Interim Results

Sancus Lending Group Limited
20 September 2023
 

 

20 September 2023

 

Sancus Lending Group Limited

("Sancus", the "Company" or "Group")

 

Interim Results for the six-month period ended 30 June 2023

 

 

The Directors are pleased to announce the Company's half-year results for the six months ending 30 June 2023.

 

HIGHLIGHTS

 

Rory Mepham, Chief Executive Officer of Sancus Lending Group Limited, commented:

 

We started 2023 cautiously but with cause for optimism. However the uncertainty in residential real estate markets in the jurisdictions in which we operate, together with the impact of inflation and rising interest rates, has led to a slow down in loan origination in H1 2023 as we became more selective from both a credit and loan pricing perspective.

 

The refinance and extension of the ZDP share final entitlement to December 2027, and the increase and extension of the Pollen Street Plc facility up to £125m (expiry not before November 2026) at the end of 2022, provide the Company with a more stable base from which to grow when the right opportunities present themselves, in the meantime caution shall prevail. 

 

Financial Highlights

 

·      New loan facilities written H1 2023 of £83m (H1 2022: £86m);

·      Group revenue H1 2023 of £5.4m (H1 2022: £4.8m);

·      Group operating loss H1 2023 of £3.8m (H1 2022: loss £2.1m);

·      £3m of ZDP shares held in Treasury were sold to the Group's largest shareholder, Somerston, providing further growth capital;

·      An increase in IFRS 9 provisions H1 2023 of £0.8m (H1 2022: £nil).

 

Operational Highlights

 

·      The Company completed its office rationalisation program in H1 2023, and now operates from three locations, Jersey; Dublin and London, to align with its core lending markets and optimise costs.

·      Geographic focus remains unchanged, with three core markets UK, Ireland and Offshore.   Offshore represent 42% of the current loan book, UK 39% and Ireland 19%.  Ireland is the fastest growing market with a 52% increase in loans under management in H1 2023.

·      The Company continues to seek ways to reduce its operational costs. Headcount was further reduced during the period from 39 to 31 FTE.

·      Since onboarding Salesforce software at the end of 2022, significant progress has been made with implementation and use of technology to manage workflows, standardisation of process and controls across the lending life cycle and integration with the Company's propriety loan management system.

·      Focus on maintaining credit discipline has remained.

 

For further information, please contact:

 

Sancus Lending Group Limited

Rory Mepham

 

+44 (0)1534 708 900

Liberum Capital (Nominated Adviser and Corporate Broker)

Lauren Kettle

Chris Clarke

William King

 

+44 (0) 20 3100 2000

Instinctif Partners (PR Adviser)

Tim Linacre

Victoria Hayns

 

+44 (0)207 457 2020

Sanne Fund Services (Guernsey) Limited

(Company Secretary)

Matt Falla

 

+44 (0)1481 755530

 

CHAIRMAN'S STATEMENT

 

Introduction

 

In the last 12 months the Company has made advances in its structural change program, and whilst operational progress is not reflected in the results for the H1 2023, we expect to see benefits in H2 2023 and beyond.  In H1 2023 the Company reported a loss of £3.3m, and the loan book has remained flat since Dec 2022 at £169m, a reflection of robust credit discipline and a cautious approach to loan deployment, particularly in the UK. The cost of Funding has increased and we are now operating in the highest interest rate environment since 2008.  Careful use of Group capital, and draw-down from our funding sources, is paramount to the successful navigation of a very tough market environment, but in spite of these exacting circumstances demand in our chosen markets remains firm and we believe may present opportunities for the Company to grow in the coming period.

 

Our People

 

As noted in our FY22 results, we did not expect to increase headcount in 2023, and we took the opportunity to reduce Group headcount further to 31 as at 30 June 2023 (31 December 2022: 39). 

 

As detailed in the 2022 Annual Report, Tracy Clarke was appointed as Group CFO on 30 March 2023 and Carlton Management Services Limited was appointed to restructure the Group Finance Function.  The migration of the Group Finance Function under Tracy's leadership was completed in Q2 2023.

 

Capital Raise

 

A significant milestone at the end of 2022 was the extension of the ZDP final entitlement date from 5 December 2022 to 5 December 2027.  In addition, £3m of ZDP shares held in Treasury were sold to Somerston, the Company's largest shareholder, in April 2023, providing the company with additional growth capital. I thank our ZDP shareholders for their continued support.

 

Dividend and Shareholders

 

It is the Board's intention to reinvest surplus resources for growth. As such, the Group does not intend to declare a dividend for the period. The Board intends to revisit this policy at the appropriate time, should the profitability and cash flow profile support the reinstatement of a dividend.

 

On behalf of the Board, I would like to thank shareholders for their continuing support and patience and for the efforts of the management and employees.

 

As I noted in the Chairman's statement in the 2022 annual report, we do not underestimate the scale and continuing challenges ahead. I remain of the view that we have the right strategy, systems and personnel to put the business onto a firmer footing and return to profitability and I look forward to reporting more positive developments in the coming period. 

 

Steve Smith

Chairman

Date: 19 September 2023

 

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Overview

 

In the first half year of 2023 we have taken a number of steps to position the Company on the road to profitability and to simplify the core business of residential development and bridge financing.  We reduced the number of physical office locations from five to three with the sale of Gibraltar and closure of Guernsey during the period. 

 

Loan book origination in H1 2023 was £83m versus £86m written in H1 2022. Opportunities to lend more have been considered but rejected where the return to risk ratio was considered inappropriate. The Credit team have adjusted their underwriting approach and attitude to risk accordingly, to ensure optimal use of Group capital, strict loan pricing discipline and  particular focus on valuation assessment in the current uncertain environment.  Despite some headwinds the residential lending market continues to present significant opportunity for Alternative Lenders, including Sancus, in all of our three core geographic markets.

 

Strategic KPIs

 

The Board are providing an update to the Strategic KPIs set out in the 2022 Annual report:

 

·      Revenue growth

 

Revenue is up 12% compared to the same period last year, with new loan origination being almost exclusively being priced using variable interest rates.

 

·      Growing loans under management

 

Loan book / Assets Under Management remains unchanged from 31 December 2022 to 30 June 2023 at £169m.

 

·      Reducing cost of funding

 

Reducing cost of Funding remains a priority, but also continues to present a challenge in the current macro-economic environment. It is pleasing to report we saw a modest increase in Funding through the Sancus Loan Note program in H1 2023 of £10m, an increase of 50%.

 

·      Become a capital efficient business

 

The amount of own capital within loans continues to be maintained at a low level, which at 30 June 2023 represented 4.5% of the total loan book, in comparison to 4.2% at 30 June 2022.

 

·      Increasing operating profits - by increasing gross margin and reducing costs

 

Gross profit margin in H1 2023 was £0.3m, compared to H1 2022, £1.2m.  The reduction is due to the financing cost of £3m additional ZDPs held by shareholders, an increase in the ZDP coupon from 8% to 9% and the run off of the legacy loan book priced at fixed interest rates whilst the cost of Funding those loans has increased.

Operating costs are flat compared to the same period last year at £3.3m and are expected to reduce in the H2 2023 due to the effect of Group cost saving initiatives, in particular, reduction in headcount and premises costs.

 

·      Return on Equity ("ROE")

 

Going forward we plan to become profitable and increase our ROE.  We are also focused on reducing the need for additional capital to participate in Loan funding to support ROE.

