their support during this
period of change and over the preceding year. We are enthusiastic
about the opportunities that lie ahead of us and look forward to
delivering profitability.
Rory Mepham
Chief Executive Officer
PRINCIPAL RISKS, UNCERTAINTIES AND RELATED INTERNAL CONTROLS
The Group aims to carefully manage the risks which are inherent
across its business activities in order to deliver an appropriate
risk adjusted commercial return. The principal risks which the
Group has consciously accepted in the pursuit of value creation are
liquidity risk, regulatory and compliance risk, market risk, credit
risk, strategic risk, and investment risk. With regard to the
FinTech activities, exposure to investment risk is a factor of the
strategic, liquidity, credit and operational risks assumed by the
platforms in which the Group is invested.
This section on the Group's Principal Risks should be read
together with the sections on the Group's Governance Framework, the
operation of the Audit and Risk Committee, as well as Note 22 which
describes the sensitivity of the Group's financial results to its
Financial Risk exposures. These sections explain how these risks
are being managed, monitored and governed.
The table below describes the Group's assessment of the
principal risks being those which have the potential to have a
significant impact on the Group's business model, future
performance, solvency or liquidity.
Principal Risks Internal controls mitigating Current Rating of Risks
Risks
Group
--------------------------------- --------------------------------
1. Capital and liquidity Medium
Risk
--------------------------------- --------------------------------
Sancus's own funding Sancus has a Treasury Completion of the fundraising
is sourced primarily Committee which meets and liability management
from the ZDP shares and once a month to manage exercise in December
the Corporate Bond (as its capital and liquidity 2021 has significantly
detailed in Note 17). position, and forecasts improved the Group's
over several years to capital and liquidity
Expansion of lending predict longer term position.
and investment activities funding requirements.
will be constrained to Management at Group
the extent of retained Management of each of and subsidiary level
profits unless further the operating companies are focussed on raising
sources of funding are balance their lending additional on and off
secured. and funding and proposals balance sheet funding
to advance lending are in order to grow lending
typically contingent activities and support
on sufficient funding funding commitments.
having been secured
in advance.
The business seeks to
maintain a material
liquidity buffer at
all times.
--------------------------------- --------------------------------
2. Regulatory and Compliance Low
Risk
--------------------------------- --------------------------------
As a Financial Services All entities have developed The compliance framework
business, compliance and implemented appropriate as described is considered
with regulation is considered policies and procedures to be operating effectively.
paramount within the relating to regulatory
Group, particularly with compliance and Anti The Group is mindful
regard to Anti Money Money Laundering. of the conflicts in
Laundering (AML) regulations Russia and Ukraine and
which are critically The Group Compliance have carried out a check
important. Committee monitors these of our clients against
risks, and forthcoming various sanction lists
The Company has chosen regulations, with appropriate in relation to Russia
to comply with the provisions reporting from the various and have not identified
of the QCA Corporate Heads of Compliance any individual or entity
Governance Code. and Money Laundering of any concern. Additionally,
Reporting Officers. we subscribe to WorldCheck
Further reviews of AML for standard AML checking
compliance are carried purposes with all clients
out by independent third set up for ongoing monitoring,
parties where appropriate. which provides any real-time
negative information,
The Company has an appointed that include updated
NOMAD, Liberum, with sanctions.
whom it liaises regularly,
to ensure compliance
with the AIM rules,
including the Market
Abuse Regulations.
Boards receive quarterly
reports from Compliance
Officers and where appropriate,
Money Laundering Reporting
Officers on compliance
monitoring plans and
any breaches identified.
--------------------------------- --------------------------------
3. Market risk Low
--------------------------------- --------------------------------
The primary market risks Exposures to these risks More information on
are considered to be are monitored regularly the sensitivity to these
interest rate and foreign by the Sancus Treasury risks is contained in
exchange risk. Given Committee and reported Note 22.
the nature of the business to the Board on a quarterly
operations, with relatively basis. Covid-19 could cause
short term lending and interest rate and foreign
currencies on lending These risks are identified exchange fluctuations
opportunities being matched and assessed at the although the impact
(or hedged) the exposure time of entering into of this we believe is
is considered to have new transactions. likely to be minimal
limited impact on its as loans have fixed
position as a Going Concern. rates and are short
term. Co-Funders might
Foreign exchange risk look elsewhere to investment;
primarily arises from however, we believe
the USD and Euro investments this to be a minimal
in the FinTech portfolio risk as our lending
and Euro loans held in model enables investors
the Irish lending book. to receive attractive
risk adjusted returns
on asset backed lending.
--------------------------------- --------------------------------
4. Credit Risk Medium
--------------------------------- --------------------------------
The Group has direct Each operational entity The IFRS 9 provision
credit exposures through has its own credit policies increased substantially
its on balance sheet and procedures which during the year. However,
lending and credit support. are the subject of at the credit performance
Indirect credit risk least annual review across the Group remains
(potential losses to by operating entity resilient with actual
Co-Funders) could impact Boards. losses incurred being
further business development. less than 1% of loans
The respective Credit advanced.
Committees take all
credit decisions, monitor See Note 22 (5) for
credit exposures on further details.
an ongoing basis and
manage recoveries situations. Covid-19 created downside
Following Covid-19 tighter risk through potential
lending criteria has delays in loan repayments
been implemented. and reduced recoveries.
We believe the risk
of this going forward
has reduced.
--------------------------------- --------------------------------
Sancus
--------------------------------- --------------------------------
5. Operational Risk - Medium
Execution of the Sancus
strategy
--------------------------------- --------------------------------
Approximately 80% of The Board and Executive By its nature, this
Sancus's capital has Committee of Sancus risk remains an on-going
been deployed into the Group recognise the area of focus for the
Sancus Group. There is challenge of building Board, particularly
a risk that the planned the business to meet with respect to business
growth of these businesses the financial targets development in the UK
will not be realised and actively manage and Ireland.
primarily as a result all aspects of the business
of sub optimal levels on an ongoing basis. The emergence of Covid-19
of loan origination and Plans and budgets are created downside risk
funding. in place and performance on new loan origination
against these is monitored levels although we believe
regularly by the management this risk has now reduced.
team and the Executive
Committee. IT capabilities for
Sancus were further
There continues to be enhanced during 2021,
strong demand from both providing Co-Funders
Borrowers and Co-Funders with online interactive
for the lending products services and creating
offered across the business, operational efficiencies.
and the risk adjusted
returns available to
Co-Funders.
--------------------------------- --------------------------------
FinTech Ventures
--------------------------------- --------------------------------
6. Investment risk - Low
Platform Valuations
--------------------------------- --------------------------------
Across the majority of The Group has board As a result of the platforms
the FinTech portfolio, seats or board observer taking longer to reach
the growth rates historically rights on most investee profitability, and given
have been slower than company boards and thus that several are seeking
originally anticipated is able to participate additional capital,
and the business models in the strategic discussions the Board has valued
have proved more capital and monitor the progress our holding of the FinTech
intensive. on each platform. portfolio at GBP0.5m
at the end of 2021.
Many of the FinTech platforms The Group regularly
require additional capital monitors the progress The valuations are also
to fund their ongoing of each business, with subject to a number
growth to enable them regular review of financial of material estimation
to reach profitability. and KPI reporting. uncertainties, refer
There remains a risk to Note 22 (4).
that some platforms may Period end valuations .
not be successful in are conducted for all
the longer term, either investments in platforms.
as a result of lack of These are based on a
loan funding, lack of variety of factors including
working capital funding the pricing for any
or difficulties in establishing recent relevant capital
a competitive position transactions by the
in their chosen markets respective platform
or using an appropriate
valuation methodology
such as a discounted
cash flow model. The
forecasts provided by
management of the platforms
are often challenged,
and where considered
appropriate, adjustments
are made and sensitivity
analysis is included
as part of the valuation
work.
--------------------------------- --------------------------------
SOCIAL RESPONSIBLITY
Our ESG journey at Sancus
At Sancus, we are committed to taking environmental, social and
governance ("ESG") factors seriously. We recognise our
responsibility to incorporate sustainability throughout the
operations of our business, be custodians of the environment and
practice good stewardship of our stakeholders' interests. We are
now taking steps to improve our approach to managing these
factors.
Q1 2022 has been focused on starting to define our ESG strategy.
Having now established an internal ESG focus group we will also
draw on external industry experts as required.
It is essential that we understand what ESG factors are most
important to our stakeholders, such that we can focus our strategy
around improving our approach to these material issues. We are well
on our way to completing a materiality assessment and intend to
engage with stakeholders in the coming period.
Our approach to ESG will be to breakdown the topics into People,
Planet and Prosperity. Starting by ascertaining which factors are
material to our business, establish our baseline, set objectives
& goals, assess the gap between goals and baseline, establish a
roadmap, set KPIs and report on progress.
We are committed to providing an ESG report, focusing on our
progress in the 2022 Annual Report.
CORPORATE GOVERNANCE
Board of Directors and Executive Management Team
Introduction
The Board recognises the importance of a strong corporate
governance culture.
The composition of the Board is the subject of ongoing review.
Somerston Group had the right to nominate a candidate for
appointment to the Board and took up this right in 2019 with the
appointment of Nick Wakefield. On the 8 March 2022 it was announced
that Nick Wakefield has been replaced by Tracy Clarke (bio noted
below).
Board of Directors
The Company operates a unitary Board Structure, comprised of
both Executive and Non-Executive Directors. Biographical details of
the Directors can be found below. The terms of Directors'
appointments are available from the Company Secretary.
On joining the Board, any new director will have received an
induction through face to face meetings with existing directors,
senior management and the Company Secretary.
The Chairman leads the Board and is responsible for its overall
effectiveness in directing the Company, its corporate governance
responsibilities, and addressing any training or development needs
of the directors.
Steve Smith - Independent Non-Executive Director
Mr Smith was formerly an Executive Director and the Chief
Investment Officer of The British Land Company plc, the FTSE 100
real estate investment trust, with responsibility for the group's
property and investment strategy, standing down in 2013. Prior to
this, Mr Smith was Global Head of Asset Management and Transactions
at AXA Real Estate Investment Managers, where he was responsible
for the asset management of a portfolio of assets valued at more
than EUR40 billion on behalf of life funds, listed property
vehicles, unit linked and closed end funds. Prior to joining AXA in
1999, Mr Smith was Managing Director at Sun Life Properties for
over five years. Over the last decade, Mr Smith has worked
extensively in governance related roles for a number of real estate
focused organisations. Mr Smith is Chairman of the Board and is a
member of the Audit and Risk Committee and Remuneration and
Nomination Committee. Mr. Smith was appointed to the Board on 11
May 2021. He is resident in the UK.
John Whittle - Independent Non-Executive Director
Mr Whittle has a background in large third party Fund
Administration. He has worked extensively in high tech service
industries and has in-depth experience of strategic development and
mergers/acquisitions. He has experience of listed company boards as
well as the private equity, property and fund of funds sectors. He
is currently a director of Starwood European Real Estate Finance
Limited and TRIG (both listed on the main market of the London
Stock Exchange) and Chenavari Toro Income Fund Limited (admitted to
trading on the Specialist Fund Segment of the London Stock
Exchange). Mr Whittle, a Chartered Accountant, has also served as
Finance Director of Close Fund Services Limited (responsible for
internal finance and client financial reporting), Managing Director
of Hugh Symons Group PLC and Finance Director and Deputy MD of
Talkland International Limited (now Vodafone Retail).
Mr. Whittle was appointed to the Board, the Audit and Risk
Committee and the Remuneration and Nomination Committee on 23
September 2016, after having served as an Alternate Director since
December 2015. He is resident in Guernsey. Mr Whittle is Chairman
of the Audit and Risk Committee, and of the Remuneration and
Nomination Committee.
Tracy Clarke - Non-Executive Director
Ms Clarke is a representative of the Somerston group of
companies ("Somerston"), the Company's largest shareholder which
has the right to nominate one individual for appointment to the
Board. Ms Clarke joined Somerston in 2016 and acts as the group's
Chief Operating Officer. Ms Clarke is also Managing Director of
Carlton Management Services Limited, a licensed Jersey trust
company business. Prior to joining Somerston, Ms Clarke worked for
Deutsche Bank in Jersey and Zurich for over 10 years, specialising
in financial Intermediary and external asset manager business. Ms
Clarke is a Fellow of the Institute of Chartered Accountants in
England and Wales and holds the CISI Investment Advice Diploma. Ms
Clarke was appointed to the Board on 8 March 2022 and is a member
of the Company's Audit and Risk Committee and Remuneration and
Nomination Committee.
Rory Mepham - Executive Director
Rory joined Sancus in January 2021, assuming the role of Interim
CEO on 1 July 2021 and was then confirmed as CEO and board member
on 23 November 2021. Joining Sancus from The Somerston Group where
he managed their European real estate platform which includes
business in the hotel, retail, land development, student housing
and PRS sectors. Rory has over 20 years experience in the UK and
European property market. He has spent his career working with
institutional capital and has an extensive track record in M&A,
corporate finance, capital raising, debt finance, investment
management and property development. Rory Holds an MBA from the
Cranfield School of Management, a BSc(Hons) in Land Management from
the University of Reading and qualified as a member of the Royal
Institute of Chartered Surveyors (MRICS).
