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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 May 2019 to May 2024
TIDMGLIF
RNS Number : 6331B
GLI Finance Limited
24 September 2018
GLI Finance Limited
("the Group" or "GLI")
Interim Report and
Unaudited Condensed Consolidated Financial Statements
For the six-month period ended 30 June 2018
HIGHLIGHTS
Group Highlights
-- Group revenue increased by 26% to GBP7.2m (June 2017: GBP5.7m).
-- Significant improvement in net operating profit to GBP1.1m (2017: loss of GBP0.5m) driven by strong revenue growth and continuing cost discipline.
Hot Features
Premium
-- FinTech Ventures portfolio valued at GBP23.9m, (Dec 2017: GBP29.6m) following revaluation.
-- Group Net Asset Value ("NAV") is GBP64.1m (Dec 2017: GBP74.8m).
-- In accordance with the Group's stated policy of paying dividends out of net cash generation, no dividend will be declared for the period. The Group remains committed to recommence dividends as soon as practical.
-- Post period end, GBP7m of cash received from the sale of BMS Irish assets which can be deployed within the Group and be used to acquire more ZDPs.
Sancus BMS Highlights
-- Strong performance by the Sancus businesses.
-- Revenue growth of 42%, excluding The SQN Secured Income Fund ("SSIF") dividends.
-- Net operating profit up 193% to GBP1.9m (June 2017: GBP0.7m).
-- 12% growth in managed loan book to GBP246m with actual loss rate of under 0.5% reflecting strong underwriting controls.
-- The special purpose lending vehicle established in January 2018 with a GBP50m lending capacity, backed by a GBP45m credit facility with Honeycomb Investment Trust plc ("HIT") is proving a success. GBP22.9m had been drawn as at 30 June 2018.
-- Improved performance by Sancus Finance and Sancus Funding (together to be referred to as "Sancus UK") with operating loss reduced by GBP0.3m to GBP0.5m. Sancus Finance performance was behind forecasts for the first half of the year but targeted break-even by the end of 2018. The regulated business will commence property backed lending before the end of the year.
-- With Sancus Finance having performed below target for the period and being integrated with Sancus Funding into one Sancus UK business, goodwill of GBP2.1m relating to Sancus Finance has been written off.
FinTech Ventures Highlights
-- The carrying value of FinTech Ventures portfolio is GBP23.9m (GBP29.6m at 31 December 2017).
-- NAV per share for FinTech Ventures portfolio 8.6 pence (31 December 2017:10.0 pence).
-- The write down in the period of GBP8.3m includes a GBP4.1m write down in one of our prioritised platforms. The platform is close to finalising a significant investment from third parties which will result in a painful dilution of our holding. Whilst clearly disappointing to take a large write down, this new investment will help to ensure and accelerate the long-term prospects of the platform.
-- 29% increase in loan origination across the portfolio companies compared to prior year.
-- Three platforms have successfully raised new equity from third parties during the period. Several of the others are looking to raise equity over the next twelve months and we have conservatively approached the valuation of those platforms with this in mind.
-- Further investment of GBP2.2m made in four platform companies during the period, primarily in the form of convertible loan notes.
Andy Whelan, Chief Executive Officer commented:
"The Group has seen good progress during the first half of 2018, improving revenue, successfully securing a new funding line and reducing costs across the business.
We are pleased that Sancus BMS, the key operating unit within the Group, has delivered some strong results during the six-month period. The lending businesses that comprise Sancus BMS are strong, well managed, and have the ability to deliver a very attractive return on capital. We were delighted to have secured the GBP45m credit facility from HIT announced in January 2018 and this has helped us significantly grow the loan book. The new management team in the UK is making excellent progress in integrating the businesses, and delivering synergies. Whilst Sancus Finance's loan book has grown materially since last year, it has fallen short of where we had hoped it would be at this time.
We are very disappointed to have had to take a further material write down on the FinTech Ventures portfolio. Whilst FinTech as a sector continues to grow strongly, increased competition is making it increasingly difficult for smaller players, particularly those that are loss making, to raise further equity. Given the plethora of investment opportunities, investors are often able to negotiate favourable terms. With competing demands for our capital, we often haven't been able to follow our money, and this has resulted in situations where we have been significantly diluted. Several of our platforms are looking to raise equity over the next twelve months, and given our conservative approach to valuations, we believe there is upside potential if these raises are successful."
This announcement contains inside information for the purposes of EU Regulation 596/2014.
For further information:
GLI Finance +44 (0)1534 708900 Andy Whelan Nominated Adviser and Broker Liberum Capital Limited +44 (0)203 100 2000 Steve Pearce Chris Clarke Trystan Cullen Public Relations Adviser Instinctif Partners +44 (0)207 457 2020 Tim Linacre Ambrose Fullalove
CHAIRMAN'S STATEMENT
Positioning the business for the future
Our focus remains on maximising the earning potential of our two distinct business units:
Sancus BMS comprises the Group's property backed and SME lending businesses. FinTech Ventures represents the Group's investments in 11 SME focussed lending platforms.
Sancus BMS continues to deliver strong growth and we are confident this growth will continue, as we increase our market share and launch into new markets such as Ireland.
The launch of a special purpose lending vehicle with a GBP50m lending capacity, backed by a GBP45m facility with HIT in January of 2018 was an important step in the expansion plans for Sancus BMS. The granting of the line is an endorsement of the thorough credit processes used within Sancus BMS and as evidenced by the revenue growth rate seen in the first half of the year, this is proving a success. We continue to explore other funding lines and working capital focused facilities, particularly for the UK Sancus businesses and I am delighted to report that we have signed up a new material institutional co-funder in July 2018 for Sancus Finance.
During the first half of 2018, we have unfortunately had to take further write downs on some of our FinTech Ventures platforms. Whilst the majority of them continue to make progress, many need to secure further equity financing to fund future growth. Where platforms have not yet achieved breakeven, and have secured fresh capital the new equity investors have been able to secure favourable terms, resulting in a material dilution of our holding.
Overview
We expect the economies in which we operate to remain supportive of our businesses for the foreseeable future. The alternative finance sector continues to develop rapidly, and we believe we are well positioned to benefit from this trend across both parts of our business.
Sancus BMS Group continues to grow, and we have a solid, profitable business with a strong pipeline and some exciting growth plans. The funding facility 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 which are available on our lending opportunities. We have hired our first two employees for our new Sancus asset backed lending business in Ireland, and we expect to start lending in this new market in October. The work to restructure our UK operations is making very good progress and we will be launching our proprietary asset backed lending platform into the UK in Q4 2018. Despite the write downs within the FinTech Ventures portfolio, we remain confident that the majority of them will succeed in their respective marketplace and deliver a good return on investment in due course.
Dividend and Shareholders
In line with our dividend policy, it is not proposed to declare a dividend for this period, but we are committed to reinstating one as soon as feasible. I am grateful to all our shareholders who have kept confidence with the Group through what has been 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: 21 September 2018
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
We have had a busy first half of the year focusing on our strategy to deliver strong growth within Sancus BMS, whilst simplifying the business, and stabilising the FinTech Ventures portfolio. Sancus has had a very positive first six months of the year.
The strong growth within Sancus BMS delivered a 42% increase in revenue compared to the same period in 2017, excluding the SSIF dividends. The new debt facility from HIT helped contribute to this growth, and even without this, revenue still grew by 28%. We continue to manage costs carefully and a further 9% reduction in operating costs has been achieved in the first 6 months of 2018 compared to the same period in 2017.
