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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| City Of London Group Plc | LSE:CIN | London | Ordinary Share | GB00BD9GS058 | ORD 2P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 10.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCIN
RNS Number : 8389G
City of London Group PLC
30 November 2020
30 November 2020
City of London Group plc
("COLG" or "the Company" and, together with its subsidiaries, "the Group")
Results for the six-month period ended 30 September 2020
Th e Compa ny a nnou n ces its un a udited interim results f or t he six-month period from 1 April 2020 to 30 September 2 020, along with an update on business developments.
Business developments
-- Successful cash raise exercise completed in October, just after the period under review, raising GBP27m before expenses. The moneys have been invested in Recognise to facilitate its development and hence achieve the Group's strategic goals.
-- Recognise achieved a major milestone when it received authorisation with restriction from the PRA with effect from 10 November 2020. It is applying to change its name from Recognise Financial Services Limited to Recognise Bank Limited.
-- Recognise is now working to complete the development and testing work necessary to position it to receive a full banking licence, with a target to achieve this in the first half of 2021. The full banking licence will also be dependent on a further capital raise.
-- Recognise is offering four lending products from November - bridging and working capital loans, loans to the professional practice community and commercial property loans, with the full operational lending capability coming on stream in April 2021.
-- The external valuation of the Milton Homes properties as at 30 September 2020 at GBP68.7m reflects the removal of uncertainties surrounding COVID-19 that depressed the March valuation and the renewed activity in the UK residential property market.
Financial results
-- Loss before tax GBP2.6m after absorbing costs of GBP2.8m associated with the UK banking licence application (2019/20 first half loss before tax GBP3.3m after absorbing costs of GBP1.3m associated with the UK banking licence application).
-- Milton Homes made a profit of GBP1.5m before shareholder capital charges reflecting both higher marketability ratings used by the external valuer in his September valuation and an increased number of reversions (2019/20 first half loss of GBP1.2m due to the low change in the house price index in that period)
-- Consolidated NAV per share attributable to shareholders 49p (31 March 2020: 60p)
Michael Goldstein, Chief Executive Officer, commented:
"We are delighted that our Recognise subsidiary achieved a major milestone when it received authorisation with restriction from the PRA with effect from 10 November. It is now progressing with further development and testing work on its systems with a target to obtain a full banking licence in the first half of 2021. Following our successful cash raise in October, we are well placed to establish and grow the Recognise business, through the strength and depth of its management team.
As Recognise has now begun lending activities, Property & Funding Solutions will wind down its loan portfolio and Recognise will redeploy the funds as loans are repaid.
The run-off of the CAML/PFL loan and lease portfolio is proceeding as expected, with the overall size of the portfolio reducing by approximately a third over the period as loans are repaid.
The results of Milton Homes for the period were pleasing, reflecting both an increase in the number of reversions and the removal of the uncertainties on the future strength of the UK housing market that depressed the March valuation.
COVID-19 adversely affected the commercial finance broking division of Acorn to Oaks as there was little activity in that market in the first half of the year although there are now signs of improvement which should benefit the second half.
Overall, looking forward, we are well placed to implement our core strategy of developing a business focusing on the SME market that will deliver value to our shareholders."
For further information:
City of London Group plc +44 (0)20 7550 0543 Michael Goldstein (Chief Executive Officer) Ben Peters (Director of Investor Relations) Peel Hunt LLP (Nominated Adviser and Broker) James Britton Rishi Shah +44 (0)20 7418 8900 finnCap Ltd (Joint Broker) Jonny Franklin-Adams/ Anthony Adams Kate Washington (Corporate Finance) +44 (0)20 7220 0500 Lansons (for media enquiries) David Masters DavidM@lansons.com +44 (0)7825 427514 Sarah Oppler SarahO@lansons.com +44 (0)7530 627765 Or e:Mail colg@lansons.com
LEI: 2138003UW63TMQ5ZFD85
Notes to Editors:
City of London Group plc is quoted on AIM (TIDM: CIN) and is the parent company of a group which is focused on serving the UK SME market. While grounded in traditional values, it is primed for future growth through the strength and depth of expertise in its expanding team.
www.cityoflondongroup.com
Chief Executive Officer's review
I am pleased to present this review which covers the period from 1 April 2020.
Business review
I am delighted to report that Recognise reached a major milestone on 10 November 2020. It was authorised with restriction by the Prudential Regulation Authority (with the consent of the Financial Conduct Authority) with effect from that date. Recognise has now moved to the next stage of its development with the target for achieving a full licence in the first half of 2021. This is a significant achievement for the Recognise management team, which has delivered bank status while operating within strict budgetary limits. The full banking licence will also be dependent on a further capital raise.
This follows the completion of our successful cash raise exercise in October which raised GBP27 million before expenses, including GBP25 million from a significant new investor, Parasol V27 Limited. We are pleased to welcome Ruth Parasol and Nyreen Llamas to the Board and look forward to the contribution that both will make as directors. Ruth Parasol has also joined the board of Recognise.
The moneys raised have been invested in Recognise to enable it to implement the next stage of its business plans. Further details of these are given below.
In furtherance of the Group strategy that all new lending will be made through Recognise, Property & Funding Solutions Ltd was transferred from the Company to Recognise in October. Its loan portfolio will run off as loans mature.
The run-off of the loan and lease portfolios of CAML/PFL, which began in March, continued in the period with the overall size of the portfolios reducing by approximately one third over the period.
The effects of the COVID-19 pandemic adversely affected the business of Acorn to Oaks in the half year, as there was little activity in the commercial finance broking sector for much of the period, although there have been recent indications of a gradual increase in activity which should benefit the second half year.
The results of Milton Homes for the period were pleasing, reflecting both an increase in the number of reversions and the removal of the uncertainties on the future strength of the UK housing market that depressed the March valuation.
Recognise Financial Services Limited ("Recognise")
The achievement of receiving authorisation with restriction by the Prudential Regulation Authority (with the consent of the Financial Conduct Authority) with effect from 10 November 2020 is a major milestone towards implementing the Group's core strategy to provide UK SMEs with the credit and service they deserve. Recognise has applied to change its name to Recognise Bank Ltd.
The next stage of the process is to complete the build out and testing of the savings infrastructure, live run the new lending capability and back office processes and position Recognise for full licence. The target timetable for achieving full licence and launch of the savings products is the first half of 2021 when Recognise will deliver personal and business savings accounts, with all monies protected by the Financial Services Compensation Scheme ('FCSC').
Whilst full operational lending capability will commence in the new financial year, from April 2021, Recognise has decided to accelerate its lending plans and will provide four lending products from November 2020. These will be Bridging and Working Capital loans, loans to the Professional Practice community and Commercial Property loans. There is already deep experience within the business development and credit control teams to support this market engagement and Recognise is well positioned given that it has no legacy exposure or hangover from COVID-19. The senior management team carries the experience of previous crises and is looking forward to helping drive the growth of viable and ambitious SMEs as the UK economy begins to recover. Looking forward, 2021 will see loans for professional landlords and the development of an important asset finance capability.
Recognise will be a relationship-led SME lending bank but supported by the latest cloud-based technologies which will continue to be developed through ongoing investment. The management team is determined to create one of the UK's most digitally enabled banks ensuring that the power this delivers is harnessed for the benefit of the bank and the customer. Technology is a critical enabler but Recognise is committed to ensuring that the human touch always prevails.
Both the Recognise Board and the executive team have been in situ since mid-2019 and the governance arrangements are robust and effective. Ruth Parasol joined the board in October 2020 and, given her extensive business experience, will undoubtedly add significant value and breadth going forward. The governance structure is also underpinned by comprehensive business-wide policies and processes alongside effective oversight from the second line risk function and the third line Internal Audit function which is being undertaken by Deloitte.
