TIDML
RNS Number : 5249A
Sancus Lending Group Limited
26 September 2022
26 September 2022
Sancus Lending Group Limited
("Sancus", the "Company" or "Group")
Interim Results for the six-month period ended 30 June 2022
HIGHLIGHTS
Rory Mepham, Chief Executive Officer of Sancus Lending Group
Limited, commented:
" We started 2022 with a clear strategy to return the business
to profitability, and a management team focussed on execution. In
the first half of the year we have made good progress towards this
as well as a number of significant positive achievements. The
number of new facilities written is significantly up on last year
in the UK and Ireland and I am pleased to report no further IFRS9
provisions have been made during the period, following a thorough
review of the loan book last year.
Our focus on returning the Group to profitability remains our
top priority. We are also looking to broaden our funder base and
improve funding terms, expand the Group's presence in the UK and
Ireland and grow its loan book in the Offshore markets of the
Channel Islands and Gibraltar.
The next step of our plan is to address and secure our long-term
financing strategy, and our ZDPs remain an integral part of this.
The current maturity date of the ZDPs is 5 December 2022 and we
will shortly be engaging with the holders to agree a long-term plan
meeting the needs of all stakeholders whilst enabling the Group to
reinvest for growth."
Financial Highlights
-- Impressive growth of new loan facilities written of GBP86m in the first
half of the year (H1 2021: GBP53m) and exceeding the full year loans
written in 2021 of GBP83m;
-- Stabilisation of the loan book with no new IFRS9 provisions made in
the period (H1 2021: GBP3.0m loss);
-- Group revenue for the first half of the year was GBP4.8m (H1 2021:
GBP5.0m); and
-- Group operating loss for the period halved to GBP2.1m (H1 2021: loss
GBP4.1m).
Operational Highlights
-- Significant investment in the sales and credit teams at the end of
2021 and into 2022, to support and drive growth over the coming years;
-- Focus on the maintenance of robust institutional grade credit processes,
smooth loan execution, active loan management, data integrity and a
proactive approach to loans that become stressed or distressed; and
-- Geographic focus remains unchanged, with the UK and Ireland the key
areas of growth for the business whilst the Offshore markets currently
remain the Group's largest market. UK revenue increased by 36% on last
year and Ireland is up 227%.
-- Uncertain market outlook may present opportunities for well capitalised
alternative lenders.
The information contained within this Announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No.596/2014 as amended by The
Market Abuse (Amendment) (EU Exit) Regulations 2019. By the
publication of this Announcement via a Regulatory Information
Service, this inside information is now considered to be in the
public domain.
Enquires:
Sancus Lending Group Limited via Instinctif Partners
Rory Mepham, CEO
Nominated Adviser and Broker
Liberum Capital Limited +44 (0)203 100 2000
Chris Clarke
Lauren Kettle
Public Relations Adviser
Instinctif Partners +44 (0) 7949 939 237
Tim Linacre
Victoria Hayns
CHAIRMAN'S STATEMENT
Introduction
Our structured change programme which will reposition the Group
for growth is well underway. Our chosen markets continue to present
compelling opportunities and with reduced appetite amongst
traditional balance sheet lenders, we are confident we can write
high quality new business.
The expansion of the sales teams has started to pay dividends
with a significant improvement in new loan facilities written in
the first half of the year of GBP86m, versus GBP53m written in the
same period last year.
As part of a wider review of the business and the expansion of
the credit and recoveries teams, we carried out a detailed review
of the Group's loan book last year resulting in impairments of
GBP6.4m in FY 2021 which at the time we believed drew a line under
recent losses. I am therefore pleased to report no further IFRS9
provisions in the period.
Our People
Following last year's personnel changes, the team has settled in
well and are working collaboratively to deliver our key goals of
profitability and growth. The Group has invested in rebuilding and
reinforcing the team and our headcount has increased from 32 at the
end of 2021 to 42 at 30 June 2022. We do not envisage further
material hires. The new resource is focussed on expansion in our
growth markets of the UK and Ireland and our credit and management
focus as we deliver new business in the coming years.
Zero Dividend Preference Shares ("ZDPs")
The key milestones at the end of 2020 were the new equity raise,
the restructuring of our debt (Bonds and ZDPs) and the increase and
extension of our facility with HIT. Somerston Group, our largest
shareholder, participated in both the equity raise and new bond
issue and I thank them for their continued support.
On 15 July 2022 the Group entered into a ZDP share buyback
programme to purchase up to GBP0.5m of the ZDPs pursuant to the
authority granted to the Directors by shareholders at the Group's
AGM in May 2022. We fully deployed the funds we were looking to
return by 19 August 2022.
The ZDPs are an integral part of the Group's finance strategy
and given the maturity date of 5 December 2022, we will engage with
the ZDP shareholders shortly and seek their support to restructure
enabling the Group to implement its plan to return to
profitability.
Dividend and Shareholders
It is the Board's intention to reinvest surplus resources for
growth. As such, the Group does not intend to declare a dividend
for the period. The Board intends to revisit this policy at the
appropriate time, should the profitability and cash flow profile of
the business support the reinstatement of a dividend.
On behalf of the Board, I would like to thank shareholders for
their continuing support and patience and for the efforts of the
management and employees.
While the Group has made good progress in the first half of the
year, we do not underestimate the scale and continuing challenge
ahead. I am firmly of the view that we have the right strategy,
systems and personnel to put the business onto a firmer footing and
return to profitability and I look forward to reporting more
positive developments in the coming period.
Steve Smith
Chairman
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
The first half of the year saw a number of significant
achievements and I am pleased with the progress made.
We saw a significant increase in loans written in H1 2022 with
GBP86m written in the six months to June 2022 versus GBP53m written
in the same period in 2021. This will lead to corresponding growth
of loans under management as these loans are drawn.
This loan book growth has been prevalent in the UK (144% growth
versus June 2021) and Irish markets (150% growth versus June 2021)
where the Sancus name and reputation continue to develop. In the UK
we are particularly proud to have been shortlisted for the award of
Development Finance provider of the year at the Bridging &
Commercial awards, a clear demonstration of our growing reputation
as a straightforward and trusted business partner.
It will take time for the loan writing process to deliver
revenue uplift as there is a time lag between execution and
drawdown, though fees are paid upfront on new deals and we
generally receive exit fees when the loan is repaid. At the end of
H1 2022 the loan book stood at GBP147m, a modest increase of GBP5
million versus FY 2021, but we expect growth in the loan book to
increase in the second half of the year as the newly written loans
continue to be drawn.
Strategic KPIs
The Board agreed the following KPI's and we have started to see
improvements:
-- Revenue growth
o 4% down on last year due to modest progress on loan
deployment. Positive upticks in our growth areas of the UK and
Ireland, with the UK revenue up 36% on last year and Ireland up
227%.
-- Growing loans under management
o Loan book increase from GBP142m at the end of 2021 to GBP147m
at the end of June 2022.
-- Reducing cost of funding
o This remains a focus for the Group, and we continue to seek
cheaper cost of funding. We are cognisant of recent rises in base
rates. To address this, we have started to implement a variable
rate to borrowers based on Bank of England base rates.
-- Become a capital efficient business
o We continue to reduce the amount of own capital within loans,
which at 30 June 2022 represented 4.2% of the total loan book, in
comparison to 5.9% at the end of June 2021.
-- Increasing operating profits - by increasing gross margin and reducing costs
o Operating loss for H1 2022 was GBP2.1m against an operating
loss of GBP4.1m last June. We have reported no further IFRS9 losses
in the period.
o Our cost base has increased on prior year as we focus on
growth but in the future we expect the cost ratio to revenue to
reduce.