I'm delighted to report an operating profit of GBP1.1m during the first 6 months, which demonstrates the strong progress that we have made across the business during the year and is a significant improvement compared to the operating loss of GBP0.5m for the first 6 months of 2017. We continue to grow our market share and as the Sancus brand is becoming increasingly well known, we are receiving a healthy flow of new lending opportunities and have a strong pipeline of new co-funders.
It is a disappointment therefore to 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 about 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 often haven't been able to follow our money. In some cases, this has resulted in us being significantly diluted, particularly where the Executive Management teams have needed to be issued with further equity to ensure they are appropriately incentivised. With several of our platforms looking to raise equity over the next twelve months, we have factored this scenario, and potential dilution, into our current carrying values.
IFRS9 has been adopted for the first time this period and we have made a GBP1.9m provision across the Sancus BMS Group loan book. This new standard requires an estimation of expected losses rather than losses as a result of incurred events. The provision made represents 2.3% of the Sancus BMS loan book where our own capital is at risk.
The restructuring of the Sancus UK operations remains a key priority for the business. We continue to integrate the businesses, have received regulatory approval for Sancus Funding to commence asset backed lending activity, and will be rolling out our proprietary asset backed transactional lending platform in Q4 2018. Following our impairment review at the half year, we have taken the decision to write off the GBP2.1m of goodwill relating to Sancus Finance. Whilst the performance of this business continues to improve it has fallen behind the forecasts on which the goodwill was based, and given the restructuring, it will not be managed as a separate cash generating unit going forward, rather it will be combined with Sancus Funding. We continue to deliver cost savings as these UK businesses become increasingly integrated and we expect the combined Sancus UK business to be profitable by the year end.
On 3 July 2018, we announced that we had sold the loan assets held within the BMS Irish Fund at par and in September 2018 this has realised approximately GBP7m in cash. Some of this cash is being used to purchase some GLI ZDPs which we believe will deliver a strong return on investment given the ZDPs have been trading at a price significantly below their true accrued capital entitlement. The remaining cash will be redeployed for general investment purposes including the launch of Sancus BMS' property backed lending business in Ireland which is expected to start lending activities in October 2018.
I am pleased with the continued progress we have made on the execution of the strategy. I expect the strong Sancus BMS Group growth rates to continue in the second half of the year as we are in the driving seat of this business with a healthy pipeline. The FinTech Ventures portfolio has been a disappointment and very frustrating that the good results seen in Sancus BMS Group are over-shadowed by these write downs which are largely out of our control. However, we will continue to work hard on this portfolio and explore exits where we can realise value for shareholders.
I have provided below further detail on the operational and financial performance of the Group looking at Sancus BMS and FinTech Ventures separately.
Sancus BMS
Sancus BMS continues to show strong growth with the total loan book advances increasing 12% from the end of 2017 to GBP246m. The growth rate has reduced from the increase we saw in 2017 of 26%, partly due to the BMS Finance loan book which is capped at GBP60m (UK Fund) and EUR30m (Irish Fund) and the historical Sancus Funding (Funding Knight) loan book which is in run off. We expect this to pick up again with the new initiatives and management team in place. The growth rates in the offshore entities, however, have been very pleasing. Sancus Jersey is up 20% on December 2017, Guernsey up 198%, where we have been seeing excellent results from a new team in place, and 15% up in Gibraltar.
I am delighted by the 42% increase in revenue within the Sancus BMS Group and this is testament to the hard work of the senior management team to build our profile in the markets in which we operate and secure a strong pipeline of new lending opportunities whilst also deepening our base of co-funders. The HIT facility has also strengthened our ability to fund larger loan opportunities and helped contribute to the 42% year on year increase in revenue excluding SSIF dividends. On a like for like basis, without the additional HIT revenue, revenue has increased by 28%.
The Sancus Loan Notes ("SLNs") comprise a planned series of Special Purpose Vehicles ("SPVs") designed to act like securitisation vehicles to help offset capital constraints and enable additional co-funder participation in loan opportunities. These are attractive to new clients that want to 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 the initial GBP5.9m invested has now grown to GBP7.4m, with a maximum capacity of GBP15m. We are beginning our planning for a larger loan note launch towards the end of 2018. As part of the structure of the loan notes, Sancus BMS provides first loss positions. For SLN2 this exposure is capped at GBP3m, and in SLN3 and SLN4 it is 20% of the total capital in each of these Loan Notes. Further details are outlined in Note 16 to these accounts.
As noted above, with the introduction of IFRS9 in January 2018 we have made a provision of GBP1.9m following the methodology as set out in Note 14, which is on an expected credit loss model. This equates to 2.3% of the loan assets where Sancus BMS has an economic interest and is exposed to any loss which might be incurred. Our actual loss rate to date still remains low across the Sancus BMS portfolio at less than 0.5% reflecting our strong underwriting criteria and procedures. As highlighted by the IFRS9 provision, there is always the risk of further defaults and potential losses as lending is clearly not risk free, however the expected risk adjusted return is considered very attractive.
Sancus Funding changed its name from Funding Knight at the beginning of 2018. With the full FCA authorisation having been obtained by Sancus Funding in 2017, Sancus Funding and Sancus Finance (which combined we will refer to as Sancus UK) are increasingly being managed as one business and we are making good progress on the repositioning of Sancus UK. A new Managing Director, Dan Walker, joined at the beginning of 2018 and has been focussed on improving the revenue, whilst reducing the cost base. He has started to make good progress on this and headcount in these entities has been reduced further since December 2017. The plan is to also integrate BMS Finance into this UK Group to achieve further synergies. In the first half of the year, operating expenses have reduced by GBP0.3m on prior year, although the full impact will not be reflected until next year. Total Sancus UK revenue has remained flat. However, in July 2018 a new institutional co-funder for Sancus Finance was brought on board and this, together with the strengthening of the sales team in Q3 2018, should help deliver improved margins and profitability. Whilst the results of the first six months are disappointing, management believe the business has strong potential and that it will be break-even on a monthly basis by the end of 2018.
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 has been rolled out in 2018. This platform has been well received by co-funders as it provides real time access to all of their account information and any new co-funding opportunities, including statements, details of loans in which they have participated, and all supporting documentation. A fully online, transactional platform, covering all Sancus UK's lending solutions will be launched in the UK before the end of 2018.
FinTech Ventures
The majority of the platforms within our FinTech Ventures portfolio continue to grow strongly and the loan origination has increased 29% compared to the same period last year. As noted above, I am very disappointed to have to report a further GBP8.3m write down across the FinTech Ventures portfolio. Approximately half of the write down we are taking relates to one platform which has undergone a major capital reorganisation during 2018. $15m of new equity was successfully raised during the period along with a major refinancing of the debt facility. A further material equity raise is close to being finalised for this platform. Whilst the platform has some excellent technology, and some exciting potential partnerships, it has not yet reached profitability. In addition to the new money from third party investors, management's equity holding has also been increased to ensure they remain appropriately incentivised to drive the business going forward. With this new capital injection, the platform is now set to deliver on its growth potential, but we have incurred a material dilution of our holding. As a result, we have factored this potential scenario into our valuation approach for those other platforms which remain loss making, and this has caused the further write downs.
