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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 : 6897M
GLI Finance Limited
18 September 2019
18 September 2019
The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.
GLI Finance Limited
("the Group" or "GLI")
Interim Report and
Unaudited Condensed Consolidated Financial Statements
For the six month period ended 30 June 2019
Group Highlights
While the headline financial results for the first six months remain disappointing, they mask some crucial developments in asset efficiency and cost controls that have led to a significant improvement in return on tangible assets in our core business. Impressive loan growth in asset backed secured lending in our offshore jurisdictions, together with the establishment of offices in our future growth markets in the UK and Ireland are where operations have barely begun, lay the foundations for improved financial results in the years ahead.
-- Group loss for the half year is GBP6.1m (H1 2018: loss GBP9.3m) and Group net assets are GBP44.0m (31 December 2018: GBP50.2m).
-- The overall result once again impacted by material write downs within the FinTech portfolio.
-- The Group is focussed on the repayment of the Zero Dividend Preference shares ("ZDPs") due on 5 December 2019. The total amount due on maturity was originally GBP27.2m which had reduced to GBP20.4m at 30 June 2019 following a series of buybacks by the Company. Post period end, following further buy backs, the amount due has fallen to GBP16.8m at the end of August 2019.
-- Whilst we are focussed on selling down our on-balance sheet loan exposure and using cash assets to repay the ZDPs on maturity, there will likely be a near term funding gap as loans take longer to repay. We are in active discussions with the major ZDP holders and are exploring options including extending the current ZDPs for a further year with a coupon of 7% or potentially issuing further bonds under its existing bond instrument.
Sancus BMS Highlights
-- Over the last twelve months, we have scrutinised capital allocation and we have been divesting assets where return on capital, on a risk adjusted basis, is below other areas of the business. This has led to a gradual divestment of our SME lending activities where loans tend to deserve a higher risk weighting and require significant use of our own balance sheet. We have redirected resources to our asset backed secured lending activities where third-party funding is more accessible and our balance sheet less utilised;
-- Costs have been managed well during the period and we have seen a reduction in operating expenses by GBP0.5m largely in employment costs;
-- The combination of better asset utilisation and better cost control have delivered an improvement in return on tangible assets and our return on tangible equity rose to 6.1% compared to a negative return on equity for the full year 2018 of 1.7%;
-- Strong growth has been delivered across the asset backed secured lending businesses. Over the last twelve months we have delivered a 24% increase in the loan book from GBP151m at 30 June 2018 to GBP188m at 30 June 2019;
-- A key growth initiative for the Group has been the establishment of the UK business in April 2019 and Irish business in December 2018. These have significantly larger markets than we are presently operating in and we expect the future growth of the Group to be driven by these jurisdictions. The pipeline for these two new businesses is strong but the initial loan deployment has been somewhat impacted by Brexit. Thus, the offshore regions still dominate and the full impact of opening in these two larger markets is yet to be reflected;
-- In line with our focus to improve asset efficiency and the quality of our financials, for the first half of the year proforma* on-balance sheet loan exposure reduced by 43% compared to 30 June 2018, with revenue falling by far less, 15% from GBP6.3m to GBP5.4m;
-- Proforma operating profit for the first half of the year was GBP0.3m (June 2018: GBP1.4m). The reduction is partly due to timings of one-off large exit fees and the loss of the BMS Irish admin fees, plus associated costs in our UK and Irish jurisdictions where the revenue stream is not yet up to its full potential. Results are also impacted by a GBP1.2m IFRS 9 provision in the period (30 June 2018: GBP0.5m). Half of this movement relates to an SME loan within the BMS UK Fund where the underlying SME business is facing financial difficulties;
-- We continue to diversify and grow our sources of capital and lending capacity. At 30 June 2019, Sancus had loans outstanding of GBP188m with Co-Funders providing GBP173m, equating to a co-funding ratio of 92%. This is up from last year where Sancus had loans outstanding of GBP151m and Co-Funding of GBP135m equating to an 89% ratio. The three main sources of syndicated capital are the GBP45m credit facility (GBP34m loans in HIT at 30 June 2019) with Honeycomb Investment Trust plc ("HIT"), the Sancus Loan Notes ("SLNs") GBP25m and individual Co-Funders GBP114m.
FinTech Ventures Highlights
-- The carrying value of FinTech Ventures portfolio is GBP8.7m (GBP13.8m at 31 December 2018); -- NAV per share for FinTech Ventures portfolio is 3.2 pence (31 December 2018: 5.1 pence);
-- The write down in the period relates primarily to three of our platforms. One of the platforms has disappointingly ceased trading in September 2019 following an enforcement by their debt provider. Another of the platforms is finding it difficult to secure the additional equity capital they require. The third platform where we have suffered a write down has secured further equity capital during H1 2019, but the providers of the new equity have negotiated a favourable liquidation preference which has impacted our value.
* A proforma reconciliation to Statutory Results is noted in Table 1 and Table 3.
Enquiries
GLI Finance Limited
Andy Whelan
+44 (0)1534 708900
Liberum Capital (Nominated Adviser and Corporate Broker)
Chris Clarke
Steve Pearce
+44 (0) 20 3100 2000
Instinctif Partners (PR Advisor)
Tim Linacre
Katie Bairsto
+44 (0)207 457 2020
CHAIRMAN'S STATEMENT
Positioning the business for the future
Our focus remains on maximising the earning potential of our two distinct business units, whilst recognising that Sancus is the key for GLI's future.
Sancus BMS comprises the Group's property backed and SME lending businesses. FinTech Ventures represents the Group's investments in a portfolio of SME focussed lending platforms. Over the last few years we have seen the valuation of the FinTech Ventures portfolio become a much smaller part of the Group's assets as businesses have failed and numerous valuations in the sector have reduced. However, we continue to work hard to maximise the value from this portfolio, but as previously highlighted this has proven to be extremely challenging, as we are a minority investor with limited financial resources to support the platforms.
Sancus BMS is our core trading business and continues to show good growth with 24% increase in the loan book from GBP151m at 30 June 2018 to GBP188m at 30 June 2019. Over the past six months, the loan book has increased by 12% from GBP168m to GBP188m. Sancus BMS revenue on a statutory reporting basis has remained flat at GBP6.8m for the six months ended 30 June 2019 compared to GBP6.9m in the prior period. GBP1.6m of this revenue related to Sancus Loans Limited ("SLL") which increased by 148% in comparison to the prior period, highlighting the demand we have seen in loan origination. In our view, to show the true economic performance of the Group, all Co-Funders should be assessed in the same way. However, as SLL is 100% owned by Sancus BMS Group Limited (as it was required to be set up as an SPV for the HIT facility) it is consolidated into the Group's results. In our proforma statements on Table 1 the SLL results have been deducted from the consolidated statement of comprehensive income ("SOCI") and the consolidated statement of financial position ("SOFP") and we show the results on a net basis which is the same for all our other syndicated arrangements.
Sancus BMS revenue on a proforma basis has not moved in line with the loan book growth with a reduction of 15% (GBP0.9m) compared to the same period last year. This is in part due to a reduction in exit fees of GBP0.3m which by their nature are lumpy and will vary by period. In addition, the sale of the Irish BMS Fund mandate last year contributed to a GBP0.3m reduction in admin fee income. However, the reduction in admin revenue is materially less than the associated fall in assets used to support the SME lending activities. Interest income is expected to decrease further over the remainder of this year as we reduce our on-balance sheet loan book to use funds to repay the ZDPs. This is in line with our long-term strategy to increase return on tangible assets over time with reduced on-balance sheet risk exposure.
The growth in the loan book is a factor of growth in Co-Funder appetite, which includes the GBP45m HIT facility that was launched in January 2018, of which the loan balance at the end of June 2019 was GBP34m. In addition to this facility and regular participation by Co-Funders, we also have the Sancus Loan Note programme that has proven very successful and provides Co-Funders with the option of participating in a wider pool of loans with a fixed rate of return. As seen by the HIT facility this diversification of funding has allowed us to grow the Sancus BMS loan book and we continue to look at other similar debt providers to aid expansion plans.
ZDPs
The repayment of our ZDPs on 5 December 2019 remains at the forefront of our mind and we have made good progress acquiring those which have become available in the market over the last 12 months. We have spent GBP9.4m on buybacks up to the date of this report with a total of 7.9m ZDP shares now held by the Group. This has reduced the ZDP liability to GBP16.8m at the end of August 2019. Whilst we are focussed on selling down our on-balance sheet loan exposure and using cash assets, there will likely be a near term funding gap as loans take longer to repay. We have been exploring several options to fund this potential gap. This includes letting a portion of the ZDPs run past the scheduled repayment date and repaying the liability as liquidity becomes available to enable the Company lawfully to redeem the ZDPs, which although contemplated by the Company's articles of incorporation and the ZDP prospectus, is not our preferred route. We have engaged with the major ZDP holders and are looking into the potential extension of the current ZDPs for a further year with a coupon of 7% or issuing further Bonds under the current Bond instrument.
Taking into account the varying possible outcomes of factors and assumptions listed above, these constitute a material uncertainty that may cast significant doubt over the Company's and Group's ability to continue as a going concern, such that it may be unable to release its assets and discharge its liabilities in the normal course of business. The Directors expect that if they are able to action the mitigations being considered above, the material uncertainties will be extinguished. Refer Note 2(c) for further details.
Brexit
The uncertainties created by Brexit makes it very difficult to predict what impact this will have on the UK property lending market. However, Sancus has further tightened its credit processes to decline proposals where the repayment strategy is based upon bull market behaviour. This was due to our continued fears that global economies are at or are reaching the peak of this long bull market cycle and the threat of a global recession or correction in stock and bond markets is increasing. However, we do believe that the medium-term benefits will be positive for alternative lenders as banks will step back further from their lending activities as they closely monitor their Tier 1 Capital ratios. In the immediate future, businesses may pause and take a wait and see approach for new projects, however, for already committed projects we expect them to continue to push forward and execute on their plans. In any stressful period, there are arbitrage pricing opportunities and Sancus will seek to benefit from such instability.