-- Return on Equity ("ROE")
o Going forward we plan to become profitable and increase our
ROE.
-- Ensuring a risk based approach is taken on all decision making
o Embedding institutional credit processes and becoming
increasingly technology enabled has been a focus of the Group over
the last year.
Origination
We have seen growth in new loan facilities written during the
year with GBP86m written during the first half of 2022 against
GBP53m for the first half of 2021 and a total of GBP83m in FY 2021,
as the benefits of our investment in the sales and origination
teams begin to come through.
Maintaining a high-quality credit process whilst scaling the
quantity of new loans is a priority. We expect to see continued
growth in the UK and Ireland as these remain key areas of
investment for the Group. We further anticipate that the Offshore
business (including the Channel Islands and Gibraltar) will
continue to see attractive lending opportunities and we are
confident that our businesses in these jurisdictions are well
placed to execute against those opportunities as they arise.
Standardisation of the loan execution process has been
implemented across the Group, including documentation, conditions
precedent, conditions subsequent and closing checklists. We have
also implemented a new workflow process to expediate the time
between the loan credit approval and loan drawdown and are
exploring how we can better utilise technology to manage certain
elements more efficiently. We expect the onboarding of Salesforce
(our chosen CRM software) and its integration with our Loan
Management System to be completed in the second half of the year
which will create further standardisation and efficiencies.
Loan Management
The Sancus asset backed lending loan book increased since the
end of 2021 from GBP142m to GBP147m. With the number of new
facilities written and as we see funds deployed, we expect to be
reporting a further increase in our loan book at year-end. Further
investment has been made in recruiting experienced loan management
team members during the period.
Continued emphasis has been placed on actively managing loans
once the initial drawdown has been made. This has been particularly
important during a time when various market related pressures such
as cost inflation are impacting our borrowers. Active management is
helping us to deal with issues before they become problems and we
are pleased to report that the percentage of loan book in recovery
continues to reduce.
Funding
We continue to focus on growing the funding capacity of the
business on improved terms. This is particularly important in the
context of the wider economic climate where we are in a significant
inflationary environment. As is widely reported, the Bank of
England Bank Rate has increased from 0.1% this time last year to
2.25% at the time of writing this report (with further increases
likely). Additionally, we are seeking to work with a diversified
mix of funders, both private and institutional, to match funders
with loans meeting their varied risk and reward criteria.
Currently, th e Group is reliant on four funding sources:
-- Co-Funders
-- Loan Note program
-- Institutional funders
-- Proprietary capital
Co-Funders remain our largest funding channel, with the majority
of the loan book in the Offshore markets being Co-Funded. As a
proportion of total funding it has reduced from 51% at the end of
December 2021 to 44% at 30 June 2022. We continue to nurture
relationships with the Co-Funder base, typically being Offshore
private individuals and family offices. In addition to the large
pool of Co-Funders that have been working with Sancus for a number
of years, the business is actively seeking to widen its net.
Loan Notes, managed by Amberton Limited, remain an important
funding instrument for the business. Loan Note 8 was launched in
January 2022 and currently stands at GBP3.05 million. Loan Note 8
matures on 1 December 2026 and has a coupon of 5% p.a. (payable
quarterly), with Sancus providing a 20% first loss guarantee. Loan
Note 7 was launched in May 2021 and currently stands at GBP17.3
million. Loan Note 7 matures in May 2024 and has a coupon of 7%
p.a. (payable quarterly), with Sancus providing a 10% first loss
guarantee. As the business matures it is planned to increase the
regularity and widen the variety of Loan Note products.
Sancus has an institutional funding line from the Honeycomb
Investment Trust ("HIT"), which is managed by Pollen Street Capital
and is designed to complement our Co-Funder base and Loan Notes. O
n 3 December 2020 the HIT credit facility was increased to GBP75m
from GBP45m and the term was extended to 28 January 2024. At 30
June 2022 the total drawn was GBP55m and at the date of this report
stood at GBP65m (31 December 2021: GBP49.9m). The HIT facility
continues to be strategic for the business.
Sancus has additionally secured a forward flow bridge funding
arrangement with a global private equity backed debt acquisition
business and continues to explore additional long term financing
lines that could sit alongside our syndicated lending strategy.
The availability, cost and flexibility of funding is key to
achieving our growth ambitions and we are reviewing the capital
position of the business with a view to ensuring it is best placed
to grow funding capacity on market adjusted improved terms. During
the first half of 2022 the loan book funded by institutional
funding increased by 5% with the majority of the UK and Irish loan
book funded by this channel. We will seek to increase this along
with the loan notes over time.
Finance & Operations
A focus on operational efficiencies within Finance &
Operations to be driven by technology wherever possible is
underway. We continue to drive focus and improvement in relation to
corporate governance, Compliance & Risk with the implementation
of a developed risk management structure to ensure the business is
well set for future growth plans.
Sancus has developed, and continues to evolve, its own
proprietary loan managements system ("LMS") for the administration
of loans. A comprehensive review of the LMS system and our wider
Technology strategy has been carried out over the course of the
last year and further steps have been undertaken in 2022.
We made several hires across the business over the last year, in
particular to bolster our Funding and Origination capabilities in
the markets in which we are active. At the end of June 2022, the
Group headcount was 42 (31 December 2021: 32) with the largest
increases in the Origination and Loan Management teams. We believe
the business is now well resourced to meet its objectives and are
focussing on continuous improvement and development of our
people.
Realising value from the legacy FinTech Ventures Investments
remains a target for the management team. M onitoring and
governance of FinTech Ventures continues as we assist our investee
platforms with their strategy. Unfortunately, the profitability of
many of these companies has failed to meet expectations within an
acceptable timeframe and their ability to raise additional capital
without proving concept is severely constrained. It remains a
challenging market for many of the FinTech platforms.
Summary of Financial Performance
While Group revenue for the first half of 2022 was relatively
flat on the comparative period last year at GBP4.8m (H1 2021:
GBP5.0m) we have seen an increase in the UK and Irish revenues
which is showing positive signs of further growth over time.
We have reported an operating loss of GBP2.1m (H1 2021: loss of
GBP4.1m) and no further expected credit losses (IFRS 9) in the
period (H1 2021: GBP3.0m loss). An increase in operating expenses
in the period has been driven by the building out of our team. We
expect costs to stabilise and we do not envisage growing the team
in the foreseeable future.
The Group's net assets have reduced in the period from GBP19.1m
at 31 December 2021 to GBP17.1m as a result of the operating loss
in the period.
The Board has carried out a full impairment review of the
carrying amount of goodwill and the resultant value-in-use
calculation which indicated that no impairment of goodwill was
required in either Sancus Lending (Jersey) or Sancus Lending
(Gibraltar). The g oodwill value therefore remains at GBP22.9m.
Group cash and cash equivalents was GBP8.6m at 30 June 2022.
GBP5.4m of this related to Group operational cash and GBP3.2m was
within Sancus Loans Limited.
We continue to reduce our on balance sheet loans (excluding
those loans in Sancus Loans Limited). These amounted to GBP8.0m
before IFRS9 provisions at 30 June 2022 compared to GBP9.7m at 31
December 2021 (GBP2.8m net of IFRS9 provisions at 30 June 2022
compared to GBP4.7m at 31 December 2021). Sancus Loans Limited had
loans of GBP58.4m at 30 June 2022 (31 December 2021: GBP49.9m).
The Group's liabilities consist of the Bond of GBP12.6m which
has a quarterly paid coupon of 7% p.a. and matures on 31 December
2025; and ZDPs of GBP10.9m with a coupon of 8% which matures on 5
December 2022. We will shortly be engaging with stakeholders to
discuss restructuring the ZDPs to enable the Group to have time for
its plans to be implemented and return to profitability. The HIT
credit facility was increased to GBP75m from GBP45m on 4 December
2020 and stood at GBP55m at 30 June 2022.