During the period, further investments, with an aggregate value of GBP2.2m and largely in the form of convertible loan notes, have been made into The Credit Junction, UK Bond Network and The Open Energy Group, to continue to support their growth plans. The movement in foreign currency rates since 31 December 2017 has resulted in a GBP0.4m increase in the fair value of our investments, primarily arising from the 2% appreciation of USD versus GBP.
We continue to improve the level of monitoring and influence over the platforms in which we hold investments in order to protect our interests.
Long-term strategy and business objectives
As highlighted in the Strategic Plan table below, we continue to make good progress in delivering against the objectives we agreed as a Board towards the end of 2016.
Sancus BMS continues to grow and I am delighted that our robust underwriting criteria continue to deliver very low loss rates. The coordination across the executive and senior management team, complemented with strong new business development expertise, is delivering a healthy flow and pipeline of lending opportunities. Our solid reputation in the markets in which we operate is also enabling us to lower our cost of funding, through the extension of our successful loan note program and the credit facility from HIT.
I am disappointed that the FinTech Ventures portfolio has seen a further write down in the period, but we continue to work hard on this portfolio and to continue to enhance the level of monitoring and governance of our FinTech Ventures companies and have strong relationships with the platforms we are involved with.
Strategic How we will achieve Targets for 2018 Progress
Goals these goals
Growing Sancus BMS
Geographic We continue to consider Launch of secured lending We have made 2 new senior
expansion the opportunities in Ireland expected appointments for the Irish
for growth afforded in H2 2018. office who joined on 1
by other jurisdictions August 2018 and we expect
such as Cayman Islands. to commence lending operations
in October 2018.
-------------------------- --------------------------------- --------------------------------
Profitably Funding for the Continue to launch The HIT facility was signed
expand the balance sheets and further loan notes in February 2018 providing
funding loan funds is critical with or through Amberton long term funding of up
base to growth. Asset Management or to GBP45m.
similar structured
We seek funding vehicles to expand SLN4 was launched in July
from institutional, co-funder base. 2018 at GBP5.9m and is
corporate and high now at GBP7.4m with a
net worth individuals. We will continue to maximum cap of GBP15m.
target the co-funder
We apply funding base and nurture relationships. Plans are in place to
to businesses where The new funding line launch SLN5 before the
returns for risk is designed to be complementary end of 2018.
are optimised. with our co-funder
base and work alongside A material institutional
it to fulfil larger co-funder for Sancus Finance
sized loans. was signed in July 2018.
We will continue to
explore long term financing The Offshore Co-funder
lines and work alongside base (excluding loan notes
our syndicated lending and HIT) has grown 43%
approach. from 119 at 31 December
2017 to 170 at end of
Continue to seek appropriate June 2018.
expansion opportunities
for BMS Finance with
appropriate institutional
funding.
-------------------------- --------------------------------- --------------------------------
Develop Sancus BMS will Interactive website Feedback from the new
joined up operate under the went live in the first website has been very
business "Sancus" brand as quarter of 2018 improving positive.
under the one integrated business, customer experience.
Sancus brand, maximising its reach The loan management system
with multiple in the market and Continue enhancements and online reporting platform
routes to providing multi on the proprietary for co-funders which is
market and product solutions loan management system now live across the Offshore
one platform to its funders and and full roll out of regions will also be rolled
borrowers. the online functionality out in the UK in the second
for co-funders. half of the year.
Joined up approach "Joined up" approach continues
across the Sancus BMS and works well, including
Group with bi-weekly leveraging off experience
activity calls and and "know how" to launch
Quarterly Sales meetings the Irish property backed
attended by representatives business.
from each entity.
Continuing integration
of Sancus BMS UK operations,
with a UK Managing Director
appointed.
-------------------------- --------------------------------- --------------------------------
Strategic How we will achieve Targets for 2018 Progress
Goals these goals
Growing Sancus BMS (Continued)
Ensure all Continue to work Continue to monitor Continued integration of
operating hard to increase performance. New Sancus Sancus BMS UK operations,
entities revenues whilst UK MD appointed to which has delivered a number
are profitable managing costs lead business. Current of efficiencies and cost
closely with careful plans are for these savings, including a reduction
selection of investment entities to become in headcount.
opportunities. profitable by the end
of the year, however
performance will be
closely monitored,
and action will be
taken if results are With a new material institutional
not seen. co-funder signed up for
Sancus Finance in July 2018
Priority is to secure and a new Senior Sales Executive
a working capital funding hired, the focus is to increase
line in these businesses loan origination to achieve
which is a key focus profitability.
of management. This
will enable us to bring
costs down, margins
up and become more
competitive.
------------------------- --------------------------- -----------------------------------
Quality Safeguarding the Credit processes and Actual loss rates maintained
risk management balance sheet procedures will continue at less than 0.5% with strong
and compliance and our reputation to be monitored and underwriting focus across
to capture with funders is improved as required. the Group.
value critical. Regular
reviews of policy GBP1.9m IFRS9 provision
effectiveness, has been booked representing
adjustments to 2.3% of the loan assets
controls, transparent where Sancus BMS has an
reporting and economic interest and is
a culture in which exposed to any loss which
open challenge might be incurred.
is encouraged
are core to the
strategy.
------------------------- --------------------------- -----------------------------------
Continue Ensure continued Credit processes and Actual loss rates maintained
to beat quality of staff, procedures will continue at less than 0.5% with strong
our 2% loan adapt policies to be monitored and underwriting focus across
default and procedures improved as required. the Group.
target as required, monitor
loan books and GBP1.9m IFRS9 provision
take early action has been booked representing
on any problems, 2.3% of the loan assets
govern through where Sancus BMS has an
Credit Committees. economic interest and is
exposed to any loss which
might be incurred.
------------------------- --------------------------- -----------------------------------
Realise value from FinTech Ventures' Investments
Support Provide direct Continue to assist Assistance continues with
and guide financial support platforms with the strategy, corporate finance
the development at critical times, development of their and capital restructuring.
of key platforms introducing potential strategy and particularly 3 platforms successfully
investors/funders with regard to corporate raised new equity during
and advice through finance and any capital H1 2018 and several other
active participation restructurings. platforms are looking to
as a board member. raise equity over the next
Increased monitoring 12 months.
and governance of FinTech
Ventures. Monitoring and governance
of FinTech Ventures continues.
Continue to introduce
other investors to Our network of contacts
support the ongoing has invested over GBP5m
growth of the platforms equity in the FinTech Ventures
where appropriate. platforms during H1 2018
and supported with debt
financing.
------------------------- --------------------------- -----------------------------------
Strategic How we will achieve Targets for 2018 Progress
Goals these goals
Managing the Group for value
Realise The Group is not Continue to assist Assistance continues with
value at a long-term holder platforms with the strategy, corporate finance
optimal of its FinTech development of their and capital restructuring.
times Ventures portfolio strategy and particularly 3 platforms successfully
and will seek with regard to corporate raised new equity during
to realise value finance and any capital H1 2018 and several other
at optimal times restructurings, taking platforms are looking to
in the growth opportunities to realise raise equity over the next
of each platform, value where appropriate. 12 months.
or opportunistically
if capital can
be profitably
redeployed.
