TIDMORCH
RNS Number : 3028I
Orchard Funding Group PLC
01 December 2022
1 December 2022
Orchard Funding Group PLC
("Orchard Funding Group" or the "company" or the "group")
Full Year Results
For the 12 months ended 31 July 2022
This announcement replaces the announcement released under the
headline "Final Results" at 7am on 1 December 2022, with RNS number
1739I. Due to formatting errors in the document, certain page
numbers and note references were not displayed correctly, which
have now been corrected. Furthermore, the dividend timetable has
changed - the record date for the 2022 dividend payment is now 23
December 2022 and the ex-dividend date is now 22 December 2022. All
other details remain unchanged.
Orchard Funding Group PLC, the finance company which specialises
in insurance premium finance and the professions funding market, is
pleased to announce its audited full year results for the year
ended 31 July 2022.
Highlights
-- The business has recovered well after the Covid-19 pandemic
with increases in lending, revenue and profit
-- Gross total income in the period increased by 34.6% to
GBP6.19 million for the 12 months to 31 July 2022 (31 July 2021
GBP4.60 million)
-- The loan book increased by 46.4% year on year to GBP43.74 million
-- Profit after tax rose by 81.0% from GBP0.84 million to GBP1.52 million
-- Earnings Per Share ("EPS") rose in the period by 82.0% to 7.11p (31 July 2021 3.91p)
-- The group lent GBP79.96 million to clients in the 12 months
to 31 July 2022 an increase of 31.0% (31 July 2021 GBP61.02
million)
-- We are again proposing a full year dividend per share of 3.0 pence
-- We have issued a retail bond through Orchard Bond Finance plc
raising GBP3.90 million before costs.
Ravi Takhar, Chief Executive Officer of the company, stated:
" We are delighted to report our robust performance and return
to historic profit levels.
We have grown our business whilst maintaining the historic
credit quality of our lending book. We continue to benefit from
excellent liquidity from Toyota Financial Services and Nat West. We
have also now bolstered our liquidity with access to the listed
retail bond market through Orchard Bond Finance.
We continue to invest in and benefit from our software platform,
which gives us a number of advantages in underwriting, servicing
and marketing our business.
We are very well placed to build on our historic success and
looking forward to the continued controlled and profitable growth
of our business."
For further information, please contact:
Orchard Funding Group PLC +44 (0)1582 346 248
Ravi Takhar, Chief Executive Officer
Liberum (Nomad and Broker) +44 (0)20 3100 3222
Investment banking
Neil Patel
Lauren Kettle
For Investor Relations please go to:
www.orchardfundinggroupplc.com
Group financial highlights
Until 2019, Orchard grew its lending year on year. From August
2019 to July 2021 lending fell primarily due to the impact of
Covid-19. This situation has been reversed this year with lending
in all areas experiencing increases, as shown in the table
below.
Comparing lending, income and profit for 2022 with 2021:
2022 2021 Increase
(GBPm) (GBPm) (%)
Lending volume 79.96 61.02 31.04%
Loan book (post ECL provision) 43.74 29.87 46.41%
Borrowing 25.48 12.25 108.00%
Gross total income 6.19 4.60 34.57%
Net total income 4.84 3.44 40.70%
Other operating costs 2.97 2.39 24.27%
Operating profit 1.88 1.05 79.05%
Further detail on the above is given throughout the Group
strategic report on pages 4 to 14 of the full financial
statements.
Chairman's statement
This has been a good year for our business with Lending volumes
and Gross and Net Income at all-time highs. We have seen strong
performance from our core insurance business despite ongoing
aggressive competition from the two major incumbents. We have
continued to build a strong relationship with Toyota Financial
Services and have successfully piloted our new Bridging Loan
proposition. We believe we can grow a profitable secured lending
offering to complement our insurance business, competing on the
basis of our experienced staff, and our proven underwriting
processes and supporting systems.
The economic backdrop improved significantly following the
lifting of all Covid-19 restrictions [in the second half of our
financial year], although we do face new headwinds from a weakened
economic outlook. We are partly insulated from the current high
inflation 'cost of living' challenges as our core insurance
products are mainly a non-discretionary purchase for our consumers.
We will have a close watch for any increase in arrears and will
continue to support our customers through any difficulties as far
as possible. We are likely to see pressure on our net interest
margins with the majority of our borrowing subject to increases in
market rates.
I am pleased to confirm that we continue to be funded by Toyota
Financial Services and National Westminster Bank and I thank them
for their continued support. We have started to diversify our
funding this year with the issue of a 5 year listed Retail Bond as
we now start to lend longer term with our Static Caravan HP
product.
We have continued with a hybrid working arrangement, with the
majority of our staff benefiting from the flexibility to work from
home as a result of our investment in IT infrastructure. This
ensures we remain an attractive employer for our small loyal
workforce.
Despite the headwinds caused by the current geo-political
uncertainty the Board remains cautiously optimistic about the
future and in our ability to grow and diversify our balance sheet
based on our history of profitable performance, our highly
experienced executive team and our nimble systems. I am pleased to
confirm that we are proposing to maintain the dividend at 3 pence
per share continuing our track record of dividend payments since
floatation, including during the Covid-19 downturn.
Steven Hicks
Chairman
30 November 2022
Chief executive's review
We are pleased to report a complete recovery of our business
from the impacts of Covid-19.
Our total lending, balance sheet, income and profits have all
materially increased from last year's numbers. This is a testament
to the hard work of the team and proves the resilience of our
business model.
As well as the significant improvement in our lending, we have
also ensured that we have market leading liquidity to support our
business. Our liquidity is provided by Toyota Financial Services
PLC, National Westminster Bank PLC and our listed bond programme
through Orchard Bond Finance PLC.
We have always managed our expenses carefully and still run a
very cost-effective operation.
We have full control and are justly proud of our in-house
developed IT, which not only manages all of our loan administration
and reporting, but also provides market leading underwriting
technology, which will continue to support our conservative lending
into the future. We now provide a SaaS service to a number of our
customers, which further exemplifies the effectiveness and
robustness of our IT platform.
We operate in a very competitive market, dominated by two very
large and aggressive financial institutions. Consolidation in the
premium finance industry means that we are now the only other
lender in the market. Despite significant balance sheet
disadvantage, we continue to provide a unique service to our
clients and also offer a unique product in the market to insurance
companies and brokers wishing to provide in-house finance to their
customers.
We enter the new financial year facing many difficult economic
headwinds. Our cost of funds has risen significantly. Consumer
confidence and spending power are adversely impacted and hence
borrowing levels in the general lending market are already in
decline. We believe that our business model will see us through
these difficult times and still enable us to continue lending on a
prudent basis. All lenders will have to remain vigilant and we are
no exception.
Whilst insurance premium finance remains our preferred and
dominant market, we continue to explore and lend in adjacent
markets, which share the credit risk profile of our core market. We
keep simple unsecured lending with no other protection to a very
limited part of our lending book. We are happy to report that we
continue to lend into the professions fee funding market, where we
have over 200 accountancy firms on our books, the leisure market,
where we have over 100 golf clubs on our books, the school fee
funding market and the static caravan market. Most recently we have
entered, on a very conservative basis, the property bridge finance
market, with our new secured lender, Cherry Orchard Funding
Limited. We continue to explore market opportunities carefully and
are able to utilise the great experience of our non-executive
directors who have both held leading positions in a number of UK
banks. Our Chairman, Steven Hicks, is Chair of Risk at two UK banks
and with Ketan Malde, a former CFO of a number of highly successful
banks, provide a watchful and experienced risk management overview
of our business.
We continue to be supported by our experienced and loyal staff.
We continue to invest in staff to accommodate the changing nature
of our business, ensuring that our partners and borrowers have the
excellent support that they deserve. Our senior managers have been
with us for more than a decade and this is indicative of the type
of business that we are - caring and supportive to our people. We
believe our staff to be one of our greatest assets and they enable
us to continue to deliver a very high level of service to our
clients. We have also been able to ensure that all staff are able
to work from home and thank them for ensuring that our customers
continue to receive excellent service.
We would like to thank Toyota Financial Services PLC and
National Westminster Bank PLC for our current liquidity lines. We
have adequate liquidity for our near-term lending aspirations.
In summary, we have recovered from Covid-19. We now enter into
another period of financial and economic uncertainty, secure in the
knowledge that we have a robust business model and a controlled
operational cost base that will continue to support our staff,
liquidity providers and investors.