ESG
At Sancus, we are committed to taking environmental, social and
governance ("ESG") factors seriously. We recognise our
responsibility to incorporate sustainability throughout the
operations of our business, be custodians of the environment and
practice good stewardship of our stakeholders' interests. We are
now taking steps to improve our approach to managing these
factors.
H1 2022 has been focused on starting to define our ESG strategy.
Having now established an internal ESG focus group we will also
draw on external industry experts as required.
It is essential that we understand what ESG factors are most
important to our stakeholders, such that we can focus our strategy
around improving our approach to these issues. We are well on our
way to completing a materiality assessment and intend to engage
with stakeholders in the coming period.
We will report more fully on this in our 2022 Annual Report.
Outlook
Despite the uncertain outlook for the economy, the perennial
imbalance between supply and demand for housing continues to offer
a favourable landscape for the Group's anticipated growth in its
target markets. The economic uncertainty is likely to lead to the
continued retrenchment of Banks from both SME and development
financing which further provides attractive opportunities for
alternative lenders. We continue to track the geopolitical
situation closely and note the potential for further supply chain
disruption and inflationary risks in the construction sector.
We continue to be enthusiastic about the opportunities that lie
ahead of us and look forward to delivering profitability.
Rory Mepham
Chief Executive Officer
RISKS, UNCERTAINTIES AND RESPONSIBILITY STATEMENT
Risks and uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance over the
remainder of the financial year. These include, but are not limited
to, Capital and liquidity risk, Regulatory and compliance risk,
Market risk, Credit risk with respect to the loan book (primarily
bridging loans and, increasingly, development loans), Operational
risk and the execution of Sancus strategy. These risks remain
unchanged from December 2021 and are not expected to change in the
6 months to the end of the financial year. Further details on these
risks and uncertainties can be found in the December 2021 Annual
Report.
Responsibility statement
The Directors confirm that to the best of their knowledge:
-- The Interim Report has been prepared in accordance with the
AIM rules of the London Stock Exchange;
-- This financial information has been prepared in accordance
with IAS 34 as adopted by the UK;
-- The interim results include a fair review of the important
events during the first half of the financial year and their impact
on the financial information as required by DTR 4.2.7R; and
-- The interim results include a fair review of the disclosure
of related party transactions as required by DTR 4.2.8R.
Approved and signed on behalf of the Board of Directors
INDEPENT REVIEW REPORT ON INTERIM FINANCIAL INFORMATION
Conclusion
We have been engaged by Sancus Lending Group Limited (the
'Company') to review the condensed set of consolidated financial
statements in the Interim Report for the six months ended 30 June
2022 which comprises the condensed consolidated statement of
comprehensive income, the condensed consolidated statement of
financial position, the condensed consolidated statement of changes
in shareholders' equity, the condensed consolidated statement of
cash flows and related Notes 1 to 19.
We have read the other information contained in the Interim
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of Consolidated Financial Statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of consolidated
financial statements in the half-yearly financial report for the
six months ended 30 June 2022 is not prepared, in all material
respects, in accordance with International Accounting Standard 34
as adopted by the UK and the AIM Rules of the London Stock
Exchange.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board for use in the
United Kingdom. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2 of the interim condensed consolidated
financial statements, the financial statements of the Company are
prepared in accordance with IFRSs as adopted by the UK. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with the
International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the UK.
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis of Conclusion
section of this report, nothing has come to our attention to
suggest that management have inappropriately adopted the going
concern basis of accounting or that management have identified
material uncertainties relating to going concern that are not
appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of directors
The Interim Report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the Interim Report in accordance with the AIM Rules of
the London Stock Exchange.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
consolidated financial statement in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Moore Stephens Audit and Assurance (Guernsey) Limited
Level 2 Park Place
Park Street
St Peter Port
Guernsey, GY1 3HZ
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
For the period ended 30 June 2022
Notes Period ended Period ended
30 June 2022 30 June 2021
(unaudited) (unaudited)
GBP'000 GBP'000
Revenue 4 4,823 5,002
Cost of sales 5 (3,560) (3,386)
Gross profit 1,263 1,616
Operating expenses 6 (3,350) (2,671)
Changes in expected credit losses 17 - (3,028)
------------- -------------
Operating loss (2,087) (4,083)
FinTech Ventures fair value movement 17 114 8
Other net losses (9) (95)
Loss for the period before tax (1,982) (4,170)
Income tax expense - (58)
------------- -------------
Loss for the period after tax (1,982) (4,228)
Items that may be reclassified subsequently
to profit and loss
Foreign exchange arising on consolidation 10 9
------------- -------------
Other comprehensive income for the
period after tax 10 9
------------- -------------
Total comprehensive loss for the period (1,972) (4,219)
============= =============
Basic loss per Ordinary Share 7 (0.41)p (0.88)p
------------- -------------
Diluted loss per Ordinary Share (0.41)p (0.81)p
------------- -------------
The accompanying Notes form an integral part of these financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
As at 30 June 2022
30 June 2022
31 December
(unaudited) 2021 (audited)
ASSETS Notes GBP'000 GBP'000
Non-current assets
Fixed assets 8 549 660
Goodwill 9 22,894 22,894
Other intangible assets 10 21 53
Sancus loans and loan equivalents 17 43,111 6,643
FinTech Ventures investments 17 850 500
Investments in joint ventures and associates - 500
Other investments 100 100
------------- ---------------
Total non-current assets 67,525 31,350
------------- ---------------
Current assets
Other assets 12 674 496
Sancus loans and loan equivalents 17 16,480 46,602
Trade and other receivables 11 5,242 6,075
Cash and cash equivalents 8,609 12,436
Total current assets 31,005 65,609
------------- ---------------
Total assets 98,530 96,959
============= ===============
EQUITY
Share premium 13 116,218 116,218
Treasury shares 13 (1,172) (1,172)
Other reserves (97,924) (95,952)
------------- ---------------
Total Equity 17,122 19,094
------------- ---------------
LIABILITIES
Non-current liabilities
Borrowings 67,260 64,677
Other liabilities 253 364
Total non-current liabilities 14 67,513 65,041
------------- ---------------
Current liabilities
Borrowings 14 10,944 10,532
Trade and other payables 14 1,859 1,628
Tax liabilities 14 104 86
Provisions 14 70 -
Other liabilities 14 918 578
------------- ---------------
Total current liabilities 13,895 12,824
------------- ---------------
Total liabilities 81,408 77,865
------------- ---------------
Total equity and liabilities 98,530 96,959
============= ===============
The financial statements were approved by the Board of Directors
on 23 September 2022 and were signed on its behalf by:
Director: John Whittle
The accompanying Notes form an integral part of these financial
statement.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY (Unaudited)
For the period ended 30 June 2022
Share Treasury Warrants Foreign Retained Total
Premium Shares Outstanding Exchange Earnings/ Equity
Reserve (Losses)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 December 2021 (audited) 116,218 (1,172) 385 11 (96,348) 19,094
Fair value of warrants - - (385) - 385 -
Transactions with owners - - (385) - 385 -
---------------------------------------- --------- --------- ------------- ---------- ----------- --------
Total comprehensive profit/(loss) for
the period - - - 10 (1,982) (1,972)
-------------------------------------- --------- --------- ------------- ---------- ----------- --------
Balance at 30 June 2022 (unaudited) 116,218 (1,172) - 21 (97,945) 17,122
