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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Gli Finance Limited | LSE:GLIF | London | Ordinary Share | GB00B0CL3P62 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 2.62 | 2.60 | 3.00 | 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
TIDMGLIF
RNS Number : 8394I
GLI Finance Limited
26 March 2018
GLI Finance Limited
("the Group" or "GLI")
Final Results for the Year Ended
31 December 2017
GLI Finance announces its Final Results for the year ended 31 December 2017
Hot Features
Premium
Year ended Year ended
31 December 2017 31 December
2016
GBP'000 GBP'000
Total revenue 11,634 12,028
Net operating
profit 101 (2,833)
Loss before tax (15,184) (16,355)
Basic and diluted
Loss Per Share (5.01p) (6.49p)
HIGHLIGHTS
Group Highlights
-- Improvement in operating profit to GBP0.1m from a loss of GBP2.8m in 2016 reflecting strong revenue growth in Sancus BMS, reduced interest costs and operational cost savings.
-- Group revenue of GBP11.6m decreased by 3% from GBP12.0m in 2016.
-- Adjusting for the sale of the SQN Secured Income Fund shares ("SSIF")*, revenue increased 18%.
-- Stabilisation of the FinTech Ventures portfolio following the write downs in the first six months.
-- Group NAV is GBP74.8m (2016: GBP90.7m).
-- Sale of the Group's equity holding in SSIF for GBP22.7m and subsequent repayment of the Group's syndicated loan of GBP11.9m.
-- In accordance with the Group's stated policy of paying dividends out of net cash generation, no dividend will be declared for the period. The Group remains committed to reconvene dividends as soon as practicable.
Sancus BMS Highlights
-- Revenue growth of 11.4% excluding SSIF dividends.
-- Net operating profit up 26% to GBP1.6m following revenue growth and a reduction in debt costs.
-- 26% growth in managed loan book to GBP218m with a default rate of under 0.5% reflecting strong underwriting controls.
-- A special purpose lending vehicle established post year end with a GBP50m lending capacity, backed by a GBP45m credit facility with Honeycomb Investment Trust plc ("HIT").
-- Improved performance by Sancus Finance and Sancus Funding** ("Sancus UK") with operating loss reduced by GBP0.8m to GBP1.5m with targeted break-even by the end of 2018. Sancus Funding now fully FCA authorised.
FinTech Ventures Highlights
-- FinTech Ventures portfolio stabilised in the second half of the year following the GBP12.6m write down taken in the first half and a GBP1.7m foreign exchange loss for the year.
-- The carrying value of FinTech Ventures portfolio reduced to GBP29.6m from GBP36.1m at 31 December 2016.
-- NAV for FinTech Ventures portfolio 10.0 pence (31 December 2016:13.3 pence).
-- Portfolio companies moving toward break-even with the majority forecast to achieve break-even during 2018.
-- Further investment made of GBP1.5m in five platform companies primarily in the form of convertible loan notes during the year.
-- Several of the platforms are expected to successfully raise further equity during 2018 to fund future growth.
Andy Whelan, CEO commented:
"The year saw a lot of change as I continued the work I started on my appointment in December 2015. Two years into my role I can see real progress.
Sancus BMS is the key operating unit within the Group and is starting to deliver on its potential. The businesses that comprise Sancus BMS are good businesses, well run, with the ability to deliver healthy returns. We are delighted to have secured the credit facility from HIT which was announced in January 2018 which will help drive further growth.
We have taken some tough decisions on the FinTech Ventures portfolio and made substantial write-downs in the first half of the year. I am delighted that no further net write-down was required at the end of the year. With most of the restructuring that is required now complete we will seek to maximise the value of the portfolio going forward"
*On the 27 April 2017 The SME Loan Fund ("SMEF") was renamed to the SQN Secured Income Fund ("SSIF").
** Funding Knight changed its name to Sancus Funding on 16 January 2018.
For further information:
GLI Finance +44 (0)1534 708900
Andy Whelan
Nominated Adviser and Broker
+44 (0)207 100
Liberum Capital Limited 2000
Steve Pearce
Chris Clarke
Jonathan Wilkes-Green
Public Relations Adviser
+44 (0)207 457
Instinctif Partners 2020
Tim Linacre
Ambrose Fullalove
CHAIRMAN'S STATEMENT
Positioning the business for the future
As the CEO points out in his review, 2017 was a year of driving through change. The business structure has been greatly simplified with two distinct business units.
Sancus BMS comprises the Group's property backed and SME lending businesses. FinTech Ventures represents the Group's investments in 11 SME focussed lending platforms.
Sancus BMS offers the opportunity for strong growth and will be the engine of the business going forward.
We took the decision during the first half of the year to reduce the carrying value of several of the platforms within the FinTech Ventures portfolio writing down some of the legacy loans and investments. Whilst there have been some changes to the valuations of individual investments in the second half of the year I am pleased to report that the aggregate value of the investment portfolio has stabilised in the second half of the year. We shall now explore ways of maximising the value of the portfolio for the benefit of shareholders.
The launch of a special purpose lending vehicle with a GBP50m lending capacity, backed by a GBP45m facility with HIT in January of 2018 was an important step in the expansion plans for Sancus BMS. The granting of the line is an endorsement of the thorough credit processes used within Sancus BMS, and we are exploring other funding lines and working capital focussed facilities, in particular for the UK Sancus businesses.
Overview
We expect the economies in which we operate to remain supportive of our businesses for the foreseeable future. The alternative finance sector continues to develop rapidly and we believe we are well positioned to benefit from this trend across both parts of our business.
Sancus BMS Group continues to grow and we have a solid profitable business with a strong pipeline and some exciting growth plans which the funding facility will also help provide. With regards to the FinTech Ventures portfolio, several of our platforms are performing strongly and we remain confident of achieving a good return on our investment as transactions materialise in due course. Across the 11 platforms we are invested in, the majority of them are forecasting to reach break-even by the end of 2018. We are, however, a passenger on their growth journey with limited capital available in GLI itself and hence we provide support with regard to the strategy and its execution, as well as assisting with capital restructuring and fundraising.
Dividend and Shareholders
I am grateful to all our shareholders who have kept confidence with the Group through what has been a difficult period, particularly in light of the significant decline in the share price. We believe that the share price is trading well below the inherent value of the business and we look forward to the share price reflecting all of the significant work by the CEO and his Executive Team to simplify the business model and improve shareholder communication. In line with our dividend policy, it is not proposed to declare a dividend for this financial year but we are committed to reinstating one as soon as feasible.
Patrick Firth
Chairman
Date: 26 March 2018
CHIEF EXECUTIVE OFFICER'S REVIEW
Gaining momentum
In the period since my appointment the business has undergone substantial change. The year under review saw a continuation of the strategy I set out; the business has been simplified, the FinTech Ventures portfolio stabilised, and Sancus BMS positioned for growth.
For the first time since the restructure, the Group is now producing an operating profit. Whilst this was small in 2017, it is a big step in the right direction and gives the management team a very solid and stable foundation to build from.
We have seen revenue growth in Sancus BMS, have reduced costs by over GBP2m and are working with the companies within the FinTech Ventures portfolio to maximise value.
The execution of the strategy I started is not yet complete, however I am optimistic about the prospects. The HIT Funding Facility will further enable Sancus BMS growth. The majority of the portfolio companies in FinTech Ventures are heading towards break-even which, in my view, will facilitate obtaining significant external funding and accelerate their growth potential.
I will now provide further detail on the operational and financial performance of the Group looking at Sancus BMS and FinTech Ventures separately.
Sancus BMS
Sancus BMS continues to grow strongly with the total loan book advances increasing 26% year on year to GBP218m. On a like for like basis, year on year revenue within the Sancus BMS Group has increased by 13% (Table 5 in the Financial Review). The percentage revenue growth is not proportional to the loan book advances due to the introduction of the Sancus Loan Notes ("SLNs"), the irregular nature of loan earn outs and the BMS administration fee being fixed.
The SLNs comprise a planned series of Special Purpose Vehicles ("SPVs") designed to act like securitisation vehicles to help offset capital constraints and enable additional co-funder participation in loan opportunities. These are attractive to new clients that want to invest in an independently managed (by Amberton Asset Management) listed product rather than via direct participation. The first SLN was launched with the equity portion provided by Sancus BMS in the form of transferred loans and created a lag on the revenue being earned given Sancus's junior position in the equity. SLN2 and SLN3 were both launched with cash and therefore there was a time lag prior to investment. This served to initially reduce the investment return to Sancus BMS. The decision has been made to repay SLN1 post year end, partly using the HIT facility. It is not currently expected that the other two loan notes will be repaid prior to maturity and we are actively exploring the option of further loan notes or similar structures in the near future. The loss of revenue in creating the loan notes was unfortunate but required in order for us to demonstrate proof of concept on this new innovative structure. This has allowed us to issue further loan notes with each subsequent note being issued at a lower interest rate cost.
Our strong underwriting criteria and procedures continue to deliver very impressive default rates with losses being maintained at less than 0.5% across the Sancus BMS portfolio. It should be noted that there is always the risk of further defaults and potential losses as lending is not risk free, however the expected risk adjusted return is considered very attractive.
Sancus Funding, which changed its name from Funding Knight at the beginning of 2018, transferred into Sancus BMS from FinTech Ventures during the year as it is now 100% owned by the Group. With the full FCA authorisation having been obtained in July 2017, Sancus Funding and Sancus Finance (which combined we will refer to as Sancus UK) are increasingly being managed as one business and we are making good progress on the repositioning of Sancus UK. We have seen a new MD join at the beginning of 2018 whose key task is to increase performance and bring down costs. These entities had a strong finish to 2017 with a record number of loan originations. However, management are acutely aware that performance in these entities needs to continue to improve and are focussed on achieving profitability during the coming year.
Over the last year, Sancus BMS has been creating the Sancus Digital platform consisting of a proprietary Loan Management System (LMS) for administering loans across all Sancus jurisdictions with on demand real time management reporting. Onshore funders are able to access account information and participate in loan funding opportunities through a LMS integrated transactional portal. Early 2018 saw the launch of our online platform for offshore co-funders and has been very well received by this key stakeholder group. Offshore co-funders are able to access their account information real time through a LMS integrated reporting portal. This enables co-funders to access statements and see details of individual loans they are funding and access relevant loan documents. Dual authentication for online access has also been implemented for additional security.
FinTech Ventures
The majority of the platforms within our FinTech Ventures portfolio continue to grow strongly and the loan origination has increased year on year by an impressive 43%. Following the write downs required in the first six months of this year, the portfolio has been stable and it's pleasing to see a small write-up in aggregate valuation during the second 6 months. There has, however, been some material movements in value across some of the individual platforms within the portfolio. The value of our holding in one of our platforms has increased by over 181% following a material third party equity raise which is due to complete in early April 2018. This was largely offset by a 43% reduction in the valuation of our investment in another platform which is currently undergoing a capital restructuring.
During the year, further investments, with an aggregate value of GBP1.5m and largely in the form of convertible loan notes, have been made into Open Energy Group, LiftForward, Finexkap, UK Bond Network and Trade River USA, to continue to support their growth plans. The movement in foreign currency rates since 31 December 2016 has resulted in a GBP1.7m reduction in the fair value of our investments, primarily arising from the 9.5% devaluation of USD versus GBP.
Several of the platforms are currently undergoing capital restructurings, many of which involve securing further equity or institutional funding at a lower rate than their current cost of capital. We continue to improve the level of monitoring and influence over the platforms in which we hold investments in order to protect our interests and ensure we are well positioned for the expected upside in due course.
Summary of Financial Performance
For the first time since the corporate restructure, the Group is now producing an operating profit. The net operating profit of GBP0.1m in 2017 reflects a significant improvement compared to the net operating loss of GBP2.8m in 2016 and has been delivered through the hard work of the management team with a focus on both sales and driving efficiencies across the Group. Whilst this is clearly encouraging, we are confident of building on this performance by improving profits and looking to get back to a position where we can recommence paying dividends, in line with our policy noted below. The focus on driving efficiencies has enabled us to reduce costs by GBP2m in the year, by insourcing more functions, such as Group accounting and administration and reducing legal and professional fees in Fintech Ventures. We continue to look for further efficiencies across the Group.
I am very pleased to report that the FinTech Ventures portfolio has stabilised in the second half of 2017 with no further net write-down on the portfolio being required. As I have noted before, we are largely a passenger, but with Board and advisory rights, on the FinTech Ventures portfolio. However, as it makes up a large proportion of our gross assets (28%) we do spend a lot of time and effort working with the management teams of the platforms and introducing them wherever we can to potential new investors as well as providing assistance on capital raises. 2018 is a key year for a lot of the platforms with most of them forecasting to achieve break-even. We have seen that getting to this break-even stage is a key milestone to attract further larger capital injections required to take them to another level where we can see the potential for decent returns.
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 are consistent with prudent capital and liquidity management, covered by cash earnings and realised profits on the sale of investments. Any dividend will be set at a rate that is affordable. GLI is committed to providing a stable progressive platform for future growth.
Where deemed appropriate and subject to the criteria outlined above, any dividend payment will be made half yearly, with a weighting of approximately one third in September as an interim dividend and two thirds in March as a final dividend.
Post Balance Sheet Events
HIT Funding Facility
A special purpose loan vehicle called Sancus Loans Limited which is non-recourse to GLI has been established with a GBP50m funding capacity. This has been backed by a GBP45m credit facility from HIT, with a term of 3 years, of which GBP17.5m had been drawn and deployed immediately.
Related Party Transactions
Related party transactions are disclosed in Note 21. 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.
Operationally a number of technology projects were completed during the year, in particular to provide Sancus BMS Group with a proprietary loan management system and enhanced online functionality.
Long-term strategy and business objectives
As highlighted in the Strategic Plan, we have made excellent progress in delivering against the objectives we agreed as a Board towards the end of 2016.
