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GLI Finance Limited (GLIF)

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Wednesday 31 March, 2021

GLI Finance Limited

Final Results for the Year Ended 31 December 2020

RNS Number : 0868U
GLI Finance Limited
31 March 2021
 

31 March 2021

 

 

The information contained within this Announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No.596/2014 as amended by The Market Abuse (Amendment) (EU Exit) Regulations 2019.

 

GLI Finance Limited

 

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

 

Final Results for the Year Ended 31 December 2020

GLI Finance (AIM: GLIF) announces its audited final results for the year ended 31 December 2020.

Andy Whelan, Chief Executive Officer of GLI Finance Limited, commented:

 

"The Covid-19 pandemic negatively impacted our performance for the majority of 2020, contributing to an operating loss of £5.5m (2019: loss £0.6m) of which £4.7m related to an adjustment to our expected credit loss provision.  We have taken a cautious view of our loan exposure as although we have not seen any losses materialise we are mindful of the pressures created by Covid-19. We also took a material write-down on the FinTech Ventures portfolio with a total net write down of £6m for the full year (2019: £7.5m)."

 

"As announced on 4 December 2020 in conjunction with Somerston Fintech Limited the Company's largest shareholder, we were delighted to report that we had completed a successful fund raise and debt restructuring of the Group. This has ensured the Company is appropriately capitalised to maximise shareholder value as we come out of the pandemic and was a fantastic result amidst what has been a very turbulent time for us all. I would like to thank all shareholders for their continued support during this time".

 

Group Highlights

 

· Group revenue for the year was £10.9m (2019: £13.1m) partly due to the runoff of the BMS UK Fund and on balance sheet loans, and lower transaction revenue from the impact of Covid-19;

· Group operating loss for the year was £5.5m (2019: £0.6m loss) with an increase in IFRS 9 adjustments of £4.7m as we factor in expected future impact on loan recoveries;

· Group retained loss for the year was £14.5m (2019: £9.9m loss) which has been impacted materially by the decision to take a £6m write down on the FinTech Ventures portfolio which is now valued at nil, as well as the reduction in valuation of our holding in Sancus IOM Holdings Limited due to current market conditions;

· Focus on operating costs has continued into 2020 with headcount reduction and additional cost saving initiatives put in place following the outbreak of Covid-19, reducing operating costs by £1.4m from the previous year, and

· A fundraising and debt restructuring, completed in December 2020, included:

£4m of new equity raised at a price of 2.25 pence per share;

The Zero Dividend Preference shares ("ZDPs") were extended for a further two years to 5 December 2022 with an 8% coupon. At 31 December 2020, the amount due was £12.4m (2019: £16.8m) ;

The £10m bond which was repayable on 30 June 2021 (the "GLI Bonds") was repaid early on 21 December 2020 and a new five-year Bond of £12.575m was issued at a 7% p.a. coupon with warrants attached. 

The facility with Honeycomb Investment Trust plc ("HIT") was increased from £45m to £75m and extended by three years to 28 January 2024.

 

Sancus BMS Highlights

 

 

· We continue to divest assets where return on capital, on a risk adjusted basis, is below other areas of the business in line with our objective of efficient capital allocation.  This has led to a gradual reduction in our SME lending activities where loans tend to deserve a higher risk weighting and require significant use of our own balance sheet.  We have redirected resources to our core asset backed secured lending activities where third-party funding is more accessible and our balance sheet less utilised;

· In line with our focus to improve asset efficiency and the quality of our financials, Sancus's on-balance sheet loan exposure (excluding BMS) reduced by 44% in the year from £12.9m to £7.2m, with Sancus revenue (excluding BMS) falling by far less, 20% from £8.1m to £6.5m;

· During the year almost £100m was returned to Co-Funders from the successful repayment of loans;

· The Sancus team in all jurisdictions have continued working during the lockdown (primarily from home);

· We continue to diversify and broaden our sources of capital and lending capacity. As at 31 December 2020, Sancus had loans outstanding of £171m (2019: £199m) with Co-Funders providing £164m, equating to a co-funding ratio of 96% (up from 94% at December 2019); and

· Business in the UK and Ireland continues to expand with strong pipelines and although 2020 was impacted by Covid-19, these two key jurisdictions saw their revenues increase year on year by 30% in the UK and 139% in Ireland.

 

 

 

For further information, please contact:

 

GLI Finance Limited

Andy Whelan

+44 (0)1534 708900

 

Liberum Capital (Nominated Adviser and Corporate Broker)

Chris Clarke

Edward Thomas

+44 (0) 20 3100 2190

 

Instinctif Partners (PR Advisor)

Tim Linacre

Lewis Hill

George Peele

+44 (0)207 427 1446

 

 

CHAIRMAN'S STATEMENT

 

Overview

 

2020 has been a challenging year as we, like many businesses, have had to adapt to the challenges facing our operations. The Executive Team and wider staff have nevertheless remained committed and continued to operate as normal as possible under these challenging conditions. The return of almost £100m of loans to Co-Funders in the year underpins this hard work and dedication of the team, which has always been focussed on providing the best service possible to our Borrowers and Co-Funders.

 

A key milestone this year was the successful new equity raise at the end of the year as well as restructuring our debt (Bonds and ZDPs) and increasing and extending the term of our facility with Honeycomb Investment Trust (HIT). This provides the Group with the ability to focus on our growth plans where we see great opportunity within the bridging and development lending space from where many traditional finance providers are retrenching from. This transaction had the full support of our largest shareholder Somerston Group who participated in both the equity raise and new bond issue. I take this opportunity to thank all our shareholders and Honeycomb Investment Trust for their support.

 

As set out in our announcement in November 2020 the Board has seen diminishing returns from FinTech Ventures, its portfolio of SME-focussed lending platforms, which has suffered from increased competition, the impact of the Covid-19 pandemic and, due to its size, difficulty in raising additional equity. While the pandemic has impacted the Group's property-backed and SME-lending business, the Sancus BMS Group trading is recovering and management has maintained a keen focus on efficient capital allocation and cost management. We have again seen costs reduce this year by a further £1.4m. 

 

The Board believes that there is potential for substantial growth in the Sancus BMS Group. The Board noted its intention to restructure the business, focusing its resources on delivering the business plan for this secured property focussed lending business. We have started work on this and expect over the course of 2021 to simplify the Group and will update shareholders of our progress in due course.

 

The Board also intends to rebrand the Company under a new corporate name to reflect this focus and expects to put a resolution to Shareholders in that regard at the Company's next annual general meeting which is scheduled for 11 May 2021.

 

The overall results for the year are disappointing showing a retained loss of £14.5m, which is partly as a consequence of taking some further provisions on IFRS 9 that we believe is the right thing to do in this current market.  Hopefully we are close to the end of this pandemic and we can return to some form of normality in the near future. We have also taken a full write down on our FinTech Ventures Portfolio, which accounted for a £6m loss in the year.

 

Our People

 

We have seen a reduction in headcount during the year but at the start of 2021 we expanded the team with two new senior hires based in the UK with significant real estate sector experience, which will help the Group realise its ambition to grow our exposure within the UK market.

 

Dividend and Shareholders

 

In line with our dividend policy, it is not proposed to declare a dividend for this year.  We expect the Sancus offices in Ireland and the UK, together with a further focus on operational matters to drive free cash flow in future years. We fully intend to recommence the dividend programme but only at such time as the Company is in a strong enough position to make such payments. I am grateful to all our shareholders who have kept confidence with the Group through what continues to be a challenging period as reflected in the depressed share price.

 

Outlook

 

We have made significant strides to lay the foundation for growth and operational improvements to create and build shareholder value in the Sancus BMS Group. The HIT funding facility, Loan Note and Co-Funder network helps to support this growth, but we are also continuing to secure a steady flow of new Co-Funders due to the attractive risk-adjusted returns that are available from our secured lending opportunities. Cash and Bond yields are at all-time lows and we believe these are unlikely to materially rise for a considerable period of time.  Our focus for the foreseeable future is growing the UK and Irish operations and continuing to expand the offshore jurisdictions.

 

As noted in the Director's Report, following the successful fund raise last year and the refinancing of the Company's debt liabilities (with the support of the Somerston Group), I will be considering my position during 2021 and am intending to resign from the Board and a replacement Chairman will be identified and announced in due course. On behalf of the Board, I thank shareholders for their continuing support.

 

Patrick Firth

Chairman

30 March 2021

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Overview

 

During 2020 we saw the business cope as well as could be expected with Covid-19. Although revenue was hampered by a lack of fees from new loans, all staff continued to work successfully from home during the pandemic and were in close contact with Co-Funders and Borrowers during this time. As Sancus is a multi-jurisdictional business we saw differing levels of lockdown in the locations where our offices are based. We have benefited from a spread of location risk where in smaller jurisdictions such as Guernsey, Jersey and Gibraltar the lockdown restrictions did not last as long as we have seen in the UK and thus have been able to get back to the "new normal" a little quicker.  We ensured that Co-Funders were kept informed of developments within the business and took an empathetic approach with Borrowers who requested either extensions of their loan (if they expired during the period of reporting) or deferred interest payments. This has meant that coming out of the pandemic we have a very positive loan origination pipeline and during 2020 we returned almost £100m to Co-Funders from the successful repayment of loans.

 

We continue to spend considerable time, energy and focus on the UK and Irish operations to ensure they are well positioned to grow over the course of 2021.  We have started to see these efforts pay off with the UK in particular showing positive signs of growth, particularly with respect to development finance opportunities, notwithstanding the potential headwinds presented by Brexit.

 

The equity raise and restructuring of our debt and extension of our credit facility with HIT has hugely improved the Group's balance sheet position and will allow the business to focus its resources on delivering the strategy of Sancus BMS Group, the Group's secured property focussed lending division. Further details of this are noted in the Chief Financial Officer's report. We are delighted that Somerston Group has provided further support to the Company during a period of challenging events both globally with the global health pandemic and in the UK with Brexit. I would also like to thank all stakeholders; Ordinary and ZDP shareholders, Bond holders and Pollen Street Capital (the Manager of Honeycomb Investment Trust) for their continued support.

 

Long-term strategy and business objectives

 

The overall objective remains shaping a capital efficient business that creates value and enables us to pay dividends.

 

Sancus BMS is our core operating unit. The coordination across the executive and senior management team, complemented with strong new business development expertise, is delivering a healthy flow of lending opportunities.

 

We are looking at our options for the FinTech Ventures portfolio and we will communicate any developments to shareholders as appropriate. It has certainly been a difficult, challenging and hugely disappointing journey over the years with the FinTech Ventures portfolio.  Many of the platforms have reached key points in their development and the market for raising equity and debt financing is challenging, which has had a material impact on the latest valuations.

 

Covid-19 impact

 

As a Group we already had robust recovery plans in place for business disruption with a workforce fully equipped with remote access to enable working from home. This has meant the business has continued to function well during the prolonged period of disruption and we have maintained a high level of service. With regard to our lending practices, we had tightened our credit criteria prior to the onset of the pandemic, in anticipation of an increased possibility of a global recession and are applying even more stringent criteria during this difficult time.

 

The majority of our lending exposure is asset/property backed, with only a small percentage of the portfolio exposed to the more vulnerable sectors such as commercial and retail lending.  Our loan book is exposed primarily to development and bridge financing.  The pandemic has created risks in the supply chain and to property values.  However, the responses of Governments and Central Banks (globally) in terms of fiscal and monetary support to businesses adversely affected has been significant and in the main well thought through.

 

Communication with our stakeholders is a high priority and we are in frequent contact with all our Co-Funders to provide an update on the loans they are invested in and how we expect Covid-19 may impact them.

 

With interest rates and bond yields at historic lows, the Sancus syndicated loan model will remain attractive to our Co-Funder base and, as Bank lending will probably contract further, we don't think this will adversely affect our pricing model and will present an opportunity to increase pricing on certain lending proposals. 

 

Summary of Financial Performance

 

The Group results for 2020 produced revenue of £10.9m (2019: £13.1m) and an operating loss of £5.5m (2019: loss £0.6m).  Revenue decreased year on year, which was expected as we run down our SME loan book and on-balance sheet loan exposure, but also due to reduced lending activity during lockdown which impacted transaction fees.

 

The Group net assets have reduced in the year from £40.4m at 31 December 2019, to £29.5m at 31 December 2020 predominantly as a result of the FinTech write down and as noted earlier the additional IFRS 9 provisions we have taken in light of the Covid-19 pandemic.

 

Operations

 

The Sancus BMS loan book at the end of December 2020 was £171m, a 14% decrease on last year (2019: £199m) as we saw almost £100m returned to Co-Funders over this period. As businesses get back to some sort of normality, we expect to grow the loan book.

 

Loan deployment for asset backed lending is a key metric we use to monitor the performance of the Sancus BMS Group.  Over the last three years we have seen a steady increase in loan deployments from £102m in 2017, £115m in 2018 and £123m in 2019. We saw loan deployments in 2020 reduce by 44% down to £69m as lockdowns hampered the completion of new loans. The first quarter of 2021 did start off relatively slow as most jurisdictions were still in some sort of lockdown but over the last month, we have seen positive signs of the industry picking up.

 

Our relationship with Pollen Street Capital and the HIT facility has also strengthened our ability to fund larger loan opportunities with the increase in the facility from £45m to £75m and the maturity extended to 28 January 2024.

 

Our on-balance sheet loans have decreased by 44% from 31 December 2019 to £11.8m at the end of 2020, with the continued focus on improving return on tangible assets ("ROTA").

 

Sancus BMS - Table 1

2020

2020 v 2019 var

2019

2018

BMS managed loan book

£14m

(59%)

£34m

£40m

Sancus asset backed lending book

£171m

(14%)

£199m

£168m

Total Sancus BMS Loan Book

£185m

(21%)

£233m

£208m

Loan Deployments

£69m

(44%)

£123m

£115m

On balance sheet loans before IFRS 9

£11.8m

(44%)

£21.2m

£26.0m

Average loan size

£2.2m

(8%)

£2.4m

£2.5m

Average loan terms - months

18.5

10%

16.8

18.5

Average LTV

63.2%

-

63.3%

58.7%

 

As set out in the last Annual Report we monitor performance by three key performance indicators. These include lending volumes, return on tangible assets (ROTA) and profitability. Lending volumes and profitability have been negatively impacted this year by Covid-19 but we continue to focus on improving these over time. We have taken the opportunity following the successful capital raise and debt restructuring to work more closely with the Somerston Group in aligning our vision for the future. This will help create a more simplified Group over the course of 2021 and therefore going forward will be reporting on the new simplified Group basis, meaning the ROTA reported previously, which was on Sancus BMS Group only, would not be on a like for like basis. We will commence reporting ROTA from the end of 2021 once the Group restructuring has completed.