We paid a dividend of 2 pence per share in December 2021 and an
interim of 1 penny per share in April 2022. I am happy to announce
that the board has proposed a final dividend of 2 pence per share
to be paid in December 2022, subject to shareholder approval.
Ravi Takhar
Chief executive officer
30 November 2022
Group strategic report
Strategy and objectives
The group's principal objective remains to increase our
profitability in a prudent, sustainable manner, having due regard
for the interests of all stakeholders. The term stakeholders in
this respect is wide ranging and includes employees, shareholders,
our introducing partners, other customers, creditors, regulators,
other parts of government and the local and wider community. Each
of these groups has different, sometimes conflicting, interests,
and it is the responsibility of the board to ensure that all
stakeholders are treated fairly. This concept of fairness to all
permeates through the decision making process.
We have six strategic drivers behind our objective of increasing
profitability and these have remained the same for some years:
-- to differentiate our business from that of our competitors,
based on service excellence, fair pricing and robust underwriting
procedures;
-- to increase lending in a responsible manner;
-- to preserve and, where deemed necessary, increase our sources of liquidity;
-- to innovate;
-- to continually improve our IT systems;
-- to support our excellent staff in their work.
Differentiation covers a number of factors: the ease of transfer
of business from other lenders to us; taking time to fully
understand our introducing partners' businesses; being easily
contactable by all our customers; providing flexible funding
arrangements; reducing our partners costs and giving them regular
training and assistance.
The directors still believe in our two pronged approach to
lending - to increase the number of partners who fit in with our
business values (brokers, accountants and other third party
introducers) as well as to increase the volume of business from
each of these partners, while always having regard to the risks
associated with lending and keeping fair treatment of customers at
the heart of our business.
Our approach to innovation is to review markets and product
lines which we believe are appropriate for our lending criteria -
safe lending and sensible returns. How we have achieved this during
the year is detailed later.
Our IT system is fully in-house, providing stability for our
future business, the ability to increase lending in our core
markets where IT system integration is required and the ability to
enter new markets. It gives us much more control over, and thereby
reduces risks in, the development of the system. We work with our
supplier in the further development of an open banking system,
pushing down costs and giving greater security in lending.
Our sales team are our first line in dealing with our partners,
arranging prospect meetings and, where required, making use of
senior personnel to help them close a deal. They are ably supported
by other members of the team who ensure that proper care is taken
of our partners. Care of our partners is of paramount importance in
our business culture and this aspect is a constant part of training
for all staff. Feedback from our partners in this area remains
positive.
Our aim is to continue to build strongly to achieve our
principal objective by maintain and enhancing the strategies listed
above.
Our business model
Our core business remains providing credit to businesses and
consumers to enable them to spread the cost of their insurance
premiums, professional fees or other service fees over a period of
up to one year. We began expanding last year into longer term loans
(up to seven years) for asset finance and up to three years for gap
insurance. We have introduced a bridging loan product this year.
Our business model is a "hold to collect" model in which financial
assets are held to maturity to collect cash flows of principal and
interest, rather than holding them for sale. More detail on this is
given in note 2.6 on page 39 of the full financial statements.
Despite the fact that we now have longer term lending, the
nature of our products remains so alike in terms of risk, reward
and processes that any segregation would not give meaningful
information to users of the financial statements. In most cases our
lending is covered by recourse to a guaranteeing partner. Our
underwriting and debt management procedures are similar enough that
we have not found it necessary to disaggregate results arising from
our several markets. We believe that to do so would obscure
material information and reduce the understandability of the
financial statements. We therefore still report a single trading
segment - lending. All of our lending is within the UK.
Lending limits to our customers are set by reference to
financial information (credit reports, regulatory and other
requirements) and by reference to other qualitative information for
both our introducing partners and for the end borrowers. In
addition, an annual review process, including regulatory
permissions and credit checks, is conducted for each introducing
partner and each partner is monitored monthly for the group's
financial exposure to that entity. The majority of our lending
gives us recourse to the introducing partner, is through regulated
introducers and no cash is passed over until at least the first
repayment is received. In the case of insurance, the customer can
have their cover withdrawn for non-payment with any refunds being
paid to Orchard. In the case of longer term lending, the procedure
is more vigorous, making use of open banking technology (as
mentioned earlier) to further mitigate the risk of default. We have
in the past turned down potential borrowers because they did not
fulfil our strict requirements. Indeed, we shall continue to do so.
In terms of bridging finance, our maximum loan compared to the
value of the property ("LTV") is 75%, with no loan this year being
more than 70% LTV.
Last year the year the group refinanced its borrowings. The
interest rates charged (excluding associated costs) were lower than
was previously being charged.
A retail listed bond was issued on 2 March 2022. Full details of
the bond plus the prospectus published in connection with the issue
are available on the company's website at
https://www.orchardfundinggroupplc.com/bonds. This raised GBP3.90m
up to 31 July 2022 and has given us further secure liquidity.
Excluding the bond, the group has borrowing facilities up to up
to a maximum of GBP25.00m for general lending. In addition Orchard
Finance has a facility of up to GBP10.00m to be used exclusively
for lending in respect of products from the provider of those
funds.
Of the general facility, GBP8.58m was unused at the year end. Of
the restricted facility, GBP4.64m was unused.
The balance of lending is provided both from group resources. At
31 July 2022 the group had net current financial assets
(receivables plus cash in hand less current liabilities) amounting
to GBP12.26m.
The group's average cost of finance (calculated by interest
payments over borrowings in the period) was 3.57% in the financial
year to 31 July 2022 (6.03% on the same basis in the year to 31
July 2021). Cost of funds includes arrangement and legal fees
payable for access to funding and fees for non-use of the facility.
There was some distortion last year as costs were incurred for a
facility which was not used by the year end but which has since
been used. If only interest were included in cost of finance the
percentages would be 2.95% for 2022 and 3.03% for 2021.
Principal risks and uncertainties
The group's activities expose it to a variety of risks.
The board has identified the following principal risks, their
potential impact on Orchard, an assessment of change in risk
year-on-year, our risk appetite and how we mitigate risk. Principal
risks are those which could have most impact on our ability to
continue in business. Indicators of those risks (key risk
indicators or KRIs) are shown below. Orchard's sole business is
lending money and therefore the risks apply to this area. Since
issuing the retail bond further risks have arisen. In addition,
turbulence in world markets has led indirectly to interest rate
rises.
Credit risk
Explanation of The risk that debtors or guarantors will default
the risk
Impact on the A major loss could have a serious effect on group
group profits - the whole of the capital loss will impact
on profit.
Year-on-year Risk has changed in that a worsening economy may
change in risk lead to higher: inflation, interest rates, unemployment
and business collapses. In addition, we are now
lending at fixed rates (although the majority of
these loans are currently repayable within one year).
Risk appetite Our aim is to limit reported credit losses to below
0.5% of income generating assets.
Mitigation of In most cases, money is only lent for periods up
risk to one year predominantly through introducers who
guarantee the loans and who are regulated businesses
themselves. Borrowing limits are set based on prudent
underwriting principles. Impairment reviews are
regularly conducted to identify potential problems
early. Note 17 gives further details of mitigation
of credit risk.
In addition, our documentation is reviewed regularly
by our legal team to ensure that debts are not subject
to challenge at a later date.
---------------- ---------------------------------------------------------
Liquidity risk
Explanation of A lack of funding to finance our business.
the risk
Impact on the Without adequate funding we cannot conduct our business.
group
Year-on-year Risk has fallen. We refinanced last year and the
change in risk providers of those funds have increased our facility.
We obtained longer term funding by issuing a five
year retail bond.
Risk appetite We aim to have 5% more funds than would be sufficient
to enable our plans to be met.
Mitigation of Our borrowing facilities are due for renewal in
risk April 2023 for Bexhill and June 2023 for Orchard.
Our funders have indicated, so far as they are able,
that they have no wish to withdraw their support.
Excess available credit plus our net current financial
assets amounted to GBP20.84m at 31 July 2022 (excluding
borrowings restricted to Toyota products). Our operating
costs for the year were GBP2.91m (excluding impairment
allowance) giving more than sufficient headroom
to operate well into the future.
---------------- ----------------------------------------------------------
Interest rate risk
Explanation of The risk that we lend at one rate and borrow at
the risk a rate higher than anticipated.