Overview
We have made significant strides to lay the foundation for growth and operational improvements to create and build shareholder value in the Sancus BMS Group. The funding facility, Loan Note and Co-funder network helps to support this growth, but we are also continuing to secure a steady flow of new Co-Funders due to the attractive risk-adjusted returns that are available on our lending opportunities. Our focus for the foreseeable future is growing the UK and Irish operations and continuing to expand the offshore jurisdictions.
We shall continue carefully managing the FinTech Ventures portfolio and explore options to maximise the return to Shareholders, although we note the continuing challenges on these investments and the poor performance to date.
We are also pleased to welcome Nick Wakefield as a Director of the Company. Nick was proposed as a representative of our largest shareholder and brings significant experience to the Board.
Following shareholder feedback at the 2019 AGM a new Company Remuneration Policy is being prepared and details of this will be included in our 2019 Annual Report.
Dividend and Shareholders
In line with our dividend policy, it is not proposed to declare a dividend for this period. We expect our investments in Ireland and the UK together with further focus on operational matters to drive cash flow in the coming years. This will allow us to resume the dividend. I am grateful to all our shareholders who have kept confidence with the Group through what continues to be a challenging period as reflected in the depressed share price. We believe that the share price is trading well below the inherent value of the business and we look forward to seeing it recover in due course on the back of the strong growth delivered by the Executive Team within Sancus BMS.
Patrick Firth
Chairman
Date: 17 September 2019
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
During the first half of 2019 Sancus BMS has seen a flurry of asset backed secured loan activity and we have spent considerable time, energy and focus on the UK and Irish operations to ensure they are well positioned to grow in the coming months. We have felt the effects of Brexit, which has created a more cautious environment and look forward to a conclusion on this hopefully in the final quarter of this year. We continue to work closely with the FinTech Ventures portfolio providing support where we can. No further capital has been invested in the portfolio during 2019 and it remains a challenging market for many of the platforms to raise capital.
The Group results for the first half of 2019 produced a revenue of GBP7.1m (30 June 2018: GBP7.2m) and an operating loss of GBP0.1m (30 June 2018: profit GBP0.6m). As we go onto explain below, the statutory results include the revenue and debt costs of the HIT facility which saw a significant increase from last June as we have utilised our Co-Funder base to grow the loan book. The Group net assets have decreased in the period from GBP50.2m at 31 December 2018, to GBP44.0m at 30 June 2019, largely impacted by the GBP5.2m write down of the FinTech Ventures portfolio.
Sancus BMS
The Board believes our economic performance is best illustrated from our proforma statements. In our view, all Co-Funders should be assessed in the same way. However, as Sancus Loans Limited ("SLL") is 100% owned by Sancus BMS Group Limited (as it was required to be set up as an SPV for the HIT facility) it is consolidated into the Group's results. In our proforma statements the SLL results have been deducted from the consolidated statement of comprehensive income ("SOCI") and the consolidated statement of financial position ("SOFP") noted below and we show the results on a net basis which is the same for all our other Co-Funder arrangements. We show the reconciliation of the proforma statements with accounting statements below.
Financial Results for the six months ended 30 June 2019 (Table 1) - Sancus BMS Group
Hot Features
Premium
Sancus BMS SOCI Proforma Results 30 June 2019 30 June Movement Movement
GBP'000 2018 % GBP'000
GBP'000
Sancus BMS interest on loans 1,620 1,784 (9%) (164)
Sancus BMS Fees and Other Income 3,530 4,486 (21%) (956)
Sancus Loans Limited Fees and
Other Income 271 75 261% 196
Revenue 5,421 6,345 (15%) (924)
Interest costs (891) (985) 10% 94
Other cost of sales (253) (110) (130%) (143)
Total Cost of Sales (1,144) (1,095) (4%) (49)
Gross profit 4,277 5,250 (19%) (973)
Operating expenses (2,779) (3,327) 16% 548
Changes in expected credit losses
("ECLs") (IFRS 9) (1,175) (518) (127%) (657)
Net operating profit 323 1,405 (77%) (1,082)
Other net (losses) / gains (753) 227 (432%) (980)
Goodwill impairment - (2,139) 100% 2,139
Tax (144) (162) 11% 18
Loss for the period (574) (669) 14% 95
Reconciliation to SOCI - Revenue 30 June 30 June Movement Movement
2019 2018 % GBP'000
GBPm GBPm
Revenue per proforma Sancus BMS
SOCI 5,421 6,345 (15%) (924)
Less Sancus Loans Limited Fee
and Other Income (271) (75) (261%) (196)
Sancus Loans Limited Revenue 1,611 649 148% 962
Revenue per Sancus BMS SOCI (Note
3) 6,761 6,919 (2%) (158)
Reconciliation to SOCI - Cost 30 June 30 June Movement Movement
of Sales 2019 2018 % GBP'000
GBPm GBPm
Cost of sales per proforma Sancus
BMS SOCI (1,144) (1,095) (4%) (49)
Sancus Loans Limited interest
costs (1,340) (574) (133%) (766)
Cost of Sales per Sancus BMS
SOCI (Note 3) (2,484) (1,669) (49%) (815)
Sancus BMS Entity Results (Table 2)
GBP'000 2019 - Half Year 2018 - Half Year %
Offshore BMS UK Total Offshore BMS UK Total
--------- ------ ------ -------- --------- ------ -------- -------- -------
Revenue 4,263 807 351 5,421 3,754 1,924 667 6,345 (15%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
Other Cost
of Sales (183) - (70) (253) (35) - (75) (110) (130%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
Operating
Expenses (1,488) (453) (838) (2,779) (1,383) (851) (1,093) (3,327) 16%
--------- ------ ------ -------- --------- ------ -------- -------- -------
Change in
ECLs (565) (610) - (1,175) (518) - - (518) (127%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
Debt costs (891) (985) 10%
--------- ------ ------ -------- --------- ------ -------- -------- -------
Net Operating
Profit 2,027 (256) (557) 323 1,818 1,073 (501) 1,405 (77%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
Loan Book
GBPm 186 34 5 225 151 81 13 246 (8%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
On-balance
sheet loans
GBPm gross
of IFRS
9 (Table
4) 15 9 0 24 16 21 1 38 (38%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
Revenue
Sancus BMS Group revenue on a proforma basis was GBP5.4m for the first half of the year (H1 2018: GBP6.3m). On a statutory basis revenue was GBP6.8m (H1 2019: GBP6.9m). A reconciliation between the proforma and statutory results is included in Table 1. The reduction in the period is partly due to the sale of the BMS Irish Fund in May 2018, therefore we no longer receive admin fees for this fund, and we have had movements in the exit fees during the period compared to prior year, which by their nature tend to be quite sizable and lumpy. Our asset backed secured lending activities within the Sancus offshore jurisdictions have had a solid first six months with a 14% increase in revenue, although we are always pursuing more loan origination and deployment. For BMS, which focuses on SME lending, revenue has decreased by 58% compared to the same period last year as a result of the sale of the BMS Irish Fund in July 2018 and the reduction in the advisory fee charged to the UK Fund. The UK has also seen a 47% revenue decrease from the closure of our supply chain finance offering. The UK and Ireland asset backed lending businesses are our primary focus going forward. The UK office only became fully operational in April 2019 and we are expecting to report an improvement of this revenue stream in the second half of the year, albeit we are concerned that Brexit may have an adverse effect on our expectations. Revenues from interest income on loans relates to the Sancus BMS on-balance sheet loans. These have reduced in the period by 9% as on-balance sheet loans have reduced. Revenues from interest income on loans relates to the Sancus BMS on-balance sheet loans. These have reduced in the period by 9% as on-balance sheet loans have reduced.
Total Cost of Sales
Total cost of sales which includes interest and other direct costs, has remained flat in the period with lower interest costs (reducing our capital intensity) being offset by higher loan broker costs from new Sancus loan introductions.
o GBP10m 5-year Bond (7%) matures 30 June 2021, interest paid half yearly;
o GBP20.8m 2019 ZDPs (5.5%) income entitlement and principal due on expiry 5 December 2019 (net due GBP16.8m as at 31 August 2019).
To measure business unit performance, finance costs are allocated to Sancus BMS to recognise its use of the Group's debt facilities in its lending activities. FinTech Ventures is treated as being funded by equity. This allocation best matches the risk profile of each business unit with its capital structure, as well as recognising that interest costs are effectively serviced by interest income from Sancus BMS.
Operating Expenses
We continue to manage costs carefully and within the Sancus BMS Group GBP0.5m of cost savings were achieved in the period with operating expenses for the first 6 months falling from GBP3.3m to GBP2.8m. Savings relate predominantly to employment costs. Headcount in the period has reduced by a further 5 heads to 35 in the Sancus BMS Group at the end of June 2019.
IFRS 9
We have had a movement in expected credit losses (IFRS 9) of GBP1.2m in the period (GBP0.5m in June 2018). Half of this movement relates to an SME loan within the BMS UK Fund where the underlying SME business is facing financial difficulties.
The majority of the remainder of the movement in expected credit losses relates to our Sancus asset backed lending loan portfolio and is as a result of a couple of secured loans going into default, which we are actively working on to resolve (Refer Note 21).
Other net (losses) and gains
We have reported a GBP0.7m other net loss in the period (30 June 2018: gain GBP0.2m). This balance includes revaluations of our associate holdings in Amberton Asset Management and Sancus Isle of Man ("IOM"), but the largest movement was due to additional costs associated with Sancus Properties Limited which accounted for GBP0.6m of the loss. These costs relate to security previously held by a former borrower. During the period unbudgeted remediation expenses were incurred to enable them to be sold at the highest possible value in due course.