Emma Stubbs - Executive Director
Emma joined the Group in November 2013 as Chief Financial
Officer and was appointed to the Board on 16 September 2014. Emma
is also a Board member of Sancus Group Holdings Limited and a
number of the subsidiary entities. Emma was appointed as a Non
Executive Director on Funding Options Limited on 24 March 2020.
Emma is also a Non-Executive Director of Amberton Limited. Emma is
a Fellow member of the Association of Chartered Certified
Accountants and qualified with Deloitte in 2004. She graduated from
the University of the West of England with a BA Hons degree in
Accounting and Finance. Emma is resident in Guernsey.
Executive Management Team
Rory Mepham - Chief Executive Officer
See above.
Emma Stubbs - Chief Financial Officer
See above.
Dan Walker - Chief Operating Officer (left Company on 31 January
2022)
James Waghorn - Chief Investment Officer (joined Executive
Management Team on 8 March 2022)
James was appointed to the Executive Management Team on 8 March
2022. James has over 14 years experience in the UK and European
real estate market. James has extensive experience across the
corporate real estate, investment and property development sectors.
For the past 6 years James' has led Somerston's land development
business, a strategic land and
development focused business with capacity for in excess of
2,350 units within its strategic portfolio. James holds a BSc in
Investment and Finance in Property from the University of Reading
and is MRICS accredited. James joined Sancus in January 2021.
GOVERNANCE FRAMEWORK
The Board is committed to maintaining high standards of
corporate governance throughout the Company's operations and to
ensuring that all of its practices are conducted transparently,
ethically and efficiently. The Board believes that scrutinising all
aspects of the Company's business and reflecting, analysing and
improving its procedures will minimise the potential for downside
risk and will preserve shareholder value. In compliance with the
AIM Rules for Companies, published March 2018, the Company has
chosen to comply with the provisions of the QCA Corporate
Governance Code (the "QCA Code"). The Company is also mindful of
the provisions of the Finance Sector Code of Corporate Governance,
as amended by the Guernsey Financial Services Commission in
November 2021.
The Board believes that applying the principles and reporting
against the provisions of the QCA Code accurately reflects the
nature, scale and complexity of the business and enables the Board
to provide information to shareholders on its activities in
accordance with the principles set out in a recognised governance
framework. Furthermore, through applying the relevant provisions
the Company is better positioned to mitigate downside risk and in
doing so, preserve long-term shareholder value. The Company's
corporate governance framework has been based on these principles
and is designed to deliver the Group's strategy, and the
application of such principles to the operation of the Board
ensures that its decision-making processes remain focussed on the
long-term sustainable success of the Company.
As at 31 December 2021, the Company complied substantially with
the relevant provisions of the QCA Code and it is the intention of
the Board that the Company will comply with these provisions
throughout the year ending 31 December 2022, save with regard to
the following:
-- The appointment of a Senior Independent Director: Given the
size and composition of the Board, the Board does not consider it
is necessary to appoint a Senior Independent Director. The Board
considers that all the independent Directors have different
qualities and areas of expertise on which they may lead where
issues arise and to whom concerns can be referred.
-- Internal audit function: The Board has considered the need
for an internal audit function and is satisfied that the compliance
policies, procedures and reporting mechanisms in place throughout
the group are sufficient, and that implementing a separate internal
audit function would be unnecessary. This requirement is assessed
annually by the Audit and Risk Committee.
How we apply the QCA Code
The Company has established specific formally constituted
committees and implemented certain policies, to ensure that:
-- It is led by an effective Board which is collectively
responsible for the long-term sustainable success of the Company
and establishes a culture whereby the tone is set from the top
which is consistent with the objectives, strategy and business
model of the Group;
-- the Board and its committees have the appropriate balance of
skills, experience, independence, and knowledge of the Company to
enable them to discharge their respective duties and
responsibilities effectively;
-- the Board establishes a formal and transparent arrangement
for considering how it applies the corporate reporting, risk
management, and internal control principles and for maintaining an
appropriate relationship with the Company's auditors; and
-- there is a dialogue with shareholders based on the mutual
understanding and alignment of objectives, conducted primarily
through the CEO and the Corporate Broker.
Risk management remains a key area of focus during Board
meetings.
Composition and Independence of the Board of Directors
The Board of Directors is responsible for ensuring the affairs
of the Company are properly managed through formulating, reviewing
and approving the Company's strategy, budgets, and corporate
actions and that oversight, scrutiny and challenge is applied to
Executives responsible for the day-to-day activities of the Group.
The Company seeks to deliver long-term growth for shareholders and
maintain a flexible, efficient and effective management framework
within an entrepreneurial environment.
It is important that the Board itself contains the right mix of
skills and experience in order to deliver the strategy of the
Company. As such, the Board is comprised of:
-- Two Independent Non-Executive Directors, one of which serves
as the Chairman, who is responsible for leadership of the Board and
ensuring its effectiveness on all aspects of its role;
-- One Non-Executive Director who, whilst sharing the fiduciary
and statutory duties of the independent directors, is also an
executive director of the Somerston Group, a significant
shareholder of the Company, and therefore not considered
independent under the QCA Code; and
-- Two Executive Directors, who are also members of the Group's
Executive Committee and are therefore not considered independent
under the QCA Code.
The Board is comprised of individuals holding professional
qualifications and experience relevant to the activities of the
Company. The time requirement expected from each of the Directors
is set out in writing in their respective appointment letters.
Liberum Capital has been appointed as the Company's Corporate
Broker and Nominated Adviser under the AIM Rules and advises on
compliance with the AIM Rules, corporate communications and acts as
financial adviser to corporate actions. Additionally, the Company
has appointed a professional Company Secretary who assists the
Board of Directors in preparing for and running effective board
meetings, including the timely dissemination of appropriate
information. The Company Secretary provides guidance to the extent
required by the Board on certain aspects of the legal and
regulatory environment, within which the Company operates.
The Board believes that long serving Directors should not be
prevented from forming part of the Board or from acting as Chairman
and no limit has been imposed on the overall length of service of
the Directors. Each Director will retire and seek reappointment at
every third annual general meeting, with those serving for nine
years or more subject to reappointment annually. The Board meets on
at least a quarterly basis during the financial year.
The Board has appointed several committees to support it in
different areas of the business; each with formal terms of
reference, with specific roles as set out below.
The Board undertakes an annual evaluation of its own
performance, the performance of its formally constituted committees
and that of individual Directors. This includes a formal process of
self-appraisal reviewing the balance of skills, experience,
independence and diversity present on the Board, and individual
director performance, contribution and commitment to the Group to
ensure that the Board and its committees continue to operate
effectively, or to identify areas where action is required. The
remainder of the Board is responsible for evaluating the
performance of the Chairman. The Chairman also has responsibility
for assessing the individual Board members' training requirements.
No significant findings were identified in the 2021 evaluation
which required further action.
The Directors remain mindful of the benefits which can flow from
increasing the level of diversity represented on the Board
including, but not limited to, cultural, gender, experience and
background. Such factors will be taken into consideration by the
Nomination Committee during any selection process.
Executive Management Team
As at the year end, the Company's Executive Management Team
comprised Rory Mepham (Chief Executive Officer), Emma Stubbs (Chief
Financial Officer) and Dan Walker (Chief Operating Officer and UK
Managing Director) (together the "Executive Management Team" or
"Management"). Management are responsible for the day-to-day
management of the Company's operations. The non-executive
independent Directors monitor and evaluate the performance of the
Management Team on an ongoing basis. Dan Walker left the Company on
31 January 2022 and on 8 March 2022 James Waghorn was appointed to
the Executive Management Team as Chief Investment Officer.
BOARD COMMITTEE STRUCTURE
Audit and Risk Committee
The Audit and Risk Committee conducts formal meetings at least
twice a year. The Audit and Risk Committee's key duties
include:
-- monitoring the integrity of the financial statements of the
Group, including its annual and half-yearly reports and any other
formal announcement relating to its financial performance,
reviewing, challenging (where necessary) and reporting to the Board
on significant financial reporting issues and judgements which they
contain having regard to matters communicated to it by the auditor,
and how they were addressed;
-- reviewing the Group's internal financial controls and the
Group's internal control and risk management systems;
-- making recommendations to the Board for it to put to the
shareholders for their approval in general meeting in relation to
the appointment, re-appointment or removal of the external auditor
and to recommend the remuneration and terms of engagement of the
external auditor;
-- monitoring the external auditor's independence and
objectivity and the effectiveness of the audit process, taking into
account relevant professional and regulatory requirements;
-- in conjunction with executive management, advise the Board on
the overall risk appetite, tolerance and strategy of the Group,
current risk exposures and future risk strategy; and
-- keep under review the Group's overall risk assessment
processes that inform the Board's decision making, ensuring both
qualitative and quantitative metrics are used.
The Audit and Risk Committee has three members, two of whom are
independent, non-executive directors and one of whom is a
non-executive director, and at least one member has recent and
relevant financial experience. The current members of the Committee
are John Whittle as the Chairman, Steve Smith and Tracy Clarke.
The Audit and Risk Committee is supported by a risk management
and oversight process employed by the Executive Management Team and
receives reports twice a year on key risks and developments during
the period, or as otherwise required in the case of a material
development.
The terms of reference of the Audit and Risk Committee are
available from the Company Secretary.
Remuneration and Nomination Committee
The purpose of the Remuneration and Nomination Committee is to
determine and agree with the Board the framework or broad policy
for the remuneration of the Company's Directors, senior executives,
and any bonus-related arrangements in place by the Company as well
as to consider the structure, size and composition of the Board.
The key duties of the Remuneration and Nomination Committee
include:
-- determining and agreeing with the Board the framework or
broad policy for the remuneration of the Company's Chairman,
executive and non-executive directors and such other members of the
management as it is designated to consider;
-- reviewing the ongoing appropriateness and relevance of the remuneration policy;
-- reviewing the structure, size and composition of the Board;
-- considering the succession planning for Directors and the Executive Management Team;
-- reviewing the leadership needs of the organisation; and
-- identifying candidates for appointment to the Board.
The Remuneration and Nomination Committee has three members, all
of whom are non-executive directors and two are independent. The
current members of the committee are John Whittle as the Chairman,
Steve Smith and Tracy Clarke.
The terms of reference of the Remuneration and Nomination
Committee are available from the Company Secretary.
Meetings and attendance
The Directors meet on a quarterly basis ('Quarterly' meetings
per the table below) and at other unscheduled times ('Other'
meetings per the table below) when necessary to assess Group
operations and the setting and monitoring of strategy and
performance.
The table below, details the attendance of the Board at eligible
Board and Committee meetings during the year, noting that certain
Directors retired or were appointed during the course of the year
as set out below the table:
Board
Remuneration & Nomination Audit and Risk Committee
Quarterly Other Committee
------------ --------- -------------------------------- -------------------------
Total number of meetings held
during the year 4 19 6 4
------------ --------- -------------------------------- -------------------------
Stephen Smith (Chairman)(1) 3 of 3 7 of 7 3 of 3 3 of 3
------------ --------- -------------------------------- -------------------------
Patrick Firth (2) 3 of 3 16 of 16 6 of 6 2 of 2
------------ --------- -------------------------------- -------------------------
John Whittle 4 of 4 18 of 19 6 of 6 4 of 4
------------ --------- -------------------------------- -------------------------
Nicholas Wakefield 4 of 4 18 of 19 6 of 6 4 of 4
------------ --------- -------------------------------- -------------------------
Andrew Whelan (3) 2 of 2 12 of 16 n/a n/a
------------ --------- -------------------------------- -------------------------
Emma Stubbs 4 of 4 19 of 19 n/a n/a
------------ --------- -------------------------------- -------------------------
Rory Mepham (4) 1 of 1 1 of 1 n/a n/a
------------ --------- -------------------------------- -------------------------
(1) Stephen Smith was appointed to the Board on 11 May 2021 and
appointed as Chairman of the Board on 1 September 2022.
(2) Patrick Firth resigned as Chairman of the Board on 31 August 2021.
(3) Andrew Whelan resigned from the Board on 30 June 2021.
(4) Rory Mepham was appointed to the Board on 23 November 2021.
Relations with Stakeholders
The Board's advisers and the Executive Management Team maintain
regular dialogue with key shareholders, the feedback from which is
reported to the Board and the Chairman. Shareholders who wish to
communicate with the Board should contact the Company Secretary in
the first instance.
The Board also regularly monitors the shareholder profile of the
Company. All shareholders have the opportunity to and are
encouraged to attend the Company's annual general meeting at which
members of the Board are available in person to meet shareholders
and answer questions.
Whilst the primary duty of the Directors is owed to the Company
as a whole, the Board takes into consideration the interests of all
key stakeholder groups as part of its decision-making process and
particular consideration is given to the impact of any decision on
holders of its securities, the Co-Funders to the underlying loan
businesses, and providers of the Group's long-term debt capital.
The Board also recognises the crucial roles played by those
involved throughout the Group's operations who contribute to
delivering strategy, including staff and key service providers, to
ensure a continued alignment of interests between their activities
and those of the Company.
Terms of Reference of Committees
Committee Terms of Reference are available from the Company
Secretary.