 

Sancus Loan Notes and Amberton

 

The Sancus Loan Notes ("SLNs") comprise a planned series of Special Purpose Vehicles ("SPVs") designed to act like securitisation vehicles to help diversify our funding options and enable additional Co-Funder participation in a diversified loan portfolio.  These are attractive to new clients that want to participate in a pooled vehicle, delivered across a number of loans, rather than via direct participation in individual loans. At 31 December 2020 there are two loan notes in place, SLN5 which is at £19.6m and matures on 8 November 2021 and has a coupon of 7%. SLN6 currently stands at £4.4m and also matures on 30 November 2021. As part of the structure of the loan notes, Sancus BMS has provided a 10% first loss position on SLN5. On SLN6 Sancus BMS has not provided a first loss position.

 

In January 2021 Amberton Limited was established as a joint venture and is located in Jersey. It is the intention to launch SLN7 in the first half of 2021 and the Board notes that we expect the majority of investors within SLN5 and SLN6 will roll into this new SLN7 to create one larger loan note. To facilitate this process and maximize the take up of SNL7, Sancus may acquire some of the loans held within SLN5 and SLN6 and take them onto its own balance sheet. The Board notes that this is deviation away from its stated strategy of reducing our on balance sheet exposure, ensuring the Company has adequate funding sources is a key driver for future growth and we expect these loans to be held on balance sheet for a relatively short period of time based on the maturity loan date profile.

 

BMS

 

Following the sale of the BMS Irish Fund loans in 2018, the BMS UK Fund entered into run-off in 2019 and the UK Fund balance is now £4.5m (2019: £8.2m) with £0.9m IFRS 9 provision applied (2019: £1.1m). During the year we sold our holding in the administrator of the fund, BMS AB for a nominal amount (Note 21). This is in line with our strategy to simplify the Group and with the rundown of the Fund this entity was loss making.

 

Dividend Policy

 

The Group dividend policy recognises the need to balance dividend payments in the short term with the opportunities to grow the business for shareholders in the longer term. As such the Group's policy is to make dividend payments, which is consistent with prudent capital and liquidity management, covered by cash earnings and realised profits on the sale of investments. In line with this dividend policy, no dividend is being declared for this period.

 

Related Party Transactions

 

Related party transactions are disclosed in Note 24. There have been no material changes in the related party transactions described in the last annual report.

 

Governance, Risk Management and Operations

 

Effective governance processes both at subsidiary and holding company level continue to be a priority for the Board. This is critical to ensuring that only well-considered risks are taken, and expected returns emerge as planned. At Group level we have implemented projects to take a more strategic approach to the assessment, reporting and management of investment risk.

 

The development of the digital trading platform continues with increased online functionality for Co- Funders . This has now been rolled out to Sancus UK clients, allowing them to participate online in asset backed lending opportunities.

 

In addition, as part of the capital raise in November we have signed a relationship Agreement with Somerston Group in order to ensure that all shareholders rights are protected, and no undue influence is brought to bear by Somerston on the running of the Company.

 

Brexit

 

Geopolitical tensions and the impact of Brexit on the property market across all Sancus related jurisdictions (the UK and Gibraltar in particular) remains to be ascertained. Our view is that as the UK economy is moving closer to a heightened risk of recession, and we therefore expect the banking sector to focus more on the potential impact to their Tier 1 capital ratios, which may have a negative impact on their appetite for lending.

 

This creates further opportunity for alternative lenders in terms of both loan origination and the interest rate. However, the potential downside is increased risks associated with more volatile property valuations, demand from buyers of properties contracting and the potential for more risks of loan defaults.

 

Outlook

 

Last year was a year of reorganisation as we built out the Sancus BMS platform and restored the balance sheet of the Group, creating a firm foundation for growing the core business and creating significant value for shareholders. Our target was to deleverage our balance sheet and become a capital efficient business, which in turn will enable us to restart our dividend programme. Management remains focused on these objectives, which it expects to translate into improved profitability and ROTA over time. Covid-19 has negatively affected our results this year, but we are witnessing increased opportunities for alternative lenders, such as ourselves, and expect to see improvements in 2021.

 

Finally, I want to thank all shareholders for their continued support during this period of change. I fully acknowledge that the journey to date has been disappointing. However, we have successfully aligned the business to focus on Sancus (which I co-founded), which through its multi-jurisdictional asset backed secured lending service, is in a strong position to deliver future growth, profitability and in due course recommence the dividend programme.

 

Please keep safe and look after your loved ones.

 

Andrew Whelan

Chief Executive Officer

 

30 March 2021

 

 

CHIEF FINANCIAL OFFICER'S REPORT

 

Overview

 

2020 was a challenging year for the business as we saw the impact of Covid-19 negatively hit our revenue growth targets. The Group during this time did however continue to operate and saw almost £100m being returned to Co-Funders from the repayment of loans. One key highlight of the year, as announced on the 4 December 2020, was the successful completion of refinancing the Groups liabilities (ZDPs and Bond), raising £4m of new equity and extending and increasing our funding line with HIT from £45m to £75m. This means that the Group is well positioned to come out of the pandemic on a strong footing and be able to focus on growing the business. We will be focussed on the UK and Irish jurisdictions. Although they saw their revenues negatively impacted by Covid-19 in 2020, both saw an increase in revenue year on year. The liquidity of the Group has greatly improved following the fund raise with Group operational cash balance at the end of December 2020 at £11.3m. Noted below are the highlights of the debt restructuring and fund raise and the extension of the HIT facility.  

 

Fund Raise, Debt Restructuring and Facility Extension and Increase

 

New equity raise

 

On 4 December 2020, 177,777,778 new ordinary shares were issued at 2.25 pence per share raising £4m cash. 77,777,778 shares of which were under a firm placing by our largest shareholder Somerston and 100,000,000 shares issued under an open offer raising £2.25m.

 

Bond

 

The Group previously issued £10m through a Bond that paid 7% per annum semi-annually, which was due to mature on 30 June 2021. This was repaid early on the 21 December 2020 and a new £12.575m bond was issued on the 22 December 2020 with a maturity date of 31 December 2025. The coupon remains at 7% with the interest changing to quarterly. In connection with the Bond issue the Company has executed a warrant instrument constituting up to 183,691,304 warrants to subscribe in cash for new ordinary shares at a price of 2.25 pence per ordinary share. Somerston participated in the Bond to the sum of £7.7m.

 

ZDPs

 

The Group had 20,791,418 ZDP shares in issue of which 12,009,030 ZDP shares were held in Treasury at 31 December 2020 equating to a £12.5m liability. These were due for repayment on the 5 December 2020 but following shareholder approval these have been extended for a further two years to 5 December 2022 and remain with an 8% coupon with a final entitlement price of £1.6464 per share.

 

As announced on 26 February 2021, the Group intends to conduct a tender offer for approximately 25 per cent of the ZDPs due to complete mid-April 2021. The approximate cash equivalent of this will be £3.2m.

 

The Group further announced on the 26 February 2021 a Buyback Programme to purchase up to £1m ZDP shares to end no later than 30 April 2021. On 1 March 2021 the Group purchased 40,000 ZDP shares at a price of 125.5 pence per ZDP share, on the 17 March 2021 15,000 ZDP shares were acquired at a price of 130.0 pence per ZDP share and on 19 March 2021 a further 40,000 ZDP shares were acquired at 131.0 pence per ZDP share.

 

HIT Facility

 

As announced on 4 December 2020 the HIT credit facility was increased to £75m from £45m and the term was extended to 28 January 2025. At 31 December 2020 the total drawn was £45.0m (31 December 2019: £44.3m).

 

Review of Income Statement

 

Revenue

Group revenue for 2020 was £10.9m compared to £13.1m in 2019, a reduction of 17%. Within this balance we have seen a continued increase in revenue from the HIT facility which increased by 25% over the year. The core Sancus operations being Offshore, UK and Ireland saw their overall revenue decrease by 24% on last year.

The UK and Ireland asset backed lending businesses are our primary focus going forward. The UK office only became fully operational in April 2019 and although growth plans were constrained in 2020 due to Covid-19, the UK saw the largest new loans written in the year. Ireland, which was set up in 2018 has also shown positive growth signs even though there were strict lock down measures in that jurisdiction.

Total Cost of Sales

Total cost of sales which includes interest and other direct costs has increased in the year from £5.1m in 2019 to £6.1m in 2020. This increase is predominantly through the increased utilisation of the HIT Facility (£3.8m in the year to December 2020 vs £3.0m for the comparative period). In addition, finance costs relating to the ZDPs have edged up slightly as the interest rate increased from 5.5% to 8% on their extension to December 2020. Broker costs decreased, reflecting lower levels of loan origination.   

 

To measure business unit performance, finance costs are allocated to Sancus BMS to recognise its use of the Group's debt facilities in its lending activities.  FinTech Ventures is treated as being funded by equity.  This allocation best matches the risk profile of each business unit with its capital structure, as well as recognising that interest costs are effectively serviced by interest income from Sancus BMS.

 

Operating expenses

We continue to manage costs carefully across the Group and have seen total operating expenses reduce again this year by £1.4m to £5.6m for the full year 2020, representing a 20% reduction on 2019. Savings relate predominantly to employment costs whereby we have seen headcount reduce by 25% from 33 at the end of 2019 to 25 heads at the end of 2020. We also brought in some cost saving initiatives following Covid-19 during 2020 with a pension holiday for all staff from 1 July 2020 (which has continued into Q1 2021) and Directors fees were reduced by 10% in the third quarter of 2020. Office costs were also reduced wherever possible and as part of a continued focus on cost savings for 2021 we will keep this under review. Over the last three years we have reduced operating costs by £3.5m (39%) from £9.1m in 2017 to £5.6m in 2020.

 

IFRS 9

 

During 2020 we have seen Covid-19 affect the expected credit losses on our loan portfolio and we have had a movement in expected credit losses (IFRS 9) of £4.7m (£1.2m against the loan book, £1.6m against guarantees and £1.9m against receivables) in the year (2019: £1.3m against the loan book, £0.3m against receivables) following the methodology as set out in Note 23, which applies an expected credit loss model. The movement in the year has increased on previous years as we have factored in the potential impact of Covid-19 on the probability of default and future loss given defaults. We also take into account subjective judgement by the Board which is based on current information available at the time. With our total loan book of £201 million (this includes BMS and IOM loans) the total provision balance of £7.9m represents 3.9% of the loan book. The adjustments made take into account our first loss positions in HIT and SLN5 as well as our on-balance sheet exposure.

 

Other net losses

 

We have reported a £3.0m other net loss in the year (2019: loss £1.6m).  A large part of this balance (£1.8m) relates to the impairment to the carrying value of assets down from acquisition value plus accumulated earnings in Sancus IOM Holdings Limited. In the half year report, the Directors took a conservative view and decided, in the light of Covid-19 and lack of deals being closed in the first half of 2020, it would seem appropriate to eliminate the implied goodwill. This investment is now being valued at our share of the net assets of Sancus IOM Holdings Limited with no uplift for implied goodwill. This entity is in the process of being wound down and our share of the net assets of IOM (29.3%) will be returned to the Group over the course of 2021.

 

Of the remainder, £1.0m relates to Sancus Properties Limited whereby in light of Covid-19 we have reduced the holding value of this portfolio.

 

FinTech Ventures

 

As disclosed in our interim report we wrote down £4.2m against the FinTech Ventures Portfolio and in the second half of the year we have written down a further £1.8m taking the portfolio valuation to nil. This reflects the continued challenges we have seen the platforms facing during the pandemic. We are however hopeful that a couple of the platforms will surprise to the upside.

 

Review of the Statement of Financial Position

 

The Group's net assets have decreased in the year by £10.9m to £29.5m. The majority of this movement is due to the £6.0m write down on the FinTech Ventures portfolio, which is now valued at nil, and IFRS 9 loan impairment adjustments and incurred losses on financial assets of £4.7m.

 

The Group's liabilities are £73.4m (2019: £73.6m). With the debt restructuring at the end of 2020 and the two year extension to the ZDP maturity date, the Group's current liabilities have reduced significantly from £18.8m in 2019 to £3.5m at the end of 2020.

 

Goodwill

 

Goodwill remains at £22.9m, which relates to the carrying amount of goodwill arising on the acquisition of Sancus Jersey and Sancus Gibraltar. This is assessed by the Board for impairment on an annual basis or sooner if there has been any indication of impairment. With the onset of the Covid-19 pandemic in March 2020, management decided to bring forward the impairment test date to 30 June so that in future periods the annual assessment will be performed during the preparation of its interim accounts and calibrated to this key event when assessing performance of the cash generating units. As a result, the Board carried out a full impairment review of the carrying amount of goodwill as reported in the interim accounts. The resultant value in use calculation indicated that no impairment of goodwill was required in either Sancus Jersey or Sancus Gibraltar. As described in Note 3, the timing of a return to 'normal' levels of loan origination is a key source of estimation uncertainty within these calculations.

 

Following on from this review the Board have considered whether there have been any further indicative events of impairment since June 2020. The Board are cognisant that the pandemic is ongoing as these financial statements are being written. However, they do not see this as a further event, more as a continuation of the event that arose in March 2020. Further details can be found in Notes 2 (h), Note 3 and Note 12.

 

Sancus BMS on-Balance Sheet Loans and loan equivalents (Table 2)

 

On-balance sheet loan and loan equivalents have decreased in the period from £64.2m at 31 December 2019 to £53.6m at the end of December 2020. In the table below, we have split out the loan book held by Sancus Loans Limited ("SLL") which although is consolidated in our accounts, is not our own equity, except for the £5m first loss. Excluding SLL, the on balance sheet loan book has decreased from £18.3m at 31 December 2019 to £8.4m at the end of 2020. This is from a combination of running down our on balance sheet loan exposure, and also an increase in the IFRS 9 provision in the year. As previously noted, the disinvestment from SME lending is allowing asset utilisation to improve, which will drive an improvement in ROTA and shareholder value over time.  As we have also seen from our loan book funding, our access to capital has also improved allowing funding of asset backed secured loans from other sources such as the HIT facility, SLNs, a US fund under a forward flow arrangement and Co-Funders.

 

£'000

31 December 2020

31 December 2019

Jersey

5,111

8,434

Gibraltar

1,753

3,274

Guernsey

188

1,074

BMS - Investment in the fund and other loans

4,643

8,273

Sancus UK

46

91

Ireland

111

100

IFRS 9 Provision

(3,409)

(2,868)

Sancus BMS on-Balance Sheet Loans and loan equivalents (ex SLL)

8,443

18,378

SLL

45,579

45,885

SLL - IFRS 9 provision

(790)

-

Sancus BMS on-balance sheet loans and loan equivalents including SLL

53,232

64,263

 

 

Investments in joint ventures and associates

 

This balance relates to our 29.3% holding in Sancus IOM Holdings Limited. This has reduced from £2.7m in December 2019 to £0.9m at the end of 2020. The reduction in the year is predominantly due to the expected credit losses management have applied to the net assets of Sancus IOM Holdings Limited taking a cautious approach to recoverability of some of these loans following the challenges seen with Covid-19. In addition, the decision has been taken by the shareholders of Sancus IOM Holdings Limited to wind down this entity. Sancus has agreed to a £0.5m closure fee. The expectation is as the Isle of Man loan book runs down over 2021 a cash return will be made to the IOM shareholders.

