Results for the year ended 31 December 2023

Vector Capital PLC

19 April 2024

 

 19 April 2024

Vector Capital plc

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

Full year results for the year ended 31 December 2023, Notice of AGM, final dividend declaration and related party transaction

Full year results for the year ended 31 December 2023

Vector Capital plc (AIM: VCAP), a commercial lending group that offers secured loans primarily to businesses located in the United Kingdom, is pleased to announce its audited results for the financial year ended 31 December 2023.

Highlights

·	Continued growth in shareholders equity with a maintained dividend and prudent bad debt provision policies
·	Loan book £47.9m with average loan £453k (FY22: £53.2m and £499k, respectively)
·	Revenue £5.7m (FY22: 5.9m)
·	Profit before tax (excluding bad debt provisions) of £2.8m (FY22: £3.0m)
·	Profit before tax of £2.1m (FY22: 2.8m)
·	Unutilised wholesale loan facilities available of £27.8m (FY22: £14.9m)
·	Net assets £25.5m (FY22: £25.1m)
·	Net asset value per share 56 pence (FY22: 55 pence)
·	Proposed final dividend 1.53 pence per share (FY22: 1.53 pence)

Agam Jain, CEO of Vector Capital, commented: "I am pleased to present our 2023 results. Our Board and operational team are experienced, efficient and focused on maintaining financial prudence and profitability.

We decided as part of our strategy to marginally reduce loan book size so as to maintain higher reserves and liquidity.  The increased costs of borrowing from our bank providers has meant that our margins on debt finance have been squeezed as the borrowing costs overall have risen by 3% p.a. during the year. and it was not always pragmatic to pass the entire increase on to our borrowers. However, the higher rates have enabled a better return on the Group's own capital which has mitigated the squeezed margin on money from the banks.

The demand for our loans remains high; however, we have chosen not to grow the loan book this year but maintain higher liquidity.  We have also not sought an increase in our debt facilities which remain at £45m in 2023.

We expect base rates to start the move downwards during mid-2024. At that point we will review the scenario to get back to loan book growth. We have a strong capital base and a talented team to perform well in our market.  We look forward to 2024 with more confidence.

Notice of AGM

Vector Capital plc  announces that the Company has posted to shareholders copies of its annual report and accounts for the year ended 31 December 2023, along with notice of the Company's annual general meeting ("AGM") to be held at 6th Floor, First Central 200, 2 Lakeside Drive, London NW10 7FQ, on 16 May 2024 at 11.00am. A copy of the annual report and accounts and AGM notice are available from the Company's website, www.vectorcapital.co.uk . 

Attendance at the AGM

Shareholders are invited to attend the AGM in person, due to space restrictions the Company requests that Shareholders confirm their attendance in writing to [e-mail]. 

Voting at the AGM

Shareholders are permitted to appoint a proxy by filling in the proxy form accompanying the AGM notice.  The Company recommends the use of the Chairman as proxy. 

Questions at the AGM

Shareholders may put a question to the board of directors of the Company by submitting their questions to the Chairman during the AGM in accordance with the Company's regulatory obligations, no material new information will be provided in the responses to questions.

Final dividend declaration

The Board is pleased to announce a final dividend for the year ended 31 December 2023 of 1.53 pence per share subject to approval at the Company's Annual General Meeting:-

Dividend:	1.53p per share
Ex-Dividend Date:	16 May 2024
Record Date:	17 May 2024
Payment Date:	3 June 2024

Related party transaction

The Board is pleased to announce that the inter-company debt of £3.5 million, at the date of this announcement, provided by Vector Holdings Ltd at a rate of 6.25% has been extended by a further 24 months from its current expiry date of 31 December 2024 to 31 December 2026.  This is an extension of the loan agreement entered into on 12 November 2020 and subsequently amended on 28 December 2022. All other terms of the loan remain unchanged.

-  Vector Holdings is the parent company of the Group and holds a 75% interest in the Company. Mr Agam Jain, a director of Vector Capital, is a controlling shareholder of Vector Holdings along with his immediate family. Accordingly, the renewal of the inter-company debt is deemed to be a related party transaction pursuant to AIM Rule 13 of the AIM Rule for Companies.

-  The Company's Directors (excluding Mr. Agam Jain, who is directly related to this transaction), having consulted with Vector Capital's Nominated Adviser, WH Ireland Limited, consider the revised terms of the loan to be fair and reasonable in so far as the Company's shareholders are concerned.

This announcement contains inside information for the purposes of Article 7 of the UK version of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

Enquiries

Vector Capital plc	020 8191 7615
Robin Stevens (Chairman)
Agam Jain (CEO)
WH Ireland Limited	020 7220 1666
Hugh Morgan, Chris Hardie, Darshan Patel
IFC Advisory Limited	020 3934 6630
Graham Herring, Florence Chandler, Zach Cohen

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.

Chairman's report

I have pleasure in presenting our 2023 Annual Report and Accounts, which reflect our approach to responsible and cautious lending, supported by our strong asset base, in the UK small and medium-sized enterprises (SMEs) sector. Vector's customers are generally smaller property developers who buy properties to develop or refurbish and then re-sell or refinance.

At the operating level the Group performed in line with market expectations during the year against a backdrop of continuingly high borrowing costs passed on by wholesale funders. Despite our own resilience, certain of our borrowers have been adversely affected by delays in completions, higher building costs and a general softening of values in the residential property market. As a result of these conditions, we have prudently made a further provision for doubtful debts of £728k within the annual results (2022: £200k). The recovery of all debts will continue to be actively pursued.

Despite these provisions, Group revenue for the year was £5.7m (2022: £5.9m) and profit before tax of £2.1m (2022: £2.8m) was achieved.