The bar to becoming authorised as a new bank in the UK is rightly set at a very high level and the journey to authorisation is complex and demanding with many applicants dropping out along the way. The Recognise team has delivered as promised with the latest news adding yet further momentum to the pace of delivery. Recognise has a high quality, success-focused management team, a modern, versatile lending platform and a savings engine which will be ready to go in 2021 that is being delivered by the industry leader for savings management, Newcastle Strategic Solutions Ltd. Recognise has already commenced lending activities in its own name. Cost control continues to be embedded across the business.
This is a very exciting time for Recognise, its employees, suppliers and other stakeholders, all of whom have contributed in so many different and important ways.
Property & Funding Solutions Ltd ("PFS")
Until the Group placed a hold on all new lending in March 2020 in response to COVID-19, PFS offered short-term property bridging loans for acquisition, refinancing, refurbishment and development to its customers. The market has proved receptive to its loan offering due to its responsiveness, the close relationships built with customers and brokers, and the certainty of delivery of funding. Although the Board's decision to originate all new lending activity through Recognise has resulted in the current PFS loan book entering its run-off phase, bridging lending remains a core Recognise loan product. The PFS business transferred to Recognise in October to act as a seed loan portfolio from which to build Recognise's lending activity and own loan book.
A summary of the financial performance of the PFS business is set out in the table below:
Hot Features
Premium
6 months 6 months Year to
GBP'000 to to 31/03/20
30/09/20 30/09/19
------------------------------------- ---------- ---------- ----------
Revenue 409 273 631
Operating profit before shareholder
capital charges 163 132 282
Profit before tax 44 39 58
-------------------------------------- ---------- ---------- ----------
The COVID-19 pandemic and resultant lockdown restrictions have impacted the residential and commercial property markets to different degrees since March 2020 as well as the debt funding market as lenders focus more on managing and supporting their existing customers through the current challenges rather than new lending. The PFS loan book has proved resilient with no impairment or losses albeit there has been a need to extend certain loans to give customers more time to deliver their business plan including debt repayment. PFS management continues to maintain regular contact with all of its customers to keep abreast of business plan execution and identify any potential early warning indicators of financial stress.
Credit Asset Management Limited ("CAML") and Professions Funding Limited ("PFL")
CAML is a business to business provider of debt finance to UK SMEs. Following the Group's decision in March to put a hold on all new lending and originate all lending activity through Recognise, the current CAML and PFL loan portfolios entered their run-off phase where individual loans and leases will continue to maturity but will remain outside Recognise. A number of employees transferred to Recognise as part of the Group's forward recruitment plans.
When the likely effect of the COVID-19 pandemic became apparent in early March 2020, CAML commenced an extensive telephone customer contact programme to determine the extent of the impact on its customers' businesses and their ability to meet payments due to CAML and PFL and, in appropriate circumstances, to support customers through reduced payment, interest only and full capital and interest moratoriums initially for 3 months. This exercise has continued throughout the period to September and has been well received by customers. Moratorium extensions have been offered to businesses in sectors that have been more severely impacted by imposed trading restrictions. The information obtained from early direct customer contacts was used to inform the IFRS 9 provisioning exercise undertaken as at 31 March 2020: the increase in provisions for anticipated bad and doubtful debts made at that time ensured actual provision movements in the reporting period ended 30 September 2020 could be fully absorbed.
A summary of the financial performance of the business is set out in the table below:
6 months 6 months Year to
GBP'000 to to 31/03/20
30/09/20 30/09/19
--------------------------------- ---------- ---------- ------------
Revenue 677 1,261 2,035
Operating (loss)/ profit before
shareholder capital charges (134) 42 (1,126)
Loss before tax (277) (63) (1,136)
---------------------------------- ---------- ---------- ----------
CAML made an operating loss before shareholder capital charges of GBP134k (2019: profit of GBP42k). The results for the six months were adversely affected by one off business restructuring costs following the decision to place the business in formal wind down.
Despite the adverse impacts of COVID-19 CAML completed the full repayment of its block funding facility with Aldermore and has continued to pay down its intra-group loan and Hampshire Trust block funding facility as scheduled as well as meeting its wider business expenditure commitments. This has been due to focussed cash collection and maintaining good cash balances throughout the reporting period. The outstanding combined CAML and PFL loan and lease portfolios have reduced by around one third over this period.
Acorn to Oaks Financial Services Limited ("Acorn to Oaks")
Acorn to Oaks is an independent financial services intermediary authorised by the FCA, which focuses on the SME and property markets, providing whole of market broking advice services for general insurance, commercial finance broking, regulated mortgages, protection, pensions and investments.
A summary of the financial performance of the business is set out in the table below:
6 months 6 months Year to
GBP'000 to to 31/03/20
30/09/20 30/09/19
----------------- ---------- ---------- ------------
Revenue 380 437 746
Operating loss (18) (15) (36)
Loss before tax (18) (15) (36)
------------------ ---------- ---------- ----------
The results for the first six months were disappointing as the commercial finance broking division of Acorn to Oaks has been affected by the COVID-19 pandemic with little activity in the market for much of the period as development activity stalled. There have recently been indications of a gradual recovery and it is hoped some pipeline deals will complete in the second half. The COVID-19 pandemic has also delayed the expansion plans of the general insurance division whose core business, however, has remained stable and, as in past years, has maintained its high client retention rate.
The level of IFA business was stable compared with the previous year while it achieved an increase in the funds under management.
With recent signs of a modest upturn in the levels of activity in both the commercial finance broking and general insurance divisions combined with the fact that the level of IFA business is highest in the final quarter, Acorn to Oaks anticipates an improvement in its results in the second half of the year.
Acorn to Oaks furloughed staff during the period to 30 September and currently has two members of staff on the Flexible furlough scheme.
Milton Homes Limited ("Milton Homes")
Milton Homes, the Group's equity release provider, administers a UK portfolio of home reversion plans, based on either traditional or innovative models. When a property becomes vacant, Milton Homes sells it and distributes the sale proceeds, including any that may be due to the former occupier or their estate. The result is a leveraged exposure to UK House Price Inflation ("HPI") without maturity concentrations given the spread of realisations over multiple years. Milton Homes will not take on any new customers in future but will continue to realise its portfolio as reversions occur.
A summary of the financial performance of the business is set out in the table below:
GBP'000 6 months 6 months Year to
to to 31/03/20
30/09/20 30/09/19
================================== ========== ========== ==========
Revenue 3,907 1,394 3,643
Operating profit / (loss) before
shareholder capital charges 1,506 (1,194) (1,679)
Profit / (loss) before tax 1,052 (1,669) (2,602)
================================== ========== ========== ==========
The portfolio, which comprised interests in 458 properties at 30 September 2020, was externally valued at GBP68.7m as at that date. The valuation of the portfolio, assuming vacant possession, was GBP90.6m. The number of properties that reverted to Milton Homes during the period was 29 compared with 18 in the previous six months.
The profit for the period reflects the higher marketability ratings used by the external valuer in his September valuation in contrast to the uncertainty in March. In particular, the discount rate applied to vacant properties reverted to its previous rate of 10% compared with the 15% rate used in the March valuation. The results for the period were also improved by the increased number of reversions and the effect of changes in the house price index (up by 2.22% pa in the period compared with an increase of 1.83% in the previous 12 month period), offset by the increase in the time taken to complete sales due to COVID-19 during the shutdown of the property market.
Milton Homes is continuing to see interest in its properties and currently has 32 properties either under offer or on the market with a total sales value of GBP6.8m. A further 22 properties will shortly be put on the market. While the business is expecting a number of sales to complete over the next few months, it is conscious the UK housing market may be adversely affected by the economic effect of COVID-19 in the medium-term.
Over the six-month period, with the sale of 15 properties, Milton Homes generated cash of GBP912k after repayment of the Partnership loan.
COLG
During the period, COLG has continued to support the activities and development of the Group's businesses.
On 30 April, following shareholder approval, the Company's Deferred shares were cancelled and a transfer of GBP3,648,415 made to a capital reserve.