 

·      Ensuring a risk based approach is taken on all decision making

 

We have imbedded institutional credit processes across the Group.  We continue to increase our technology enablement to streamline processes, improve the delivery and format of management information to aid decision making and improve internal controls.

 

Origination

 

We have new loan facilities written during the H1 2023 of £83m compared with £86m in H1 2022 and £156m in FY 2022.

 

Maintaining a high-quality credit process whilst cautiously scaling the quantity of new loans remains a priority. We expect to see ample opportunities to lend in each of our  markets and are confident that our businesses in these jurisdictions are well placed to execute as  suitable opportunities arise. 

 

Loan Management

 

Assets Under Management have not changed since the end of 2022 at £169m. With the number of new facilities written, and as we see funds deployed, we expect to be reporting a moderate increase in our loan book by 31 December 2023.

 

Continued emphasis has been placed on actively managing loans once the initial drawdown has been made. This has been particularly important during a time when various market related pressures such as cost inflation are impacting our borrowers. Active management is helping us to deal with issues before they become problems and we are pleased to report that the percentage of loan book in recovery continues to reduce.

 

Funding

 

We continue to concentrate on growing the funding capacity of the business, on improved terms. This is particularly important in the context of the wider economic climate where we are in a significant inflationary environment. Additionally, we are seeking to work with a diversified mix of funders, both private and institutional, to match funders with loans meeting their varied risk and reward criteria. Currently, the Group is reliant on four funding sources:

 

·      Co-Funders

·      Loan Note program

·      Institutional funders

·      Proprietary capital

 

Sancus has an institutional funding line from Pollen Street Plc ("Pollen), that is designed to complement our Co-Funder funding base and Sancus Loan Note program. As at 30 June 2023 the total drawn from the Pollen facility was £77.75m (31 December 2022: £67.75m). The Pollen facility continues to be strategic for the business.

 

The availability, cost and flexibility of funding is key to achieving our growth ambitions and we are reviewing the capital position of the business with a view to ensuring it is best placed to grow funding capacity on market adjusted improved terms. During the first half of 2023 the loan book funded by institutional funding increased by 5% with the majority of the UK and Irish loan book funded by this channel.

 

Finance & Operations

 

An emphasis on operational efficiencies within Finance & Operations, driven by technology where possible, is well underway. We continue to drive improvement in relation to Corporate Governance, Compliance & Risk with the implementation of a developed risk management structure to ensure the business is well set for future growth plans.

 

Sancus has developed, and continues to evolve, its own proprietary loan management system ("LMS") for the administration of loans and customise the use of Salesforce as the Group's CRM tool.  A comprehensive review of the LMS system and our wider Technology strategy was carried out in 2022, and in 2023 we are focussed on implementation of our Technology strategy with good progress being made.

 

We have seen our headcount reduce in the first H1 2023 as we look for efficiencies and cost control. At 30 June 2023, the Group headcount was 31 (31 December 2022: 39).  We believe the business is well resourced to meet its objectives and are focussing on continuous improvement and development of our people.

 

ESG

 

At Sancus, we are committed to taking Environmental, Social and Governance ("ESG") factors seriously. We recognise our responsibility to incorporate sustainability throughout the operations of our business, be custodians of the environment and practice good stewardship of our stakeholders' interests. 

 

In Q1 2023 we present our first Environmental, Social, and Governance report, marking the start of our journey towards greater transparency and sustainability. The report highlights our progress and achievements in the areas of environmental protection, social responsibility and governance, as well as the challenges and opportunities that we face.

 

It is essential that we understand what ESG factors are most important to internal and external stakeholders, such that we can continue to improve and evolve in line with our ESG strategy principals and are ready to take appropriate action.

 

Outlook

 

Whilst the outlook remains unclear, some of uncertainties present at the end of 2022 have now played out to a greater extent. For example, we have seen a series of rate rises from central banks during H1 and whilst some further incremental increases are possible, we are unlikely to see material further increases. In a world of asset price uncertainty the Company remains optimistic that the residential property market will remains resilient, assisted by the perennial imbalance between supply and demand for housing across our target markets.

 

A challenging dynamic remains but management have a clear plan to navigate the current market, avoid taking undue risks and be ready to take advantage of the opportunities that such times will inevitably present.

 

Rory Mepham

Chief Executive Officer

19 September 2023

 

 

RISKS, UNCERTAINTIES AND RESPONSIBILITY STATEMENT

 

Risks and uncertainties

 

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remainder of the financial year. These include, but are not limited to, Capital and liquidity risk, Regulatory and compliance risk, Market risk, Credit risk with respect to the loan book (primarily bridging loans and, increasingly, development loans), Operational risk and the execution of Sancus strategy. These risks remain unchanged from December 2022 and are not expected to change in the 6 months to the end of the 2023 financial year. Further details on these risks and uncertainties can be found in the December 2022 Annual Report.

 

Responsibility statement

 

The Directors confirm that to the best of their knowledge:

 

§  The Interim Report has been prepared in accordance with the AIM rules of the London Stock Exchange;

 

§  This financial information has been prepared in accordance with IAS 34 as adopted by the UK;

 

§  The interim results include a fair review of the important events during the first half of the financial year and their impact on the financial information as required by DTR 4.2.7R; and

 

§  The interim results include a fair review of the disclosure of related party transactions as required by DTR 4.2.8R.

 

Approved and signed on behalf of the Board of Directors

19 September 2023

 

 

INDEPENDENT REVIEW REPORT ON INTERIM FINANCIAL INFORMATION

 

Conclusion

 

We have been engaged by Sancus Lending Group Limited (the 'Company') to review the condensed set of consolidated financial statements in the Interim Report for the six months ended 30 June 2023 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in shareholders' equity, the condensed consolidated statement of cash flows and related Notes 1 to 19.

 

We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Consolidated Financial Statements.

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2023 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the UK and the AIM Rules of the London Stock Exchange.

 

Basis for Conclusion

 

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

As disclosed in note 2 of the interim condensed consolidated financial statements, the financial statements of the Company are prepared in accordance with IFRSs as adopted by the UK. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the International Accounting Standard 34, "Interim Financial Reporting", as adopted by the UK.

 

Conclusions Relating to Going Concern

 

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.

 

This conclusion is based on the review procedures performed in accordance with this ISRE, however future events or conditions may cause the entity to cease to continue as a going concern.

 

Responsibilities of directors

 

The Interim Report is the responsibility of, and has been approved by, the Directors.  The Directors are responsible for preparing the Interim Report in accordance with the AIM Rules of the London Stock Exchange.

 

In preparing the half-yearly financial report, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

 

Auditor's Responsibilities for the review of the financial information

 

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of consolidated financial statements in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

 

Moore Stephens Audit and Assurance (Jersey) Limited

1 Waverley Place,

Union Street,

St. Helier,

JE4 8SG, Jersey

 

19 September 2023

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

 

 

 

Notes

Period ended

Period ended

 

 

30 June 2023

(unaudited)

 

£'000

30 June 2022

(unaudited)

 

£'000


 



Revenue

4

5,407

4,823

Cost of sales

5

(5,105)

(3,560)

Gross profit

 

302

1,263

Operating expenses

6

(3,318)

(3,350)

Changes in expected credit losses

17

(799)

-

Operating loss

 

(3,815)

(2,087)

FinTech Ventures fair value movement

17

362

114

Other net gains/(losses)

 

37

(9)

Loss on disposal of subsidiary

19

(202)

-

Profit on disposal of other assets

12

303

-

Loss for the period before tax

 

(3,315)

(1,982)

Income tax expense

 

2

-

Loss for the period after tax

 

(3,313)

(1,982)

 

 

 


Items that may be reclassified subsequently to profit and loss

 

 


Foreign exchange arising on consolidation

 

(20)

10

Other comprehensive (loss)/income for the period after tax

 

(20)

10

Total comprehensive loss for the period

 

(3,333)

(1,972)

 

 

 

 


 

 

 


Basic loss per Ordinary Share

7

(0.57)p

(0.41)p

Diluted loss per Ordinary Share

 

(0.57)p

(0.41)p

 

The accompanying Notes form an integral part of these financial statements.