At the year-end our loan book was £47.9m (2022: £53.2m), reflecting our cautious approach to new lending in current market conditions, and our intention to maintain liquidity. However, our strategy remains to selectively increase our loan book by utilising our own resources and the external facilities provided by our wholesale lenders referred to below. As part of this process, we continue to increase the loan gearing we are able to achieve on borrowed funds by strategically rebalancing our loan book. This runs hand in hand with lower average value advances at the year-end of £453k (2022: £499k)

Our wholesale bank facilities stood at £45m at 31 December 2023. However, with a net asset value at the year-end of £25.5m (2022: £25.1m), we are in the enviable position of not being dependent entirely on third-party debt providers. This structure protects our operating margins and provides cautious flexibility in our lending decisions where required and, as a result at the year-end we had un-utilised debt facilities of £27.8m.

 As a Board we recognise our obligations to act responsibly and ethically in all we do, and to follow the core principles of corporate governance set out in the Quoted Company Alliance code. These principles are maintained in our actions and practices as a public company and we recognise our wider environmental, social and governance responsibilities to shareholders and other stakeholders.

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 results for the year are reflective of the efforts of Vector's employees and my fellow Board members, and as always considerable thanks are due to them, as well as our business partners and professional advisers.

We are also indebted to our shareholders, with whom we look forward to maintaining a rewarding relationship as market conditions improve. This relationship is recognised in our proposed final dividend for the year of 1.53 pence per share, which maintains the dividends for the year at the level paid in 2022, despite the lower post tax profits for the year, as we acknowledge the importance to shareholders of the dividend as part of their overall return.

With lower inflation and the expectation of reductions in interest rates we can look forward to a more settled environment for borrowers and, within the Vector team, I believe that we have the skills, strategy, experience and resources to capitalise on growth opportunities as they arise.

Robin Stevens

Chairman

18 April 2024

Chief Executive's statement

Background

The year was full of uncertainty with base rates rising to 5.25% p.a. in August 2023, a level unparalleled in recent memory. Whilst this may have helped stabilise inflation it has raised the cost of our debt finance from our wholesale banking lines and has been particularly hard for Borrowers.

For those that we serve in the property development sector the high rates have been combined with increased costs of building materials making many projects un-profitable. The exit routes from bridging and development finance are buy to let mortgages and term finance from traditional banks. These banks have applied higher stress tests making it very difficult to re-finance. Furthermore, the high cost of borrowing has had an impact on developers being able to sell their properties. The sales cycle has elongated as buyers struggle to get mortgages.

Stressed Loans

Although the outlook has improved many bridging and property development lenders, including Vector, are working through their stressed loans.

We have done particularly well in managing our portfolio of over 100 live loans at any one time. However, we do occasionally have to manage projects where a Borrower is unable to meet its obligations to us. Where the Borrower is unable to provide comfort through a loan restructuring or refinancing, we are forced to appoint Receivers or take effective control of a construction project. While this has been a rare occurrence during the Group's history we have taken an early proactive approach to potentially stressed loans during the year. As a result, we have made provisions during the year 2023 for shortfalls that may materialise in 2024-25. The rest of our portfolio has performed extremely well and we did not have any significant write offs during 2023, reflecting our prudent approach to lending overall.

Corporation Tax

In common with all emerging profitable companies, we are now impacted by the increase in Corporation Tax from 19% to 25%. This will reduce the amount of post-tax profit we can re-deploy in the business for growth and distribute to shareholders as dividends.

Resilient Results

Having highlighted the challenges, I am still able to report that Vector has delivered a set of results we can be proud of and I am pleased that we are in a position to maintain our dividend pay-out at 2022 levels.

The profit before tax for the period was £2.1m (2022: £2.8m) from revenue of £5.7m (2022: £5.9m).  At 31 December 2023 the loan book was £47.9m (2022: £53.2m), and the consolidated net assets were £25.5m (2022: £25.1m).

We are fortunate to have a very strong capital base that allows us the flexibility and security to capitalise on the market opportunities that still exist in these challenging times.

We will recommend a final dividend of 1.53 pence per share payable on 3 June 2024 (2022: 1.53 pence).

Loan Book KPIs

Market segmentation at 31 December 2023

	2023		2022
	(£'000)	%	(£'000)	%
Residential	26,623	55.54%	30,351	57.02%
Commercial	10,389	21.67%	11,644	21.88%
Land & Development	5,442	11.35%	4,681	8.79%
Mixed	3,547	7.40%	4,708	8.84%
2nd charge	1,523	3.18%	1,545	2.90%
Other	415	0.86%	300	0.57%
	47,939	100.00%	53,229	100.00%

Our strategy for new business is smaller loans whilst seeking redemption of the larger older loans. The average rate achieved during the period was 10.46% p.a. (2022: 11.18% p.a.).

The average loan size was £453k spread over 108 live loans. (2022: £499k over 107 loans).

Security held at December 2023 was £87.5m giving an average LTV of 58.86% (2022: £93.5m and 57.12% respectively).

The loan balances are stated net of provisions of £928k at 31 December 2023 (2022: £200k)

Operational review

Our Board and operational team are experienced, efficient and focussed on maintaining financial prudence and profitability. We did not need to increase the headcount in 2023.

We decided as part of our strategy to marginally reduce loan book size so as to maintain higher reserves and liquidity.  The increased costs of borrowing from our bank providers has meant that our margins on debt finance have been squeezed as the borrowing costs overall have risen by 3% p.a. during the year. and it was not always pragmatic to pass the entire increase on to our borrowers. However, the higher rates have enabled a better return on the Group's own capital which has mitigated the squeezed margin on money from the banks.

The demand for our loans remains high; however, we have chosen not to grow the loan book this year but maintain higher liquidity.  We have also not sought an increase in our debt facilities which remain at £45m in 2023.

Outlook

We expect base rates to start the move downwards during mid-2024. At that point we will review the scenario to get back to loan book growth. We have a strong capital base and a talented team to perform well in our market and we look forward to the rest of 2024 with more confidence.