On 7 August, the Company issued 1,433,565 ordinary shares to the holders of the GBP2,050,000 6% Convertible Unsecured Loan Notes 2021 following their mandatory conversion into ordinary shares at an issue price of GBP1.43 on the receipt by Recognise of its TCR letter on 21 July 2020.
On 4 September, Recognise became a wholly-owned subsidiary of COLG when the Company issued 5,600,000 ordinary shares at an issue price of 80p to the minority shareholders of Recognise following the exercise of their put option under the terms of the Recognise Shareholders' Agreement.
Risks
The principal risks of the Group are reviewed by the Board, which reviews and agrees policies for managing these risks. The key risks described in the Strategic Report in the 2020 Annual Report are still appropriate.
While the risks associated with the withdrawal of the United Kingdom from the European Union have not to date had a material impact on the Group, an exit at the end of the transition period on unfavourable terms may adversely affect the UK's post COVID-19 recovery and hence impact the Group's businesses. Management is monitoring events relating to Brexit and their potential impact.
The COVID-19 situation continues to be monitored and reported on regularly by management to the Board. There continue to be potential risks arising from COVID-19 that could affect the Group's businesses in future: these potential risks would increase if economic activity in the UK were to be further depressed and affected the SME business sector adversely.
The potential risks arising from Brexit and COVID-19 on the Group's businesses include:
-- lower property values that impact the realisation value of properties held by Milton Homes;
-- increased level of defaults on loans and leases as a result of lower economic activity in the UK affecting the viability of UK SME businesses; and
-- reduced demand for loans from SMEs which may make Recognise's growth plans more challenging.
The working from home measures implemented in March 2020 have remained in place, with appropriate internal controls being maintained throughout the period. In accordance with Government requirements, staff are currently working from home.
The 2020 Annual Report also included information on financial risk management in Notes 32 and 33 of the financial statements.
Outlook
With Recognise having received authorisation with restriction from the PRA with effect from 10 November 2020, the Group is well-placed to achieve its strategic objective of Recognise being granted a full UK banking licence in the first half of 2021. This will allow the Group to develop a business focusing on the SME market. While market conditions remain competitive, the Group believes Recognise, with its strength of management and its focus on developing a relationship-led business supported by cloud-based technologies, is well-placed to serve the SME market.
Michael Goldstein
Chief Executive Officer
This half-yearly report may contain certain statements about the future outlook for COLG and its subsidiaries. Although the directors believe their expectations are based on reasonable assumptions, any statements about the future outlook may be influenced by factors that could cause actual outcomes to be materially different. Such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward looking statements.
This half-yearly report has been drawn up and presented with the purpose of complying with English law. Any liability arising out of or in connection with the half-yearly report for the six months to 30 September 2020 will be determined in accordance with English law. The half-yearly results for 2020 and 2019 have neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board.
30 November 2020
Unaudited interim results
Condensed consolidated income statement
Notes 6 months 6 months Year to
to 30/09/20 to 30/09/19 31/03/20
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
Revenue 2 5,373 3,177 7,055
Cost of sales 2 (147) (228) (313)
------------------------------------- ------ ------------- ------------- ----------
Gross profit 5,226 2,949 6,742
Administrative expenses 4
------------------------------------- ------ ------------- ------------- ----------
Banking licence application (2,767) (1,341) (3,351)
Provisions for bad and doubtful
debts - (274) (1,571)
Other (2,878) (2,429) (6,827)
------------------------------------- ------ ------------- ------------- ----------
Other income 71 123 181
------------------------------------- ------ ------------- ------------- ----------
Loss from operations (348) (972) (4,826)
Finance expense (2,322) (2,426) (4,834)
------------------------------------- ------ ------------- ------------- ----------
Loss before tax (2,670) (3,398) (9,660)
Tax credit/(expense) 5 23 57 (70)
------------------------------------- ------ ------------- ------------- ----------
Loss for the period (2,647) (3,341) (9,730)
------------------------------------- ------ ------------- ------------- ----------
Profit/(loss) for the period before
costs associated with banking
licence application 120 (2,000) (6,379)
Costs associated with banking
licence application (2,767) (1,341) (3,351)
Loss for the period (2,647) (3,341) (9,730)
Loss for the period attributable
to
Owners of the parent (2,647) (3,349) (9,742)
Non-controlling interests - 8 12
Loss for the period (2,647) (3,341) (9,730)
Basic and diluted earnings per
share attributable to owners of
the parent 7 (6.41)p (8.42)p (24.46)p
------------------------------------- ------ ------------- ------------- ----------
Al l the operations in both the six months to 30 September 2020 and the year to 31 March 2020 are continuing.
Condensed consolidated statement of comprehensive income
6 months 6 months Year to
to 30/09/20 to 30/09/19 31/03/20
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
Loss from continuing operations (2,647) (3,341) (9,730)
Other comprehensive expense
------------------------------------------ -------------- -------------- ----------
Item that will not be reclassified
to profit or loss
------------------------------------------ -------------- -------------- ----------
Valuation loss on fair value of legal
case investments - - (130)
------------------------------------------ -------------- -------------- ----------
Other comprehensive expense - - (130)
------------------------------------------ -------------- -------------- ----------
Total other comprehensive expense - - (130)
------------------------------------------ -------------- -------------- ----------
Total comprehensive expense (2,647) (3,341) (9,860)
------------------------------------------ -------------- -------------- ----------
Total comprehensive expense attributable
to:
Equity holders of the parent (2,647) (3,349) (9,872)
Non-controlling interests - 8 12
------------------------------------------ -------------- -------------- ----------
(2,647) (3,341) (9,860)
------------------------------------------ -------------- -------------- ----------
Condensed consolidated balance sheet
30/09/20 31/03/20 30/09/19
Notes GBP'000 GBP'000 GBP'000
(unaudited) (audited) (unaudited)
------------------------------- ------ ------------ ---------- ------------
Assets
Non-current assets
Investment properties 8 37,380 38,609 39,770
Financial assets - equity
release plans 9 31,309 30,343 30,440
Intangible assets 10 2,707 2,526 3,584
Property, plant and
equipment 171 96 92
Right-of-use assets 509 650 -
Other investments - - 138
Loans 2,281 3,593 4,761
Finance leases 1,224 1,600 1,663
------------------------------- ------ ------------ ---------- ------------
Total non-current assets 75,581 77,417 80,448
------------------------------- ------ ------------ ---------- ------------
Current assets
Loans 9,009 11,728 10,211
Finance leases 743 1,087 1,668
Trade and other receivables 3,675 3,001 2,438
Cash and cash equivalents 5,645 7,219 9,891
------------------------------- ------ ------------ ---------- ------------
Total current assets 19,072 23,035 24,208
------------------------------- ------ ------------ ---------- ------------
Total assets 94,653 100,452 104,656
------------------------------- ------ ------------ ---------- ------------
Current liabilities
Borrowings (3,883) (7,208) (4,420)
Trade and other payables (4,594) (3,881) (3,043)
Lease liabilities (307) (298) -
------------------------------- ------ ------------ ---------- ------------
Total current liabilities (8,784) (11,387) (7,463)
------------------------------- ------ ------------ ---------- ------------
Non-current liabilities
Borrowings (60,145) (62,615) (64,645)
Other creditors (154) (149) (497)
Lease liabilities (270) (426) -
Deferred tax liability (786) (809) (687)
------------------------------- ------ ------------ ---------- ------------
Total non-current liabilities (61,355) (63,999) (65,829)
------------------------------- ------ ------------ ---------- ------------
Total liabilities (70,139) (75,386) (73,292)
------------
Net assets 24,514 25,066 31,364
------------------------------- ------ ------------ ---------- ------------
Equity
Share capital 11 940 4,448 4,444
Share premium 11 57,190 50,799 50,596
Capital reserve 11 3,648 - -
Equity Instruments 1,293 1,293 1,293
Accumulated losses (38,557) (31,474) (24,976)
------------
Equity attributable
to owners of the parent 24,514 25,066 31,357
Non-controlling interests - - 7
------------------------------- ------ ------------ ---------- ------------
Total equity 24,514 25,066 31,364
------------------------------- ------ ------------ ---------- ------------
Condensed consolidated statement of changes in equity
Attributable to owners of the parent company
--------------------------------------------------------------------- ---------------- ---------
Equity Attributable
instrument to