Sancus BMS continues to grow strongly and I am delighted that our strong underwriting criteria continue to deliver exceptionally low loss rates. The coordination across the executive and senior management team, complemented with strong new business development expertise, is delivering a healthy flow and pipeline of lending opportunities. Our solid reputation in the markets in which we operate is also enabling us to lower our cost of funding, through the extension of our successful loan note program and the credit facility from HIT.
I am very pleased that the aggregate value of our FinTech Ventures portfolio has stabilised during the second half following our decision to take material write downs on a few platforms during the first half of 2017. We continue to enhance the level of monitoring and governance of our FinTech companies and have strong relationships with the platforms we are involved with.
Outlook
The Group has gone through a period of sustained change over the past two years. We are now in a solid position with the potential for strong risk-adjusted performance for the Group. However, I fully appreciate that we have two businesses; Sancus BMS and the FinTech Ventures portfolio which might not ordinarily be grouped together. Therefore, I will continue to consider how we can maximise their value in the future.
I would like to thank our shareholders for their continued support and patience.
Andrew Whelan
Chief Executive Officer
26 March 2018
FINANCIAL REVIEW
Overview
Our focus remains on the operating profits of Sancus BMS and the growth in the fair value of FinTech Ventures' investments.
Sancus BMS includes the three Sancus entities (Sancus Jersey, Sancus Gibraltar and Sancus Guernsey) along with Sancus Finance, Sancus Funding, BMS and Amberton. It is worth noting that the prior year comparisons do not include a full years' worth of trading for Sancus Gibraltar and Sancus Funding as these were not brought into the Group until the second half of 2016. The adjustment for these entities would have resulted in an additional GBP0.9m of revenue and GBP1m of costs so on a net operating profit basis a GBP0.1m adjustment, so comments made below are on the Statutory Results. A proforma set of results for the Sancus BMS Group by entity is shown in Table 5.
The results for the year showed that we reached profitability on a net operating basis with a GBP0.1m profit this year versus a GBP2.8m loss in the prior year. The overall loss of GBP15.2m in 2017 was largely caused by the GBP12.3m write down on the FinTech Ventures portfolio in the first half of the year and a GBP1.5m FX loss for the year. We do still however hold equity stakes in all 11 platforms, with some valued at zero, but in total with a valuation of GBP29.6m. The second half of the year has seen some positive developments with several of the platforms and it is pleasing that the aggregate value of the portfolio has stabilised. Given the early stage of several of these platforms, there remains a risk that some of them may potentially not succeed and future capital funding into these platforms is critical. Several of the platforms are expecting to conduct equity raises during 2018 and we will continue to support management wherever we can.
The overall Group performance in the year is showing positive signs and reflects the hard work that has been put into the restructuring of the Group and cost saving initiatives over the past two years. Sancus BMS has shown a good performance with 11.4% revenue growth on prior year excluding SSIF dividends and cost savings made in Sancus Funding and Sancus Finance of GBP0.8m, producing a 26% increase on Sancus BMS operating profit of GBP1.6m versus GBP1.2m in 2016.
Group debt costs have reduced following the syndicated loan repayment in March 2017 when the SSIF shares were sold, reflecting below the reduction of the SSIF dividend income compared to prior year, but also a reduction in interest costs.
At Group level, further savings have been made on operating costs including administration, legal, marketing and staff costs.
The FX loss of GBP1.5m for the year largely reflects our USD exposure on our platforms. The Treasury Committee continuously monitors the currency position, however due to the ever-changing valuations of the platforms the Board's stance on hedging remains as prior that we do not currently hedge our position.
Goodwill impairment reviews on Sancus Jersey and Sancus Finance have been carried out as at 31 December 2017 and no impairment has been deemed necessary. A full annual impairment review for Sancus Gibraltar was carried out at 30 June 2017. Further details in respect of the testing and methodology is noted in Note 10.
Financial Results for the year ended 31 December 2017 (Table 1)
2017 2016 Movement Movement
GBP'000 GBP'000 % GBP'000
Sancus BMS interest on loans
and fee and other income 10,038 9,007 11% 1,031
FinTech Ventures interest
on loans and fee and other
income 1,293 628 106% 665
SSIF dividends 303 2,393 (87%) (2,090)
Revenue 11,634 12,028 (3%) (394)
Interest costs (2,178) (3,774) (42%) 1,596
Other cost of sales (270) (78) (246%) (192)
Gross profit 9,186 8,176 12% 1,010
Operating expenses (9,085) (11,009) 17% 1,924
Net operating profit/(loss) 101 (2,833) 104% 2,934
Fair Value, Goodwill and
other net losses (13,802) (18,044) 24% 4,242
FX (loss)/gain (1,463) 4,425 (133%) (5,888)
Tax (20) (83) 76% 63
Loss for the year (15,184) (16,535) 8% 1,351
Revenue
Total revenue for the year reduced by 3% to GBP11.6m (2016: GBP12m), the reduction however is due to structural changes within the Group and the sale of the shares held in SSIF in March 2017 (refer Note 7). Excluding the SSIF dividends which as now sold we will no longer receive, revenue was up by 18%.
The principal driver of revenue growth within Sancus BMS has been fee income from arrangement and commitment fees arising from the increase in loan origination. However, the increase in fees has been somewhat offset by a reduction in interest income as on balance sheet funds have not grown due to capital constraints and the Sancus Loan Notes have also caused a reduction in income, particularly in the first half of 2017.
Revenues from interest income from loans and preference shares held in FinTech Ventures increased in the year as additional loans and accrued interest were acquired as part of the sale of our shares in SSIF.
Interest Costs
Interest costs have decreased in the year from GBP3.8m to GBP2.2m as the syndicated loan of GBP11.9m was repaid in March 2017. As intended, the repayment of the syndicated loan enabled us to reduce our weighted average interest cost for the year ended 31 December 2017 down to 5.9% (from 7.5% at 31 December 2016). At the year end, interest bearing debt comprised:
o GBP10m 5-year Bond (7%) matures 30 June 2021, interest paid half yearly; and
o GBP20.7m 2019 ZDPS (5.5%) income entitlement and principal due on expiry 5 December 2019 (GBP24.7m).
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
Operating expenses for the year of GBP9.1m compared to GBP11.0m in 2016.
Our focus on improving efficiency delivered GBP2m reduction in costs. These cost savings have largely been achieved by insourcing more functions, such as our group accounting by implementing Xero accounting system across the Group, particularly at the Group Head Office. Within FinTech Ventures, we have successfully reduced our legal and professional fees.
Sancus BMS's operating expenses have remained flat year on year with an increase in employment costs from the investment into business development resources and the expansion of its operations in the Offshore entities. However, this has been mostly offset by cost savings in Sancus Finance and Sancus Funding.
Fair Value adjustments and other net losses including FX (Table 2)
In total the fair value adjustments and other net losses in the year produced a loss of GBP15.3m. The breakdown is shown in the table below.
GBP'000 H1 2017 H2 2017 Full Year
2017
--------------------------- --------- -------- ----------
FinTech Ventures loan
provision (2,790) - (2,790)
--------------------------- --------- -------- ----------
FinTech Ventures loan
write down (806) - (806)
--------------------------- --------- -------- ----------
FinTech Ventures equity
fair value movement (8,630) 306 (8,324)
--------------------------- --------- -------- ----------
FinTech Ventures other (332) - (332)
--------------------------- --------- -------- ----------
Total FinTech Ventures
before FX Loss (12,558) 306 (12,252)
--------------------------- --------- -------- ----------
FinTech Ventures FX
Loss (992) (669) (1,661)
--------------------------- --------- -------- ----------
Total FinTech Ventures (13,550) (363) (13,913)
--------------------------- --------- -------- ----------
Amberton NAV movement (381) (76) (457)
--------------------------- --------- -------- ----------
Sancus BMS FX movement 169 29 198
--------------------------- --------- -------- ----------
Sancus BMS other movement 80 (220) (140)
--------------------------- --------- -------- ----------
Total Sancus BMS (132) (267) (399)
--------------------------- --------- -------- ----------
SSIF realised loss
on sale (953) - (953)
--------------------------- --------- -------- ----------
Total Losses on financial
assets at FVTPL (14,635) (630) (15,265)
--------------------------- --------- -------- ----------
The loan provision and loan write-down made during the first half of the year related to legacy GLI loans which were previously held within the SSIF portfolio. As part of the sale of GLI's stake in SSIF, these were transferred back to GLI. The equity write-down related to two platforms, one which was in the process of looking to raise further equity capital and based on the expressions of interest at the time, management believed it was prudent to reduce our holding value of this investment by GBP6.1m. The second equity write down of GBP2.5m related to one of the platforms which was performing behind forecasts.
Dividend Policy
A dividend of 0.625 pence per share was paid in April 2017 in relation to quarter four 2016. In line with the Group's announced dividend policy whereby dividends are only paid out of net cash generated in the period there will be no dividend declared for the year.
Financial Position (Table 3)
GBP'000 31 December 2017 31 December
2016
Sancus BMS on Balance Sheet
Loans and loan equivalents 46,326 38,821
Shares in SSIF - 23,781
Goodwill 25,033 25,033
FinTech Ventures' Loan
and loan equivalents 839 4,034
FinTech Ventures' Investment
Portfolio 29,598 36,104
Group Cash, trade receivables
and other assets 10,656 14,347
Total assets 112,452 142,120
Total liabilities (37,649) (51,252)
Group net assets 74,803 90,868
The Group's Net assets have decreased in the year by GBP16.1m to GBP74.8m, predominantly due to the fair value adjustments noted in Table 2.
Sancus BMS on Balance Sheet Loans and loan equivalents (Table 4)
On balance sheet loan and loan equivalents have increased in the year from GBP38.8m to GBP46.3m, with an increase in the BMS Funds and SLNs being the primary driver for the increase. The IOM Preference shares which are included as an asset and a payable have reduced in the year as a result of a review by the Sancus IOM Board as to the optimum capital structuring of the business.
GBP'000 31 December 31 December
2017 2016
----------------------------------- ------------ ------------
Sancus Jersey 4,808 3,659
----------------------------------- ------------ ------------
Sancus Gibraltar 5,896 4,968
----------------------------------- ------------ ------------
Sancus Guernsey 718 1,180
----------------------------------- ------------ ------------
BMS - Investment in the funds
and other loans 22,045 19,114
----------------------------------- ------------ ------------
Sancus UK 1,002 -
----------------------------------- ------------ ------------
Sancus Loan Notes 10,907 7,500
----------------------------------- ------------ ------------
IOM preference shares 950 2,400
----------------------------------- ------------ ------------
Total Sancus BMS on Balance
Sheet Loans and loan equivalents 46,326 38,821
----------------------------------- ------------ ------------
Shares held in SSIF were sold in the year, raising GBP22.7m in cash which was partly used to repay the syndicated loan.
Goodwill has remained at GBP25.0m and a full impairment review has been carried out on Sancus Jersey and Sancus Finance at the year end and Sancus Gibraltar at the half year. No impairment to Goodwill was deemed necessary. A breakdown of the balances is provided in Note 10.
The FinTech Ventures loans and loan equivalents of GBP0.8m (31 December 2016: GBP4.0m) has decreased during the year due to the repayment of certain loans and the write down and provision against the loans acquired from the sale of SSIF.
FinTech Ventures portfolio was valued at GBP29.6m at the year end (31 December 2016: GBP36.1m). This relates to equity, preference shares and working capital loans. The movement in the year includes an GBP8.3m write down on fair value adjustments, a GBP3.6m loan provision and loan write down and a GBP1.7m FX loss on the USD exposure of the portfolio with the remaining movement being the net additions and repayments in the year (Table 2).
The Group's liabilities have reduced by GBP13.6m to GBP37.6m in the year following the repayment of the syndicated loan with the Group gearing ratio now at 33% (31 December 2016: 36%).
Cashflow
Cash flows used in operating activities for the year to 31 December 2017 was GBP7.3m compared to GBP8.7m in the prior year. During the year we sold our holding in SSIF, raising GBP22.7m resulting in net cash inflow from investing activities of GBP14.8m (31 December 2016: GBP9.0m). Cash used in financing activities in the year was GBP14.1m (31 December 2016: GBP8.3m) including the repayment of the syndicated loan (GBP11.9m) and the payment of the Q4 2016 GLI dividend (GBP1.3m).
Sancus BMS
Financial Review
Proforma Results of Operating Entities in Sancus BMS
The table below provides comparative figures for the three operating businesses within Sancus BMS as if they had been wholly owned by the Group for the last 2 years. The adjustments made to the 2016 statutory results for a full years' worth of trading for Sancus Gibraltar and Sancus Funding were an additional GBP0.9m for revenue, GBP1m of operating expenses so a GBP0.1m loss adjustment on net operating profit basis. Revenue has also been normalised to exclude earnings in 2016 on Sancus's participation in the syndicated loan to GLI and non-recurring earnings in BMS. No adjustments have been made to 2017 revenue. Tables 6,7,8 reflect actual results, so have not been normalised to exclude non-sustainable earnings, but intercompany items have been eliminated.
Table 5
2017 2016 2017 v 2
2016 Movement
--------------- ------------------------------------------------ -------------------------------------------- ------------------
GBP'000 Sancus BMS Sancus Total Sancus BMS Sancus Total % GBP'000
UK* UK *
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Total
revenue 5,363 3,588 1,087 10,038 4,859 3,163 854 8,876 13% 1,162
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Other
cost of
sales (15) - (255) (270) (35) - (43) (78) (246%) (192)
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Operating
expenses (2,510) (1,469) (2,361) (6,340) (1,872) (1,320) (3,184) (6,376) 1% 36
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Net operating
profit/(loss) 2,838 2,119 (1,529) 3,428 2,952 1,843 (2,373) 2,422 42% 1,006
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Allocated
debt costs - - - (1,878) - - - (1,887) 0% 9
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Net profit
after
debt costs - - - 1,550 - - - 535 190% 1,015
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Cost income
ratio 46.8% 40.9% 217.2% 63.2% 38.5% 41.7% 373.0% 71.8% 12% 8.7%
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Total GBP118.9m GBP81.3m GBP18.2m GBP218.4m GBP100.9m GBP50.8m GBP21.7m GBP173.4m 26% GBP45.0m
Loan Book
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
On Balance GBP22.3m** GBP22.0m*** GBP1m GBP45.3m GBP17.3m GBP19.1m - GBP36.4m 24% GBP8.9m
sheet
loans
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
*Sancus Finance and Sancus Funding combined results.