---------------------- ------------------------------ -------------------------------
Value capital The Group will Ongoing positive discussions Discussions with potential
allocation continue to review with potential interested lending parties continues.
and liquidity where capital lending parties.
management is best deployed, Strict liquidity controls
and how it can Strict liquidity controls continue.
be raised most will continue to be
cost-effectively. applied.
We continue to look to
Seek out opportunities acquire our ZDPs in order
to improve the capital to reduce our liability
structure and achieve and earn a decent return
lower cost of funding. on our capital given the
Average Group debt ZDPs have been trading
cost is 6% excluding below their accrued capital
HIT. entitlement. To date we
have acquired GBP0.4m ZDPs
and have shareholder approval
to buy up to 14.99% of
the issued shares.
We continue to consider
our options around the
repayment of the 2019 ZDPs
as noted in the 'outlook'
section below.
---------------------- ------------------------------ -------------------------------
Stakeholder The nature of Continued improvement Continued improvement in
communication the Group's business in stakeholder communication stakeholder communication
will continue programme. programme.
to develop, and
it will continue
to be a priority
to ensure investors
fully appreciate
the potential
value the Group
offers.
---------------------- ------------------------------ -------------------------------
Financial Results for the six months ended 30 June 2018 (Table 1)
30 June 2018 30 June Movement Movement
GBP'000 2017 % GBP'000
GBP'000
Sancus BMS interest on loans and
fee and other income 6,919 4,880 42% 2,039
FinTech Ventures interest on loans
and fee and other income 260 532 (51%) (272)
SSIF dividends - 303 (100%) (303)
Revenue 7,179 5,715 26% 1,464
Interest costs (985) (1,204) 18% 219
HIT interest costs (574) - N/A (574)
Other cost of sales (110) (156) 29% 46
Total Cost of Sales (1,669) (1,360) (23%) (309)
Gross profit 5,510 4,355 27% 1,155
Operating expenses (4,370) (4,823) 9% 453
Net operating profit/(loss) 1,140 (468) 344% 1,608
SSIF loss on disposal - (953) 100% 953
FinTech Ventures fair value movement (8,251) (12,226) 33% 3,975
FinTech Ventures foreign exchange
gain/(loss) 429 (885) 148% 1,314
Other net gains/(losses) 247 (571) 143% 818
Impairment of financial assets (IFRS9) (518) - N/A (518)
Goodwill impairment (2,139) - N/A (2,139)
Tax (162) (56) (189%) (106)
Loss for the period (9,254) (15,159) 39% 5,905
Revenue
Total revenue for the period increased by 26% to GBP7.2m (30 June 2017: GBP5.7m) primarily due to higher fee income across the Sancus entities and the Sancus Loans Ltd interest income of GBP0.6m (30 June 2017: GBPNil). Following the sale of our SSIF position in March 2017, dividends are no longer received, and adjusting for this, revenue has increased 33% year on year.
Revenues from interest income on loans and preference shares held in FinTech Ventures decreased in the period due to the write-off of Senior Preferred Shares in one of the platforms due to provisioning within their loan portfolio.
Total Cost of Sales
Interest and other direct costs have increased in the period from GBP1.4m to GBP1.7m. The increase is due to the GBP0.6m interest on the HIT facility which has funded the majority of the GBP24.9m HIT loans as at 30 June 2018 (30 June 2017: GBPNil). This has been somewhat offset by the GBP11.9m syndicated loan having been repaid in March 2017. At the period end, interest bearing debt comprised:
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 (GBP27.2m); and
o GBP22.9m HIT facility (7.25%) (total facility GBP45m of which GBP22.9m drawn as at 30 June 2018), interest paid monthly.
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
Across the Group, GBP0.4m of cost savings were achieved in the period with operating expenses for the first 6 months falling from GBP4.8m to GBP4.4m. Savings relate predominantly to Staffing, Legal & Professional costs and Other Administrative costs within the Group Head Office function and FinTech Ventures.
Sancus BMS's operating expenses as shown in Note 3, have increased marginally in the 6 months to June 2018 to GBP3.3m compared to GBP3.2m in the same period in 2017. This is as a result of investment into business development resources and the expansion of its operations, although this has been offset to a certain extent by further cost savings in Sancus Finance and Sancus Funding.
FinTech Ventures Fair Value and FX movements
During the period, FinTech Ventures fair value movement suffered a write down of GBP8.3m, but benefitted from a GBP0.4m FX gain on our USD and Euro denominated investments exposure. As noted in more detail above, GBP4.1m of the fair value write down within the portfolio was caused by our position in one particular platform being significantly diluted by a new equity raise whereby we were unable to follow our money. The valuation of our remaining platforms has been conservatively adjusted to reflect this potential risk.
Impairment of financial assets (IFRS9)
Following the introduction of IFRS 9 for reporting periods on or after 1 January 2018, we have made a GBP1.9m provision, as detailed in Note 14. This has resulted in a GBP0.5m charge to profit and loss in the current period, with GBP1.4m allocated to the prior year. As per Note 15, we have elected to apply the exemption in IFRS9 relating to transition for classification, measurement and impairment, and accordingly we have not restated comparative periods.
The provision equates to 2.3% of the loan assets where Sancus BMS has direct participation or is exposed to any first loss via the Sancus Loan Notes, as detailed in Note 16.
Goodwill impairment
The GBP2.1m goodwill impairment in the period relates to the full write down of the Sancus Finance goodwill as noted above.
Financial Position (Table 2)
GBP'000 30 June 2018 31 December
2017 (audited)
(unaudited)
Sancus BMS on Balance Sheet Loans
and loan equivalents 37,549 46,326
------------- ----------------
Sancus Loans Limited loans 24,882 -
------------- ----------------
Goodwill 22,894 25,033
------------- ----------------
FinTech Ventures' Loan and loan
equivalents 832 839
------------- ----------------
FinTech Ventures' Investment Portfolio 23,936 29,598
------------- ----------------
Group Cash, trade receivables and
other assets 15,208 10,656
------------- ----------------
Total Assets 125,301 112,452
------------- ----------------
ZDPs and Bond payable (35,347) (34,714)
------------- ----------------
HIT Debt (22,629) -
------------- ----------------
Other Liabilities (3,189) (2,935)
------------- ----------------
Total Liabilities (61,165) (37,649)
------------- ----------------
Group net assets 64,136 74,803
------------- ----------------
The Group's net assets have decreased in the 6 months to June 2018 by GBP10.7m to GBP64.1m. The reduction in Sancus BMS on Balance Sheet Loans and loan equivalents is due to the repayment of Sancus Loan Note 1. As part of this transaction, GBP5m of group capital was reinvested in Sancus Loans Limited, which is backed by the HIT credit facility. In addition, the fair value of the Fintech Ventures' portfolio is GBP5.7m lower than at December 2017 as noted above. The goodwill has reduced by GBP2.1m due to the impairment of the goodwill previously held relating to Sancus Finance. These have been offset by an increase in Cash of GBP2.1m, and an increase in trade debtors GBP2.1m (predominantly relating to interest and fees receivable on loans and preference shares). Liabilities have increased predominantly as a result of the HIT facility and accrued interest on the ZDPs.
Goodwill has fallen to GBP22.9m (31 December 2017: GBP25.0m). A full impairment review of the goodwill relating to Sancus Finance has been carried out at the period end. Although the results of Sancus Finance are showing significant improvement over the equivalent prior period, they remain behind the forecasts. We are increasingly integrating the UK operations and therefore have decided to write off the GBP2.1m of goodwill relating specifically to Sancus Finance. A breakdown of the remaining goodwill balances is provided in Note 7.