Sancus Properties Limited
In August 2018 a 100% owned SPV called Sancus Properties Limited was incorporated to hold assets previously held by a former borrower. The intention remains to realise these assets via orderly transactions; the timing of which will be determined so as to best deliver shareholder capital. These assets are reported under IAS2 Inventories whereby they are held at the lower of cost or NRV. As at 30 June 2019 they had a value assigned to them of GBP4.1m and consist of a combination of houses, a block of apartments and a large plot of land. We continue to make progress with the portfolio and have sold one house during the period with the block of apartments due on the market very shortly. We continue to look at all options to ensure the greatest return for shareholders whilst balancing the risk/reward and liquidity of each.
Honeycomb Investment Trust (HIT) Facility
A special purpose loan vehicle called Sancus Loans Limited ("SLL"), which is non-recourse to GLI, was established during 2018 with a GBP50m funding capacity. This has been backed by a GBP45m credit facility from HIT, with a term of 3 years. Sancus has GBP5m equity invested in this vehicle. Although non-recourse to GLI the SPV is 100% owned by the Group and is therefore consolidated. As a result, both the Sancus Loans Limited loans and HIT facility appear on the consolidated balance sheet but deducted from our proforma results as noted earlier.
Revenue within Sancus Loans Limited has increased by GBP1m in the period from GBP0.6m to GBP1.6m for the period ended 30 June 2019. This reflects the increased draw down of the facility from GBP23m in June 2018 to GBP32m in June 2019 (maximum facility GBP45m). At the period end, interest bearing debt comprised:
o GBP32m HIT facility (7.25%) (maximum facility GBP45m), interest paid monthly.
Sancus BMS Proforma Statement of Financial Position (Table 3)
GBP'000 30 June 30 June 30 June 31 December 31 December 31 December
2019 2019 SLL 2019 2018 2018 SLL 2018
(unaudited) Proforma (audited) Proforma
Note 3 Note 3
Sancus BMS on-Balance
Sheet Loans and
loan equivalents 20,909 - 20,909 26,678 - 26,678
------------- ---------- ---------- ------------ ------------ ------------
Sancus Loans Limited
loans 33,913 33,913 - 25,639 25,639 -
------------- ---------- ---------- ------------ ------------ ------------
Goodwill 22,894 - 22,894 22,894 - 22,894
------------- ---------- ---------- ------------ ------------ ------------
Sancus Properties
Limited 4,110 - 4,110 4,404 - 4,404
------------- ---------- ---------- ------------ ------------ ------------
Trade and other
receivables 8,012 1,954 6,058 4,678 2,005 2,673
------------- ---------- ---------- ------------ ------------ ------------
Other assets 4,235 - 4,235 3,839 - 3,839
------------- ---------- ---------- ------------ ------------ ------------
Cash and cash equivalents 3,727 2,172 1,555 3,856 364 3,492
------------- ---------- ---------- ------------ ------------ ------------
Total Assets 97,800 38,039 59,761 91,988 28,008 63,980
------------- ---------- ---------- ------------ ------------ ------------
ZDPs payable (19,991) - (19,991) (24,059) - (24,059)
------------- ---------- ---------- ------------ ------------ ------------
Bond payable (10,000) - (10,000) (10,000) - (10,000)
------------- ---------- ---------- ------------ ------------ ------------
HIT Debt (32,446) (32,446) - (22,684) (22,684) -
------------- ---------- ---------- ------------ ------------ ------------
Other Liabilities (1,953) (27) (1,926) (1,723) (25) (1,698)
------------- ---------- ---------- ------------ ------------ ------------
Total Liabilities (64,390) (32,473) (31,917) (58,466) (22,709) (35,757)
------------- ---------- ---------- ------------ ------------ ------------
Sancus BMS net
assets 33,410 5,566 27,844 33,522 5,299 28,223
------------- ---------- ---------- ------------ ------------ ------------
Sancus own equity
within SLL 5,566 5,299
------------- ---------- ---------- ------------ ------------ ------------
Sancus BMS net
assets including
SLL equity 33,410 33,522
------------- ---------- ---------- ------------ ------------ ------------
Sancus BMS on-Balance Sheet Loans and loan equivalents (Table 4)
On-balance sheet loan and loan equivalents have decreased in the period from GBP26.7m to GBP20.9m. As previously noted, the disinvestment from SME lending is allowing asset utilisation to improve, which will drive an improvement in ROTA and shareholder value over time. As we have also seen from our loan book funding, our access to capital has also improved allowing funding of asset backed secured loans from other sources such as the HIT facility, SLNs and Co-Funders.
GBP'000 30 June 31 December
2019 2018
Jersey 10,843 8,219
-------- ------------
Gibraltar 3,745 6,268
-------- ------------
Guernsey 438 310
-------- ------------
BMS - Investment in the fund and other loans 8,554 10,074
-------- ------------
Sancus UK 74 143
-------- ------------
Sancus Loan Notes - 3,311
-------- ------------
IOM preference shares - 950
-------- ------------
Ireland 85 -
-------- ------------
IFRS 9 Provision (2,830) (2,597)
-------- ------------
Total Sancus BMS on-Balance Sheet Loans and
loan equivalents (ex SLL) 20,909 26,678
-------- ------------
Marketing
We continue to grow our market share. The Sancus brand is becoming increasingly well-known and we are receiving a healthy flow of new lending opportunities with strong growth in new Co-Funders.
Loan Book
Whilst the Sancus asset backed lending loan book has grown strongly by 24% (to GBP188m) year on year, this has been somewhat offset by a GBP47m reduction in the BMS loan book over the same period from the sale of the Irish BMS Fund and a reduction in the UK BMS Fund. We have seen the HIT facility increase by 36% from the same period last year as well as the loan notes up 35% and Co-Funders up 24%. Our on-balance sheet loans have decreased by 19% from 31 December 2018 and 43% from 30 June 2018, in line with our ZDP repayment strategy and the continued focus on improving ROTA.
Loan deployment for asset backed lending is a key metric we use to monitor the performance of the Sancus BMS Group. Over the last two years we have seen a steady increase in loan deployments from GBP102m for the full year 2017 and GBP115m for the full year 2018 representing a 12% increase. For the first six months of 2019 loan deployment was 28% ahead of last year at GBP73m (H1 2018: GBP57m). We have set ourselves stretching targets for this year incorporating the new asset backed lending for the UK and Ireland.
The UK and Ireland has seen slower loan deployment than anticipated but we fully expect this to grow in the second half of the year, albeit Brexit is causing a strong head wind that cannot be ignored. A final resolution to this debacle is required as soon as possible as the UK economy is being damaged by the continued uncertainty.
Sancus Loan Notes
The Sancus Loan Notes ("SLNs") comprise a planned series of Special Purpose Vehicles ("SPVs") designed to act like securitisation vehicles to help diversify our funding options and enable additional Co-Funder participation in diversified loan portfolios. These are attractive to new clients that want to participate in a pooled vehicle, delivered across a number of loans, rather than via direct participation in individual loans. SLN4 had a successful launch in July 2018, and has now grown to GBP7.4m, which matures on 30 September 2019 and has a coupon of 6%. As part of the structure of the loan notes, Sancus BMS provides first loss positions. For SLN4 this exposure is 20% of the total capital in these Loan Notes. On 8 November 2018 SLN5 was launched with GBP6.5m and is now at GBP17.1m with a coupon of 7%. Sancus BMS has a 10% first loss position on this Loan Note.
Technology
The Group continues to invest in its technology. Following the successful launch of the Group's proprietary Loan Management System (LMS) in 2017, an online reporting platform for offshore Co-Funders was rolled out in 2018. We have now rolled out a fully online transactional platform in the UK.
Sancus BMS Group KPIs
We set out in our 2018 Annual Report that we will be reporting our KPIs going forward to demonstrate the progress we are making over time. We are committed to driving shareholder value through judicious growth, improving asset utilisation and cost controls. We believe the share price will positively reflect improvement in these metrics overtime (Refer to Note 20 Performance Measures).
Sancus BMS Group KPIs (Table 5)
30 June 31 December 2018
2019 Full Year
6 months GBPm
GBPm
Total Sancus BMS Loan Book 225 219
Sancus Asset Backed Lending
Loan Book 188 168
Sancus on-balance sheet loans
excluding SLL* 21 27
Sancus Loan Deployment 73 115
Proforma Revenue 5,421 11,664
Total Costs 5,098 11,845
Net Operating Profit / (Loss) 323 (181)
Tangible Assets 45,993 48,455
Tangible Equity 10,516 10,628
ROTA 1.4% (0.4%)
ROTE 6.1% (1.7%)
Cost Income Ratio 94% 102%
* Sancus Loans Limited ("SLL") - refer Table 4 for Sancus on-balance sheet loan breakdown.
Return on Total Assets ("ROTA")
We have seen an improvement in this ratio in the first half of the year from (0.4%) for the year ended 31 December 2018 to 1.4% annualised for the first six months of 2019 as operating profits have increased and the total tangible assets figure has reduced following the reduction of our on-balance sheet loans and concurrent reduction in our liability to purchase the ZDPs in the market.
Cost Income Ratio ("CIR")
The total costs include operating expenses, debt costs and broker costs as set out in Note 20. CIR for the first half of 2019 has reduced to 94% from 102% for the full year 2018. Cost efficiencies have been delivered across a number of areas, but primarily in employment costs.
Return on Tangible Equity ("ROTE")
Equity has been adjusted to exclude goodwill, so we can monitor the return we are making on tangible equity. The return, being the net operating profit figure noted above has increased to GBP323k in this first half year compared to a loss for the full year in 2018 of GBP181k when there was a large provision from the adoption of IFRS 9 in the year. ROTE on an annualised basis for the first half of 2019 was 6.1% compared to negative 1.7% for the full year 2018 results.