AUDIT AND RISK COMMITTEE REPORT
The Audit and Risk Committee
The Audit and Risk Committee has a formal terms of reference
mandate documenting the duties and responsibilities which it has
been delegated by the Board. These are available from the Company
Secretary.
The Audit and Risk Committee has been in operation throughout
the year under review.
Chairman and Membership
The Audit and Risk Committee comprises of John Whittle as
Chairman, Steve Smith and Tracy Clarke. Only Non-Executive
Directors serve on the Audit and Risk Committee and members of the
Audit and Risk Committee have no links with the Company's external
auditor and are independent of the Executive Management Team. The
Audit and Risk Committee meets not less than three times a year in
Guernsey and meets the external auditor at least twice a year in
Guernsey. The identity of the Chairman of the Audit and Risk
Committee is reviewed on an annual basis and the membership of the
Audit and Risk Committee, and its terms of reference are kept under
review. Regular attendees at the Audit and Risk Committee include
the CEO, CFO and CIO.
Duties
The Audit and Risk Committee is responsible for monitoring the
financial reporting process, including the appropriateness of the
Company's accounting policies and the effectiveness of the
Company's risk management and internal control systems.
The Committee continues to spend a considerable amount of time
reviewing significant risks and areas of judgement. In particular,
the Committee conducts detailed reviews and analysis of the
valuations prepared by the Executive Management Team of the FinTech
Ventures investments, the Subsidiary Goodwill value in use models
to assess if any impairment might be required and the Expected
Credit Loss model. These valuations are key elements in the Group's
financial statements and the Audit and Risk Committee questions
these carefully.
External Audit
The Audit and Risk Committee is responsible for overseeing the
relationship with the external auditor, including the ongoing
assessment of the auditor's independence. The Committee makes
recommendations to the Board with regard to the appointment of the
external auditor and approves their terms of engagement and fees.
The Committee discusses and agrees the nature and scope of the
audit as set out in the audit engagement letter, reviews the
results of the audit as described in the auditors' management
letter and the ongoing independence and objectivity of the external
auditor. Following a tender process, Moore Stephens were appointed
as the Company's auditor in 2021, taking over from Deloitte who
held this position since 2016.
Processes are in place to safeguard the independence of the
external auditor, including controls around the use of the external
auditor for non-audit services. The external auditor also provides
the Audit and Risk Committee with further assurance as to the
procedures that it maintains to preserve objectivity and
confirmation that it remains independent. All non-audit services
are pre-approved by the Audit and Risk Committee.
Effectiveness of External Auditor
The Committee assessed the effectiveness of the external auditor
and the external audit process for 2021 through a number of steps,
including:
-- agreement of their engagement letter and fees;
-- review of the external audit plan;
-- meetings with the external auditors;
-- considering the extent of any non-audit services provided by the external auditors;
-- considering the external auditors' fulfilment of the agreed
audit plan and variations from it;
-- considering the report from the auditor highlighting any
major issues that arose during the course of the audit; and
-- conducting interviews to obtain feedback from the Executive
Management Team to evaluate the performance of the audit team.
For the audit for the year ended 31 December 2021, the Audit and
Risk Committee was satisfied that the audit was effective and that
there were no factors which had any bearing on the independence or
effectiveness of the external auditor.
Financial Reporting
The Audit and Risk Committee reviews, considers and, if thought
appropriate, recommends to the Board the approval of the contents
of the half yearly report and annual report and audited financial
statements together with the external auditor's report thereon. It
focuses particularly on compliance with legal requirements,
accounting standards and the relevant Listing Rules. The ultimate
responsibility for reviewing and approving the half year report and
annual report and audited financial statements remains with the
Board.
The Audit and Risk Committee provides a forum through which the
external auditor reports to the Board and the external auditor is
invited to attend Audit and Risk Committee meetings at which annual
and half yearly financial statements are considered. After
discussions with the Executive Management Team and external
auditor, the Audit and Risk Committee determined that the key risks
of misstatement of the Group's financial statements relate to the
valuation of financial assets at fair value through profit or loss,
the valuation and recoverability of goodwill, loan impairments and
revenue.
Freely tradeable market prices are not available for the
majority of the Group's financial assets, including the carrying
value of goodwill arising on consolidation, which are therefore
based on a discounted cash flow basis. Goodwill impairment reviews
are carried out annually or sooner where an indicative event of
impairment has been identified. The next annual review will
coincide with the preparation of the 2022 interim accounts, there
having been no indicative event of impairment since the last annual
review which coincided with the preparation of the 2021 interim
accounts. Full details can be found in Note 2 (h), Note 3 and Note
12 to the financial statements.
For the valuations of the FinTech Ventures portfolio, the
Executive Management Team provides a detailed valuation report on a
quarterly basis. The Executive Management Team has confirmed to the
Audit and Risk Committee that the valuation methodology has been
applied consistently during the year. The accounting policies are
described in detail in Note 2 (f) to the financial statements.
The Audit and Risk Committee has assessed the processes around
the expected credit loss provisions recorded in respect of the
Group's loan assets and reviewed the IFRS 9 model adopted at
year-end which had also gone through the credit committee for
approval.
The accounting policies for revenue recognition are described in
detail in Note 2 (o) to the financial statements. The Audit and
Risk Committee has reviewed the revenue recognition policies of the
Group and has determined that they are in accordance with the
accounting standards and have been applied consistently.
After due consideration, the Audit and Risk Committee recommends
to the Board that the Annual Report and Financial Statements, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and
Company's performance, business model and strategy.
Non-Audit and audit related fees paid to the External
Auditors
During 2021 no non-audit fees were paid to Moore Stephens, the
external auditors. GBP15,000 was paid to Moore Stephens for audit
related services, being the half year review. There is no perceived
threat to auditor independence given the nature of the services
provided and the safeguards in place.
Risk Management and Internal Control Systems
During 2021, management continued to enhance its reporting on
risk management to the Board and the Audit and Risk Committee,
which cover the operation of the Company and its wholly owned
subsidiaries. The Audit and Risk Committee has received and
considered these reports on three occasions, which has been the
basis for its conclusion below.
In addition to the review of risk management reports, and in
accordance with the guidance published in the Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting by the Financial Reporting Council (the "FRC"), the Audit
and Risk Committee has reviewed the Company's internal control
procedures and concluded that these are adequate to manage the
current risk profile.
A robust, ongoing process of Risk Management and Internal
Control
The Board and Executive Management Team are responsible for
safeguarding the assets of the Group through establishing effective
systems of risk management and internal control. This
responsibility is shared by the Directors of subsidiary companies,
who are similarly responsible for safeguarding the assets of these
companies.
The Board is also responsible for deciding on whether the nature
and extent of risks taken within the Group are within its risk
appetite. Such risks have been formally defined, setting the basis
for the design and implementation of the Group's internal control
framework.
On behalf of the Board, the Audit and Risk Committee oversees
the Group's risk management and internal control systems. These
systems are designed to ensure proper accounting records are
maintained and that internal and published financial information is
reliable, and that the assets of the Group are safeguarded. Such a
system of internal controls can only provide reasonable and not
absolute assurance against misstatement or loss.
Critical components of the Group's internal control framework
include the documented policies which describe how each risk is to
be managed and governed and the governance committees established
in terms of such policies, which have mandates describing how they
should operate, what reports they should receive and how they
should govern the management of principal risks. Such policies have
been implemented at Company as well as subsidiary levels.
On a semi-annual basis, the Executive Management Team review the
key risks across the Group to ensure they are being managed within
the Company's risk appetite. Action plans are drawn up if any risks
are considered to be outside of the Company's risk appetite and
these are monitored on a regular basis until they return to levels
back within the risk appetite.
On a semi-annual basis, the Board and/or Audit and Risk
Committee receive reports on risk management, the key risks and the
exposures outstanding. Also included in these reports are the
results of Executive Management Team's risk and issue
identification discussions noted above. These meetings also provide
the Directors with the opportunity to consider any other issues
which management may not have identified and give direction on any
additional risk management actions which might be required.
Described in the table below are the Group's risk definitions
and the primary governance bodies, other than the Board and Audit
and Risk Committee which either manage or oversee the management of
such risks, at Company and/or subsidiary level.
Insurance
The Sancus and subsidiaries insurance programme is subject to
annual review each year, with cover generally renewed in April of
the following year. A significant amount of Insurance cover is held
for Public Indemnity, Directors' and Officers' liability, Cyber,
and Crime. Appropriate office and travel insurance is also in
place.
During 2021, the Committee did not receive any reports relating
to whistleblowing across the Group.
On behalf of the Audit and Risk Committee
John Whittle
Chairman
Audit and Risk Committee
REMUNERATION REPORT
Introduction
An ordinary resolution for the approval of the annual
remuneration report will be put to the shareholders at the annual
general meeting to be held in 2022.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee comprises of John
Whittle as Chairman, Steve Smith and Tracy Clarke. The key duties
include, but are not limited to, agreeing a framework for Director
remuneration, ensuring management staff are appropriately
incentivised to enhance performance, and reviewing the
effectiveness of the remuneration policy on an on-going basis. No
Director is involved in determining their own remuneration.
Remuneration Policy
In February 2020 the Remuneration Policy was last approved and
adopted. The Company is committed to the objective of maximising
shareholder return in the longer term. The remuneration policy aims
to be competitive, aligned with shareholder interests and
relatively simple and transparent. The Board takes into
consideration the views of significant shareholders when
determining the remuneration of directors.
The objective is to put in place a remuneration package that, as
a whole:
-- aligns the interests of employees with that of shareholders and the success of the Company;
-- is appropriately benchmarked, such that it aids retention and recruitment; and
-- meets applicable legal or regulatory requirements, is tax
efficient and simple to implement and administer.
The Board is reviewing the Remuneration Policy against these
objectives.
The Policy is divided into two parts; the first part in relation
to the remuneration of the Non-Executive directors of the Company,
and the second part in relation to the remuneration of the
Executive Directors of the Company.
Part 1 - Remuneration Policy of Non-Executive Directors
Each Non-Executive Director receives a xed fee per annum based
on their role and responsibility within the Company and the time
commitment required. It is not considered appropriate that
Non-Executive Directors' remuneration should be performance related
and none of the Non-Executive Directors are eligible for pension
bene ts, share options, long-term incentive schemes or other bene
ts in respect of their services as Non-Executive directors of the
Company. Shares held by the Non-Executive Directors are disclosed
in the Annual Report.
Pursuant to Article 30.3 of the Company's Articles of
Incorporation (the "Articles") the Board may award additional
remuneration to any Director engaged in exceptional work at the
request of the Board on a time spent basis to compensate for the
additional time spent over their expected time commitment.
The total remuneration of the Non--Executive Directors has not
exceeded the GBP300,000 per annum limit (excluding amounts payable
in respect of any out-of-pocket expenses pursuant to Article 30.2
or any additional remuneration awarded pursuant to Article 30.3)
pursuant to an ordinary resolution passed at the Annual General
Meeting of the Company held on 19 May 2016.
The Articles provide that Non-Executive Directors retire and
offer themselves for re--election at the rst annual general meeting
after their appointment and at least every three years thereafter.
A Non-Executive Director's appointment may at any time be
terminated by and at the discretion of either party upon three
months' written notice. A Non-Executive Director's appointment will
terminate immediately without notice (or payment in lieu of notice)
if such director is not re-appointed at a General Meeting of the
Company (if required under the Articles), if such director is
removed as a director at a General Meeting of the Company, or if
such director resigns or ceases to be a director in accordance with
the provisions of the Articles.
The terms and conditions of appointment of each Non-Executive
Director are available for inspection at the Company's registered
of ce.
The last independent remuneration review was carried out in July
2014. The Directors intend to put in place a Long-Term Incentive
Plan for Senior Management and an external advisor will be engaged
to assist with this during the course of 2022 which will also
include a remuneration review.
For comparative purposes the table below sets out the
Non-Executive Directors' remuneration approved and actually paid
for the year to 31 December 2020 as well as proposed for the year
ending 31 December 2021 (to be approved at the 2022 AGM). There has
been no change to the base fee, other than the fees noted below
were reduced by 10% in the third quarter of 2020 as part of the
Covid-19 cost saving initiative.
Director Role Base for Additional Total fees Base for Additional Total fees
2021 fees for for 2021 2020 fees for for 2020
2021 2020
Patrick Non-Executive GBP23,333 GBP10,000 GBP33,333 GBP34,125 GBP14,625 GBP48,750
Firth* Director and for for Chairman
Chairman of Chairman of of the Board
the Board the Board
-------------- ------------- ------------ ------------- ------------- ------------- -------------
Steve Non-Executive GBP22,446 GBP5,000 GBP27,446 - - -
Smith** Director and for
Chairman of Chairman of
the Board the Board
-------------- ------------- ------------ ------------- ------------- ------------- -------------
John Whittle Non-Executive GBP35,000 GBP5,000 GBP42,500 GBP34,125 GBP4,875 for GBP41,438
Director, for Chairman of
Chairman of Chairman of the ARC and
the Audit and the ARC and GBP2,438 for
Risk GBP2,500 Chairman of
Committee and for Rem Co
Chairman of Chairman of
the Rem & Nom
Remuneration Co
Committee
-------------- ------------- ------------ ------------- ------------- ------------- -------------
Nicholas Non-Executive GBP35,000 Nil GBP35,000 GBP34,125 Nil GBP34,125
Wakefield*** Director
-------------- ------------- ------------ ------------- ------------- ------------- -------------
Total GBP115,779 GBP22,500 GBP138,279 GBP102,375 GBP21,938 GBP124,313
-------------- ------------- ------------ ------------- ------------- ------------- -------------
* Pro rata for 2021 as Mr Firth resigned as a Non-Executive
Director and Chairman of the Board on 31 August 2021.