Impact on the Reduced margins mean reduced profit.
group
Year-on-year Risk has changed substantially. Since July 2021
change in risk Bank of England base rate has increased from 0.10%
to 1.25% by 31 July 2022. At the time of writing
there have been three further increases taking the
rate to 3.00% - a staggering 2,900% increase (albeit
from a very low starting point). In this environment
we look closely at all new lending to ensure that
our margins remain stable. We have longer term fixed
rate lending but it still represents a small proportion
of our total lending (5.06% of our 2022 lending).
However, had base rates been at 3.00% for the whole
of the previous year and we still lent money at
the rate which we did, the additional cost would
have been GBP252k -13.43% of reported PBT.
Risk appetite Our risk appetite in the past was 25% above the
interest rate that we were paying when a loan was
made, without being able to pass this on to our
customers. Clearly this is unsustainable in the
current climate when rates are rising to counter
high levels of inflation. Our appetite now is to
ensure that the net interest margin on new lending
remains above 10%.
Mitigation of Management is in regular contact with its funders
risk and routinely reviews the financial situation in
the economy. The majority of loans made are relatively
short term (no more than twelve months with the
average at ten) so any increase is likely to have
a fairly short-term impact. Longer term loans are
still a very small percentage of the business.
---------------- ---------------------------------------------------------
Non-use risk
Explanation of This is the risk that money raised through the retail
the risk bond will not be used to the extent that income
arising covers the bond interest.
Impact on the Having money "sitting idle" will not generate enough
group income to enable the loans to be serviced. In this
situation there will be a drain on the group's resources.
Year-on-year This is a new risk for us as we have not had long-term
change in risk fixed interest borrowings before.
Risk appetite It was accepted that once the money was received
it would take time to make use of it for lending.
The appetite is to lend this money within a reasonable
time frame (six months of receipt) for products
with a rate of return in excess of the rate being
paid.
Mitigation of This risk is mitigated by the fact that our subsidiaries
risk are all trading companies currently with a number
of sources of funding. Bond money could replace
that borrowing if need be.
---------------- -----------------------------------------------------------
Non-repayment risk
Explanation of The retail bond is a five year bond. At the end
the risk of that term the money will need to be repaid to
the bond holders. This is the risk that there will
be insufficient cash in the system to make those
repayments.
Impact on the The amount raised on the market was approx. GBP3.90m.
group Should the company which raised the money not be
able to repay this it would lead to the group having
to find GBP0.39m under a guarantee but, more importantly,
lead to reputational risk which might cause other
funders to consider renewing facilities.
Year-on-year This is, again, a new risk for us as we have not
change in risk had long-term fixed interest borrowings before.
Risk appetite There is no risk appetite for non-repayment. The
costs to the group could be significant.
Mitigation of This risk is mitigated by the fact that the amounts
risk involved could easily be covered by the likely cash
position at the time that repayment is due.
---------------- -----------------------------------------------------------
Systems risk
Explanation of Disruption to or failure of our IT systems.
the risk Cyber threats - data being accessed illegally.
Impact on the Persistent or serious failures could lead to lack
group of confidence in our system and reduce our operational
capabilities.
Penalties for allowing data breaches are severe
and could lead to us not being able to operate at
all.
Year-on-year Our new system has been fully operational for almost
change in risk two years now and we are over the settling down
period. The system is proving robust.
The risk of cyber-crime has not increased.
Risk appetite There is no risk appetite for either failure or
cyber-crime.
Mitigation of Remote support access enables prompt resolution
risk of incidents. Internet connection provides guaranteed
access.
We have commissioned a risk assessment of our system
by external IT specialists.
Our controls are such that even a minor disruption
is very quickly picked up and action taken. Systems
are covered by a support contract which enables
quick identification of any problems.
The group continues to develop its processes for
prevention of cyber threats. If prevention is not
guaranteed, the systems in place give us the capability
to detect, respond and recover from those attacks.
All our staff are well trained in the use of our
systems and are well placed to notice and unusual
activity.
---------------- ---------------------------------------------------------
Conduct risk
Explanation of Any action that leads to unfair customer outcomes.
the risk Any action that has an adverse effect on market
stability or effective competition.
Fraud.
Impact on the Failing to deal effectively with conduct risk faces
group regulatory action, fines, and reputational damage.
Year-on-year Risk has not changed.
change in risk
Risk appetite The board has no appetite for non-compliance with
regulation or for any instance of fraud within or
on the organisation.
Mitigation of The board sets standards which comply with regulation
risk and best practice. The CEO monitors staff compliance
with those standards, reports deficiencies to the
board and provides staff with advice on the interpretation
of the standards.
Controls are in place to prevent internal fraud
with day to day supervision by the CEO.
Regular monitoring of introducing partners is conducted
including a review of sources of loan repayments.
Our documentation is reviewed by our legal team
to ensure that it is meets the requirements of the
FCA.
---------------- ------------------------------------------------------------
The group's overall risk management programme focuses on
reducing the effect of these risks on its financial performance. A
risk appetite (the level at which risk is accepted by the group
before action needs to be taken) is established for the key risk
areas. A regular assessment of the principal risks affecting the
group, based on a traffic light classification, is carried out by
the executive directors who then pass this on to the full board of
directors. The board identifies, evaluates and mitigates financial
risks and there are written policies for all major risk areas at
subsidiary company level (where the activity takes place). The
tables above show the group's principal risk appetite and how risk
is mitigated. A risk register is maintained in which any instances
of any of the aforementioned risks are recorded and, where
necessary, acted upon.
We are committed to maintaining the highest standards of ethics
and integrity in the way we do business. We adopt a zero tolerance
approach to bribery and fraud and expect our business partners to
do the same. Our staff are encouraged to contact the board if they
have any concerns in this regard. We are committed to behaviour
that results in fair outcomes for our customers (both introducers
and end borrowers).
In summary:
-- credit risk is reduced by a robust system of checks on
introducers, borrowers and by third party guarantees;
-- liquidity risk is alleviated by borrowing facilities from our funders;
-- interest rate risk is mitigated by the fact that most loans
are short term, by regular interaction with our bankers and by
reviewing the net interest margin;
-- risks attaching to the bond (both non-use and non-repayment)
are alleviated by our normal business processes of finding markets
which can give a profitable return and generate sufficient cash. If
need be we can replace other borrowings with money raised from the
issue:
-- risk from disruption to the IT system and cyber-crime is
avoided by thorough business continuity procedures and procedures
designed to prevent, detect, respond and recover from malicious
attacks; and
-- conduct risk is mitigated by staff training, board oversight
and monitoring of introducing partners.
The nature of the business is that loans are made either to
finance companies or to clients of our introducing partners.
Although there is some significant lending to individual finance
companies, the underlying debts making up these loans are collected
by Orchard and assigned to Orchard. At 31 July 2022, the largest
nominal exposure was GBP6.69m to one finance company representing
15.25% of our loans (before expected credit loss provisions "ECL").
The highest exposure to a non-finance company was GBP2.15m and
consisted of advances comprising many smaller loans (the average
amount for each loan was GBP211). The reality, therefore, is that
our exposure is low. At 31 July 2022 total outstanding loans were
GBP43.87m before ECL (at 30 September 2021 GBP30.60m), of which the
highest individual loan (not a block loan to a premium finance
company) was GBP186.39k. This was for asset finance and represented
less than 0.43% of total outstanding loans. This is likely to
remain the situation in the near future.
We have experienced late payments in the past. The majority of
these are through our customers changing banking details. We make
charges for late payments and this reduces our expected credit
losses.
We review debts for impairment and make provision where
necessary. As part of this process, we have increased the provision
by GBP63k during the year to 31 July 2022, net of reversal of
previous provisions and items written off against those provisions
(GBP131k was released in the year to 31 July 2021). This has been
charged (2021 credited) to the income statement below operating
costs. The provision this year is GBP135k carried forward at 31
July 2022 (GBP72k at 31 July 2021). As our loan book grows so does
the provision. Note 2.6 of the full financial statements outlines
the approach to credit impairments.
The main uncertainties in these financial statements are those
connected with the level of expected credit losses. Although
objective evidence is obtained where possible (macroeconomic
factors etc.), these still require a good deal of management
judgement. They are detailed in note 3 to the full financial
statements.
The business environment
Having come out of the market turbulence caused by Covid-19,
businesses appear to have been thrust into another period of
instability. The effect of oil and gas price rises, changes in
government and the commotion caused by the invasion of Ukraine have
led to further unrest in the markets and pressure on the pound.
As a result of the above we are seeing rates of inflation not
seen for many years with the Bank of England increasing interest
rates to combat these high inflation rates. Bank of England base
rate has increased five times since our last year end with another
three increases since 31 July 2022. These eight increases make up
an astonishing 2,900% on the rate in force at 31 July 2021.