---------------------------------------- --------- --------- ------------- ---------- ----------- --------
Balance at 31 December 2020 (audited) 116,218 (1,099) 847 (1) (86,471) 29,494
Acquired on sale of BMS Finance AB - (73) - - - (73)
Fair value of warrants - - 616 - (616) -
Transactions with owners - (73) 616 - (616) (73)
---------------------------------------- --------- --------- ------------- ---------- ----------- --------
Total comprehensive profit/(loss) for
the period - - - 9 (4,228) (4,219)
-------------------------------------- --------- --------- ------------- ---------- ----------- --------
Balance at 30 June 2021 (unaudited) 116,218 (1,172) 1,463 8 (91,315) 25,202
---------------------------------------- --------- --------- ------------- ---------- ----------- --------
The accompanying Notes form an integral part of these financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
For the period ended 30 June 2022
Period ended Period ended
30 June 2022 30 June 2021
(unaudited) (unaudited)
Notes GBP'000 GBP'000
Cash outflow from operations, excluding
loan movements 15 (626) (2,654)
Decrease / (Increase) in Sancus loans 195 (2,298)
Decrease in loans to UK and Irish SARLS - 1,796
(Increase) / Decrease in loans through
the HIT facility (5,840) 4,518
Investment in Sancus Loan notes - (50)
------------- -------------
Net cash (outflow)/inflow from operating
activities (6,271) 1,312
------------- -------------
Cash inflows / (outflows) from investing
activities
Divestment / (Investment) in IOM Preference
Shares 516 (16)
Net (Investments) / Repayments in FinTech
Ventures (236) (492)
(Investment) / Divestment in joint
ventures (50) 9
Expenditure on SPL Properties 12 (178) (52)
Sale of SPL Properties - 51
Expenditure on fixed assets and intangibles (14) (4)
------------- -------------
Net cash inflow / (outflow) from investing
activities 38 (504)
------------- -------------
Cash inflows / (outflows) from financing
activities
Draw down of HIT facility 15 2,500 2,496
Capital element of lease payments 15 (104) (97)
Repayment of ZDPs 15 - (2,756)
------------- -------------
Net cash inflow / (outflow) from financing
activities 2,396 (357)
------------- -------------
Effects of Exchange 10 9
------------- -------------
Net (decrease) / increase in cash
and cash equivalents (3,827) 460
Cash and cash equivalents at beginning
of period 12,436 15,786
Cash and cash equivalents at end of
period 8,609 16,246
============= =============
GBP3.2m of the GBP8.6m cash held at 30 June 2022 is for the
exclusive use of Sancus Loans Limited (June 2021: GBP12.4m of the
GBP16.2m).
The accompanying Notes form an integral part of these financial
statements.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Sancus Lending Group Limited (the "Company"), together with its
subsidiaries, ("the Group") was incorporated, and domiciled in
Guernsey, Channel Islands, as a company limited by shares and with
limited liability, on 9 June 2005 in accordance with The Companies
(Guernsey) Law, 1994 (since superseded by The Companies (Guernsey)
Law, 2008). Until 25 March 2015, the Company was an Authorised
Closed-ended Investment Scheme and was subject to the Authorised
Closed-ended Investment Scheme Rules 2008 issued by the Guernsey
Financial Services Commission ("GFSC"). On 25 March 2015, the
Company was registered with the GFSC as a Non-Regulated Financial
Services Business, at which point the Company's authorised fund
status was revoked. The Company's Ordinary Shares were admitted to
trading on the AIM market of the London Stock Exchange on 5 August
2005 and its issued zero dividend preference shares were listed and
traded on the Standard listing Segment of the main market of the
London Stock Exchange with effect from 5 October 2015.
The Company does not have a fixed life and the Company's
Memorandum and Articles of Incorporation (the "Articles") do not
contain any trigger events for a voluntary liquidation of the
Company. The Company is an operating company for the purpose of the
AIM rules. The Executive Team is responsible for the management of
the Company.
The Company has taken advantage of the exemption conferred by
the Companies (Guernsey) Law, 2008, Section 244, not to prepare
company only financial statements which is consistent with the 2021
Annual Report.
2. ACCOUNTING POLICIES
(a) Basis of preparation
These condensed consolidated financial statements ("financial
statements") have been prepared in accordance with International
Financial Reporting Standard (IAS) 34 'Interim Financial
Reporting', as adopted by the United Kingdom and all applicable
requirements of Guernsey Company Law. They do not include all the
information and disclosures required in annual financial statements
and should be read in conjunction with the Company's annual audited
financial statements for the year ended 31 December 2021, which
have been prepared in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the United Kingdom.
The Group does not operate in an industry where significant or
cyclical variations, as a result of seasonal activity, are
experienced during any particular financial period.
These financial statements were authorised for issue by the
Company Directors on 23 September 2022.
(b) Principal accounting policies
The same accounting policies and methods of computation are
followed in these financial statements as in the last annual
financial statements for the year ended 31 December 2021.
(c) Going Concern
The Directors have considered the going concern basis in the
preparation of the financial statements as supported by the
Director's assessment of the Company's and Group's ability to pay
its debts as they fall due and have assessed the current position
and the principal risks facing the business with a view to
assessing the prospects of the Company.
Liabilities which fall due in the next 12 months include the
final capital entitlement of the Company's ZDPs which are repayable
on 5 December 2022 at GBP10.7m.
As part of the Group's growth plan the Company is considering
its options regarding this liability which may include
re-financing, part repayment and/or extension of the ZDPs and an
equity raise. This will require consultation with the relevant
stakeholders, including ordinary shareholders and ZDP shareholders
and regulatory approvals and consents. Accordingly, there can be no
certainty that the proposals will proceed.
These factors and assumptions constitute a material uncertainty
that may cast significant doubt over the Company's ability to
continue as a going concern, such that it may be unable to realise
its assets and discharge its liabilities in the normal course of
business. The Directors expect that if they are able to action the
mitigations in accordance with the plan outlined above, the
material uncertainty will be extinguished. The Directors are
therefore of the opinion that the Company will have adequate
financial resources to continue in operation and meet its
liabilities as they fall due for the foreseeable future and
continue to adopt the going concern basis in preparing the
financial statements.
(d) Critical accounting estimates and judgements in applying accounting policies
The critical accounting estimates and judgements are as outlined
in the financial statements for the year ended 31 December
2021.
3. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the
manner in which the Executive Team reports to the Board, which is
regarded to be the Chief Operating Decision Maker (CODM) as defined
under IFRS 8. The main focus of the Group is Sancus. Bearing this
in mind the Executive team have identified 4 segments based on
operations and geography.
Finance costs and Head Office costs are not allocated to
segments as such costs are driven by central teams who provide,
amongst other services, finance, treasury, secretarial and other
administrative functions based on need. The Group's borrowings are
not allocated to segments as these are managed by the Central team.
Segment assets and liabilities are measured in the same way as in
these financial statements and are allocated to segments based on
the operations of the segment and the physical location of those
assets and liabilities.
The four segments based on geography, whose operations are
identical (within reason), are listed below. Note that Sancus Loans
Limited, although based in the UK, is reported separately as a
stand-alone entity to the Board and as such is considered to be a
segment in its own right.
1. Offshore
Contains the operations of Sancus Lending (Jersey) Limited,
Sancus Lending (Guernsey) Limited, Sancus Lending (Gibraltar)
Limited, Sancus Properties Limited and Sancus Group Holdings
Limited.
2. United Kingdom (UK)
Contains the operations of Sancus Lending (UK) Limited and
Sancus Holdings (UK) Limited.
3. Ireland
Contains the operations of Sancus Lending (Ireland) Limited.
4. Sancus Loans Limited
Contains the operations of Sancus Loans Limited.