Agam Jain

Chief Executive Officer

18 April 2024

Consolidated statement of comprehensive income

		2023	2022
	Notes	£'000	£'000
Continuing operations
Revenue		5,713	5,928
Cost of sales		(392)	(429)
Gross profit		5,321	5,499
Administrative expenses		(1,490)	(911)
Operating profit		3,831	4,588
Finance costs		(1,782)	(1,782)
Finance income		18	3
Profit before income tax	5	2,067	2,809
Income tax	6	(487)	(534)
Profit for the year		1,580	2,275
Other Comprehensive Income		-	-
Total comprehensive income for the year		1,580	2,275
Profit attributable to:
Owners of the parent		1,580	2,275
Earnings per share expressed in pence per share:	8
Basic		3.49	5.03
Diluted		3.49	5.03

Consolidated statement of financial position

		2023	2022
	Notes	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	10	-	1
		-	1
Current assets
Trade and other receivables	12	48,746	53,997
Cash and cash equivalents	13	306	688
		49,052	54,685
Total assets		49,052	54,686
Shareholders' equity
Called up share capital	16	226	226
Share premium	17	20,876	20,876
Group reorganisation reserve	17	188	188
Retained earnings	17	4,233	3,798
Total equity		25,523	25,088
Liabilities
Current liabilities
Trade and other payables	14	22,648	25,800
Tax payable		169	240
		22,817	26,040
Non-current liabilities
Trade and other payables	14	712	3,558
Total liabilities		23,529	29,598
Total equity and liabilities		49,052	54,686

The financial statements were approved by the Board of Directors on 18 April 2024 and were signed on its behalf by:

J Pugsley - Director

Consolidated statement of changes in equity

	Notes	Called up share capital	Retained earnings	Share premium	Group reorganisation reserve	Total equity
		£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2022		226	2,659	20,876	188	23,949
Changes in equity
Dividends	7	-	(1,136)	-	-	(1,136)
Total comprehensive income		-	2,275	-	-	2,275
Balance at 31 December 2022		226	3,798	20,876	188	25,088
Changes in equity
Dividends	7	-	(1,145)	-	-	(1,145)
Total comprehensive income		-	1,580	-	-	1,580
Balance at 31 December 2023		226	4,233	20,876	188	25,523

Notes:

·    Share premium relates to the consideration paid for ordinary share capital in excess of the nominal value of the ordinary share capital.

·    The group reorganisation reserve relates to adjustments to the retained earnings of the group upon consolidation of the financial statements.

Consolidated statement of cash flows

		2023	2022
	Notes	£'000	£'000
Profit before income tax		2,067	2,809
Depreciation charges		1	1
Finance costs		1,741	1,782
Finance income		(17)	(3)
		3,792	4,589
Decrease/(increase) in trade and other receivables		5,251	(7,432)
Increase/(decrease) in trade and other payables		(7,000)	5,499
Cash generated from operations		2,043	2,656
Interest paid		(1,741)	(1,782)
Tax paid		(558)	(581)
Net cash from (absorbed by) operating activities		(256)	293
Cash flows from investing activities
Interest received		17	3
Net cash from investing activities		17	3
Cash flows from financing activities
Introduced by Holding company		1,000	-
Amounts introduced by directors		2	1
Equity dividends paid	7	(1,145)	(1,136)
Net cash from financing activities		(143)	(1,135)
Decrease in cash and cash equivalents		(382)	(839)
Cash and cash equivalents at beginning of year		688	1,527
Cash and cash equivalents at end of year	13	306	688

Company statement of financial position

		2023	2022
	Notes	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	10	-	1
Investments	11	17,000	17,000
		17,000	17,001
Current assets
Trade and other receivables	12	10,055	8,832
Cash and cash equivalents	13	44	117
		10,099	8,949
Total assets		27,099	25,950
Shareholders' equity
Called up share capital	16	226	226
Share premium	17	20,876	20,876
Retained earnings	17	1,940	1,700
Total equity		23,042	22,802
Liabilities
Current liabilities
Trade and other payables	14	4,057	148
		4,057	148
Non-current liabilities
Trade and other payables	14	-	3,000
Total liabilities		4,057	3,148
Total equity and liabilities		27,099	22,950

As permitted by Section 408 of the Companies Act 2006, the income statement of the Company is not presented as part of these financial statements.  The Company's profit for the financial year was £1,385k (2022 - £1,382k).

The financial statements were approved by the Board of Directors on 18 April 2024 and were signed on its behalf by:

J Pugsley - Director

Company statement of change in equity

	Note	Called up share capital	Retained earnings	Share premium	Total equity
		£'000	£'000	£'000	£'000
Balance at 1 January 2022		226	1,454	20,876	22,556
Changes in equity
Dividends	7	-	(1,136)	-	(1,136)
Total comprehensive income		-	1,382	-	1,382
Balance at 31 December 2022		226	1,700	20,876	22,802
Changes in equity
Dividends	7	-	(1,145)	-	(1,145)
Total comprehensive income		-	1,385	-	1,385
Balance at 31 December 2023		226	1,940	20,876	23,042

Notes:

·      Share premium relates to the consideration paid for ordinary share capital in excess of the nominal value of the ordinary share capital.

Notes to the financial statements

1.          Statutory information

Vector Capital Plc is a public limited company, registered in England and Wales. The Company's registered number and registered office address can be found on the General Information, see page 1.

2.            Accounting policies

Basis of preparation

The consolidated financial statements of the Group have been prepared using the historical cost convention, on a going concern basis and in accordance with UK-adopted international accounting standards and the Companies Act 2006 applicable to companies reporting under IFRS, using accounting policies which are set out below and which have been consistently applied to all years presented, unless otherwise stated.