** Pro rata for 2021 as Mr Smith was appointed to the Board on
11 May 2021 and succeeded Mr Firth as Board Chairman following his
resignation.
*** Pro rata for 2022 as Mr Wakefield was succeeded by Ms Clark
on 8 March 2022.
Part 2 - Remuneration Policy of Executive Directors
Base Remuneration
For the year ended 31 December 2021, the Executive Directors'
base salary from the Company, excluding all reasonable expenses
incurred in the course of their duties which were reimbursed by the
Company, were as detailed in the table below:
31 December 2021 31 December 2020
Andrew Whelan* GBP260,981 GBP260,981
----------------- -----------------
Rory Mepham** GBP220,000 -
----------------- -----------------
Emma Stubbs GBP170,000 GBP163,113
----------------- -----------------
Dan Walker GBP200,000 GBP175,960
----------------- -----------------
*Mr Whelan resigned on 30 June 2021, and his contract ended on
28 February 2022.
** Mr Mepham was appointed Interim CEO on 30 June 2021 and
permanent CEO on 23 November 2022.
In addition to fixed salary payments, in 2021 the Executive
Management Team members received pension contributions of GBP3,278
(Andrew Whelan), GBP7,045, Rory Mepham, GBP6,299, (Emma Stubbs) and
GBP7,581 (Dan Walker). (2020: GBP19,478 (Andrew Whelan), GBP12,174
(Emma Stubbs), GBP6,932 (Aaron Le Cornu) and GBP9,240 (Dan
Walker)).
Long Term Incentives
The Board intends to introduce a Long Term Incentive Plan for
Senior Management during 2022 and an external advisor will be
engaged to assist with this.
Discretionary Executive Bonus
In the year to 31 December 2021 discretionary bonuses in cash of
GBP125,000, GBP50,000, GBP75,000 and GBP75,000 were paid to Andrew
Whelan, Rory Mepham, Emma Stubbs and Dan Walker respectively (Year
to 31 December 2020: discretionary bonuses of GBP125,000, GBP25,000
and GBP60,000 were paid to Andrew Whelan, Emma Stubbs and Dan
Walker respectively).
On behalf of the Remuneration Committee
John Whittle
Remuneration Committee Chairman
DIRECTORS' REPORT
The Directors submit their Report together with the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of
Financial Position, the Consolidated Statement of Changes in
Shareholders' Equity, the Consolidated Statement of Cash Flows and
the related Notes for the year ended 31 December 2021, which have
been prepared in accordance with International Financial Reporting
Standards as adopted by the UK, in accordance with any relevant
enactment for the time being in force, and are in agreement with
the accounting records, which comply with Section 238 of The
Companies (Guernsey) Law, 2008.
Principal Activities
The Company was incorporated and domiciled in Guernsey, 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 Authorised as a Closed-ended
Investment Scheme and was subject to the Authorised Closed-ended
Investment Scheme Rules 2008 issued by the Guernsey Financial
Services Commission ("GFSC"). On 25 March 2015, the Company was
registered with the GFSC as a Non-Regulated Financial Services
Business, at which point the Company's authorised fund status was
revoked. The Company's Ordinary Shares were admitted to the AIM
market of the London Stock Exchange on 5 August 2005. The ZDPs were
listed and traded on the main market of the London Stock Exchange
with effect from 5 October 2015 and following shareholder approval
now have a maturity date of 5 December 2022. The Company's 2021
bonds were repaid on 21 December 2021 and a total of GBP12.575m
principal of new bonds (the "New Bonds") were issued on 22 December
2021. The New Bonds are not listed and have an interest rate of
7%.
The Company does not have a fixed life and the Articles do not
contain any trigger events for a voluntary liquidation of the
Company.
Following the approval by Shareholders at the Company AGM on 19
May 2016, the Company changed its status from being an investing
company for the purpose of the AIM rules to a trading Company.
The Executive Management Team is responsible for the day-to-day
management of the Company.
The Group
As at 31 December 2021, the Group comprises the Company and the
entities disclosed in Note 20 to the financial statements.
Directors and Executive Management Team of the Company
A list of the Directors and the Executive Management Team who
served the Company during the year and as at 30 March 2022 is set
out in this announcement.
Results and Dividends
No Dividends were paid during the year (31 December 2020:
Nil).
Substantial Shareholdings
As at 31 December 2021, the Company was aware of the following
substantial shareholders who held 3% or more of issued share
capital of the Company:
Number of Percentage of total
Ordinary Shares ordinary shares
held issued held
Somerston Group 200,349,684 40.90%
----------------- --------------------
Philip J Milton & Company plc 86,793,928 17.72%
----------------- --------------------
Investec Wealth and Investment 16,590,873 3.39%
----------------- --------------------
DBH Global Holdings 15,603,285 3.19%
----------------- --------------------
Chelverton Asset Management 14,700,000 3.00%
----------------- --------------------
Directors' Interests
As at 31 December 2021, the Directors had the following
beneficial interests in the Ordinary Shares of the Company:
31 December 2021 31 December 2020
No. of Ordinary No. of Ordinary No. of Ordinary % of Ordinary
Shares Held Shares Held Shares Held Shares
---------------- ---------------- ---------------- --------------
John Whittle 138,052 138,052 138,052 0.03
---------------- ---------------- ---------------- --------------
Nick Wakefield - - - -
---------------- ---------------- ---------------- --------------
Emma Stubbs 1,380,940 1,380,940 1,380,940 0.28
---------------- ---------------- ---------------- --------------
Steve Smith (Chairman) - - -
---------------- ---------------- ---------------- --------------
Rory Mepham - - - -
---------------- ---------------- ---------------- --------------
Statement of Directors' Responsibilities
The Directors are responsible for preparing the financial
statements in accordance with International Financial Reporting
Standards (IFRS) as adopted by the United Kingdom (UK), and The
Companies (Guernsey) Law, 2008 for each financial period to give a
true and fair view of the state of affairs of the Group as at the
end of the financial year and of the profit or loss for that
period. International Accounting Standard 1 requires that financial
statements present fairly for each financial period the Group's
financial position, financial performance and cash flows. This
requires faithful representation of the effects of transactions,
other events and conditions in accordance with the definitions and
recognition criteria for assets, liabilities, income and expenses
set out in the International Accounting Standards Board's
"Framework for the preparation and presentation of financial
statements". In virtually all circumstances a fair presentation
will be achieved by compliance with all IFRSs as adopted by the
UK.
In preparing the financial statements, the Directors are
required to:
-- Ensure that the financial statements comply with the
Memorandum and Articles of Incorporation and IFRSs, as adopted by
the United Kingdom;
-- Select suitable accounting policies and apply them consistently;
-- Present information including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- Make judgements and estimates that are reasonable and prudent; and
-- Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company and the
Group will continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements have been properly prepared in
accordance with The Companies (Guernsey) Law, 2008. They are also
responsible for safeguarding the assets of the Company and the
Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors also confirm that the annual report and financial
statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group and Company's performance, business model and
strategy.
Internal Controls Review
Taking into account the ongoing work of the Audit and Risk
Committee in monitoring the risk management and internal control
systems on behalf of the Board the Directors have conducted a
robust assessment of the principal risks and uncertainties faced by
the Group and is satisfied that each of these has been properly
identified and is being effectively managed through the operation
of appropriate internal controls and risk management systems,
within the constraints of the resources of the Group.
Statement as to Disclosure of Information to Auditor
The Directors who held office at the date of approval of this
Directors' Report confirm that:
-- There is no relevant audit information of which the Company's
auditors is unaware; and
-- The Directors have taken all steps that they ought to have
taken to make themselves aware of any relevant audit information
and to establish that the auditors are aware of that
information.
Auditor
Moore Stephens have indicated their willingness to continue in
office and a resolution to re-appoint Moore Stephens will be tabled
at the forthcoming AGM.
Going Concern
The Directors have considered the going concern basis in the
preparation of the financial statements as supported by the
Director's assessment of the Company's and Group's ability to pay
its debts as they fall due and have assessed the current position
and the principal risks facing the business with a view to
assessing the prospects of the Company.
Liabilities which fall due in the next 12 months include the
final capital entitlement of the Company's ZDP shares which are
repayable on 5 December 2022 at GBP11.3m.
As part of the Group's growth plan the Company is considering
its options regarding this liability which may include
re-financing, part repayment and/or extension of the ZDPs and an
equity raise. This will require consultation with the relevant
stakeholders, including ordinary shareholders and ZDP shareholders
and regulatory approvals and consents. Accordingly, there can be no
certainty that the proposals will proceed.
These factors and assumptions constitute a material uncertainty
that may cast significant doubt over the Company's ability to
continue as a going concern, such that it may be unable to realise
its assets and discharge its liabilities in the normal course of
business. The Directors expect that if they are able to action the
mitigations in accordance with the plan outlined above, the
material uncertainty will be extinguished. The Directors are
therefore of the opinion that the Company will have adequate
financial resources to continue in operation and meet its
liabilities as they fall due for the foreseeable future and
continue to adopt the going concern basis in preparing the
financial statements.
Board Succession
The Board notes the resignation of Patrick Firth in August 2021
and the appointment of Steve Smith who succeeded Mr Firth as
Chairman of the Board on his resignation. The Directors remain
focussed on ensuring the Board is comprised of individuals with the
requisite skills, knowledge, experience and diversity to operate
effectively and to meet the future leadership needs of the Company.
The Board welcomes the appointment of Ms Tracy Clarke who succeeded
Mr Nick Wakefield in March 2022 as the Somerston appointed Board
representative.
Independent auditor's report to the members of Sancus Lending
Group Limited
Opinion
We have audited the financial statements of Sancus Lending Group
Limited (the 'company' or the 'parent company and its subsidiaries
together as the 'group') for the year ended 31 December 2021 which
comprise of the Consolidated Statement of Comprehensive Income,
Consolidated Statement of Financial Position, Consolidated
Statement of Cash Flows, the Consolidated Statements of Changes in
Equity and notes to the financial statements, including a summary
of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as
adopted by the United Kingdom and, as regards the Group's
consolidated financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
In our opinion:
-- the financial statements give a true and fair view of the
state of the group's affairs as at 31 December 2021 and of the
group's loss for the year then ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the United Kingdom; and
-- the Group's financial statements have been prepared in
accordance with the requirements of the Companies (Guernsey) Law,
2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's Responsibilities for the audit of the financial
statements section of our report. We are independent of the Group,
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in Guernsey, including the
FRC's Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Material uncertainty related to going concern
We draw attention to Note 2(a) in the financial statements,
which sets out that the company's ZDP shares are repayable on 5
December 2022 at GBP11.3 million and that the company is
considering its options regarding this liability. As stated in Note
2(a), this indicates that a material uncertainty exists that may
cast significant doubt on the company's ability to continue as a
going concern. Our opinion is not modified in respect of this
matter.
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the Group's consolidated financial statements is
appropriate. Our evaluation of the directors' assessment of the
entity's ability to continue to adopt the going concern basis of
accounting included Review of board and treasury minutes,
subsequent year financial forecasts and management's going concern
assessment.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this announcement.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
The key audit matters that we identified in the current year
are:
Audit Matter Procedures
Impairment of Goodwill We obtained our understanding of how
the discounted cash flow forecasts are
As at 31 December 2021, the Group modelled as part of the Board's processes
has recorded goodwill of GBP22.9m to identify and recognise impairment.
(2020: GBP22.9m) representing With regards to valuation, we performed
23.1% (2020: 22%) of group total the following procedures:
assets at year end. Discounted
cash flow models are prepared
by management to assist the Board We obtained an understanding of the
and the Audit and Risk Committee relevant controls over the impairment
in determining whether indicators assessment process;
of impairment exist and estimating
the recoverable amount of goodwill, We have reviewed and checked the key
based on information available assumptions to the cash flows including
at 30 June 2021. The management revenue growth rates, discount rates,
believes that there is no further the potential impacts of Covid-19 and
change till 31 December 2021. future income and expenditure cash flows,
and tested for any inconsistencies with
The risk is explained further our understanding of the group's business
in the Strategic report where model;
this is included as a key risk
of misstatement. Note We internally performed stress testing
2(h) and Note 3 set out the associated on the key assumptions to determine
accounting policy and disclosure the impact on the recoverable amount
in respect of critical judgements of goodwill and whether this would lead
and key sources of estimation to any impairment;
uncertainty, with Note 12 setting
out details of the impairment We checked the critical model assumptions
tests and goodwill related to the cash flow and growth
valuation sensitivities. rate assumptions, which were used in
the forecast to model the recovery to
pre-Covid-19 levels of loan origination,
by assessing trends in external sector
reports, evaluating the expected cash
flows from the loan pipeline and loans
originated post impairment test date;
We agreed inputs to supporting evidence
where appropriate;
We reviewed the models prepared by management
for consistency with the requirements
of IAS 36;
We challenged management's assertion
that no further impairment triggers
exist at the balance sheet date,
considering the sources of information
to identify such indicators as listed
in IAS 36 Impairment of Assets; and
We reviewed the disclosures made per
requirements of IAS 36.