Reconciliation to Consolidated Financial
Statements
Six months to FinTech
30 Sancus Ventures
June 2022 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 658 1,386 752 (251) - 2,545 - 2,278 - - 4,823
--------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------------
Operating
Profit/(loss)
* (481) (319) 467 (259) - (592) (618) - - (17) (1,227)
Credit Losses 191 - - (191) - - - - - - -
Debt Costs - - - - (860) (860) - - - - (860)
Other
Gains/(losses) 24 - 5 (34) - (5) 5 - 155 - 155
Loss on JVs and
associates - - - - - - - - - (50) (50)
Taxation - - - - - - - - - - -
Profit After
Tax (266) (319) 472 (484) (860) (1,457) (613) - 155 (67) (1,982)
========= ======== ======== ======== ======== ======== ======== ======== ========= ======== =============
Six months to
30
June 2021
Revenue 1,883 1,018 230 (239) - 2,892 - 2,033 - 77 5,002
--------- -------- -------- -------- -------- -------- -------- -------- --------- -------- -------------
Operating
Profit/(loss)
* 685 136 (8) (248) - 565 (693) - - 73 (55)
Credit Losses (2,270) - - (746) - (3,016) - - - (12) (3,028)
Debt Costs - - - - (1,000) (1,000) - - - - (1,000)
Other
Gains/(losses) 96 2 (26) 1 - 73 - - (4) (49) 20
Loss on JVs and
associates - - - - - - - - - (107) (107)
Taxation (58) - - - - (58) - - - - (58)
Profit After
Tax (1,547) 138 (34) (993) (1,000) (3,436) (693) - (4) (95) (4,228)
========= ======== ======== ======== ======== ======== ======== ======== ========= ======== =============
* 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 GBP220,000, Offshore to
Ireland GBP37,000, Head Office to Offshore GBP62,500 and UK to Head
Office GBP31,000. "Other" includes FinTech (excluding fair value
and forex).
Reconciliation to Financial Statements
At 30 June 2022 Sancus
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 43,991 11,908 534 63,252 119,685 42,820 - 850 477 (65,302) 98,530
--------- --------- -------- --------- ---------- ----------- --------------- ---------- -------- --------- --------------------
Total Liabilities (40,295) (13,055) (180) (67,659) (121,189) (24,194) - - (1,327) 65,302 (81,408)
--------- --------- -------- --------- ---------- ----------- --------------- ---------- -------- --------- --------------------
Net
Assets/(liabilities) 3,696 (1,147) 354 (4,407) (1,504) 18,626 - 850 (850) - 17,122
========= ========= ======== ========= ========== =========== =============== ========== ======== ========= ====================
At 31 December
2021
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
========= ========= ======== ========= ========== =========== ========== =============== ======== ========= ==================
Head Office liabilities include borrowings GBP23.4m (December
2021: GBP23m). Other FinTech assets and liabilities are included
within "Other"
4. REVENUE
30 June 2022 30 June 2021
(unaudited) (unaudited)
GBP'000 GBP'000
Co-Funder fees 767 777
Earn out (exit) fees 260 270
Transaction fees 1,711 1,662
Total revenue from contracts with customers 2,738 2,709
-------------- --------------
Interest on loans 58 117
HIT interest income 2,027 1,794
Other income - 382
-------------- --------------
Total Revenue 4,823 5,002
============== ==============
5. COST OF SALES
30 June 2022 30 June 2021
(unaudited) (unaudited)
GBP'000 GBP'000
Interest costs 881 1,016
HIT interest costs 2,278 2,033
Other cost of sales 401 337
-------------- --------------
Total cost of sales 3,560 3,386
============== ==============
6. OPERATING EXPENSES
30 June 2022 30 June 2021
(unaudited) (unaudited)
GBP'000 GBP'000
Administration and secretarial fees 61 67
Amortisation and depreciation 157 195
Audit fees 69 84
Corporate Insurance 69 27
Directors Remuneration 64 69
Employment costs 2,201 1,719
Investor relations expenses 30 37
Legal and professional fees 82 123
Marketing expenses 126 20
NOMAD fees 38 38
Other office and administration costs 385 247
Pension costs 51 28
Registrar fees 15 15
Sundry 2 2
------------- -------------
Total operating expenses 3,350 2,671
============= =============
7. LOSS PER ORDINARY SHARE
Consolidated loss per Ordinary Share has been calculated by
dividing the consolidated loss attributable to Ordinary
Shareholders in the period by the weighted average number of
Ordinary Shares outstanding (excluding treasury shares) during the
period.
Note 13 describes the warrants in issue which are currently out
of the money, and therefore have not been considered to have a
dilutive effect on the calculation of Loss per Ordinary Share.
30 June 2022 30 June 2021
(unaudited) (unaudited)
Number of shares in issue 489,843,477 489,843,477
Weighted average number of shares outstanding 477,990,801 478,294,522
Loss attributable to Ordinary Shareholders
in the period GBP1,982,000 GBP4,228,000
Basic Loss per Ordinary Share (0.41)p (0.88)p
Diluted Loss per Ordinary Share (0.41)p (0.81)p
8. FIXED ASSETS
Right of Property & Equipment Total
use assets
Cost GBP'000 GBP'000 GBP'000
At 31 December 2021 1,247 463 1,710
Additions in the period - 14 14
Disposals - (15) (15)
At 30 June 2022 1,247 462 1,709
============ ===================== ========
Accumulated depreciation GBP'000 GBP'000 GBP'000
At 31 December 2021 686 364 1,050
Charge in the period 98 27 125
Disposals - (15) (15)
At 30 June 2022 784 376 1,160
======== ======== ========
Net book value 30 June 2022 463 86 549
======== ======== ========
Net book value 31 December 2021 561 99 660
======== ======== ========
9. GOODWILL
Goodwill at 30 June 2022 and 31 December 2021 comprises:
GBP'000
Sancus Lending (Jersey) 14,255
Sancus Lending (Gibraltar) 8,639
--------
Total 22,894
========
Impairment tests
The carrying amount of goodwill arising on the acquisition of
certain subsidiaries is assessed by the Board for impairment on an
annual basis or sooner if there has been any indication of
impairment. The annual review is due on 30 June each year. As a
result the Board has assessed the Goodwill for impairment on 30
June 2022.
The value in use of Sancus Lending (Jersey) and Sancus Lending
(Gibraltar) was based on an internal Discounted Cash Flow ("DCF")
value-in-use analysis using cash flow forecasts for the years
2022/23 to 2026/27. The starting point for each of the cash flows
was the revised forecast for the year 2022/23 produced by Jersey
and Gibraltar management. Management's revenue forecasts applied a
compound annual growth rate (CAGR) to revenue of 25.5% and 11.2%
for Jersey and Gibraltar respectively. A cost of equity discount
rate of 13.5% was employed in the valuation model for Jersey and
14.0% for Gibraltar. The resultant valuation indicated that no
impairment of goodwill was required in either Jersey or Gibraltar,
with significant headroom.
Goodwill valuation sensitivities
When the discounted cash flow valuation methodology is utilised
as the primary goodwill impairment test, the variables which
influence the results most significantly are the discount rates
applied to the future cash flows and the revenue forecasts. The
table below shows the impact on the Consolidated Statement of
Comprehensive Income of stress testing the period end goodwill
valuation with a decrease in revenues of 10% and an increase in
cost of equity discount rate of 3%. These potential changes in key
assumptions fall within historic variations experienced by the
business (taking other factors into account) and are therefore
deemed reasonable. The current model reveals that a sustained
decrease in revenue of circa 13% for Jersey and circa 20% for
Gibraltar or a sustained increase of circa 9% in the cost of Equity
discount rate for Jersey and circa 11% for Gibraltar would remove
the headroom.