FinTech Ventures
Financial Results for the six months ended 30 June 2019 (Table 6) - FinTech Ventures
30 June 2019 30 June Movement Movement
GBP'000 2018 % GBP'000
GBP'000
Revenue 325 260 25% 65
Operating expenses (234) (637) 63% 403
FinTech Ventures fair value movement (5,190) (8,251) 37% 3,061
FinTech Ventures foreign exchange
gain 39 429 (91%) (390)
Other net gains 54 20 170% 34
Total Loss after tax (5,006) (8,179) 39% 3,173
30 June 2019 31 Dec 2018 Movement Movement
GBP'000 GBP'000 % GBP'000
FinTech Ventures Portfolio 8,665 13,804 (37%) (5,139)
FinTech Total Net Assets 9,791 15,598 (37%) (5,807)
It is disappointing to again be reporting further write downs in the FinTech Ventures portfolio. As we have previously outlined, we are largely a passenger on this journey and due to capital constraints, we have not been able to follow our money into these platforms. Whilst FinTech as a sector continues to grow strongly, the increased competition is making it increasingly difficult for smaller players, particularly those that are loss making, to raise further equity. Investors are much more discerning regarding potential valuations and are seeking key unique service propositions as to why a particular platform will succeed. For several of our platforms, it is taking longer for them to achieve breakeven than previously envisaged and they are currently seeking to raise further equity to fund further growth and to see them through to sustained profitability. Competing demands for our capital means that the platforms have often had to secure new third-party investors. Given the plethora of investment opportunities, these investors are often able to negotiate favourable terms and frustratingly, we have often not been able to follow our money.
We have a further GBP5.2m write down across the FinTech Ventures portfolio in the period. The write down relates primarily to three of our platforms. One of the platforms has disappointingly ceased trading in September 2019 following an enforcement by their debt provider. Another of the platforms is finding it difficult to secure the additional equity capital they require. The third platform where we have suffered a write down has secured further equity capital during H1 2019, but the providers of the new equity have negotiated a favourable liquidation preference which has impacted our value.
No further investments have been made during the period. The movement in foreign currency rates since 31 December 2018 has resulted in a marginal GBP39k increase in the fair value of our investments. GBP82k has been received in respect of two previously written down platforms. We continue to carefully monitor and actively engage with the platforms in which we hold investments in order to protect our interests.
Group
ZDPs
The maturity of the ZDPs on 5 December 2019 is a key priority for the coming months. As at the end of August 2019, the liability has been reduced by 38% to GBP16.8m via the series of buy backs which we have been able to complete over the last 18 months. This has been achieved by reducing exposure to loans on our balance sheet.
By their nature, bridging and development loans often extend, and their repayment date is more uncertain. Moreover, we have found that Brexit has had an impact on the secondary liquidity of loans. It is likely that there is a timing issue in that not all loans have repaid as expected and as such, there will likely be a near term funding gap. We are in active discussions with the larger ZDP shareholders to explore the options available to us, which include the following:
-- Roll the existing ZDPs for a further 1 year at an increased rate of 7%;
-- Fund the gap by issuing ZDP shareholders units in the GLI bond, which matures on 30 June 2021. This bond pays a coupon of 7% semi-annually and ranks higher in the liquidity preference than the current ZDPs.
Subject to liquidity, we intend to recommence the buyback programme to reduce the outstanding balance on the ZDPs using monies from on-balance sheet loans, which are repaid prior to 5 December 2019.
Costs
A thorough review of the cost allocation within the Group was conducted in H1 2019. Whilst overall Head Office and FinTech costs reduced by 25% to GBP0.8m, FinTech costs reduced by GBP0.4m following the new allocation basis, and Head Office costs increased by GBP0.1m.
Remuneration
As referred to in the Chairman's Statement, we are reviewing the Group's Remuneration policy following shareholder feedback from the 2019 AGM and will provide full details of this in the 2019 Annual Report.
Strategic Objectives
The Group's strategy is to maximise shareholder value through growing the profitability of Sancus BMS and realising value from its investments in FinTech Ventures. We are focussed on the main key targets below, which we believe will maximise shareholder value.
Become a capital light entity
We have been focussed on reducing our on-balance sheet loan book exposure and deploying these funds into acquiring and repaying the ZDPs due on 5 December 2019. This in turn will de-risk our balance sheet and improve ROTA. At the end of June 2019 ROTA was 1.4% (31 December 2018: (0.4%)).
The ZDP liability has been reducing by buying back ZDPs as these have become available. At the end of August 2019, we held 7,934,460 ZDPs, reducing the liability by 38% from GBP27.2m due on maturity to GBP16.8m at end of August 2019. The intention remains to repay the ZDPs on maturity and we are exploring all options available to us to do so as discussed in the CEO report.
Sancus needs capital to underwrite its deal flow but continual efforts to diversify and grow our Co-Funders improves our ability to syndicate and drive better returns on the Company's assets.
Focus on creating shareholder value
We believe value creation will be achieved by:
-- Revenue growth - this is largely driven by loan deployment.
-- Improving our ROTA - by reducing our on-balance sheet loan book and increasing operating profits.
-- Increasing operating profits - by increasing gross margin and reducing costs.
Over time we expect Ireland and the UK to be our largest revenue generating entities and as noted our focus is on growing these. The UK office was opened in London in April 2019 (after closing the larger Basingstoke office). Whilst revenue in the UK has been modest to date, the pipeline is healthy, and we expect revenue to pick up in the second half. The position is similar in Ireland. The UK business also benefits from our own proprietary fully transactional electronic platform. These are the largest potential markets and are key for growth.
The loan book has grown by 24% over the last year as referred to earlier.
We have seen an improvement in Sancus BMS Group ROTA from (0.4%) in 2018 to 1.4% at 30 June 2019.
2019 has seen a reorganization within the Group. We have reduced headcount across the Group by a further 6 in the first half of the year, resulting in an improved cost income ratio.
Profitably expand the funding base
Growing and diversifying pools of lending capital is critical for our growth. Our funding sources include institutional, corporate and high net worth individuals. We continue to launch further loan notes through Amberton Asset Management or similar structured vehicles to expand our Co-Funder base. SLN4 matures on 30 September 2019 and it is the intention to grow SLN5, which has a maximum mandate of GBP50m and matures on 8 November 2021.
We also continue to target the Co-Funder base and nurture relationships. The HIT funding line is designed to be complementary to our Co-Funder base and work alongside it to complete on larger sized loans which have a greater revenue impact on the Group. Our total syndicated lending has increased by 28% in the last six months from GBP135m at 31 December 2018 to GBP173m at 30 June 2019.
We also continue to explore long term financing lines that sit alongside our syndicated lending approach.
Realise value from FinTech Ventures Investments
We continue to assist platforms with strategy, corporate finance and capital restructuring within the FinTech Ventures portfolio. Two platforms successfully completed capital restructurings during H1 2019, and several other platforms are looking to raise equity over the next 12 months. Monitoring and governance of FinTech Ventures continues.
It remains a challenging market for many of the FinTech platforms to raise further capital, which in several cases is impacting their growth. Sadly, the outcome is binary in that they will either succeed or be forced into administration.
Outlook
The Group has gone through a period of sustained change over the past three years. Our focus on growth, stringent capital allocation and profitability will drive value for shareholders. This year we are changing the shape of the Group to reduce our debt costs and on-balance sheet risk exposure.
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 and explore how we can maximise their values independently in the future.
We are now in a solid position with the potential for strong risk-adjusted performance for the Group. The asset backed secured lending activity of Sancus is clearly the Group's future. It has created a strong niche in the alternative lending sector, a robust loan system with two electronic platforms and has the ability to significantly grow its operation and profitability. My medium-term target is to achieve a "live" loan book of GBP500m from GBP270m at the end of June 2019 (includes IOM), which will enable the Company to recommence its dividend programme and strengthen our balance sheet reserves.
We remain highly focussed on our liability to repay the ZDPs, which mature in December 2019 and I have been in contact with some of the larger ZDP shareholders to discuss the various options (as previously highlighted) available to the Company. Whilst no decision has been made we will actively pursue all options available, which could also potentially include repaying them from the proceeds of selling some assets. We will provide an update to shareholders in due course.
Finally, I want to thank all shareholders for their continued support during this period of change. I fully acknowledge that the journey to date has been disappointing. However, we have successfully aligned the business to focus on Sancus, which through its multi-jurisdictional asset backed secured lending service, is in a strong position to deliver future growth, profitability and in due course recommence the dividend programme.
Andrew Whelan
Chief Executive Officer
17 September 2019
RISKS, UNCERTAINTIES AND RESPONSIBILITY STATEMENT
Risks and uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the group's performance over the remainder of the financial year. These include, but are not limited to, Capital and liquidity risk, Regulatory and compliance risk, Market risk, Credit risk, Operational risk - execution of Sancus BMS strategy and Investment risk - platform valuation. These risks remain unchanged from December 2018 and are not expected to change in the 6 months to the end of the financial year. Further details on these risks and uncertainties can be found in the December 2018 Annual Report.
Responsibility statement
The Directors confirm that to the best of their knowledge:
-- The Interim Report has been prepared in accordance with the AIM rules of the London Stock Exchange;
-- This financial information has been prepared in accordance with IAS 34 as adopted by the EU;
-- The interim results include a fair review of the important events during the first half of the financial year and their impact on the financial information as required by DTR 4.2.7R; and
-- The interim results include a fair review of the disclosure of related party transactions as required by DTR 4.2.8R.
Approved and signed on behalf of the Board of Directors
17 September 2019
INDEPENT REVIEW REPORT TO GLI FINANCE LIMITED
We have been engaged by the Company to review the condensed set of Consolidated Financial Statements in the Interim Report for the six months ended 30 June 2019 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Shareholders' Equity, the Condensed Consolidated Statement of Cash Flows and related Notes 1 to 21. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of Consolidated Financial Statements.
This report is made solely to the Company in accordance with International Standard on Review Engagements (UK & Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The Interim Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Interim Report in accordance with the AIM Rules of the London Stock Exchange.
As disclosed in Note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of Financial Statements included in this Interim Report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of Financial Statements in the Interim Report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK & Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of Financial Statements in the Interim Report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange.