The Group's liabilities have increased by GBP23.5m to GBP61.2m in the period following the drawdown of the HIT facility of GBP22.9m. The Group gearing ratio is now at 49% (31 December 2017: 33%).
Sancus BMS on Balance Sheet Loans and loan equivalents (Table 3)
On balance sheet loan and loan equivalents have increased in the year from GBP46.3m to GBP62.4m primarily due to the launch of Sancus Loans Limited, backed by the HIT credit facility. This increase is partially offset by the repayment of Sancus Loan Note 1. Other on Balance sheet loans have increased by GBP1m, GBP0.4m and GBP0.4m at Sancus Jersey, Sancus Gibraltar and Sancus Guernsey respectively.
GBP'000 30 June 2018 31 December
2017
Jersey 5,818 4,808
------------- ------------
Gibraltar 6,331 5,896
------------- ------------
Guernsey 1,106 718
------------- ------------
BMS - Investment in the funds and other
loans 21,695 22,045
------------- ------------
Sancus UK 438 1,002
------------- ------------
Sancus Loan Notes 3,079 10,907
------------- ------------
IOM preference shares 950 950
------------- ------------
Sancus Loans Limited loans 24,882 -
------------- ------------
IFRS9 Provision (1,868) -
------------- ------------
Total Sancus BMS on Balance Sheet Loans
and loan equivalents 62,431 46,326
------------- ------------
HIT Funding Facility
A special purpose loan vehicle called Sancus Loans Limited, which is non-recourse to GLI, has been established during the first six months of 2018 with a GBP50m funding capacity. This has been backed by a GBP45m credit facility from HIT, with a term of 3 years. 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.
Cashflow
Cash used in operating activities, excluding loan movements, for the period to 30 June 2018 reduced to GBP0.2m compared to GBP1m in the same period in 2017. The major operating cash flows during the period included GBP0.9m invested in BMS Finance Loans (2017: GBP4.7m), GBP24.9m invested in Sancus Loans Limited loans (2017: GBPNil) and GBP8m was received from the repayment of Sancus Loan Note 1 (2017: GBP3.1m paid out to participate in Sancus Loan Notes). In respect of investing activities GBP2.2m was invested in FinTech Ventures primarily in the form of convertible loan notes (2017: GBP5.5m). In respect of financing activities GBP22.9m was received from the drawdown of the HIT facility (2017: GBP11.9m payment to repay the syndicated loan).
Dividend Policy
The Group dividend policy recognises the need to balance dividend payments in the short term with the opportunities to grow the business for shareholders in the longer term. As such the Group's policy is to make dividend payments which are consistent with prudent capital and liquidity management, covered by cash earnings and realised profits on the sale of investments. In line with this dividend policy, no dividend is being declared for this period.
Related Party Transactions
Related party transactions are disclosed in Note 13. There have been no material changes in the related party transactions described in the last annual report.
Governance, Risk Management and Operations
Effective governance processes both at subsidiary and holding company level continue to be a priority for the Board. This is critical to ensuring that only well-considered risks are taken, and expected returns emerge as planned. At Group level we have implemented projects to take a more strategic approach to the assessment, reporting and management of investment risk.
The development of the digital trading platform continues with increased on-line functionality for co-funders. During the second half of 2018 this will be rolled out to Sancus UK clients, allowing them to participate online in asset backed lending opportunities in addition to working capital funding.
Outlook
The Group has gone through a period of sustained change over the past two years. We are now in a solid position with the potential for strong risk-adjusted performance for the Group. However, I fully appreciate that we have two businesses; Sancus BMS and the FinTech Ventures portfolio which might not ordinarily be grouped together. Therefore, I will continue to consider how we can maximise their value in the future.
Since the period end we have announced that we have sold our 30.3% holding in the loan assets of BMS Finance (Ireland) SARL at par (this completed on 14 September 2018) and we received a cash consideration of approximately GBP7m. This included GBP275,000 payable to BMS Finance AB Limited which will cease to be investment advisor to BMS Ireland upon completion of the transaction. The net proceeds of this transaction will be redeployed for general investment purposes including the launch of Sancus BMS' property backed lending business in Ireland which is expected to start lending activities in October 2018. We believe that this business should generate a higher return on capital compared to the historical BMS Finance SME lending business.
We will also continue to look to acquire our own ZDPs, as announced in the last few months. We have acquired GBP0.4m to date and have shareholder approval to acquire up to 14.99% of the issued ZDP shares. 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. We remain focused on our liability to repay the ZDPs which mature in December 2019 and a number of options are being considered. Whilst no decision has been made yet, options being considered include rolling them or refinancing with a more traditional institutional debt. We also could repay them from the proceeds of assets, such as investments in Fintech Ventures or maturities within the loan book. We will provide an update to shareholders in due course.
Andrew Whelan
Chief Executive Officer
21 September 2018
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 2017 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 2017 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
21 September 2018
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 2018 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 17. 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 2018 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.
Deloitte LLP
Guernsey, Channel Islands
21 September 2018
For the period ended 30 June 2018
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)
Notes Period ended Period ended
30 June 2018 30 June 2017
(unaudited) (unaudited)*
GBP'000 GBP'000
Interest on loans 2,044 2,135
Fee and other income 4 4,486 3,277
SSIF dividends - 303
Interest on Sancus Loans Limited 649 -
------------ ------------------------
Total revenue 7,179 5,715
Interest costs (985) (1,204)
HIT interest costs (574) -
Other cost of sales (110) (156)
------------ ------------------------
Total cost of sales (1,669) (1,360)
Gross profit 5,510 4,355
Operating expenses 5 (4,370) (4,823)
Net operating profit/(loss) 1,140 (468)
------------ ------------------------
SSIF loss on disposal - (953)
FinTech Ventures fair value movement 14 (8,251) (12,226)
FinTech Ventures foreign exchange gain/(loss) 14 429 (885)
Other net gains/(losses) 247 (571)
Impairment of financial assets held
at amortised cost 14 (518) -
Impairment of goodwill 7 (2,139) -
Loss before tax (9,092) (15,103)
Income tax expense (162) (56)
Loss for the period after tax (9,254) (15,159)
============ ========================
Total comprehensive loss for the period (9,254) (15,159)
============ ========================
Loss for the period after tax attributable
to:
Equity holders of the Company (9,254) (15,024)
Non-controlling interest - (135)
------------ ------------------------
(9,254) (15,159)
============ ========================
Total comprehensive loss attributable
to:
Equity holders of the Company (9,254) (15,024)
Non-controlling interest - (135)
------------ ------------------------
(9,254) (15,159)
============ ========================
Basic and Diluted loss per Ordinary
Share 6 (3.03)p (4.98)p
============ ========================
* Other cost of sales has been netted off Fee and other income and Other expenses in the prior year.