In this environment, individuals and businesses are more likely
to try to conserve cash and spread expenditure over a period of
time. Insurance is one type of expenditure which lends itself to
this approach. It is also a purchase which is needed (a "distress
purchase") either for legal reasons or for security. Orchard's core
business is exactly that - providing funds for the spreading of
insurance payment. We are in an ideal position to provide help to
our introducers and their customers in these difficult times by
providing this service.
Development and performance of the business
Overview
Lending was already beginning to grow by the end of our last
financial year and this pattern continued in every month this year
except December. Overall growth in lending was 30.98% over the
previous year.
Most of our premium finance growth will come from the direct
insurance side (this was up 39.34% compared to the previous year)
rather than from broker premium funding companies ("PFC"'s). PFCs
still remain our largest market and, after lending to them fell
from GBP33.8m in 2020 to GBP29.58m last year, it has grown again to
GBP37.03m in this financial year. The demand for professional fee
finance seems to have stabilised this year at GBP4.38m.
Product lines already introduced are reviewed regularly to
evaluate the impact they are having on the business. To date that
impact has been encouraging. We continue to use the same
disciplined approach when evaluating potential new markets.
We began lending into longer term markets, as mentioned last
year and these are going well. We intend to grow these further.
Details are shown in future developments later on in this
section.
To summarise: it remains our intention to increase our sales in
existing markets and expand into adjacent markets, always having
regard to returns that are needed to keep the business financially
healthy. We shall continue to control costs, only spending where we
believe it will increase our profitability. We have sufficient
liquidity at present but this is always kept under review.
Financial indicators
The function of the group remains to lend money safely. Good
quality customers are therefore central to the development of the
business. We have continued to add to our introducing partner base
and have continued to sell more through this base. Despite hard
economic conditions, this continues to work well.
Our margin is an important area. Some of our borrowing is fixed
to bank base rate and some to the Sterling Overnight Index Average,
"SONIA." As these rates alter so will our borrowing costs. Given
the short term nature of most of our lending any likely changes
would make a small impression on margins. Our own analysis
indicated that, under what could be described as "normal"
circumstances, the influence on our business would be negligible.
However, as pointed out in
Principal risks and uncertainties , these are not normal
circumstances. We now ensure that as base rate or SONIA rises, we
are faster to readjust our pricing. This was not needed to be done
before because rates were low and stable. There remains greater
risk with our longer term products that rate increases would erode
margins.
Most other operating costs in this business are relatively
stable. We have increases resulting from an increased sales
function. Exhibition costs are up because we have been unable to
attend during the last two years because of Covid-19 but now can.
The other main increase is in consultancy fees in setting up the
bridging loan system. Overall, operating costs (including ECL) are
24.27% higher than in 2021. Details of these costs are shown in
note 5.
Financial key performance indicators (KPIs)
The table below gives a breakdown of group KPIs as well as
indicators not considered KPIs but which give a better
understanding of the figures.
We have seen increases in lending, revenue and profit this year
compared to last. Last year Covid-19 impacted our business for
approximately eight months. This year we have seen increases in all
markets in which we operate except school fees. We have also seen
increases in our costs. Other operating costs rose from GBP2.52m in
2021 to GBP2.91 this year (see Consolidated statement of
comprehensive income). With a profit before tax of 79.05% higher
than in 2021 the board are satisfied with the results this
year.
All GBPm unless obviously
otherwise 2022 2021 2020 2019 2018
KPIs
Lending volume GBP79.96 GBP61.02 GBP65.53 GBP72.99 GBP68.73
Average interest earning
assets(1) GBP36.81 GBP28.59 GBP29.72 GBP31.54 GBP29.68
Total revenue GBP6.19 GBP4.60 GBP5.28 GBP5.49 GBP5.18
Average external funding GBP15.77 GBP9.28 GBP12.82 GBP14.35 GBP11.49
Cost of external funds GBP0.59 GBP0.56 GBP0.62 GBP0.70 GBP0.63
Cost of funds/funds ratio 3.57% 6.03% 4.84% 4.88% 4.79%
Own resources (net current
financial assets) GBP12.26 GBP14.15 GBP15.50 GBP14.82 GBP13.92
Operating costs (pre ECL) GBP2.91 GBP2.52 GBP2.44 GBP2.20 GBP1.92
Net interest margin(2) 11.98% 11.26% 13.26% 13.19% 13.01%
ROAE (Return on average
equity) 9.36% 5.35% 8.31% 10.90% 11.10%
Other performance indicators
Net interest income GBP4.41 GBP3.22 GBP3.94 GBP4.16 GBP3.86
Profit before tax GBP1.88 GBP1.05 GBP1.56 GBP1.97 GBP1.89
Profit after tax GBP1.52 GBP0.84 GBP1.27 GBP1.58 GBP1.51
Gross interest margin 13.58% 13.22% 15.34% 15.41% 15.13%
EPS (pence) (3) 7.11 3.91 5.96 7.67 7.07
DPS (pence) (4) 3.00 3.00 3.00 3.00 3.00
Return on capital employed 5.19% 4.33% 6.74% 7.24% 6.77%
1. Average interest earning assets consist of the average of the
opening and closing loan book after taking account of the
impairment provision.
2. This has become more important than in the past. As explained
in Principal risks and uncertainties, in the light of rising
interest rates it gives both a quick indicator of the level of
profitability in the loans made and will be used to evaluate
whether the interest rate risk on loans made falls within our risk
appetite. It is now a KPI.
3. There are no factors which would dilute earnings therefore
fully diluted earnings per share are identical.
4. Dividends per share are based on interim dividends paid in
the year and proposed final dividend for the year.
Net total income (as shown in the Consolidated statement of
comprehensive income ) has recovered after a fall last year.
Operating costs before ECL are up by GBP382k. Included in operating
costs are consultancy costs of which the major increase was for
amounts paid to get Cherry Orchard lending. Staff costs were
GBP110k higher, reflecting the fact that we have to pay more for
good people. Last year we had a credit to the income statement for
impairment allowance amounting to GBP131k. This year there is a
charge of GBP63k. Other operating costs (excluding impairment
allowance) were up by GBP52k or 2.18%.
Non-financial indicators
Staffing
The most important non-financial indicator remains quality of
management and staff.
Our senior members of staff are all fully trained in every facet
of the business and have good relationships with more junior staff
members whom they able and willing to assist when required. They
have been with us for many years.
Customer care is of paramount importance in our business culture
and this aspect is a constant part of training for everyone in the
organisation. Feedback from our partners in this area has been very
positive. Non-financial performance targets set for our staff have
all been met. These include, but are not limited to, ensuring that
our partners and end-user customers receive prompt responses to any
queries they raise.
Orchard is a small group with 16 non-parent direct employees.
Although no employee is on the main board, there is no formal
workforce advisory panel, nor is there a designated workforce
non-executive director, all employees have access to the executive
directors at any time and can raise any issues with them. They are
also able to contact the Chairman should they wish to discuss a
matter which they feel may not be appropriate for the executive.
There are two non-main board directors as directors of the
subsidiaries.
Partner retention
Partner retention is another significant area in our business.
This couples well with another non-financial indicator, brand
preference. As our partner base grows, so does awareness of who we
are and what we do. We review our partner base regularly to
establish whether they are increasing or decreasing the amount of
business they do with us. Action is taken if business from one
source is unexpectedly dropping.
Innovation
A key non-financial strategy is innovation (see Strategy and
objectives on page 5 of the full financial statements). Innovation
is the ability to continually evolve and grow our business in our
chosen markets. When looking at new products we stay within our
risk parameters and examine whether the returns justify the
resources expended. If new products fit our return and risk
expectations, we proceed to the testing stage - relatively small
amounts of lending. We believe that innovation is fundamental to
growth.
IT systems
A robust, reliable and secure IT system is crucial to the
business. We work closely with external outsource partners to
continually review and develop our IT systems. Our system and has
been tried and tested for a number of years. We began taking
advantage of the open banking system as part of our risk strategy
and this has been invaluable. Our customers have seen advantages of
this, making it easier to manage their agreements. We continue to
upgrade the system in response to customer requirements.
Quality of lending
Our lending has been based on sound underwriting since we began
- we carefully assess any person or body to whom we lend. In
addition, we receive at least one instalment before we pay out
(eliminating first payment default); the direct debit establishes
timely collection and an electronic link to our borrowers; in most
cases our partners guarantee the payment should the end borrower
default; and, if the partner fails, many of our end borrowers are
protected by the financial services compensation scheme thereby
ensuring that we are paid. In addition, the open banking system has
helped ensure quality of lending.