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

 

 

 

 

30 June 2023

(unaudited)

31 December 2022 (audited)

ASSETS

Notes

£'000

£'000

Non-current assets

 



Fixed assets

8

211

425

Goodwill

9

14,255

14,255

Other intangible assets

10

-

-

Sancus loans and loan equivalents

17

20,733

23,864

FinTech Ventures investments

17

237

-

Investments in joint ventures and associates

 

-

-

Other investments

 

100

100

Total non-current assets

 

35,536

38,644

 

 

 


Current assets

 

 


Other assets

12

-

706

Sancus loans and loan equivalents

17

64,209

52,261

Trade and other receivables

11

7,097

5,806

Cash and cash equivalents

 

4,293

4,134

Total current assets

 

75,599

62,907

 

 

 


Total assets

 

111,135

101,551

 

 

 

 

EQUITY

 

 


Share premium

13

118,340

118,340

Treasury shares

13

(1,172)

(1,172)

Other reserves

 

(113,327)

(109,994)

Total Equity

 

3,841

7,174

 

 

 

 

LIABILITIES

 

 

 

Non-current liabilities

 

 


Borrowings

 

105,202

90,868

Other liabilities

 

-

152

Total non-current liabilities

14

105,202

91,020

 

 

 


Current liabilities

 

 


Trade and other payables

14

611

1,708

Tax liabilities

14

169

145

Provisions

14

649

413

Other liabilities

14

663

1,091

Total current liabilities

 

2,092

3,357

 

 

 


Total liabilities

 

107,294

94,377

 

 

 


Total equity and liabilities

 

111,135

101,551

 

The financial statements were approved by the Board of Directors on 19 September 2023 and were signed on its behalf by:

 

Director: John Whittle


 

The accompanying Notes form an integral part of these financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)

 

 


 

 

 

Share

 Premium

Treasury Shares

Warrants Outstanding

Foreign Exchange Reserve

Retained Earnings/

(Losses)

207BTotal
208BEquity


 

 

 

0B£'000

1B£'000

2B£'000

3B£'000

4B£'000

£'000

Balance at 31 December 2022 (audited)

 

 

118,340

(1,172)

-

31

(110,025)

7,174

Transactions with owners

 

 

 

5B-

6B-

7B-

8B-

9B-

-

Total comprehensive loss for the period

 

 

10B-

11B-

12B-

13B(20)

14B(3,313)

(3,333)

Balance at 30 June 2023 (unaudited)

 

 

 

15B118,340

16B(1,172)

17B-

18B11

19B(113,338)

3,841

 


 

 

 

 

 

 

 


 


 

 

 

 

 

 

 


Balance at 31 December 2021 (audited)

 

20B116,218

21B(1,172)

22B385

23B11

24B(96,348)

19,094

Fair value of warrants

 

25B-

26B-

27B(385)

28B-

29B385

-

Transactions with owners


 

 

30B-

31B-

32B(385)

33B-

34B385

-

Total comprehensive profit/(loss) for the period

 

 

35B-

36B-

37B-

38B10

39B(1,982)

(1,972)

Balance at 30 June 2022 (unaudited)

 

 

 

40B116,218

41B(1,172)

42B-

43B21

44B(97,945)

17,122

 


 

 

 

 

 

 

 


 

The accompanying Notes form an integral part of these financial statements.


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

 

 

 

Period ended

Period ended

 

 

30 June 2023

(unaudited)

30 June 2022

(unaudited)


Notes

£'000

£'000

 

Cash outflow from operations, excluding loan movements

 

 

15

 

(4,374)

 

(626)

 

(Increase) / Decrease in Sancus loans

 

(211)

195

Increase in loans through the Pollen facility

 

(9,237)

(5,840)

Net cash outflow from operating activities

 

(13,822)

(6,271)

 

Cash inflows from investing activities

 

 


Divestment in IOM Preference Shares

 

-

516

Net Repayments / (Investments) in FinTech Ventures

 

125

(236)

Investment in joint ventures

 

(50)

(50)

Expenditure on Properties

12

-

(178)

Sale of Properties

 

1,008

-

Expenditure on fixed assets and intangibles

 

(5)

(14)

Net cash inflow from investing activities

 

1,078

38

 

 

 


Cash inflows from financing activities

 

 


Draw down of Pollen facility

15

10,000

2,500

Capital element of lease payments

15

(109)

(104)

Debt issue costs

 

                           32

-

Sale of ZDPs

15

3,000

-

Net cash inflow from financing activities

 

12,923

2,396


 

 


Effects of Foreign Exchange

 

(20)

10

 

 

 


Net increase / (decrease) in cash and cash equivalents

 

159

(3,827)

 

 

 


Cash and cash equivalents at beginning of period

 

4,134

12,436

 

 

 


Cash and cash equivalents at end of period

 

4,293

8,609

 

£2.2m of the £4.3m cash held at 30 June 2023 is for the exclusive use of Sancus Loans Limited (June 2022: £3.2m of the £8.6m)

 

The accompanying Notes form an integral part of these financial statements.

 

 

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

 

1.      GENERAL INFORMATION

 

Sancus Lending Group Limited (the "Company"), together with its subsidiaries, (the "Group") was incorporated, and domiciled in Guernsey, Channel Islands, as a company limited by shares and with limited liability, on 9 June 2005 in accordance with The Companies (Guernsey) Law, 1994 (since superseded by The Companies (Guernsey) Law, 2008). Until 25 March 2015, the Company was an Authorised Closed-ended Investment Scheme and was subject to the Authorised Closed-ended Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission ("GFSC"). On 25 March 2015, the Company was registered with the GFSC as a Non-Regulated Financial Services Business ("NRFSB"), at which point the Company's authorised fund status was revoked. The Company's Ordinary Shares were admitted to trading on the AIM market of the London Stock Exchange on 5 August 2005 and its issued zero dividend preference shares were listed and traded on the Standard listing Segment of the main market of the London Stock Exchange with effect from 5 October 2015.  The Company changed where its business is managed and controlled, from Guernsey to Jersey, effective 1 April 2023. The Board agreed that the Company should revoke its NRFSB status, which was completed on 23 June 2023.

 

The Company does not have a fixed life and the Company's Memorandum and Articles of Incorporation (the "Articles") do not contain any trigger events for a voluntary liquidation of the Company. The Company is an operating company for the purpose of the AIM rules. The Executive Team is responsible for the management of the Company.

 

The Company has taken advantage of the exemption conferred by the Companies (Guernsey) Law, 2008, Section 244, not to prepare company only financial statements which is consistent with the 2022 Annual Report.

 

 

2.      ACCOUNTING POLICIES

 

(a)           Basis of preparation

 

These condensed consolidated financial statements ("financial statements") have been prepared in accordance with International Financial Reporting Standard (IAS) 34 'Interim Financial Reporting', as adopted by the United Kingdom and all applicable requirements of Guernsey Company Law.  They do not include all the information and disclosures required in annual financial statements and should be read in conjunction with the Company's annual audited financial statements for the year ended 31 December 2022, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the United Kingdom.

