VCAP Vector Capital Plc

02 August 2024

Vector Capital plc

("Vector Capital", "Company" or "Group")

Half Year Results for the period ended 30 June 2024

Vector Capital Plc (AIM: VCAP), a commercial lending group that offers secured loans primarily to businesses located in England and Wales, is pleased to announce its interim results for the six months ended 30 June 2024.

Financial Highlights

Other Highlights

Agam Jain, CEO of Vector Capital, commented: "These results are released alongside the Shareholders' Circular referring to a Tender Offer to buy back up to 11,244,385 issued ordinary 0.5p shares for 33p per share which will absorb up to £3.7 million, plus expenses, as a prelude to a withdrawal from the AIM Market. This will reduce the Company's ability to expand its loan book in the short to medium term, but in view of the generally challenging market conditions and limited expectations for expansion at our previously intended rate, we believe it is important to provide shareholders with the opportunity to withdraw their investment and re-invest in the market as they think fit. Vector is in a financial position that allows it to undertake the planned buy back and we hope to return to a growth path when market conditions improve."

Notes to Editors

Vector Capital Plc provides secured, business-to-business loans to SMEs based principally in England and Wales. Loans are typically secured by a first legal charge against real estate. The Group's customers typically borrow for general working capital purposes, bridging ahead of refinancing, land development and property acquisition. The loans provided by the Group are typically for renewable 12-month terms with fixed interest rates.

VECTOR CAPITAL PLC

Chairman's Statement

For the six months ended 30 June 2024

I am pleased to present our 2024 interim results for the six months ended 30 June 2024, which report a consolidated operating profit of £1,630,000 (H1 2023: £2,163,000) and consolidated pre-tax profits of £707,000 (H1 2023: £1,274,000), which reflect the challenging conditions within the Company's SME bridge financing sector.

These results are presented concurrently with the issue of a Shareholders' Circular that sets out a Tender Offer by the Company to buy back up to 11,244,385 of the Company's ordinary shares and which provides details of the planned withdrawal of the Company from the AIM Market. The interim report should therefore be read in the context of these proposals. In view of the Tender Offer, no interim dividend will be paid in respect of the year.

While general inflation appears to be largely under control, the interim results have been impacted by the adverse effect on some borrowers of persistently high interest rates, the continued upward pressure of input prices and a challenging property market, based on a lack of affordability. Although most of the Group's borrowers have been resilient to these issues, some borrowers have seen their equity extinguished and in such circumstances we have been forced to appoint receivers to safeguard the Group's position. In doing so, we have had to write off loan balances of £364,000 in the period and, in many cases, we have not been able to re-employ our capital in new loans as quickly as we would seek to achieve in stronger markets. This has reduced the equity available to support new loans and has therefore depressed income.

Our wholesale banking facilities remain unchanged at £45 million (31 December 2023: £45 million) of which £2.5 million can be applied to loans secured by second charges. The Vector Holdings Limited loan facility reduced from £4 million to £3.5 million during the period.

Our strong capital base, our proven loan management systems and the experience of the executive management team has provided considerable comfort during this period. However, market conditions suggest that we are very unlikely to see a return to significant growth in the short to medium term. The reduction in the Group's loan book to £44.8m from £47.9m, during the period from 31 December 2023, is consistent with the longer holding periods before we have been able to redeem loans and then re-lend our equity, as described above.

Due to capital market conditions outside our control, we were not able to raise the equity we had intended on acceptable terms to grow the business in line with our previously stated strategy. In addition, in the last two years, economic pressure on the SME market sector have restricted our growth opportunities. Despite these conditions, our underlying intention remains to maximise the return to shareholders and to that end we believe it is in the best interests of shareholders to have the opportunity to sell their shares back to the Company under the Tender Offer.