Based on our audit work, we concur with
management that the goodwill balance
was not impaired as at 31 December 2021.
As described in Note 3 to the financial
statements, we noted that management
have assumed a recovery to pre-Covid-19
levels of loan issuance in 2021 in their
forecasts and should this not occur,
this could lead to future impairment.
Note 12 to the financial statements
describes the underlying sensitivity
of the key inputs used.
-------------------------------------------------------------
Impairment and recoverability We have performed the following procedures:
of loans receivable
As at 31 December 2021. the aggregate We have obtained an understanding of
value of Sancus loans amounted significant controls over the loan's
to GBP53.24m (2020: GBP53.22m) impairment process;
representing 54.89% of total assets
(2020: 51.7%). The loan portfolio Performed a walkthrough of relevant
comprises property-backed (Sancus) controls in the valuation process to
and Small and Medium-sized Enterprises confirm they were appropriately designed
("SME") loans (via BMS Finance and implemented;
(UK) Sarl). Through Sancus, the
group has direct exposure to loans We have tested, on a sample basis, inputs
through co-investment alongside used in the 'Loans Monitoring Report',
third-party lenders. including the accuracy of covenant calculations,
such as loan to value ratios, collateral
The group has also provided a values, and other financial and non-financial
first loss guarantee as part of information;
the Sancus Loan Note structures
and has direct investment into We have checked the reasonableness of
loan SPVs including BMS Finance management's significant judgments relating
(UK) Sarl. The value of these to the categorisation of loans into
assets are also supported by the the various credit stages required under
underlying loan book. Management IFRS 9. We have considered this in relevance
is required to assess loans for to management's definition of a significant
impairment, including the application increase in credit risk ('SICR') and
of the expected credit loss ('ECL') the definition of default
model under IFRS 9. and performed a review of the Loan
Monitoring Report to assess evidence
In making this assessment, management of changes in credit risk resulting
makes several significant judgements. from factors such as:
These include determining appropriate - exceedances in LTV;
assumptions for calculating the - covenant breaches;
loss allowance under IFRS9 (including - delinquencies in payments; or
probability of default and loss - other signs of financial stress.
given default), as well as loan-specific
matters including cash flow forecasts We also checked the reasonableness of
and covenant compliance, specifically management's assumptions related to
related to loan to value (LTV) the recoverable value of any non-performing
ratio. As a result, errors or loans in light of available evidence
deliberate manipulation of these and the underlying collateral;
determining factors could result
in material misstatement of the We have checked the reasonableness of
financial statements, as such management's assumptions relating to
it is their capital market expectations, such
considered as a fraud key audit as Covid-19, including any overlays
matter. required to compensate for the change
in the market environment not reflected
The risk is explained further in the ECL model;
in the strategic report where
this is included as a key risk We have evaluated the reasonableness
of misstatement. Note of management's judgements and estimates
2(f) and Note 3 set out the associated in deriving the probability of default
accounting policy and disclosure (PD), determining the loss given
in respect of critical judgements default (LGD) and exposure at default
and key sources of estimation (EAD) for each stage within which loans
uncertainty, with Note 22 setting are classified and their compliance
out details of the associated with IFRS 9 requirements;
risk factors, including
credit risk. We tested the numerical accuracy of
the ECL calculation based on the above
inputs; and
We evaluated the adequacy of disclosures
made in the financial statements in
light of the requirements of IFRS 7
and IFRS 9.
We have concluded that the overall carrying
value of loans is reasonable.
As described in Note 3 to the financial
statements, IFRS 9 requires the application
of a probability-weighted unbiased estimate
in determining the ECL
on loans;
there are therefore certain loans where
the amounts recovered could be materially
different to the
estimate at 31 December 2021.
Note 22 to the financial statements
describes the underlying sensitivity
of the key inputs used
-------------------------------------------------------------
Revenue recognition We have performed the following procedures:
The Group's revenue for the year
ended 31 December 2021 was GBP9m We have obtained reports from the Loan
(2020: GBP10.86m) of which GBP5.39m Management System ("LMS"), related to
(2020: GBP5.53m) sourced from interest income and tested on sample
interest income and fees enforced basis by recalculating interest income
as per lending agreements and and comparing it with the amounts accounted
GBP3.62m (2020: GBP5.33m) was in the general ledger.
from interest on loans.
We also performed analytical review
We consider revenue as a presumed to test the reasonableness of interest
fraud risk and have directed our income.
tests towards this risk
For fee income, we have verified on
sample basis, fee from various contracts
and tested for accuracy.
We have concluded that the reported
revenue is presented fairly.
-------------------------------------------------------------
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work. Based on our
professional judgement, we determined materiality for the financial
statements as a whole as follows:
Group Materiality GBP450k
Basis 2% of net assets
-----------------------------------------------------------------
Rationale considered as most appropriate based
on the significance of the on balance
sheet lending and goodwill balances.
-----------------------------------------------------------------
In determining performance materiality,
we considered the following significant
judgements:
* Our risk assessment, including our assessment of the
Group's overall control environment; and
* No past audit experience with the Group.
-----------------------------------------------------------------
We have also adopted a lower level of materiality for revenue
balances consistent with the prior year audit. We consider revenue
to be a critical performance measure for the group as it is
expected
to be a key driver for future distributions from profits now the
group has further developed its SME and property backed lending
business.
The lower level materiality applied was GBP180k (2020: GBP177k),
being approximately 2% (2020: 1.7%) of total revenue. We agreed
with the Audit and Risk Committee that this was appropriate as
revenue balances are relatively low compared to our overall group
materiality set out above, yet there is an increasing focus on
these as performance measures.
Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Group performance materiality was set at 60%
of group materiality for the 2021 audit (2020: 60%). In determining
performance materiality, we considered the following factors:
-- Our risk assessment, including our assessment of the group's
overall control environment and that we consider it appropriate to
rely on controls on a key business process;
-- Our past experience of the audit, which has indicated a low
number of uncorrected misstatements identified in prior periods;
and
-- The potential impact of Covid-19 on the application of
control procedures which might increase the possibility of having
undetected misstatements.
Error reporting threshold
We agreed with the Audit and Risk Committee that we would report
to the Committee all audit differences in excess of GBP23k (2020:
GBP33k), as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds. We also report to
the Audit and Risk Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the group
and its environment, including internal control, and assessing the
risks of material misstatement for the parent company and its
subsidiaries. Audit work to respond to the risks of material
misstatement was performed directly by the group audit team for
both the parent entity and its subsidiaries. All subsidiaries in
the group were subject to full scope audits.
Audit work performed for the subsidiaries was executed by the
group audit team at levels of materiality applicable to each
subsidiary, which in all instances was lower than group materiality
and ranged between GBP4.4k and GBP1,006k (2020: between GBP9.7k and
GBP557k).
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and
the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the consolidated financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial
statements. A further description of our responsibilities for the
audit of the financial statements is located on the Financial
Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
The objectives of our audit in respect of fraud, are; to
identify and assess the risks of material misstatement of the
financial statements due to fraud; to obtain sufficient appropriate
audit evidence regarding the assessed risks of material
misstatement due to fraud, through designing and implementing
appropriate responses to those assessed risks; and to respond
appropriately to instances of fraud or suspected fraud identified
during the audit. However, the primary responsibility for the
prevention and detection of fraud rests with both management and
those charged with governance of the company.
Our approach was as follows:
-- We obtained an understanding of the legal and regulatory
requirements applicable to the company and considered that the most
significant are the Companies (Guernsey) Law, 2008, International
Financial Reporting Standards as adopted by the UK, and taxation
legislation.
-- We obtained an understanding of how the company complies with
these requirements by discussions with management and those charged
with governance.
-- We assessed the risk of material misstatement of the
financial statements, including the risk of material misstatement
due to fraud and how it might occur, by holding discussions with
management and those charged with governance.
-- We inquired of management and those charged with governance
as to any known instances of non-compliance or suspected
non-compliance with laws and regulations.
-- Based on this understanding, we designed specific appropriate
audit procedures to identify instances of non-compliance with laws
and regulations. This included making enquiries of management and
those charged with governance and obtaining additional
corroborative evidence as required.
As part of an audit in accordance with ISAs (UK) we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
-- Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor's report. However, future events or
conditions may cause the group to cease to continue as a going
concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Use of our report
The report is made solely to the company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's
members as a body, for our audit work, for the report, or for the
opinions we have formed.
Jeff Vincent (Senior Statutory Auditor)
for and on behalf of Moore Stephens Audit and Assurance
(Guernsey) Limited
Level 2 Park Place
Park Street
St Peter Port
Guernsey
GY1 3HZ
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
Notes 2021 2020
GBP'000 GBP'000
Revenue 5 9,022 10,861
Cost of sales 6 (6,537) (6,118)
Gross profit 2,485 4,743
Operating expenses 7 (6,231) (5,582)
Operating loss before credit losses (3,746) (839)
Changes in expected credit losses 22 (6,399) (4,665)
Incurred losses on financial assets (90) -
Operating Loss (10,235) (5,504)
FinTech Ventures fair value movement 22 434 (5,996)
Other net losses 8 (557) (3,032)
Loss for the year before tax (10,358) (14,532)
Income tax 18 19 15
Loss for the year after tax (10,339) (14,517)
-------- --------
Items that may be reclassified subsequently to profit and loss
Foreign exchange gain/(loss) arising on
consolidation 12 (23)
-------- --------
Other comprehensive income/(loss) for the
year after tax 12 (23)
-------- --------
Total comprehensive loss for the year (10,327) (14,540)
======== ========
Loss for the year after tax attributable to equity holders
of the company (10,339) (14,517)
======== ========
Total comprehensive loss attributable to equity holders
of the company (10,327) (14,540)
======== ========
Basic Loss per Ordinary Share 10 (2.16)p (4.60)p
Diluted Loss per Ordinary Share 10 (2.09)p (4.19)p
-------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
31 December 31 December
2021 2020
ASSETS Notes GBP'000 GBP'000
Non-current assets
Fixed assets 11 660 774
Goodwill 12 22,894 22,894
Other intangible assets 13 53 168
Sancus loans and loan equivalents 22 6,643 3,863
FinTech Ventures investments 22 500 -
Other investments 100 -
Investments in joint ventures and associates 9 500 866
----------- -----------
Total non-current assets 31,350 28,565
----------- -----------
Current assets
Other assets 14 496 1,015
Sancus loans and loan equivalents 22 46,602 49,369
Trade and other receivables 15 6,075 8,204
Cash and cash equivalents 12,436 15,786
----------- -----------
Total current assets 65,609 74,374
----------- -----------
Total assets 96,959 102,939
----------- -----------
EQUITY
Share premium 16 116,218 116,218
Treasury shares 16 (1,172) (1,099)
Other reserves (95,952) (85,625)
----------- -----------
Capital and reserves attributable to
equity holders of the Group 19,094 29,494
----------- -----------
Total equity 19,094 29,494
----------- -----------
LIABILITIES
Non-current liabilities
Borrowings 64,677 69,450
Lease liabilities 364 469
----------- -----------
Total non-current liabilities 17 65,041 69,919
----------- -----------
Current liabilities
Borrowings 10,532 -
Trade and other payables 1,628 1,638
Tax liabilities 86 118
Provisions - 1,542
Lease liabilities 212 188
Interest payable 366 -
Other liabilities - 40
----------- -----------
Total current liabilities 17 12,824 3,526
----------- -----------
Total liabilities 77,865 73,445
----------- -----------
Total equity and liabilities 96,959 102,939
=========== ===========
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2021
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 2021 116,218 (1,099) 847 (1) (86,471) 29,494
Acquired on sale of BMS 16 - (73) - - - (73)
Movement in fair value of
warrants 16 - - (462) - 462 -
Transactions with owners - (73) (462) - 462 (73)
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Total comprehensive
income/loss
for the year - - - 12 (10,339) (10,327)
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Balance at 31 December
2021 116,218 (1,172) 385 11 (96,348) 19,094
========================== ===== ============== ========= ============= ========== =========== ================
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
========================== ===== ============== ========= ============= ========== =========== ================
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
31 December 31 December
2021 2020
Notes GBP'000 GBP'000
Cash flow from operations, excluding loan
movements 19 (4,121) (3,837)
Increase/(Decrease) in Sancus loans (1,340) 5,060
Decrease in loans through platforms 8 18
(Increase)/Decrease in Sancus Loans Limited
loans (4,564) 472
Decrease in loans re: UK SARL 1,808 3,581
Investment in Sancus Loan Notes (100) -
----------- -----------
Net Cash flows (used in) / from operating
activities (8,309) 5,294
----------- -----------
Investing activities
Net investments in FinTech Ventures (66) 277
Investment in Sancus (IOM) Holdings Limited (16) -
Investment in joint venture (91) (100)
Cash outflow on disposal of BMS Finance
AB Limited - (215)
Expenditure on SPL Properties (157) (229)
Sale of SPL Properties 743 1,597
Property, equipment and other intangibles
acquired (14) (29)
----------- -----------
Net cash inflow from investing activities 399 1,301
----------- -----------
Financing activities
Drawdown of HIT facility 19 7,500 4,187
Repayment of HIT facility 19 - (3,500)
Capital element of lease payments 19 (193) (216)
Proceeds from equity issued - 3,681
Repayment of bonds 19 - (6,125)
Issue of bonds 19 - 8,700
Debt issue costs 19 (3) (314)
Repayment of ZDPs 19 (2,756) (4,443)
----------- -----------
Net cash generated by financing activities 4,548 1,970
----------- -----------
Effects of foreign exchange 12 (23)
Net (decrease)/increase in cash and cash
equivalents (3,350) 8,542
Cash and cash equivalents at beginning of
year 15,786 7,244
Cash and cash equivalents at end of year 12,436 15,786
=========== ===========
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Sancus Lending Group Limited (formerly 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 Management Team is responsible for the
management of the Company.