 

The Group does not operate in an industry where significant or cyclical variations, as a result of seasonal activity, are experienced during any particular financial period.

 

These financial statements were authorised for issue by the Company Directors on 19 September 2023.

 

(b)           Principal accounting policies

 

The same accounting policies and methods of computation are followed in these financial statements as in the last annual financial statements for the year ended 31 December 2022.

 

(c)         Going Concern

 

The Directors have considered the going concern basis in the preparation of the financial statements as supported by the Director's assessment of the Company's and Group's ability to pay its debts as they fall due and have assessed the current position and the principal risks facing the business with a view to assessing the prospects of the Company. Following the extension of the ZDPs at the end of 2022, for a further 5 years to 5 December 2027 and with the Bonds maturity date not until 31 December 2025, the Company does not have any debt liabilities that fall due within the next 12 months.  Based on this, the Directors are of the opinion that the Company has adequate financial resources to continue in operation and meet its liabilities as they fall due for the foreseeable future.  

 

It is however expected, whereby equity is required to facilitate an increase in drawdown from institutional funding lines, that the Company will require growth capital to fund the continued growth of the loan book. The Company's largest shareholder, Somerston, has indicated their willingness to support the Company's growth plans. The Company will be looking at options available to raise additional growth capital over the course of the year, which may include a form of equity raise or sale by the Company of ZDP shares held in treasury.

 

The Directors therefore believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

(d)           Critical accounting estimates and judgements in applying accounting policies

 

The critical accounting estimates and judgements are as outlined in the financial statements for the year ended 31 December 2022.

 

 

3.     SEGMENTAL REPORTING

 

Operating segments are reported in a manner consistent with the manner in which the Executive Team reports to the Board, which is regarded to be the Chief Operating Decision Maker (CODM) as defined under IFRS 8. The main focus of the Group is Sancus. Bearing this in mind the Executive team have identified 4 segments based on operations and geography.

 

Finance costs and Head Office costs are not allocated to segments as such costs are driven by central teams who provide, amongst other services, finance, treasury, secretarial and other administrative functions based on need. The Group's borrowings are not allocated to segments as these are managed by the Central team. Segment assets and liabilities are measured in the same way as in these financial statements and are allocated to segments based on the operations of the segment and the physical location of those assets and liabilities.

 

The four segments based on geography, whose operations are identical (within reason), are listed below. Note that Sancus Loans Limited, although based in the UK, is reported separately as a stand-alone entity to the Board and as such is considered to be a segment in its own right.

 

1.             Offshore

 

Contains the operations of Sancus Lending (Jersey) Limited, Sancus Lending (Guernsey) Limited, Sancus Properties Limited, Sancus Group Holdings Limited and Sancus Lending (Gibraltar) Limited up to the date of its sale, 15 March 2023.

 

2.             United Kingdom (UK)

 

Contains the operations of Sancus Lending (UK) Limited and Sancus Holdings (UK) Limited.

 

3.             Ireland

 

Contains the operations of Sancus Lending (Ireland) Limited.

 

4.             Sancus Loans Limited

 

Contains the operations of Sancus Loans Limited.


 

 

 

 

 

 

 

 

Reconciliation to Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Six months to 30 June 2023

 

Offshore

UK

Ireland

Sancus Loans Limited (SLL)

Sancus Debt Costs

Total Sancus

 

Head Office

SLL Debt Costs

FinTech Ventures Fair Value & Forex

Other

 

Consolidated Financial Statements

 

£'000

£'000

£'000

£'000

£'000

£'000

 

£'000

£'000

£'000

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

721

1,131

886

(603)

-

2,135

 

-

3,272

-

-

 

5,407

 






 







 

Operating Profit/(loss) *

(228)

(160)

320

(625)

-

(693)


(662)

-

-

(9)


(1,364)

Credit Losses

(122)

(29)

-

(648)

-

(799)


-

-

-

-


(799)

Debt Costs

-

-

-

-

(1,652)

(1,652)


-

-

-

-


(1,652)

Other Gains/(losses)

101

-

8

84

-

193


-

-

362

(5)


550

Loss on JVs and associates

-

-

-

-

-

-


-

-

-

(50)


(50)

Taxation

2

-

-

-

-

2


-

-

-

-


2

 






 







 

Profit After Tax

(247)

(189)

328

(1,189)

(1,652)

(2,949)

 

(662)

-

362

(64)

 

(3,313)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months to 30 June 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

658

1,386

752

(251)

-

2,545


-

2,278

-

-


4,823

 














Operating Profit/(loss) *

(481)

(319)

467

(259)

-

(592)


(618)

-

-

(17)


(1,227)

Credit Losses

191

-

-

(191)

-

-


-

-

-

-


-

Debt Costs

-

-

-

-

(860)

(860)


-

-

-

-


(860)

Other Gains/(losses)

24

-

5

(34)

-

(5)


5

-

155

-


155

Loss on JVs and associates

-

-

-

-

-

-


-

-

-

(50)


(50)

Taxation

-

-

-

-

-

-


-

-

-

-


-

 














Profit After Tax

(266)

(319)

472

(484)

(860)

(1,457)


(613)

-

155

(67)


(1,982)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* Operating Profit/(loss) before credit losses and debt costs

 

Sancus Loans Limited is consolidated into the Group's results as it is a 100% owned subsidiary of the Group. Sancus Loans Limited is considered a Co-Funder, the same as any other Co-Funder. As a result the Board reviews the economic performance of Sancus Loans Limited in the same way as any other Co-Funder, with revenue being stated net of debt costs. Operating expenses include recharges from UK to Offshore £244,000, Offshore to Ireland £37,000, Head Office to Offshore £68,000 and UK to Head Office £96,000. "Other" includes FinTech (excluding fair value and forex).

 

 

 

 

 

 

 

Reconciliation to Financial Statements

 

 

 

 

 

 

 

 

At 30 June 2023

 

Offshore

UK

Ireland

Sancus Loans Limited (SLL)

Total Sancus

 

Head Office

Fintech Portfolio

Other

Inter Company Balances

 

Consolidated Financial Statements

 

£'000

£'000

£'000

£'000

£'000

 

£'000

£'000

£'000

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

33,797

16,660

1,105

88,899

140,461


60,132

237

87

(89,782)


111,135



























Total Liabilities

(54,839)

(18,516)

(317)

(94,738)

(168,410)


(28,342)

-

(324)

89,782


(107,294)



























 

Net Assets/(liabilities)

(21,042)

(1,856)

788

(5,839)

(27,949)

 

31,790

237

(237)

-

 

3,841

 

 

At 31 December 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

37,724

14,855

1,133

78,952

132,664


44,214

-

93

(75,420)


101,551



























Total Liabilities

(44,250)

(16,528)

(653)

(83,205)

(144,636)


(25,068)

-

(93)

75,420


(94,377)



























Net Assets/(liabilities)

(6,526)

(1,673)

480

(4,253)

(11,972)


19,146

-

-

-


7,174

 

Head Office liabilities include borrowings £28.2m (December 2022: £24.0m).  Other FinTech assets and liabilities are included within "Other"

4.     REVENUE

 

 

30 June 2023

(unaudited)

30 June 2022

(unaudited)