 

Other assets

 

This balance of £1m (2019: £3.3m) relates to the portfolio of assets held by Sancus Properties Limited. During the first half of 2020 we completed the sale of a large block of apartments which was sold for £1.6m cash (net of sale costs) reducing the assets now held in this entity to a large plot of land and a property being developed into three apartments which we expect will be sold/complete for sale by the end of 2021.

 

FinTech Ventures

 

Following the write downs in the year the fair value of this portfolio at 31 December 2020 is valued at £nil (31 December 2019: £6.3m). The Group still holds an equity stake in seven platforms and has debt mainly in the form of convertible loan notes where we retain the potential upside from being able to convert on favourable terms should the platforms deliver a successful opportunity for us to exit.

 

As previously stated, the Board does not consider FinTech Ventures to be a core part of GLI's future.  The Board is therefore working to realise investments where we can and preserve and defend value where necessary.During the year we sold our equity stake in two of the platforms and received a small part payment of an outstanding debt. This amounted to £0.4m. Post year-end £0.5m was redeployed in an existing investment where the particular circumstances were entirely binary, that on balance, the Board believed the risk reward was in GLI's shareholders interest.

 

The valuation methodology employed by the Group is unchanged and remains compliant with IFRS 13, based on a fair value approach and taking into account the International Private Equity and Venture Capital Valuation Guidelines ("IPEV"), which provides guidance on fair value valuation practices.

 

Trade and Other receivables

 

The balance of £8.2m (31 December 2019: £5.9m) represents fees and interest receivable on loans as well as a small amount of prepayments. This balance has increased by £2.3m in the year with £1.5m of this from interest receivable within SLL. We have also seen an increase in loan interest receivables as the majority of loans are on a rolled-up basis and over the course of the year we have seen requests for loan extensions. As part of the expected credit loss review, management have taken a view on the recovery of these fees and interest, and applied a £2.2m provision against these.

 

Cash and cash equivalents

 

The cash and cash equivalents balance of £15.8m (2019: £7.2m) includes the cash balance held within SLL which is excluded from operational cash. Excluding the SLL cash balance, the Group cash was £11.3m at 31 December 2020 (2019: £3.2m). The cash position of the Group has greatly improved following the successful equity raise and debt restructuring in December 2020.

 

As announced on 26 February 2021, it is the Group's intention to conduct a tender offer for approximately 25% of the Company's ZDPs in April 2021 which would equate to a circa £3.2m cash requirement. This will still leave the Group with sufficient liquidity to operate the Group and allow it to focus on its growth plans without cash constraints.

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

Notes

2020

£'000

2019

£'000

 

 

 

 

Revenue

5

10,861

13,140

 

 

 

 

Cost of sales

6

(6,118)

(5,126)

 

 

 

 

Gross profit

 

4,743

8,014

 

 

 

 

Operating expenses

7

(5,582)

(6,953)

 

 

 

 

Operating (loss)/profit before credit losses

 

(839)

1,061

 

 

 

 

Changes in expected credit losses

23

(4,665)

(1,524)

Incurred losses on financial assets

 

-

(116)

 

 

 

 

Operating Loss

 

(5,504)

(579)

 

 

 

 

FinTech Ventures fair value movement

23

(5,996)

(7,493)

Other net losses

8

(3,032)

(1,616)

 

 

 

 

Loss for the year before tax

 

(14,532)

(9,688)

 

 

 

 

Income tax credit/(expense)

18

15

(232)

 

 

 

 

Loss for the year after tax

 

(14,517)

(9,920)

 

 

 

 

 

Items that may be reclassified subsequently to profit and loss

Foreign exchange (loss)/gain arising on consolidation

 

(23)

21

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

 

(23)

21

 

 

 

 

Total comprehensive loss for the year

 

(14,540)

(9,899)

 

 

 

 

 

 

 

 

Loss for the year after tax attributable to equity holders of the company

(14,517)

(9,920)

 

 

 

 

Total comprehensive loss attributable to equity holders of the company

(14,540)

(9,899)

 

 

 

 

Basic Loss per Ordinary Share

10

(4.60)p

(3.26)p

Diluted Loss per Ordinary Share

10

(4.19)p

(3.26)p

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

ASSETS

Notes

31 December 2020

£'000

31 December 2019

£'000

Non-current assets

 

 

 

Fixed assets

11

774

1,018

Goodwill

12

22,894

22,894

Other intangible assets

13

168

334

Sancus BMS loans and loan equivalents

23

3,863

8,950

FinTech Ventures investments

23

-

6,299

Investments in joint ventures and associates

9

866

2,703

Total non-current assets

 

28,565

42,198

 

 

 

 

Current assets

 

 

 

Other assets

14

1,015

3,336

Sancus BMS loans and loan equivalents

23

49,369

55,313

Trade and other receivables

15

8,204

5,909

Cash and cash equivalents

 

15,786

7,244

Total current assets

 

74,374

71,802

 

 

 

 

Total assets

 

102,939

114,000

 

 

 

 

EQUITY

 

 

 

Share premium

16

116,218

112,557

Treasury shares

16

(1,099)

(1,099)

Other reserves

 

(85,625)

(71,085)

Capital and reserves attributable to equity holders of the Group

 

29,494

40,373

 

 

 

 

Total equity

 

29,494

40,373

 

 

 

 

LIABILITIES

 

 

 

Non-current liabilities

 

 

 

Borrowings

 

69,450

54,191

Provisions

 

469

679

Total non-current liabilities

17

69,919

54,870

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

1,638

1,495

Tax liabilities

 

118

221

Borrowings

 

-

16,825

Provisions

 

1,542

-

Other liabilities

 

228

216

Total current liabilities

17

3,526

18,757

 

 

 

 

Total liabilities

 

73,445

73,627

 

 

 

 

Total equity and liabilities

 

102,939

114,000

 

 

The financial statements were approved by the Board of Directors on 30 March 2021 and were signed on its behalf by:

 

Director: Patrick Firth

Director: John Whittle

 

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

 

 

 

Note

Share Premium

Treasury Shares

Warrants Outstanding

Foreign

 Exchange

Reserve

Retained Earnings/

(Losses)

Capital and reserves attributable to

equity holders of

the Company

 

 

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

Balance at 1 January 2020

 

112,557

(1,099)

-

22

(71,107)

40,373

Warrants issued during the year

16

-

-

847

-

(847)

-

Equity raised (net of costs)

16

3,661

-

-

-

-

3,661

Transactions with owners

 

3,661

-

847

-

(847)

3,661

Total comprehensive loss for the year

 

-

-

-

(23)

(14,517) 

(14,540)

Balance at 31 December 2020

 

116,218

(1,099)

847

(1)

(86,471)

29,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2018

 

112,557

(1,162)

-

1

(61,169)

50,227

Adjustments in respect of IFRS 16

 

-

-

-

-

(18)

(18)

Restated at 1 January 2019

 

112,557

(1,162)

-

1

(61,187)

50,209

Transferred to/from management

16

-

63

-

-

-

63

Transactions with owners

 

-

63

-

-

-

63

Total comprehensive loss for the year

 

-

-

-

21

(9,920) 

(9,899)

Balance at 31 December 2019

 

112,557

(1,099)

-

22

(71,107)

40,373

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

Notes

31 December

2020

£'000

31 December

2019

£'000

 

 

 

 

Cash flow from operations, excluding loan movements

19

(3,837)

5351

 

 

 

 

Decrease in Sancus BMS loans

 

5,060

946

Decrease in loans through platforms

 

18

846

Decrease/(Increase) in Sancus Loans Limited loans

 

472

(20,380)

Decrease in loans to UK SARL

 

3,581

1,795

Divestment of Sancus Loan Notes

 

-

3,311

Net Cash flows used in operating activities

 

5,294

(12,947)

 

 

 

 

Investing activities

 

 

 

Net investments in FinTech Ventures

 

277

89

Divestment in Sancus (IOM) preference shares

 

-

950

Divestment in Irish SARL

 

-

83

Investment in joint venture

 

(100)

-

Cash outflow on disposal of BMS Finance AB Limited

 

(215)

-

Expenditure on SPL Properties

 

(229)

(720)

Sale of SPL Properties

 

1,597

929

Property, equipment and other intangibles acquired

 

(29)

(181)

Net cash inflow from investing activities

 

1,301

1,150

 

 

 

 

Financing activities

 

 

 

Drawdown of HIT facility

19

4,187

23,395

Repayment of HIT facility

19

(3,500)

(2,000)

Purchase of own shares

16

-

(336)

Capital element of lease payments

19

(216)

(190)

Proceeds from equity issued

 

3,681

-

Repayment of bonds

19

(6,125)

-

Issue of bonds

19

8,700

-

Debt issue costs

 

(314)

(80)

Repayment of ZDPs

19

(4,443)

(7,632)

Net cash generated by financing activities

 

1,970

13,157

 

 

 

 

Effects of exchange

 

(23)

21

 

 

 

 

Net increase in cash and cash equivalents

 

8,542

1,381

 

 

 

 

Cash and cash equivalents at beginning of year

 

7,244

5,863

 

 

 

 

Cash and cash equivalents at end of year

 

15,786

7,244

 

 

 

1 Cash flow from operations excludes the effects of exchange which are now presented as a separate line on the cash flow statement.

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

1.  GENERAL INFORMATION

 

GLI Finance Limited (the "Company"), and together with its subsidiaries, ("the Group") was incorporated, and domiciled in Guernsey, Channel Islands, as a company limited by shares and with limited liability, on 9 June 2005 in accordance with The Companies (Guernsey) Law, 1994 (since superseded by The Companies (Guernsey) Law, 2008). Until 25 March 2015, the Company was an Authorised Closed-ended Investment Scheme and was subject to the Authorised Closed-ended Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission ("GFSC"). On 25 March 2015, the Company was registered with the GFSC as a Non-Regulated Financial Services Business, at which point the Company's authorised fund status was revoked. The Company's Ordinary Shares were admitted to trading on the AIM market of the London Stock Exchange on 5 August 2005 and its issued ZDPs were listed and traded on the Standard listing Segment of the main market of the London Stock Exchange with effect from 5 October 2015.

 

The Company does not have a fixed life and the 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.

 

As at 31 December 2020, the Group comprises the Company and its subsidiaries (please refer to Note 20 for full details of the Company's subsidiaries).

 

The Company has taken advantage of the exemption conferred by the Companies (Guernsey) Law, 2008, Section 244, not to prepare company only financial statements.

 

2.   ACCOUNTING POLICIES

 

(a)  Basis of preparation

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union ("EU"), and all applicable requirements of Guernsey Company Law.  The financial statements have been prepared under the historical cost convention, as modified for the measurement of investment at fair value through profit or loss. With the exception of any new and amended accounting standards which require policy changes, detailed in note 2 (v), the principal accounting policies of the Group have remained unchanged from the previous year and are set out below. Comparative information in the primary statements is given for the year ended 31 December 2019.

 

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.

 

Going Concern

 

The Board has assessed the Group's financial position as at 31 December 2020 and the factors that may impact its performance for at least the 12 months following approval of the financial statements. This included cashflow stress testing for a prolonged period of reduced trading/revenue and delays to loan repayments as a result of Covid-19. The Board has also considered the unfunded commitments as described in Note 26 where the expectation is the majority of these commitments will be filled by Co-Funders, consistent with historical levels of participation. After considering the maturity profile of the debt structure of the Group and projected cash flows which has improved significantly following the successful equity raise and debt restructuring at the end of 2020, with the operational cash balance at 31 December 2020 of £11.3m, the Directors are of the opinion that it is appropriate to prepare these financial statements on a going concern basis.

 

(b)  Basis of consolidation

 

The financial statements comprise the results of GLI Finance Limited and its subsidiaries for the year ended 31 December 2020. The subsidiaries are all entities where the Company has the power to control the investee, is exposed, or has rights to variable returns and has the ability to use its power to affect these returns. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year is recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated in full on consolidation.

 

(c)  Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, deposits held on call with banks and other short term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

 

(d)  Dividends

 

Dividend distributions are made at the discretion of the Company. A dividend distribution to shareholders is accounted for as a reduction in retained earnings. A proposed dividend is recognised as a liability in the period in which it has been approved and declared by the Directors.

 

(e)   Expenditure

 

All expenses are accounted for on an accrual basis. Management fees, administration fees, finance costs and all other expenses (excluding share issue expenses which are offset against share premium) are charged through the Consolidated Statement of Comprehensive Income. 

 

 

(f)  Financial assets and liabilities

 

Classification, recognition and initial measurement

 

Classification and measurement of debt assets is driven by the business model for managing the financial assets and the contractual cash flow characteristics of those financial assets. There are three principal classification categories for financial assets that are debt instruments: (i) amortised cost, (ii) fair value through other comprehensive income and (iii) fair value through profit and loss. Equity investments in the scope of IFRS 9 are measured at fair value with gains and losses recognised in profit and loss unless an irrevocable election is made to recognise gains or losses in other comprehensive income.

 

Given we are a lending business, which participates in financing to borrowers, Sancus BMS loans, HIT loans, BMS fund investments, loan equivalents and loans through platforms are held solely for the collection of contractual cash flows, being interest, fees and payment of principal. These assets are held at amortised cost using the effective interest rate method, adjusted for any credit loss allowance.

 

FinTech Ventures investments relate to equity, preference shares and some working capital loans. Whilst some of these investments attract interest, the assets are held primarily to assist the development of the entities involved. These investments are held at fair value with charges recognised in profit and loss.

 

Trade payables, financial liabilities and trade receivables are held solely for the collection and payment of contractual cash flows, being payments of principal and interest where applicable. Trade receivables are held at amortised cost using the effective interest rate method, adjusted for any credit loss allowance. Trade payables and financial liabilities are held at amortised cost with any interest cost calculated in accordance with the effective interest rate.

 

Financial assets and financial liabilities are initially recognised on the trade date, which is the date on which the Group becomes party to the contractual provisions of the instrument.

 

Financial assets and financial liabilities at fair value through profit or loss are initially recognised at fair value, with transaction costs recognised in the Consolidated Statement of Comprehensive Income. Financial assets and financial liabilities not at fair value through profit or loss are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue.

 

Subsequent to initial recognition, financial assets are either measured at fair value or amortised cost as noted above. Realised gains and losses arising on the derecognition of financial assets and liabilities are recognised in the period in which they arise. The effect of discounting on trade and other receivables is not considered to be material.

 

Fair value measurement

 

"Fair value" is the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.

 

When available, the Group measures the fair value of an instrument using quoted price in an active market for that instrument. A market is regarded as "active" if transactions of the asset or liability take place with sufficient frequency and volume to provide pricing information on an on-going basis. The Group measures financial instruments quoted in an active market at a mid price.

 

If there is no quoted price in an active market, the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. Please refer to Note 23.

 

The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred.

 

If in the case of any investment the Directors at any time consider that the above basis of valuation is inappropriate or that the value determined in accordance with the foregoing principles is unfair, they are entitled to substitute what in their opinion, is a fair value. 

 

Gains and losses arising from changes in the fair value of the financial assets and liabilities at fair value through profit or loss are included in the Consolidated Statement of Comprehensive Income in the period in which they arise. 