** Sancus Loan Notes included in Sancus total.
*** Includes BMS UK and Irish fund loans held by GLI GBP1m and BMS GBP21m.
Year on year, revenue has increased by 13% with operating expenses remaining flat in total overall, resulting in an increase in Operating Profit before Interest (OPBI) of 42%, being a GBP1m increase. Revenue within Sancus and BMS has increased by 10% and 13% respectively with the revenues after cost of sales in Sancus UK remaining flat.
We have seen an increase in costs within Sancus as the team has been built out to expand operations. The team now in place is largely complete and we would not expect these costs to increase at the same rate going forward. There are plans in place however to open an Irish office during the second half of 2018 to extend the Sancus property backed lending model.
On the 29 January 2018 it was announced that a special purpose loan vehicle called Sancus Loans Limited which is non-recourse to GLI has been established with a GBP50m funding capacity. This has been backed by a GBP45m credit facility from HIT, with a term of 3 years, of which GBP17.5m had been drawn and deployed immediately. This will allow Sancus to further complement its existing co-funder base particularly in funding larger loan opportunities and will support further loan book growth through 2018 and beyond.
The costs within Sancus UK have been reduced by GBP0.8m in the year primarily as a result of reduction in headcount, and we continue to seek out further efficiencies as the business becomes more integrated.
Over the years, BMS revenues have changed in nature - transaction related fees and interest on loans from own capital have been largely replaced by returns from the loan funds they advise together with related advisory fees.
Sancus
www.sancus.com
Sancus has loaned in total GBP432m since it became fully operational in January 2014, including the Isle of Man.
On average, the profile of the loan book is as follows:
-- Loans size is GBP1.9m; -- duration is 18 months; -- interest rates charged are 10.3%, and -- loan to Values (LTV) are 50%.
The total loan book has increased by 18% from GBP100.9m at the end of December 2016 to GBP118.9m at the end of December 2017.
The purchase of Sancus Gibraltar added GBP22m to the loan book at acquisition and half of the organic growth in 2016 came through further deployment of capital in Sancus Gibraltar.
Co-funder participation increased by 15.6% during 2017, up to GBP96.6m, with GBP25.8m deployed across the Sancus Loan Notes and GBP70.8m deployed directly into individual loans.
Transaction fees have increased by 13% during 2017 as a result of the increase in loan origination, as well as transaction specific exit fees.
Interest income in absolute terms saw a marginal decrease from 2015 to 2016 due to the time taken to deploy the funds raised through the Sancus Loan Note 1 which was launched in November 2016. We saw a slight uptick in 2017 in absolute terms but interest income is not increasing in line with the growth of the loan book for the reasons noted earlier re the loan notes. Lending rates have been maintained at around 10% and as such interest revenue is expected to recover.
Sancus entities continue to enjoy excellent retention rates amongst co-funders, as they seek both to recycle and deploy additional capital upon maturity of existing loans to exploit new opportunities. With attractive risk returns and Sancus's track record of a default lower than 0.5% (but no losses) since inception, strong appetite to participate in loans is expected to continue from existing and new co-funders.
Co-funder fees are down slightly in the second half of 2017 as the average balance of co-funder participations fell temporarily, until improving in the last month of the year as lending opportunities became available.
At year end, Sancus entities reported a strong pipeline of potential new loans. Allied with strong demand for co-funder participation and the HIT funding line, this positions the businesses strongly to exploit further opportunities for revenue growth in 2018.
BMS Finance
www.bms-finance.com
BMS has loaned and advised in total GBP152m since it became fully operational in 2004.
The loan book funded by external capital has increased significantly from December 2014 to December 2017 (601%) and by 61% since the end of 2016. The main drivers being the growth in the UK loan fund which was launched in August 2014 and the launch of the Irish loan fund in March 2016. The decrease in BMS deployed capital from GBP13.8m in December 2015 to GBP13.3m at the end of December 2016 arose following the launch of the Irish fund through BMS seeding the fund with loans from its own balance sheet. Third party investors funded circa 50% of the capital required for the fund to take on these loans, releasing cash to BMS to use for its overall funding commitments into both funds. This has increased to GBP21m this year.
Total income has remained relatively flat year on year as advisory fees earned from the funds are fixed in nature and lending activity directly from the BMS balance sheet decreased as focus continued towards advising the funds. The income arising from fund holdings is BMS's share of the total return on the underlying book of each fund which consists of long term loans to SME's priced between 12% and 14% with return kicker mechanisms attached. Historically the net return to investors after fund costs has averaged between 10% to 12%.
Default rates within the loan funds continue to remain low at less than 0.5%.
Sancus Finance and Sancus Funding (Sancus UK)
www.sancus.com
Since inception, Sancus Finance and Sancus Funding has arranged over GBP200m of funding for its SME clients.
Key developments over the last 12 months:
-- The business repositioned its offering over the year in response to borrower demand and feedback from funders, with a focus on supply chain finance, education finance and invoice trading;
-- improved offering for funders with access to credit-enhanced options in the form of 90% credit insurance (supply chain finance) and first loss protection from Sancus Finance (supply chain finance or invoice trading);
-- significant enhancements to online platform, improving user experience and better reporting for funders;
-- Sancus Finance and Sancus Funding now run on a combined basis with drive to realise cost synergies through combined offices, senior management and reduced overall headcount; and
-- Sancus Funding secured full FCA authorisation.
Sancus Finance advanced over GBP37m in working capital financing for businesses during the year. Origination volumes in the new product areas grew quarter on quarter, with strong momentum heading into 2018. The shift to lower-risk products is reflected in significantly improved default rates, with losses of less than 1% in 2017.
It is a strategic priority for the group to make the business profitable during the course of 2018 by continuing to accelerate the provision of working capital funding through Sancus Finance and secured property funding and asset backed lending through Sancus Funding, while at the same time maintaining cost discipline across the businesses.
FinTech Ventures
Financial Review
FinTech Ventures Portfolio Asset Split (Table 9)
GBP'000 31 December 31 December
2017 2016
---------------------------------- ------------ ------------
Equity 24,554 31,294
---------------------------------- ------------ ------------
Preference Shares 1,916 3,405
---------------------------------- ------------ ------------
Loans 3,128 1,405
---------------------------------- ------------ ------------
Total FinTech Ventures portfolio 29,598 36,104
---------------------------------- ------------ ------------
Total Number of Platforms 11 11
---------------------------------- ------------ ------------
Number of Platforms valued
at zero 2 2
---------------------------------- ------------ ------------
The total fair value at 31 December 2017 of GBP29.6m is made up of investments in the following instruments: GBP24.6m Equity, GBP1.9m Preference Shares, and GBP3.1m of Working Capital Loans. During 2016 and the first half of 2017 some tough decisions have been made to write down the valuations of several of the platforms in the portfolio. However, it is encouraging to see that the aggregate portfolio valuation has stabilised, delivering a small net write up, in the second half of 2017.
There have, however, been some material movements in value of individual platforms within the portfolio. One of the platforms in which we are invested has performed very strongly during the year, exceeding its forecasts, and has received several very positive terms sheets, including from some well-known equity houses and international banks. As a result, our valuation at year end has increased by over 181% and we believe there is considerable potential for it to increase further in due course. This increase has been largely offset by a 43% reduction in the valuation of our investment in another platform which has recently undergone a capital restructuring, which has resulted in some of our securities being written off.
The minority stakes in the start-up platforms acquired by the Group during 2014 and 2015 are considered to have the potential to deliver significant returns in due course. What was not initially obvious at the time the investments were made was the time and funding it might require for these businesses to reach profitability. As a portfolio of early stage businesses, it is perhaps inevitable that some platforms have either failed or have underperformed to the point where it has been appropriate to take write-downs. Several of the platforms continue to perform well with good year on year growth, and it is very pleasing that we have started to be able to make some upward adjustments to fair values, largely linked to where there has been a successful third party fund raise. Whilst investment risk related to this portfolio will remain an ongoing feature we hope to see an increase in successful third party equity raises in the foreseeable future with several being considered in 2018.
The valuation methodology employed by the Group is unchanged and remains compliant with IFRS13, 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. We continue to utilise the services of independent valuation experts and recent transaction prices to complement our internally managed discounted cash flow models.
Total FinTech Ventures' Investments
Return on Investment (ROI)
Table 11
Year 2013 2014 2015 2016 H1 - H2 - 2017
2017 2017
------------------------ ------ ------- --------- -------- --------- ------- ---------
Balance brought
forward - 2,406 15,931 38,806 36,104 28,922 36,104
------------------------ ------ ------- --------- -------- --------- ------- ---------
New investment 2,422 4,969 35,674 8,678 918 1,024 1,942
------------------------ ------ ------- --------- -------- --------- ------- ---------
Disposals/loan
repayments (1) - - (12,779) (1,412) (414) - (414)
------------------------ ------ ------- --------- -------- --------- ------- ---------
Transfer of investment
from SSIF (2) - - - - 5,007 - 5,007
------------------------ ------ ------- --------- -------- --------- ------- ---------
Reclassification - - - - 418 - 418
------------------------ ------ ------- --------- -------- --------- ------- ---------
Transfer from - - - (2,536) - - -
Associate to
Subsidiary -
Sancus Finance
------------------------ ------ ------- --------- -------- --------- ------- ---------
Gains/(losses) (16) 8,556 (20) (7,432) (13,111) (348) (13,459)
------------------------ ------ ------- --------- -------- --------- ------- ---------
Fair Value 2,406 15,931 38,806 36,104 28,922 29,598 29,598
------------------------ ------ ------- --------- -------- --------- ------- ---------
Return on Investment
(3) -1.3% 177.1% 0.2% -17.1% -30.3% 0.1% -29.8%
------------------------ ------ ------- --------- -------- --------- ------- ---------
2013-2017 (4) -24.3%
------------------------ ------ ------- --------- -------- --------- ------- ---------
Net Asset Value
per GLI Ordinary
Share 1.7p 14.1p 16.9p 13.3p 10.0p 10.0p 10.0p
------------------------ ------ ------- --------- -------- --------- ------- ---------
Notes
1 Included in 2015 disposals is GBP9.2m in relation to the novation of securities to SMEF in return for shares in the fund. The remaining disposals were loan repayments by platforms.
2 In March 2017 certain loans were acquired from SSIF.
3 Calculated using total revenue, including interest, other income, realised and unrealised gains and losses, divided by the average cost for the given year.
4 Calculated as total return for the year over the total cost of the portfolio as at 31 December 2017.
5 Sancus Funding as a subsidiary is not included in the above table.
In the second half of 2017, the valuations stabilised resulting in an ROI of 0.1% which represented a small gain due to FX losses offsetting interest income. This resulted in an overall loss for the year of 29.8%. All data quoted includes movements in FX.
Platform Exposure
Table 12
Platform Platform NAV per
exposure share (pence)
GBP'm
------------------------ ---------- ---------------
1 8.4 2.7
------------------------ ---------- ---------------
2 5.3 1.7
------------------------ ---------- ---------------
3 4.9 1.6
------------------------ ---------- ---------------
4 4.2 1.3
------------------------ ---------- ---------------
5 2.5 0.8
------------------------ ---------- ---------------
6 - 11 4.3 1.4
------------------------ ---------- ---------------
Total Fair Value
of Portfolio 29.6 9.5
------------------------ ---------- ---------------
Loans through platforms
and accrued interest 1.5 0.5
------------------------ ---------- ---------------
Total Net Assets
of FinTech Ventures 31.1 10.0
------------------------ ---------- ---------------
For commercial reasons we do not disclose the carrying value of each platform, but to provide some transparency regarding the portfolio exposure the above table splits out the platform exposure by amount for the largest 5 holdings and NAV per share.
As at 31 December 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes 31 December 31 December 2016
2017 *
GBP'000 GBP'000
Interest on loans 4,573 4,650
SSIF dividends 303 2,393
Fee and other income 5 6,758 4,985
----------- -----------------------
Total revenue 11,634 12,028
Interest costs (2,178) (3,774)
Other cost of sales (270) (78)
----------- -----------------------
Gross profit 9,186 8,176
----------- -----------------------
Operating expenses
Administration and secretarial
fees 233 672
Legal and professional fees 635 2,071
Other expenses 6 8,217 8,266
----------- -----------------------
Total operating expenses 9,085 11,009
----------- -----------------------
Net operating profit/(loss) 101 (2,833)
----------- -----------------------
Losses on financial assets
at fair value through profit
and loss
SSIF loss on disposal / fair
value adjustment 7 (953) (1,529)
Net loss on de-recognition
of SSIF as a subsidiary - (1,208)
Share of loss of associates
and joint ventures 8 (454) (22)
FinTech Ventures fair value
adjustment 22 (13,459) (7,432)
Other net (losses)/gains (399) 718
----------- -----------------------
Losses on financial assets
at fair value through profit
and loss (15,265) (9,473)
----------- -----------------------
Goodwill impairment 10 - (4,146)
Loss before tax (15,164) (16,452)
----------- -----------------------
Income tax expense 15 (20) (83)
----------- -----------------------
Loss for the year after tax (15,184) (16,535)
=========== =======================
Other comprehensive income
Items that may subsequently
be reclassified to profit or
loss:
Foreign exchange on consolidation - 163
----------- -----------------------
Total comprehensive loss for
the year (15,184) (16,372)
=========== =======================
Loss for the year after tax
attributable to:
Equity holders of the Company (15,164) (17,593)
Non-controlling interest (20) 1,058
----------- -----------------------
(15,184) (16,535)
=========== =======================
Total comprehensive (loss)/income
attributable to:
Equity holders of the Company (15,164) (17,430)
Non-controlling interest (20) 1,058
----------- -----------------------
(15,184) (16,372)
=========== =======================
Basic and Diluted Loss per
Ordinary Share 9 (5.01)p (6.49)p
=========== =======================
* Other cost of sales was netted off Fee and other income in the prior year.