Sensitivity Applied Reduction in headroom implied by
sensitivity
Jersey Gibraltar Total
GBP'000 GBP'000 GBP'000
10% decrease in revenue
per annum 5,026 2,483 7,509
3% increase in cost of
Equity discount rate 2,490 1,619 4,109
Neither a 10 % decrease in revenue nor a 3% increase in the cost
of Equity discount rate implies a reduction of Goodwill in Jersey
or Gibraltar.
10. OTHER INTANGIBLE ASSETS
GBP'000
Cost
At 30 June 2022 and 31 December 2021 1,584
==========
Amortisation
At 31 December 2021 1,531
Charge for the period 32
----------
At 30 June 2022 1,563
==========
Net book value at 30 June 2022 21
==========
Net book value at 31 December 2021 53
==========
Intangible assets comprise capitalised contractors' costs and
costs related to core systems development. No impairment provision
has been recorded. The amortisation charge has been recorded within
Operating Expenses.
11. TRADE AND OTHER RECEIVABLES
31 December
30 June 2022 2021
(unaudited) (audited)
Current GBP'000 GBP'000
Loan fees, interest and similar receivable 3,285 4,146
Receivable from associated companies 12 10
Taxation 32 40
Derivative contracts (Note 17) - 759
Other trade receivables and prepaid expenses 1,913 1,120
5,242 6,075
============= ===========
12. OTHER ASSETS
Development
properties
Cost GBP'000
At 31 December 2020 1,015
Additions 157
Disposals (676)
At 31 December 2021 496
Additions 178
At 30 June 2022 674
============
Other assets are developments which were previously held as
security against certain loans which have defaulted. These assets
are held at the lower of cost and net realisable value. The
remaining GBP674,000 comprises of one development property which is
held at cost.
13 . SHARE CAPITAL, SHARE PREMIUM & DISTRIBUTABLE RESERVE
Sancus Lending Group Limited has the power under the Articles to
issue an unlimited number of Ordinary Shares of nil par value.
No Ordinary Shares were issued in the period to 30 June 2022
(Period to 30 June 2021: Nil).
Share Capital
Number of Ordinary Shares - nil par value
-----------
At 30 June 2022 (unaudited) and 31 December 2021 (audited) 489,843,477
-----------
Share Premium
Ordinary Shares - nil par value GBP'000
-------
At 30 June 2022 (unaudited) and 31 December 2021 (audited) 116,218
-------
Ordinary shareholders have the right to attend and vote at
Annual General Meetings and the right to any dividends or other
distributions which the Company may make in relation to that class
of share.
Treasury Shares
31 December
30 June 2022 2021
(unaudited) (audited)
Number of Number of
shares shares
Balance at start of the period/year 11,852,676 7,925,999
Sancus Lending Group shares acquired on the sale
of BMS Finance AB - 3,926,677
Balance at end of period/year 11,852,676 11,852,676
============= ===========
31 December
30 June 2022 2021
(unaudited) (audited)
GBP'000 GBP'000
Balance at start of the period/year 1,172 1,099
Sancus Lending Group shares acquired on the sale
of BMS Finance AB - 73
Balance at end of period/year 1,172 1,172
============= ===========
Warrants in Issue
On 22 December 2020, in connection with the issue of new bonds,
the Company issued 153,994,543 Warrants to subscribe in cash for
new Ordinary Shares at a subscription price of 2.25 pence per
Ordinary Share. The Warrants will be exercisable on at least 30
days notice in the period to 31 December 2025. As at 30 June 2022
and up to the date of signing these condensed interim financial
statements none of these warrants have been exercised. The warrants
are classified as equity instruments because a fixed amount of cash
is exchangeable for a fixed amount of equity, there being no other
features which could justify a financial liability classification.
The fair value of the Warrants at 30 June 2022 is GBPNil (31
December 2021: GBP385,000).
14. LIABILITIES
31 December
30 June 2022 2021
Non-current liabilities (unaudited) (audited)
GBP'000 GBP'000
Corporate bond (1) 12,487 12,474
HIT facility (2) 54,773 52,203
Lease Creditor 253 364
------------- -----------
Total non-current liabilities 67,513 65,041
============= ===========
Current liabilities 30 June 2022 31 December
(unaudited) 2021 (audited)
GBP'000 GBP'000
ZDPs (3) 10,944 10,532
Accounts payable 160 93
Accruals and other payables 1,699 1,519
Taxation 104 86
Payable to associated companies - 16
Interest payable 378 366
Derivative contracts (note 17) 321 -
Provisions 70 -
Lease creditor 219 212
Total current liabilities 13,895 12,824
============ ===============
Movement on provision for financial guarantees
GBP'000
At 31 December 2020 1,542
Profit and loss credit in the year (1,542)
-------
At 31 December 2021 -
Profit and loss charge in the period 70
At 30 June 2022 70
=======
Provisions for financial guarantees are recognised in relation
to Expected Credit Losses ("ECLs") on off-balance sheet loans and
debtors where the Company has provided a subordinated position or
other guarantee (see Note 18). The fair value is determined using
the exact same methodology as that used in determining ECLs (Note
17).
(1) Corporate Bond
On 22 December 2020 Sancus Lending Group issued GBP12,575,000
corporate bonds of which GBP3,875,000 were rolled from the existing
GBP10m bonds (the remaining GBP6,125,000 being repaid) and
GBP8,700,000 issued for cash. Over the term of the bonds GBP15m may
be issued. The bond maturity date is 31 December 2025 and they bear
interest at 7% (2021: 7%).
(2) HIT Facility
On 29 January 2018, Sancus Lending (UK) Limited signed a new
funding facility with Honeycomb Investment Trust plc (HIT). The
funding line had a term of 3 years and comprised of a GBP45m
accordion and revolving credit facility. On 3 December 2020 the
term of the facility was extended to 28 January 2024. On the same
date the facility was increased to 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 an obligation to maintain a
10% first loss position on the HIT facility. Sancus Lending Group
has also provided HIT with a guarantee, capped at 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.
(3) ZDPs
The ZDPs have a maturity date of 5 December 2022 with a final
capital entitlement of GBP1.6464 per ZDP share, and bear interest
at an average rate of 8.0% (2021: 8.0%).
Refer to the Company's Memorandum and Articles of Incorporation
for full detail of the rights attached to the ZDPs. This document
can be accessed via the Company's website www.sancus.com.
In accordance with article 7.5.5 of the Articles, the Company
may not incur more than GBP30m of long term debt without the prior
approval from the ZDP shareholders. The Articles also specify that
two debt cover tests must be met in relation to the ZDPs. At 30
June 2022 the Company was in compliance with these covenants as
Cover Test A was 3.14 (minimum of 1.7) and Cover Test B was 5.65
(minimum of 3.25).
At the period end senior debt borrowing capacity amounted to
GBP17.4m. The HIT facility does not impact on this capacity as this
is non-recourse to the Company.
The number of ZDPs in issue at 30 June 2022 and 31 December 2021
was 19,101,384 of which 12,235,748 (31 December 2021: 12,235,748)
with an aggregate value of GBP19,522,833 (31 December 2021:
GBP18,810,266) are held by the Company.
15. NOTES TO THE CASH FLOW STATEMENT
30 June 2022 30 June 2021
Cash outflow from operations (excluding
loan movements) (unaudited) (unaudited)
GBP'000 GBP'000
Loss for the period (1,982) (4,228)
Adjustments for:
Net gain on FinTech Ventures (114) (8)
Other net losses / (gains) 417 88
Adjustment in carrying value of Sancus
IOM Holdings Limited - 116
Accrued interest on ZDPs 400 468
Impairment of financial assets - 3,028
Gain on SPL assets - (51)
Gain on purchase of ZDPs - (34)
Amortisation / depreciation of fixed
assets 157 195
Amortisation of debt issue costs 95 105
Changes in working capital:
Trade and other receivables 82 (1,793)
Trade and other payables 319 (540)
Cash outflow from operations, excluding
loan movements (626) (2,654)
============= ===========================
Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be classified
in the Group's consolidated cash flow statement as cash flows from
financing activities.