GBP'000 Accumulated Capital Share Share non-controlling Total
losses reserve premium capital Total interests Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ----------- ------------ --------- --------- --------- --------- ---------------- ---------
At 31 March
2020
(audited) 1,293 (31,474) - 50,799 4,448 25,066 - 25,066
Loss for the
period
- continuing
operations - (2,647) - - - (2,647) - (2,647)
---------------- ----------- ------------ --------- --------- --------- --------- ---------------- ---------
Total
comprehensive
income - (2,647) - - - (2,647) - (2,647)
---------------- ----------- ------------ --------- --------- --------- --------- ---------------- ---------
Contributions
by
and
distributions
to owners
Share-based
payments - 45 - -- - 45 - 45
Transfer on
cancellation
of Deferred
shares - - 3,648 - (3,648) - - -
Issue of shares
to Employee
Benefit
Trust - (1) - 1 - - - -
Issue of shares
on conversion
of
6% Convertible
Unsecured
Loan Notes
2021 - - - 2,022 28 2,050 - 2,050
Acquisition of
minority
interest in
Recognise
Financial
Services
Limited on
exercise
of put option
by
minority
shareholders - (4,480) - 4,368 112 - - -
---------------- ----------- ------------ --------- --------- --------- --------- ---------------- ---------
Total
contributions
by and
distributions
to owners - (4,436) 3,648 6,391 (3,508) 2,095 - 2,095
---------------- ----------- ------------ --------- --------- --------- --------- ---------------- ---------
At 30 September
2020
(unaudited) 1,293 (38,557) 3,648 57,190 940 24,514 - 24,514
---------------- ----------- ------------ --------- --------- --------- --------- ---------------- ---------
Attributable to owners of the parent
company
Accumulated Attributable
Equity losses Share Share to non-controlling Total
instrument GBP'000 premium capital Total interests Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ------------ ------------ --------- --------- --------- -------------------- ---------
At 31 March 2019
(audited) 1,293 (21,672) 50,104 4,436 34,161 13 34,174
Loss for the period
- continuing
operations - (3,349) - - (3,349) 8 (3,341)
---------------------- ------------ ------------ --------- --------- --------- -------------------- ---------
Total comprehensive
income - (3,349) - - (3,349) 8 (3,341)
---------------------- ------------ ------------ --------- --------- --------- -------------------- ---------
Contributions by
and distributions
to owners
Share-based payments - 45 - - 45 - 45
Issue of shares - - 492 8 500 - 501
Distributions to
non-controlling
interests - - - - - (14) (14)
---------------------- ------------ ------------ --------- --------- --------- -------------------- --------- Total contributions by and distributions to owners - 45 492 8 546 (14) 532 ---------------------- ------------ ------------ --------- --------- --------- -------------------- --------- At 30 September 2019 (unaudited) 1,293 (24,976) 50,596 4,444 31,357 7 31,364 ---------------------- ------------ ------------ --------- --------- --------- -------------------- --------- Loss for the period - continuing operations - (6,393) - - (6,393) 4 (6,389) Other comprehensive income Valuation loss on fair value of legal case investments - (130) - - (130) - (130) ---------------------- ------------ ------------ --------- --------- --------- -------------------- --------- Total comprehensive income - (6,523) - - (6,523) 4 (6,519) ---------------------- ------------ ------------ --------- --------- --------- -------------------- --------- Contributions by and distributions to owners Share-based payments - 88 - - 88 - 88 Distributions to non-controlling interests - - - - - (11) (11) Acquisition of minority interest - (63) - - (63) - (63) Issue of shares - - 203 4 207 - 207 ---------------------- ------------ ------------ --------- --------- --------- -------------------- --------- Total contributions by and distributions to owners - 25 203 4 232 (11) 221 ---------------------- ------------ ------------ --------- --------- --------- -------------------- --------- At 31 March 2020 (audited) 1,293 (31,474) 50,799 4,448 25,066 - 25,066 ---------------------- ------------ ------------ --------- --------- --------- -------------------- ---------
Condensed consolidated statement of cash flows
6 months 6 months Year to
to 30/09/20 to 30/09/19 31/03/20
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
------------------------------------------- ------------- ------------- ----------
Cash flows from operating activities
Loss before taxation (2,670) (3,398) (9,660)
Adjustments for:
Depreciation and amortisation 172 17 53
Share-based payments 45 45 340
Provision for bad and doubtful
debts - 274 1,571
Impairment of goodwill 117 78 1,555
Impairment of other investments - - 8
Investment properties and equity
release plan financial assets:
Increases in the fair value of
these assets (2,857) (764) (1,581)
Realised gains on the disposal
of these assets (655) (289) (695)
Equity transfer income (394) (341) (1,367)
Interest payable 2,322 2,426 4,834
Changes in working capital:
(Increase)/ decrease in trade and
other receivables (674) 32 (609)
Increase in trade and other payables 754 227 586
Leases advanced (6) (726) (1,377)
Leases repaid 726 1,476 2,308
Loans advanced (470) (12,672) (20,432)
Loans repaid 4,501 12,058 18,635
Cash generated from/ (used in)
operations 911 (1,557) (5,831)
------------------------------------------- ------------- ------------- ----------
Corporation tax paid - - (4)
------------------------------------------- ------------- ------------- ----------
Net cash generated from/ (used
in) operating activities 911 (1,557) (5,835)
------------------------------------------- ------------- ------------- ----------
Cash flow from investing activities
Proceeds from the sale of investment
properties and equity release plan
financial assets 4,169 2,751 6,258
Purchase of investment properties
and equity release plan financial
assets - (42) (42)
Investment in intangible assets (299) (182) (545)
Purchase of property, plant and
equipment (105) (33) (60)
Net cash generated from investing
activities 3,765 2,494 5,611
------------------------------------------- ------------- ------------- ----------
Cash flow from financing activities
Proceeds from issue of ordinary
shares - 500 500
Loans drawn down 294 - 4,395
Repayment of loans (5,641) (6,945) (12,550)
Purchase of CAML Preference Shares (450) - -
Distributions to non-controlling
interests - - (25)
Payments of lease liabilities (164) - -
Interest paid (289) (361) (637)
------------------------------------------- ------------- ------------- ------------
Net cash used in financing activities (6,250) (6,806) (8,317)
------------------------------------------- ------------- ------------- ------------
Net decrease in cash and cash equivalents (1,574) (5,869) (8,541)
Cash and cash equivalents brought
forward 7,219 15,760 15,760
------------------------------------------- ------------- ------------- ------------
Net cash and cash equivalents 5,645 9,891 7,219
------------------------------------------- ------------- ------------- ------------
Cash and cash equivalents 5,645 9,891 7,219
Bank overdraft - - -
------------------------------------------- ------------- ------------- ------------
Net cash and cash equivalents 5,645 9,891 7,219
------------------------------------------- ------------- ------------- ------------
Changes in liabilities arising from financing activities
Non-current Current
borrowings borrowings Total
GBP'000 GBP'000 GBP'000
At 31 March 2020 63,041 7,506 70,547
Cash flows (3,244) (2,597) (5,841)
Non-cash flow
Conversion of 6% Unsecured Loan
Stock 2021 - (2,050) (2,050)
Non- current borrowings becoming
current borrowings (1,323) 1,323 -
Interest accrued in period 1,941 8 1,947
At 30 September 2020 60,415 4,190 64,605
---------------------------------- ------------ ------------ ---------
Non-current Current borrowings
borrowings Total
----------------------------------
GBP'000 GBP'000 GBP'000
---------------------------------- ------------ ------------------- ---------
At 31 March 2019 66,106 7,945 74,051
---------------------------------- ------------ ------------------- ---------
Cash flows (1,759) (5,186) (6,945)
Non-cash flow
Non- current borrowings becoming
current borrowings (1,661) 1,661 -
Interest accrued in period 1,959 - 1,959
---------------------------------- ------------ ------------------- ---------
At 30 September 2019 64,645 4,420 69,065
Cash flows 1,339 (2,561) (1,222)
Non-cash flow
Non- current borrowings becoming
current borrowings (5,337) 5,337 -
Lease liabilities 425 309 734 Interest accrued in period 1,969 1 1,970'sl At 31 March 2020 63,041 7,506 70,547 ---------------------------------- ------------ ------------------- ---------
Notes to condensed financial statements
1 Basis of preparation
1.1 These interim financial results do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006 and have neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board. Statutory accounts for the year ended 31 March 2020 were approved by the directors on 17 August 2020 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain any statement within the meaning of section 498 of the Companies Act 2006. Reference was made to the inclusion by the external valuer of the Group's interests in the property portfolio as at 31 March 2020 of a paragraph in his report, as required by RICS, which explained that as a result of the impact of the outbreak of the Novel Coronavirus (COVID 19) on the market, less certainty, and a higher degree of caution, should be attached to the valuation than would normally be the case. As the financial statements incorporate the valuation of interests in the property portfolio made by the valuer as at 30 September 2020, the caveat on the 31 March 2020 valuation no longer applies.