The financial statements of the Company have been prepared using the historical cost convention, on a going concern basis and in accordance with Financial Reporting Standard 101 "Reduced Disclosure Framework" ('FRS 101') and the requirements of the Companies Act 2006. The Company will continue to prepare its financial statements in accordance with FRS 101 on an ongoing basis until such time as it notifies shareholders of any change to its chosen accounting framework.

In accordance with FRS 101, the Company has taken advantage of the following exemptions:

• Requirements of IAS 24, 'Related Party Disclosures' to disclose related party transactions entered into between wholly owned members of the group;

• the requirements of paragraphs 134(d) to 134(f) and 135I to 135(e) of IAS 36 Impairments of Assets, removes many of the disclosure requirements around the recoverable amounts of cash units with indefinite useful economic life;

• the requirements of IFRS 7 Financial Instruments: Disclosures in relation to the significance of financial instruments along with the nature and extent of risks arising from those financial instruments;

• the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D and 111 of IAS 1 Presentation of Financial Statements, removes the requirement to prepare a statement of cash flows, retrospective restatement and comparative information for narrative disclosures beyond IFRS requirements;

• the requirements of IAS 7 to prepare a Statement of Cash Flows;

• the requirements of paragraphs 134 to 136 of IAS 1 Presentation of Financial Statements, to disclose information around objectives, policies and process for managing capital;

• the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

New and amended standards adopted by the Group

The most significant new standards and interpretations adopted are as follows:

Ref	Title	Summary	Application date of standards (periods commencing)
IAS1	Presentation of Financial Statements	Amendments regarding the classification of liabilities	1 January 2023
		Amendments to defer effective date of the January 2020 amendments	1 January 2023
IFRS 17	Insurance contract	Internationally consistent approach to the accounting for insurance contracts.	1 January 2023
IAS 8	Definition of Accounting Estimates	Defines accounting estimates and clarifies that the effects of a change in an input or measurement technique are changes in accounting estimates.	1 January 2023
IAS 12	Deferred Tax relating to Assets and liabilities arising from a Single Transaction (Amendments to IAS 12)	Additional criterion for the initial recognition exemption under IAS 12.15, whereby the exemption does not apply to the initial recognition of an asset or liability which at the time of the transaction, gives rise to equal taxable and deductible temporary differences.	1 January 2023

New standards and interpretations not yet adopted

Unless material the Group does not adopt new accounting standards and interpretations which have been published and that are not mandatory for 31 December 2023 reporting periods.

No new standards or interpretations issued by the International Accounting Standards Board ('I'SB') or the IFRS Interpretations Committee ('IF'IC') as adopted by the UK Endorsement Board have led to any material changes in the Company's accounting policies or disclosures during each reporting period.

There are a number of new and revised IFRSs that have been issued but are not yet effective that the Company has decided not to adopt early.  The most significant new standards and interpretations to be adopted in the future are as follows:

Ref	Title	Summary	Application date of standards (periods commencing)
IFRS 16	Leases on sale and leaseback	Requirements for sale and leaseback transactions in IFRS 16 to explain how an entity accounts for a sale and leaseback after the date of the transaction.	1 January 2024
IAS 1	Non-current liabilities with covenants	Aims to improve information an entity provides relating to liabilities subject to covenants.	1 January 2024
IAS 7 and IFRS7	Supplier finance	Additional disclosure regarding supplier finance arrangements and their effects on an entity's liabilities, cash flows and exposure to liquidity risk.	1 January 2024

Going concern

The financial statements are prepared on a going concern basis as the Directors are satisfied that the Group's forecasts and projections, considering potential changes in trading patterns, indicate that the Group will be able to continue current operations for the foreseeable future.

The Group's wholesale borrowing facilities totalling £45m are due for renewal in July and October 2024, on a rolling annual contract, the Group maintain a good working relationship with both providers and are confident the facilities will be renewed.

The Directors have obtained comfort from its majority shareholder, Vector Holdings Limited, that Group loans totalling £4.0m at the date of these statements, £3.5m at the date of approval, is not intended to be recalled within 12 months of the year end and that repayment of the loan requires the approval of the Company's non-executive board members.  On 18 April 2024 the loan was extended to December 2026.    

After making enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.

Basis of consolidation

Subsidiaries are all entities over which the Group has control.  The subsidiaries consolidated in these Group accounts were acquired via group re-organisation and as such merger accounting principles have been applied.  The subsidiaries financial figures are included for their entire financial year rather than from the date the Company took control of them.

The Company acquired its 100% interest in Vector Asset Finance Limited ("VAF") and Vector Business Finance Ltd ("VBF") in 2019 by way of a share for share exchange.  This is a business combination involving entities under common control and the consolidated financial statements are issued in the name of the Group but they are a continuance of those of VAF and VBF. 

Therefore, the assets and liabilities of VAF and VBF have been recognised and measured in these consolidated financial statements at their pre combination carrying values. The retained earnings and other equity balances recognised in these consolidated financial statements are the retained earnings and other equity balances of the Company, VAF and VBF.  The equity structure appearing in these consolidated financial statements (the number and the type of equity instruments issued) reflect the equity structure of the Company including equity instruments issued by the Company to affect the consolidation. The difference between consideration given and net assets of VAF and VBF at the date of acquisition is included in a Group reorganisation reserve.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated during the consolidation process.

The subsidiaries prepare their accounts to 31 December under FRS101, there are no deviations from the accounting standards implemented by the company.  Where necessary accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

Property, plant and equipment

Property, plant and equipment is initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.  Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life.

Fixtures and fittings             -  20% on cost

Computer equipment         -  25% on cost

Taxation

Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantially enacted by the statement of financial position date.

Employee benefit costs

The Group operates a defined contribution pension scheme.  Contributions payable to the Group's pension scheme are charged to the income statement in the period to which they relate.