As at 30 June 2018
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)
30 June 2018
31 December
(unaudited) 2017 (audited)
ASSETS Notes GBP'000 GBP'000
Non-current assets
Property and equipment 40 63
Goodwill 7 22,894 25,033
Other intangible assets 8 536 530
Sancus BMS loans and loan equivalents 14 30,566 27,238
FinTech Ventures investments 14 23,936 29,598
Other investments 14 558 542
Investments in joint ventures and associates 2,631 2,266
------------ ---------------
Total Non-current assets 81,161 85,270
------------ ---------------
Current assets
Loans through platforms 14 891 908
Sancus BMS loans and loan equivalents 14 31,865 19,088
Trade and other receivables 9 6,317 4,170
Cash and cash equivalents 5,067 3,016
Total current assets 44,140 27,182
------------ ---------------
Total assets 125,301 112,452
============ ===============
EQUITY
Share premium 10 112,557 112,557
Treasury shares 10 (1,162) (1,162)
Retained earnings (47,259) (36,588)
------------ ---------------
Capital and reserves attributable to
equity holders of the Group 64,136 74,807
------------ ---------------
Non-controlling interest - (4)
Total equity 64,136 74,803
------------ ---------------
LIABILITIES
Non-current liabilities 11 57,976 34,714
------------ ---------------
Current liabilities
Trade and other payables 11 3,189 2,935
Total current liabilities 3,189 2,935
------------ ---------------
Total liabilities 61,165 37,649
------------ ---------------
Total equity and liabilities 125,301 112,452
============ ===============
The financial statements were approved by the Board of Directors on 21 September 2018 and were signed on its behalf by:
Director: Patrick Firth Director: John Whittle
.
For the period ended 30 June 2018
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
Note Share Share Treasury Distributable Retained Capital Non-controlling Total
Capital Premium Shares **Reserve **Earnings/ and reserves Interest Equity
(Losses) attributable
to
equity
holders
of
the Company
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31
December 2017
(audited) - 112,557 (1,162) - (36,588) 74,807 (4) 74,803
Adjustment on
adoption of IFRS
9 15 - - - - (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 (62)
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
------------------ ----- -------- -------- --------- -------------- ------------ ------------- ---------------- ---------
Balance at 31 December
2016 (audited) - 111,942 (1,734) 34,803 (54,268) 90,743 125 90,868
Net proceeds from
Ordinary Shares
issued 10 - 615 - - - 615 - 615
Transferred to
management - - 104 - - 104 - 104
Transfer of
distributable
reserves
to retained
earnings - - - (34,803) 34,803 - - -
Acquisition of
non-controlling
interest in
Sancus Finance - - - - - - (351) (351)
Dividends paid* - - - - (1,717) (1,717) - (1,717)
------------------ ----- -------- -------- --------- -------------- ------------ ------------- ---------------- ---------
Transactions with
owners - 615 104 (34,803) 33,086 (998) (351) (1,349)
------------------ ----- -------- -------- --------- -------------- ------------ ------------- ---------------- ---------
Total
comprehensive
loss for
the period - - - - (15,024) (15,024) (135) (15,159)
------------------ ----- -------- -------- --------- -------------- ------------ ------------- ---------------- ---------
Balance at 30
June
2017 (unaudited) - 112,557 (1,630) - (36,206) 74,721 (361) 74,360
------------------ ----- -------- -------- --------- -------------- ------------ ------------- ---------------- ---------
* During the period ended 30 June 2017, the Company made one dividend payment, totalling 0.625 pence per Ordinary Share in relation to Q4 2016.
** Distributable Reserves were combined with retained earnings (losses) in 2017 to simplify the presentation of reserves.
For the period ended 30 June 2018
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Period ended Period ended
30 June 2018 30 June 2017
(unaudited) (unaudited)
Notes GBP'000 GBP'000
Cash outflow from operations, excluding
loan movements 12 (192) (985)
Increase on Sancus BMS loans (936) (4,715)
Decrease on loans through platforms 8 2,848
Increase on loans through the HIT
facility (24,882) -
Repayment/(Investment) in Sancus Loan
notes 8,015 (3,142)
------------ ------------
Net cash outflow from operating activities (17,987) (5,994)
------------ ------------
Cash inflows/(outflows) from investing
activities
Acquisition of non-controlling interest
and connected entities (63) (713)
Investments in FinTech Ventures (2,160) (5,531)
Investment in joint venture (200) -
Sale of SSIF investment - 22,675
Expenditure on fixed assets and intangibles (131) (158)
------------ ------------
Net cash (outflow)/inflow from investing
activities (2,554) 16,273
------------ ------------
Cash inflows/(outflows) from financing
activities
Draw down of HIT facility 22,592 -
Repayment of syndicated loan - (11,920)
Dividends paid - (1,318)
------------ ------------
Net cash inflow/(outflow) from financing
activities 22,592 (13,238)
------------ ------------
Net increase/(decrease) in cash and
cash equivalents 2,051 (2,959)
Cash and cash equivalents at beginning
of period 3,016 9,616
Cash and cash equivalents at end of
period 5,067 6,657
============ ============
.
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 2018, the Group comprises the Company and its subsidiaries.
Given the changes made as a result of the strategic review, the Company has taken advantage of the exemption conferred by the Companies (Guernsey) Law, 2008, Section 244, not to prepare company only financial statements which is consistent with the 2017 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 2017, 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 21 September 2018.
(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 2017 except for changes in accounting policy brought about by the adoption of new accounting standards. These changes are detailed in note 15.
(c) Going Concern
The Board has assessed the Group's financial position as at 30 June 2018 and the factors that may impact its performance in the forthcoming year. After considering the maturity profile of the debt structure of the Group and projected cash flows, the Directors are of the opinion that it is appropriate to prepare these financial statements on a going concern basis.
In assessing the prospects of the Group, the Directors in particular are focussed on the repayment of the ZDPs due in December 2019. Although they are not due within the next 12 months and a final decision has not yet been made, as noted in the CEO report a number of options are being considered. These include rolling them or refinancing with a more traditional institutional debt. They could also be repaid from the proceeds of assets, such as investments in Fintech Ventures or maturities within the loan book.
(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 2017 except for the credit risk on financial assets and other items which now come under the scope of IFRS 9.
Credit risk and determining when a significant increase in credit risk has occurred are critical accounting judgements and are assessed at each reporting period end. It is used to calculate estimated credit losses (ECLs). Key areas of estimation and uncertainty are the probabilities of default (PD) and the probabilities of loss given default (PL) which are also used in the calculation of ECL. Further details on Credit Risk, ECLs, PD and PL can be found within notes 14 and 15. No additional critical accounting judgements or estimates have been required on the adoption of IFRS 15.
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
- Eleven 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.