Going concern
The condensed consolidated financial statements have been prepared on a going concern basis which the directors consider to be appropriate following their assessment of the Group's financial position and its ability to meet its obligations as and when they fall due. The directors have reviewed in detail the monthly cash flow forecast for the period to 31 December 2021 and challenged the assumptions in the forecast, having regard to the inherent uncertainties in market conditions, including the potential risks arising from Brexit and the COVID-19 pandemic.
1.2 Accounting policies
These condensed consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted by the European Union (the "EU"). The condensed consolidated financial statements do not include all the information required for full annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 March 2020, which were prepared in accordance with IFRS as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed consolidated financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 March 2020, except for those changes in accounting policies that have been applied with effect from 1 April 2020.
1.3 Adoption of new standards and interpretations
The adoption of new standards is as set out in Note 2.2 of the Annual Report 2020, with the following standards falling to be adopted in the current financial period:
Amendments to References to the Conceptual Framework in IFRS Standards
Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Material
These are not expected to impact the Group as they require accounting which is consistent with the Group's current accounting policies and practices.
1.4 Consistency
The interim report, including the financial information contained therein is the responsibility of, and was approved by, the directors on 30 November 2020. The AIM Rules require that accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing annual accounts except where any changes, and the reason for them, are disclosed.
There have been no changes to the Group's accounting policies in the period to 30 September 2020. However, several Group companies, which furloughed staff during the period received government grants under the scheme that was set up by the government in response to the COVID-19 pandemic. These grants, which off-set salary costs, have been included in the profit and loss account as a reduction of payroll costs. The total amount received for the period was GBP84,648.
2 Revenue and cost of sales
6 months 6 months Year to
to 30/09/20 to 30/09/19 31/03/20
GBP'000 GBP'000 GBP'000
Revenue (unaudited) (unaudited) (audited)
-------------------------------------------------- ------------ ------------ ---------
Milton Homes (a) 3,907 1,394 3,643
CAML (b) 677 1,073 2,035
Property & Funding Solutions (c) 409 273 631
Acorn to Oaks (d) 380 437 746
Total revenue 5,373 3,177 7,055
-------------------------------------------------- ------------ ------------ ---------
(a) Milton Homes
Profit on disposal of investment properties 528 197 455
Gain on revaluation of investment properties 1,386 348 1,138
Profit on the disposal of equity release
plan financial assets 127 92 240
Gain on revaluation of equity release
plan financial assets 1,472 416 443
Equity transfer income arising under
equity release plan financial assets 394 341 1,367
-------------------------------------------------- ------------ ------------ ---------
3,907 1,394 3,643
-------------------------------------------------- ------------ ------------ ---------
(b) CAML
Loan and lease interest 675 1,041 1,979
Arrangement fees 2 32 56
677 1,073 2,035
-------------------------------------------------- ------------ ------------ ---------
(c) Property & Funding Solutions
Property bridging loan interest 368 209 521
Arrangement fees 41 64 110
409 273 631
-------------------------------------------------- ------------ ------------ ---------
(d) Acorn to Oaks
Commission 247 237 499
Fees 133 200 247
380 437 746
-------------------------------------------------- ------------ ------------ ---------
Cost of sales
-------------------------------------------------- ------------ ------------ ---------
Commissions and introduction fees 147 196 313
Other direct costs - 32 -
-------------------------------------------------- ------------ ------------ ---------
Total cost of sales 147 228 313
-------------------------------------------------- ------------ ------------ ---------
All revenue arises in the United Kingdom.
3 Segmental reporting
A reportable segment is identified based on the nature and size of its business and risk specific to its operations. It is reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the full Board of the Company.
The Group is managed through its operating businesses: the provision of home release plans to the equity release market, loan, lease and professions financing and the financial services intermediary. The PRA granted a subsidiary, Recognise Financial Services Limited, its authorisation with restriction as a bank on 10 November 2020. Information on the activities of each business is given in the Chief Executive Officer's review. The COLG segment includes the Group's central functions.
Pre-tax profit Quasi-equity Profit/(loss)
and loss Operating Finance intra group before
6 months ended Revenue profit/(loss) expense payments tax
30/09/20 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ------------- -------- -------------- --------- ------------ -------------
COLG Intra-Group 606 927 - - 927
Other - (1,568) (58) - (1,626)
------------------------ ------------ -------- -------------- --------- ------------ -------------
606 (641) (58) - (699)
Home reversion plans 3,907 3,440 (1,934) (454) 1,052
Loan, lease and professions
financing
Asset based finance, commercial
and professional loans 677 45 (289) (33) (277)
Property bridging finance 409 202 (39) (119) 44
Banking licence application - (2,767) - - (2,767)
Financial services intermediary 380 (16) (2) - (18)
Other - (5) - - (5)
Intra-Group (606) (606) - 606 -
-------------------------------------- -------- -------------- --------- ------------ -------------
5,373 (348) (2,322) - (2,670)
------------------------ ------------ -------- -------------- --------- ------------ -------------
The Loss from operations in the Consolidated income statement is GBP348,000 as shown above.
The quasi-equity intra group payments comprise interest payable to COLG.
Pre-tax profit and loss Quasi-equity
6 months ended 30/09/19 intra Profit/(loss)
(unaudited) Operating Finance group before
Revenue profit/(loss) expense payments tax
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- --------- --------------- --------- ------------- --------------
COLG
Intra-Group 583 461 (31) - 430
Banking licence application - (35) - - (35)
Other - (681) (93) - (774)
--------------------------------- --------- --------------- --------- ------------- --------------
583 (255) (124) - (379)
Home reversion plans 1,394 768 (1,962) (475) (1,669)
Loan, lease and professions
financing
Asset based finance,
commercial and professional
loans 1,073 291 (340) (14) (63)
Property bridging finance 273 132 - (93) 39
Banking licence application - (1,306) - - (1,306)
Financial services intermediary 437 (15) - - (15)
Other - (4) - (1) (5)
Intra-Group (583) (583) - 583 -
3,177 (972) (2,426) - (3,398)
--------------------------------- --------- --------------- --------- ------------- --------------
The Loss from operations in the Consolidated income statement is GBP972,000 as shown above.
The quasi-equity intra group payments comprise interest payable to COLG.