Material uncertainty relating to going concern
We draw attention to Note 2(c) in the financial statements, which indicates that there is a material uncertainty over the timing and quantum of cash flows needed to generate sufficient cash reserves to repay the ZDP shares on the maturity date of 5 December 2019 and extinguish its liabilities as they fall due. The mitigations identified by the Directors are inherently uncertain as to their success.
As stated in Note 2(c), these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the Group's and the Company's ability to continue as a going concern. Our conclusion is not modified in respect of this matter.
Deloitte LLP
Guernsey, Channel Islands
17 September 2019
For the period ended 30 June 2019
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
Notes Period ended Period ended
30 June 2019 30 June 2018
(unaudited) (unaudited)
GBP'000 GBP'000
Revenue 4 7,086 7,179
Cost of sales 5 (2,488) (1,669)
Gross profit 4,598 5,510
Operating expenses 6 (3,565) (4,370)
Changes in expected credit losses 17 (1,175) (518)
------------ ------------
Operating profit (142) 622
FinTech Ventures fair value movement 17 (5,190) (8,251)
FinTech Ventures foreign exchange gain 17 39 429
Other net (losses)/gains (699) 247
Impairment of goodwill - (2,139)
Loss for the period before tax (5,992) (9,092)
Income tax expense (144) (162)
------------ ------------
Loss for the period after tax (6,136) (9,254)
Other comprehensive losses
Foreign exchange arising on consolidation (5) -
------------ ------------
Total comprehensive loss for the year (6,141) (9,254)
============ ============
Basic and Diluted loss per Ordinary
Share 7 (2.02)p (3.03)p
============ ============
The accompanying Notes form an integral part of these financial statements.
As at 30 June 2019
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)
30 June 2019
31 December
(unaudited) 2018 (audited)
ASSETS Notes GBP'000 GBP'000
Non-current assets
Fixed assets 8 1,186 31
Goodwill 9 22,894 22,894
Other intangible assets 10 450 571
Sancus BMS loans and loan equivalents 17 7,923 14,916
FinTech Ventures investments 17 8,665 13,804
Other investments - 327
Investments in joint ventures and associates 2,919 2,855
------------ ---------------
Total Non-current assets 44,037 55,398
------------ ---------------
Current assets
Loans through platforms 870 883
Other assets 12 4,110 4,404
Sancus BMS loans and loan equivalents 17 46,899 37,401
Trade and other receivables 11 8,315 5,656
Cash and cash equivalents 5,061 5,863
Total current assets 65,255 54,207
------------ ---------------
Total assets 109,292 109,605
============ ===============
EQUITY
Share premium 13 112,557 112,557
Treasury shares 13 (1,099) (1,162)
Retained earnings (67,479) (61,168)
------------ ---------------
Total Equity 43,979 50,227
------------ ---------------
LIABILITIES
Non-current liabilities 14 43,214 32,684
Current liabilities 14 22,099 26,694
Total liabilities 65,313 59,378
------------ ---------------
Total equity and liabilities 109,292 109,605
============ ===============
The financial statements were approved by the Board of Directors on 17 September 2019 and were signed on its behalf by:
Director: Patrick Firth Director: John Whittle
The accompanying Notes form an integral part of these financial statements.
For the period ended 30 June 2019
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
Notes Share Treasury Foreign Retained Capital Non-controlling Total
Premium Shares 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
Balance at 31
December 2018
(audited) 112,557 (1,162) 1 (61,169) 50,227 - 50,227
Transferred from
management 13 13 - (336) - - (336) - (336)
Bonuses settled
by shares 13 - 399 - (170) 229 - 229
Transactions with
owners - 63 - (170) (107) - (107)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Total
comprehensive
loss for
the period - - (5) (6,136) (6,141) - (6,141)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Balance at 30
June
2019 (unaudited) 112,557 (1,099) (4) (67,475) 43,979 - 43,979
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Balance at 31 December
2017 (audited) 112,557 (1,162) - (36,588) 74,807 (4) 74,803
Adjustment on
adoption of IFRS
9 - - - (1,350) (1,350) - (1,350)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Restated balance
at 1 January
2018 112,557 (1,162) - (37,938) 73,457 (4) 73,453
Acquisition of
non-controlling
interest in
Sancus Finance - - - (67) (67) 4 (63)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Transactions with
owners - - - (67) (67) 4 (63)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Total
comprehensive
loss for
the period - - - (9,254) (9,254) - (9,254)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Balance at 30
June
2018 (unaudited) 112,557 (1,162) - (47,259) 64,136 - 64,136
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
For the period ended 30 June 2019
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Period ended Period ended
30 June 2019 30 June 2018
(unaudited) (unaudited)
Notes GBP'000 GBP'000
Cash outflow from operations, excluding
loan movements 15 (1,853) (192)
Increase in Sancus BMS loans (1,182) (936)
Decrease in loans through platforms 13 8
Decrease in loans to UK and Irish
SARLS 1,515 -
Increase in loans through the HIT
facility (8,242) (24,882)
Repayment of Sancus Loan notes 3,311 8,015
------------ ------------
Net cash outflow from operating activities (6,438) (17,987)
------------ ------------
Cash inflows/(outflows) from investing
activities
Acquisition of non-controlling interest - (63)
Disposal of IOM Preference Shares 950 -
Repayments / (Investments) in FinTech
Ventures 70 (2,160)
Divestment in UK and Irish SARLS 82 -
Expenditure on SPL Properties 12 (708) -
Sale of SPL Properties 12 435 -
Investment in joint venture - (200)
Expenditure on fixed assets and intangibles (172) (131)
------------ ------------
Net cash inflow/(outflow) from investing
activities 657 (2,554)
------------ ------------
Cash inflows/(outflows) from financing
activities
Draw down of HIT facility 15 9,706 22,592
Purchase of own shares (336) -
Capital element of lease payments 15 (101) -
Repayment of ZDPs 15 (4,290) -
------------ ------------
Net cash inflow from financing activities 4,979 22,592
------------ ------------
Net (decrease)/increase in cash and
cash equivalents (802) 2,051
Cash and cash equivalents at beginning
of period 5,863 3,016
Cash and cash equivalents at end of
period 5,061 5,067
============ ============
The accompanying Notes form an integral part of these financial statements.
For the period ended 30 June 2019
NOTES TO THE CONDENSED INTERIM 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 30 June 2019, the Group comprises the Company and its subsidiaries.
The Company has taken advantage of the exemption conferred by the Companies (Guernsey) Law, 2008, Section 244, not to prepare company only financial statements which is consistent with the 2018 Annual Report.
2. ACCOUNTING POLICIES (a) Basis of preparation
These condensed consolidated financial statements ("financial statements") have been prepared in accordance with International Financial Reporting Standard (IAS) 34 'Interim Financial Reporting', as adopted by the European Union and all applicable requirements of Guernsey Company Law. They do not include all the information and disclosures required in annual financial statements and should be read in conjunction with the Company's annual audited financial statements for the year ended 31 December 2018, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as endorsed by the European Union.
The Group does not operate in an industry where significant or cyclical variations, as a result of seasonal activity, are experienced during any particular financial period.
These financial statements were authorised for issue by the Company Directors on 17 September 2019.
(b) Principal accounting policies
The same accounting policies and methods of computation are followed in these financial statements as in the last annual financial statements for the year ended 31 December 2018 except for changes in accounting policy brought about by the adoption of new accounting standards. These changes are detailed in Note 18.
(c) Going Concern
The Board has assessed the Group's financial position as at 30 June 2019 and the factors that may impact its performance in the forthcoming year. In assessing the prospects of the Group, the Directors in particular are focussed on the repayment of the ZDPs due on 5 December 2019.
We set out in the Annual Report 2018 that we expected the repayment of the ZDPs to be repaid from using cash reserves of the Group, by running down the on-balance sheet loans, but we could also call upon other assets to raise cash, including the sale of shares held in treasury, the sale of the FinTech Ventures portfolio and other assets as well as the option of obtaining a short term loan if there was a shortfall. By their nature, bridging and development loans often extend, and their repayment date is more uncertain. Moreover, we have found that Brexit has had an impact on the secondary liquidity of loans. It is likely that we will face a near term funding gap as not all loans have repaid as expected and there could be further timing issues going forward.
We have engaged with the larger ZDP holders as to exploring the options available to us, which include rolling the existing ZDPs for a further year at an increased rate of 7%, or by issuing ZDP holders with units in the existing GLI Bond. We will also try to realise other assets on our balance sheet and all options available to us will be explored.
As noted in our Annual Report and taking into account the varying outcomes of factors and assumptions listed above these constitute a material uncertainty that may cast significant doubt over the Company's and Group's ability to continue as a going concern, such that it may be unable to release its assets and discharge its liabilities in the normal course of business.
The Directors expect that if they are able to action the mitigations in accordance with the plan outlined above, the material uncertainly will be extinguished. The Directors are therefore of the opinion that the Company and the Group will have adequate financial resources to continue in operation and meet its liabilities as they fall due for the foreseeable future and continue to adopt the going concern basis in preparing the financial statements.
(d) Critical accounting estimates and judgements in applying accounting policies
The critical accounting estimates and judgements are as outlined in the financial statements for the year ended 31 December 2018.
3. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the manner in which the Executive Team reports to the Board, which is regarded to be the Chief Operating Decision Maker (CODM) as defined under IFRS 8. The 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 as well as group treasury.
The segments are as follows:
Sancus BMS
- Platforms with an established business model - Amberton - fundraising for Sancus BMS - Investments in the BMS loan funds - HIT facility
FinTech Ventures
- FinTech Ventures platform investments
Group Treasury
- Group Treasury - Primarily includes cash balances and related expenses to manage the Group's consolidated position and listed holding company
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.