All losses are from continuing operations in both 2017 and 2016.
As at 31 December 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 31 December 2016
2017 *
ASSETS Notes GBP'000 GBP'000
Non-current assets
Property and equipment 63 98
Goodwill 10 25,033 25,033
Other intangible assets 11 530 520
Sancus BMS loans 19 24,238 19,216
Investment in Sancus Loan Notes 19 3,000 7,500
----------- ----------------
Total Sancus BMS loans and
loan equivalents 27,238 26,716
19,
FinTech Investments 22 29,598 36,104
Other investments 19 542 873
Investments in joint ventures
and associates 19 2,266 528
----------- ----------------
Total Non-current assets 85,270 89,872
----------- ----------------
Current assets
Investment in SSIF - 23,781
Loans through platforms 19 908 4,034
Sancus BMS loans 19 8,560 3,900
Investment in Sancus Loan Notes 19 7,907 -
Loan equivalents 19 2,621 8,205
----------- ----------------
Total Sancus BMS loans and
loan equivalents 19,088 12,105
Trade and other receivables 12 4,170 2,712
Cash and cash equivalents 3,016 9,616
----------- ----------------
Total Current assets 27,182 52,248
----------- ----------------
Total assets 112,452 142,120
=========== ================
EQUITY
Share premium 13 112,557 111,942
Treasury shares 13 (1,162) (1,734)
Distributable reserve 13 - 34,803
Retained earnings (36,588) (54,268)
----------- ----------------
Capital and reserves attributable
to equity holders of the Group 74,807 90,743
----------- ----------------
Non-controlling interest (4) 125
Total equity 74,803 90,868
----------- ----------------
LIABILITIES
ZDP shares 14 24,714 23,436
Corporate bond 14 10,000 8,500
----------- ----------------
Non-current liabilities 14 34,714 31,936
----------- ----------------
Current liabilities
Syndicated loan 14 - 11,920
Trade and other payables 14 2,935 7,396
----------- ----------------
Total current liabilities 14 2,935 19,316
----------- ----------------
Total liabilities 37,649 51,252
----------- ----------------
Total equity and liabilities 112,452 142,120
=========== ================
* Reclassified. See Note 11.
The financial statements were approved by the Board of Directors on 26 March 2018 and were signed on its behalf by:
Director: Patrick Firth Director: John Whittle
As at 31 December 2017
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share Share Treasury Distributable Foreign Retained Capital Non-controlling Total
Capital Premium Shares **Reserve Exchange **Earnings/ and reserves Interest Equity
Reserve (Losses) attributable
to
equity
holders
of
the Company
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31
December 2016 - 111,942 (1,734) 34,803 - (54,268) 90,743 125 90,868
Transferred to
management
(Note
13) - - 572 - - - 572 - 572
Transfer of
distributable
reserves to
retained
earnings (Note
13) - - - (34,803) - 34,803 - - -
Acquisition of
non-controlling
interest in
Sancus
Finance - - - - - (241) (241) (109) (350)
Dividends paid* - 615 - - - (1,718) (1,103) - (1,103)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Transactions
with owners - 615 572 (34,803) - 32,844 (772) (109) (881)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Total
comprehensive
loss for the
year - - - - - (15,164) (15,164) (20) (15,184)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Balance at 31
December 2017 - 112,557 (1,162) - - (36,588) 74,807 (4) 74,803
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Balance at 31
December 2015 - 87,405 - 34,803 (163) (28,953) 93,092 13,791 106,883
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Net proceeds
from Ordinary
Shares issued
(Note 13) - 24,537 - - - - 24,537 - 24,537
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Treasury shares
(Note 13) - - (1,734) - - - (1,734) - (1,734)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Dividends paid - - - - - (6,117) (6,117) - (6,117)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Other reserves
movement - - - 1,973 1,973 130 2,103
--------------------------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Acquisition of
non-controlling
interest in
Sancus
Finance - - - - - 416 416 (416) -
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Acquisition of
NCI without
change
in control in
SBHL - - - - - (4,096) (4,096) (1,745) (5,841)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Disposal of
non-controlling
interest - - - - - - 102 102 (12,693) (12,591)
----------------- --------- --- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Transactions
with owners - 24,537 (1,734) - - (7,722) 15,081 (14,724) 357
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Profit /(loss)
for the year - - - - - (17,593) (17,593) 1,058 (16,535)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Foreign exchange
on
consolidation - - - - 163 - 163 - 163
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Total
comprehensive
income/(loss)
for the year - - - - 163 (17,593) (17,430) 1,058 (16,372)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Balance at 31
December 2016 - 111,942 (1,734) 34,803 - (54,268) 90,743 125 90,868
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
* During the year ended 31 December 2017, the Company made one dividend payment, totalling 0.625 pence per Ordinary Share in relation to Q4 2016.
** Distributable Reserves have been combined with retained earnings/(losses) to simplify the presentation of reserves (Note 13).
For the year ended 31 December 2017
CONSOLIDATED STATEMENT OF CASH FLOWS
31 December 31 December
2017 2016 *
Notes GBP'000 GBP'000
Cash flows (used in)/from operations 16 (1,649) 5,565
Increase on Sancus BMS loans (5,384) (6,727)
Decrease on loans through platforms 2,726 -
Investment in Sancus Loan Notes (3,000) (7,500)
----------- -----------
Net Cash flows used in operating activities (7,307) (8,662)
----------- -----------
Investing activities
Net cash on disposal of subsidiaries - 12,621
Net cash acquired on acquisition of subsidiaries - 4,477
Acquisition of non-controlling interest
and connected entities (849) (528)
Purchase of investments - Fintech Ventures (6,949) (8,678)
Sale of investments/repayment of loans in
FinTech Ventures 414 1,412
Other cost of investment (180)
Sale of SSIF investment 22,675 -
Property, equipment and other intangibles
acquired (298) (321)
----------- -----------
Net cash inflow from investing activities 14,813 8,983
----------- -----------
Financing activities
Proceeds from issue of Ordinary Shares - 7,036
Repayment of syndicated loan 14 (11,920) (9,520)
Interest paid on debt facilities 14 (868) -
Dividends paid (1,318) (5,799)
----------- -----------
Net cash used in financing activities (14,106) (8,283)
----------- -----------
Net decrease in cash and cash equivalents (6,600) (7,962)
Cash and cash equivalents at beginning of
year 9,616 17,415
Effect of foreign exchange rate changes
during the year - 163
Cash and cash equivalents at end of year 3,016 9,616
=========== ===========
* The increase in Sancus BMS loans has been reclassified to operating cash flows, having been disclosed as a financing activity in the prior year statutory accounts.
The investment in Sancus Loan Notes is considered an operating activity since it generates operating cash flows.
GLI Finance Limited
For the year ended 31 December 2017
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 zero dividend preference shares were listed and traded on the Standard listing Segment of the main market of the London Stock Exchange with effect from 5 October 2015.
The Company 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 2017, the Group comprises the Company and its subsidiaries (please refer to Note 17 for full details of the Company's subsidiaries).
Given the changes made as a result of the strategic review, 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 and separate 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. 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 2016.
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 2017 and the factors that may impact its performance in the forthcoming year. After considering the maturity profile of the debt structure of the Group and projected cash flows, the Directors are of the opinion that it is appropriate to prepare these financial statements on a going concern basis.
Refer the Viability Statement for further comment on the solvency and liquidity of the Group.
(b) Basis of consolidation
The financial statements comprise the results of GLI Finance Limited and its subsidiaries for the year ended 31 December 2017. 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 are 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.
Non-controlling interests, presented as part of equity, represent the portion of a subsidiary's profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests measured at their proportionate share of net assets acquired.
(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.
(e) Expenditure
All expenses are accounted for on an accruals basis. The management fees, administration fees, finance costs and all other expenses (excluding share issue expenses which were offset against share premium) are charged through the Consolidated Statement of Comprehensive Income.
(f) Financial assets and liabilities
Recognition and initial measurement
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. Financial liabilities are either measured at fair value or amortised cost. Realised gains and losses arising on the derecognition of financial assets and liabilities are recognised in the period in which they arise.
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 19.
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.
Loans and receivables
Non-derivative financial assets such as loans, loan equivalents, trade and other receivables with fixed or determinable payments and not quoted in an active market, are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The effect of discounting on these trade and other receivables is not considered to be material.
The Group has loans and receivables with embedded prepayment options. Given the low probability of exercise and undetermined exercise dates, the value attributed to these embedded derivatives is considered to be GBP nil.
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. Financial liabilities, including borrowings and trade payables, are recorded at amortised cost. Interest cost of such liabilities is allocated over the appropriate period.
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.
(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 their primary currency in which they operate.
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 to the foreign exchange reserve. The rates of exchange as at the year end are as follows:
31 December 31 December 2017 2016 GBP1: USD1.3508 GBP1: USD1.2340 GBP1: EUR1.1258 GBP1: EUR1.1731 (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 hardware and 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 risks 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.
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 Zero Dividend Preference Shares ("ZDP shares") 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 14) 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 date of these financial statements.
(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 software on a straight-line basis over its expected useful economic life as follows:
Furniture and fittings 3 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 when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is 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 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 IAS 18 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.
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.
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 IAS 39 Financial Instruments, this is not considered to have a material impact on the financial performance or financial position of the Group.
The Directors consider that the economic measurement of fee revenues that relate specifically to the completion of a loan (exit fees and warrants) cannot reliably be measured over the life of a loan and such fees are duly recognised when earned and they become unconditional. This is due to uncertainties and risk factors including credit risk, timing risk, liquidity risk, quantum uncertainty and conditions precedent. The Directors consider that this treatment is prudent and best reflects the commercial operations of the Group as an administrator of loan arrangements.
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) Trade and other receivables
Receivables are recognised initially at fair value plus transaction costs that are directly attributable to their acquisition or origination. They are subsequently measured at amortised cost.
(s) Trade and other payables
Payables are recognised initially at fair value and subsequently stated at amortised cost using the effective interest rate method.
(t) 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.
(u) 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.
(v) Adoption of new and revised Standards
Amendments to IFRSs that are mandatorily effective for the current year
In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2017. These have been listed below and their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements.
-- Amendments to IAS 7 Disclosure Initiative -- Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses -- Amendments to IFRS 12 Annual Improvements to IFRSs 2014-2016 Cycle
Amendments to IFRSs that are in issue but not yet effective
At the date of approval of these Consolidated Financial Statements, the following standards and interpretations, which have not been applied in these Consolidated Financial Statements, were in issue but not yet effective:
-- IFRS 9 'Financial instruments'
IFRS 9 'Financial Instruments' addresses the classification, measurement and derecognition of financial assets and liabilities. It replaces the multiple classification and measurement models in IAS 39 and is effective for reporting periods beginning on or after 1 January 2018.
Whilst we have not adopted this standard in this set of financial statements we have outlined below how we plan on adopting this standard in the next financial year and the impact that it may have on the financial statements.
-- Key requirements of IFRS 9
Classification and measurement of debt assets will be driven by the entity's 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 scope of IFRS 9 are measured at fair value with gains and losses recognised in profit or loss unless an irrevocable election is made to recognise gains or losses in other comprehensive income.
IFRS 9 also introduces a new expected credit loss impairment model, as opposed to the incurred credit loss model currently implemented under IAS 39. This requires entities to account for expected credit losses at initial recognition and changes to expected credit losses at each reporting date to reflect changes in credit risk since initial recognition.
Finally, under IFRS 9 greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. Enhanced disclosure requirements about an entities risk management activities have also been introduced.
-- Impact of IFRS 9 - Classification and measurement
Based on an analysis of the Group's financial assets and liabilities as at 31 December 2017 the directors have assessed the impact of IFRS 9 to the Group's consolidated financial statements as follows:
Sancus BMS loans, loan equivalents and loans through platforms are held solely for the collection of contractual cash flows, being interest, fees and payments of principal. As such these assets are expected to continue to be held at amortised cost upon the application of IFRS 9.
Fintech Ventures investments relate to equity, preference shares and some working capital loans. Whilst some of these investments do attract interest the assets are held primarily to assist the development of the entities involved. These investments are currently held at fair value through profit and loss using 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. As such these assets will continue to be measured at fair value through profit and loss upon the application of IFRS 9.
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. As such these assets will continue to be held at amortised cost under IFRS 9.
-- Impact of IFRS 9 - Impairment
Sancus BMS loans and loan equivalents will be assessed for credit risk on initial recognition. Credit Risk will be 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. A loan is considered to be in default when there is a failure to meet the legal obligation of the loan agreement. Having regards for 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. Provision for ECL will be made at initial recognition calculated using the credit risk, the probability of default and the probability of loss, all underpinned by the Loan to Value (LTV), historical position and on occasion subsequent events, and the subjective judgement of the Board. At each reporting period-end loans will be re-assessed for credit risk and provision for ECL will be updated appropriately.
With respect to the loans to the UK SARL and Ireland SARL there is no direct exposure to individual loans. As a result these two loans will be assessed for credit risk based upon the Net Asset Value of the SARLS, and their ability to repay the loans. Should the Net Asset Value of the SARLS fall materially then the loans will have deemed to have fallen into Stage 2, with a further significant drop in Net Asset Value pushing the loans into Stage 3. Provision for ECL will then be made according to the credit risk and the deemed ability of the SARL to repay the loan.