Amortisation
of debt
1 January Financing issue costs Other 30 June
2022 cash flows(1) Non-cash Non-cash 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ZDPs 10,532 - 12 400(2) 10,944
Corporate Bond 12,474 - 13 - 12,487
HIT Facility 52,203 2,500 70 - 54,773
Lease Liability 576 (104) - - 472
---------- --------------- ------------- ---------- --------
Total liabilities
from financing activities 75,785 2,396 95 400 78,676
========== =============== ============= ========== ========
Amortisation
of debt
1 January Financing issue costs Other 30 June
2021 cash flows(1) Non-cash Non-cash 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ZDPs 12,424 (2,756) 12 434(2) 10,114
Corporate Bond 12,473 - 12 (24)(2) 12,461
HIT Facility 44,553 2,496 81 - 47,130
Lease Liability 657 (97) - (16)(3) 544
---------- --------------- ------------- ---------- --------
Total liabilities
from financing activities 70,107 (357) 105 394 70,249
---------- --------------- ------------- ---------- --------
(1) These amounts can be found under financing cash flows in the
cash flow statement.
(2) Interest accruals.
(3) Lease variation.
16. RELATED PARTY TRANSACTIONS
Transactions with the Directors/Executive Team
Non-executive Directors
As at 30 June 2022, the non-executive Directors' annualised
fees, excluding all reasonable expenses incurred in the course of
their duties which were reimbursed by the Company, were as detailed
in the table below:
30 June 2022 30 June 2021
GBP'000 GBP'000
Patrick Firth (Previous chairman - resigned
31 August 2021) - 50,000
Stephen Smith (Chairman) 50,000 35,000
John Whittle 42,500 42,500
Nick Wakefield (resigned 8 March 2022) - 35,000
Tracy Clarke (appointed 9 March 2022) 35,000 -
On 9 March 2022 Tracy Clarke was appointed as a non-executive
Director to the Board. Tracy's directorships were listed in the RNS
issued on 9 March 2022.
Tracy Clarke is a director of a number of Somerston Group
companies. The Somerston Group of companies collectively holds
200,349,684 ordinary shares in the Company, representing 40.9 per
cent of the current issued share capital. From time to time, the
Somerston Group may participate as a Co-Funder in Sancus loans.
Other than this and the Directors' fees and expenses in relation to
Tracy's (and previously Nick's) appointment as a Director of the
Group, the Group has not recorded any transactions with any
Somerston Group companies for the period ended 30 June 2022 (30
June 2021: none).
Total Directors' fees charged to the Company for the period
ended 30 June 2022 were GBP63,750 (30 June 2021: GBP68,640).
Executive Team
For the period ended 30 June 2022, the Executive Team members'
remuneration from the Company, excluding all reasonable expenses
incurred in the course of their duties which were reimbursed by the
Company, were as detailed in the table below:
30 June 2022 30 June
2021
GBP'000 GBP'000
Aggregate remuneration in respect of qualifying
service - fixed salary 238 303
Aggregate amounts contributed to Money Purchase
pension schemes 10 8
Aggregate bonus paid - 125
All amounts have been charged to Operating Expenses.
Directors' and Persons Discharging Managerial R esponsibilities
("PDMR") shareholdings in the Company
As at 30 June 2022, the Directors had the following beneficial
interests in the Ordinary Shares of the Company:
30 June 2022 31 December 2021
No. of Ordinary % of total No. of Ordinary % of total
Shares Held issued Ordinary Shares Held issued Ordinary
Shares Shares
John Whittle 138,052 0.03 138,052 0.03
Emma Stubbs 1,380,940 0.28 1,380,940 0.28
Dan Walker(1) - - 911,300 0.19
(1) Dan Walker resigned 31 January 2022
In the six month period to June 2022 and the year to December
2021, none of the above received any amounts relating to their
shareholding.
Transactions with connected entities
The following significant transactions with connected entities
took place during the current period:
Receivable from/(payable to) related 30 June 31 December
parties 2022 2021
GBP'000 GBP'000
Sancus (IOM) Holdings Limited(1) - (16)
Amberton Limited 12 10
(1) Sancus (IOM) Holdings Limited ceased to be a connected
entity on 31 January 2022 when the Group sold its interest.
Net Cost recharges
30 June 30 June
2022 2021
Amberton Limited 4 18
There is no ultimate controlling party of the Company.
17. FINANCIAL INSTRUMENTS - Fair values and risk management
Sancus loans and loan equivalents
30 June 2022 31 December
(unaudited) 2021 (audited)
Non-current GBP'000 GBP'000
Sancus loans 786 447
Sancus Loans Limited loans 42,325 6,196
------------- ----------------
Total Non-current Sancus loans and loan equivalents 43,111 6,643
------------- ----------------
Current
Sancus loans 2,059 4,269
Sancus Loans Limited loans 14,421 42,333
------------- ----------------
Total Current Sancus loans and loan equivalents 16,480 46,602
------------- ----------------
Total Sancus loans and loan equivalents 59,591 53,245
============= ================
Fair Value Estimation
The financial assets and liabilities measured at fair value in
the Consolidated Statement of Financial Position are grouped into
the fair value hierarchy as follows:
30 June 2022 31 December
2021 (audited)
(unaudited)
Level Level Level Level
2 3 2 3
GBP'000 GBP'000 GBP'000 GBP'000
Fintech Ventures investments - 850 - 500
Derivative contracts (321) - 759 -
Total assets / liabilities at fair value (321) 850 759 500
======== ======== ======== ========
The classification and valuation methodology remains as noted in
the 2021 Annual Report.
All of the FinTech Ventures investments are categorised as Level
3 in the fair value hierarchy. In the past the Directors have
estimated the fair value of financial instruments using discounted
cash flow methodology, comparable market transactions, recent
capital raises and other transactional data including the
performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held
by the Group in the FinTech Ventures investments, as well as the
challenges that have faced the platforms during the pandemic, the
Board's estimate of liquidation value of these assets is GBP0.85m
at 30 June 2022 (31 December 2021: GBP0.5m) following GBP0.35m
deployed into an existing investment in March 2022. Changes in the
performance of these businesses and access to future returns via
its current holdings could affect the amounts ultimately realised
on the disposal of these investments, which may be greater or less
than GBP0.85m. There have been no transfers between levels in the
period (2021: None).
Assets at Amortised Cost
30 June 2022 31 December
2021
(unaudited) (audited)
GBP'000 GBP'000
Sancus loans and loan equivalents 59,591 53,245
Trade and other receivables 3,329 4,196
Cash and cash equivalents 8,609 12,436
------------- ------------
Total assets at amortised cost 71,529 69,877
============= ============
Liabilities at Amortised Cost
30 June 2022 31 December
2021
(unaudited) (audited)
GBP'000 GBP'000
ZDPs 10,944 10,532
Corporate Bond 12,487 12,474
HIT facility 54,773 52,203
Trade and other payables 3,204 2,656
Total liabilities at amortised cost 81,408 77,865
============= ============
Refer to Note 14 for further information on liabilities.