As at 31 December 2021, the Group comprises the Company and its
subsidiaries (Note 20). During 2021 as part of the Group's
rebranding the Company and a number of its subsidiaries have been
renamed:
Previous name New name Date of name change
Sancus BMS Group Limited Sancus Group Holdings Limited 17 March 2021
------------------------------ --------------------
Sancus BMS (Ireland) Limited Sancus Lending (Ireland) 29 March 2021
Limited
------------------------------ --------------------
GLI Finance Limited Sancus Lending Group Limited 11 May 2021
------------------------------ --------------------
Sancus (Guernsey) Limited Sancus Lending (Guernsey) 12 July 2021
Limited
------------------------------ --------------------
Sancus Funding Limited Sancus Lending (UK) Limited 13 July 2021
------------------------------ --------------------
Sancus Finance Limited Sancus Holdings (UK) Limited 13 July 2021
------------------------------ --------------------
Sancus (Jersey) Limited Sancus Lending (Jersey) 6 October 2021
Limited
------------------------------ --------------------
Sancus (Gibraltar) Limited Sancus Lending (Gibraltar) 6 October 2021
Limited
------------------------------ --------------------
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 UK, 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
2020.
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 Directors have considered the going concern basis in the
preparation of the financial statements as supported by the
Director's assessment of the Company's and Group's ability to pay
its debts as they fall due and have assessed the current position
and the principal risks facing the business with a view to
assessing the prospects of the Company.
Liabilities which fall due in the next 12 months include the
final capital entitlement of the Company's ZDP shares which are
repayable on 5 December 2022 at GBP11.3m.
As part of the Group's growth plan the Company is considering
its options regarding this liability which may include
re-financing, part repayment and/or extension of the ZDPs and an
equity raise. This will require consultation with the relevant
stakeholders, including ordinary shareholders and ZDP shareholders
and regulatory approvals and consents. Accordingly, there can be no
certainty that the proposals will proceed.
These factors and assumptions constitute a material uncertainty
that may cast significant doubt over the Company's ability to
continue as a going concern, such that it may be unable to realise
its assets and discharge its liabilities in the normal course of
business. The Directors expect that if they are able to action the
mitigations in accordance with the plan outlined above, the
material uncertainty will be extinguished. The Directors are
therefore of the opinion that the Company will have adequate
financial resources to continue in operation and meet its
liabilities as they fall due for the foreseeable future and
continue to adopt the going concern basis in preparing the
financial statements.
(b) Basis of consolidation
The financial statements comprise the results of Sancus Lending
Group and its subsidiaries for the year ended 31 December 2021. 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.
We are a lending business, which participates in financing to
borrowers, Sancus loans, HIT loans, loan equivalents and loans
through platforms. As a result all of these loans/loan equivalents
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 22.
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 22.
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. Refer to Note 22 for
further details.
Sancus 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). 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 Lending
(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: USD1.3527 (31 December
2020 USD1.3664) and GBP1: EUR1.1898 (31 December 2020
EUR1.1202)
(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 and Note 12 for
details on impairment testing.
(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 Group 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 2021. These
have been listed below. Their adoption has not had any material
impact on the disclosures or on the amounts reported in the
financial statements.
Amendments to IFRS 4, 7, 9, 16 and IAS 39: Amendments regarding
replacement issues in the context of the IBOR reform
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
Improvements 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 9: Amendments resulting from 'Annual
Improvements to IFRS Standards 2018-2020'
-- Amendments to IFRS 16: Amendments to extend the exemption
from assessing whether a COVID-19-related rent concession is a
lease modification
-- 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 IFRS 17: Amendments regarding the initial
application of IFRS 17 and IFRS 9
-- 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 12: Amendments regarding deferred tax on
leases and decommissioning obligations
-- Amendments to IAS 16: Amendments prohibiting a company from
deducting from the cost of property, plant and equipment amounts
received from selling items produced while the company is preparing
the asset for its intended use
-- Amendments to IAS 37: Amendments regarding the costs to
include when assessing whether a contract is onerous
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 22 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 Note 7 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 22.
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 2021 interim
reporting.
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, the impact of which is also
disclosed in Note 12. Refer Notes 2(h) and 2(k) for accounting
policies relating to the valuation and impairment of goodwill.
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 22.
All of the FinTech Ventures investments are categorised as Level
3 in the fair value hierarchy. In the past the Directors have
estimated the fair value of financial instruments using discounted
cash flow methodology, comparable market transactions, recent
capital raises and other transactional data including the
performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held
by the Group in the FinTech Ventures investments, as well as the
challenges that have faced the platforms during the pandemic, the
Board's estimate of liquidation value of these assets is GBP0.5m at
31 December 2021 (31 December 2020: GBPNil) following GBP0.5m
deployed into an existing investment in March 2021. Changes in the
performance of these businesses and access to future returns via
its current holdings could affect the amounts ultimately realised
on the disposal of these investments, which may be greater or less
than GBP0.5m. There have been no transfers between levels in the
period (2020: None).
4. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the
manner in which the Executive Management Team reports to the Board,
which is regarded to be the Chief Operating Decision Maker (CODM)
as defined under IFRS 8. The main focus of the Group is Sancus.
Bearing this in mind the Executive Management Team have identified
4 segments based on operations and geography.
Finance costs and Head Office costs are not allocated to
segments as such costs are driven by central teams who provide,
amongst other services, finance, treasury, secretarial and other
administrative functions based on need. The Group's borrowings are
not allocated to segments as these are managed by the Central team.
Segment assets and liabilities are measured in the same way as in
the financial statements and are allocated to segments based on the
operations of the segment and the physical location of those assets
and liabilities.
The four segments based on geography, whose operations are
identical (within reason), are listed below. Note that Sancus Loans
Limited, although based in the UK, is reported separately as a
stand-alone entity to the Board and as such is considered to be a
segment in its own right.
1. Offshore
Contains the operations of Sancus Lending (Jersey) Limited,
Sancus Lending (Guernsey) Limited, Sancus Lending (Gibraltar)
Limited, Sancus Properties Limited and Sancus Group Holdings
Limited.
2. United Kingdom (UK)
Contains the operations of Sancus Lending (UK) Limited and
Sancus Holdings (UK) Limited.
3. Ireland
Contains the operations of Sancus Lending (Ireland) Limited.
4. Sancus Loans Limited
Contains the operations of Sancus Loans Limited.
Reconciliation to Consolidated Financial
Statements
Year to 31 Fintech
December Sancus Ventures
2021 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 3,810 1,480 667 (1,149) - 4,808 - 4,137 - 77 9,022
--------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------------
Operating
Profit/(loss)
* 1,207 (462) 88 (1,170) - (337) (1,601) - - 67 (1,871)
Credit Losses (3,892) - - (2,579) - (6,471) - - - (18) (6,489)
Debt Costs - - - - (1,875) (1,875) - - - - (1,875)
Other
Gains/(losses) 56 2 (38) (100) - (80) - - 420 10 350
Loss on JVs and
associates - - - - - - - - - (473) (473)
Taxation 19 - - - - 19 - - - - 19
(Loss)/Profit
After
Tax (2,610) (460) 50 (3,849) (1,875) (8,744) (1,601) - 420 (414) (10,339)
========= ======== ======== ======== ======== ======== ======== ======== ========= ======== =============
Year to 31
December
2020
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
(Loss)/Profit
After
Tax (1,988) (672) 201 (106) (1,952) (4,517) (890) - (6,022) (3,088) (14,517)
======== ====== ==== ====== ======== ======== ====== ====== ======== ======== =========
* 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 GBP635,000, Offshore to
Ireland GBP114,000, Head Office to Offshore GBP130,000 and Offshore
to Head Office GBP55,000. "Other" includes Fintech (excluding fair
value and forex) and Sancus Group Holdings operations.
Reconciliation to Financial Statements
At 31 December Sancus
2021 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 45,397 11,127 586 60,504 117,614 43,129 500 500 793 (65,577) 96,959
--------- --------- -------- --------- ---------- --------- ----------- ---------- -------- --------- ---------------------
Total Liabilities (40,503) (12,599) (714) (64,355) (118,171) (23,978) - - (1,293) 65,577 (77,865)
--------- --------- -------- --------- ---------- --------- ----------- ---------- -------- --------- ---------------------
Net
Assets/(liabilities) 4,894 (1,472) (128) (3,851) (557) 19,151 500 500 (500) - 19,094
========= ========= ======== ========= ========== ========= =========== ========== ======== ========= =====================
At 31 December
2020
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
========= ======== ====== ========= ========== =========== ======= ====== ====== ========= ===============
Head Office liabilities include borrowings GBP23,007,000 (2020:
GBP24,897,000). Other Fintech assets and liabilities, and Sancus
Group Holdings assets and liabilities are included within
"Other".
5. REVENUE
2021 2020
GBP'000 GBP'000
Co-Funder fees 1,574 1,836
Earn out (exit) fees 962 1,863
Advisory fees - 399
Transaction fees 2,862 1,434
--------- ---------
Total revenue from contracts with customers 5,398 5,532
Interest on loans 168 456
HIT Interest income 2,989 4,660
Sundry income 467 213
--------- ---------
Total Revenue 9,022 10,861
========= =========
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
2021 2020
GBP'000 GBP'000
Interest costs 1,911 2,016
HIT interest costs 4,137 3,785
Other cost of sales 489 317
Total cost of sales 6,537 6,118
======== ========
7. OPERATING EXPENSES
2021 2020
GBP'000 GBP'000
Amortisation and depreciation 356 428
Audit fees 155 231
Company secretarial 124 78
Corporate insurance 96 72
Employment costs 4,363 3,573
Investor relations expenses 81 67
Legal & professional 251 222
Marketing expenses 93 38
NOMAD fees 76 75
Other office and administration costs 514 620
Pension costs 87 145
Registrar fees 31 23
Sundry 4 10
-------- --------
6,231 5,582
======== ========
8. OTHER NET LOSSES
The GBP557,000 Other net losses is predominantly made up of
losses on Foreign exchange GBP143,000 and loss on joint ventures
and associates of GBP473,000 offset by the profit on the sale of
Sancus Property Limited properties of GBP59,000. (2020
GBP3,032,000: predominantly made up of the write down of other
assets of GBP892,000 (Note 14) and loss on joint ventures and
associates of GBP1,937,000 (Note 9).
9. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
31 December 31 December
2021 2020
GBP'000 GBP'000
At beginning of year 866 2,703
Additions 107 100
Share of profit/(loss) of associate 161 (574)
Share of loss in joint venture (91) (100)
Write down joint venture/associate (543) (1,263)
------------ ------------
At end of year 500 866
============ ============
The investment in joint venture relates to a 50% share in
Amberton Limited (31 December 2020: 50% share in Amberton Asset
Management Limited). Both investments were held at GBPNil. Amberton
Asset Management Limited was liquidated on 13 December 2021.
Amberton Limited, which is Jersey a registered entity, was
incorporated in January 2021 and has been established as a joint
venture to manage the loan note programme going forward (duties
previously performed by 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
2021 2020
-------------------- ------------------------ -------------------- --------------------
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 2021 31 December
2020
GBP'000 GBP'000
----------------- ------------
Non-current assets 1 2
----------------- ------------
Current assets 5,309 4,821
----------------- ------------
Current liabilities (49) (164)
----------------- ------------
Equity attributable to owners of the company 5,261 4,659
================= ============
Revenue 173 278
-----------------------------------------------------
Profit from continuing operations 133 250
----------------------------------------------------- ----------------- ------------
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 2021 31 December
2020
----------------- ------------
GBP'000 GBP'000
----------------- ------------
Net assets of associate 5,261 4,659
================= ============
Proportion of the Group's ownership interest
in the associate 1,543 1,366
----------------- ------------
Goodwill arising on acquisition 763 763
----------------- ------------
Write down of carrying value (1,806) (1,263)
----------------- ------------
Carrying amount of the Group's interest
in the associate 500 866
================= ============
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 GBP10,339,000 (31 December 2020: loss
of GBP14,517,000) by the weighted average number of Ordinary Shares
(excluding treasury shares) outstanding during the period o f
478,141,413 (31 December 2020: 315,797,259).
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 493,540,868 (31 December
2020: 346,046,187).