Revenue Recognition

Revenue comprises of interest income, setup and renewal fees and dividend income. Interest income is recognised using the effective interest method. Set up fees are generally recognised on the accruals basis when the service has been provided. The policies adopted are as follows -

·      Interest income is recognised using the effective interest method. The effective interest method calculates the amortised cost of a financial asset and allocate the interest income over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset. When calculating the effective interest rate, all contractual terms of the financial instrument and lifetime expected credit losses are considered.

·      Setup and renewal fees are recognised in accordance with the stage of completion.

·      Dividend income is recognised as the company's right to receive payment is established. Each is then shown separately in the income statement and other comprehensive income.

Investments (Company only)

Investment in subsidiaries is initially measured at cost and subsequently each year re-measured at fair value.  Gains or losses arising from changes in fair values of investments are included in income statement in the period in which they arise.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and time, call and current balances with banks and similar institutions, which are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. This definition is also used for the statement of cash flows.

Financial instruments

Financial assets and financial liabilities are recognised when the company becomes party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at the transaction amount which is equivalent to fair value.  See Note 21.

Transaction costs that are directly attributable (other than financial assets or liabilities at fair value through the income statement) are added to or deducted from the fair value as appropriate, on initial recognition.

Financial assets

 Financial assets are subsequently classified into the following specified categories:

- financial assets at fair value through the income statement, including held for trading;

- fair value through other comprehensive income; or

- amortised cost.

The classification depends on the nature and purpose of the financial asset (i.e. the Company's business model for managing the financial assets and the contractual terms of the cash flows) and is determined at the time of initial recognition.

Financial assets are classified as at fair value through other comprehensive income if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. They are measured at amortised cost if they are held within a business mode whose objective is to hold financial assets in order to collect contractual cash flows and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets not held at amortised cost or fair value through other comprehensive income are held at fair value through the income statement.

Trade receivables

Trade receivables are amounts due from customers in relation to commercial lending provided as part of the ordinary course of business. If collection is expected in one year or less (as is the normal operating cycle of the business), the receivables are classified as current assets, if not, they are presented as non-current assets.

Loans made by the Group are initially recognised at cost, being the fair value of the consideration received or paid associated with the loan or borrowing. Loans are subsequently measured at amortised cost using the effective interest method where appropriate, less any impairment for loans. The loan will be de-recognised when the Group is no longer eligible for the cash flows from it.

The credit risk of trade receivables is considered low due to the legal charges held by the Group. The Directors regularly review the trade receivables to ensure security held is sufficient to maintain a low level of risk. Where defaults occur, the company uses its legal powers to seize assets held as security and liquidate them in order to recover the debt. Should the security diminish in value and credit risk is re-assessed as higher the Directors will make a provision for bad debts which will represent a charge to the Income statement.

There is no Grouping for credit risk, each trade receivable is reviewed on its own merit.

Financial liabilities

Financial liabilities are contractual obligations to deliver cash or another financial asset.

All financial liabilities are measured at amortised cost, except for financial liabilities at fair value through the income statement. Such liabilities include derivatives, other liabilities held for trading, and liabilities that an entity designates to be measured at fair value through profit or loss (see 'fair value option' below).

All interest-bearing loans and borrowings are classified as financial liabilities at amortised cost.

De-recognition

De-recognition of financial assets and liabilities is the point at which an asset or liability is removed from the financial statement.

Financial assets are de-recognised when the rights to receive cashflows from the assets have ceased and the Company has transferred substantially all the risk and rewards of ownership of the asset.

Financial liabilities are de-recognised when the obligation is discharged, cancelled or expired.

Impairment

Impairment of financial assets is recognised in stages:

·      Stage-1 - as soon as a financial instrument is originated or purchased, 12-month expected credit losses are recognised in the income statement and a loss allowance is established. This serves as a proxy for the initial expectations of credit losses. For financial assets, interest revenue is calculated on the gross carrying amount (i.e. without deduction for expected credit losses).

·      Stage-2 - if the credit risk increases significantly and is not considered low, full lifetime expected credit losses are recognised in the income statement. The calculation of interest revenue is the same as for Stage 1.

·      Stage-3 - if the credit risk of a financial asset increases to the point that it is considered credit-impaired, interest revenue is calculated based on the amortised cost (i.e. the gross carrying amount less the loss allowance). Financial assets in this stage will be assessed individually. Lifetime expected credit losses are recognised on these financial assets.

On an ongoing basis the Company reviews and assesses whether a financial asset is impaired.

Expected credit losses are calculated based on the Company review using objective tests of security held, defaults, market conditions and other reasonable information available to the Company at the time of review.  There is no Grouping for credit risk, each trade receivable is reviewed on its own merit.

Losses as a result of the review are recognised in the Income Statement.

Borrowing costs

All borrowing costs are recognised in the Income Statement in the period in which they are incurred.

Critical accounting estimates and judgements

The preparation of financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.  Actual results may differ from these estimates.

Estimates and assumptions are reviewed by the Directors on an ongoing basis.  Revisions or amendments to the accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

The Directors consider that loan impairment provision is the most important to the true reflection of the Company's and the Group's position.

Loan impairment provisions

The Directors monitor debts carefully, the company operates tight controls to ensure bad debts are minimised, including the holding of adequate legal security. Where debts become overdue management assess the collectability of the debt on a case-by-case basis, where doubts exist over the recoverability provisions will be made and charged to the Income statement.

Financial risk management

The Group's risk management is controlled by the board of Directors.  The Board identify, evaluate and mitigates financial risks across the Group.  Financial risks identified and how these risks could affect the Group's future financial performance are listed below;

Market risk - interest rate

The Group holds borrowings from banks at variable rates which are linked to lending provided to customers.  The risk is measured through sensitivity analysis.  The risk is managed via monitoring of base rates when new loans and renewals are issued to maintain a suitable margin above cost.  Since loans are short term the exposure to higher rates is low.