FinTech Ventures Investments Total Portfolio
30 June 2022 GBP'000
At 31 December 2021 500
Net new investments / loan repaid 236
Realised gain recognised in profit and loss 114
At 30 June 2022 850
==================
Total Portfolio
31 December 2020 GBP'000
At 31 December 2020 -
Net new investments / (divestments) 66
Realised gain recognised in profit and loss 434
At 31 December 2021 500
================
Credit Risk
Credit risk is defined as the risk that a borrower/debtor may
fail to make required repayments within the contracted timescale.
The Group invests in senior debt, senior subordinated debt, junior
subordinated debt and secured loans. Credit risk is taken in direct
lending to third party borrowers, investing in loan funds, lending
to associated platforms and loans arranged by associated platforms.
The Group mitigates credit risk by only entering into agreements
related to loan instruments in which there is sufficient security
held against the loans or where the operating strength of the
investee companies is considered sufficient to support the loan
amounts outstanding.
Credit risk is determined on initial recognition of each loan
and re-assessed at each balance sheet date. It is categorized into
Stage 1, Stage 2 and Stage 3 with Stage 1 being to recognise 12
month ECLs, Stage 2 being to recognise Lifetime ECLs not credit
impaired and Stage 3 being to recognise Lifetime ECLs credit
impaired.
Foreign Exchange Risk - Derivative instruments
The Treasury Committee Team monitors the Group's currency
position on a regular basis, and the Board of Directors reviews it
on a quarterly basis. Loans denominated in Euros which are taken
out through the HIT facility are hedged. Forward contracts to sell
Euros at loan maturity dates are entered into when loans are drawn
in Euros. At 30 June 2022 the following forward foreign exchange
contracts were open:
June
2022
Counterparty Settlement Buy Buy Sell Sell Unrealised
date Currency Amount currency amount loss GBP'000
GBP'000 EUR'000
EWealthGlobal July 2022 to
Group May 2023 GBP 7,883 Euro 9,245 (149)
Lumon Risk July 2022 to
Management May 2023 GBP 13,557 Euro 15,839 (172)
(321)
===========
December 2021
Counterparty Settlement Buy Buy Sell Sell Unrealised
date Currency Amount currency amount gain GBP'000
GBP'000 EUR'000
EWealthGlobal Feb 2022 to
Group May 2023 GBP 14,769 Euro 16,817 623
Liberum Wealth Feb 2022 GBP 1,183 Euro 1,299 92
Lumon Risk Apr 2022 to
Management May 2023 GBP 5,148 Euro 6,046 44
759
===============
No hedging has been taken out against investments in the FinTech
Ventures platforms (2021: GBPNil).
Provision for ECL
Provision for ECL is made using the credit risk, the probability
of default (PD) and the probability of loss given default (PL) all
of which are underpinned by the Loan to Value (LTV), historical
position, forward looking considerations and on occasion,
subsequent events and the subjective judgement of the Board.
Preliminary calculations for ECL are performed on a loan by loan
basis using the simple formula: Outstanding Loan Value x PD x PL
and are then amended as necessary according to the more subjective
measures as noted above.
A probability of default is assigned to each loan. This
probability of default is arrived at by reference to historical
data and the ongoing status of each loan which is reviewed on a
regular basis. The probability of loss is arrived at with reference
to the LTV and consideration of cash that can be redeemed on
recovery.
Movement of provision for ECL
Trade
Loans Debtors Guarantees Total
GBP'000 GBP'000 GBP'000 GBP'000
Loss allowance at 31 December
2020 4,199 2,190 1,542 7,931
Charge/(credit) for the year 2021 3,076 4,865 (1,542) 6,399
Utilised in the year 2021 (866) - - (866)
---------- --------- ------------- ----------
Loss allowance at 31 December
2021 6,409 7,055 - 13,464
Charge/(credit) for the period
to June 2022 372 (442) 70 -
Utilised in the period to June
2022 - (141) - (141)
---------- --------- ------------- ----------
Loss allowance at 30 June 2022 6,781 6,472 70 13,323
========== ========= ============= ==========
18. GUARANTEES
The Group undertakes a number of Guarantees and first loss
positions which are not deemed to be contingent liabilities under
IAS37 as there is no present obligation for these guarantees and it
is considered unlikely that these liabilities will crystallise.
HIT Facility
Sancus Group has a 10% first loss position as part of the HIT
facility. Sancus Group has also provided HIT with a guarantee,
capped at 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 Holdings Limited, given its position as facility
and security agent.
Sancus Loan Notes
SLN7 launched on 10 May 2021. At the end of June 2022 it had
GBP17.4m of assets. Sancus Group Holdings Limited has a 10% first
loss position on this loan note .
SLN8 launched on 10 March 2022. At the end of June 2022 it had
GBP3.0m of assets. Sancus Group Holdings Limited has a 20% first
loss position on this loan note .
Commitments
As at 30 June 2022 the Group has unfunded commitments of
GBP69.4m (31 December 2021: GBP47.3m). These unfunded commitments
primarily represent the undrawn portion of development finance
facilities. Drawdowns are conditional on satisfaction of specified
conditions precedent, including that the borrower is not in breach
of its representations or covenants under the loan or security
documents. The figure quoted is the maximum exposure assuming that
all such conditions for drawdown are met. Directors expect the
majority of these commitments to be filled by Co-Funders and/or by
our secured funding lines.
19. POST BALANCE SHEET EVENTS
Between 30 June 2022 and the signing of these financial
statements the Company purchased the following ZDPs:
Date of Purchase Number of shares Purchase price
purchased per share (GBP)
19 July 2022 25,000 1.38
21 July 2022 35,000 1.39
22 July 2022 17,993 1.41
28 July 2022 10,000 1.42
8 August 2022 5,000 1.46
9 August 2022 43,200 1.44
12 August 2022 6,000 1.48
15 August 2022 10,000 1.50
16 August 2022 5,000 1.50
17 August 2022 5,000 1.49
19 August 2022 176,764 1.54
Following these transactions, the Company has 19,101,384 ZDPs in
issue of which 12,574,705 are held by the Company. The total number
of ZDP share voting rights is therefore 6,526,679.
OFFICERS AND PROFESSIONAL ADVISERS
Directors
Non-executive: Steve Smith (Chairman - appointed 31 August
2021)
John Richard Whittle
Tracy Clarke
Executive Rory Mepham
Emma Stubbs
The address of the Directors is the Company's registered
office.
Executive Team:
Chief Executive Officer: Rory Mepham
Chief Financial Officer: Emma Stubbs
Chief Investment Officer: James Waghorn
Registered office: Block C
Hirzel Court
St Peter Port
Guernsey, GY1 2NL
Channel Islands
Nominated Adviser and
Broker: Liberum Capital Limited
Ropemaker Place
25 Ropemaker Street
London, EC2Y 9LY
United Kingdom
Company Secretary: Sanne Fund Services (Guernsey)
Limited
Sarnia House
Le Truchot
St Peter Port
Guernsey, GY1 1GR
Channel Islands
Legal Advisers, Carey Olsen
Channel Islands: P.O. Box 98
Carey House
Les Banques
St Peter Port
Guernsey, GY1 4BZ
Channel Islands
Legal Advisers, UK Stephenson Harwood
1 Finsbury Circus
London, EC2M 7SH
United Kingdom
Legal Advisers, US Troutman Pepper
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103-2799
United States
Bankers: Barclays International
1st Floor, 39041 Broad
Street
St Helier
Jersey, JE4 8NE
Auditors: Moore Stephens
P.O. Box 146, Park Place
Park Street
St Peter Port
Guernsey, GY1 3HZ
Channel Islands
Registrar: Link Market Services Limited
The Registry, 34 Beckenham
Road
Beckenham
Kent, BR3 4TU
United Kingdom
Public Relations: Instinctif Partners Limited
65 Gresham Street
London, EC2V 7NQ
United Kingdom
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END
IR BLGDCIUDDGDX
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