 

Debt and Equity Instruments

 

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

 

Equity instruments are recorded at the proceeds received less any direct costs of issue.

 

Derecognition

 

Sales of all financial assets are recognised on trade date - the date on which the Group disposes of the economic benefits of the asset. Financial assets are derecognised when the rights to receive cash flows from the asset have expired or the Group has transferred substantially all risks and rewards of ownership.

 

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the consideration received (including any new asset obtained less any new liability assumed) is recognised in the Consolidated Statement of Comprehensive Income. Any interest in such transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability.

 

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

 

Derivative financial instruments

 

The Group enters into foreign exchange forward contracts in order to manage its exposure to foreign exchange rate movements. Further details can be found in Note 23.

 

Forward contracts are initially recognised at fair value at the date the contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. Resulting gains/losses are recognised in profit or loss immediately. Forward contracts with positive fair value are recognised as financial assets whereas forward contracts with negative fair value are recognised as financial liabilities. Contracts are presented as non-current assets or liabilities if the remaining maturity of the instrument is more than 12 months and is not expected to be settled within 12 months. Other contracts are presented as current assets.

 

Expected credit losses

 

Credit risk is assessed at initial recognition of each financial asset and subsequently re-assessed at each reporting period-end. For each category of Credit risk loans have been categorized into Stage 1, Stage 2 and Stage 3 with Stage 1 being to recognise 12 month Expected Credit Losses (ECL), Stage 2 being to recognise Lifetime ECL not credit impaired and Stage 3 being to recognise Lifetime ECL credit impaired. When for example LTV exceeds 65% or amounts become 30 days past due judgement will be used to reassess whether Credit risk has increased significantly enough to move the loan from one stage to another. A loan is considered to be in default when there is a failure to meet the legal obligation of the loan agreement. This would include provisions against loans that are considered by management as unlikely to pay their obligations in full without realisation of collateral.

 

Sancus BMS loans and loan equivalents are assessed for credit risk based on information available at initial recognition, predominantly (but not solely) using Loan to Value (LTV). With respect to the loan to the UK SARL there is no direct exposure to individual loans. As a result this loan has been assessed for credit risk based upon the Net Asset Value (NAV) of the SARL, and its ability to repay the loan. For trade and other receivables, the Group has applied the simplified approach to recognise lifetime expected credit losses although loan interest receivable is included in the gross carrying value when determining ECL.

 

Provision for ECL is calculated using the credit risk, the probability of default and the probability of loss given default, all underpinned by the LTV, historical position, forward looking considerations and on occasion subsequent events, and the subjective judgement of the Board. ECL assumes the life of the loan is consistent with contractual term.

 

Financial guarantee contracts

 

Financial guarantee contracts are only recognised as a financial liability when it becomes probable that the guarantee will be called upon in the future. The liability is measured at fair value and subsequently in accordance with the expected credit loss model under IFRS 9. The fair value of financial guarantees is determined based on the present value of the difference in cash flows between contracted payments required under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

 

(g)   Foreign currency translation

 

Functional and presentation currency

 

The financial statements of the Group are presented in the currency of the primary economic environment in which the Company operates (its functional currency). The Directors have considered the primary economic currency of the Company and considered the currency in which finance is raised, distributions made, and ultimately what currency would be returned if the Company was wound up. The Directors have also considered the currency to which the underlying investments are exposed. On balance, the Directors believe Sterling best represents the functional currency of the Company. Therefore, the books and records are maintained in Sterling and for the purpose of the financial statements, the results and financial position of the Group are presented in Sterling, which is also the presentation currency of the Group.

 

Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Comprehensive Income. Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction (not retranslated). Non-monetary items measured at fair value are translated using the exchange rates at the date when fair value was determined.

 

All subsidiaries are presented in Sterling, which is the primary currency in which they operate with the exception of Sancus BMS (Ireland) Limited whose primary currency is the Euro. Translation differences on non-monetary items are reported as part of the fair value gain or loss reported in the Consolidated Statement of Comprehensive Income. 

 

Foreign exchange differences arising on consolidation of the Group's foreign operations are taken direct to reserves. The rates of exchange as at the year-end are £1: USD1.3664 (31 December 2019 USD1.3259) and £1: EUR1.1202 (31 December 2019 EUR1.1815)

 

 (h)    Goodwill

 

Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognised. Goodwill is measured as the excess of (a) the aggregate of: (i) the consideration transferred measured in accordance with IFRS 3, which generally requires acquisition-date fair value; (ii) the amount of any non-controlling interest in the acquiree measured in accordance with IFRS 3; and (iii) in a business combination achieved in stages, the acquisition-date fair value of the acquirer's previously held equity interest in the acquiree; over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with IFRS 3. Goodwill is carried at cost less accumulated impairment losses. Refer to Note 2 (k) for a description of impairment testing procedures.

 

(i)   Interest costs

 

Interest costs are recognised when economic benefits are due to debt holders. Interest costs are accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability to the liability's net carrying amount on initial recognition.

 

(j)   Other intangible assets

 

Intangible assets with finite useful lives are amortised to profit or loss on a straight-line basis over their estimated useful lives. Useful lives and amortisation methods are reviewed at the end of each annual reporting period, or more frequently when there is an indication that the intangible asset may be impaired, with the effect of any changes accounted for on a prospective basis. Amortisation commences when the intangible asset is available for use. The residual value of intangible assets is assumed to be zero.

 

Computer software

 

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Company are recognised as intangible assets when the following criteria are met:

 

· it is technically feasible to complete the software product so that it will be available of use;

· management intends to complete the software product and use or sell it;

· there is an ability to use or sell the software product;

· it can be demonstrated how the software product will generate probable future economic benefits;

· adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

· the expenditure attributable to the software product during its development can be reliably measured. 

 

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and third party contractor costs. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use over their estimated useful lives, which does not exceed four years. 

 

(k)   Impairment testing of goodwill, intangible assets and property and equipment

 

An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect management's assessment of respective risk profiles, such as market and asset-specific risk factors.

 

Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed if the asset's or cash-generating unit's recoverable amount exceeds its carrying amount.

 

All impairments or subsequent reversals of impairments are recognised in the Consolidated Statement of Comprehensive Income.

 

(l)     Investment in Joint Venture and associates

 

A joint venture is a joint arrangement over which the Group has joint control. An associate is an entity over which the Group has significant influence but is not a subsidiary.

 

An investment in a joint venture or associate is accounted for by the Group using the equity method except for certain FinTech Ventures associates as described in Note 3. These are measured at fair value through profit or loss in accordance with policy Note 2 (f).

 

Any goodwill or fair value adjustment attributable to the Group's share in the joint venture or associate is not recognised separately and is included in the amount recognised as an investment.

 

The carrying amount of the investment in a joint venture or associate is increased or decreased to recognise the Group's share of the profit or loss and other comprehensive income of the joint venture or associate and adjusted where necessary to ensure consistency with the accounting policies of the Group.

 

Unrealised gains and losses on transactions between the Group and its joint venture or associate are eliminated to the extent of the Group's interest in the entity. Where unrealised losses are eliminated, the underlying asset is also tested for impairment.

 

(m)   Non-Current Liabilities

 

Loans payable are recognised initially at fair value less directly attributable transaction costs. Subsequent to initial recognition, loans payable are stated at amortised cost using the effective interest rate method.

 

The ZDPs are contractually required to be redeemed on their maturity date and they will be settled in cash, thus, ZDP shares are classified as liabilities (refer to Note 17) in accordance with IAS 32 Financial Instruments: Presentation. After initial recognition, these liabilities are measured at amortised cost, which represents the initial proceeds of the issuance plus the accrued entitlement to the reporting date. Any ZDPs acquired by the group, as noted in Note 17, are held in Treasury and shown as a reduction in carrying value.

 

 (n)   Property and equipment

 

Tangible fixed assets include computer equipment, furniture and fittings stated at cost less accumulated depreciation.  Depreciation is provided at rates calculated to write off the cost of tangible property and computer equipment on a straight-line basis over its expected useful economic life as follows:

 

Furniture and fittings  3 to 5 years

Computer equipment  2 to 4 years

 

(o)   Revenue recognition

 

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and other sales-related taxes where applicable in the Group. Revenue is reduced for estimated rebates and other similar allowances. The Group has five principal sources of revenue and related accounting policies are outlined below:

 

Interest on loans

 

Interest income is recognised in accordance with IFRS 9. Interest income is accrued over the contractual life of the loan, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

 

Dividend income

 

Dividend income from investments is recognised when the shareholders' rights to receive payment have been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably).

 

Fee income on syndicated and non-syndicated loans

 

In accordance with the guidance in IFRS 15 Revenue, the Group distinguishes between fees that are an integral part of the effective interest rate of a financial instrument, fees that are earned as services are provided, and fees that are earned on the execution of a significant act.

 

i)  Commitment and arrangement fees

 

Commitment and arrangement fees earned for syndicated loans are recognised on origination of the loan as compensation for the service of syndication. This is a reflection of the commercial reality of the operations of the business to arrange and administer loans for other parties i.e. the execution of a significant act and satisfying the Group's performance obligation at the point of arranging the loan.

 

Consistent with the policy outlined above, commitment and arrangement fees earned on loans originated for the sole benefit of the Group are also recorded in revenue on completion of the service of analysing or originating the loan. Whilst this is not in accordance with the requirements of the effective interest rate method outlined in IFRS 9 Financial Instruments, this is not considered to have a material impact on the financial performance or financial position of the Group.

 

ii)  Exit fees

 

Where a loan is syndicated and has standard terms the exit fee is recognised as part of the arrangement fee, reflecting the costs of syndication at the start of the loan. Where a loan is syndicated and has milestones or conditions which determine if the fee becomes payable and/or the magnitude of the fee the exit fee is treated as variable consideration in line with IFRS 15 and is only recognised when the relevant milestones/conditions are met. Where loans are not syndicated the exit fee is deemed to be part of the effective interest rate and recognised over the term of the loan.

 

Fee income earned by peer-to-peer subsidiary platforms

 

Fee income earned by subsidiaries whose principal business is to operate online lending platforms that arrange financing between Co-Funders and Borrowers includes arrangement fees, trading transaction fees, repayment fees and other lender related fees. Revenue earned from the arrangement of financing is classified as a transaction fee and is recognised immediately upon acceptance of the arrangement by borrowers. Other transaction fees, including revenue from Co-Funders in relation to the sale of their loan participations in platform secondary markets is also recognised immediately.  

 

Loan repayment fees are charged on a straight-line basis over the repayments of the borrower's financing arrangement.

 

Advisory fees

 

Advisory fee income is invoiced and recognised on an accruals basis in accordance with the relevant investment advisory agreement.

 

(p)   Share based payments

 

As explained in the Remuneration Report, the Company provides a discretionary bonus, part of which is satisfied through the issuance of the Company's own shares, to certain senior management. The cost of such bonuses is taken to the Consolidated Statement of Comprehensive Income with a corresponding credit to Shareholders' Equity. The fair value of any share options granted is determined at the grant date and the expense is spread over the vesting period in accordance with IFRS 2.

 

(q)   Taxation

 

Current tax, including corporation tax in relevant jurisdictions that the Group operates in, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

 

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.  Timing differences are differences between the Group's taxable profits, and its results as stated in the financial statements, that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.

 

(r)   Treasury shares

 

Where the Company purchases its own Share Capital, the consideration paid, which includes any directly attributable costs, is recognised as a deduction from Share Premium.

 

When such shares are subsequently sold or reissued to the market, any consideration received, net of any directly attributable incremental transaction costs, is recognised as an increase in Share Premium. Where the Company cancels treasury shares, no further action is required to the Share Premium account at the time of cancellation.

 

(s)   Warrants

 

Warrants are accounted for as either equity or liabilities based upon the characteristics and provisions of each instrument and are recorded at fair value as of the date of issuance. In subsequent periods an amount representing the difference between the warrant exercise price and the prevailing market price of the company's shares is transferred from/to retained earnings to/from warrants outstanding.

 

(t)  Inventories - Development properties

 

Inventories are stated at the lower of cost and net realisable value. Cost comprises initial outlay and, where applicable, additional costs that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing and selling. Repossessed assets are accounted for under IAS 2: Inventories because the Group will either immediately seek to dispose of those assets which are readily marketable or pursue the original development plans to sell for those that are not readily marketable. Such assets are classed as "Other Assets" within current assets on the balance sheet.

 

(u)  Leases

 

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

 

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the incremental borrowing rate.

 

Lease payments included in the measurement of the lease liability comprise fixed lease payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or rate (initially measured using the index or rate at the commencement date), the amount expected to be payable by the lessee under residual value guarantees, the exercise price of purchase options (if the lessee is reasonably certain to exercise the options) and payments of penalties for terminating the lease if the lease term reflects the exercise of an option to terminate the lease.

 

The lease liability is presented within current and non-current liabilities in the consolidated statement of financial position. It is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.The Group remeasures this liability (and makes a corresponding adjustment to the related right-of-use asset) whenever the lease term has changed or there is a change in the lease payments used on inception to measure the liability as described above.

 

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

 

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

 

The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the 'Property, Plant and Equipment' policy.

 

Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in 'Operating expenses' in profit or loss.

 

(v)  Adoption of new and revised Standards

 

Amendments to IFRSs and IASs that are mandatorily effective for the current year

 

In the current year, the Group has applied a number of amendments to IFRSs and IASs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2020. These have been listed below. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements.

 

· Amendments to References to the Conceptual Framework in IFRS Standards: Amendments to IFRS 2, 3, 6, 14,  IAS 1, 8, 34, 37, 38, IFRIC 12, 19, 20, 22 and SIC-32

· Amendments to IFRS 3: Amendments to clarify the definition of a business

· Amendments to IFRS 7: Amendments regarding pre-replacement issues in the context of the IBOR reform

· Amendments to IFRS 9: Amendments regarding pre-replacement issues in the context of the IBOR reform

· Amendments to IAS 16: Amendment to provide lessees with an exemption from assessing whether Covid-19 related rent concession is a lease modification 

· Amendments to IAS 1: Amendments regarding the definition of material 

· Amendmnets to IAS 8: Amendments regarding the definition of material

· Amendments to IAS 39: Amendments regarding pre-replacement issues in the context of the IBOR reform

· Amendments to IAS 41: Amendments resulting from 'Annual Improvements to IFRS Standards 2018-2020'

 

IFRSs, IASs and amendments that are in issue but not yet effective

 

At the date of approval of these Consolidated Financial Statements, the following IFRSs, IASs and amendments, which have not been applied in these Consolidated Financial Statements and are not envisaged to have a material impact on the financial statements when they are applied, were in issue but not yet effective:

· Amendments to IFRS 1: Amendments resulting from 'Annual Imrpovements to IFRS Standards 2018-2020'

· Amendments to IFRS 3: Amendments updating a reference to the 'Conceptual Framework'

· Amendments to IFRS 4: Amendments regarding the expiry date of the deferral approach

· Amendments to IFRS 4: Amendments regarding replacement issues in the context of the IBOR reform

· Amendments to IFRS 7: Amendments regarding replacement issues in the context of the IBOR reform

· Amendments to IFRS 9: Amendments resulting from 'Annual Improvement to IFRS Standards 2018-2020'

· Amendments to IFRS 9: Amendments regarding replacement issues in the context of the IBOR reform

· Amendments to IFRS 16: Amendments regarding replacement issues in the context of the IBOR reform 

· IFRS 17: Insurance Contracts

· Amendments to IFRS 17: Amendments to address concerns and implementation challenges that were identified after IFRS 17 was published

 

· Amendments to IAS 1: Amendments regarding the classification of liabilities

· Amendments to IAS 1: Amendments to defer the effective date of the January 2020 amendments

· Amendments to IAS 1: Amendments regarding the disclosure of Accounting Policies

· Amendments to IAS 8: Amendments regarding the definition of accounting estimates

· Amendments to IAS 15: Amendments prohibiting a company from deducting from the cost of property, land and equipment amounts received from selling items produced while the company is prepapring the asset for its intended use

· Amendments to IAS 37: Amendments regarding the costs to include when assessing whether a contract is onerous

· Amendments to IAS 39: Amendments regarding replacement issues in the context of the IBOR reform

 

 

3.  CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES

 

In the application of the Group's accounting policies, which are described in Note 2, the directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.