Good governance
The role of the board is set out in the Corporate governance
report on pages 20 to 22 of the full financial statements. Among
its objectives is to protect and enhance long-term value for all
stakeholders. It sets the overall strategy for the group and
supervises executive management. The non-executive directors are
there to challenge the executives. The board also ensures that good
corporate governance policies and practices are implemented within
the group. In the course of discharging its duties, the board acts
in good faith, with due diligence and care, and in the best
interests of the group and its shareholders.
Going concern
The financial statements have been prepared on a going concern
basis which assumes that the group will be able to continue its
operations for the foreseeable future.
The directors continually assess the prospects of the group.
Forecasts are prepared for a four year period, on a rolling basis.
These are also subject to stress testing, the main aspects of which
are the value of loans made, the return on those loans and the
level of expected credit losses. In these scenarios, there is no
indication that there will be a problem in continuing as a going
concern. We are, however, in turbulent times when some of the most
respected forecasters seem to find difficulty in assessing what
lies ahead. It is therefore important to appreciate that the
further away in time the estimate, the less reliable it is. Our
forecasts assume a base rate of 3.00% in the short term, although
if this increased further there would be little impact because of
the short term nature of most of our lending.
The character of our lending is such as to permit us to react to
any changes in base rate within a relatively short period of time
other than with those loans that can be up to three or seven years
ahead. These are relatively small in value, amounting to 5.10% of
total loans made in the year and of these 4.38% are 36months or
less . Not included in these figures are loans made by Orchard
Finance where, although longer term, the risk is taken by the
provider of the funds.
As a result of our estimate of the impact of the current, and
likely short term future, financial situation, we have revised our
forecasts downwards.
The key assumptions and bases used in the forecasts are now:
-- Loans through our partners will grow to circa GBP92m in 2023/24;
-- Liquidity will be available to fund those loans;
-- Margins on lending will fall slightly to an average of 5.05%;
-- Overheads will increase at the rate of inflation with stepped
increases at certain points, e.g. when capacity constraints are hit
or when project spending is required;
-- The funding system will be able to accommodate the increased business.
The directors have prepared and reviewed the financial
projections covering a period of almost four years from the date of
signing of these financial statements. In each year, and in
particular in the 12 to 18 month period from signing, there is
sufficient cash and there are sufficient reserves to enable the
group to pay its debts as they fall due. In addition, they have
further stress tested these projections to a point which they
believe is unlikely to happen (reducing lending, reducing margins
and increasing bad debt) to give a confidence buffer. Even in this
scenario, based on the level of existing cash, the projected income
and expenditure and the excess of our loan book over external debt,
the directors have a reasonable expectation that the company and
group have adequate resources to continue in business for the
foreseeable future. Accordingly, the going concern basis has been
used in preparing the financial statements.
Future developments
There has been little change in how we wish to grow the business
in the future. We shall continue to grow our core markets and look
at adjacent markets. Last year I said that we had tested a small
amount of longer term lending for static caravans and we grew this
lending to GBP344k. We continue to review this given its longer
term nature but it has been successful so far with no arrears. We
began providing short term property finance this year (bridging
loans) and we intend to expand this if it continues to go well. The
nature of this lending is that we have to wait to be paid until the
property is sold. Although this would ordinarily indicate a higher
risk business, as already stated our systems are robust. In
addition, our LTV is set at less than 75%, giving some comfort in
the present economy.
We shall, of course, continue to look at other markets which fit
our risk and return profile. We have not identified any at present
which would fit our lending criteria.
We took an investment in Open B Banking in 2020 and increased
our investment in that company in 2021. We have been working with
this supplier to further develop the system to benefit both
parties. This will continue.
Despite the fact that we have secure sources of funding at
present, we shall continue to look at alternative sources of
liquidity as this is of key importance to what we do.
Environmental, social responsibility, community, human rights
issues and gender diversity
The impact of the group on the environment consists of power
used in an office environment and fuel used for getting to and from
work. Environmental issues are therefore negligible (see SECR
reporting on the next page).
The group operates out of an office in Luton. During the
Covid-19 pandemic, most employees worked from home. This proved
remarkably successful from the perspective of both employee and
employer and this situation has continued. This has meant that our
carbon footprint as a business in the area has fallen (although
there will be some impact on the environment from home
working).
We provide health club membership and childcare vouchers for any
staff who wish them.
We provide equal opportunities for all applicants and members of
staff, irrespective of race, colour, sex, disability or marital
status.
The composition of the main board of directors is currently all
male. The boards of the subsidiaries consist of one or two males
and two females each. Males make up 61.90% of the employees in
total (68.42% in 2020).
We review the background of our suppliers and will not use any
supplier which, as far as we are aware, breaches our own high
standards as regards human rights.
Section 172(1) Statement
Section 172(1) requires a director of a company to act in the
way he considers, in good faith, would be most likely to promote
the success of the company for the benefit of its members as a
whole, and in doing so have regard to:
(a) the likely consequences of any decision in the long
term,
(b) the interests of the company's employees,
(c) the need to foster the company's business relationships with
suppliers, customers and others,
(d) the impact of the company's operations on the community and
the environment,
(e) the desirability of the company maintaining a reputation for
high standards of business conduct, and
(f) the need to act fairly as between members of the
company.
All matters brought to the board for consideration are reviewed
in the light of how they will impact on stakeholders. This review
involves balancing the interests of all stakeholders and includes
having regard to:
-- profitability;
-- risk associated with the proposal (see
-- Principal risks and uncertainties );
-- how the decision will impact on our employees (both in
financial terms and how the quality of their work life and outside
life will be affected). Further detail on how we engage with our
workforce is shown under Environmental, social responsibility,
community, huma rights issues and gender diversity above;
-- what impact it will have on our partners and other customers
(as mentioned under Non-financial indicators. Proper customer care,
particularly in avoiding unfair outcomes, is of overriding
importance to Orchard;
-- our reputation (the impact of loss of reputation is dealt with under Conduct risk);
-- either the CEO and/or CFO are in contact with major investors
at least twice a year (albeit by Zoom or telephone) to discuss the
group's progress and overall plans. This gives us an insight into
how our investors perceive us. All reports and other documents are
on our website and any investor may request a meeting with any
member of the board.
In a wider sense:
-- Orchard does not deal unfairly with its suppliers and
business associates and ensures that payment terms are adhered to.
In fact, in many cases it assists those associates to expand their
business. For example, we increased our investment in Open B
Gateway Limited last year, so that they could have the benefit of
finance to further develop their software platform;
-- it behaves as a good neighbour, helping the local community
where it is able and employing people from the locality - which
also assists in reducing our carbon footprint;
-- in its dealings with government, particularly the revenue
authorities, it is completely open, paying what it owes on
time;
-- it has had no instances from the FCA of non-compliance with regulations;
Environmental, social responsibility, community, human rights
issues and gender diversity are discussed on the previous page.
The board considers whether proposals put to it have long-term
outcomes which affect its stakeholders. In most cases the proposals
have no material long-term consequences. However, where there are
potential consequences, the board takes account of the long-term
nature of its decisions. For example, some years ago decisions were
made both to change our IT system and to apply for a banking
licence. Both decisions were long term in nature and required
resources to be provided. The board agreed to both, seeing the
benefits in the longer term for most of our stakeholders. The
company withdrew its application for the banking licence last year
but has continued to develop its IT system.
Streamlined Energy and Carbon Reporting (SECR)
The directors believe that the company is exempt from reporting
under the SECR framework as its energy use is below the threshold
for reporting.
Approved by the directors and signed by order of the board
Liam McShane,
Company secretary
30 November 2022
Directors' report
The directors present their annual report together with the
audited accounts of the group and the company for the year ended 31
July 2022.
Results and dividends
The group profit for the year after taxation was GBP1.52m (2021
GBP0.84m). This is shown on page 17 of the full financial
statements. The directors consider that the going concern basis is
appropriate, supported by the profitability of the group and the
significant cash balances. During the year the group paid dividends
amounting to GBP641k to shareholders (2021 GBP641k) - note 12 of
the full financial statements. The board is pleased to propose a
final dividend of 2 pence per share to be paid on 6 January 2023 to
shareholders on the register at 23
December 2022, with an ex-dividend date of 22 December 2022. The
final dividend is subject to shareholder approval at the company's
upcoming annual general meeting on 29 December 2022.