45B£'000

46B£'000

  Co-Funder fees

47B1,228

48B767

Earn out (exit) fees

49B394

50B260

Transaction fees

51B1,024

52B1,711

Total revenue from contracts with customers

53B2,646

54B2,738


 

 

Interest on loans

55B86

56B58

Sancus Loans Limited interest income

57B2,669

58B2,027

Other income

59B6

60B-

Total Revenue

61B5,407

62B4,823

 

 

5.      COST OF SALES

 

 

30 June 2023

(unaudited)

30 June 2022

(unaudited)


63B£'000

64B£'000

Interest cost

65B1,664

66B881

Sancus Loans Limited interest cost

67B3,272

68B2,278

Other cost of sales

69B169

70B401

Total cost of sales

71B5,105

72B3,560

 

 

6.      OPERATING EXPENSES

 

 

30 June 2023

(unaudited)

30 June 2022

(unaudited)


73B£'000

74B£'000


 

 

Administration and secretarial fees

75B47

76B61

Amortisation and depreciation

77B118

78B157

Audit fees

79B63

80B69

Corporate Insurance

81B4

82B69

Directors Remuneration

83B55

84B64

Employment costs

85B2,157

86B2,201

Investor relations expenses

87B30

88B30

Legal and professional fees

89B185

90B82

Marketing expenses

91B55

92B126

NOMAD fees

93B38

94B38

Other office and administration costs

95B502

96B385

Pension costs

97B46

98B51

Registrar fees

99B15

100B15

Sundry

101B3

102B2

Total operating expenses

103B3,318

104B3,350

 

 

7.          LOSS PER ORDINARY SHARE

 

Consolidated loss per Ordinary Share has been calculated by dividing the consolidated loss attributable to Ordinary Shareholders in the period by the weighted average number of Ordinary Shares outstanding (excluding treasury shares) during the period.

 

Note 13 describes the warrants in issue which are currently out of the money, and therefore are not considered to have a dilutive effect on the calculation of Loss per Ordinary Share.

 

 

 

30 June 2023

(unaudited)

30 June 2022

(unaudited)

 

 

 

Number of shares in issue

105B584,138,346

106B489,843,477

Weighted average number of shares outstanding

107B584,138,346

108B477,990,801

Loss attributable to Ordinary Shareholders in the period

109B£3,333,000

110B£1,982,000

Basic Loss per Ordinary Share

111B(0.57)p

                    (0.41)p

Diluted Loss per Ordinary Share

113B(0.57)p

114B(0.41)p

 

 

 

 

 

 

8.          FIXED ASSETS

 

 

Right of use assets

Property & Equipment

Total

Cost

£'000

£'000

£'000

At 31 December 2022

1,247

460

1,707

Additions in the period

-

5

5

Disposals in the period

(128)

(44)

(172)

At 30 June 2023

1,119

421

1,540

 

Accumulated depreciation

£'000

£'000

£'000

At 31 December 2022

883

399

1,282

Charge in the period

92

26

118

Disposals in the period

(29)

(42)

(71)

At 30 June 2023

946

383

1,329





Net book value 30 June 2023

173

38

211





Net book value 31 December 2022

364

61

425





 

 

9.         GOODWILL

 

Goodwill at 30 June 2023 and 31 December 2022 comprises:

 

 

 

 

£'000

 

 

 

Sancus Lending (Jersey) Limited

 

14,255

Total

 

14,255

 

Impairment tests

 

The carrying amount of goodwill arising on the acquisition of certain subsidiaries is assessed by the Board for impairment on an annual basis or sooner if there has been any indication of impairment. The Board last assessed the Goodwill for impairment on the preparation of the 2023 interim accounts, with the next assessment due on the preparation of the 2024 interim accounts, assuming that there having been no indicators of impairment in the interim period. There have been no indicators of impairment relating to the Jersey goodwill so this will next be assessed for impairment in June 2024. 

 

At 30 June 2023 the value in use of Sancus Jersey was based on an internal Discounted Cash Flow ("DCF") value-in-use analysis using cash flow forecasts for the years 2023/24 to 2026/27. The starting point for each of the cash flows was the revised forecast for 2023 produced by Sancus Lending Jersey management. Management's revenue forecasts applied a compound annual growth rate (CAGR) to revenue of 27.9% and a cost of equity discount rate of 14.5%. The resultant valuation indicated that no impairment of goodwill was required. 

 

Goodwill valuation sensitivities

 

When the discounted cash flow valuation methodology is utilised as the primary goodwill impairment test, the variables which influence the results most significantly are the discount rates applied to the future cash flows and the revenue forecasts. The table below shows the impact on the Consolidated Statement of Comprehensive Income of stress testing the period end goodwill valuation with a decrease in revenues of 10% and an increase in cost of equity discount rate of 3%. These potential changes in key assumptions fall within historic variations experienced by the business (taking other factors into account) and are therefore deemed reasonable. The current model reveals that a sustained decrease in revenue of circa 12% or a sustained increase of circa 8% in the cost of Equity discount rate would remove the headroom.


 

Sensitivity Applied

 

 

 

 


 

 

 

 

 

 

Total

£'000


 

 

 

 

10% decrease in revenue per annum




4,228

3% increase in cost of Equity discount rate




2,093

 


Neither a 10% decrease in revenue nor a 3% increase in the cost of Equity discount rate implies a reduction of Goodwill in Jersey.

 

 

10.       OTHER INTANGIBLE ASSETS

 

 

£'000

Cost

 

At 30 June 2023 and 31 December 2022

1,584


 

Amortisation

 

At 31 December 2022

1,584

Charge for the period

-

At 30 June 2023

1,584



Net book value at 30 June 2023

-

 

 

Net book value at 31 December 2022

-

 

Other Intangible assets comprise capitalised contractors' costs and costs related to core systems development. The assets have been fully amortised.

 

 

11.       TRADE AND OTHER RECEIVABLES

 

115B30 June 2023

(unaudited)

 

116B31 December 2022

(audited)

 

Current

117B£'000

118B£'000

Loan fees, interest and similar receivable

119B6,356

120B4,673

Receivable from associated companies

121B-

122B5

Taxation

123B5

124B58

Other trade receivables and prepaid expenses

125B736

126B1,070


127B7,097

128B5,806

 

 

12.        OTHER ASSETS

 

 

 

 

Development properties

Cost

 

 

£'000

At 31 December 2021



496

Additions



210

Disposals



-

At 31 December 2022



706

Disposals



(706)

At 30 June 2023

 

 

-

 

Other assets are development properties previously held as security against certain loans which have defaulted. Other assets are held at the lower of cost and net realisable value. All  development properties classified as Other Assets were  sold during the period with a profit on disposal of £303k recognised in the Consolidated Statement of Comprehensive Income.

 

 

13.       SHARE CAPITAL, SHARE PREMIUM & DISTRIBUTABLE RESERVE

 

Sancus Lending Group Limited has the power under the Articles to issue an unlimited number of Ordinary Shares of nil par value.

 

No Ordinary Shares were issued in the period to 30 June 2023 (Period to 30 June 2022: Nil).

 

Share Capital

 

 

Number of Ordinary Shares - nil par value

 

At 30 June 2023 (unaudited) and 31 December 2022 (audited)

129B584,138,346

 


Share Premium

 

 

Ordinary Shares - nil par value

130B£'000

At 30 June 2023 (unaudited) and 31 December 2022 (audited)

131B118,340

 

Ordinary shareholders have the right to attend and vote at Annual General Meetings and the right to any dividends or other distributions which the Company may make in relation to that class of share.