 

The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. There is no change in applying accounting policies for critical accounting estimates and judgments from the prior year. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

Critical judgements in applying the group's accounting policies

 

The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

 

Fair value accounting for FinTech Ventures investments

 

Some of the Group's FinTech Ventures investments meet the definition of an associate. However, the Group has applied the exemption available under IAS 28.18 which states that when an investment in an associate is held by, or is held indirectly through, an entity that is a venture capital organisation, the entity may elect to measure investments in those associates at fair value through profit or loss in accordance with IAS 39 - Financial Instruments.

 

The Directors consider that the Group is of a nature similar to a venture capital organisation on the basis that FinTech Ventures investments form part of a portfolio which is monitored and managed without distinguishing between investments that qualify as associate undertakings. Furthermore, the most appropriate point in time for exit from such investments is being actively monitored as part of the Group's investment strategy.

 

The Group therefore designates those investments in associates which qualify for this exemption as fair value through profit or loss. Refer to Note 23 for fair value techniques used. If the Group had not applied this exemption the investments would be accounted for using the equity method of accounting. This would have the impact of taking a share of each investment's profit or loss for the year and would also affect the carrying value of the investments.

 

The Directors consider that equity and loan stock share the same investment characteristics and risks and they are therefore treated as a single unit of account for valuation purposes and a single class for disclosure purposes.

 

Exit fees

 

The Directors consider that the economic measurement of fee revenues that arise and become due on the completion of a loan (exit fees and warrants) should be accounted for as variable consideration and the exit fee constrained to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. Variable consideration is included based on the expected value or most likely amount, with the estimated transaction price associated with syndication services (being the performance obligation to which these fees are attributable) due on collection of the loan, updated at the end of each reporting period to represent the circumstances present and any changes in circumstances during the reporting period. This includes factors such as timing risk, liquidity risk, quantum uncertainty and conditions precedent in the syndicated finance contract. The Directors consider that this treatment best reflects the commercial operations of the Group as an administrator of loan arrangements.

 

IFRS 10 Control Judgements

 

Judgement is sometimes required to determine whether after considering all relevant factors, the Group has control, joint control or significant influence over an entity or arrangement. Other companies may make different judgements regarding the same entity or arrangement. The Directors have assessed whether or not the Group has control over Sancus Loan Notes 5 and 6 based on whether the Group has the practical ability to direct the relevant activities unilaterally. In making their judgement, the directors considered the rights associated with its investment in preference shares. After assessment, the directors concluded that the Group does not have the ability to affect returns through voting rights (the preference shares do not have voting rights) or other arrangements such as direct management of these entities (the Group does not have control over the investment manager). If the Directors had concluded that the ownership of preference shares was sufficient to give the Group control, these entities would instead have been consolidated with the results of the Group.

 

IFRS 9 Credit Risk

 

Credit risk and determining when a significant increase in credit risk has occurred are critical accounting judgements and are assessed at each reporting period end. Credit risk is used to calculate estimated credit losses (ECL). Further details on credit risk can be found in Note 23.

 

Key sources of estimation uncertainty

 

The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

 

Impairment of goodwill

 

As detailed in Note 12, the Directors carry out an impairment review annually to assess whether goodwill is impaired. In doing so, the Directors assess the value in use of each cash generating unit through an internal discounted cash flow analysis. The last impairment review was carried out for the June 2020 interim reporting, which will be the annual test date for future reporting periods.

 

Given the nature of the Group's operations, the calculation of value in use is sensitive to the estimation of future cash flows and the discount rates applied. During the annual impairment review, the value in use calculations modelled a significant downturn in revenue cash flows, driven by low levels of lending activity in the 6 months from June 2020. Following this 6 month period of low activity, it was modelled that loan origination in quarter 4 2020 would start to pick up and return to pre-pandemic levels in quarter two 2021. It is noted that with the pandemic ongoing, probably into quarter 3 2021, and second waves of infection having been experienced across the globe, loan origination has remained low as the underlying projects in the pipeline of borrowers have been delayed or paused in response.

 

The Board, at this point in time, continue to believe that once jurisdictions come fully out of lockdown and the vaccination programme is rolled out, further lending opportunities will arise and loan origination will return to pre-pandemic levels in accordance with the pattern described above, so by the end of 2021. The timing of recovery is therefore considered to be a key source of estimation uncertainty when determining the recoverable amount of the Group's cash generating units. The impairment test results and further details are included in Note 12. Accounting policies relating to the valuation and impairment of goodwill can be found at Notes 2 (h) and (k).

 

IFRS 9 ECL

 

Key areas of estimation and uncertainty are the probabilities of default (PD) and the probabilities of loss given default (PL) which are used along with the credit risk in the calculation of ECL. Further details on ECLs, PD and PL can be found in Note 22. Should the estimates of PD or PL prove to be different from what actually happens in the future, then the recoverability of loans could be higher or lower than the accounts currently suggest, although this should be mitigated by the levels of LTV which are, in the main, less than 70%. Where loans are in default and classified within stage 3, the Directors estimate of the present value of amounts recoverable through enforcement or other repayment plans could be materially different to the actual proceeds received to settle the balances due. In respect of certain loans held by the Group, the range of outcomes is significant and has a material impact on the calculation of ECL.

 

Fair Value of the FinTech Ventures investments

 

The Group invests in financial instruments which are not quoted in active markets and measures their fair values as detailed in Note 23.

 

All of the FinTech Ventures investments are categorised as Level 3 in the fair value hierarchy and in the past, the Directors have estimated the fair value of financial instruments using discounted cash flow methodology, comparable market transactions, recent capital raises and other transactional data including the performance of the respective businesses. Having considered the terms, rights and characteristics of the equity and loan stock held by the Group in the FinTech Ventures investments, as well as the challenges that have faced the platforms during the pandemic, this has eroded the Board's estimate of liquidation value of these assets to £nil at 31 December 2020. Changes in the performance of these businesses and access to future returns via its current holdings could affect theamounts ultimately realised on the disposal of these investments, which may be greater than £nil. 

 

 

4.   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 FinTech Ventures Portfolio has been written down to £nil during the year. The main focus of the Group is Sancus BMS. Bearing this in mind the Executive Team have identified 4 segments based on operations and geography within the previous Sancus BMS segment on which they report to the Board separately. Segmental reporting has been amended in this set of financial statements to reflect this.

 

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 (Jersey) Limited, Sancus (Guernsey) Limited, Sancus (Gibraltar) Limited, Sancus Properties Limited and Sancus BMS Group Limited.

 

2 United Kingdom (UK)

Contains the operations of Sancus Funding Limited and Sancus Finance Limited.

 

3 Ireland

Contains the operations of Sancus BMS (Ireland) Limited.

 

4 Sancus Loans Limited

Contains the operations of Sancus Loans Limited

 

 

 

 

 

 

 

 

Reconciliation to Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Year to 31 December 2020

 

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

4,338

638

628

876

-

6,480

 

-

3,785

-

596

 

10,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit/(loss) *

1,916

(672)

201

859

-

2,304

 

(890)

-

-

(302)

 

1,112

Credit Losses

(3,923)

-

-

(965)

-

(4,888)

 

-

-

-

223

 

(4,665)

Debt Costs

-

-

-

-

(1,952)

(1,952)

 

-

-

-

-

 

(1,952)

Other Gains/(losses)

4

-

-

-

-

4

 

-

-

(6,022)

(1,072)

 

(7,090)

Loss on JVs and associates

-

-

-

-

-

-

 

-

-

-

(1,937)

 

(1,937)

Taxation

15

-

-

-

-

15

 

-

-

-

-

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit After Tax

(1,988)

(672)

201

(106)

(1,952)

(4,517)

 

(890)

-

(6,022)

(3,088)

 

(14,517)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year to 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

6,621

490

263

723

-

8,097

 

-

3,015

-

2,028

 

13,140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit/(loss) *

3,431

(1,066)

(225)

707

-

2,847

 

(938)

-

-

832

 

2,741

Credit Losses

(552)

-

-

-

-

(552)

 

-

-

-

(1,088)

 

(1,640)

Debt Costs

-

-

-

-

(1,680)

(1,680)

 

-

-

-

-

 

(1,680)

Other Gains/(losses)

-

-

-

-

-

-

 

-

-

(7,543)

(1,669)

 

(9,212)

Profit on JVs and associates

-

-

-

-

-

-

 

-

-

-

103

 

103

Taxation

(269)

37

-

-

-

(232)

 

-

-

-

-

 

(232)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit After Tax

2,610

(1,029)

(225)

707

(1,680)

383

 

(938)

-

(7,543)

(1,822)

 

(9,920)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Sancus Loans Limited is consolidated into the Group's results as it is 100% owned by Sancus Group. However, the reality is that Sancus Loans Limited is a co-funder the same as any other Co-Funder. As a result the Board reviews the economic performance of Sancus Loans Limited in the same way as any other Co-Funder, with revenue being stated net of debt costs. Operating expenses include recharges from UK to Offshore £110,000, Offshore to Ireland £74,000, Head Office to "Other" £52,000 and Head Office to Offshore £120,000. "Other" includes Fintech (excluding fair value and forex) and Sancus BMS Holdings operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation to Financial Statements

 

 

 

 

 

 

 

 

At 31 December 2020

 

Offshore

UK

Ireland

Sancus Loans Limited (SLL)

Total Sancus

 

Head Office

Investment in IOM

Fintech Portfolio

Other

Inter Company Balances

 

Consolidated Financial Statements

 

£'000

£'000

£'000

£'000

£'000

 

£'000

£'000

£'000

£'000

£'000

 

£'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

44,486

7,203

488

54,131

106,308

 

47,137

866

-

4,177

(55,549)

 

102,939

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities

(38,720)

(8,214)

(679)

(53,255)

(100,868)

 

(27,774)

-

-

(352)

55,549

 

(73,445)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets/(liabilities)

5,766

(1,011)

(191)

876

5,440

 

19,363

866

-

3,825

-

 

  29,494

                                   

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

53,338

5,800

270

52,708

112,116

 

50,212

2,703

6,299

8,503

(65,833)

 

114,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities

(46,064)

(6,123)

(640)

(51,702)

(104,529)

 

(27,658)

-

-

(7,273)

65,833

 

(73,627)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets/(liabilities)

7,274

(323)

(370)

1,006

7,587

 

22,554

2,703

6,299

1,230

-

 

40,373

                               

 

 

 

Head Office liabilities include borrowings £24,897,000 (2019: £26,825,000).  Other Fintech assets and liabilities, and Sancus BMS Holdings assets and liabilities are included within "Other".

 

 

 

 

 

 

 

 

 

5.  REVENUE

 

 

2020

£'000

2019

£'000

 

 

 

Co-Funder fees

1,836

1,903

Earn out (exit) fees

1,863

1,337

Advisory fees

399

565

Transaction fees

1,434

2,095

Total revenue from contracts with customers

5,532

5,900

 

 

 

Interest on Loans

456

2,995

HIT Interest income

4,660

3,737

Sundry income

213

508

Total Revenue

10,861

13,140

 

The disaggregation of revenue reflects the different performance obligations in contracts with customers as described in the accounting policy Note 2(o) and the typical timing of payment for those relevant revenue streams.

 

6.  COST OF SALES

 

 

2020

2019

 

£'000

£'000

 

 

 

Interest costs

2,016

1,750

HIT interest costs

3,785

3,015

Other cost of sales

317

361

Total cost of sales

6,118

5,126

 

7.   OPERATING EXPENSES

 

 

2020

£'000

2019

 '000

 

Amortisation and depreciation

428

519

Audit fees

231

231

Company Secretarial

78

132

Corporate Insurance

72

73

Employment costs

3,573

4,406

Independent valuation fees

-

56

Investor relations expenses

67

65

Legal & Professional

222

156

Marketing expenses

38

55

NOMAD fees

75

76

Other office and administration costs

620

818

Pension costs

145

321

Registrar fees

23

35

Sundry

10

10

 

5,582

6,953

 

 

 

8.    OTHER NET LOSSES

 

The £3,032,000 Other net losses is predominantly made up of the write down of other assets £892,000 (Note 14) and loss on joint ventures and associates £1,937,000 (Note 9). (2019 £1,616,000: predominantly made up of the write down of other assets £987,000 (Note 14), net loss on joint ventures and associates £152,000 (Note 9) and the write down of equity in the UK Sarl £228,000).

 

 

9.    INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

 

 

31 December 2020

£'000

31 December 2019

£'000

 

 

 

At beginning of year

2,703

2,855

         Additions

100

-

Share of (loss)/profit of associate

(574)

103

Share of loss in joint venture

(100)

(121)

Write down joint venture/associate

(1,263)

(134)

At end of year

866

2,703

 

 

The investment in joint venture relates to a 50% share in Amberton Asset Management Limited.

 

Details of material associates

 

 

 

Principal Activity

Place of Incorporation

Proportion of ownership interest/voting rights held by the group

 

 

 

31 December 2020

31 December 2019

 

 

 

 

 

Sancus (Isle of Man) Holdings Limited

Holding Company for Sancus (IOM) Limited

Guernsey

29.32%

29.32%

 

The above associate is accounted for using the equity method in these consolidated financial statements as set out in the Group's accounting policies in Note 2.

 

Summarised financial information in respect of Sancus (Isle of Man) Holdings is set out below. The summarised financial information represents amounts in associates' financial statements prepared in accordance with IFRSs.