Given historical and current levels of LTV historical losses have been negligible, the directors anticipate that the application of the ECL model will not result in any material earlier recognition of credit losses. In respect of the Group's trade and other receivables, the directors intend to apply the simplified approach to recognise lifetime expected credit losses.
-- Impact of IFRS 9 - Hedge Accounting
The Group has not used any hedging instruments during 2016 or 2017 although exposure is monitored on a regular basis and the Board reviews this approach quarterly. As a result, unless there is a change in approach, IFRS 9 will have no impact.
Overall the directors do not anticipate that the application of IFRS 9 will have a material impact on the Group's consolidated financial statements.
-- Overall Impact of IFRS
Overall the directors do not expect the implementation of IFRS 9 to have a material impact on the financial statements.
-- IFRS 16 'Leases'
IFRS 16 was published in January 2016 and specifies how to recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, allowing lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019. There are a number of operating leases for premises occupied by the Group which will lead to bringing a right of use asset onto the balance sheet and corresponding lease liability. Current lease obligations are stated in note 23. The overall profit and loss impact is expected to be immaterial.
-- IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 was published in May 2016 and specifies how and when to recognise revenue as well as requiring entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. IFRS 15 is effective for annual reporting periods beginning on or after 1 January, 2018. Material revenue streams have been reviewed and it is not anticipated that there will be a material impact on timing of recognition or gross up for principal/agent considerations.
Other IFRSs and amenedments that are in issue but not yet effective which are not envisaged to have a material impact on the financial statements are:
-- IFRS 17 'Insurance Contracts' -- IFRS 2 (amendments) 'Classification and Measurement of Share-based Payment Transactions' -- IFRS 4 (amendments) 'Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts' -- IAS 40 (amendments) 'Transfers of Investment Property'
-- IFRS 10 and IAS 28 (amendments) 'Sale or Contribution of Assets between an Investor and its Associate or Joint Venture'
-- Annual Improvements to IFRSs 2014-2016 Cycle 'Amendments to IFRS 1 First-time Adoption of Inetrnational Financial Reporting Standards and IFRS 28 Investments in Associates and Joint Ventures'
-- IFRIC 22 'Foreign Currency Transactions and Advanced Consideration' -- IFRIC 23 'Uncertainty over Income Tax Treatments'
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 22 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.
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 Limited, Sancus Loan Notes 2 Limited and Sancus Loan Notes 3 Limited 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).
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 10, the Directors will review the carrying value of goodwill and carry out an impairment review annually to assess whether goodwill is impaired. In doing so, the Directors have assessed the value in use of each cash generating unit through an internal discounted cash flow analysis, details of which are set out in Note 10. 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, the impact of which is also disclosed in note 10.
Refer Notes 2 (h) and (k) for accounting policies relating to the valuation and impairment of goodwill.
Impairment of Loans
Loans made by the Group may, after funding, become non-performing for a wide variety of reasons including non-payment of principal or interest, as well as covenant violations by the borrower in respect of the underlying loan documents. In such circumstances, the Directors will make an assessment as to whether this indicates objective evidence of impairment having taken into account other factors including, but not limited to:
-- significant financial difficulty of the borrower; -- default or delinquency in interest or principal payments; -- a substantial reduction in performance of the underlying business; -- a substantial fall in the value of the underlying security; or
-- it becoming probable that the borrower will enter bankruptcy or financial reorganization
Assets, other than those measured at fair value, are assessed for indicators of impairment at each statement of financial position date. If there is objective evidence of impairment, an impairment loss is recognised in profit or loss.
For financial assets carried at amortised cost, the amount of an impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate.
Fair Value of the FinTech Ventures' investments
The Group invests in financial instruments which are not quoted in active markets and may receive such financial instruments as distributions on certain investments. Fair values are determined by using valuation techniques as detailed in Note 22.
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.
Given the early stage nature of the investee companies, the valuations are sensitive to the cash flows assumed and discount rates applied and management have made a number of material judgements in concluding on the valuations. The methods and valuation techniques used for the purposes of measuring fair value are unchanged compared to the previous reporting year, although transactional data has become available in some cases, eliminating the need for reliance on the discounted cash flow method. All of the FinTech Ventures investments are measured by Level 3.
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 Executive Team is responsible for allocating resources and assessing performance of the Group, as well as making strategic investment decisions, subject to the oversight of the Board of Directors. The Executive Team is responsible for the entire Group and considers it to have two operating segments in addition to Group Treasury. There has been one minor change in the period which has been to move Sancus Funding from FinTech Ventures to Sancus BMS as this now has an established business model and work has begun to integrate into the Sancus BMS Group.
The segments are as follows:
Sancus BMS
-- Platforms with an established business model (now including Sancus Funding, a wholly owned subsidiary)
-- Amberton - fundraising for Sancus BMS -- Investments in the BMS loan funds
FinTech Ventures
-- Eleven platform investments
Group Treasury
-- Group Treasury - Primarily includes cash balances and related expenses to manage the Group's listed holding company
-- SSIF (sold in March 2017, however is included in prior year comparatives)
The accounting policies of each segment are the same as the accounting policies of the Group, therefore no differences arise between the segment report and the Group statements.
For the year ended 31 December 2017
NOTES TO THE FINANCIAL STATEMENTS
4. SEGMENTAL REPORTING (Continued)
Sancus FinTech Group 31 December Sancus FinTech Group 31 December
GBP'000 BMS Ventures Treasury 2017 BMS Ventures Treasury 2016
Revenue
Interest on loans 3,280 1,293 - 4,573 4,237 413 - 4,650
SSIF dividends 303 - - 303 2,393 - - 2,393
Fee and other
income 6,758 - - 6,758 4,770 215 - 4,985
--------- --------- --------- ----------- ------- --------- --------- -----------
Total revenue 10,341 1,293 - 11,634 11,400 628 - 12,028
Interest costs (2,178) - - (2,178) (3,774) - - (3,774)
Other cost of
sales (270) - - (270) (78) - - (78)
--------- --------- --------- ----------- ------- --------- --------- -----------
Gross profit 7,893 1,293 - 9,186 7,548 628 - 8,176
--------- --------- --------- ----------- ------- --------- --------- -----------
Total operating
expenses (6,340) (1,673) (1,072) (9,085) (6,320) (2,875) (1,814) (11,009)
--------- --------- --------- ----------- ------- --------- --------- -----------
Net operating
profit/(loss) 1,553 (380) (1,072) 101 1,228 (2,247) (1,814) (2,833)
========= ========= ========= =========== ======= ========= ========= ===========
Losses on financial
assets at fair
value through
profit and loss
SSIF loss on disposal
/ fair value adjustment - - (953) (953) (1,529) - - (1,529)
Net loss on /
de-recognition
of SSIF as a subsidiary - - - - (1,208) - - (1,208)
Share of profit/(loss)
of associates
and
Joint ventures (454) - - (454) (22) - - (22)
FinTech Ventures
fair value adjustment - (13,459) - (13,459) - (7,432) - (7,432)
Other net gains
/ (losses) 54 (453) - (399) 167 553 (2) 718
--------- --------- --------- ----------- ------- --------- --------- -----------
Losses on financial
assets at fair
value through
profit or loss (400) (13,912) (953) (15,265) (2,592) (6,879) (2) (9,473)
Goodwill impairment - - - - (3,408) (738) - (4,146)
Profit/(loss)
before tax 1,153 (14,292) (2,025) (15,164) (4,772) (9,864) (1,816) (16,452)
--------- --------- --------- ----------- ------- --------- --------- -----------
Income tax expense (20) - - (20) (83) - - (83)
--------- --------- --------- ----------- ------- --------- --------- -----------
Profit/(loss)
for the year after
tax 1,133 (14,292) (2,025) (15,184) (4,855) (9,864) (1,816) (16,535)
========= ========= ========= =========== ======= ========= ========= ===========
Other comprehensive
income
Items that may
subsequently be
reclassified to
profit or loss:
Foreign exchange
on consolidation - - - - - 163 - 163
--------- --------- --------- ----------- ------- --------- --------- -----------
Total comprehensive
income/(loss)
for the year 1,133 (14,292) (2,025) (15,184) (4,855) (9,701) (1,816) (16,372)
========= ========= ========= =========== ======= ========= ========= ===========
Operating (loss)/profit
attributable to:
Equity holders
of the Company 1,153 (14,292) (2,025) (15,164) (5,913) (9,864) (1,816) (17,593)
Non-controlling
interest (20) - - (20) 1,058 - - 1,058
--------- --------- --------- ----------- ------- --------- --------- -----------
1,133 (14,292) (2,025) (15,184) (4,855) (9,864) (1,816) (16,535)
========= ========= ========= =========== ======= ========= ========= ===========
Total comprehensive
(loss)/income
attributable to:
Equity holders
of the Company 1,153 (14,292) (2,025) (15,164) (5,913) (9,701) (1,816) (17,430)
Non-controlling
interest (20) - - (20) 1,058 - - 1,058
--------- --------- --------- ----------- ------- --------- --------- -----------
1,133 (14,292) (2,025) (15,184) (4,855) (9,701) (1,816) (16,372)
========= ========= ========= =========== ======= ========= ========= ===========
For the year ended 31 December 2017
NOTES TO THE FINANCIAL STATEMENTS
4. SEGMENTAL REPORTING (Continued)
Sancus FinTech Group 31 December Sancus FinTech Group 31 December
GBP'000 BMS* Ventures Treasury 2017 BMS Ventures Treasury 2016
ASSETS
Non-current
assets
Property and
equipment 60 - 3 63 82 5 11 98
Goodwill 25,033 - - 25,033 25,033 - - 25,033
Other intangible
assets 530 - - 530 520 - - 520
Sancus BMS Loans 24,238 - - 24,238 19,216 - - 19,216
Investment in
Sancus Loan
Notes 3,000 - - 3,000 7,500 - - 7,500
------ --------- --------- ----------- ------- --------- --------- -----------
Total Sancus
BMS loans and
loan equivalents 27,238 - - 27,238 26,716 - - 26,716
FinTech Ventures
Investments - 29,598 - 29,598 - 36,104 - 36,104
Other Investments 542 - - 542 873 - - 873
Joint Ventures
and associates 2,266 - - 2,266 528 - - 528
------- --------- --------- -----------
Total Non-current
assets 55,669 29,598 3 85,270 53,752 36,109 11 89,872
------ --------- --------- ----------- ------- --------- --------- -----------
Current assets
Investment in
SSIF - - - - 23,781 - - 23,781
Loans through
platforms 69 839 - 908 - 4,034 - 4,034
Sancus BMS Loans 8,560 - - 8,560 3,900 - - 3,900
Investment in
Sancus Loan
Notes 7,907 - - 7,907 - - - -
Loan equivalents 2,621 - - 2,621 8,205 - - 8,205
------ --------- --------- ----------- ------- --------- --------- -----------
Total Sancus
BMS loans and
loan equivalents 19,088 - - 19,088 12,105 - - 12,105
Trade and other
receivables 2,796 616 758 4,170 1,854 748 110 2,712
Cash and cash
equivalents 926 - 2,090 3,016 5,619 480 3,517 9,616
------ --------- --------- ----------- ------- --------- --------- -----------
Total Current
assets 22,879 1,455 2,848 27,182 43,359 5,262 3,627 52,248
------ --------- --------- ----------- ------- --------- --------- -----------
Total assets 78,548 31,053 2,851 112,452 97,111 41,371 3,638 142,120
====== ========= ========= =========== ======= ========= ========= ===========
EQUITY
Share premium - - 112,557 112,557 - - 111,942 111,942
Treasury shares - - (1,162) (1,162) - - (1,734) (1,734)
Distributable
reserve - - - - - - 34,803 34,803
Retained earnings 41,514 31,051 (109,153) (36,588) 46,933 41,253 (142,454) (54,268)
------ --------- --------- ----------- ------- --------- --------- -----------
Capital and
reserves attributable
to equity holders
of the Group 41,514 31,051 2,242 74,807 46,933 41,253 2,557 90,743
------ --------- --------- ----------- ------- --------- --------- -----------
Non-controlling
interest (4) - - (4) 125 - - 125
Total equity 41,510 31,051 2,242 74,803 47,058 41,253 2,557 90,868
------ --------- --------- ----------- ------- --------- --------- -----------
LIABILITIES
Non-current
liabilities
ZDP shares 24,714 - - 24,714 23,436 - - 23,436
Corporate bond 10,000 - - 10,000 8,500 - - 8,500
------ --------- --------- ----------- ------- --------- --------- -----------
34,714 - - 34,714 31,936 - - 31,936
------ --------- --------- ----------- ------- --------- --------- -----------
Current liabilities
Syndicated loan - - - - 11,920 - - 11,920
Trade and other
payables 2,324 2 609 2,935 6,197 118 1,081 7,396
------ --------- --------- ----------- ------- --------- --------- -----------
2,324 2 609 2,935 18,117 118 1,081 19,316
------ --------- --------- ----------- ------- --------- --------- -----------
Total liabilities 37,038 2 609 37,649 50,053 118 1,081 51,252
------ --------- --------- ----------- ------- --------- --------- -----------
Total equity
and liabilities 78,548 31,053 2,851 112,452 97,111 41,371 3,638 142,120
====== ========= ========= =========== ======= ========= ========= ===========
5. FEE AND OTHER INCOME
31 December 31 December
2017 2016
GBP'000 GBP'000
Co-Funder fees 1,220 543
Earn out (exit) fees 1,062 207
Advisory fees 1,287 1,186
Transaction fees 2,782 2,516
Sundry income 407 533
------------ ------------
6,758 4,985
============ ============
6. OTHER EXPENSES
31 December 30 December
2017 2016
Other expenses: GBP'000 GBP'000
Audit fees 122 294
Amortisation and depreciation 322 270
Corporate Insurance 90 72
Directors Remuneration 117 203
Employment costs 5,664 5,298
Independent valuation fees 64 149
Investor relations expenses 96 183
Marketing expenses 169 286
NOMAD fees 96 55
Other office and administration costs 1,089 1,176
Pension costs 175 97
Registrar fees 33 109
Sundry 180 74
----------- -----------
8,217 8,266
=========== ===========
7. DISPOSAL OF SSIF (formerly The SME Loan Fund)
On 8 March 2017, the company sold its shares in SSIF at 90p per share, valuing its holding at GBP22.7m. As part of this sale the company agreed to purchase certain performing loans from SSIF for cash in the amount of GBP5.27m (including accrued interest to 8 March 2017). Of the net proceeds GBP11.9m was used to repay the syndicated loan.
8. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
31 December 31 December
2017 2016
GBP'000 GBP'000
At beginning of year 528 -
Additions 2,192 550
Share of profit of associate 3
Share of loss in joint venture (457) (22)
At end of year 2,266 528
============ ============
The investment in joint venture relates to a 50% share in Amberton Asset Management Limited.
Details of material associates
Principal Place of Proportion of ownership
Activity Incorporation interest/voting rights
held by the group
-------------- ---------------- ---------------- --------------------------
31 December 31 December
2017 2016
-------------- ---------------- ---------------- ------------ ------------
Sancus (Isle Holding
of Man) Company
Holdings for Sancus
Limited (IOM) Limited Guernsey 29.3% 7.1%
-------------- ---------------- ---------------- ------------ ------------
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. This investment will allow the Group to benefit from the growth of the Isle of Man business as it continues to execute its strategy.
Summarised financial information in respect of Sancus (Isle of Man) Holdings is set out below. The summarised financial information below represents amounts in associates' financial statements prepared in accordance with IFRSs.
31 December 31 December
2017 2016
-------------------------------------- ------------ ------------
GBP'000 GBP'000
-------------------------------------- ------------ ------------
Current assets 11,935 15,641
-------------------------------------- ------------ ------------
Current liabilities (388) (175)
-------------------------------------- ------------ ------------
Non-current liabilities (6,885) (11,000)
-------------------------------------- ------------ ------------
Equity attributable to owners
of the company 4,662 4,466
-------------------------------------- ------------ ------------
Revenue 630 395
--------------------------------------
Profit or loss from continuing
operations 195 123
--------------------------------------
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 31 December
2017 2016
--------------------------------------
GBP'000 GBP'000
-------------------------------------- ------------ ------------
Net assets of associate 4,662 4,466
-------------------------------------- ------------ ------------
Proportion of the Group's ownership 1,366 -
interest in the associate
-------------------------------------- ------------ ------------
Goodwill arising on acquisition 754 -
-------------------------------------- ------------ ------------
Carrying amount of the Group's 2,120 -
interest in the associate
-------------------------------------- ------------ ------------
In 2016 the Group's interest in Sancus (Isle of Man) Holdings was accounted for as an investment. During 2017, 22.2% of the Sancus Isle of Man shares were acquired from the Directors of Sancus Group taking the holding at the end of 2017 to 29.3%.
9. 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 GBP15,164,402 (31 December 2016: loss of GBP17,593,313) by the weighted average number of Ordinary Shares (excluding treasury shares) outstanding during the period of 302,673,708 (31 December 2016: 270,934,270). There was no dilutive effect for potential Ordinary Shares during the current or prior periods.
Note 13 describes the warrants in issue which are currently out of the money, and therefore have not been considered to have a dilutive effect on the calculation of Loss per Ordinary Share. Share options as noted in Note 20 are also out of the money and have therefore not been considered to have a dilutive effect on the calculation of Loss per Ordinary Share.
31 December 31 December
2017 2016
No. of shares 312,065,699 309,298,113
Weighted average no. of shares
in issue throughout the year 302,673,708 270,934,270
Loss per share (5.01)p (6.49)p
10. GOODWILL
31 December 31 December
2017 2016
GBP'000 GBP'000
Brought forward 25,033 14,255
Additions:
Acquisition of Sancus Finance - 5,547
Acquisition of Sancus Funding - 738
Acquisition of Sancus Gibraltar - 8,639
Impairment:
- Sancus Finance - (3,408)
- Sancus Funding - (738)
------------ ------------
Carried forward 25,033 25,033
============ ============
Goodwill comprises:
Sancus Jersey 14,255 14,255
Sancus Gibraltar 8,639 8,639
Sancus Finance 2,139 2,139
------- -------
25,033 25,033
======= =======
Impairment tests
The carrying amount of the goodwill arising on the acquisition of certain subsidiaries is assessed by the Board for impairment on an annual basis or more frequently if there has been an event which suggests that there may have been an impairment.
The value in use of Sancus Jersey was based on an internal Discounted Cash Flow ("DCF") valuation analysis using cash flow forecasts for the years 2018 to 2022. The starting point for the cash flows was the 2018 budget which was produced by Sancus Jersey management and ratified by its board. Management's revenue forecast applied a compound annual growth rate (CAGR) to revenue of 15%. A cost of equity discount rate of 13.5% (as determined by independent valuation experts), which is reflective of Sancus's cost of equity, was employed in the valuation model. The resultant valuation indicated that no impairment of goodwill was required, with significant headroom.
The value in use of Sancus Finance was also determined using a similar DCF basis starting from the 2018 budgets, but using a revenue CAGR of 36% (which reflects accelerated near term growth, reducing from 25% to 10% throughout the years 2019 to 2022) and a cost of equity discount rate of 18.1%, both higher than that applied in the valuation of Sancus Jersey, to take into account the fact that this business is still in a development stage. The resultant valuation indicated that no impairment of goodwill was required, with significant headroom. This surplus was not considered a reversal of previous impairments.
The value in use of Sancus Gibraltar was also determined on a similar DCF basis starting from the 2018 budgets, but using a CAGR of 13% and a cost of equity discount rate of 14.0%. The resultant valuation indicated that no impairment of goodwill was required, again with significant headroom.
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.
Sensitivity Applied Reduction in headroom implied by
sensitivity
Sancus Sancus Sancus Total
Jersey Finance Gibraltar GBP'000
GBP'000 GBP'000 GBP'000
10% decrease in
revenue per annum 3,822 1,406 2,644 7,872
3% increase in cost
of Equity discount
rate 5,108 817 4,097 10,022
Neither scenario results in an implied reduction of Goodwill.
11. INTANGIBLE ASSETS
GBP'000
Cost
At 1 January 2017 1,050
Additions from internal development 262
At 31 December 2017 1,312
=======
GBP'000
Amortisation
At 1 January 2017 530
Charge for the year 252
At 31 December 2017 782
=======
Net book value 31 December 2017 530
===
Net book value 1 January 2017 520
===
Intangible assets comprise capitalised contractors' costs and other costs related to core systems development. In the prior year these were disclosed within Property and equipment but have now been separately disclosed with the prior year reclassified. No impairment provision has been recorded. The amortisation charge has been recorded in Other expenses.
12. TRADE AND OTHER RECEIVABLES
31 December 31 December
2017 2016
GBP'000 GBP'000
Dividend income receivable 68 371
Loan fees and similar receivable 930 121
Loan interest receivable 1,973 940
Preference share dividends receivable 607 415
Other trade receivables and prepaid
expenses 592 865
4,170 2,712
=========== ===========
13. 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.
During the year the Company issued the following additional Ordinary Shares:
2017
--------------- ----------------------------- --------------------
Date No of shares Share Premium Reason for issue
issued GBP
--------------- ------------- -------------- --------------------
2016 fourth quarter
21 April 2017 2,767,586 615,239 scrip dividend
--------------- ------------- -------------- --------------------
2,767,586 615,239
--------------- ------------- -------------- --------------------
2016
---------------- ----------------------------- -----------------------
Date No of shares Share Premium Reason for issue
issued GBP
---------------- ------------- -------------- -----------------------
20 January
2016 51,020 18,750 Bonus entitlement
---------------- ------------- -------------- -----------------------
2015 fourth quarter
22 March 2016 237,230 79,709 scrip dividend
---------------- ------------- -------------- -----------------------
2016 first quarter
13 June 2016 270,015 84,650 scrip dividend
---------------- ------------- -------------- -----------------------
Acquisition of Sancus
30 June 2016 43,408,360 13,500,000 Gibraltar
---------------- ------------- -------------- -----------------------
Increased stake
in GLIF BMS Holdings
30 June 2016 11,093,247 3,450,000 Limited
---------------- ------------- -------------- -----------------------
Placing with Somerston
15 August 2016 23,020,560 7,036,374 Group
---------------- ------------- -------------- -----------------------
16 September 2016 second quarter
2016 295,943 83,974 scrip dividend
---------------- ------------- -------------- -----------------------
02 December BIS Management Seller
2016 686,784 213,591 share portion
---------------- ------------- -------------- -----------------------
15 December 2016 third quarter
2016 317,590 69,552 scrip dividend
---------------- ------------- -------------- -----------------------
79,380,749 24,536,600
---------------- ------------- -------------- -----------------------
31 December 31 December
Share Capital 2017 2016
Shares in Shares in
Ordinary Shares - nil par value issue issue
Balance at start of year 309,298,113 229,917,364
Issued during the year 2,767,586 79,380,749
----------- -----------
Balance at end of the year 312,065,699 309,298,113
=========== ===========
31 December 31 December
Share Premium 2017 2016
Ordinary Shares - nil par value GBP'000 GBP'000
Balance at start of year 111,942 87,405
Issued during the year 615 24,537
Balance at end of the year 112,557 111,942
=========== ===========
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
As at 31 December 2017 a total of 6,154,102 (2016: 8,632,619) Ordinary Shares, with an aggregate value of GBP1,161,975 (2016: GBP1,733,283) were held by a Subsidiary, Sancus BMS Group Limited and eliminated on consolidation. These shares were part consideration for this company's minority shareholding in Sancus Gibraltar purchased by the Group in June 2016.
31 December 31 December
2017 2016
GBP'000 GBP'000
Balance at start of the year 1,734 -
Acquired through Group restructure
in June 2016 - 1,900
GLI shares transferred to key
members of management (572) (166)
Balance at end of year 1,162 1,734
=========== ===========
The GLI shares transferred to key members of management relate, in the main, to discretionary bonus paid in shares.
Warrants in Issue
On 25 February 2016, Shareholders approved special resolutions authorising the issue of warrants to Golf Investments Limited which confer the warrant holder the right to subscribe for up to 32,000,000 new Ordinary Shares in the capital of the Company at the following subscription prices:
10,000,000 Ordinary Shares at 40 pence per Ordinary Share;
10,000,000 Ordinary Shares at 45 pence per Ordinary Share; and,
12,000,000 Ordinary Shares at 55 pence per Ordinary Share.
These warrants expire on 25 February 2020.
On 16 September 2016, Shareholders approved a special resolution authorising the issue of warrants to Golf Investments Limited which confer the warrant holder the right to subscribe for up to 10,000,000 shares at 37 pence per Ordinary Share, exercisable up to 9 August 2020.
As at 31 December 2017, the above warrants were in issue but not yet exercised. On issue of these warrants, no provision has been made for a fair value adjustment, as following the Board's assessment of the fair value it was not deemed to be materially different to the current carrying value of GBPNil.
Distributable Reserve
As at 31 December 2017, the Distributable Reserve stood at GBPNil, following a transfer of this balance to retained earnings in the year. (31 December 2016, the Distributable Reserve stood at GBP34,802,740).
Whilst UK Legislation only permits companies to pay dividends out of profits for distribution (i.e. realised profits), under the Companies (Guernsey) Law 2008, this operates on a solvency model and therefore does not have any impact on dividend distribution.
14. LIABILITIES
31 December 31 December
2017 2016
Non-current liabilities GBP'000 GBP'000
ZDP shares (1) 24,714 23,436
Corporate Bond (2) 10,000 8,500
34,714 31,936
=========== ===========
31 December 31 December
2017 2016
Current liabilities GBP'000 GBP'000
Syndicated Loan (3) - 11,920
Accounts payable 319 2,582
Accruals and other payables 1,432 1,624
Dividend payable - 215
Other staff costs 240 375
Payable to related party* 950 2,400
Preference shares - 200
2,935 19,316
=========== ===========
*Relates to the amount owing by Sancus BMS Group Limited to Sancus IOM Holdings Limited for its subscription for preference shares, which is due in respect of issued but uncalled preference shares and does not bear interest.
31 December 31 December
2017 2016
Interest costs on debt facilities GBP'000 GBP'000
ZDP Shares (1) 1,279 1,275
Corporate Bond (2) 648 298
Syndicated Loan (3) 220 1,597
2,147 3,170
============= ===========
(1) ZDP shares
The ZDP Shares have a maturity date of 5 December 2019 with a final capital entitlement of GBP1.30696 per ZDP Share.
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.
During the year, the interest costs accrued on the ZDPs amounted to GBP1.3m (31 December 2016: GBP1.3m), at an average interest rate of 5.5% (31 December 2016: 5.5%).
In accordance with article 7.5.5 of the Company's Memorandum and Articles of Incorporation, the Company may not incur more than GBP30m 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 2017 the Company was in compliance with these covenants as Cover Test A was 3.26 (minimum of 1.7) and Cover Test B was 4.09 (minimum of 3.25).
At the year end senior debt borrowing capacity amounted to GBP20m after the repayment of the syndicated Loan (see Note 14.3).
(2) Corporate Bond
On 30 June 2016 GLI Finance issued GBP10m corporate bonds as part of the acquisition of Sancus Gibraltar. As at 31 December 2017 Sancus BMS Group Limited holds GBPNil of these (31 December 2016: GBP1.5m leaving a balance on consolidation of GBP8.5m). The bond maturity date is 30 June 2021 and they bear interest at 7%.
During the year the interest costs to the Group on the bonds amounted to GBP0.6m (31 December 2016: GBP0.3m).