Credit risk

The Group lends to third parties as included in trade debtors, there is a risk of default from a borrower.  Risk is measured by review of security held compared to credit provided.  the risk is management by undertaking thorough valuations of security, obtaining legal charge and stringent onboarding processes.  At the year-end Group trade debtors of £48,702,104 (2022: £53,229,641) represented 56% (2022: 57%) of the aggregate security held.

Liquidity risk

The risk the Company cannot meet its financial responsibilities such as finance and operating expenses.  The risk is measured by way of rolling cash flow forecasts prepared by management, including undrawn borrowing facilities and cash and cash equivalents.  The risk is controlled by the timing and availability of new finance for customers.

Capital risk

The Group's objective when managing capital is to safeguard the Group's ability to continue as a going concern and to be profitable for its shareholders.  The board monitors capital by assessing liquidity, forecasts and demand for lending on an ongoing basis.

3.            Operating segments

The entire revenue and results of the Group are from a single operating segment.  The Group therefore does not consider requirement to disclose segmental information necessary.

4.            Employees and Directors

Labour costs for the period:

	2023	2022
	£'000	£'000
Wages and salaries	352	352
Social security costs	34	35
Other pension costs	24	24
	410	411

The average number of employees during the year was as follows:

	2023	2022
Admin and management	8	9

Directors' remuneration:

	2023	2022
	£'000	£'000
Salaries	187	197
Pension contributions	21	20
	208	217

The highest paid director was paid remuneration of £107,500 during the year (2022: £120,000), as disclosed in the report of the directors.

5.            Profit before income tax

The profit before income tax is stated after charging:

	2023	2022
	£'000	£'000
Brokers' commissions	392	429
Depreciation - owned assets	1	1
Auditors' remuneration
Audit of Group	54	40
Non-audit services	3	3
	57	43
Bad debt provision	811	212
Reversal of bad debt provision	(83)	-
Bad debt written off	9	-
	737	212

6.            Income tax

Analysis of tax expense

	2023	2022
	£'000	£'000
Current tax:  Corporation tax	487	534

Notes to the financial statements (continued)

6.            Income tax - continued

Factors affecting the tax expense

The tax assessed for the year is higher than the standard rate of corporation tax in the UK. The difference is explained below:

	2023	2022
	£'000	£'000
Profit before tax	2,067	2,809
Expected tax charge based on the standard corporation tax rate of 23.52% (2022; 19%)	486	534
Expenses disallowed for tax	1	-
Tax expense	487	534

The UK budget confirmed in March 2022 an increase in the main corporation tax rate from 19% to 25% on profits over £250,000 with effect from 1 April 2023.  The tax calculation above uses a blended rate of 23.52% to account for the split tax year treatment.   

7.            Dividends

	2023	2022
	£'000	£'000
Ordinary shares of £0.005 each
Final	692	683
Interim	453	453
	1,145	1,136

The final dividend for the 2022 financial year of 1.53p per share was paid on 1 June 2023.

The interim dividend for the year of 1.00 pence per share was paid on 29 September 2023.

8.            Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.

Reconciliations are set out below.

	Earnings attributable to ordinary shareholders	Weighted average number of shares	Per share amount
	£'000	'000	Pence
2023 Basic and Diluted EPS	1,580	45,244	3.49
2022 Basic and diluted EPS	2,275	45,244	5.03

Total shares issued 45,244,385 for the 2023 and 2022 periods.

There is no effect of dilutive securities since no options or warrants are in existence at the period end.

9.            Profit of parent company

As permitted by Section 408 of the Companies Act 2006, the income statement of the parent company is not presented as part of these financial statements.  The parent company's performance statement was approved in accordance with section 408(3), Companies Act 2006, the profit for the financial year was £1,385k (2022: £1,381k).

10.          Property, plant and equipment

Group and Company

	Fixtures, Fittings and Equipment
	£'000
Cost
At 1 January 2023	5
Disposals	(4)
At 31 December 2023	1
Depreciation
At 1 January 2023	4
Charge for the year	1
Depreciation on disposals	(4)
At 31 December 2023	1
Net book value
At 31 December 2023	-
At 31 December 2022	1

11.          Investments

Company

	Shares in Group Undertakings
	£'000
Cost
At 1 January 2023 and 31 December 2023	17,000
Net book value
At 31 December 2023	17,000
At 31 December 2022	17,000

The Directors undertake an impairment review of the investments on an ongoing basis, there are no indications of any requirement to impair due to the strength of the subsidiaries and overall Group.

Shares in Group Undertakings comprises;

Name of entity	Country of incorporation	Ownership		Principal activities
		2023	2022
Vector Business Finance Ltd (Registered address:  2 Claridge Court, Lower Kings Road, HP4 2AF)	England and Wales	100%	100%	Commercial lending
Vector Asset Finance Ltd (Registered address:  2 Claridge Court, Lower Kings Road, HP4 2AF)	England and Wales	100%	100%	Commercial lending

12.          Trade and other receivables

Group

	2023	2022
	£'000	£'000
Current
Trade debtors	45,891	51,709
Prepayments and accrued income	808	768
	46,699	52,477
Non-current
Trade debtors	2,047	1,520
	48,746	53,997

Company

	2023	2022
	£'000	£'000
Current
Amounts owed from Group Undertakings	10,031	8,816
Prepayments and accrued income	24	16
	10,055	8,832

Trade receivables are stated after provisions for impairment of £928k (2022: £200k).  As follows:

Group

	2023	2022
	£'000	£'000
Provision for impairment of trade receivables - Current Assets
Balance brought forward	200	-
Utilisation of provision	-	-
Reversals of provision	(83)	-
Additional provisions	811	200
Balance carried forward	928	200

The above provision relates to credit impairment on potential bad debts, this is based on the knowledge and information held by the Group at the year end and to the point of approving the accounts.   Whilst the timing of the outflow of economic benefit is difficult to define it is believed to be within 1 year.

52% of trade receivables were held by third party secure funding (2022: 72%).