 

 

 

31 December 2020

31 December 2019

 

 

£'000

£'000

 

 

 

 

 

Non-current assets

2

2

 

Current assets

4,821

6,675

 

Current liabilities

(164)

(55)

 

Equity attributable to owners of the company

4,659

6,622

 

 

 

 

 

 

 

 

 

Revenue

278

347

 

Profit from continuing operations

250

233

 

 

 

 

 

 

 

 

 

 

Reconciliation of the above summarised financial information to the carrying amount of the interest in Sancus (Isle of Man) Holdings Limited recognised in the consolidated financial statements:

 

 

 

 

 

31 December 2020

31 December 2019

 

 

£'000

£'000

 

 

 

 

 

Net assets of associate

4,659

6,622

 

 

 

 

 

Proportion of the Group's ownership interest in the associate

1,366

1,940

 

Goodwill arising on acquisition

763

763

 

Write down of carrying value

(1,263)

-

 

Carrying amount of the Group's interest in the associate

866

2,703

 

 

 

 

 

 

10.    LOSS PER ORDINARY SHARE

 

Consolidated loss per Ordinary Share has been calculated by dividing the consolidated loss for the year after tax attributable to Ordinary Shareholders of £14,517,000 (31 December 2019: loss of £9,920,000) by the weighted average number of Ordinary Shares (excluding treasury shares) outstanding during the period o f 315,797,259 (31 December 2019: 304,328,347).

 

Note 16 describes the warrants in issue. Taking these warrants into account the weighted average number of Ordinary Shares used in calculating the diluted loss per share was 346,046,187. There was no dilutive effect in the prior year.

 

 

31 December 2020

31 December 2019

Number of shares

489,843,477

312,065,699

Weighted average no. of shares in issue throughout the year

315,797,259

304,328,347

Basic Loss per share

(4.60)p

(3.26)p

Diluted Loss per share

(4.19)p

(3.26)p

 

 

11.   FIXED ASSETS

 

Right-of-use assets

£'000

Property & Equipment

£'000

Total

 

£'000

Cost

 

 

 

At 31 December 2019

1,089

433

1,522

Additions in the year

-

29

29

Leases expired

(75)

-

(75)

Lease variations

253

-

253

At 31 December 2020

1,267

462

1,729

 

 

£'000

 '000

£'000

Accumulated depreciation

 

 

 

At 31 December 2019

231

273

504

Charge in the year

208

54

262

Leases expired

(75)

-

(75)

Lease variations

264

-

264

At 31 December 2020

628

327

955

 

 

 

 

Net book value 31 December 2020

639

135

774

 

 

 

 

Net book value 31 December 2019

858

160

1,018

 

 

12.   GOODWILL

 

£'000

At 31 December 2020 and 31 December 2019 goodwill comprises:

 

         Sancus Jersey

14,255

         Sancus Gibraltar

8,639

 

22,894

Impairment tests

 

The carrying amount of goodwill arising on the acquisition of Sancus Jersey and Sancus Gibraltar is assessed by the Board for impairment on an annual basis or sooner if there has been any indication of impairment. With the onset of the Covid-19 pandemic in March 2020 management decide to bring forward the impairment test date to 30 June so that in future periods the annual assessment will be performed during the preparation of the interim accounts. As a result, the Board carried out a full impairment review of the carrying amount of goodwill as reported in the interim accounts. Full details of this review are detailed below:

 

The value in use of Sancus Jersey and Sancus Gibraltar was based on an internal Discounted Cash Flow ("DCF") value in use analysis using cash flow forecasts for the years 2020/21 to 2024/25. The starting point for each of the cash flows was the revised forecast for 2020 produced by Sancus Jersey and Gibraltar management. Management's revenue forecasts applied a compound annual growth rate (CAGR) to revenue of 7.3% and 8.4% for Jersey and Gibraltar respectively. A cost of equity discount rate of 12.8% was employed in the valuation model for Sancus Jersey and 13.3% for Sancus Gibraltar. The resultant valuation indicated that no impairment of goodwill was required in either Sancus Jersey or Sancus Gibraltar, with significant headroom. Following on from this review the Board have considered whether there have been any further indicative events of impairment since June 2020. The Board are cognisant that the pandemic is ongoing as these financial statements are being written. However, they do not see this as a further event, more as a continuation of the event that arose in March 2020. The Board has concluded that there have been no further impairment indicators and that the annual test date (as required) has formally been moved to the interim reporting date of 30 June.   

 

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 20% for Jersey and circa 25% for Gibraltar or a sustained increase of circa 8% in the cost of Equity discount rate for Jersey and circa 12% for Gibraltar would remove the headroom. The model assumes that the downturn relating to Covid-19 is a temporary downturn and that once things get back to normal, activity in each of Jersey and Gibraltar will get back to more normal levels within a year.

 

Sensitivity Applied

Reduction in headroom implied by sensitivity

 

Sancus

Jersey

£'000

Sancus

Gibraltar

£'000

 

Total

£'000

 

 

 

 

10% decrease in revenue per annum

5,526

3,359

8,885

3% increase in cost of Equity discount rate

5,054

3,091

8,145

Covid-19 restricts revenue for the whole of 2021

2,800

1,800

4,600

 

Neither a 10 % decrease in revenue, a 3% increase in the cost of Equity discount rate or the suppression of revenue for a year implies a reduction of Goodwill in Jersey or Gibraltar.  

 

The value in use models do not use any backward-looking information, with only future cash flows considered in the calculations. As such were the models to be run again the Board believes that the cash flows would be similar with only modest reductions (well within the current headroom), due to the period of inactivity being extended within the models.

 

The Board has also considered the discount rates used in the models. The discount rates already had both Brexit uncertainty and the Covid-19 pandemic built into them. It is expected that with Brexit uncertainty subsiding and the roll out of the vaccine in respect of Covid-19 the discount rates should fall back to more 'normal' levels.

 

 

13.   OTHER INTANGIBLE ASSETS

 

 

 

Cost

 

£'000

 

 

 

At 31 December 2020 and 31 December 2019

 

1,584

 

 

 

Amortisation

 

£'000

At 31 December 2019

 

1,250

Charge for the year

 

166

At 31 December 2020

 

1,416

 

Net book value 31 December 2020

 

168

 

Net book value 31 December 2019

 

334

 

Other Intangible assets comprise capitalised contractors' costs and other costs related to core systems development. No impairment provision has been recorded. The amortisation charge has been recorded in Operating expenses.

 

 

14.   OTHER ASSETS

 

Development

 properties

£'000

 

 

At 31 December 2019

3,336

Additions

236

Disposals

(1,665)

Write downs

(892)

At 31 December 2020

1,015

 

 

 

Properties held for sale £'000

 Development properties £'000

Total

 

£'000

 

 

 

 

At 31 December 2018

1,377

3,027

4,404

Transfers

(509)

509

-

Additions

17

787

804

Disposals

(885)

-

(885)

Write downs

-

(987)

(987)

At 31 December 2019

-

3,336

3,336

 

 

Other assets comprise of a number of repossessed properties and developments which were previously held as security against certain loans which have defaulted. The write down in the year and the prior year is that necessary to bring the assets to the lower of cost and net realisable value. The remaining £1.0m comprises of one development property which is held at cost plus the net realisable value of a development plot.

 

 

15.   TRADE AND OTHER RECEIVABLES

 

31 December

2020

£'000

 

31 December

2019

£'000

Dividend income receivable

-

68

Loan fees, interest and similar receivable

7,438

5,140

Receivable from associated companies

49

13

Derivative contracts (note 23)

94

156

Other trade receivables and prepaid expenses

623

532

 

8,204

5,909

 

16.   SHARE CAPITAL, SHARE PREMIUM & DISTRIBUTABLE RESERVE

 

GLI Finance Limited has the power under its articles of association to issue an unlimited number of Ordinary Shares of no par value.

 

177,777,778 (2019: Nil) additional Ordinary shares were issued during the year for a consideration of £4,000,000 (2019: £Nil).

 

Share Capital - ordinary shares of nil par value

 

Shares in issue

 

At 31 December 2019

312,065,699

Issued during the year

177,777,778

At 31 December 2020

489,843,477

 

Share Premium - Ordinary shares of nil par value

 

 '000

 

At 31 December 2019

112,557

Issued during the year

4,000

Costs of issue

(339)

At 31 December 2020

116,218

 

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

 

Treasury Shares

 

 

31 December 2020 Number of shares

31 December 2019 Number of shares

 

 

 

 

Balance at start of the year

 

7,925,999

6,154,102

GLI shares transferred to key members of management1

 

-

(2,788,577)

GLI shares purchased from BMS management2

 

-

4,560,474

Balance at end of year

 

7,925,999

7,925,999

 

 

 

31 December 2020

£'000

 

31 December 2019

£'000

 

Balance at start of the year

 

1,099

1,162

GLI shares transferred to key members of management1

 

-

(399)

GLI shares purchased from BMS management2

 

-

336

Balance at end of year

 

1,099

1,099

 

1   represents bonus amounts paid in shares

2 represents shares purchased from former members of BMS Finance AB's management team

 

 

Warrants in Issue

 

On 22 December 2020, in connection with the issue of the New Bonds, the Company issued 153,994,543 Warrants to subscribe in cash for new Ordinary Shares at a subscription price of 2.25 pence per Ordinary Share. The Warrants will be exercisable on at least 30 days notice in the period to 31 December 2025. As at 31 December 2020 and up to the date of signing these accounts none of these warrants have been exercised. All warrants existing at 31 December 2019 have now expired. 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 31 December 2020 is £847,000 (2019: £Nil).

 

 

17.   LIABILITIES

 

31 December 2020

31 December 2019

Non-current liabilities

£'000

£'000

 

 

 

ZDP shares (1)

12,424

-

Corporate Bond (2)

12,473

10,000

HIT Facility (3)

44,553

44,191

Lease creditors (notes 2(u), 2(v) & 25)

469

679

 

69,919

54,870

 

 

 

31 December 2020

31 December 2019

Current liabilities

£'000

£'000

 

 

 

ZDP shares (1)

-

16,825

Accounts payable

436

91

Accruals and other payables

1,202

1,404

Taxation

118

221

Deferred income

40

5

Provisions for financial guarantees

1,542

-

Lease creditors (notes 2(u), 2(v) & 25)

188

211

 

3,526

18,757

 

 

Provisions for financial guarantees have been recognised in relation to ECLs on off-balance sheet loans and debtors where the company has provided a subordinated position or other guarantee (note 26). The fair value is determined using the exact same methodology as that used in determining ECLs (note 2(f) and note 23). The amount charged to operating profit in the year was £1,542,000 (2019: £Nil), there being no other movements (2019: £Nil provision and no movements).

 

 

Interest costs on debt facilities

31 December 2020

31 December 2019

 

£'000

£'000

 

 

 

ZDP shares (1)

1,246

980

Corporate Bond (2)

706

700

HIT Facility (3)

3,785

3,015

Lease Interest

64

70

 

5,801

4,765

 

(1)  ZDP shares

 

The ZDP Shares have a maturity date of 5 December 2022 with a final capital entitlement of £1.6464 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.glifinance.com .

 

The ZDP shares bear interest at an average rate of 8% (2019: 5.5% until 5 December 2019, 8% thereafter). 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 the prior approval from the ZDP shareholders. The Memorandum and Articles also specify that two debt cover tests must be met in relation to the ZDPs. At 31 December 2020 the Company was in compliance with these covenants as Cover Test A was 2.83 (minimum of 1.7) and Cover Test B was 4.42 (minimum of 3.25). At 31 December 2020 senior debt borrowing capacity amounted to £17.4m. The HIT facility does not impact on this capacity as it is non-recourse to GLI.  

 

In addition to a tender offer in March 2020, whereby the company acquired 3,437,000 ZDP shares, the company purchased a further 637,570 ZDP shares throughout the year. At 31 December 2020 the Company held 12,009,030 shares (31 December 2019: 7,934,460) with an aggregate value of £17,051,409 (31 December 2019: £10,428,955). Additional ZDPs were acquired post year end as described in Note 27.

 

(2)  Corporate Bond

 

£6,125,000 of the existing £10m bonds were repaid early on 21 December 2020 (maturity was 30 June 2021). The remaining £3,875,000 were rolled into new bonds which were issued on 22nd December 2020. In addition to these a further £8,700,000 new bonds were issued for cash on 22nd December 2020 giving a total amount of new bonds issued £12,575,000 (£15m may be issued over the life of the bonds). The bonds bear interest at 7% (2019: 7%). The new bonds have a maturity date of 31 December 2025.

 

(3)  HIT Facility

 

On 29 January 2018, GLI Finance signed a new funding facility with Honeycomb Investment Trust plc (HIT). The funding line had a term of 3 years and comprises a £45m accordion and revolving credit facility. On 3 December 2020 this facility was extended to 28th January 2024. In addition to the extension the facility was increased to £75m. The facility bears interest at 7.25%.

 

The HIT facility has portfolio performance covenants including that actual loss rates are not to exceed 4% in any twelve month period and underperforming loans are not to exceed 10% of the portfolio. Sancus BMS Group has a £5m first loss position on the HIT facility. GLI has also provided HIT with a guarantee, capped at £2m that will continue to ensure the orderly wind down of the loan book, in the event of the insolvency of Sancus BMS Group, given its position as facility and security agent.

 

18.   TAXATION

 

The Company is exempt from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed annual fee of £1,200 (31 December 2019: £1,200) is payable to the States of Guernsey in respect of this exemption.

 

Reconciliation of tax charge

 

2020

2019

 

£'000

£'000

 

 

 

Accounting loss before tax

(14,532)

(9,688)

 

 

 

Gibraltar Corporation Tax at 10% (2019: 10%)

-

186

Jersey Corporation Tax at 10% (2019: 10%)

-

57

UK R&D Tax credit

-

(37)

Adjustment in respect of prior years

(15)

26

Tax (credit)/expense

(15)

232

 

 

Certain of the Group's subsidiaries have an estimated £13.0m of losses between them available to carry forward to offset against qualifying future trading profits. The Group does not recognise deferred tax assets in respect of losses arising because in the opinion of the directors the quantum and timing of any suitable profits which can utilise these losses is unknown.

 

19.   NOTES TO THE CASH FLOW STATEMENT

 

Cash generated from operations (excluding loan movements)

 

2020

2019

 

£'000

£'000

 

 

 

Loss for the year

(14,517)

(9,920)

Adjustments for:

 

 

Net losses on FinTech Ventures

5,936

7,566

Other net losses

(221)

(86)

ZDP finance costs

1,039

980

Fair Value joint ventures and associates

1,937

152

Changes in expected credit losses

4,665

1,524

Impairment of financial assets

-

116

Amortisation/depreciation of fixed assets

428

519

Amortisation of debt issue costs

201

118

SPL Properties

960

987

 

 

 

Changes in working capital:

 

 

Trade and other receivables

(4,303)

(537)

Trade and other payables

38

(884)

Cash (outflow)/inflow from operations (excluding loan movements)

(3,837)

535

 

Changes in liabilities arising from financing activities

 

The tables below detail 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

2020

£'000

 

 

Payments 1

 '000

 

 

Receipts 1

 '000

Debt issue costs 1

 '000

 

 

Additions Non-cash £'000

Amortisation of debt issue costs

Non-cash

 '000

 

 

Other

 Non-cash

£'000

 

 

31 December

2020

£'000

 

 

 

 

 

 

 

 

 

ZDP Shares

16,825

(4,443)

-

(44)

(829)2

76

8393

12,424

Corporate Bond

10,000

(6,125)

8,700

(111)

-

1

83

12,473

HIT Facility

44,191

(3,500)

4,187

(159)

-

124

(290)3

44,553

Lease Liability

890

(216)

-

-

-

-

(17)4

657

Total liabilities

71,906

(14,284)

12,887

(314)

(829)

201

540

70,107

 

 

 

 

1 January

2019

£'000

 

Payments 1

£'000

 

 

Receipts 1

 '000

Debt issue costs 1

 '000

 

 

Additions Non-Cash £'000

Amortisation of debt issue costs

Non-cash

£'000

 

Interest

Accruals

 Non-cash

£'000

 

 

31 December 2019

£'000

 

 

 

 

 

 

 

 

 

ZDP Shares

24,059

(7,632)

-

(80)

-

6

472

16,825

Corporate Bond

10,000

-

-

-

-

-

-

10,000

HIT Facility

22,684

(2,000)

23,395

-

-

112

-

44,191

Lease Liability

847

(190)

-

-

233

-

-

890

Total liabilities

57,590

(9,822)

23,395

(80)

233

118

472

71,906

 

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

2 A loan to the value of £829,000 which sat within Sancus BMS loans and loan equivalents was swapped for 621,586 ZDP shares.