 

Treasury Shares

 

 

132B30 June 2023

(unaudited)

Number of shares

133B31 December 2022

(audited)

Number of shares

 

 

 

Balance at start and end of period/year

134B11,852,676

135B11,852,676

 


 

136B30 June 2023

(unaudited)

£'000

137B31 December 2022

(audited)

£'000

 

 

 

Balance at start end of period/year

138B1,172

139B1,172

 

Warrants in Issue

 

As at 30 June 2023 there were 89,396,438 Warrants in issue to subscribe for new Ordinary Shares at a subscription price of 2.25 pence per ordinary share.  The Warrants are exercisable on at least 30 days notice within the period ending 31 December 2025.  The Warrants in issue are classified as equity instruments because a fixed amount of cash is exchangeable for a fixed amount of equity, there being no other features which could justify a financial liability classification. The fair value of the warrants at 30 June 2023 is £Nil (31 December 2022: £Nil).

 

 

14.   LIABILITIES

 

Non-current liabilities

        30 June 2023

(unaudited)

141B31 December 2022

(audited)


142B£'000

143B£'000

Corporate bond (1)

144B14,937

145B14,925

Pollen Facility (2)

146B76,997

147B66,826

ZDP shares (3)

148B13,268

149B9,117

Lease Creditor

150B-

151B152

Total non-current liabilities

152B105,202

153B91,020

 


Current liabilities

        30 June 2023

(unaudited)

155B31 December 2022

(audited)

 

156B£'000

157B£'000

Accounts payable

158B104

159B224

Accruals and other payables

 507

        1,472

Taxation

162B169

163B145

Payable to associated companies

164B-

165B12

Interest payable

166B497

167B481

Derivative contracts (note 17)

168B10

169B398

Provisions for financial guarantees

170B649

171B413

Lease creditor

172B156

173B212

Total current liabilities

2,092

174B3,357

 


Movement on provision for financial guarantees

 

 

 

 

175B£'000

At 31 December 2021

 

176B-

Profit and loss charge in the year

 

177B413

At 31 December 2022

 

178B413

Profit and loss charge in the period

 

179B236

At 30 June 2023

 

180B649

 

Provisions for financial guarantees are recognised in relation to Expected Credit Losses ("ECLs") on off-balance sheet loans and debtors where the Company has provided a subordinated position or other guarantee (see Note 18). The fair value is determined using the exact same methodology as that used in determining ECLs (Note 17).

 

(1)    Corporate Bond

 

The £15m (31 December 2022: £15m) Corporate bonds bear interest at 7% (2022: 7%). The bonds have a maturity date of 31 December 2025.

 

(2)    Pollen Facility (previously HIT Facility)

 

On 28 January 2018, Sancus signed a funding facility with Honeycomb Investment Trust plc (HIT), now Pollen Street PLC ("Pollen"). The funding line initially had a term of 3 years and comprised of a £45m accordion and revolving credit facility. On 3 December 2020 this facility was extended to a 6 year term to end on 28 January 2024 and on 23 November 2022 this was extended further to 23 November 2026. In addition to the extension the facility was increased to £75m in December 2020 and to £125m in November 2022.

 

The Pollen facility has portfolio performance covenants including that actual loss rates are not to exceed 4% in any twelve month period and underperforming loans are not to exceed 10% of the portfolio. Sancus Group participates 10% on every drawdown with a first loss position on the Pollen facility. Sancus has also provided Pollen with a guarantee, capped at £4m that will continue to ensure the orderly wind down of the loan book, in the event of the insolvency of Sancus Group, given its position as facility and security agent. Refer to Note 18 Commitments and Guarantees.

 

(3)    ZDPs

 

The ZDP Shares have a maturity date of 5 December 2027, following a 5 year extension of the final capital repayment approved on 5 December 2022. The final capital entitlement is £2.5332 per ZDP Share.

 

Under the Companies (Guernsey) Law, 2008 shares in the Company can only be redeemed if the Company can satisfy the solvency test prescribed under that law. Refer to the Company's Memorandum and Articles of Incorporation for full detail of the rights attached to the ZDP Shares. This document can be accessed via the Company's website www.sancus.com.

 

The ZDP shares bore interest at an average rate of 8% until 5 December 2022. As part of the extension agreement noted above the interest rate increased to an average of 9% per annum with effect from 5 December 2022, through to the final repayment date of 5 December 2027. In accordance with article 7.5.5 of the Company's Memorandum and Articles of Incorporation, the Company may not incur more than £30m of long term debt without prior approval from the ZDP shareholders. The Memorandum and Articles (section 7.6) also specify that two debt cover tests must be met in relation to the ZDPs. At 30 June 2023 the Company was in compliance with these covenants as Cover Test A was 2.24 (minimum of 1.7) and the adjusted Cover Test B was 3.20 (minimum of 2.05). At 30 June 2023 senior debt borrowing capacity amounted to £15m. The Pollen facility does not impact on this capacity as it is non-recourse to Sancus.

 

On 28 April 2023 the Company sold 2,068,966 ZDP shares, held in Treasury, to Somerston, the Groups largest shareholder, at a price of 145 pence per share being the mid-market closing price of the ZDP shares on 27 April 2023. 

 

At 30 June 2023 the Company held 10,505,739 ZDP shares in Treasury (31 December 2022: 12,574,705) with an aggregate value of £18,352,475 (31 December 2022: £20,861,686).

 

 

15.   NOTES TO THE CASH FLOW STATEMENT

Cash outflow from operations (excluding loan movements)

 

181B30 June 2023

(unaudited)

182B30 June 2022

(unaudited)


 

183B£'000

184B£'000


 

 

 

Loss for the period

 

185B(3,313)

186B(1,982)


 

 

 

Adjustments for:

 

 

 


 

 

 

Net gain on FinTech Ventures

 

187B(362)

188B(114)

Other net (gains)/losses

 

189B(195)

190B417

Loss on disposal of subsidiary

 

189B202

190B-

Accrued interest on ZDPs

 

191B1,106

192B400

Impairment of financial assets

 

193B799

194B-

Taxation

 

195B45

196B-

Amortisation / depreciation of fixed assets

 

197B118

198B157

Amortisation of debt issue costs

 

199B195

200B95


 

 

 

Changes in working capital:

 

 

 

Trade and other receivables

 

201B(2,133)

202B82

Trade and other payables

 

203B(836)

                                  319


 

 

 

Cash outflow from operations, excluding loan movements

 

205B(4,374)

206B(626)

 

Changes in liabilities arising from financing activities

 

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be classified in the Group's consolidated cash flow statement as cash flows from financing activities.

 

 

1 January 2023

Financing cash flows1

Amortisation of debt issue costs

Non-cash

Other

Non-cash

30 June 2023

 

£'000

£'000

£'000

£'000

£'000

ZDPs

9,117

3,000

12

1,1392

13,268

Corporate Bond

14,925

-

12

-

14,937

Pollen Facility

66,826

10,000

171

-

76,997

Lease Liability

364

(109)

-

(99)

156

Total liabilities from financing activities

91,232

12,891

195

1,040

105,358

 

 

1 January 2022

Financing cash flows1

Amortisation of debt issue costs

Non-cash

Other

Non-cash

30 June 2022

 

£'000

£'000

£'000

£'000

£'000

ZDPs

10,532

-

13

4002

10,944

Corporate Bond

12,474

-

13

-

12,487

Pollen Facility

52,203

2,500

70

-

54,773

Lease Liability

576

(104)

-

-

472

Total liabilities from financing activities

75,785

2,396

95

400

78,676

 

1These amounts can be found under financing cash flows in the cash flow statement.