30 June 2019 30 June 2018
Sancus FinTech Group Total Sancus FinTech Group Total
GBP'000 BMS Ventures Treasury Group BMS Ventures Treasury Group
Revenue 6,761 325 - 7,086 6,919 260 - 7,179
Cost of sales (2,484) - (4) (2,488) (1,669) - - (1,669)
------- --------- --------- ------- ------- --------- --------- -------
Gross profit/(loss) 4,277 325 (4) 4,598 5,250 260 - 5,510
Operating expenses (2,779) (234) (552) (3,565) (3,327) (637) (406) (4,370)
Changes in expected
credit losses (1,175) - - (1,175) (518) - - (518)
------- --------- --------- ------- ------- --------- --------- -------
Operating profit/(loss) 323 91 (556) (142) 1,405 (377) (406) 622
FinTech Ventures fair
value movement - (5,190) - (5,190) - (8,251) - (8,251)
FinTech Ventures foreign
exchange gain - 39 - 39 - 429 - 429
Other net (losses)/gains (753) 54 - (699) 227 20 - 247
Impairment of goodwill - - - - (2,139) - - (2,139)
------- --------- --------- ------- ------- --------- --------- -------
Loss for the period
before tax (430) (5,006) (556) (5,992) (507) (8,179) (406) (9,092)
Income tax expense (144) - - (144) (162) - - (162)
Loss for the period
after tax (574) (5,006) (556) (6,136) (669) (8,179) (406) (9,254)
------- --------- --------- ------- ------- --------- --------- -------
Other comprehensive
income
Foreign exchange on
consolidation (5) - - (5) - - - -
Total comprehensive
loss for the period (579) (5,006) (556) (6,141) (669) (8,179) (406) (9,254)
======= ========= ========= ======= ======= ========= ========= =======
30 June 2019 31 December 2018
Sancus FinTech Group Total Group Sancus FinTech Group Total
GBP'000 BMS Ventures Treasury BMS Ventures Treasury Group
ASSETS
Non-current assets
Fixed assets 824 - 362 1,186 31 - - 31
Goodwill 22,894 - - 22,894 22,894 - - 22,894
Other intangible
assets 450 - - 450 571 - - 571
Sancus BMS loans
and loan equivalents 7,923 - - 7,923 14,916 - - 14,916
FinTech Ventures
investments - 8,665 - 8,665 - 13,804 - 13,804
Other investments - - - - 327 - - 327
Joint ventures and
associates 2,919 - - 2,919 2,855 - - 2,855
Total Non-current
assets 35,010 8,665 362 44,037 41,594 13,804 - 55,398
------ --------- --------- ----------- ------- --------- --------- -------
Current assets
Loans through platforms 42 828 - 870 55 828 - 883
Other assets 4,110 - - 4,110 4,404 - - 4,404
Sancus BMS loans
and loan equivalents 46,899 - - 46,899 37,401 - - 37,401
Trade and other receivables 8,012 290 13 8,315 4,678 972 6 5,656
Cash and cash equivalents 3,727 15 1,319 5,061 3,856 1 2,006 5,863
Total current assets 62,790 1,133 1,332 65,255 50,394 1,801 2,012 54,207
------ --------- --------- ----------- ------- --------- --------- -------
Total assets 97,800 9,798 1,694 109,292 91,988 15,605 2,012 109,605
====== ========= ========= =========== ======= ========= ========= =======
LIABILITIES
Non-current liabilities 43,027 - 187 43,214 32,684 - - 32,684
Current liabilities 21,363 7 729 22,099 25,782 7 905 26,694
------ --------- --------- ----------- ------- --------- --------- -------
Total liabilities 64,390 7 916 65,313 58,466 7 905 59,378
====== ========= ========= =========== ======= ========= ========= =======
Net Assets 33,410 9,791 778 43,979 33,522 15,598 1,107 50,227
====== ========= ========= =========== ======= ========= ========= =======
Sancus BMS is treated as being funded by the debt facilities whilst 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 and fee income from Sancus BMS.
4. FEE AND OTHER INCOME
30 June 2019 30 June 2018
(unaudited) (unaudited)
GBP'000 GBP'000
Co-Funder fees 965 862
Earn out (exit) fees 561 874
Advisory fees 325 648
Transaction fees 1,227 2,102
Total revenue from contracts with customers 3,078 4,486
------------- -------------
Interest on loans 1,945 2,044
HIT interest income 1,611 649
Other income 452 -
------------- -------------
Total Revenue 7,086 7,179
============= =============
5. COST OF SALES
30 June 2019 30 June 2018
(unaudited) (unaudited)
GBP'000 GBP'000
Interest costs 895 985
HIT interest costs 1,340 574
Other cost of sales 253 110
------------- -------------
Total cost of sales 2,488 1,669
============= =============
6. OPERATING EXPENSES
30 June 2019 30 June 2018
(unaudited) (unaudited)
GBP'000 GBP'000
Administration and secretarial fees 63 94
Amortisation and depreciation 263 148
Audit fees 107 119
Corporate Insurance 28 10
Directors Remuneration 49 46
Employment costs 2,260 2,979
Investor relations expenses 44 40
Legal and professional fees 106 163
Marketing expenses 22 48
NOMAD fees 38 56
Other office and administration costs 404 527
Pension costs 155 113
Registrar fees 17 21
Sundry 9 6
------------ ------------
3,565 4,370
============ ============
7. LOSS PER ORDINARY SHARE
Consolidated loss per Ordinary Share has been calculated by dividing the consolidated loss attributable to Ordinary Shareholders in the period by the weighted average number of Ordinary Shares outstanding (excluding treasury shares) during the period. There was no dilutive effect for potential Ordinary Shares during the current or prior periods.
Note 13 describes the warrants in issue and Note 16 describes the unexercised share options in issue. As both the warrants and share options are out of the money they have not been considered to have a dilutive effect on the calculation of Loss per ordinary share.
30 June 2019 30 June 2018
(unaudited) (unaudited)
Number of shares in issue 312,065,699 312,065,699
Weighted average number of shares outstanding
(excluding treasury shares) 304,520,121 305,911,597
Consolidated loss attributable to Ordinary
Shareholders in the period GBP6,136,000 GBP9,254,000
Consolidated Loss per Ordinary Share (2.02)p (3.03)p
8. FIXED ASSETS
Right of use Property & Total
assets Equipment
Cost GBP'000 GBP'000 GBP'000
At 31 December 2018 - 261 261
Amounts recognised on adoption
of IFRS 16 (Note 18) 892 - 892
------------- ----------- --------
At 1 January 2019 892 261 1,153
Additions in the period 233 164 397
------------- ----------- --------
At 30 June 2019 1,125 425 1,550
============= =========== ========
Accumulated depreciation GBP'000 GBP'000 GBP'000
At 31 December 2018 - 230 230
Charge in the period 116 18 134
-------- -------- --------
At 30 June 2019 116 248 364
======== ======== ========
Net book value 30 June 2019 1,009 177 1,186
======== ======== ========
Net book value 31 December 2018 - 31 31
======== ======== ========
9. GOODWILL
At 30 June 2019 and 31 December 2018 22,894
=======
Goodwill at 30 June 2019 and 31 December
2018 comprises:
GBP'000
Sancus Jersey 14,255
Sancus Gibraltar 8,639
--------
Total 22,894
========
Impairment tests
The carrying amount of goodwill arising on the acquisition of certain subsidiaries is assessed by the Board for impairment on an annual basis or sooner if there has been any indication of impairment. At 30 June 2019 there has been no indication of impairment and a full review will be carried out as at 31 December 2019.
10. OTHER INTANGIBLE ASSETS
Cost GBP'000
At 31 December 2018 1,576
Additions in the period 8
----------
At 30 June 2019 1,584
==========
Amortisation
At 31 December 2018 1,005
Charge for the period 129
----------
At 30 June 2019 1,134
==========
Net book value at 30 June 2019 450
==========
Net book value at 31 December 2018 571
==========
Intangible assets comprise capitalised contractors' costs and costs related to core systems development. No impairment provision has been recorded. The amortisation charge has been recorded within Operating Expenses.
11. TRADE AND OTHER RECEIVABLES
31 December
30 June 2019 2018
(unaudited) (audited)
Current GBP'000 GBP'000
Dividend income receivable 68 68
Loan fees and similar receivable 2,102 1,359
Preference share dividends receivable 160 -
Loan interest receivable 3,518 3,646
Receivable from associated companies 293 51
Other trade receivables and prepaid expenses 2,174 532
8,315 5,656
============ ===========
12. OTHER ASSETS
Properties Development Total
held for sale properties
Cost GBP'000 GBP'000 GBP'000
At 31 December 2018 1,377 3,027 4,404
Transfers (509) 509 -
Additions 12 696 708
Disposals (435) - (435)
Write downs - (567) (567)
--------------- ------------ --------
At 30 June 2019 445 3,665 4,110
=============== ============ ========
Other assets comprise of a number of repossessed properties and developments which were previously held as security against certain loans which have defaulted. These assets are held at the lower of cost and net realisable value.
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 nil par value.
No Ordinary Shares were issued in the period to 30 June 2019 (Period to 30 June 2018: Nil).
Share Capital
Number of Ordinary Shares - nil par value
-----------
At 30 June 2019 (unaudited) and 31 December 2018 (audited) 312,065,699
-----------
Share Premium
Ordinary Shares - nil par value GBP'000
-------
At 30 June 2019 (unaudited) and 31 December 2018 (audited) 112,557
-------
Treasury Shares
As at 30 June 2019 a total of 7,925,999 Ordinary Shares, with an aggregate value of GBP1,098,814 were held by a Subsidiary, Sancus BMS Group Limited ("SBMSGL") and eliminated on consolidation (31 December 2018: 6,154,102 Ordinary Shares, with an aggregate value of GBP1,161,975).
31 December
30 June 2019 2018
(unaudited) (audited)
GBP'000 GBP'000
Balance at start of the period/year 1,162 1,162
GLI shares transferred by SBMSGL to key members
of management (399) -
GLI shares purchased by SBMSGL from BMS management 336 -
Balance at end of period/year 1,099 1,162
============ ===========
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;
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 30 June 2019, 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.