3 Comprises interest accruals and unpaid debt issue costs.

4 Lease variations.

 

20.  CONSOLIDATED SUBSIDIARIES

 

The Directors consider the following entities as wholly owned subsidiaries of the Group as at 31 December 2020. Their results and financial positions are included within its consolidated results.

 

 

 

 

 

Subsidiary entity

Date of

incorporation

Country of

incorporation

Nature of

holding

% held

Sancus BMS Group Limited

27 December 2013

Guernsey

Directly held -Equity Shares

100%

Sancus BMS Holdings Limited

5 November 2012

Guernsey

Indirectly held - Equity Shares

100%

Sancus (Jersey) Limited

1 July 2013

Jersey

Indirectly held - Equity Shares

100%

Sancus (Guernsey) Limited

18 June 2014

Guernsey

Indirectly held - Equity Shares

100%

Sancus (Gibraltar) Limited 

10 March 2015

Gibraltar

Indirectly held - Equity Shares

100%

Sancus BMS (Ireland) Limited

10 April 2017

Ireland

Indirectly held - Equity Shares

100%

Sancus Funding Limited

17 February 2011

UK

Indirectly held - Equity Shares

100%

Sancus Finance Limited

7 January 2011

UK

Indirectly held - Equity Shares

100%

FinTech Ventures Limited

9 December 2015

Guernsey

Directly held - Equity Shares

100%

Sancus Properties Limited

21 August 2018

Guernsey

Indirectly held - Equity Shares

100%

Sancus Loans Limited

3 July 2017

UK

Indirectly held - Equity Shares

100%

 

 

 

 

 

 

Sancus BMS Group Limited and Sancus Finance Limited act as holding companies. Sancus Properties Limited engages in property development. Fintech Ventures Limited is an investment company, investing in Fintech companies. The activities of the remaining companies named above relate to the core business of lending.

 

 

21.  DISPOSALS

 

On 18 December 2020 the Group sold the entire share capital of BMS Finance AB Limited for consideration of £1. In the period 1 January 2020 to 17 December 2020 BMS Finance AB generated revenue of £399,000 and had operating costs of £526,000 making a loss of £128,000 for the period. This loss has been consolidated into these Financial Statements. As at the date of disposal BMS Finance AB Limited held cash of £215,000, current assets of £15,000 and current liabilities of £129,000. Loss on disposal was £101,000 which has been charged to Other net losses in the statement of comprehensive income.

 

22.  FINTECH VENTURES AND OTHER INVESTMENTS

 

The Directors consider the following entities as associated undertakings of the Group as at 31 December 2020.

 

Name of Investment:

Nature of holding

Country of incorporation

Percentage holding

Measurement

FinTech Ventures:

 

 

 

 

LiftForward Inc

Indirectly held - Equity

United States of America

18.41%

Finexkap

Indirectly held - Equity

France

10.89%

Ovamba Solutions Inc

Indirectly held - Equity

United States of America

20.18%

Funding Options Limited

Indirectly held - Equity and Preference Shares

United Kingdom

21.4% 

TradeRiver Finance Limited

Indirectly held - Equity and Preference Shares

United Kingdom

46.70%

Open Energy Group Inc

Indirectly held - Equity

United States of America

22.71%

Finpoint Limited

Indirectly held - Equity

United Kingdom

12.95%

Other Investments:

 

 

 

 

BMS Finance (UK) Sarl

Indirectly held - Equity

Luxembourg

25.25%

 

The percentage holdings in the above table are on a fully diluted basis, assuming any warrants and management options all vest. During 2020, the equity stakes in MyTripleA and TradeRiver USA Inc were sold in total for £0.4m.

 

 

23.   FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT

 

Sancus BMS loans and loan equivalents

31 December 2020

£'000

31 December 2019

£'000

Non-current

 

 

Sancus BMS loans

442

3,099

Sancus Loans Limited loans

3,421

5,851

Total non-current Sancus BMS loans and loan equivalents

3,863

8,950

 

 

 

Current

 

 

Sancus BMS loans

7,873

15,145

Loan equivalents

117

134

Sancus Loans Limited loans

41,379

40,034

Total current Sancus BMS loans and loan equivalents

49,369

55,313

 

 

 

Total Sancus BMS loans and loan equivalents

53,232

64,263

 

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:

 

 

31 December 2020

31 December 2019

 

Level 2

Level 3

Level 2

Level 3

Assets

£'000

£'000

£'000

£'000

 

 

 

 

 

 

FinTech Ventures investments

-

-

-

6,299

Derivative contracts

94

-

156

-

Total assets at Fair Value

94

-

156

6,299

           

 

 

All of the FinTech Ventures investments are categorised as Level 3 in the fair value hierarchy. In the past, the Directors have estimated the fair value of financial instruments using discounted cash flow methodology, comparable market transactions, recent capital raises and other transactional data including the performance of the respective businesses. Having considered the terms, rights and characteristics of the equity and loan stock held by the Group in the FinTech Ventures investments, as well as the challenges that have faced the platforms during the pandemic, this has eroded the Board's estimate of liquidation value of these assets to £nil at 31 December 2020. 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 than £nil. There have been no transfers between levels in the year (2019: None).

 

FinTech Ventures investments

 

 

 

 

 

 

 

31 December 2020

Equity

Loans

Total

 

£'000

£'000

£'000

Opening fair value

4,500

1,799

6,299

Net new investments/ divestments

-

(277)

(277)

Unrealised losses recognised in profit and loss

(4,500)

(1,496)

(5,996)

Foreign exchange loss

-

(26)

(26)

Closing fair value

-

-

-

 

 

 

 

 

 

 

 

 

 

31 December 2019

Equity

Loans

Total

 

£'000

£'000

£'000

Opening fair value

11,608

2,196

13,804

New investments/loans advanced

12

26

38

Unrealised losses recognised in profit and loss

(7,115)

(378)

(7,493)

Foreign exchange loss

(5)

(45)

(50)

Closing fair value

4,500

1,799

6,299

 

 

Assets at Amortised Cost

 

31 December 2020

31 December 2019

 

£'000

£'000

Sancus BMS loans and loan equivalents

53,232

64,263

Trade and other receivables

7,487

5,221

Cash and cash equivalents

15,786

7,244

Total assets at amortised cost

76,505

76,728

 

Due to the relatively short-term nature of the above assets, their carrying amount is considered to be the same as their fair value.

 

Liabilities at Amortised Cost

 

 

31 December 2020

31 December 2019

 

£'000

£'000

ZDP Shares

12,424

16,825

Corporate Bond

12,473

10,000

HIT Facility

44,553

44,191

Trade and other payables

2,453

2,611

Provisions in respect of guarantees

1,542

-

Total liabilities at amortised cost

73,445

73,627

 

Refer to Note 17 for further information on liabilities.

 

 

Risk Management

 

The Group is exposed to financial risk through its investment in a range of financial instruments, i.e.. in the equity and debt of investee companies and through the use of debt instruments to fund its investment in loans. Such risks are categorised as capital risk, liquidity risk, investment risk, credit risk, and market risk (market price risk, interest rate risk and foreign currency risk).

 

Comments supplementary to those on risk management in the Corporate Governance section of this report are included below.

 

(1)  Capital Risk Management

 

The Group's capital comprises ordinary shares as well as a number of debt instruments. Its objective when managing this capital is to enable the Group to continue as a going concern in order to provide a consistent appropriate risk-adjusted return to shareholders, and to support the continued development of its investment activities. Details of the Group's equity is disclosed in Note 16 and of its debt in Note 17.

 

The Group and its subsidiaries (with the exception of Sancus Funding Limited, which is regulated by the FCA) are not subject to regulatory or industry specific requirements to hold a minimum level of capital, other than the legal requirements for Guernsey incorporated entities. The Group considers the amount and composition of its capital is currently in proportion to its risk profile.

 

The Group monitors the ratio of debt (loans payable, bonds and ZDP Shares) to other capital which, based upon shareholder approval, is limited to 5 to 1 (or 500%). At year-end this ratio increased to 235% (31 December 2019: 176%) due to the HIT facility. The HIT facility is non-recourse to GLI. Excluding HIT, the ratio at year-end was 84% (31 December 2019: 66%).

 

(2)  Liquidity risk

 

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. At the end of the reporting period the group held cash of £15,786,000. The Group Treasury Committee monitors rolling forecasts of the group's cash position in relation to its obligations as they become due on a fortnightly basis. In addition, the group's liquidity management involves projecting cash flows and considering the level of liquid assets necessary to meet obligations. Where necessary contingency plans are made to realise assets which are reasonably liquid in the short term.

 

The following table analyses the Group's financial liabilities into relevant maturity groupings based on the period to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows.

 

 

Contractual maturities of financial liabilities

Within 12 months

Between 1 and 2 years

Between 2 and 5 years

Total

 

£'000

£'000

£'000

£'000

31 December 2020

 

 

 

 

ZDP shares

-

12,424

-

12,424

Corporate bond

-

-

12,473

12,473

Sancus Loans Limited

-

-

44,553

44,553

Trade and other payables

3,526

200

269

3,995

Total liabilities

3,526

12,624

57,295

73,445

 

 

 

Within 12 months

Between 1 and 2 years

Between 2 and 5 years

Total

 

£'000

£'000

£'000

£'000

31 December 2019

 

 

 

 

ZDP shares

16,825

-

-

16,825

Corporate bond

-

10,000

-

10,000

Sancus Loans Limited

-

44,191

-

44,191

Trade and other payables

1,932

188

491

2,611

Total liabilities

18,757

54,379

491

73,627

 

 

 

(3) Interest rate risk

 

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates and that mismatches in the interest rates applying to assets and liabilities will impact on the Group's earnings.

 

The Group's cash balances, debt instruments and loan notes are exposed to interest rate risk.

 

The Group did not enter into any interest rate risk hedging transactions during the current or prior years. The table below summarises the Group's exposure to interest rate risk:

 

 

 

Floating rate Financial Instruments

Fixed Rate Financial Instruments

Total

31 December 2020

£'000

£'000

£'000

Assets

 

 

 

Sancus BMS Loans and loan equivalents

3,693

49,539

53,232

Cash and cash equivalents 

15,786

-

15,786

Total assets

19,479

49,539

69,018

         

 

Liabilities

 

 

 

ZDP shares

-

12,424

12,424

Corporate Bond 

-

12,473

12,473

Sancus Loans Limited

-

44,553

44,553

Total liabilities

-

69,450

69,450

Total interest sensitivity gap

19,479

(19,911)

(432)

 

 

31 December 2019

£'000

£'000

£'000

Assets

 

 

 

Sancus BMS Loans and loan equivalents

7,135

57,128

64,263

Financial assets at fair value through profit and loss

-

1,799

1,799

Cash and cash equivalents 

7,244

-

7,244

Total assets

14,379

58,927

73,306

           

 

Liabilities

 

 

 

ZDP shares

-

16,825

16,825

Corporate Bond 

-

10,000

10,000

Sancus Loans Limited

-

44,191

44,191

Total liabilities

-

71,016

71,016

Total interest sensitivity gap

14,379

(12,089)

2,290

 

 

Interest rate sensitivities

 

The floating rate financial instruments (excluding cash) comprises of an investment in the UK Sarl. This investment attracts a fixed coupon and a variable coupon. The variable coupon is dependent on the performance of the Sarl as opposed to general interest rates. As a result, there is no exposure to interest rate movements (2019: Nil exposure).

 

The Group currently holds £15,786,000 in cash deposits, predominantly in pound sterling. Whilst interest rates are currently negligible there is a risk that these could go negative. At the current level of cash deposits this could cost the group £158,000 per annum for every 1% decrease in interest rates. The Group does not hold significant amounts in foreign currencies for any period of time.

 

The GLI Treasury Committee reviews interest rate risk on an ongoing basis, and the exposure is reported quarterly to the Board and/or Audit and Risk Committee.

 

(4) Investment risk

 

Investment risk is defined as the risk that an investment's actual return will be different to that expected. Investment risk primarily arises from the Group's exposure to its FinTech Ventures portfolio (see Note 3). This risk in turn is driven by the underlying risks taken by the platforms themselves - their own strategic, liquidity, credit and operational risks.

 

The Group's framework for the management of this risk includes the following:

 

· Seats on the Boards of most of the platforms, which allow input into strategy and monitoring of progress;

· pre-emptive rights on participation in capital raises, or the support for capital raises, to protect against dilution;

· regular monitoring of the financial results of platforms;

· bi-annual reviews of the valuations of platforms, which provide an opportunity to test the success of platforms' strategies; and

· quarterly reporting to the Board on these matters.

 

The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.

 

· Level 1 - Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. A market is regarded as "active" if transactions of the asset or liability take place with sufficient frequency and volume to provide pricing information on an on-going basis. The Group measures financial instruments quoted in an active market at a bid price.

 

· Level 2 - Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

 

· Level 3 - Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments but for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments. If in the case of any investment the Directors at any time consider that the above basis of valuation is inappropriate or that the value determined in accordance with the foregoing principles is unfair, they are entitled to substitute what in their opinion, is a fair value.  In this case, the fair value is estimated with care and in good faith by the Directors in consultation with the Executive Team with a view to establishing the probable realisation value for such shares as at close of business on the relevant valuation day.

 

All FinTech Ventures investments are fair valued at Level 3. No use of the discounted cash flow methodology has been utilized as at 31 December 2020 or 31 December 2019. All investments have been valued at zero (2019: £6,299,000) using the Directors opinion as noted above, after taking into account all factors noted above. Following this valuation it is possible that in future years there may be some upside from this valuation given the company retains rights and positions in various instruments related to these investments.