31 December 2021 31 December 2020
Number of shares 489,843,477 489,843,477
Weighted average no. of shares in issue
throughout the year 478,141,413 315,797,259
Basic Loss per share (2.16)p (4.60)p
Diluted Loss per share (2.09)p (4.19)p
11. FIXED ASSETS
Right-of-use Property Total
assets & Equipment
Cost GBP'000 GBP'000 GBP'000
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
Additions in the year 128 15 143
Disposals - (14) (14)
Leases expired (132) - (132)
Lease variations (16) - (16)
------------- ------------- ---------
At 31 December 2021 1,247 463 1,710
============= ============= =========
Right-of-use Property Total
assets & Equipment
Accumulated depreciation GBP'000 GBP'000 GBP'000
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
Charge for the year 190 51 241
Disposals - (14) (14)
Leases expired (132) - (132)
At 31 December 2021 686 364 1,050
============= ============= =========
Net book value 31 December 2021 561 99 660
============= ============= =========
Net book value 31 December 2020 639 135 774
============= ============= =========
12. GOODWILL
GBP'000
At 31 December 2021 and 31 December 2020 goodwill comprises:
Sancus Lending Jersey 14,255
Sancus Lending Gibraltar 8,639
22,894
========
Impairment tests
The carrying amount of goodwill arising on the acquisition of
certain subsidiaries is assessed by the Board for impairment on an
annual basis or sooner if there has been any indication of
impairment. The Board last assessed the Goodwill for impairment on
the preparation of the 2021 interim accounts, with the next
assessment due on the preparation of the 2022 interim accounts,
assuming that there having been no indicators of impairment in the
interim period.
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 2021/22 to 2025/26. The
starting point for each of the cash flows was the revised forecast
for 2021 produced by Sancus Lending Jersey and Gibraltar
management. Management's revenue forecasts applied a compound
annual growth rate (CAGR) to revenue of 16.1% and 19.6% for Jersey
and Gibraltar respectively. A cost of equity discount rate of 11.5%
was employed in the valuation model for Sancus Jersey and 12.0% for
Sancus Gibraltar. The resultant valuation indicated that no
impairment of goodwill was required in either Sancus Lending Jersey
or Sancus Lending Gibraltar, with significant headroom.
Goodwill valuation sensitivities
When the discounted cash flow valuation methodology is utilised
as the primary goodwill impairment test, the variables which
influence the results most significantly are the discount rates
applied to the future cash flows and the revenue forecasts. The
table below shows the impact on the Consolidated Statement of
Comprehensive Income of stress testing the period end goodwill
valuation with a decrease in revenues of 10% and an increase in
cost of equity discount rate of 3%. These potential changes in key
assumptions fall within historic variations experienced by the
business (taking other factors into account) and are therefore
deemed reasonable. The current model reveals that a sustained
decrease in revenue of circa 20% for Jersey and circa 28% for
Gibraltar or a sustained increase of circa 11% in the cost of
Equity discount rate for Jersey and circa 14% for Gibraltar would
remove the headroom.
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 5,650 3,063 8,713
3% increase in cost of
equity discount rate 4,040 2,679 6,719
Neither a 10 % decrease in revenue nor a 3% increase in the cost
of Equity discount rate implies a reduction of Goodwill in Jersey
or Gibraltar.
13. OTHER INTANGIBLE ASSETS
Cost GBP'000
At 31 December 2021, 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
Charge for the year 115
At 31 December 2021 1,531
=======
Net book value 31 December 2021 53
Net book value 31 December 2020 168
===
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
Additions 157
Disposals (676)
At 31 December 2021 496
======
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 prior year is
that necessary to bring the assets to the lower of cost and net
realisable value. The remaining GBP0.5m comprises of one
development property which is held at cost.
15. TRADE AND OTHER RECEIVABLES
31 December 31 December
2021 2020
GBP'000 GBP'000
Loan fees, interest and similar receivable 4,146 7,438
Receivable from associated companies 10 49
Taxation 40 -
Derivative contracts (Note 22) 759 94
Other trade receivables and prepaid expenses 1,120 623
----------- -------------
6,075 8,204
=========== =============
Loan fees, interest and similar receivables amounted to
GBP11,201,000 at 31 December 2021 (31 December 2020: GBP9,628,000)
before provisions against receivables of GBP7,055,000 (31 December
2020: GBP2,190,000).
16. SHARE CAPITAL, SHARE PREMIUM & DISTRIBUTABLE RESERVE
Sancus has the power under its articles of association to issue
an unlimited number of Ordinary Shares of no par value.
No Ordinary shares were issued during the year. (2020:
177,777,778 Ordinary shares for a consideration of
GBP4,000,000).
Share Capital - ordinary shares of nil par
value
31 December 31 December
2021 2020
Number of shares Number of shares
At beginning of the year 489,843,477 312,065,699
Issued during the year - 177,777,778
At end of the year 489,843,477 489,843,477
================ ================
Share Premium - Ordinary shares of nil par
value
31 December 31 December
2021 2020
GBP'000 GBP'000
At beginning of the year 116,218 112,557
Issued during the year - 4,000
Costs of issue - (339)
----------- -----------
At end of the year 116,218 116,218
=========== ===========
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
2021 Number 2020 Number
of shares of shares
At beginning of the year 7,925,999 7,925,999
Sancus shares acquired on sale of BMS
Finance AB Limited 3,926,677 -
------------ ------------
At end of the year 11,852,676 7,925,999
============ ============
Treasury Shares (Continued)
31 December 31 December
2021 2020
GBP'000 GBP'000
At beginning of the year 1,099 1,099
Sancus shares acquired on sale of BMS
Finance AB Limited 73 -
----------- -----------
At end of the year 1,172 1,099
=========== ===========
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
2021 and up to the date of signing these accounts none of these
warrants have been exercised. 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 2021 is GBP385,000
(31 December 2020: GBP847,000).
17. LIABILITIES
31 December 31 December
2021 2020
Non-current liabilities GBP'000 GBP'000
ZDP shares (1) - 12,424
Corporate Bond (2) 12,474 12,473
HIT Facility (3) 52,203 44,553
Lease creditors (Notes 2(u), 2(v) & 24) 364 469
65,041 69,919
=========== ===========
31 December 31 December
2021 2020
Current liabilities GBP'000 GBP'000
ZDP shares (1) 10,532 -
Accounts payable 93 436
Payable to associated companies 16 -
Interest payable 366 -
Accruals and other payables 1,519 1,202
Taxation 86 118
Deferred income - 40
Provisions for financial guarantees - 1,542
Lease creditors (Notes 2(u), 2(v) & 24) 212 188
12,824 3,526
=========== ===========
Provisions for financial guarantees were recognised in the prior
year in relation to ECLs on off-balance sheet loans and debtors
where the company has provided a subordinated position or other
guarantee (Note 25). No such provision was required in the current
year. The fair value is determined using the exact same methodology
as that used in determining ECLs (Note 2(f) and Note 22). The
amount credited to operating profit in the year was GBP1,542,000
(2020: GBP1,542,000 charged to operating profit), there being no
other movements.
31 December 31 December
2021 2020
Interest costs on debt facilities GBP'000 GBP'000
ZDP shares (1) 969 1,246
Corporate Bond (2) 906 706
HIT Facility (3) 4,137 3,785
Lease Interest 36 64
6,048 5,801
=========== ===========
(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.sancus.com .
The ZDP shares bear interest at an average rate of 8% (2020:
8%). 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 2021 the Company was in compliance with these covenants as
Cover Test A was 3.07 (minimum of 1.7) and Cover Test B was 5.38
(minimum of 3.25). At 31 December 2021 senior debt borrowing
capacity amounted to GBP17.4m. The HIT facility does not impact on
this capacity as it is non-recourse to Sancus.
In addition to a tender offer in April 2021, whereby the company
acquired, and subsequently cancelled 1,690,034 ZDP shares, the
company purchased a further 226,718 ZDP shares throughout the year.
At 31 December 2021 the Company held 12,235,748 shares (31 December
2020: 12,009,030) with an aggregate value of GBP18,810,266 (31
December 2020: GBP17,051,409).
(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
December 2020. In addition to these a further GBP8,700,000 new
bonds were issued for cash on 22 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% (2020: 7%).
The new bonds have a maturity date of 31 December 2025.
(3) HIT Facility
On 28 January 2018, Sancus signed a funding facility with
Honeycomb Investment Trust plc (HIT). The funding line initially
had a term of 3 years and comprised of a GBP45m accordion and
revolving credit facility. On 3 December 2020 this facility was
extended to a 6 year term to end on 28 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 Group has a GBP5.8m first loss position on the
HIT facility. Sancus 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 Group, given
its position as facility and security agent. Refer to Note 25
Commitments and Guarantees.
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 2020: GBP1,200) is payable to the States
of Guernsey in respect of this exemption.
Reconciliation of tax charge
2021 2020
GBP'000 GBP'000
Accounting loss before tax (10,358) (14,532)
Gibraltar Corporation Tax at 10% (2020: 10%) - -
Jersey Corporation Tax at 10% (2020: 10%) - -
Adjustment in respect of prior years (19) (15)
Tax (credit)/expense (19) (15)
======== ========
Certain of the Group's subsidiaries have an estimated GBP16.0m
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)
2021 2020
GBP'000 GBP'000
Loss for the year (10,339) (14,517)
Adjustments for:
Net losses on FinTech Ventures - 5,936
Other net losses/(gains) 9 (221)
ZDP finance costs 874 1,039
Fair Value joint ventures and associates 473 1,937
Changes in expected credit losses 6,489 4,665
Amortisation/depreciation of fixed assets 356 428
Amortisation of debt issue costs 202 201
SPL Properties (59) 960
Changes in working capital:
Trade and other receivables (1,995) (4,303)
Trade and other payables (131) 38
Cash outflow from operations (excluding loan
movements) (4,121) (3,837)
======== ========
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
2021 (1) (1) (1) Non-cash Non-cash Non-cash 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ZDP Shares 12,424 (2,756)(1) - - - 24 840(3) 10,532
Corporate
Bond 12,473 (24)(5) - - - 25 - 12,474
HIT Facility 44,553 - 7,500 (3) - 153 - 52,203
Lease
Liability 657 (193)(1) - - 128 - (16)(4) 576
--------- ----------- ---------- --------- ----------- ------------- ---------- ----------
Total
liabilities 70,107 (2,973) 7,500 (3) 128 202 824 75,785
========= =========== ========== ========= =========== ============= ========== ==========
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
========== ========== ========== ========= =========== ============= ========== ==========
(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
loans and loan equivalents was swapped for 621,586 ZDP shares.
(3) Comprises interest accruals and unpaid debt issue costs.
(4) Lease variations.
(5) Interest within operating cash flows.
20. CONSOLIDATED SUBSIDIARIES
The Directors consider the following entities as wholly owned
subsidiaries of the Group as at 31 December 2021. Their results
and financial positions are included within its consolidated results.
Subsidiary entity Date of Country Nature of Holding % held
Incorporation of
Incorporation
---------------- ---------------- --------------------- -------
Sancus Group Directly held
Holdings 27 December -Equity
Limited 2013 Guernsey Shares 100%
---------------- ---------------- --------------------- -------
Sancus Lending
(Jersey) Indirectly held
Limited 1 July 2013 Jersey - Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus Lending
(Guernsey) Indirectly held
Limited 18 June 2014 Guernsey - Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus Lending
(Gibraltar) 10 March Indirectly held
Limited 2015 Gibraltar - Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus Lending
(Ireland) 10 April Indirectly held
Limited 2017 Ireland - Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus Lending (UK) 17 February Indirectly held
Limited 2011 UK - Equity Shares 100%
---------------- ---------------- --------------------- -------
Sancus Holdings
(UK) 7 January Indirectly held
Limited 2011 UK - Equity Shares 100%
---------------- ---------------- --------------------- -------
FinTech Ventures 9 December Directly held -
Limited 2015 Guernsey Equity 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 Group Holdings Limited and Sancus Holdings (UK) 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.
Sancus BMS Holdings Limited was voluntarily struck off on 13
September 2021 following the sale of the BMS Fund.
21. FINTECH VENTURES AND OTHER INVESTMENTS
The Directors consider the following entities as associated
undertakings of the Group as at 31 December 2021.
Name of Investment: Nature of holding Country of incorporation Percentage Measurement
holding
FinTech Ventures:
------------------------- ------------------------- ----------- ------------
LiftForward Inc Indirectly held United States 18.81% Fair Value
- Equity of America
------------------------- ------------------------- ----------- ------------
Finexkap Indirectly held France 10.76% Fair Value
- Equity
------------------------- ------------------------- ----------- ------------
Ovamba Solutions Indirectly held United States 20.18% Fair Value
Inc - Equity of America
------------------------- ------------------------- ----------- ------------
Funding Options Indirectly held United Kingdom 22.78% 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
------------------------- ------------------------- ----------- ------------
The percentage holdings in the above table are on a fully
diluted basis, assuming any warrants and management options all
vest.
22. FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT
Sancus loans and loan equivalents 31 December 31 December
2021 2020
GBP'000 GBP'000
Non-current
Sancus loans 447 442
Sancus Loans Limited loans 6,196 3,421
------------ ------------
Total non-current Sancus loans and loan
equivalents 6,643 3,863
------------ ------------
Current
Sancus loans 4,269 7,873
Loan equivalents - 117
Sancus Loans Limited loans 42,333 41,379
------------ ------------
Total current Sancus loans and loan equivalents 46,602 49,369
------------ ------------
Total Sancus loans and loan equivalents 53,245 53,232
============ ============
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 2021 31 December 2020
Level 2 Level 3 Level 2 Level 3
Assets GBP'000 GBP'000 GBP'000 GBP'000
FinTech Ventures investments - 500 - -
Derivative contracts 759 - 94 -
Total assets at Fair Value 759 500 94 -
========= =========== ========= ===========
All of the FinTech Ventures investments are categorised as Level
3 in the fair value hierarchy. In the past the Directors have
estimated the fair value of financial instruments using discounted
cash flow methodology, comparable market transactions, recent
capital raises and other transactional data including the
performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held
by the Group in the FinTech Ventures investments, as well as the
challenges that have faced the platforms during the pandemic, the
Board's estimate of liquidation value of these assets is GBP0.5m at
31 December 2021 (31 December 2020: GBPNil) following GBP0.5m
deployed into an existing investment in March 2021. Changes in the
performance of these businesses and access to future returns via
its current holdings could affect the amounts ultimately realised
on the disposal of these investments, which may be greater or less
than GBP0.5m. There have been no transfers between levels in the
period (2020: None).
FinTech Ventures investments
31 December 2021 Equity Loans Total
GBP'000 GBP'000 GBP'000
Opening fair value - - -
New investments/divestments (8) 74 66
Realised gains recognised in
profit and loss 8 426 434
Closing fair value - 500 500
======== ======== ========
FinTech Ventures investments (continued)
31 December 2020 Equity Loans Total
GBP'000 GBP'000 GBP'000
Opening fair value 4,500 1,799 6,299
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 - - -
======== ======== ========
Assets at Amortised Cost
31 December 31 December
2021 2020
GBP'000 GBP'000
Sancus loans and loan equivalents 53,245 53,232
Trade and other receivables 4,196 7,487
Cash and cash equivalents 12,436 15,786
Total assets at amortised cost 69,877 76,505
============ ============
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
2021 2020
GBP'000 GBP'000
ZDP Shares 10,532 12,424
Corporate Bond 12,474 12,473
HIT Facility 52,203 44,553
Trade and other payables 2,656 2,453
Provisions in respect of guarantees - 1,542
Total liabilities at amortised cost 77,865 73,445
============ ============
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, ie. 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 announcement 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
Lending (UK) 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 394% (31 December 2020: 235%) due to the HIT facility.
The HIT facility is non-recourse to Sancus. Excluding HIT, the
ratio at year-end was 120% (31 December 2020: 84%).
(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 GBP12,436,000.
The Group Treasury Committee monitors rolling forecasts of the
group's cash position in relation to its obligations as they become
due on a monthly 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 2021
ZDP shares 10,532 - - 10,532
Corporate bond - - 12,474 12,474
Sancus Loans Limited - - 52,203 52,203
Trade and other payables 2,206 212 152 2,570
-----------
Total liabilities 12,738 212 64,829 77,779
=========== ========= ========= ========
Between Between
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 3,408 200 269 3,877
-----------
Total liabilities 3,408 12,624 57,295 73,327
=========== ========= ========= ========
(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 2021 GBP'000 GBP'000 GBP'000
Assets
Sancus loans and loan equivalents - 53,245 53,245
Cash and cash equivalents 12,436 - 12,436
Total assets 12,436 53,245 65,681
================ ============= ==========
Liabilities
ZDP shares - 10,532 10,532
Corporate Bond - 12,474 12,474
Sancus Loans Limited - 52,203 52,203
--------- --------
Total liabilities - 75,209 75,209
------- --------- --------
Total interest sensitivity gap 12,436 (21,964) (9,528)
======= ========= ========
31 December 2020 GBP'000 GBP'000 GBP'000
Assets
Sancus 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)
======= ========= =======
Interest rate sensitivities
The Group currently holds GBP12,436,000 in cash deposits,
predominantly in 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 GBP124,000
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 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 Management Team
with a view to establishing the probable realisation value for such
shares as at close of business on the relevant valuation day.
All of the FinTech Ventures investments are categorised as Level
3 in the fair value hierarchy. In the past the Directors have
estimated the fair value of financial instruments using discounted
cash flow methodology, comparable market transactions, recent
capital raises and other transactional data including the
performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held
by the Group in the FinTech Ventures investments, as well as the
challenges that have faced the platforms during the pandemic, the
Board's estimate of liquidation value of these assets is GBP0.5m at
31 December 2021 (31 December 2020: GBPNil) following GBP0.5m
deployed into an existing investment in March 2021. Changes in the
performance of these businesses and access to future returns via
its current holdings could affect the amounts ultimately realised
on the disposal of these investments, which may be greater or less
than GBP0.5m. There have been no transfers between levels in the
period (2020: None).
(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 Management Team at the time of the
agreements, and the Executive Management Team continues to evaluate
the loan instruments in the context of these agreements. Credit
risk is categorised 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.
Credit risk is initially evaluated using the LTV, (LTGDV and LTF
where relevant) 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 Lending 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 Lending is secured. The credit committee reports to the
Sancus Lending 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 2021 and 31
December 2020 based on the model adopted by management. Loans
through platforms were added to the table in 2020 (previously
disclosed separately and not included in the below analysis).
Sancus loans and loan Stage 1 Stage 2 Stage 3 Total
equivalents at 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000
Closing loans at 31 December
2020 41,972 4,047 7,213 53,232
New Loans 27,794 - - 27,794
Loans Repaid (17,640) (4,578) (3,273) (25,491)
Transfers from Stage 1 to Stage
2 (5,739) 5,739 - -
Transfers from Stage 1 to Stage
3 (16,247) - 16,247 -
Transfers from Stage 2 to Stage
3 - (368) 368 -
Loans written off (80) - - (80)
Movement in ECL - 903 (3,113) (2,210)
--------- --------- --------- ---------
Closing loans at 31 December
2021 30,060 5,743 17,442 53,245
========= ========= ========= =========
Loss allowance Stage 1 Stage 2 Stage 3 Total
at 31 December 2021 GBP'000 GBP'000 GBP'000 GBP'000
Closing loss allowance at 31
December 2020 - 903 3,296 4,199
Transfers from Stage 2 to Stage
3 - (37) 37 -
(Decrease)/Increase in provision - - 3,076 3,076
Utilisations - (866) - (866)
Closing loss allowance at 31
December 2021 - - 6,409 6,409
========== =========== =========== ===========
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.
Sancus 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
Transfer from Stage 2 to Stage
3 - (125) 125 -
(Decrease)/Increase in provision - (185) 1,516 1,331
Closing loss allowance at 31
December 2020 - 903 3,296 4,199
========== =========== =========== ===========
Reconciliation of Provision for ECLs to charge in the statement
of comprehensive income
Loans Trade Debtors Guarantees Total
Loss allowance at 31 December
2020 4,199 2,190 1,542 7,931
Charge/(credit) for the year
2021 3,076 4,865 (1,542) 6,399
Utilisations (866) - - (866)
------ -------------- ----------- -------
Loss allowance at 31 December
2021 6,409 7,055 - 13,464
====== ============== =========== =======
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.
(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
2021 2021 2020 2020 2019
EUR 1.1898 1.1663 1.1202 1.1039 1.1815
------------ -------- ------------ -------- ------------
USD 1.3527 1.3830 1.3664 1.2399 1.3259
------------ -------- ------------ -------- ------------
The Treasury Committee monitors the Group's currency position on
a regular basis, and the Board of Directors reviews it on a
quarterly basis. Loans denominated in Euros which are taken out
through the HIT facility are hedged. Forward contracts to sell
Euros at loan maturity dates are entered into when loans are drawn
in Euros. The following forward foreign exchange contracts were
open at the respective dates:
At 31 December 2021
Counterparty Settlement Buy Currency Buy Amount Sell Sell amount Unrealised
date GBP'000 currency EUR'000 gain GBP'000
February
EWealthGlobal 2022 to
Group Limited May 2023 GBP 14,769 Euro 16,817 623
Liberum Wealth February
Limited 2022 GBP 1,183 Euro 1,299 92
April 2022
Lumon Risk to
Management May 2023 GBP 5,148 Euro 6,046 44
--------------
Unrealised gain on forward foreign contracts 759
==============
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
==============
No hedging has been taken out against investments in the FinTech
Ventures platforms (2020: GBPNil).
23. RELATED PARTY TRANSACTIONS
Transactions with the Directors/Executive Management Team
Non-executive Directors
As at 31 December 2021, 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
2021 2020
GBP GBP
Steven Smith (Chairman - appointed Chairman 50,000 -
31.8.21)
Patrick Firth (Chairman - resigned Chairman
31.8.21) - 48,750
John Whittle 42,500 41,438
Nick Wakefield 35,000 34,125
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 Lending 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.
Total Directors' fees charged to the Company for the year ended
31 December 2021 were GBP138,279 (31 December 2020: GBP124,313)
with GBPNil (31 December 2020: GBPNil) remaining unpaid at the
year-end.
Executive Management Team
The Executive Management Team consisted of Rory Mepham
(appointed 30 June 2021), Andrew Whelan (resigned 30 June 2021),
Emma Stubbs, and Dan Walker (resigned 31 January 2022). The
Executive Management 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:
2021 2020
GBP'000 GBP'000
-------- --------
Aggregate remuneration in respect of qualifying
service - fixed salary 598 646
-------- --------
Aggregate amounts contributed to Money Purchase
pension schemes 24 48
-------- --------
Aggregate bonus paid (cash) 325 210
-------- --------
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 2021 31 December 2020
No. of Ordinary % of Ordinary No. of Ordinary % of Ordinary
Shares Held Shares Shares Held Shares
---------------- -------------- ---------------- --------------
John Whittle 138,052 0.03 138,052 0.03
---------------- -------------- ---------------- --------------
Andrew Whelan* - - 9,553,734 1.95
---------------- -------------- ---------------- --------------
Emma Stubbs 1,380,940 0.28 1,380,940 0.28
---------------- -------------- ---------------- --------------
Dan Walker 911,300 0.19 911,300 0.19
---------------- -------------- ---------------- --------------
*Andrew Whelan resigned 30 June 2021.
During the year and prior year no directors received dividends
on their Ordinary Share holdings in the Company.
Mr Walker had an outstanding unsecured loan from Sancus Holdings
(UK) Limited in the amount of GBP31,053 at 31 December 2021 and 31
December 2020. This was waived in January 2022. The loan was
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 31 December
2021 GBP'000 2020 GBP'000
Receivable from/(payable to) related parties
Sancus (IOM) Holdings Limited (16) 2
Sancus (IOM) Limited - 36
Amberton Limited 10 -
Amberton Asset Management Limited - 11
Office and staff costs recharges
Amberton Asset Management Limited 18 41
Amberton Limited 9 -
Sancus (IOM) Limited - 125
There is no ultimate controlling party of the Company. All
platform loans and preference shares bear interest at a commercial
rate.
24. LEASES
The Group as Lessee
Maturity Analysis - contracted undiscounted cash flows
31 December 31 December
2021 GBP'000 2020 GBP'000
Within one year 247 240
In the second to fifth years inclusive 413 569
After five years - -
-------------- --------------
660 809
============== ==============
All lease commitments relate to office space.
Lease liabilities included in the statement of financial
position
31 December 31 December
2021 GBP'000 2020 GBP'000
Current 212 188
Non-current 364 469
576 657
============== ==============
Amounts recognised in the statement of comprehensive income
2021 2020
GBP'000 GBP'000
Depreciation expense on right-of-use assets 190 208
Interest expense on lease liabilities 36 64
Expense related to short term leases 78 137
Income received from sub-leasing right-of-use 60 -
assets
--------- ---------
25. COMMITMENTS AND GUARANTEES
The Group's commitments and guarantees are described below.
HIT Facility
Sancus Group has invested GBP9.5m (2020: GBP6.3m) of its own
capital in Sancus Loans Limited which sits in a GBP5.8m first loss
position as part of the HIT facility. Sancus 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 Group, given its position as facility and
security agent. Nothing has been provided in the accounts for this
(2020: GBPNil).
Sancus Loan Notes
SLN7 launched on 10 May 2021 with GBP16.6m assets. As at 31
December 2021 this had GBP16.3m assets. Sancus Group Holdings
Limited has a 10% first loss position on this loan note .
Unfunded Commitments
As at 31 December 2021 the Group has unfunded commitments of
GBP47.3m (31 December 2020: GBP28.4m). 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.
26. POST YEAR END EVENTS
On 31 January 2022 the Group sold its 29.32% interest in Sancus
(Isle of Man) Holdings Limited for a consideration of
GBP500,000.
27. AVAILABILITY OF REPORT AND ACCOUNTS
The Company's annual report and accounts for the year ended 31
December 2021 is available to download from the Company's website
at www.sancus.com . A copy of the report and accounts, together
with a notice for the Company's 2021 annual general meeting (the
"AGM Notice"), is expected to be posted to shareholders who have
elected to receive hard copies in April. The AGM Notice will also
be available to download from the Company's website in due
course.
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END
FR SDDESSEESEFD
(END) Dow Jones Newswires
March 31, 2022 02:01 ET (06:01 GMT)
Sancus Lending (LSE:LEND)
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