Trade receivables due after more than 1 year is not considered material and therefore not reflected on the Balance Sheet.

Trade and other receivables are stated at amortised cost.

13.          Cash and cash equivalents

Group

	2023	2022
	£'000	£'000
Bank account	306	688

Company

	2023	2022
	£'000	£'000
Bank account	44	117

14.          Trade and other payables

Group

	2023	2022
	£'000	£'000
Current
Trade creditors	9	11
Social security and other taxes	13	12
Other creditors	18,470	25,544
Amounts owed to group undertakings	4,000	-
Accruals and deferred income	156	233
	22,648	25,800
Non-current
Amounts owed to group undertakings	-	3,000
Other creditors	712	558
	712	3,558

Company

	2023	2022
	£'000	£'000
Current
Trade creditors	2	2
Social security and other taxes	13	12
Other creditors	15	1
Amounts owed to group undertakings	4,000	-
Accruals and deferred income	27	133
	4,057	148
Non-current
Amounts owed to group undertakings	-	3,000
	-	3,000

Trade and other payables are stated at amortised cost.             

Following the renegotiation of the loan from Vector Holdings Limited on 28 December 2022, at the date of the financial statements the loan is due for repayment in December 2024, it is therefore considered to be a current liability.  On 18 April 2024 the loan was extended to December 2026.    

The following secured debts are included within creditors:

Group

	2023	2022
	£'000	£'000
Other creditors under 1 year	18,455	25,542
Other creditors over 1 year	712	558
	19,167	26,100

There are no secured creditors in the Company.

Other creditors include bank finance which is secured against the associated loans assigned to it by way of block discounting.  These balances have not been classified as banking facilities as the discounting facility is available to drawdown against customer loans issued and have to be secured over the property of the customer. Neither Vector Asset Finance Limited nor Vector Business Finance Limited can use these facilities for working capital requirements.

Vector Holdings Limited has provided a guarantee to the banks covering all monies and liabilities due from Vector Asset Finance Limited and Vector Business Finance Limited.

15.          Capital commitments

There is no capital expenditure contracted at the year end.

16.          Called up share capital

	Class	Nominal value	2023	2022
		£	£'000	£'000
Allotted, issued and fully paid 45,244,385	Ordinary	0.005	226	226

Holders of ordinary shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the company.

17.          Reserves

The following describes the nature and purpose of each reserve within equity:

Reserve	Description
Share capital	Amount subscribed for share capital fully paid.
Retained earnings	Retained earnings represents all other net gains and losses and transactions with shareholders (example dividends) not recognised elsewhere.
Share premium	Excess subscribed above nominal value of shares. Included within share premium are share issue costs which relate to commissions and other directly attributable costs.
Group reorganisation reserve	The difference between the consideration given and the net assets of the subsidiaries upon acquisition.

18.          Controlling party

Vector Holdings Limited, a company registered in England and Wales, is regarded by the Directors as being the Company's ultimate parent company with a holding of 75.15% (2023: 75.15%).  Vector Holdings Limited financial statements are publicly available at its registered address, 2 Claridge Court, Lower Kings Road, HP4 2AF.

Mr A Jain, Director, is considered the ultimate controlling party by virtue of his shareholding in Vector Holdings Limited, the ultimate parent company.

19.          Related party disclosures

The following related party transactions occurred during the year;

Vector Holdings Ltd - ultimate parent company

·      The Group owed £4,000k to the parent company (2022: £3,000k).

·      Interest is payable at a rate of 6.25% per annum, there is no requirement to make capital repayments. 

·      The Group paid £3k to the parent company (2022: £27.5k).

·      Dividends totalling £860k were paid to the parent company (2022: £853k).

·      Vector Holdings Ltd has provided a guarantee to Aldermore Bank and Shawbrook Bank covering all monies and liabilities due from the Group. 

Jonathan Pugsley - Director

During the year, Allazo Ltd, a company controlled by Jonathan Pugsley, charged accountancy fees of £10k (2022: £9k) to the Group.

Key Management Personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Directors (whether executive or otherwise).  Key Management Personnel are defined as the Directors, executive and non-executive.  The aggregate costs for the Group of Key Management Personnel is;

	2023	2022
	£'000	£'000
Directors
Gross salaries	187	197
Social security	20	21
Pension	21	20
Non-directors
Gross salaries	53	51
Social security	6	7
Pension	1	1
	288	297

20.          Events after the reporting date

On 31 January 2024 the Group repaid £500k to its parent company Vector Holdings Limited.  The parent company extended the finance offering to the Group by a further 2 years to December 2026.  There are no other significant events after the reporting date.

21.          Financial instruments

Summary of the financial instruments held is provided below;

Group

	2023	2022
	£'000	£'000
Financial assets
Cash and cash equivalents	306	688
Trade and other receivables	48,702	53,959
	49,008	54,647
Financial liabilities
Trade payables	9	11
Other payables	23,334	29,251
	23,343	29,262

Company

	2023	2022
	£'000	£'000
Financial assets
Cash and cash equivalents	44	117
	44	117
Financial liabilities
Trade payables	2	2
Other payables	4,038	3,051
	4,040	3,053

The Group is exposed to market risk through its use of financial instruments and it is the Boards responsibility for the determination of the Group's risk management objectives and policies. 

The Group is exposed to the following financial risks:-

·      Market risk

·      Credit risk

·      Liquidity risk

Market risk

Market risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, equity prices and commodity prices will reduce the Group's income or value of its assets.

The principal market risk to which the Group is exposed is interest rate risk.

Interest rate risk

Risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Group engages in block finance, secured against the loan book.  The policy to minimise this risk to fix the rate of interest on bank finance for the term of the customer loan, this means any fluctuations in interest rates are only affected at the point of commencement of the loan.  The interest rate offered to customers is therefore controlled to fluctuate and mitigate the changes in bank finance rates. 