Sancus FinTech Group 30 June Sancus FinTech Group 30 June
GBP'000 BMS Ventures Treasury 2018 BMS Ventures Treasury 2017
Revenue
Interest on loans 1,784 260 - 2,044 1,604 531 - 2,135
Fees and other income 4,486 - - 4,486 3,276 1 3,277
SSIF dividends - - - - 303 - - 303
Interest on Sancus
Loans Limited 649 - - 649 - - - -
------- --------- --------- ------- ------- --------- --------- --------
Total revenue 6,919 260 - 7,179 5,183 532 - 5,715
Interest costs (985) - - (985) (1,204) - - (1,204)
HIT interest costs (574) - - (574) - - - -
Other costs of sales (110) - - (110) (156) - - (156)
------- --------- --------- ------- ------- --------- --------- --------
Total cost of sales (1,669) - - (1,669) (1,360) - - (1,360)
Gross profit 5,250 260 - 5,510 3,823 532 - 4,355
Operating expenses (3,327) (637) (406) (4,370) (3,167) (1,019) (637) (4,823)
Net operating profit/(loss) 1,923 (377) (406) 1,140 656 (487) (637) (468)
------- --------- --------- ------- ------- --------- --------- --------
SSIF loss on disposal - - - - - - (953) (953)
FinTech Ventures fair
value movement - (8,251) - (8,251) - (12,226) - (12,226)
FinTech Ventures foreign
exchange gain/(loss) - 429 429 - (885) - (885)
Other net gains / (losses) 227 20 - 247 (132) (439) - (571)
Impairment of financial
assets held at amortised
cost (518) - - (518) - - - -
Impairment of goodwill (2,139) - - (2,139) - - - -
(Loss)/profit before
tax (507) (8,179) (406) (9,092) 524 (14,037) (1,590) (15,103)
Income tax expense (162) - - (162) (56) - - (56)
(Loss)/profit for the
period after tax (669) (8,179) (406) (9,254) 468 (14,037) (1,590) (15,159)
======= ========= ========= ======= ======= ========= ========= ========
Total comprehensive(loss)/income
for the period (669) (8,179) (406) (9,254) 468 (14,037) (1,590) (15,159)
======= ========= ========= ======= ======= ========= ========= ========
(Loss)/profit for the
period after tax attributable
to:
Equity holders of the
Company (669) (8,179) (406) (9,254) 603 (14,037) (1,590) (15,024)
Non-controlling interest - - - - (135) - - (135)
------- --------- --------- ------- ------- --------- --------- --------
(669) (8,179) (406) (9,254) 468 (14,037) (1,590) (15,159)
======= ========= ========= ======= ======= ========= ========= ========
Total comprehensive
(loss)/income attributable
to:
Equity holders of the
Company (669) (8,179) (406) (9,254) 603 (14,037) (1,590) (15,024)
Non-controlling interest - - - - (135) - - (135)
------- --------- --------- ------- ------- --------- --------- --------
(669) (8,179) (406) (9,254) 468 (14,037) (1,590) (15,159)
======= ========= ========= ======= ======= ========= ========= ========
Sancus FinTech Group 30 June Sancus FinTech Group 31 December
GBP'000 BMS* Ventures* Treasury 2018 BMS Ventures Treasury 2017
ASSETS
Non-current assets
Property and equipment 40 - - 40 60 - 3 63
Goodwill 22,894 - - 22,894 25,033 - - 25,033
Other intangible
assets 536 - - 536 530 - - 530
Sancus BMS loans
and loan equivalents 30,566 - - 30,566 27,238 - - 27,238
FinTech Ventures
investments - 23,936 - 23,936 - 29,598 - 29,598
Other investments 558 - - 558 542 - - 542
Investments in joint
ventures and associates 2,631 - - 2.631 2,266 - - 2,266
Total Non-current
assets 57,225 23,936 - 81,161 55,669 29,598 3 85,270
-------- ---------- --------- -------- -------- --------- --------- -----------
Current assets
Loans through platforms 59 832 - 891 69 839 - 908
Sancus BMS loans
and loan equivalents 31,865 - - 31,865 19,088 - - 19,088
Trade and other receivables 4,769 1,548 - 6,317 2,796 616 758 4,170
Cash and cash equivalents 3,419 - 1,648 5,067 926 - 2,090 3,016
Total current assets 40,112 2,380 1,648 44,140 22,879 1,455 2,848 27,182
-------- ---------- --------- -------- -------- --------- --------- -----------
Total assets 97,337 26,316 1,648 125,301 78,548 31,053 2,851 112,452
======== ========== ========= ======== ======== ========= ========= ===========
LIABILITIES
Non-current liabilities (57,976) - - (57,976) (34,714) - - (34,714)
-------- ---------- --------- -------- -------- --------- --------- -----------
Current liabilities
Trade and other payables (2,415) (6) (768) (3,189) (2,324) (2) (609) (2,935)
Total current liabilities (2,415) (6) (768) (3,189) (2,324) (2) (609) (2,935)
-------- ---------- --------- -------- -------- --------- --------- -----------
Total liabilities (60,391) (6) (768) (61,165) (37,038) (2) (609) (37,649)
-------- ---------- --------- -------- -------- --------- --------- -----------
Net Assets 36,946 26,310 880 64,136 41,510 31,051 2,242 74,803
======== ========== ========= ======== ======== ========= ========= ===========
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 2018 30 June 2017
(unaudited) (unaudited)
GBP'000 GBP'000
Administration fees 862 449
Earn out (exit) fees 874 864
Management fees 648 728
Transaction fees 2,102 1,236
4,486 3,277
============= =============
5. OPERATING EXPENSES
30 June 2018 30 June 2017
(unaudited) (unaudited)
GBP'000 GBP'000
Administration and secretarial fees 94 170
Amortisation and depreciation 148 142
Audit fees 119 23
Corporate Insurance 10 40
Directors Remuneration 46 70
Employment costs 2,979 2,864
Independent valuation fees 5 54
Investor relations expenses 40 60
Legal and professional fees 158 506
Marketing expenses 48 87
NOMAD fees 56 58
Other office and administration costs 527 508
Pension costs 113 100
Registrar fees 21 27
Sundry 6 114
------------ ------------
4,370 4,823
============ ============
6. LOSS PER ORDINARY SHARE
Consolidated loss per Ordinary Share has been calculated by dividing the consolidated total comprehensive loss attributable to Ordinary Shareholders of GBP9,254,000 (30 June 2017: loss of GBP15,024,000) by the weighted average number of Ordinary Shares outstanding (excluding treasury shares) during the period of 305,911,597 (30 June 2017: 301,466,733). There was no dilutive effect for potential Ordinary Shares during the current or prior periods.
Note 10 describes the warrants in issue which are currently out of the money, and therefore have not been considered to have a dilutive effect on the calculation of Profit/(Loss) per Ordinary Share.
30 June 2018 30 June 2017
(unaudited) (unaudited)
Number of shares in issue 312,065,699 312,065,699
Weighted average number of shares outstanding
(excluding treasury shares) 305,911,597 301,466,733
Loss per share (3.03)p (4.98)p
7. GOODWILL
GBP'000
At 31 December 2017 25,033
Impairment of Sancus Finance Goodwill (2,139)
------------
At 30 June 2018 22,894
============
Goodwill comprises:
30 June 2018 31 December
2017
GBP'000 GBP'000
Sancus Jersey 14,255 14,255
Sancus Gibraltar 8,639 8,639
Sancus Finance - 2,139
------------- ------------
Total 22,894 25,033
============= ============
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 2018 the recoverable amount of Sancus Finance was assessed by the Board using DCF methodology as described in the 2017 Annual Report. As a result of this assessment it was deemed appropriate to write down the Sancus Finance goodwill. The UK operations are increasingly being integrated and managed as a combined division which will enable further synergies to be achieved.
8. INTANGIBLE ASSETS
30 June 2018 31 December
GBP'000 2017
Cost GBP'000
At beginning of period/year 1,312 1,050
Additions in the period/year 126 262
------------- ------------
At end of period/year 1,438 1,312
============= ============
Amortisation
At beginning of period/year 782 530
Charge for the period/year 120 252
------------- ------------
At end of period/year 902 782
============= ============
Net book value at end of period/year 536 530
============= ============
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.