Future developments
Future developments and a fuller business review are contained
in the Chief executive's review and the Group strategic report.
Directors and their interests
The directors who served during the year and their beneficial
interests in the share capital of the company are shown in the
remuneration report on pages of the full financial statements.
There is a directors' and officers' indemnity insurance policy in
existence. There were no other third party indemnity provisions for
the directors.
Directors' responsibilities
The directors are responsible for preparing the strategic
report, directors' report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare group and company
financial statements for each financial year. The directors have
elected under company law and the AIM Rules of the London Stock
Exchange to prepare the group financial statements in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and have elected under
company law to prepare the company financial statements in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and applicable
law.
The group and company financial statements are required by law
and international accounting standards in conformity with the
requirements of the Companies Act 2006 to present fairly the
financial position of the group and the company and the financial
performance of the group. The Companies Act 2006 provides in
relation to such financial statements that references in the
relevant part of that Act to financial statements giving a true and
fair view are references to their achieving a fair
presentation.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and the company and of
the profit or loss of the group for that period.
In preparing each of the group and company financial statements,
the directors are required to:
a) select suitable accounting policies and then apply them consistently;
b) make judgements and accounting estimates that are reasonable
and prudent;
c) state whether they have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006;
d) prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and the
company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group's and the
company's transactions and disclose with reasonable accuracy at any
time the financial position of the group and the company and to
enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the
assets of the group and the company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Orchard
Funding Group plc website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Research and development
During the financial year nothing was spent on research and
development (2021 GBPNil).
Financial instruments
Detailed information on the group's financial instruments is
stated in notes 2.6 and 2.7 to the full financial statements.
The group's objectives and policies for managing risk are shown
under
Principal risks and uncertainties in the Group strategic
report.
Employees and environmental issues
The group is an equal opportunity employer. Details of the
group's approach to employee and environmental matters are shown in
the Group strategic report under Environmental, social
responsibility, community, human rights issues and gender
diversity.
Statement as to disclosure of information to auditor
The directors who were in office on the date of approval of
these financial statements have confirmed, as far as they are
aware, that there is no relevant audit information of which the
auditor is unaware. Each of the directors have confirmed that they
have taken all of the steps that they ought to have taken as
directors in order to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that
information.
Approved by the directors and signed by order of the board
Liam McShane,
Company secretary
30 November 2022
Consolidated statement of comprehensive income
2022 2021
Notes GBP000 GBP000
---------------------------------------- ------ -------- --------
Continuing operations
Interest receivable and similar income 4 5,003 3,783
Interest payable and similar charges 5 (587) (559)
Net interest income 4,416 3,224
--------
Other trading income 4 1,187 817
Other direct costs 5 (756) (603)
Net other income 431 214
--------
Net total income 4,847 3,438
--------
Other operating costs 5 (2,905) (2,516)
Net impairment (losses)/gains on
financial assets 5 (63) 131
Operating profit 1,879 1,053
Interest receivable 6 1 -
Interest payable 6 (2) (3)
---------------------------------------- ------ -------- --------
Profit before tax 1,878 1,050
Tax 7 (360) (211)
Profit for the year from continuing
operations attributable to the owners
of the parent 1,518 839
--------
Earnings per share attributable
to the owners of the parent during
the year (pence)
Basic and diluted 9 7.11 3.91
---------------------------------------- ------ -------- --------
Consolidated statement of financial position
2022 2021
Notes GBP000 GBP000
----------------------------------------- ------ ------- -------
Non-current assets
Property, plant and equipment 13 23
Right of use assets 16 56
Intangible assets 7 4
Investment at fair value through profit
and loss 81 81
Loans to customers 10 6,594 2,257
6,711 2,421
----------------------------------------- ------ ------- -------
Current assets
Loans to customers 10 37,143 27,616
Other receivables and prepayments 10 189 233
Cash and cash equivalents:
Bank balances 4,796 2,170
42,128 30,019
----------------------------------------- ------ ------- -------
Total assets 48,839 32,440
Liabilities
Current liabilities
Trade and other payables 12 6,337 4,182
Borrowings 11 19,468 11,439
Tax payable 299 138
26,104 15,759
----------------------------------- --- ------- -------
Non-current liabilities
----------------------------------- --- ------- -------
Borrowings 11 6,057 878
----------------------------------- --- ------- -------
Deferred tax liabilities 1 3
----------------------------------- --- ------- -------
6,058 881
----------------------------------- --- ------- -------
Total liabilities 32,162 16,640
----------------------------------- --- ------- -------
Equity attributable to the owners
of the parent
Called up share capital 214 214
Share premium 8,692 8,692
Merger reserve 891 891
Retained earnings 6,880 6,003
Total equity 16,677 15,800
----------------------------------- --- ------- -------
Total equity and liabilities 48,839 32,440
----------------------------------- --- ------- -------
Consolidated statement of changes in equity
Called
up
share Retained Share Merger Total
capital earnings Premium reserve equity
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 August 2020 214 5,805 8,692 891 15,602
Profit and total comprehensive
income - 839 - - 839
Transactions with owners:
Dividends paid - (641) - - (641)
Balance at 31 July 2021 214 6,003 8,692 891 15,800
--------------------------------- -------- --------- -------- -------- -------
Profit and total comprehensive
income - 1,518 - - 1,518
Transactions with owners:
Dividends paid - (641) - - (641)
Balance at 31 July 2022 214 6,880 8,692 891 16,677
--------------------------------- -------- --------- -------- -------- -------
Retained earnings consist of accumulated profits less losses of
the group. They represent the amounts available for further
investment in group activities. Only the element which constitutes
profits of the parent company are available for distribution. There
are no restrictions on payment of dividends by the subsidiaries to
the parent or by the parent to shareholders.
The share premium account arose on the IPO on 1 July 2015 at a
premium of 95p per share. Costs of the IPO have been deducted from
the account as permitted by IFRS.
The merger reserve arose through the formation of the group on
23 June 2015 using the capital reorganisation method.
Consolidated statement of cash flows
2022 2021
GBP000 GBP000
Cash flows from operating activities:
Operating profit 1,879 1,053
Depreciation and amortisation 63 71
1,942 1,124
Increase in loans to customers, other receivables
and prepayments (13,820) (2,679)
Increase in trade and other payables 2,155 1,243
----------------------------------------------------
(9,723) (312)
Tax paid (201) (337)
Net cash absorbed by operating activities (9,924) (649)
Cash flows from investing activities
Interest received 1 -
Purchases of property, plant and equipment (4) (3)
Purchase of intangible assets (12) (75)
Proceeds of sale of assets - -
Net cash absorbed by investing activities (15) (78)
Cash flows from financing activities
Dividends paid (641) (641)
Net receipts from borrowings 13,236 12,245
Net borrowings repaid - (10,977)
Lease repayments (30) (30)
Net cash generated by financing activities 12,565 597
Net increase/(decrease) in cash and cash
equivalents 2,626 (130)
Cash and cash equivalents at the beginning
of the year 2,170 2,300
----------------------------------------------------
Cash and cash equivalents at the end of
year 4,796 2,170
----------------------------------------------------
Notes to the consolidated financial statements
1. Preliminary announcement
The preliminary announcement set out above does not constitute
Orchard's statutory financial statements for the years ended 31
July 2022 or 2021 within the meaning of section 434 of the
Companies Act 2006 but is derived from those audited financial
statements. The auditor's report on the consolidated financial
statements for the years ended 31 July 2022 and 2021 is unqualified
and does not contain statements under s498(2) or (3) of the
Companies Act 2006.
Subject to the disclosures in note 2 below, the accounting
policies used for the year ended 31 July 2022 are unchanged from
those used for the statutory financial statements for the year
ended 31 July 2021. The 2022 statutory accounts will be delivered
to the Registrar of Companies following the Company's Annual
General Meeting.
2. Compliance with accounting standards
While the financial information included in this preliminary
announcement has been computed in accordance with International
Accounting Standards in conformity with the Companies Act 2006,
this announcement does not itself contain sufficient information to
comply with International Accounting Standards in conformity with
the Companies Act 2006.
Effect of new, or changes to financial reporting standards
At the date of authorisation of these financial statements, all
of the new or amended Accounting Standards and Interpretations
issued by the International Accounting Standards Board ('IASB')
that are mandatory for the current reporting period and are
relevant to the group's operations have been applied.