The table below shows the sensitivity of profit and equity to a possible change in interest rates of +/- 1%.  These changes are considered reasonable despite market conditions implying the most likely movement is a reduction in base rates.  The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates.  All other variables are held constant.

	Profit for the year		Equity
	+1% (£'000)	-1% (£'000)	+1% (£'000)	-1% (£'000)
31 December 2023	288	(288)	216	(288)
31 December 2022	271	(271)	220	(271)

The above does not take account of the Group's ability to adjust its rates at different amounts compared to base which would correct for any reductions in interest rates to maintain profit margins.

Credit risk

Credit risk is the risk that a customer will default on its contractual obligations resulting in financial loss to the Group.  The Group's main income generating activity is lending to customers and therefore credit risk is a principal risk.

The Group lends to third parties as included in trade debtors, there is a risk of default from a borrower.  Risk is measured by review of security held compared to credit provided, the risk is managed by undertaking thorough valuations of security, obtaining legal charge and stringent onboarding processes.  At the year end, Group trade debtors, inclusive of accrued interest, of £48,702k (2022: £53,959k) represented 56% (2022: 58%) of the security held. During the year the Group expensed expected credit losses of £737k against the risks of bad or doubtful debts (2022: £212k).

The Group manages credit risk by:

·      Ensuring appropriate practices and internal controls are in place;

·      Obtaining good quality security against the credit provided;

·      Developing and maintaining the Group's processes for measuring Expected Credit Loss (ECL including monitoring of credit risk, incorporating future information and outlook;

·      Maintaining a robust framework regarding authorisation, observation and control utilising key experts in specialist fields.

Identifying significant increases in credit risk

The short-term nature of the lending mitigates against adverse effects of changes in economic conditions and/or the credit risk profile of the counterpart.  Nevertheless, the Group monitors changes in customer risk profiles through review of behaviours, loan service performance and the value of assets held as security.  Warnings of a significant increase in credit risk include:

·      Overdue interest arrears, once past 30 days the account enters an initial stage of default;

·      Repeat late payers of interest;

·      Overdue redemption and failure to secure alternative finance;

·      Evidence to suggest a customer has reduced working capital facilities or they have a deteriorated credit profile;

·      Evidence of diminished asset value, whether it be due to the customer or external factors.

The Group aims to work with customers to find a workable solution and in most cases an amicable resolution is found, where this is not the case the Group may;

·      Charge default interest surcharge on the loan;

·      Call in the loan and demand repayment;

·      Appoint a receiver to action the sale of secured assets to recover the debt;

·      Take legal action against the customer to recover debts.

Identifying default loans and credit impaired assets

The Group define a loan in default as being in arrears by more than 90 days, a borrower has not maintained their terms and conditions of their loan or other significant warnings as listed above.

Assessment of risk

The foundation of all lending in the Group is the security held, it is therefore paramount in determining the risk level of a loan.  This is standard across the lending industry with Loan to Value (LTV) being the main driver to loan risk and the associated interest offered to the borrower.

Trade and other receivables split into relevant risk assessment by LTV:

Loan to Value	Risk level	2023  £'000	2022  £'000
Up to 50%	Low	10,847	9,044
50% to 70%	Average	13,741	22,470
70% to 80%	Above Average	14,790	22,445
Above 80%	High	9,324	-
		48,702	53,959

The Group's loan book is represented by security held totalling £87,485k (2022; £93,532k).  This is made up of land and property, due to the macro-economic conditions property values either remained constant or retracted during the year.  These movements are not considered significant and any deterioration in value is deemed to be short term.

Credit loss policy

Once a loan is identified as being in serious default the Group will make a decision on credit impairment, this will look at the gross debt compared to the security held which will then be revalued to a distressed valuation.  In addition, forward looking information is used to determine the expected credit loss, this may include knowledge of property valuations and other macro-economic information.

Debts are then provided for specifically with the provision for the credit loss, over a 12 month period, being classified as an expense to the Income statement.

At the year end the Group had provisions for expected credit losses of £928k (2022: £200k), the increase was due to specific default loans showing signs of distress and so the recoverability was re-assessed, see Note 12.

Liquidity risk

The risk the Group cannot meet its financial responsibilities such as finance and operating expenses.  This is caused by timing differences between obligated cash outflows and cash inflows, this imbalance if not managed could mean the Group would not have sufficient resources to meet its obligations when they are due.

Management of Liquidity risk

The Group has a framework in place to monitor and manage the liquidity risk.  The risk is measured by way of rolling cash flow forecasts prepared by management, including undrawn borrowing facilities and cash and cash equivalents. 

The most significant liquidity risk is on the block discounting, the Group have controls in place to monitor and foresee when cash outflows are becoming due.  The amounts and due dates are contracted and so the risk to volatility is low, in addition there are several built in buffers with the finance providers which give an extra layer of comfort. 

By withholding funding of new loans or refinancing the obligation the Group maintains a healthy cashflow and manages liquidity risk.      

Maturity analysis for financial liabilities:

	Carrying amount £'000	Less than 1 month £'000	1 - 3 months £'000	3 - 12 months £'000	1 - 5 years £'000	>5 years  £'000
31 December 2023
Block discounting	19,167	4,826	3,945	9,684	712	-
Loans	4,000	-	-	4,000	-	-
Other payables	176	176	-	-	-	-
	23,343	5,002	3,945	13,684	712	-
31 December 2022
Block discounting	26,100	2,704	7,004	15,834	558	-
Loans	3,000	-	-	-	3,000	-
Other payables	161	161	-	-	-	-
	29,261	2,865	7,004	15,834	3,558	-

The above outlines the positions of finance at the year end, it does not include subsequent extensions or repayments.  In practice many of the block finance loans are extended by a further 12 months as part of the agreed operational conditions.   

The loan balance relates to the loan from the Parent company which was extended on 18 April 2024, making it due within 1-5 years.

 

END