2 Interest accruals.

 

 

16.       RELATED PARTY TRANSACTIONS

 

Transactions with the Directors/Executive Team

 

Non-executive Directors

 

As at 30 June 2023, the non-executive Directors' annualised fees, excluding all reasonable expenses incurred in the course of their duties which were reimbursed by the Company, were as detailed in the table below:

 

 


30 June 2023

 

30 June 2022


£

 

£





Stephen Smith (Chairman)

50,000


50,000

John Whittle 

42,500


42,500

Tracy Clarke (stepped down as non-executive director 30 March 2023)

35,000


35,000

 

Tracy Clarke was appointed Group CFO and joined the Executive Team on 30 March 2023.

 

Total Directors' fees charged to the Company for the period ended 30 June 2023 were £55,000 (30 June 2022: £63,750).

 


Executive Team

 

For the period ended 30 June 2023, the Executive Team members' remuneration from the Company, excluding all reasonable expenses incurred in the course of their duties which were reimbursed by the Company, were as detailed in the table below:

 


30 June 2023

30 June 2022


£'000

£'000




Aggregate remuneration in respect of qualifying service - fixed salary

284

238

Aggregate amounts contributed to Money Purchase pension schemes

10

10

Aggregate bonus paid

-

-

 


All amounts have been charged to Operating Expenses.

 

On 30 March 2023, as an interim measure which may become permanent, Carlton Management Services Limited ("Carlton"),  was appointed to manage and develop the Group's finance function, including new technology integrations for forecasting, performance and treasury management under a service agreement which has a three-year term.  The annualised fee for the service is £170k. Furthermore, Carlton sub-lease office space in the Group's offices in Jersey, with a sub lease end date of 31 August 2024,  at an annual cost of c£100k p.a.

 

On 30 March 2023 Carlton entered into a Director services agreement with Sancus Lending Group Limited for the provision of Tracy Clarke as Interim CFO, with an annual fee of £130k.

 

Tracy Clarke is Managing Director of Carlton Management Services Limited.

 

From time to time, the Somerston Group may participate as a Co-Funder in Sancus loans, on the same commercial terms available to other Co-Funders. The Group has not recorded any other transactions with any Somerston Group companies for the period ended 30 June 2023 (30 June 2022: none).

 

Directors' and Persons Discharging Managerial Responsibilities ("PDMR") shareholdings in the Company

 

As at 30 June 2023, the Directors had the following beneficial interests in the Ordinary Shares of the Company:

 


30 June 2023

31 December 2022


No. of Ordinary Shares Held

% of total issued Ordinary Shares

No. of Ordinary Shares Held

% of total issued Ordinary Shares






John Whittle

138,052

0.02

138,052

0.03

Emma Stubbs

1,380,940

0.24

1,380,940

0.28

Rory Mepham

1,000,000

0.17

-

-

 

 

 



 

In the six month period to June 2023 and the year to December 2022, none of the above received any amounts relating to their shareholding.

 

Emma Stubbs resigned as Executive Director of the Company on 30 March 2023.

 

Transactions with connected entities

 

The following significant transactions with connected entities took place during the current period:

 

 

Receivable from/(payable to) related parties

 

 

30 June

2023

31 December 2022

 

 

 

£'000

£'000

Amberton Limited



-

(7)

 


Net Cost recharges

 

 

 

30 June

2023

£'000

30 June

2022

£'000

 

Amberton Limited

3

4

 

 

There is no ultimate controlling party of the Company.

 

 

17.       FINANCIAL INSTRUMENTS - Fair values and risk management

 

Sancus loans and loan equivalents

 

30 June 2023 (unaudited)

31 December 2022 (audited)

Non-current

£'000

£'000

 

 

 

Sancus loans

34

171

Sancus Loans Limited loans

20,699

23,693

Total Non-current Sancus loans and loan equivalents

20,733

23,864




Current



 



Sancus loans

3,138

2,790

Sancus Loans Limited loans

61,071

49,471

Total Current Sancus loans and loan equivalents

64,209

52,261




Total Sancus loans and loan equivalents

84,942

76,125

 


Fair Value Estimation

 

The financial assets and liabilities measured at fair value in the Consolidated Statement of Financial Position are grouped into the fair value hierarchy as follows:

 


30 June 2023

(unaudited)

31 December 2022 (audited)


Level 2

Level 3

Level 2

Level 3


£'000

£'000

£'000

£'000






Fintech Ventures investments

-

237

-

-

Derivative contracts

(10)

-

(398)

-

Total assets / liabilities at fair value

(10)

237

(398)

-

 

The classification and valuation methodology remains as noted in the 2022 Annual Report.

 

All of the FinTech Ventures investments are categorised as Level 3 in the fair value hierarchy. In the past the Directors have estimated the fair value of financial instruments using discounted cash flow methodology, comparable market transactions, recent capital raises and other transactional data including the performance of the respective businesses. Having considered the terms, rights and characteristics of the equity and loan stock held by the Group in the FinTech Ventures investments, the Board's estimate of liquidation value of these assets is £237k at 30 June 2023 (31 December 2022: £Nil) following a recovery on one of the investments post period end. Changes in the performance of these businesses and access to future returns via its current holdings could affect the amounts ultimately realised on the disposal of these investments, which may be greater or less than £Nil. There have been no transfers between levels in the period (2022: None).

 


Assets at Amortised Cost

 

30 June 2023

31 December 2022

 

(unaudited)

(audited)

 

£'000

£'000

Sancus loans and loan equivalents

84,942

76,125

Trade and other receivables

6,361

4,736

Cash and cash equivalents

4,293

4,134

Total assets at amortised cost

95,596

84,995

 


Liabilities at Amortised Cost

 

30 June 2023

31 December 2022

 

(unaudited)

(audited)

 

£'000

£'000

ZDPs

13,268

9,117

Corporate Bond

14,937

14,925

Pollen facility

76,997

66,826

Trade and other payables

1,433

2,698

Provisions in respect of guarantees

649

413

Total liabilities at amortised cost

107,284

93,979

 

Refer to Note 14 for further information on liabilities.

 


FinTech Ventures Investments

 

Total Portfolio

30 June 2023

£'000

At 31 December 2022

-

Net new investments / loan repaid

(125)

Realised gain recognised in profit and loss

362

At 30 June 2023

237

 

 

Total Portfolio

 

31 December 2022

£'000

 

At 31 December 2021

500

 

Net new investments / (divestments)

394

 

Realised losses recognised in profit and loss

(894)

 

At 31 December 2022

-

 



Credit Risk

 

Credit risk is defined as the risk that a borrower/debtor may fail to make required repayments within the contracted timescale. The Group invests in senior debt, senior subordinated debt, junior subordinated debt and secured loans. Credit risk is taken in direct lending to third party borrowers, investing in loan funds, lending to associated platforms and loans arranged by associated platforms. The Group mitigates credit risk by only entering into agreements related to loan instruments in which there is sufficient security held against the loans or where the operating strength of the investee companies is considered sufficient to support the loan amounts outstanding.

 

Credit risk is determined on initial recognition of each loan and re-assessed at each balance sheet date. It is categorized into Stage 1, Stage 2 and Stage 3 with Stage 1 being to recognise 12 month ECLs, Stage 2 being to recognise Lifetime ECLs not credit impaired and Stage 3 being to recognise Lifetime ECLs credit impaired.