Consolidated Net Assets at 30/09/20 (unaudited)
Total
GBP'000
------ ----------------------------------------------- --------
COLG Home reversion plans 13,586
Loan, lease and professions financing 6,141
Financial services intermediary 1,130
Banking licence application 12,632
-----------
33,489
Other net assets 3,677
--------
Net assets per entity balance sheet 37,166
Net liabilities of subsidiary companies and charges
to consolidated reserves (12,652)
------------------------------------------------------- --------
Consolidated Net Assets 24,514
------------------------------------------------------- --------
Consolidated Net Assets at 31/03/20 (audited)
Total
GBP'000
------ ----------------------------------------- --------
COLG Home reversion plans 13,449
Loan, lease and professions financing 5,575
Financial services intermediary 1,130
Banking licence application 5,552
-----------
25,706
Other net assets 5,577
--------
Net assets per entity balance sheet 31,283
Other net liabilities of subsidiary companies (6,217)
------------------------------------------------- --------
Consolidated Net Assets 25,066
------------------------------------------------- --------
Consolidated Net Assets at 30/09/19 (unaudited)
Total
GBP'000 GBP'000
----------- ---------------------------------------- -------- ---------
COLG Other financial assets 138
Platforms Equity release provider 17,044
Loans, lease and professions financing 7,633
Financial services intermediary 1,884
Banking licence application project 3,552
Other 150
--------
30,263
Other net assets 7,238
---------------------------------------------------- -------- ---------
Net assets per entity balance sheet 37,639
Other net liabilities of subsidiary companies (6,275)
----------------------------------------------------- -------- ---------
Consolidated Net Assets 31,364
----------------------------------------------------- -------- ---------
The Board reviews the assets and liabilities of the Group on a net basis.
4 Administrative expenses
6 months 6 months Year to
to 30/09/20 to 30/09/19 31/03/20
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
Staff costs:
Payroll expenses 3,883 2,198 5,443
Other staff costs 67 16 43
Establishment costs:
Property costs 278 295 648
Other 465 478 959
Auditor's remuneration 144 83 301
Legal fees 16 73 192
Consultancy fees 105 231 659
Other professional fees 398 301 750
Provisions for bad and doubtful
debts under IFRS 9 - 274 1,571
Provision for goodwill impairment 117 78 1,555
Depreciation and amortisation 172 17 53
Reduction in deferred consideration - - (425)
------------------------------------- ------------- ------------- ----------
Total 5,645 4,044 11,749
------------------------------------- ------------- ------------- ----------
Expenses relating to:
Banking licence application project 2,767 1,341 3,351
Provisions for bad and doubtful
debts - 274 1,571
Other administrative expenses 2,878 2,429 6,827
------------------------------------- ------------- ------------- ----------
Total 5,645 4,044 11,749
------------------------------------- ------------- ------------- ----------
5 Taxation
6 months 6 months Year to
to 30/09/20 to 30/09/19 31/03/20
GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ ---------
UK corporation tax
Current year charge - - 6
Deferred tax
Relating to origination and reversal
of temporary
differences (23) (57) 64 ------------------------------------- ------------ ------------ --------- Total tax (credit)/ expense (23) (57) 70 ------------------------------------- ------------ ------------ ---------
The provision is based on the best estimate of the effective rate for the full year, as a result the charge for taxation is for a period of less than one year.
The credit for deferred tax relates to gains arising from the revaluation of investment properties and takes account of losses that can be offset against the gains.
6 Dividends
The directors have not declared an interim dividend for the year ending 31 March 2021
(Interim 2020: nil). The directors did not recommend payment of a final dividend for the year ended 31 March 2020.
7 Earnings per share
Basic and diluted earnings per share is calculated by dividing the loss attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the period less those held in treasury and in the Employee Benefit Trust.
30/09/20 30/09/19 31/03/20
(unaudited) (unaudited) (audited)
Loss attributable to equity holders
(GBP'000) (2,647) (3,349) (9,742)
Weighted average number of ordinary
shares of 2p in issue ('000) 41,283 39,760 39,831
Basic and diluted earnings per ordinary
share of 2p (6.41)p (8.42)p (24.46)p
----------------------------------------- ------------ ------------ ----------
The basic and diluted earnings per share are the same as, given the loss for the period, the outstanding share options would reduce the loss per share.
8 Investment properties
30/09/20 31/03/20 30/09/19
GBP'000 GBP'000 GBP'000
(unaudited) (audited) (unaudited)
-------------------------------------- ----------- --------- -----------
At 1 April 38,609 44,926 41,040
Additions - 12 12
Disposals (2,614) (3,581) (1,630)
1,138
Revaluations 1,385 629 348
-------------------------------------- ----------- --------- -----------
At end of period 37,380 38,609 39,770
-------------------------------------- ----------- --------- -----------
Investment properties 30,905 33,505 34,174
-------------------------------------- ----------- --------- -----------
Investment properties held for sale
(a) 6,475 5,104 5,596
-------------------------------------- ----------- --------- -----------
37,380 38,609 39,770
-------------------------------------- ----------- --------- -----------
Numbers of properties
-------------------------------------- ----------- --------- -----------
At 1 April 248 271 271
-------------------------------------- ----------- --------- -----------
Disposals (10) (23) (8)
-------------------------------------- ----------- --------- -----------
238 248 263
-------------------------------------- ----------- --------- -----------
(a) On vacant possession having been obtained.
9 Financial assets - equity release plans
30/09/20 31/03/20 30/09/19
GBP'000 GBP'000 GBP'000
(unaudited) (audited) (unaudited)
------------------------------------------ ----------- --------- -----------
At 1 April 30,343 30,485 30,485
Additions - 30 30
Equity transfer 394 1,367 342
On ending of plans (900) (1,982) (833)
Revaluations 1,472 443 416
------------------------------------------ ----------- --------- -----------
At end of period 31,309 30,343 30,440
------------------------------------------ ----------- --------- -----------
Financial assets - equity release plans 27,459 27,987 27,901
------------------------------------------ ----------- --------- -----------
Financial assets - equity release plans
held for sale (a) 3,850 2,356 2,539
------------------------------------------ ----------- --------- -----------
31,309 30,343 30,440
------------------------------------------ ----------- --------- -----------
Numbers of properties
------------------------------------------ ----------- --------- -----------
At 1 April 225 239 239
------------------------------------------ ----------- --------- -----------
Additions - - -
------------------------------------------ ----------- --------- -----------
Disposals (5) (14) (6)
------------------------------------------ ----------- --------- -----------
220 225 233
------------------------------------------ ----------- --------- -----------
(a) On vacant possession having been obtained.
10 Intangible Assets
Software licence
Goodwill & development Total
GBP'000 GBP'000 GBP'000
---------------------------------------- -------- ---------------- -------
Cost
At 31 March 2019 3,558 - 3,558
Additions - 182 182
---------------------------------------- -------- ---------------- -------
At 30 September 2019 3,558 182 3,740
Additions 57 363 420
At 31 March 2020 3,615 545 4,160
Additions - 299 299
---------------------------------------- -------- ---------------- -------
At 30 September 2020 3,615 844 4,459
Accumulated amortisation and impairment
At 31 March 2019 78 - 78
Charge 78 - 78
---------------------------------------- -------- ---------------- -------
At 30 September 2019 156 - 156
Charge 1,477 1 1,478
At 31 March 2020 1,633 1 1,634
Charge 117 1 118
---------------------------------------- -------- ---------------- -------
At 30 September 2020 1,750 2 1,752
---------------------------------------- -------- ---------------- -------
Carrying amount
---------------------------------------- -------- ---------------- -------
At 30 September 2020 (unaudited) 1,865 842 2,707
---------------------------------------- -------- ---------------- -------
At 31 March 2020 (audited) 1,982 544 2,526
---------------------------------------- -------- ---------------- -------
At 30 September 2019 (unaudited) 3,402 182 3,584
---------------------------------------- -------- ---------------- -------
11 Movements in equity
31/09/20 31/03/20 31/09/20 31/03/20
(unaudited) (audited) (unaudited) (audited)
Allotted, called up and fully
paid Number Number GBP'000 GBP'000
------------------------------ ------------ ------------- ------------ ----------
Ordinary shares of GBP0.02 46,994,616 39,960,551 940 800
Deferred shares of GBP0.001 - 3,648,415,419 - 3,648
------------------------------ ------------ ------------- ------------ ----------
940 4,448
------------------------------ ------------ ------------- ------------ ----------
The Company did not hold any ordinary shares in treasury at 30 September 2020 (2020: nil). 21,849 ordinary shares of GBP0.02 were held by the Employee Benefit Trust ("EBT") at 30 September 2020 (2020: 21,349). The trustees of the EBT subscribed for 500 ordinary shares at 114.4p each on 16 April 2020: the Company did not transfer any shares into or out of the EBT during the period (2020: nil). The fair value of shares held by the EBT at 30 September 2020 amounted to GBP21,000 (2020: GBP24,000): these are deducted from equity.