(3) Syndicated Loan Facility
On 15 March 2017, the Syndicated Loan Facility of GBP14.9m was repaid. GBP11.9m was repaid to external parties and GBP3.0m was paid to Sancus BMS Group Limited to settle their participation in the loan.
In the period to 15 March 2017 interest costs to the Group on the Loan Facility amounted to GBP0.2m (year to 31 December 2016: GBP1.6m).
15. TAXATION
The Company is exempt from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed annual fee of GBP1,200 (31 December 2016: GBP1,200) is payable to the States of Guernsey in respect of this exemption.
Reconciliation of tax charge
31 December 31 December
2017 2016
GBP'000 GBP'000
Accounting loss before tax (15,164) (16,452)
Accounting profit/(loss) before
tax relating to non Guernsey resident
companies 685 (1,403)
UK Corporation Tax at 19% (2016:
20%) (118) 134
Gibraltar Corporation Tax at 10% 138 83
Utilisation of tax losses and other
adjustments - (134)
Tax expense 20 83
=========== ===========
Certain of the Group's subsidiaries have losses available for carry forward and offset against future trading profit of GBP15,065,000 (31 December 2016: GBP7,340,000).
31 December 31 December
2017 2016
GBP'000 GBP'000
Consolidated loss
Losses brought forward restricted
to UK (7,158) (7,826)
Losses brought forward restricted
to Guernsey (182) (116)
Losses (in year)/utilised in UK (7,693) 668
Losses (in year)/utilised in Guernsey (32) (66)
Losses carried forward UK (14,851) (7158)
----------- -----------
Losses carried forward Guernsey (214) (182)
----------- -----------
Deferred income tax assets in respect of capital losses, trading losses and non-trade deficits have not been recognised as their future recovery is uncertain or not currently anticipated.
16. CASH GENERATED FROM OPERATIONS
31 December 31 December
2017 2016
GBP'000 GBP'000
Loss for the year (15,184) (16,535)
Adjustments for:
Net losses on FinTech Ventures 13,459 7,432
Net losses on fair value of SSIF 953 1,529
Net loss on associate of SSIF - 1,208
Other net losses/(gains) 399 (718)
Non-cash item on finance costs
on ZDPs 1,278 1,275
Amortisation/depreciation of fixed
assets 322 272
Other non-cash 1,136 1,358
Goodwill write off - 4,146
Changes in working capital:
Trade and other receivables (1,533) 1,949
Trade and other payables (2,479) 3,649
Cash (outflow)/inflow from operations (1,649) 5,565
=========== ===========
17. CONSOLIDATED SUBSIDIARIES
The Directors consider the following entities as wholly
and partly owned subsidiaries of the Group and their
results and financial positions are included within
its consolidated results.
Subsidiary entity Date of Country Nature of Percentage
incorporation of holding holding
incorporation
-------------------- ---------------- ---------------- ----------------- -----------
Sancus BMS Group 27 December Directly held
Limited ("SBMS") 2013 Guernsey -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus BMS Holdings
Limited ("SBHL")
(formerly GLIF
BMS Holdings 5 November United Indirectly held
Limited ("GBHL")) 2012 Kingdom -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
BMS Finance AB
Limited ("BMS 24 November United Indirectly held
Finance AB") 2006 Kingdom -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus Services
Limited
(formerly GLI
Finance (UK) 21 October United Indirectly held
Limited) 2014 Kingdom -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus (Jersey) 1 July Indirectly held
Limited 2013 Jersey -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus (Guernsey) 18 June Indirectly held
Limited 2014 Guernsey -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus (Gibraltar) 10 March Indirectly held
Limited 2015 Gibraltar -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus Funding
Limited
(formerly Funding 17 February United Indirectly held
Knight Limited) 2011 Kingdom -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus Finance 7 January United Indirectly held
Limited 2011 Kingdom -Equity Shares 98.2%
-------------------- ---------------- ---------------- ----------------- -----------
FinTech Ventures 9 December Directly held
Limited 2015 Guernsey -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
18. FINTECH VENTURES AND OTHER INVESTMENTS
The Directors consider the following entities as associated undertakings of the Group as at 31 December 2017.
Name of Investment: Nature Country Percentage Measurement
of holding of incorporation holding
-------------------- ---------------- ------------------ ----------- ------------
FinTech Ventures:
-------------------- ---------------- ------------------ ----------- ------------
LiftForward Indirectly United 18.40% Fair Value
Inc. held - States
Equity of America
-------------------- ---------------- ------------------ ----------- ------------
Finexkap Indirectly France 29.80% Fair Value
held -
Equity
-------------------- ---------------- ------------------ ----------- ------------
Ovamba Solutions Directly United 20.48% Fair Value
Inc. held - States
Equity of America
-------------------- ---------------- ------------------ ----------- ------------
The Credit Indirectly United 22.24% Fair Value
Junction Holdings held - States
Equity of America
-------------------- ---------------- ------------------ ----------- ------------
Funding Options Indirectly United 28.90% Fair Value
Limited held - Kingdom
Equity
and Preference
Shares
-------------------- ---------------- ------------------ ----------- ------------
TradeRiver Directly Guernsey 43.9% Fair Value
Finance Limited held -
Equity
and Preference
Shares
-------------------- ---------------- ------------------ ----------- ------------
TradeRiver Directly United 30.25% Fair Value
USA Inc held - States
Equity of America
and Preference
Shares
-------------------- ---------------- ------------------ ----------- ------------
Open Energy Directly United 23.10% Fair Value
Group Inc held - States
Equity of America
-------------------- ---------------- ------------------ ----------- ------------
MytripleA Directly United 15.00% Fair Value
held - Kingdom
Equity
-------------------- ---------------- ------------------ ----------- ------------
UK Bond Network Directly United 21.11% Fair Value
Limited held - Kingdom
Equity
-------------------- ---------------- ------------------ ----------- ------------
Finpoint Limited Directly United 21.12% Fair Value
held - Kingdom
Equity
-------------------- ---------------- ------------------ ----------- ------------
Other Investments:
-------------------- ---------------- ------------------ ----------- ------------
BMS Finance Indirectly Luxembourg 30.25% Fair Value
(Ireland) Sarl & Directly
held -
Equity
-------------------- ---------------- ------------------ ----------- ------------
BMS Finance Indirectly Luxembourg 25.24% Fair Value
(UK) Sarl held -
Equity
-------------------- ---------------- ------------------ ----------- ------------
No significant restrictions exist on the ability of these associates to transfer funds to the Group in the form of cash dividends, or to repay loans or advances made by the Group.
19. FINANCIAL RISK MANAGEMENT
The Group is exposed to financial risk through its investment in a range of financial instruments, ie. 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 as 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 13 and of its debt in Note 14.
The Group and its subsidiaries 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 stood at 46% (31 December 2016: 48%).
(2) Liquidity risk
Liquidity risk is the risk that arises when there is a mismatch in the maturity of assets and liabilities, which results in the risk that liabilities may not be settled at contractual maturity. The Group's investments are generally more illiquid than publicly traded securities.
The Group Treasury Committee meets twice monthly to manage the liquidity position of the Group. 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 assets and 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, assuming interest rates in effect at the year end.
Current Non-current
Within 12
months 1 to 5 years
31 December 2017 GBP'000 GBP'000
Assets
Sancus BMS loans and loan equivalents 11,181 24,238
Loan notes 7,907 3,000
FinTech Ventures Investments 3,508 26,090
Other Investments at Fair value - 542
Joint ventures and associates - 2,266
Loans through Platforms 908 -
Trade and other receivables 4,170 -
Cash and cash equivalents 3,016 -
----------
Total assets 30,690 56,136
========== =============
Liabilities
ZDP Shares - 24,714
Corporate Bond - 10,000
Trade and other payable 2,935 -
------
Total liabilities 2,935 34,714
====== =======
Net Liquidity 27,755 21,422
======= =======
(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 Fixed Rate
rate Financial Financial
Instruments Instruments Total
31 December 2017 GBP'000 GBP'000 GBP'000
Assets
BMS Loans and loan equivalents 1,064 45,262 46,326
Financial assets at fair
value through profit and
loss - 3,128 3,128
Loans through Platforms - 908 908
Cash and cash equivalents 3,016 - 3,016
Total assets 4,080 49,298 53,378
================ ============= ========
Liabilities
ZDP shares payable - 24,714 24,714
Corporate Bond - 10,000 10,000
-------
Total liabilities - 34,714 34,714
------ ------- -------
Total interest sensitivity
gap 4,080 14,584 18,664
====== ======= =======
31 December 2016
Assets (restated)
Sancus BMS Loans and loan
equivalents 563 38,258 38,821
Financial assets at fair
value through profit and
loss - 2,040 2,040
Loans through Platforms - 4,034 4,034
Cash and cash equivalents 9,616 - 9,616
------- ------- -------
Total assets 10,179 44,332 54,511
======= ======= =======
Liabilities
Loans payable - 11,920 11,920
ZDP shares payable - 23,436 23,436
Corporate Bond - 8,500 8,500
-------
Total liabilities - 43,856 43,856
------- ------- -------
Total interest sensitivity
gap 10,179 476 10,655
======= ======= =======
Interest rate sensitivities
Given that the majority of financial assets and liabilities are at fixed rates the Group is not materially exposed to changes in interest rates in relation to existing assets/liabilities (2016: similar exposure).
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. 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 methodology for the valuation of such investments is noted above.
Investment valuation sensitivities
The following table gives information about how the fair values of financial assets categorised as level 3 in the fair value hierarchy are determined by the Company:
Valuation Fair Value Fair Reason for Significant Relationship
technique GBP'000 Value any changes unobservable of unobservable
and key inputs GBP'000 in valuation inputs inputs
techniques to fair
from prior value
years
At 31 At 31
December December
2017 2016
--------------------- ----------- ---------- --------------- -------------------- -----------------
Market comparable 15,346 - Equity raises Transaction A smaller
transaction completing price negatively adjustment
based on recent Q4 17/Q1 adjusted for these
fundraising 18 by a range factors
activity, of 0-50% would increase
adjusted for for completion the fair
any relevant risk, nature value
risk of fundraising
and other
risks
Cashflows
are discounted
by a range
of 18.1-26.1%
for cost
of equity
and 15-17.5%
for illiquidity
of the investment.
Significant
There has internal
been no sensitivities A smaller
change in are also adjustment
valuation applied to for these
techniques. the forecasts, factors
Recent market creating would increase
comparable high and the fair
transaction low cases value-
data became used in the see sensitivity
Discounted available weighted analysis
cashflow forecasts 11,961 27,597 (see above) average output noted below
Fair value
based on cost
and adjusted
for FX movement
and any new
investment
(WC loan,
convertible
note etc) 2,291 8,507 None None None
----------- ----------
Fair value
Investment which closely
in redeemable approximates
preferences the net asset
shares of value of
the loan notes the Loan
is valued Note Special
on fair value 10,907 7,500 None purpose vehicles None
----------- ----------
40,505 43,604
----------- ----------
When the discounted cash flow ("DCF") valuation methodology is utilised, the variables which influence the resultant valuations most significantly are the discount rates applied to the future cash flows, the revenue forecasts and the illiquidity discounts. The table below shows the impact of stressing year end valuations by the sensitivities which the Board believe to be reasonably foreseeable:
Increasing and decreasing revenues by 10%
Increasing and decreasing discount rates by 3% (discount rates in valuation models average 18.1%-26.1%)
Increasing and decreasing illiquidity discounts by 5% (discounts applied in valuation models vary between 15% and 17.5%)
Consolidated Statement
of Comprehensive
Income
31 December
2017
GBP'000
10% pa increase in revenue 3,268
10% pa decrease in revenue (3,268)
3% increase in discount rate (1,570)
3% decrease in discount rates 2,154
5% increase in illiquidity discount (411)
5% decrease in illiquidity discount 411
The DCF methodology has been used on different investments and a different number of investments this year compared to the prior year. As a result, no prior year comparative has been given as it would not provide a meaningful comparison.
With regards to market comparable transactions, a total discount of GBP900k was applied to reflect completion risk of transactions not yet finalised.
(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 the following ways:
-- Direct lending to third party borrowers; -- Investing in loan funds (the BMS Sarls); -- Lending to associated platforms; and, -- Loans arranged by associated platforms.
The maximum investment size, at the time of the investment, will generally be limited to 15% of the Group's Gross Assets. However, the Group may make larger investments and it may seek to syndicate or sell down a portion of any such investment.
The Group mitigates credit risk on its loan portfolio by only entering into agreements related to loan instruments in which the operating strength of the investee companies is considered sufficient to support the loan amounts outstanding. This determination of whether the loan instruments are sufficiently supported is made 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.
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.
Credit risk exposure is set out in the table below. At the year-end there is no accrued interest which is considered uncollectable (31 December 2016: GBPnil).
The risk of default on bank accounts and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.
31 December 2017
Credit Risk (GBP'000) Amounts Provisions Net exposure
advanced / Write
offs
Sancus BMS loans and loan
equivalents 46,326 - 46,326
FinTech Ventures Investments 5,918 (2,790) 3,128
Loans through Platforms 908 - 908
Total 53,152 (2,790) 50,362
========== =========== =============
Credit Risk exposure of third party funders/co-lenders in loans managed/administered by the Group's subsidiaries
The credit risk on loans managed by Sancus BMS Group is borne by third party funders/co-lenders, who are provided with sufficient information to assess the risk at the time they enter the transaction. In the case of Sancus Finance's supply chain product, credit insurance is typically, put in place covering up to 90% of the funders' exposure.
Sancus, BMS Finance and Sancus Finance have developed credit policies, approval and monitoring processes to be effective for each businesses' different type of lending (property-backed, business cash flow and invoice/supply chain finance respectively). Limited default experience indicate that the policies and processes are proving effective.
(6) Market price risk
Following the sale of the investment in SSIF the Group has no exposure to market price risk of financial assets valued on a Level 1 basis as disclosed in Note 22.