14. LIABILITIES
31 December
30 June 2019 2018
Non-current liabilities (unaudited) (audited)
GBP'000 GBP'000
Corporate bond (1) 10,000 10,000
HIT facility (2) 32,446 22,684
Lease Creditor 768 -
------------ -----------
Total non-current liabilities 43,214 32,684
============ ===========
Current liabilities 30 June 2019 31 December
(unaudited) 2018 (audited)
GBP'000 GBP'000
ZDP shares (3) 19,991 24,059
Accounts payable 212 278
Accruals and other payables 1,349 1,679
Tax payable 323 454
Deferred income 6 67
Lease creditor 218 -
Payable to related party - 157
Total current liabilities 22,099 26,694
============ ==========================
30 June 2019 30 June 2018
Interest costs on debt facilities (unaudited) (unaudited)
GBP'000 GBP'000
Corporate bond (1) 347 347
HIT Facility (2) 1,340 573
ZDP Shares (3) 530 633
Lease interest 18 -
Total interest cost on debt facilities 2,235 1,553
============= ============
(1) Corporate Bond
On 30 June 2016, GLI Finance issued GBP10m corporate bonds as part of the acquisition of Sancus Gibraltar. The bond maturity date is 30 June 2021 and they bear interest at 7% (2018: 7%).
(2) HIT Facility
On 29 January 2018, GLI Finance signed a new funding facility with Honeycomb Investment Trust plc (HIT). The funding line has a term of 3 years and comprises a GBP45m accordion and revolving credit facility. The facility bears interest at 7.25%.
The HIT facility has portfolio performance covenants including that actual loss rates are not to exceed 4% in any twelve month period and underperforming loans are not to exceed 10% of the portfolio.
Sancus BMS Group has a GBP5m first loss position on the HIT facility. GLI has also provided HIT with a guarantee, capped at GBP2m that will continue to ensure the orderly wind down of the loan book, in the event of the insolvency of Sancus BMS Group, given its position as facility and security agent.
(3) ZDP shares
The ZDP shares have a maturity date of 5 December 2019 with a final capital entitlement of GBP1.30696 per ZDP share, and bear interest at an average rate of 5.5% (2018: 5.5%).
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.
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 30 June 2019 the Company was in compliance with these covenants as Cover Test A was 2.89 (minimum of 1.7) and Cover Test B was 3.82 (minimum of 3.25).
At the period end senior debt borrowing capacity amounted to GBP20m. The HIT facility does not impact on this capacity as this is non-recourse to GLI.
15. NOTES TO THE CASH FLOW STATEMENT
30 June 2019 30 June 2018
Cash generated from operations (excluding
loan movements) (unaudited) (unaudited)
GBP'000 GBP'000
Loss for the period (6,136) (9,254)
Adjustments for:
Net loss on FinTech Ventures 5,166 7,802
Other net losses/(gains) 393 (316)
Accrued interest on ZDPs 530 633
Impairment of financial assets 1,175 518
Impairment of SPL assets 567 -
Gain on purchase of ZDPs (308) -
Impairment of goodwill - 2,139
Amortisation/depreciation of fixed assets 263 148
Amortisation of debt issue costs 56 37
Changes in working capital:
Trade and other receivables (2,703) (2,126)
Trade and other payables (856) 227
Cash outflow from operations, excluding
loan movements (1,853) (192)
============ ============
Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be classified in the Group's consolidated cash flow statement as cash flows from financing activities.
Amortisation
of debt
1 January Financing Additions issue costs Other 30 June
2019 cash flows(1) Non-cash Non-cash Non-cash 2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ZDP Shares 24,059 (4,290) - - 222(2) 19,991
Corporate Bond 10,000 - - - - 10,000
HIT Facility 22,684 9,706 - 56 - 32,446
Lease Liability 892 (101) 233 - (38)(3) 986
---------- --------------- ------------ ------------- ---------- --------
Total liabilities from
financing activities 57,635 5,315 233 56 184 63,423
========== =============== ============ ============= ========== ========
Amortisation
of debt Interest
1 January Financing Additions issue costs Accruals 30 June
2018 cash flows(1) Non-cash Non-cash Non-cash 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ZDP Shares 24,714 - - - 633 25,347
Corporate Bond 10,000 - - - - 10,000
HIT Facility - 22,592 - 37 - 22,629
---------- --------------- ------------ ------------- ---------- --------
Total liabilities from
financing activities 34,714 22,592 - 37 633 57,976
========== =============== ============ ============= ========== ========
(1) These amounts can be found under financing cash flows in the cash flow statement.
(2) Interest accruals
(3) Cash paid in previous period
16. RELATED PARTY TRANSACTIONS
Transaction with the Directors/Executive Team
Non-executive Directors
As at 30 June 2019, the non-executive Directors' annualised fees, excluding all reasonable expenses incurred in the course of their duties which were reimbursed by the Company, were as detailed in the table below:
30 June 2019 30 June 2018
GBP GBP
Patrick Firth (Chairman) 50,000 50,000
John Whittle 42,500 42,500
Nick Wakefield 35,000 -
On 4 June 2019 Mr Wakefield was appointed as a non-executive Director to the Board. Mr Wakefield's directorships were listed in the RNS issued on 5 June 2019. Golf Investments Limited ("Golf"), of which Mr Wakefield is a Director, holds 50,815,167 ordinary shares in the Company. Golf is part of the Somerston Group of companies which collectively holds 83,017,496 ordinary shares in the Company, representing 26.6 per cent of the current issued share capital. Other than directors' fees and expenses in relation to Mr Wakefield's appointment as a director the Group does not transact with either Golf or Somerston.
There was no increase in the other Directors' base fees during the period ended 30 June 2019. Total Directors' fees charged to the Company for the period ended 30 June 2019 were GBP48,839 (30 June 2018: GBP46,250).
Executive Team
For the period ended 30 June 2019, the Executive Team members' remuneration from the Company, excluding all reasonable expenses incurred in the course of their duties which were reimbursed by the Company, were as detailed in the table below:
30 June 2019 30 June 2018
GBP'000 GBP'000
Aggregate remuneration in respect of qualifying
service - fixed salary 364 353
Aggregate amounts contributed to Money Purchase
pension schemes 51 46
Aggregate bonus paid (cash) - 125
All amounts have been charged to Operating 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 replaced the previous Executive Bonus Scheme. The Remuneration Committee will be issuing a revised Executive Bonus Scheme following shareholder feedback from the 2019 AGM. Further details of this will be included in the 2019 Annual Report.
Directors' and Persons Discharging Managerial Responsibilities ("PDMR") shareholdings in the Company
As at 30 June 2019, the Directors had the following beneficial interests in the Ordinary Shares of the Company:
30 June 2019 31 December 2018
No. of Ordinary % of total No. of Ordinary % of total
Shares Held issued Ordinary Shares Held issued Ordinary
Shares Shares
Patrick Firth (Chairman) 278,669 0.09 278,669 0.09
John Whittle 104,550 0.03 104,550 0.03
Andrew Whelan 9,553,734 3.06 8,051,912 2.58
Emma Stubbs 1,380,940 0.44 1,005,485 0.32
Aaron Le Cornu 1,405,790 0.45 1,405,790 0.45
Dan Walker 911,300 0.29 - -
Nick Wakefield - - - -
In the six month period to June 2019 and the year to December 2018, none of the above received any amounts relating to their shareholding. As at 30 June 2019 there were 3,333,333 unexercised share options for Ordinary Shares of the Company (31 December 2018: 3,333,333 and 30 June 2018: Nil). These options are currently out of the money.
During the period Mr Whelan received GBP20,567 in relation to the coupon on his holding of GBP592,500 GLI Bonds (30 June 2018: GBP20,567).
Transactions with connected entities
The following significant transactions with connected entities took place during the current period:
30 June 2019 30 June 2018
Balance Interest Balance Interest
GBP'000 accrued GBP'000 accrued
in the period in
the period
GBP'000 GBP'000
Loans (and corresponding interest
receivable) to entities in
which GLI Group has a significant
stake 2,201 174 5,217 252
Preference shares (and corresponding
interest receivable) in entities
which GLI Group has a significant
stake - 129 1,943 77
30 June 31 December
(Payable)/receivable (to)/from 2019 2018
related parties
GBP'000 GBP'000
Sancus (IOM) Holdings Limited - 2
Sancus (IOM) Limited 281 43
Amberton Asset Management 12 (151)
Office and staff costs recharges
30 June 30 June
2019 2018
Amberton Asset Management 17 26
--------- ------------
There is no ultimate controlling party of the Company.
All platform loans and preference shares bear interest at a commercial rate.
17. FINANCIAL INSTRUMENTS - Fair values and risk management
Sancus BMS loans and loan equivalents
30 June 2019 31 December
(unaudited) 2018 (audited)
Non-current GBP'000 GBP'000
Sancus BMS loans 3,943 11,316
Sancus Loans Limited loans 3,980 3,600
------------- ----------------
Total Non-current Sancus BMS loans and loan
equivalents 7,923 14,916
------------- ----------------
Current
Sancus BMS loans 16,864 10,975
Investment in Sancus Loan Notes - 3,311
Loan equivalents 102 1,076
Sancus Loans Limited loans 29,933 22,039
------------- ----------------
Total Current Sancus BMS loans and loan equivalents 46,899 37,401
------------- ----------------
Total Sancus BMS loans and loan equivalents 54,822 52,317
============= ================
Fair Value Estimation
The financial assets and liabilities measured at fair value in the Consolidated Statement of Financial Position are grouped into the fair value hierarchy as follows:
30 June 2019 31 December
(unaudited) 2018 (audited)
Level 3 Level 3
GBP GBP
FinTech Ventures investments 8,665 13,804
Investments in Sancus Loan Notes - 3,311
Other investments at fair value 2,919 3,182
------------- ----------------
Total assets at fair value 11,584 20,297
============= ================
The classification and valuation methodology remains as noted in the 2018 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 cash flows, comparable company and comparable transaction analysis. Key inputs used in the discounted cash flows include costs of equity, illiquidity discount rates, revenue and costs growth rates, interest margins, bad debt expense and tax rates. These are consistent with the inputs described in the 2018 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.