 

 

(5) Credit risk

 

Credit risk is defined as the risk that a borrower/debtor may fail to make required repayments within the contracted time scale. 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. The risk assessment is undertaken by the Executive Team at the time of the agreements, and the Executive Team continues to evaluate the loan instruments in the context of these agreements. Credit risk is categorized into Stage 1, Stage 2 and Stage 3 with Stage 1 being to recognize 12 month Expected Credit Losses (ECL), Stage 2 being to recognise Lifetime ECL not credit impaired and Stage 3 being to recognise Lifetime ECL credit impaired.

 

Credit risk is initially evaluated using the LTV and the circumstances of the individual borrower. For the majority of loans security takes the form of real estate. There has been no significant change in the quality of this security over the prior year. When determining credit risk macro-economic factors such as GDP, unemployment rates, the impact of Covid19 on real estate and other relevant factors are also taken into account. A loan is considered to be in default when there is a failure to meet the legal obligation of the loan agreement. Having regards to the principles of IFRS 9 this would also include provisions against loans that are considered by management as unlikely to pay their obligations in full without realisation of collateral. Once identified as being in default a re-assessment of the credit risk of that loan will be undertaken using the factors as noted above. A decision will then be made as to whether to credit impair that asset.

 

In some instances borrowers will request loan modifications, extensions or renegotiation of terms. Any such event will trigger a reassessment of the credit risk of that loan where the reasons for the modification, extension or renegotiation will be carefully assessed and may result in that asset being credit impaired.

 

The entities in the Sancus BMS Group operate Credit Committees which are responsible for evaluating and deciding upon loan proposals, as well as monitoring the recoverability of loans, and taking action on any doubtful accounts. All lending undertaken by Sancus BMS is secured. The credit committee reports to the Sancus BMS Board on a quarterly basis.

 

 

Provision for ECL

 

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 loss given default is deemed to be nil where LTV is equal to or less than 65%, as it is assumed that the asset can be sold and full recovery made.

 

Provision for ECL is made using the credit risk, the probability of default (PD) and the 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 (exposure at default) x PD x PL and are then amended as necessary according to the more subjective measures as noted above.

 

To reflect the time value of money ECL is discounted back to the reporting date using the effective interest rate of the asset (or an approximation thereof) that was determined at initial recognition.

 

The following tables provide information on amounts reserved for ECL on loans and loan equivalents as at 31 December 2020 and 31 December 2019 based on the model adopted by management. Loans through platforms have been added to the table in 2020 (previously disclosed separately and not included in the below analysis).

 

Sancus BMS loans and loan

equivalents at 31 December 2020

Stage 1

£'000

Stage 2

£'000

Stage 3

£'000

Total

£'000

 

 

 

 

 

Closing loans at 31 December 2019 *

54,188

8,849

1,195

64,232

Add loans through platforms

31

-

-

31

 

54,219

8,849

1,195

64,263

New Loans

19,168

-

-

19,168

Loans Repaid

(25,267)

(3,582)

(19)

(28,868)

Transfers from Stage 1 to Stage 2

(380)

380

-

-

Transfers from Stage 1 to Stage 3

(5,768)

-

5,768

-

Transfers from Stage 2 to Stage 3

-

(1,910)

1,910

-

Movement in ECL

-

310

(1,641)

(1,331)

Closing loans at 31 December 2020

41,972

4,047

7,213

53,232

 

 

Loss allowance

at 31 December 2020

Stage 1

£'000

Stage 2

£'000

Stage 3

£'000

Total

£'000

 

 

 

 

 

 

Closing loss allowance at 31 December 2019 *

-

1,213

1,655

2,868

 

Transfers from Stage 2 to Stage 3

-

(125)

125

-

 

(Decrease)/Increase in provision

-

(222)

503

281

 

Individual financial assets transferred to Stage 3

-

-

1,013

1,013

 

Individual financial assets transferred to Stage 2

-

37

-

37

 

Closing loss allowance at 31 December 2020

 

903

3,296

4,199

 

                 

 

 

* Restated see below.

 

Assets transferred to Stage 2 and Stage 3 relate to loans where, on the balance of probabilities, full recovery may not be made. 

 

 

Sancus BMS loans and loan

equivalents at 31 December 2019

Stage 1

£'000

Stage 2

£'000

Stage 3

£'000

Total

£'000

 

 

 

 

 

Closing loans at 31 December 2018

44,602

3,449

4,266

52,317

New Loans

43,513

-

-

43,513

Loans Repaid

(22,399)

(3,605)

(4,266)

(30,270)

Transfers from Stage 1 to Stage 2 *

(9,762)

9,762

-

-

Transfers from Stage 1 to Stage 3

(1,650)

-

1,650

-

Transfers from Stage 2 to Stage 3

-

(1,200)

1,200

-

Loans written off

(116)

-

(941)

(1,057)

Movement in ECL

-

443

(714)

(271)

Closing loans at 31 December 2019

54,188

8,849

1,195

64,232

 

 

Loss allowance

at 31 December 2019

Stage 1

£'000

Stage 2

£'000

Stage 3

£'000

Total

£'000

 

 

 

 

 

 

Closing loss allowance at 31 December 2018

-

1,656

941

2,597

 

Transfer from Stage 2 to Stage 3

-

(1,200)

1,200

-

 

Increase in provision

-

89

-

89

 

Financial assets transferred to Stage 3

-

-

455

455

 

Financial assets transferred to Stage 2 *

-

1,088

-

1,088

 

Write Offs

-

-

(941)

(941)

 

Provision no longer required (loans repaid)

-

(420)

-

(420)

 

Closing loss allowance at 31 December 2019

-

1,213

1,655

2,868

 

                 

 

 

* An amount of £8,152,000 has been reclassified as Stage 2 in the prior year (previously classified as Stage 3 in the 2019 Financial statements). This related to trading difficulties which one of the borrowers had been experiencing. Trading is now back on track but full recovery of the loan is not expected.

 

Financial assets transferred to Stage 3 relate to two loans where the security does not cover the outstanding loan value. Loans written off relates to a loan which was fully provided in the prior year.

 

 

Reconciliation of Provision for ECLs to charge in the statement of comprehensive income

 

 

Loans

Trade Debtors

Guarantees

Total

 

 

 

 

 

Loss allowance at 31 December 2019

2,868

311

-

3,179

Charge for the year 2020

1,238

1,885

1,542

4,665

Utilizations

93

(6)

-

87

Loss allowance at 31 December 2020

4,199

2,190

1,542

7,931

 

 

For certain loans the range of outcomes for loss given default considered by the Directors is significant and therefore has a material impact on the calculation of ECL. If the probability weighting on each of the loans included in Stage 3 were increased by 20% or decreased by 20%, the total provision of £7.9m would increase by £1. 3m or reduce by £2.1m respectively.

 

(6) Market price risk

 

The Group has no exposure to market price risk of financial assets valued on a Level 1 basis as disclosed earlier in this note.

 

(7) Foreign exchange risk

 

Foreign exchange risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Investments made in currencies other than Sterling are currently valued at £Nil and therefore there is no exposure.

 

The exchange rates used by the Group to translate foreign currency balances are as follows:

 

Currency

31 December 2020

30 June

2020

31 December

 2019

30 June

2019

31 December

 2018

EUR

1.1202

1.1039

1.1815

1.1170

1.1094

USD

1.3664

1.2399

1.3259

1.2697

1.2743

 

 

The Treasury Committee monitors the Group's currency position on a regular basis, and the Board of Directors reviews it on a quarterly basis. During the year the Treasury Committee and the Board have taken the decision to hedge loans denominated in Euros which are taken out through the HIT facility. Forward contracts to sell Euros at loan maturity dates are entered into when loans are drawn in Euros. The following forward foreign exchange contracts were open at the respective dates:

 

At 31 December 2020

 

Counterparty

Settlement date

Buy Currency

Buy Amount £'000

Sell currency

Sell amount €'000

Unrealised gain £'000

 

 

 

 

 

 

 

EWealthGlobal Group Limited

 January 2021 to February 2022

GBP

4,121

Euro

4,641

(50)

 

 

 

 

 

 

 

Liberum Wealth Limited

January 2021 to  December 2021

GBP

8,062

Euro

8,854

144

Unrealised gain on forward foreign contracts

94

 

 

 

At 31 December 2019

 

Counterparty

Settlement date

Buy Currency

Buy Amount £'000

Sell currency

Sell amount €'000

Unrealised gain £'000

 

 

 

 

 

 

 

EWealthGlobal Group Limited

 December 2020 to January 2021

GBP

2,252

Euro

2,590

38

 

 

 

 

 

 

 

Liberum Wealth Limited

February 2020 to  November 2020

GBP

3,467

Euro

3,951

118

Unrealised gain on forward foreign contracts

156

 

 

No hedging has been taken out against investments in the FinTech Ventures platforms (2019: £Nil).

 

 

24.   RELATED PARTY TRANSACTIONS

 

Transactions with the Directors/Executive Team

 

Non-executive Directors

 

As at 31 December 2020, 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:

 

 

 

31 December 2020

 

31 December 2019

 

£

 

£

 

 

 

 

Patrick Firth (Chairman)

48,750

 

50,000

John Whittle 

41,438

 

42,500

Nick Wakefield

34,125

 

35,000

 

On 4 June 2019 Mr Wakefield was appointed as a non-executive Director to the Board. Mr Wakefield's directorships were listed in the RNS issued on 5 June 2019 and can be found on the Group's website. Golf Investments Limited ('Golf'), a subsidiary of Somerston, of which Mr Wakefield is a Director, holds 200,349,684 ordinary shares in the Company, representing 40.9 per cent of the current issued share capital. From time to time, the Somerston Group may participate as a Co-Funder in Sancus BMS loans. Other than this and the directors' fees and expenses in relation to Mr Wakefield's appointment as a director the Group does not transact with either Golf or Somerston.

 

Directors' fees were reduced in the third quarter of the year by 10%. Total Directors' fees charged to the Company for the year ended 31 December 2020 were £124,313 (31 December 2019: £112,589) with £Nil (31 December 2019: £31,875) remaining unpaid at the year-end.

 

Executive Team

 

The Executive team consists of Andrew Whelan, Emma Stubbs, Aaron Le Cornu (resigned 16 April 2020) and Dan Walker. 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, was as detailed in the table below:

 

 

2020

2019

 

£'000

£'000

 

 

 

Aggregate remuneration in respect of qualifying service - fixed salary

646

727

 

 

 

Aggregate amounts contributed to Money Purchase pension schemes

48

101

 

 

 

Aggregate bonus paid (shares and cash)

210

-

 

 

 

See remuneration report for further details. All amounts have been charged to Operating Expenses.

 

 

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

 

The Directors and PDMRs had the following beneficial interests in the Ordinary Shares of the Company:

 

 

31 December 2020

31 December 2019

 

No. of Ordinary Shares Held

% of Ordinary Shares

No. of Ordinary Shares Held

% of Ordinary Shares

 

 

 

 

 

Patrick Firth (Chairman)

367,966

0.08

278,669

0.09

John Whittle

138,052

0.03

104,550

0.03

Andrew Whelan

9,553,734

1.95

9,553,734

3.06

Emma Stubbs

1,380,940

0.28

1,380,940

0.44

Dan Walker

911,300

0.19

911,300

0.29

 

During the year and prior year no directors received dividends on their Ordinary Share holdings in the Company.

 

During the year Mr Whelan received £54,466 in relation to the coupon on his holding of £800,000 GLI Bonds which were repaid in full on 21 December 2020.

 

Mr Walker has an outstanding unsecured loan from a subsidiary in the amount of £31,053. The loan is interest free and repayable on demand.

 

From time to time members of key management personnel participate as co-funders in loans originated by the Group.

 

 

Transactions with connected entities

 

The following transactions with connected entities took place during the year:

 

 

31 December 2020

31 December 2019

 

Balance £'000

Interest accrued in the year £'000

Balance

£'000

Interest accrued in the year £'000

Platform loans & corresponding interest

 

 

 

 

GLIF and investments in FinTech Ventures

-

-

1,800

448

 

 

 

 

 

 

 

 

 

 

 

31 December 2020 £'000

31 December 2019 £'000

 

Receivable from related parties

 

 

 

Sancus (IOM) Holdings Limited

2

-

 

Sancus (IOM) Limited

36

1

 

Amberton Asset Management Limited

11

12

 

 

 

 

 

Office and staff costs recharges

 

 

 

 

 

 

 

Amberton Asset Management Limited

41

35

 

Sancus (IOM) Limited

125

125

 

 

 

 

 

             

 

There is no ultimate controlling party of the Company. All platform loans and preference shares bear interest at a commercial rate.

 

25.   LEASES

 

The Group as Lessee

 

Maturity Analysis - contracted undiscounted cash flows

 

31 December 2020 £'000

 

31 December 2019 £'000

 

Within one year

240

267

In the second to fifth years inclusive

569

809

After five years

-

-

 

809

1,076

 

All lease commitments relate to office space.

 

 

Lease liabilities included in the statement of financial position

 

 

31 December 2020 £'000

 

31 December 2019 £'000

 

Current

188

211

Non-current

469

679

 

657

890

 

Amounts recognised in the statement of comprehensive income

 

 

2020

£'000

 

2019

£'000

Depreciation expense on right-of-use assets

208

231

Interest expense on lease liabilities

64

70

Expense related to short term leases

137

192

Income received from sub-leasing right-of-use assets

-

(19)

 

 

26.   COMMITMENTS AND GUARANTEES

 

The Group's commitments and guarantees are described below.  

 

HIT Facility

 

Sancus BMS Group has invested £6.3m (2019: £5m) of its own capital in Sancus Loans Limited which sits in a £5m first loss position as part of the HIT facility. GLI has also provided HIT with a guarantee, capped at £2m that it will continue to ensure the orderly wind down of the HIT related loan book, in the event of the insolvency of Sancus BMS Group, given its position as facility and security agent. Nothing has been provided in the accounts for this (2019: £Nil).

 

Sancus Loan Notes

 

SLN5 was launched during 2018. Sancus BMS has no capital invested but has a 10% first loss position. At 31 December 2020 the loan note was £19.4m with a maximum raise limit of £50m.

 

Unfunded Commitments

 

As at 31 December 2020 the Group has unfunded commitments of £28.4m (31 December 2019: £21.4m). 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.

 

27.   POST YEAR END EVENTS

 

 

Post year-end ZDP buybacks

 

On the 1 March 2021 t he Company purchased 40,000 ZDPs at a price of 125.5 pence per ZDP Share and on the 17 March 2021 a further 15,000 ZDPs at a price of 130.0 pence per ZDP Share. On the 19 March 2021, 40,000 ZDPs were acquired at a price of 131.0 pence per share. Following these transactions, the Company has 20,791,418 ZDP Shares in issue, of which 12,104,030 ZDP Shares are held by the Company as treasury shares. The total number of voting rights associated with the ZDP Shares is therefore 8,687,388. 

 

Post year-end investment in FinTech Ventures

 

Post year-end £0.5m was redeployed in an existing investment where the particular circumstances were entirely binary, that on balance, the Board believed the risk reward was in GLI's shareholders interest.

 

Change of Name - Sancus BMS Group Limited

 

On the 17 March 2021 Sancus BMS Group Limited changed its name to Sancus Group Holdings Limited.

 

 

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