Market price risk sensitivities
The following details the Group's sensitivity to a 5% increase and decrease in the market prices of Level 1 financial instruments, which were primarily the investment in SSIF. As at 31 December 2017 the Group had no investment in Level 1 financial instruments.
Consolidated Statement
of Comprehensive
Income
31 December 31 December
2017 2016
GBP'000 GBP'000
5% increase in market prices - 1,189
5% decrease in market prices - (1,189)
(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. The Group has made investments in currencies other than Sterling and is therefore exposed to this risk.
The extent of exposure is set out in the table below.
31 December 2017
Balance Assets Liabilities Net In GBP Rates % of
sheet exposure applied Group
(000) total
assets
----------------- ------- ------------ ------- ------- --------- --------
Euro 9,298 - 9,298 8,259 1.12579 7.34%
----------------- ------- ------------ ------- ------- --------- --------
USD 20,840 - 20,840 15,428 1.35077 13.72%
----------------- ------- ------------ ------- ------- --------- --------
The exchange rates used by the Group to translate foreign currency balances are as follows:
Currency 31 December 30 June 31 December 30 June 31 December
2017 2017 2016 2016 2015
---------- ------------ -------- ------------ -------- ------------
USD 1.3508 1.3027 1.2340 1.3311 1.4736
---------- ------------ -------- ------------ -------- ------------
EUR 1.1258 1.1402 1.1731 1.1984 1.3571
---------- ------------ -------- ------------ -------- ------------
Foreign exchange risk sensitivities
The sensitivity analysis below stresses the Group's outstanding foreign currency denominated financial assets and liabilities by a 15% increase/decrease in Sterling.
Consolidated Statement
of Comprehensive
Income
31 December 31 December
2017 2016
GBP'000 GBP'000
15% decrease in foreign exchange
rates 4,180 5,712
15% increase in foreign exchange
rates (3,090) (4,222)
The Treasury Committee Team monitors the Group's currency position on a regular basis, and the Board of Directors reviews it on a quarterly basis. Although this risk may be hedged, the current approach is not to do. No hedging instruments were used during either 2017 or 2016.
20. SHARE-BASED PAYMENTS
On 26 September 2017, the Company granted a total of 10,00,000 options over ordinary shares of no par value to certain directors of the Company. The Options will vest in three equal tranches on the first, second and third anniversaries of the Grant with exercise prices of 25p, 30p and 35p respectively. The options are not subject to performance conditions.
The expense recognised for these share-based payments during the year to December 2017 is GBP8,475 (2016: GBPNil).
Details of the share options outstanding during the year are as follows:
31 December 2017 31 December 2016
Number Weighted Number Weighted
of share average of share average
options exercise options exercise
price price
p p
Outstanding at the beginning -
of the year - - -
Granted during the year 10,000,000 30 - -
-----------
Outstanding at the end
of the year 10,000,000 30 - -
=========== =========== ========== ==========
Exercisable at the end -
of the year - - -
=========== =========== ========== ==========
The estimated fair values of the options granted were 0.99p, 1.06p and 0.84p for the first, second and third tranches respectively. The weighted average fair value of the options not yet exercised is 0.96p. These fair values were calculated using The Black-Scholes pricing model. The inputs to the model were as follows:
Tranche Tranche Tranche
1 2 3
Weighted average exercise price 25p 30p 35p
Expected volatility 45% 40% 34%
Expected contracted life 2 years 3.5 years 5 years
Risk free rate 0.45% 0.50% 0.76%
The expected volatility was determined by reference to the share price volatilities of the company itself, over the life of the options.
21. RELATED PARTY TRANSACTIONS
Transaction with the Directors/Executive Team
Non-executive Directors
As at 31 December 2017, 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 31 December
2017 2016
GBP GBP
Patrick Firth (Chairman) 50,000 50,000
John Whittle 42,500 40,000
Frederick Forni (1) - 37,500
James Carthew (1) - 40,000
(1) Resigned on 23 September 2016
There was no increase in the Directors' base fees during the year ended 31 December 2017, but Mr Whittle received an additional GBP2,500 as Chairman of the Audit Committee. Total Directors' fees charged to the Company for the year ended 31 December 2017 were GBP92,357 (31 December 2016: GBP86,380) with GBPNil (31 December 2016: GBPNil) remaining unpaid at the year end.
Executive Team
The Executive team consists of Andrew Whelan, Russell Harte (ceased employment on 1 July 2017), Emma Stubbs, Aaron Le Cornu (commenced employment 1 May 2017), Marc Krombach (ceased employment 29 April 2016) and Louise Beaumont (ceased employment 27 September 2016).
For the year ended 31 December 2017, the Executive Team members' remuneration from the Company, excluding all reasonable expenses incurred in the course of their duties which were reimbursed by the Company, were as detailed in the table below:
31 December 31 December
2017 2016
------------------------------------ ------------ ------------
GBP'000 GBP'000
------------------------------------ ------------ ------------
Aggregate remuneration in respect
of qualifying service - fixed
salary 565 500
------------------------------------ ------------ ------------
Aggregate amounts contributed
to Money Purchase pension schemes 79 66
------------------------------------ ------------ ------------
Aggregate bonus paid (shares
and cash) 550 394
------------------------------------ ------------ ------------
See remuneration report for further details.
All amounts have been charged to Other Expenses.
At the Company's annual general meeting ("AGM") held on 10 May 2017 Shareholders approved terms for a revised long-term incentive scheme, pursuant to which members of the Executive Team will be entitled to receive options to subscribe for new Ordinary Shares in the capital of the Company ("Share Options") at strike prices of 25p, 30p and 35p and will vest on the first, second and third anniversaries of the respective grant (the "New Scheme"). The New Scheme took effect from the date of the AGM and replaces the previous Executive Bonus Scheme.
Directors' and Persons Discharging Managerial Responsibilities ("PDMR") shareholdings in the Company
As at 31 December 2017, the Directors had the following beneficial interests in the Ordinary Shares of the Company:
31 December 2017 31 December 2016
No. of % of Ordinary No. of % of Ordinary
Ordinary Shares Ordinary Shares
Shares Shares
Held Held
Patrick Firth (Chairman) 278,669 0.09 271,049 0.09
John Whittle 104,550 0.03 - N/A
Andrew Whelan 8,051,921 2.58 3,800,000 1.23
Emma Stubbs 1,005,485 0.32 179,640 0.06
Aaron Le Cornu 445,790 0.15 - -
During the year, Mr Firth, Mr Whittle, Mr Whelan and Mrs Stubbs received total amounts of GBP1,694, GBPNil, GBP43,506 and GBP2,022 (31 December 2016: GBP6,390, GBPNil, GBP95,000 and GBP3,026) respectively from the Company by way of dividends on their Ordinary Share holdings in the Company.
See Note 24 for details of the Directors' interests in the Ordinary Shares of the Company as at the date of this report.
As at 31 December 2017, there were 10,000,000 unexercised share options for Ordinary Shares of the Company (31 December 2016: Nil Ordinary Shares) (Note 20).
During the year Mr Whelan received GBP41,475 in relation to the coupon on his holding of GBP800,000 GLI Bonds.
Transactions with connected entities
The following significant transactions with connected entities took place during the year:
31 December 31 December
2017 2016
-------------------------------- -------------------- --------------------
Balance Interest Balance Interest
GBP'000 accrued GBP'000 accrued
in the in the
year year
GBP'000 GBP'000
-------------------------------- --------- --------- --------- ---------
Platform loans & corresponding
interest
-------------------------------- --------- --------- --------- ---------
GLIF and investments in
Fintech Ventures 3,128 668 3,288 360
-------------------------------- --------- --------- --------- ---------
Platform preference shares
& corresponding interest
-------------------------------- --------- --------- --------- ---------
GLIF and investments in
Fintech Ventures 1,916 739 3,405 50
-------------------------------- --------- --------- --------- ---------
(Payable)/receivable to/from
related parties
-------------------------------- --------- --------- --------- ---------
Intercompany with Sancus
(IOM) Holdings Limited (950) - (2,400) -
-------------------------------- --------- --------- --------- ---------
Intercompany with Sancus 2 - - -
(IOM) Holdings Limited
-------------------------------- --------- --------- --------- ---------
Intercompany with Sancus 24 - - -
(IOM) Limited
-------------------------------- --------- --------- --------- ---------
31 December 31 December
2017 2016
GBP'000 GBP'000
Office and staff costs
recharges
-------------------------------- --------- --------- --------- ---------
Amberton Asset Management 47 163
-------------------------------- --------- --------- --------- ---------
There is no ultimate controlling party of the Company.
All platform loans bear interest at a commercial rate.
All preference shares bear interest at a commercial rate.
22. FINANCIAL INSTRUMENTS
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 2017 31 December 2016
Level 1 Level 3 Level 1 Level 3
Assets GBP'000 GBP'000 GBP'000 GBP'000
Investment in
SSIF - - 23,781 -
FinTech Ventures
investments - 29,598 - 36,104
Investments in
Sancus Loan Notes - 10,907 - 7,500
Other investments
at Fair Value 2,808 - 873
--------- --------- --------
Total assets
at Fair Value - 43,313 23,781 44,477
=========== ========= ========= ========
The classification and valuation methodology remains as noted in the 2016 Annual Report. In relation to the Level 3 valuation methodology for the FinTech Ventures investments the Board assesses the fair value based on either the value at the last capital transaction or valuation techniques, performed internally or by an independent third-party expert. Factors considered in these valuation analyses included discounted cashflows and comparable company and comparable transaction analysis. Key unobservable inputs used in the discounted cashflows include costs of equity and illiquidity discount rates. Other factors included revenue and costs growth rates, interest margins, bad debt expense and tax rates. These are consistent with the inputs described in the 2016 Annual Report and adjusted where necessary. The Board considers all the information presented to it, including indicative bids, internal analysis, and independent valuations, in order to reach, in good faith, their value determination.
The investment in SSIF was sold on the 8 March 2017, raising GBP22.7m in cash.
FinTech Ventures' Investments Equity Loans Total
31 December 2017 GBP GBP GBP
Opening fair value 34,699 1,405 36,104
New investments/loans advanced 1,455 5,494 6,949
Reclassification of loan - 418 418
Disposals/loan repayments - (414) (414)
Losses recognised in profit
and loss:
* Realised - - -
* Unrealised (9,684) (3,775) (13,459)
-------- -------- ---------
Closing fair value 26,470 3,128 29,598
======== ======== =========
Equity Loans Total
31 December 2016 GBP GBP GBP
Opening fair value 34,028 4,778 38,806
New investments/loans advanced 4,601 4,077 8,678
Transfer from Associate
to Subsidiary - Sancus
Finance (2,536) - (2,536)
Disposals/loan repayments (500) (912) (1,412)
Losses recognised in profit
and loss:
* Realised (500) (1,001) (1,501)
* Unrealised (394) (5,537) (5,931)
-------- -------- --------
Closing fair value 34,699 1,405 36,104
======== ======== ========
Assets at Amortised Cost
31 December 31 December
2017 2016
GBP'000 GBP'000
Sancus BMS loans and loan equivalents 35,419 31,321
Loans through platforms 908 4,034
Trade and other receivables 4,170 2,712
Cash and cash equivalents 3,016 9,616
Total assets at amortised cost 43,513 47,683
============ ============
Sancus BMS loans and loan equivalents has increased in the year largely due to the participation by BMS and GLI in the UK and Irish Funds. Loans through the platforms has reduced in the year from net repayments and loan provisions.
Liabilities at Amortised Cost
31 December 31 December
2017 2016
GBP'000 GBP'000
ZDP Shares 24,714 23,436
Syndicated Loan - 11,920
Corporate Bond 10,000 8,500
Trade and other payables 2,935 7,396
Total liabilities at amortised
cost 37,649 51,252
============ ============
Refer to Note 14 for further information on liabilities.
23. COMMITMENTS AND CONTINGENCIES
As at 31 December 2017, the Group had the following aggregate unrecognised commitments to loans denominated in Sterling, Euro and US Dollar, due to its Associates and other underlying investments:
Aggregate loan commitment by 31 December 31 December
currency 2017 2016
GBP'000 GBP'000
Sterling 60 1,066
Euro 255 703
US Dollar - 1,297
------------ ------------
315 3,066
============ ============
Operating lease commitments 31 December 31 December
2017 2016
GBP'000 GBP'000
Within one year 328 96
Between two and five years 883 235
Over 5 years 107 -
1,318 331
============ ============
All lease commitments relate to office space.
24. POST YEAR END EVENTS
Directors and PDMR Interests
At the date of these financial statements, the Directors and PDMRs' beneficial interests in the Ordinary Shares of the Company were:
No. of % of Ordinary
Ordinary Shares
Shares
Held
Patrick Firth (Chairman) 278,669 0.09
John Whittle 104,550 0.03
Andrew Whelan 8,051,921 2.58
Emma Stubbs 1,005,485 0.32
Aaron Le Cornu 1,105,790 0.35
Subsidiary - Name Change
On 16 January 2018, Funding Knight Limited changed its name to Sancus Funding Limited.
HIT Funding Facility
On 29 January 2018 it was announced that a special purpose loan vehicle called Sancus Loans Limited which is non-recourse to GLI has been established with a GBP50m funding capacity. This has been backed by a GBP45m credit facility from HIT, with a term of 3 years, of which GBP17.5m had been drawn and deployed immediately.
Repayment of Sancus Loan Note 1
On 29 January 2018 it was announced that Sancus Loan Note 1 (the "SPV") would be repaid early using the "HIT" funding facility noted above. The SPV was launched in November 2016 with a 2 year life and GBP17.55m in size; GBP7.5m of which were redeemable preference shares subscribed for by Sancus. GBP5m of the c.GBP7.5m repaid to Sancus, will be used as security under the terms of the new funding facility.
There were no other significant post year end events that require disclosure in these financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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