There are a number of new standards, amendments and
interpretations that been issued but are not effective for these
financial statements. They are not expected to impact the financial
statements as either they are not relevant to the group's
activities or are consistent with accounting policies already
followed by the group.
3. Going concern
The financial statements have been prepared on a going concern
basis which assumes that the group will be able to continue its
operations for the foreseeable future.
The directors have prepared and reviewed financial projections,
on an annual basis, covering a period of almost four years from the
date of signing of these financial statements, with a particular
focus on the period of 12 to 18 months from the date of signing.
Based on the level of existing cash, the projected income and
expenditure and the excess of our loan book over external debt
(amounting to approximately GBP18.26m at the year end), the
directors have a reasonable expectation that the company and group
have adequate resources to continue in business for the foreseeable
future. Accordingly, the going concern basis has been used in
preparing the financial statements. This is discussed more fully in
the Group strategic report under Going concern.
4. Segment information
The group operates wholly within the United Kingdom therefore
there is no meaningful information that could be given on a
geographical basis. Since 2017 the board has only recognised one
segment - lending. This is because the risks, rewards and
management of the debt are so similar, or that certain other
lending is immaterial in terms of income, assets or lending, that
any segregation (other than central costs) would not give
meaningful information to users of the financial statements.
The board therefore assesses the entire business based on
operating profit (before tax and exceptional items, but after
finance costs which form part of Interest payable and similar
charges and other direct costs).
The group has no single major customer. All income is from
financing. Revenue can be analysed as follows:
2022 2021
GBP000 GBP000
-------------------------------------------------------- ------------------ ------------------
Revenue
-------------------------------------------------------- ------------------ ------------------
Interest revenue 5,003 3,783
Other revenue 1,187 817
-------------------------------------------------------- ------------------ ------------------
6,190 4,600
-------------------------------------------------------- ------------------ ------------------
Timing of revenue recognition:
At a point in time - direct debit charges 672 573
At a point in time - non utilisation
fees 794 189
Over time - loan administrative fees 374 101
At a point in time - default and settlement 46 -
fees
Over time - licence fees 141 143
Over time - interest revenue outside
the scope of IFRS 15 4,163 3,594
-------------------------------------------------------- ------------------ ------------------
6,190 4,600
-------------------------------------------------------- ------------------ ------------------
5. Expenses by nature
2022 2021
GBP000 GBP000
Interest payable and similar charges
Interest payable in direct costs 464 281
Bank fees in direct costs 123 278
--------------------------------------- ------- -------
587 559
-------------------------------------- ------- -------
Other direct costs
Bank fees in direct costs 756 592
Other direct costs - 11
--------------------------------------- ------- -------
756 603
-------------------------------------- ------- -------
Other operating costs
Employee costs (including directors) 1,377 1,267
Advertising and selling costs 544 518
Professional and legal fees 418 194
IT costs 165 152
Cost of listing 79 84
Depreciation and amortisation 63 71
Other net expenses 259 230
--------------------------------------- ------- -------
2,905 2,516
-------------------------------------- ------- -------
Impairment losses/(gains) (note
0 ) 63 (131)
--------------------------------------- ------- -------
6. Finance income and costs
The group's income comes from making loans.
Interest payable on borrowings to finance these loans is
therefore included as a cost of sale under interest payable and
similar charges. The amount included was GBP464k (2021
GBP281k).
The group receives a small amount of interest from its bank
balances. This year it amounted to GBP1k (2021 GBPNil).
Interest payable is in respect of right-of-use assets and
amounted to GBP2k (2021 GBP3k).
7. Tax expense
7.1 Current year tax charge:
2022 2021
GBP000 GBP000
Current tax expense 360 202
Adjustment re previous year tax expense 2 12
Deferred tax expense relating to the origination
and reversal of temporary differences (2) (3)
360 211
-------------------------------------------------- ----------------- -----------------
7.2 Tax reconciliation
The tax assessed for the year differs from the main corporation
tax rate in the UK -19% for 2022 and 2021.
The differences are explained below.
2022 2021
GBP000 GBP000
------------------------------------------
Profit before tax for the financial year 1,878 1,050
------------------------------------------ ----------------- -------
Applicable rate - 19.00% (2021 19.00%) 19.00% 19.00%
------------------------------------------ ----------------- -------
Tax at the applicable rate 357 199
Effects of:
Expenses not deductible for tax 1 -
Adjustment re previous year tax expense 2 12
Tax charge for the year 360 211
------------------------------------------ ----------------- -------
8. Dividends
2022 2021
GBP000 GBP000
-------------------------------------------- ----------------- -----------------
Amounts recognised as distributions to
equity holders in the period:
Final dividend for the year ended 31 July
2021 of 2p (2020 2p) per share 427 427
Interim dividend for the year ended 31
July 2022 of 1p (2021 1p) per share 214 214
641 641
-------------------------------------------- ----------------- -----------------
Proposed final dividend for the year ended
31 July 2022 of 2p (2021 2p) per share 427 427
-------------------------------------------- ----------------- -----------------
9. Earnings per share
Earnings per share is based on the profit for the year of
GBP1.52m (2021 GBP0.84m) and the weighted average number of the
ordinary shares in issue during the year of 21.35m(2021 21.35m).
There are no options or other factors which would dilute these
therefore the fully diluted earnings per share is identical.
10. Loans to customers and other receivables
2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Non-current
Financial assets at amortised
cost
Loans to customers:
Gross 6,595 - 2,259 -
Impairment provision (1) - (2) -
------------------------------- ------- -------- ------- --------
6,594 - 2,257 -
------------------------------- ------- -------- ------- --------
Current
Financial assets at amortised
cost
Loans to customers:
Gross 37,277 - 27,686 -
Impairment provision (134) - (70) -
------------------------------- ------- -------- ------- --------
37,143 - 27,616 -
------------------------------- ------- -------- ------- --------
Financial assets at amortised
cost
Intercompany receivables - 9,864 - 9,888
Other receivables 127 - 124 -
------------------------------- ------- -------- ------- --------
127 9,864 124 9,888
------------------------------- ------- -------- ------- --------
37,270 9,864 27,740 9,888
------------------------------- ------- -------- ------- --------
Prepayments 62 30 109 25
------------------------------- ------- -------- ------- --------
37,332 9,894 27,849 9,913
------------------------------- ------- -------- ------- --------
Loans to customers
Standard credit terms for loans to customers are based on the
length of the loan but repayments are due on a monthly basis.
Detail of impairment reviews are shown in note 2.6 to the full
financial statements.
The expected credit losses on receivables not past due have been
assessed as very low, because of the following factors:
-- With the majority of our lending (99.55% this year), no loan
is made until the first repayment has been received by the
group;
-- In the event of default, the group has recourse to the underlying borrower;
-- In the case of insurance receivables, the Financial Services
Compensation Scheme provides additional cover to the group;
-- For insurance receivables, the cover ceases, premiums paid
are refunded, and the group has access to these refunds.
Loans to customers can be analysed as follows. The reference to
stage 1, 2 and 3 refer to those stages explained in note 2.6 to the
full financial statements.
The figures refer to the group as the company has no loans to
customers.
2022 2021
Impairment Impairment
Gross allowance Net Gross allowance Net
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------
Amount receivable
- stage 1 43,652 (39) 43,613 29,882 (29) 29,853
Amount receivable
- stage 2 126 (9) 117 18 - 18
Amount receivable
- stage 3 94 (87) 7 45 (43) 2
43,872 (135) 43,737 29,945 (72) 29,873
------------------- ------- ----------- ------- ------- ----------- -------
Included in amounts receivable above are stage 1 receivables due
after more than one year amounting to GBP6,587k on which the
impairment allowance was GBP1k (2021 GBP2,309k and GBP2k
respectively). There are also stage 2 debts due after more than one
year amounting to GBP8k (2021 GBPNil) on which there was no
impairment allowance (2021 GBPNil).
An amount of GBP86k is due after more than five years (2021
GBP31k). It is stage 1 debt and there is no impairment allowance on
the amount this year or last.
Over 99% of customer receivables are subject to recourse to the
introducing partner in the event of default by the borrower.
Intercompany receivables
The holding company is owed a substantial amount by its two
largest subsidiaries. These debts are interest free and due on
demand. Neither subsidiary has the cash to repay these immediately
and therefore, under the requirements of IFRS 9, provision may need
to be made in the financial statements of the holding company.