 

Foreign Exchange Risk - Derivative instruments

 

The Treasury Committee Team monitors the Group's currency position on a regular basis, and the Board of Directors reviews it on a quarterly basis. Loans denominated in Euros which are taken out through the Pollen facility are hedged. Forward contracts to sell Euros at loan maturity dates are entered into when loans are drawn in Euros. At 30 June 2023 the following forward foreign exchange contracts were open:

 

June 2023

 

 

 

 

 

 


 

Counterparty

Settlement date

Buy Currency

Buy Amount £'000

Sell currency

Sell amount €'000

Unrealised gain/(loss) £'000

 

 

 

 

 

 

 

Alpha

Jun 2023 to July 2023

GBP

7,744

Euro

9,000

3

Lumon Risk Management

Jun 2023 to July 2023

GBP

22,439

Euro

26,100

(13)









(10)

 

 

December 2022

 

 

 

 

 

 

 

 

 

 

 

 

Counterparty

Settlement date

Buy Currency

Buy Amount £'000

Sell currency

Sell amount €'000

Unrealised loss £'000

 

 

 

 

 

 

 

EWealthGlobal Group

 Jan 2023 to May 2023

GBP

3,565

Euro

4,187

(144)

Liberum Wealth

Jan 2023 to Feb 2023

GBP

3,202

Euro

3,650

(35)

Lumon Risk Management

Jan 2023 to May 2023

GBP

9,259

Euro

10,676

(219)









(398)

 

 

No hedging has been taken out against investments in the FinTech Ventures platforms (2022: £Nil).

 

Provision for ECL

 

Provision for ECL is made using the credit risk, the probability of default (PD) and the probability of loss given default (PL) all of which are underpinned by the Loan to Value (LTV), historical position, forward looking considerations and on occasion, subsequent events and the subjective judgement of the Board. Preliminary calculations for ECL are performed on a loan by loan basis using the simple formula: Outstanding Loan Value x PD x PL and are then amended as necessary according to the more subjective measures as noted above.

 

A probability of default is assigned to each loan. This probability of default is arrived at by reference to historical data and the ongoing status of each loan which is reviewed on a regular basis. The probability of loss is arrived at with reference to the LTV and consideration of cash that can be redeemed on recovery.

 

Movement of provision for ECL


 

Loans

 £'000

Trade Debtors £'000

 

Guarantees £'000

 

 

Total

 £'000

Loss allowance at 31 December 2021

6,409

7,055

-

13,464

Charge/(credit) for the year 2022

426

(421)

413

418

Utilised in the year 2022

-

(141)

-

(141)

Loss allowance at 31 December 2022

6,835

6,493

413

13,741

Charge for the period to June 2023

44

519

236

799

Disposed in the period to June 2023

(1,200)

(734)

-

(1,934)

Loss allowance at 30 June 2023

5,679

6,278

649

12,606

 

 

18.       GUARANTEES

 

 

The Group undertakes a number of Guarantees and first loss positions which are not deemed to be contingent liabilities under IAS37 as there is no present obligation for these guarantees and it is considered unlikely that these liabilities will crystallise.  

 

Pollen Facility

Sancus Group participates 10% on every loan funded by the Pollen facility, taking a first loss position. Sancus Group Lending Limited has provided Pollen with a guarantee capped at £4m following the restructure of the Pollen facility in November 2022 (previously was capped at £2m) and that it will continue to ensure the orderly wind down of the Pollen funded loan book, in the event of the insolvency of Sancus Group, given its position as facility and security agent. No provision has been provided in the financial statements (2022: £Nil). 

 

Sancus Loan Notes

Sancus Loan Note 7 Limited was launched in May 2021 and currently stands at £17.3m. Sancus Loan Note 7 Limited matures in May 2024 and has a coupon of 7% p.a. (payable quarterly), with Sancus providing a 10% first loss guarantee.

 

Sancus Loan Note 8 plc was launched in January 2022 and currently stands at £3.0m. Loan Note 8 matures on 1 December 2026 and has a coupon of 8% p.a. (payable quarterly), with Sancus providing a 20% first loss guarantee.

 

Unfunded Commitments

As at 30 June 2023 the Group has unfunded commitments of £70.0m (31 December 2022: £73.9m). These unfunded commitments primarily represent the undrawn portion of development finance facilities. Drawdowns are conditional on satisfaction of specified conditions precedent, including that the borrower is not in breach of its representations or covenants under the loan or security documents. The figure quoted is the maximum exposure assuming that all such conditions for drawdown are met. Directors expect the majority of these commitments to be filled by Co-Funders and/or by our secured funding lines.

 

 

19.       LOSS ON DISPOSAL OF SUBSIDIARY

 

On 15 March 2023, the Company announced the sale of Sancus Lending (Gibraltar) Limited for £10,000. A loss on disposal of £202k, being the difference between the net assets of Sancus Lending (Gibraltar) and sale proceeds on disposal has been recognised in the Consolidated Statement of Comprehensive Income.

 

 

OFFICERS AND PROFESSIONAL ADVISERS

 

Directors

 

Non-executive:                          Steve Smith

                                                     John Richard Whittle

                                                     Tracy Clarke (resigned 30 March 2023)

                                                              

Executive                                            Rory Mepham

                                                             Emma Stubbs (resigned 30 March 2023)

                                                             Tracy Clarke (appointed 30 March 2023)  

                                                              

The address of the Directors is the Company's registered office.

 

Executive Team:

 

Chief Executive Officer:                  Rory Mepham

 

Chief Financial Officer:                Tracy Clarke

 

Chief Investment Officer:               James Waghorn

 

Registered office:                             Les Vardes House

                                                             La Charroterie

                                                             St Peter Port

                                                             Guernsey, GY1 1EL

                                                             Channel Islands

 

Nominated Adviser and Broker:   Liberum Capital Limited

                                                  Ropemaker Place

                                                  25 Ropemaker Street

                                                  London, EC2Y 9LY

                                                  United Kingdom

 

Company Secretary:                        Sanne Fund Services (Guernsey) Limited

                                                               1 Royal Plaza

                                                               Royal Avenue

                                                               St. Peter Port

                                                               Guernsey

                                                               GY1 2HL

                                                              

Legal Advisers,                                  Carey Olsen

Channel Islands:                               P.O. Box 98

                                                             Carey House

                                                             Les Banques

                                                             St Peter Port

                                                             Guernsey, GY1 4BZ

                                                             Channel Islands

 

Legal Advisers, UK                           Stephenson Harwood

                                                             1 Finsbury Circus

                                                             London, EC2M 7SH

                                                             United Kingdom

 

Legal Advisers, US                           Troutman Pepper

                                                             3000 Two Logan Square

                                                             Eighteenth and Arch Streets

                                                             Philadelphia, PA 19103-2799

                                                             United States

 

 

Bankers:                                             Barclays International

                                                             1st Floor, 39041 Broad Street

                                                             St Helier

                                                             Jersey, JE4 8NE

 

Auditors:                                          Moore Stephens

                                                           1 Waverley Place,

                                                         Union Street,

                                                         St. Helier,

                                                         JE4 8SG, Jersey

 

 

Registrar:                                            Link Market Services Limited

                                                               The Registry, 34 Beckenham Road

                                                               Beckenham

                                                               Kent, BR3 4TU

                                                               United Kingdom

                                                              

Public Relations:                               Instinctif Partners Limited

                                                               65 Gresham Street

                                                               London, EC2V 7NQ

                                                               United Kingdom

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