Assets at Amortised Cost
30 June 2019 31 December
2018
(unaudited) (audited)
GBP'000 GBP'000
Sancus BMS loans and loan equivalents 54,822 49,006
Loans through platforms 870 883
Trade and other receivables 8,315 5,656
Cash and cash equivalents 5,061 5,863
------------- ------------
Total assets at amortised cost 69,068 61,408
============= ============
Liabilities at Amortised Cost
30 June 2019 31 December
2018
(unaudited) (audited)
GBP'000 GBP'000
ZDP shares 19,991 24,059
Corporate Bond 10,000 10,000
HIT facility 32,446 22,684
Trade and other payables 1,890 2,635
Lease creditor 986 -
------------- ------------
Total liabilities at amortised cost 65,313 59,378
============= ============
Refer to Note 14 for further information on liabilities.
FinTech Ventures Investments Equity Loans Total
30 June 2019 GBP GBP GBP
At 31 December 2018 11,608 2,196 13,804
New investments/loans advanced 12 - 12
Unrealised losses recognised in
profit and loss (4,764) (426) (5,190)
Foreign exchange gain 34 5 39
At 30 June 2019 6,890 1,775 8,665
======== ====== ========
Equity Loans Total
31 December 2018 GBP GBP GBP
At 31 December 2017 26,470 3,128 29,598
New investments/loans advanced 200 2,419 2,619
Converted from accrued interest 293 - 293
Converted to Equity 2,071 (2,071) -
Unrealised losses recognised in
profit and loss (18,221) (1,413) (19,634)
Foreign exchange gain 795 133 928
At 31 December 2018 11,608 2,196 13,804
========= ======== =========
Level 3 investment valuation techniques used and key inputs
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 technique Fair Value Fair Value Reason for any Significant Relationship
and key inputs GBP'000 GBP'000 changes in valuation unobservable of unobservable
techniques from inputs inputs to fair
prior years value
At 30 At 31
June 2019 December
2018
----------- ----------- ---------------------- --------------------- ---------------------
Market comparable
transaction
based on recent
fundraising
activity, adjusted Equity raises
for any relevant completing H1
risk 7,498 12,637 2019 None None
----------- ----------- ---------------------- --------------------- ---------------------
Cash flows are
discounted by
a range of 25.1%
for cost of
equity and 15%
for illiquidity
of the investment.
Significant
internal
sensitivities
are also applied A smaller adjustment
to the forecasts, for these factors
creating high would increase
and low cases the fair value
There has been used in the - see sensitivity
Discounted cash no change in weighted average analysis noted
flow forecasts 1,167 1,167 valuation techniques. output below
----------- ----------- ---------------------- --------------------- ---------------------
Investment in - 3,311 None Fair value which None
redeemable preference closely approximates
shares of the the net asset
loan notes is value of the
valued at fair Loan Note special
value purpose vehicles
----------- ----------- ---------------------- --------------------- ---------------------
Other investments
at fair value Fair value which
including joint equates to share
ventures and of net assets
associates 2,919 3,182 None of the investment None
----------- ----------- ---------------------- --------------------- ---------------------
Total Level
3 at Fair Value 11,584 20,297
----------- ----------- ---------------------- --------------------- ---------------------
Sensitivities of key inputs
When 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.
Sensitivities of key inputs
Effect on consolidated
statement of comprehensive
income
30 June 2019
GBP'000
20% pa increase in revenue 100
20% pa decrease in revenue (100)
5% increase in discount rate (88)
5% decrease in discount rate 137
10% increase in illiquidity discount (59)
10% decrease in illiquidity discount 59
Credit Risk
Credit risk is defined as the risk that a borrower/debtor may fail to make required repayments within the contracted timescale. The group invests in senior debt, senior subordinated debt, junior subordinated debt and secured loans. Credit risk is taken in direct lending to third party borrowers, investing in loan funds, lending to associated platforms and loans arranged by associated platforms. The group mitigates credit risk by only entering into agreements related to loan instruments in which there is sufficient security held against the loans or where the operating strength of the investee companies is considered sufficient to support the loan amounts outstanding.
Credit risk is determined on initial recognition of each loan and re-assessed at each balance sheet date. It is categorized into Stage 1, Stage 2 and Stage 3 with Stage 1 being to recognise 12 month Expected Credit Losses (ECL), Stage 2 being to recognise Lifetime ECL not credit impaired and Stage 3 being to recognise Lifetime ECL credit impaired.
Provision for ECL
Provision for ECL is made using the credit risk, the probability of default (PD) and the probability of loss given default (PL) all of which are underpinned by the Loan to Value (LTV), historical position, forward looking considerations and on occasion, subsequent events and the subjective judgement of the Board. Preliminary calculations for ECL are performed on a loan by loan basis using the simple formula: Outstanding Loan Value x PD x PL and are then amended as necessary according to the more subjective measures as noted above.
A probability of default is assigned to each loan. This probability of default is arrived at by reference to historical data and the ongoing status of each loan which is reviewed on a regular basis. The probability of loss is arrived at with reference to the LTV and consideration of cash that can be redeemed on recovery.
Movement of provision for ECL in the period
30 June 2019 31 December
2018
GBP'000 GBP'000
At beginning of period/year 2,597 1,350
Charged through profit and loss in the period/year 1,175 1,247
Utilised in the period/year (942) -
At end of period/year 2,830 2,597
============= ============
18. CHANGES IN ACCOUNTING POLICY
IFRS 16 'Leases'
IFRS 16 requires lessees to recognise assets and liabilities for all leases greater than 12 months in length unless the underlying asset is of low value. This standard replaced IAS 17, the previous lease accounting standard, and is effective for reporting periods beginning on or after 1 January 2019. As such IFRS 16 has been adopted for the first time in these condensed interim financial statements.
All leases in the Group are currently classed as operating in nature. In previous financial statements these leases have been accounted for through the posting of a rental charge to profit and loss in accordance with the requirements of IAS 17. No asset or liability had previously been recognised on the balance sheet in respect of such leases. IFRS 16 now requires us to recognise a Right-of-use asset for all leases where the length of lease is greater than 12 months and the underlying asset is greater in value than c.GBP3,000 (considered to be a "low value asset"). In addition, the standard requires us to recognise a corresponding liability representing the discounted future lease payments until the end of the lease. This liability determines the value of the "Right-of-use" asset. In place of the previous rental charge under IAS 17 the Group now suffers (under IFRS 16) an interest charge, being the wind-down of the discount, and a depreciation charge relating to the Right-of-use asset.
In accordance with the standard the Group has decided to use the incremental borrowing rate (IBR) as a proxy for the discount rate implicit in the lease. The IBR is defined as the rate that the company would have to pay if it went out in to the market and bought a similar asset under a finance arrangement. The IBR is therefore company, asset and length of lease specific. Given it is not practically possible to go into the market and obtain an IBR for each right of use asset the IBR is an accounting estimate.
An IBR of 7.25% has been used to calculate the discounted future lease payments and hence the opening value of each Right-of-use asset. This has been arrived at by reviewing current commercial property rates obtainable in the market, adjusted for the particular circumstances of the company which holds the leases, and then comparing to funding that the Group has raised historically. It should be noted that moving the rate by c2% in either direction does not alter the initial value materially.
On adoption of the standard on 1 January 2019 the Group recognised Right-of-use assets amounting to GBP892,000, and a corresponding Lease Liability of the same amount. The Right-of-use assets are being depreciated on a straight-line basis over the terms of the respective leases. In the 6 months to June 2019 the Group has suffered depreciation from Right-of-use assets of GBP116,000 and interest charges of GBP18,000. Under IAS 17, the previous accounting standard, rental charges of GBP116,000 would have been suffered. See Note 8 for other movements in the period.
19. GUARANTEES
The Group undertakes a number of Guarantees and first loss positions which are not deemed to be contingent liabilities under IAS37 as there is no present obligation for these guarantees and it is considered unlikely that these liabilities will crystallise.
HIT Facility
Sancus BMS Group has invested GBP5m of its own capital in Sancus Loans Limited which sits in a GBP5m first loss position as part of the HIT facility. GLI has also provided HIT with a guarantee, capped at GBP2m that it will continue to ensure the orderly wind down of the HIT related loan book, in the event of the insolvency of Sancus BMS Group, given its position as facility and security agent.
Sancus Loan Notes
Sancus BMS typically provides first loss positions as part of the Loan Note structures. In SLN4, Sancus BMS has no capital invested but has a 20% first loss position and in SLN5 a 10% first loss position. For IFRS 9 purposes in calculating our capital at risk provision ratio of 3.4%, we have included the Sancus on-balance sheet loans plus the full amount of those loans which include the first loss risk position we have with HIT and the Loan Notes.
20. PERFORMANCE MEASURES
We have identified the below performance measures which for Sancus BMS we will report on as we believe improving these will improve shareholder value.
Return on Tangible Assets ("ROTA")
This is operating profit (including credit losses) divided by total assets less goodwill and HIT (but adding back our GBP5m HIT equity).
Cost Income Ratio
Total costs include operating expenses, cost of sales and interest costs (excluding HIT interest costs) divided by total revenue (total revenue being the proforma revenue which excludes the gross HIT revenue and instead includes the net HIT fees received).
21. POST PERIOD END EVENTS
Acquisition of Group ZDPs
Post period end, the Company has acquired a further 2,755,629 ZDPs at an average price of GBP1.213 taking the total ZDPs held in treasury to 7,934,460. As well as reducing the liability on maturity of the ZDPs in December 2019, these purchases deliver a good return on capital given the ZDPs have been trading below their accrued capital entitlement.
Defaulted loans
Post period end, an official receiver has been appointed to sell the underlying properties of 2 loans that were in default at 30 June 2019. These loans were included in the 30 June 2019 IFRS 9 provision calculations.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR EADNXFELNEAF
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September 18, 2019 02:01 ET (06:01 GMT)
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