At a general meeting on 27 April 2020, shareholders approved the buy back and cancellation of the Deferred shares of the Company in accordance with the Articles of Association, whereby all the Deferred shares could be purchased by the Company for a consideration of not more than GBP1.00 and subsequently cancelled. Under the Companies Act a share buy-back by a public company (such as the Company) can only be financed through distributable reserves or the proceeds of a fresh issue of shares made for the purpose of financing a share buy-back. As the Company currently has no distributable reserves, the purchase of the Deferred shares for GBP1.00 was financed from the issue of 500 new ordinary shares which were allotted to the trustees of the EBT at a price of 114.4p each on 16 April 2020. Following the cancellation of the Deferred shares on 30 April 2020, a transfer of GBP3,648,415 was made from share capital to a capital reserve.
On 16 April 2020, the Company issued 500 ordinary shares at 114.4p each for cash to the EBT to enable the Company to proceed with the buy back and cancellation of the Deferred shares. The premium of GBP562 arising on the issue of the shares was credited to Share premium.
On 7 August 2020, the Company issued 1,433,465 ordinary shares at 143p each to the holders of the GBP2,050,000 6% Convertible Unsecured Loan Notes 2021, following their mandatory conversion into ordinary shares on the receipt by Recognise of its TCR letter from the PRA on 21 July 2020. The premium of GBP2,022,000 arising on the issue of the shares was credited to Share premium.
On 4 September 2020, the Company issued 5,600,000 ordinary shares at 80p each to the minority shareholders in Recognise Financial Services Limited who, following the receipt by Recognise of its TCR letter, exercised their put option under the terms of the Recognise Shareholders' Agreement and sold their interest in the equity to the Company. The premium of GBP4,360,000 arising on the issue of the shares was credited to Share premium. Following the acquisition of these shares from the minority shareholders, the Company increased its shareholding from 72% to 100% and, in accordance with IAS 27, the consideration given for the shares, being the premium arising on consolidation, has been included as a movement in equity.
No costs were incurred in relation to the issue of shares in the period or in the prior year.
Ordinary
Deferred of GBP0.02 Deferred Ordinary
Shares in issue Number Number GBP'000 GBP'000
----------------------------- --------------- ----------- -------- --------
As at 31 March 2019 3,648,425,419 39,407,263 3,648 788
Issued for cash
on
12 April 2019 - 400,000 - 8
----------------------------- --------------- ----------- -------- --------
As at 30 September
2019 3,648,425,419 39,807,263 3,648 796
Issued on
13 November 2019 - 153,288 - 4
----------------------------- --------------- ----------- -------- --------
As at 31 March 2020 3,648,415,419 39,960,551 3,648 800
Issued for cash
on
16 April 2020 - 500 - -
Cancelled on 30
April 2020 and transferred
to Capital reserve (3,648,415,419) - (3,648) -
Issued on 7 August
2020 on conversion
of 6% Unsecured
Loan Stock 2021 - 1,433,565 - 28
Issued on 4 September
2020 following exercise
of put option by
minority shareholders
in Recognise Financial
Services Limited - 5,600,000 - 112
----------------------------- --------------- ----------- -------- --------
As at 30 September
2020 - 46,994,616 - 940
----------------------------- --------------- ----------- -------- --------
12 Commitments
The holder of GBP2,669,515 7% Redeemable Preference Shares issued on 15 July 2015 by a subsidiary, Credit Asset Management Limited, may require the Company to purchase these shares at their face value and any accrued but unpaid dividend after 7 years if the shares are not redeemed by that date.
Under the terms of its acquisition of Acorn to Oaks Financial Services Limited in January 2019, the Company is committed to pay a further earn-out consideration, which is based on a six-times multiple of the average annual profit for the three-year period up to 31 March 2022, up to a maximum of GBP5,000,000. It is not considered that any deferred consideration will be payable.
The Company has given a guarantee to a third party in respect of moneys lent to Property & Funding Solutions Ltd whereby the third party will be indemnified by the Company for 50% of any loss of principal it suffers plus any interest accruing thereon and the costs of enforcing the guarantee. All funds from the third party are secured over the property in respect of which the funds were advanced. The amount outstanding to the third party at 30 September 2020 was GBP862,500.
13 Financial risk management
Notes 32 and 33 to the annual financial statements to 31 March 2020 include the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit risk, interest rate risk, price risk and liquidity risk.
The 2020 Annual Report identified the main risk factors around the cash flow forecast in the Strategic Report at that time.
14 Financial instruments
A summary of financial instruments to which the impairment requirements in IFRS 9 are applied
are as follows. Assets and liabilities outside the scope of IFRS 9 are not included in the table below:
Financial Instruments 30/09/20 31/03/20 30/09/19
GBP'000 GBP'000 GBP'000
(unaudited) (audited) (unaudited)
------------------------------------ ------------ ---------- ------------
Financial assets
Measured at fair value through
profit and loss
Financial assets - equity release
plans 31,309 30,343 30,440
Other investments - unlisted
security - - 8
Measured at amortised cost
Right-of-use assets 509 650 -
Loans 11,290 15,321 14,972
Finance leases 1,967 2,687 3,331
Trade receivables 227 544 420
Other debtors 3,104 2,187 1,836
Cash and cash equivalents 5,645 7,219 9,891
Measured at fair value through
other comprehensive income
Legal case investments - - 130
54,051 58,951 61,028
------------------------------------ ------------ ---------- ------------
Financial Liabilities
Measured at amortised cost
6% Unsecured Convertible Loan
Notes 2021 - 2,050 2,050
Other interest-bearing loans 64,028 67,773 67,015
Lease liabilities 577 724 -
Deferred consideration 154 149 497
Trade payables 646 795 680
Other creditors 231 295 176
Dividends payable 1 1 1
Accruals and deferred income 3,354 2,660 2,008
68,991 74,447 72,427
------------------------------------ ------------ ---------- ------------
Price risk
The Group is subject to price risk on both its investment properties and its financial assets - equity release plans. The valuation of each of these is a Level 3 valuation in the fair value hierarchy i.e. the valuation techniques use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
The bases of assessing the fair values of the investment properties and financial assets - equity release plans are set out in note 3 of the annual financial statements to 31 March 2020. The sensitivity analysis to changes in unobservable inputs for both investment properties and financial assets - equity release plans is:
-- increases in estimated investment terms and rates would result in a lower fair value; and -- decreases in estimated investment terms and rates would result in a higher fair value.
Due to the aggregated nature of the investment property and financial asset portfolio it is not possible to accurately quantify sensitivity of an individual input.
Due to their short maturity profiles, management is of the opinion that there is no material difference between the fair value and carrying value of trade and other receivables, cash and cash equivalents, and trade and other payables. The directors therefore consider that the carrying value of financial instruments equates to fair value.
The following tables present the Group's assets that are measured at fair value at 30 September 2020 and 31
March 2020 respectively. No Level 1 or Level 2 assets were held at either date.