However, the board does not see any need for a provision
because:
-- th e loans to customers which each subsidiary has made will
generate sufficient cash to repay these loans (after payment of
other liabilities) on a "run off" basis (as cash is collected it
could be paid across to the parent). The majority of loans to
customers in the subsidiaries are all repayable within 12 months;
and
-- any risk of loss is considered remote (not expected) and
therefore no impairment provision is necessary.
11. Borrowings
2022 2021
GBP000 GBP000
Non-current:
Borrowings 6,042 834
Borrowings arising from right-of-use
assets 15 44
6,057 878
Current:
Borrowings 19,439 11,411
Borrowings arising from right-of-use
assets 29 28
-------------------------------------- ------- -------
19,468 11,439
--------------------------------------
Borrowings other than those arising from right-of-use are
secured. The parent company has no external borrowings.
11.1 Terms and debt repayment schedule
The group refinanced its borrowings during the previous
financial year, resulting in Bexhill repaying GBP9.48m of its loan
and Orchard Funding GBP1.50m of its loan to their respective
funders. The total amount of GBP10.98m is shown as being repaid in
the 2021 column of the Consolidated statement of cashflows.
Bexhill's current facility was increased during the year from
GBP15.00m to GBP20.00m and is renewable in April 2023. Orchard
Funding's facility is renewable in June 2023 and November 2023 for
Orchard Finance. There is no indication that these facilities will
not be renewed.
Borrowings by Bexhill of GBP14.92m (2021 GBP10.17m) are secured
by a fixed and floating charge over all the assets of Bexhill, bear
interest at an average rate of 3.10% excluding associated costs
(2021 2.92% on the same basis) and are repayable within one year of
the advance. The maximum drawdown on the facility is currently
GBP20.00m (2021 GBP15.00m) of which GBP5.08m was undrawn at the
year-end (2021 GBP4.83m).
Orchard Funding borrowings are secured by a fixed and floating
charge over all the assets of Orchard Funding, bear interest at an
average rate of 3.53% pa excluding associated costs (2021 5.28% on
the same basis) and are repayable within one year of the advance.
The maximum drawdown facility is currently GBP5.00m (2021 GBP5.00m)
of which GBP3.50m was undrawn at the year-end (2021 GBP5.00m).
Orchard Finance has access to a maximum drawdown borrowing
facility of GBP7.50m (2021 GBP7.50m) of which GBP4.64m was undrawn
at the year end (2021 GBP5.43m). This facility can only be used for
products of the lender, bears no interest, is secured by a fixed
and floating charge and is repayable as monies are received by
Orchard Finance from loans made by it.
On 3 March 2022 a five year, retail bond was issued. The bond
raised GBP3.90m in 5 tranches. These were issued at between 0.9965
discount and 1.006 premium. The total amount issued was also
GBP3.90m. Costs of the issue amounting to GBP0.21m were offset
against the proceeds and amortised over five years. The market
value of the bonds was GBP3.99m at 29 July 2022, the last trading
day of the financial year.
The directors consider that the terms of these facilities
closely match the maturity dates of the group's receivables.
No amounts are due after five years on any of the
facilities.
Liabilities in respect of right-of-use assets are unsecured,
bear interest at the group's marginal cost of borrowing on
inception of the lease. This was 3.60%.
The minimum payments under lease liabilities are as follows:
2022 2021
Group Group
GBP000 GBP000
-------------------------------------
Within 1 year 30 30
Later than 1 year but no later than
5 15 45
45 75
Future finance charges (1) (3)
------------------------------------- -----------------
44 72
------------------------------------- ----------------- -----------------
The present value of lease liabilities are as follows:
Within 1 year 29 28
Later than 1 year but no later than
5 15 44
------------------------------------- -------------- --------------
44 72
11.2 Reconciliation of liabilities arising from financing activities
The information given below relates to the group. The parent has
no cash-flows from financing activities as all its costs are paid
for by its subsidiaries.
At 1 August At 31 At 31
2020 Cash flows July 2021 Cash flows July 2022
GBP000 GBP000 GBP000 GBP000 GBP000
Non-current:
Other loans - 834 834 5,208 6,042
Borrowings arising
from right-of-use
assets - leases 72 (28) 44 (29) 15
------------
72 806 878 5,179 6,057
---------------------------- ------------ ----------- ----------- ----------- -----------
Current:
Bank loans 10,977 434 11,411 8,028 19,439
Borrowings arising
from right-of-use
assets - leases 27 1 28 1 29
------------
11,004 435 11,439 8,029 19,468
---------------------------- ------------ ----------- ----------- ----------- -----------
Total liabilities
from financing activities 11,076 1,241 12,317 13,208 25,525
---------------------------- ------------ ----------- -----------
Interest on right-of-use
assets included in
liabilities (3) (2)
----------- -----------
Cashflows from financing
activities 1,238 13,206
----------- -----------
Comprising:
Net receipts from
borrowings 12,245 13,236
Borrowings repaid (10,977) -
Lease repayments (30) (30)
1,238 13,206
----------- -----------
12. Trade and other payables
Current liabilities 2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Trade payables 4,522 - 3,274 -
Other payables 55 - 32 -
Other tax and social security
costs 32 15 31 15
Accruals and deferred income 1,728 276 845 100
-------------------------------
6,337 291 4,182 115
------------------------------- ------- -------- ------- --------
Trade payables are unsecured and are usually paid within 30 days
of recognition. Included within accruals and deferred income is
deferred income of GBP699k (2021: GBP104k) related to income
received in advance for loan administration services. The majority
of this balance is expected to reverse within the next 12
months.
13. Financial instruments
The company is exposed to the risks that arise from its use of
financial instruments. The objectives, policies and processes of
the company for managing those risks and the methods used to
measure them are detailed in note 4 to the full financial
statements.
13.1 Principal financial instruments
The principal financial instruments used by the company, from
which financial instrument risk arises, are as follows:
-- Loans to customers
-- Other receivables
-- Cash and cash equivalents
-- Trade payables
-- Borrowings
-- Financing for right-of-use assets
13.2 Financial instruments by category
The group held the following financial assets at the reporting
date:
2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Non-current assets
Financial assets at fair value
through consolidated income
statement:
Investments 81 - 81 -
Financial assets at amortised
cost:
Investments - 2,938 - 2,888
Loans to customers 6,594 - 2,257 -
Current assets
Financial assets at amortised
cost:
Loans to customers 37,143 - 27,616 -
Other receivables: current 127 9,864 124 9,888
Cash and cash equivalents:
Bank balances and cash in
hand 4,796 - 2,170 -
--------------------------------
48,741 12,802 32,248 12,776
-------------------------------- ------- -------- ------- --------
The group held the following financial liabilities at the
reporting date:
2022 2021
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Financial liabilities at amortised
cost:
Interest bearing loans and borrowings:
Borrowings payable: non-current 6,057 - 878 -
Borrowings payable: current 19,468 - 11,439 -
Trade and other payables 6,305 276 4,151 100
----------------------------------------
31,830 276 16,468 100
---------------------------------------- ------- -------- ------- --------
13.3 Fair value of financial instruments
The board does not consider the fair value of financial assets
and liabilities to be materially different to their carrying
values.
13.4 Financial risk management
The group's activities expose it to a variety of financial
risks. These risks are dealt with in detail in the Group strategic
report under Principal risks and uncertainties.
14. Treatment of borrowings
The group borrows money and lends this on, together with its own
funds, to its customers.
Any increase in activity leads to an increase in debtors and an
associated increase in borrowings. If the company was one which
bought and sold goods or services the money borrowed would be
similar to the company's stock in trade and the change in creditors
would be shown as part of operating cash flows. However, accounting
standards require cash flows from financing to be shown separately
and this means that there appears to be a large inflow or outflow
of cash from the company's operations (depending on whether lending
to customers decreases or increases in the year) which is then
covered by borrowings. For reasons stated above this is not the
case.
15. Post balance sheet events
There were no post balance sheet events which fall to be
disclosed in these financial statements.
16. Availability of annual report and accounts and notice of AGM
A copy of the report and accounts for the year ended 31 July
2022 will shortly be posted to shareholders and a copy will be
available to download from the company's website at
www.orchardfundinggroupplc.com. Accompanying the report and
accounts is a notice convening the company's annual general
meeting, to be held at 10.00am on Thursday 29 December 2022, at 1st
Floor, 721 Capability Green Luton, Bedfordshire LU1 3LUA. A copy of
the notice of AGM will also be available to download from the
company's website .
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END
FR LFLFBLLLEFBB
(END) Dow Jones Newswires
December 01, 2022 08:18 ET (13:18 GMT)
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