We remain fully aware of our environmental, social and governance responsibilities to shareholders and other stakeholders and we are following what we believe to be market best practice and developing procedures to address these important issues. Details of our ESG policies and procedures, aimed principally at responsible lending and encouraging sustainability and avoidance of waste in all we do, are set out on the Company's website www.vectorcapital.co.uk.

The Group's results are based on the continued hard work and persistence of the executive team, to whom considerable thanks is due in these challenging business conditions. Thanks, are also due to my fellow Board members and our business partners.

Robin Stevens

Chairman

1 August 2024

VECTOR CAPITAL PLC

Chief Executive's Statement

For the six months ended 30 June 2024

Background

Our principal market continues to be SME borrowers that take loans to refurbish or develop land and property. 

Many of these borrowers continue to be faced with high building material costs, long lead times, cost overruns   and interest rates that have failed to fall in line with inflation. Banks and other lenders remain extremely cautious and opportunities for borrowers to re-finance developments remain limited. 

Stressed Loans

Our approach when borrowers experience problems is to be supportive where we believe that the circumstances justify this approach. Where we are not satisfied with the financial viability of a borrowers' loan, we work with the borrowers to give them time to sell or re-finance and, if necessary, appoint an LPA Receiver to sell the property.  The number of receiver appointments again increased in this period over previous years. 

Our expectation is that we will recover our capital in most cases and where possible the fees and accrued interest in most cases, albeit with consequent delays of 4-12 months. In accordance with our normal policy, we have made provision for estimated doubtful debts at the end the period and the impact on our results is within the margins we had stress tested. During the period, we wrote off £363,681 mainly on accrued interest and costs. Our strong capital base provides the Board with a high level of confidence that we can weather these continued challenging market conditions for many of our borrowers.

Interim Results

As a consequence of these challenging market conditions, unaudited profit before tax for the period was £707,000 (H1 2023: £1.3m) on a revenue of £2.5m (H1 2023: £2.9m). 

At 30 June 2024 the loan book was £44.8m (31 December 2023: £47.9m), and the consolidated net assets were £25.4m (31 December 2023: £25.5m). The loan balances are stated net of provisions of £928,000 at 30 June 2023 (December 2023: £928,000).

No interim dividend will be paid in respect of the six months ended 30 June 2024 (2023 1.0 pence).

Loan Book KPIs

The loans we have issued to the various market segments that we serve remain broadly similar.

The average rate achieved during the period was 8.92% p.a. (June 2023: 10.18% p.a)

The average loan size was £418,000 spread over 107 live loans. (June 2023: £474,000)

Security held at 30 June 2024 was estimated at £75m giving an average LTV of 59.3% (June 2023: 58.1%).

VECTOR CAPITAL PLC

Chief Executive's Statement (cont.)

For the six months ended 30 June 2024

Operational review

Our strategy for the period has continued to be to seek to maintain high liquidity, with a correspondingly lower loan book and reduced wholesale borrowings.

Our pipeline is healthy with a steady stream of enquiries from our Broker network allowing us to be very selective on the deals that suit us.

Our wholesale banking rates have remained historically high inevitably increased. Our facilities are currently £45m sufficient for the foreseeable future.

The existing operational team is extremely efficient and provides a fast response time to brokers and borrowers alike. We remain lean and have not needed to increase the headcount in the period. 

Outlook

These results are released alongside the Shareholders' Circular referring to a Tender Offer to buy back up to 11,244,385 issued ordinary 0.5p shares for 33p per share which will absorb up to £3.7 million, plus expenses, as a prelude to a withdrawal from the AIM Market. This will reduce the Company's ability to expand its loan book in the short to medium term, but in view of the generally challenging market conditions and limited expectations for expansion at our previously intended rate, we believe it is important to provide shareholders with the opportunity to withdraw their investment and re-invest in the market as they think fit. Vector is in a financial position that allows it to undertake the planned buy back and we hope to return to a growth path when market conditions improve.

Agam Jain

Chief Executive Officer

1 August 2024

VECTOR CAPITAL PLC

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2024