Level 3 valuation Total
30 September 2020 (unaudited) GBP'000
----------------------------------------- ---------
Investment properties 37,380
Financial assets - equity release plans 31,309
68,689
----------------------------------------- ---------
Level 3 valuation Total
31 March 2020 (audited) GBP'000
----------------------------------------- ---------
Investment properties 38,609
Financial assets - equity release plans 30,343
68,952
----------------------------------------- ---------
The movement on level 3 assets is as follows:
30/09/20 31/03/20 30/09/19
(unaudited) (audited) (unaudited)
GBP'000 GBP'000 GBP'000
---------------------- ----------- ----------------- -----------
Balance at 1 April 68,952 71.663 71,663
Additions - 42 42
Equity transfer 394 1,367 342
Revaluations 2,857 1,443 764
Disposals (3,514) (5,563) (2,463)
---------------------- ----------- ----------------- -----------
Balance at 31 March 68,689 68,952 70,348
---------------------- ----------- ----------------- -----------
15 Provisions for impairment under IFRS 9
Current lease and loan portfolio, excluding property bridging loans
Following the Board's decision in March 2020 to put all new lending on hold, the loan and lease portfolios of CAML/ PFL entered their run-off phase from that time.
The provisions made as at 31 March 2020 under IFRS 9 included COVID-19 overlay provisions which were incorporated in the model in relation to Stage 1 and Stage 2 agreements and included as part of specific provisions for Stage 3 agreements.
CAML/PFL have continued to monitor amounts due from customers closely, including those customers who took advantage of the offer made to customers in response to the COVID-19 pandemic of reduced payments, interest only and full capital and interest moratoriums for 3 months. Specific provisions required in respect of agreements in default, including those which were reclassified as Stage 3 agreements during the period, have been assessed on the basis of current knowledge, including forecasts of recoverable amounts. As a result of these reviews, a further GBP139,000 of the COVID-19 provisions held as at 31 March 2020 have been allocated to specific agreements.
In determining the provision required for Stage 1 and Stage 2 agreements as at 30 September 2020, the existing IFRS 9 model was used. As CAML/PFL had already incorporated COVID-19 overlay provisions into its provisioning exercise as at 31 March 2020, no allowance was made for these when the model was run as at 30 September 2020. In considering forward-looking macro-economic factors, the assumption made in the model was that GDP would not change. The IFRS 9 provision as at 31 March 2020 was recalculated after excluding the COVID-19 overlay provisions to provide a basis for computing the movement between 31 March and 30 September 2020 that ignored the effect of the COVID-19 overlay provisions.
The IFRS 9 provision generated by the model for Stage 1 and Stage 2 agreements as at 30 September 2020 was GBP112,000, GBP50,000 less than the amount calculated on the same basis as at 31 March 2020. As the net investment in the lease and loan portfolios is progressively reducing in the run-off phase, a reduction would be expected. In addition to this provision, a COVID-19 overlay provision of GBP538,000 is carried in respect of Stage 1 and Stage 2 agreements. The total provision carried at 30 September was GBP650,000 compared with GBP839,000 at 31 March 2020.
Consideration has been given as to whether the COVID-19 overlay provisions carried continue to be appropriate. On the basis of the collections experience during the period to September 2020 and current expectations regarding future collections, it has been concluded the overall IFRS 9 provisions made as at 31 March 2020 were realistic and can be applied to absorb bad debts arising in the run-off period. In view of the on-going uncertainty on the impact of COVID-19 on the amounts that will be realised from the lease and loan portfolios, it is considered the existing balance should be maintained at this time.
Following the overall assessment that the IFRS 9 provisions held at 31 March 2020 were appropriate, the net cost of bad debts arising in the period has been absorbed against the existing provision so that there is no charge for bad and doubtful debts in the profit and loss account. Similarly, the reduction on the IFRS 9 provision on the Stage 1 and Stage 2 agreements has not been credited to the profit and loss account but has been absorbed part of the overall provision.
Property bridging loans
Property bridging loans are assessed individually for impairment using the simplified approach. Following an assessment as at 30 September 2020 of the loans existing at that date, it was determined that the position was the same as at 31 March 2020 ie having regard to the security, the repayment profile and the fact that all loans were fully performing with no payment arrears, no provision for impairment was required.
The provision for impairment of loans and finance leases comprises the following:
Stage 1 Stage 2 Stage Total
3
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------- -------- --------
At 30 September
2020 (unaudited)
Loans 381 21 1,365 1,767
Finance leases 248 - 512 760
Provision for impairment 629 21 1,877 2,527
-------------------------- -------- -------- -------- --------
At 31 March 2020
(audited)
Loans 501 21 1,277 1,799
Finance leases 317 - 479 796
-------------------------- -------- -------- -------- --------
Provision for impairment 818 21 1,756 2,595
-------------------------- -------- -------- -------- --------
At 30 September
2019 (unaudited)
-------------------------- -------- -------- -------- --------
Loans 46 1 936 983
-------------------------- -------- -------- -------- --------
Finance leases 175 6 200 381
-------------------------- -------- -------- -------- --------
Provision for impairment 221 7 1,136 1,364
-------------------------- -------- -------- -------- --------
The provisions for impairment on loans and finance leases classified as Stage 3, which are assessed individually by management, include provisions made for arrears on these agreements.
The table below shows an analysis of movements in the provision for impairments under IFRS 9:
Stage Stage Stage Total
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------- -------- -------- --------
As at 30 September 2019 221 7 1,136 1,364
Movement in provision for impairment
Transfer to Stage 2 (14) 14 - -
Transfer to Stage 3 (36) - 36 -
Specific provisions - - 750 750
New financial assets originated 470 - - 470
Other financial assets 177 - - 177
Write-offs - - (166) (166)
--------------------------------------- -------- -------- -------- --------
Total movement in loss allowance 597 14 620 1,231
--------------------------------------- -------- -------- -------- --------
As at 31 March 2020 818 21 1,756 2,595
--------------------------------------- -------- -------- -------- --------
Movement in provision for impairment
Transfer to Stage 2 (23) 23 - -
Transfer to Stage 3 (122) (23) 145 -
Specific provisions - - 65 65
New financial assets originated 6 - - 6
Other financial assets (50) - - (50)
Write-offs - - (89) (89)
--------------------------------------- -------- -------- -------- --------
Total movement in loss allowance (189) - 121 (68)
--------------------------------------- -------- -------- -------- --------
As at 30 September 2020 629 21 1,877 2,527 --------------------------------------- -------- -------- -------- -------- 16 Post balance sheet events
The Company completed its capital raise exercise in October 2020, raising GBP26,986,002 before expenses and issuing 33,355,688 ordinary shares at 80p each on 8 October 2020 and 376,815 ordinary shares at 80p each on 26 October 2020. The moneys raised included an investment of GBP25,000,000 from a single investor, Parasol V27 Limited, with the balance being subscribed by both existing shareholders and new investors. Following its investment, Parasol V27 Limited holds 38.7% of the ordinary shares of the Company while the other two major shareholders, DV4 Limited and Max Barney Investments Limited now hold 23.1% and 15.9% respectively. Under the arrangements with Parasol V27 Limited, Ms R Parasol and Ms N Llamas were appointed directors of the Company on 8 October 2020.
After allowing for the costs associated with the capital raise, the funds raised were invested in Recognise Financial Services Limited ("Recognise") to provide the necessary initial capital base from which Recognise can develop its lending operations.
In furtherance of the Group strategy that all new lending will be made through Recognise, the ownership of Property & Funding Solutions Ltd ("PFS") was transferred from the Company to Recognise on 8 October, with the total consideration of GBP6,069,359 being satisfied by the issue of shares by Recognise. In addition to the transfer of the PFS shares, the consideration related to the assignment of a loan of GBP4,857,114 from the Company to Recognise and an injection of GBP1,212,145 cash.
On 10 November, Recognise received authorisation with restriction (AwR) (banking licence) from the PRA/FCA. The receipt of this restricted banking licence enables Recognise to commence its banking activities and move towards meeting the mobilisation conditions set by the PRA/ FCA which will lead to the removal of the deposit restriction. The Company anticipates that Recognise will be granted a full UK banking licence by the end of June 2021.
By order of the Board
Michael Goldstein
Chief Executive Officer
30 November 2020
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