9. TRADE AND OTHER RECEIVABLES
31 December
30 June 2018 2017
(unaudited) (audited)
Current GBP'000 GBP'000
Dividend income receivable 68 68
Loan fees and similar receivable 1,596 930
Loan interest receivable 2,894 1,973
Receivable from related parties 59 42
Preference share dividends receivable 618 607
Other trade receivables and prepaid expenses 1,082 550
6,317 4,170
10. 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 2018, but in the prior year the company issued the following additional Ordinary Shares relating to the 2016 fourth quarter scrip dividend.
2017 (unaudited)
Date No of shares Share Premium
issued GBP
21 April 2017 2,767,586 615,239
Total 2,767,586 615,239
=============== ============= ==============
Share Capital 30 June 2018 31 December
2017
(unaudited) (audited)
Ordinary Shares - nil par value Shares in issue Shares in issue
Balance at start of period/year 312,065,699 309,298,113
Issued during the period/year - 2,767,586
--------------- ---------------
Balance at end of the period/year 312,065,699 312,065,699
=============== ===============
Share Premium 30 June 2018 31 December
2017
(unaudited) (audited)
Ordinary Shares - nil par value GBP'000 GBP'000
Balance at start of period/year 112,557 111,942
Issued during the period/year - 615
Balance at end of the period/year 112,557 112,557
============ ===========
Treasury Shares
As at 30 June 2018 and 31 December 2017 a total of 6,154,102 Ordinary Shares, with an aggregate value of GBP1,161,975 were held by a Subsidiary, Sancus BMS Group Limited and eliminated on consolidation. These shares mainly arose as part consideration for this company's minority shareholding in Sancus Gibraltar purchased by the Group in June 2016.
31 December
30 June 2018 2017
(unaudited) (audited)
GBP'000 GBP'000
Balance at start of the period/year 1,162 1,734
GLI shares transferred by SBMGL to key members
of management - (572)
Balance at end of period/year 1,162 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 2018, 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.
11. LIABILITIES
31 December
30 June 2018 2017
Non-current liabilities (unaudited) (audited)
GBP'000 GBP'000
ZDP shares (1) 25,347 24,714
Corporate bond (2) 10,000 10,000
HIT facility (3) 22,629 -
57,976 34,714
============ ===========
31 December
30 June 2018 2017
Current liabilities (unaudited) (audited)
GBP'000 GBP'000
Accounts payable 125 319
Accruals and other payables 1,580 1,266
Deferred income 150 166
Other staff costs 384 234
Payable to related party* 950 950
3,189 2,935
30 June 2018 30 June 2017
Interest costs on debt facilities (unaudited) (unaudited)
GBP'000 GBP'000
ZDP shares (1) 632 636
Corporate bond (2) 347 314
HIT facility (3) 574 -
Syndicated loan - 225
1,553 1,175
============= ============
*Relates to the amount owing by Sancus BMS Group Limited to Sancus IOM Holdings Limited for its subscription for preference shares, which is due by mutual agreement between these companies, and does not bear interest.
(1) ZDP shares
The ZDP shares have a maturity date of 5 December 2019 with a final capital entitlement of GBP1.30696 per ZDP share.
Refer to the Company's Memorandum and Articles of Incorporation for full detail of the rights attached to the ZDP shares. This document can be accessed via the Company's website www.glifinance.com.
The ZDP shares bear interest at an average rate of 5.5% (30 June 2017: 5.5%).
In accordance with article 7.5.5 of the Company's Memorandum and Articles of Incorporation, the Company may not incur more than GBP30m of long term debt without the prior approval from the ZDP shareholders. The Memorandum and Articles also specify that two debt cover tests must be met in relation to the ZDPs.
At 30 June 2018 the Company was in compliance with these covenants as Cover Test A was 2.98 (minimum of 1.7) and Cover Test B was 3.71 (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.
(2) 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% (2017: 7%).
(3) 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.
12. CASH GENERATED FROM OPERATIONS
30 June 2018 30 June 2017
(unaudited) (unaudited)
GBP'000 GBP'000
Loss for the period (9,254) (15,159)
Adjustments for:
Net losses on FinTech Ventures 7,802 13,111
Net loss on sale of SSIF - 953
Other net (gains)/losses (316) 571
Non-cash item on finance costs on ZDPs 633 636
Impairment of financial assets 518 -
Impairment of goodwill 2,139 -
Amortisation/depreciation of fixed assets 148 142
Amortisation of debt issue costs 37 -
Changes in working capital:
Trade and other receivables (2,126) (989)
Trade and other payables 227 (250)
Cash outflow from operations, excluding loan
movements (192) (985)
============ ============
13. RELATED PARTY TRANSACTIONS
Transaction with the Directors/Executive Team
Non-executive Directors
As at 30 June 2018, 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 2018 30 June 2017
GBP GBP
Patrick Firth (Chairman) 50,000 50,000
John Whittle 42,500 42,500
There was no increase in the Directors' base fees during the period ended 30 June 2018. Total Directors' fees charged to the Company for the period ended 30 June 2018 were GBP46,250 (30 June 2017: GBP45,628).
Executive Team
For the period ended 30 June 2018, 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 2018 30 June 2017
GBP'000 GBP'000
Aggregate remuneration in respect of qualifying
service - fixed salary 353 295
Aggregate amounts contributed to Money Purchase
pension schemes 46 44
Aggregate bonus paid (cash) 125 60
On the 2 January 2018 Mr Walker joined the Executive Team as UK Managing Director.
During the period, GBP125,000 in total was paid to Mr Le Cornu and Mr Walker relating to a sign-on bonus.
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 replaces the previous Executive Bonus Scheme.
Directors' and Persons Discharging Managerial Responsibilities ("PDMR") shareholdings in the Company
As at 30 June 2018, the Directors had the following beneficial interests in the Ordinary Shares of the Company:
30 June 2018 31 December 2017
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 8,051,912 2.58 8,051,912 2.58
Emma Stubbs 1,005,485 0.32 1,005,485 0.32
Aaron Le Cornu 1,405,790 0.45 455,790 0.15
During the period none of the above received any amounts relating to their shareholding (30 June 2017: Mr Firth GBP1,694, Mr Whittle GBPNil, Mr Whelan GBP43,506, Mrs Stubbs GBP2,022 and Mr Le Cornu GBPNil) by way of dividends on their Ordinary Share holdings in the Company. As at 30 June 2018 there were no unexercised share options for Ordinary Shares of the Company (31 December 2017 and 30 June 2017: Nil Ordinary Shares).
During the period Mr Whelan received GBP20,567 in relation to the coupon on his holding of GBP592,500 GLI Bonds (30 June 2017: GBP20,567).
Mr Le Cornu purchased 950,000 shares during the period at the open market value.
Transactions with connected entities
The following significant transactions with connected entities took place during the current period:
30 June 2018 30 June 2017
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 5,217 252 3,260 507
Preference shares (and corresponding
interest receivable) in entities
which GLI Group has a significant
stake 1,943 77 4,512 277
(Payable)/receivable to/from related 30 June 31 December
parties 2018 2017
GBP'000 GBP'000
Intercompany with Sancus (IOM)
Holdings Limited 3 2
Intercompany with Sancus (IOM)
Limited 41 24
Intercompany with Sancus (IOM)
Limited (950) (950)
Receivable from Amberton Asset
Management 15 16
30 June 30 June
2018 2017
GBP'000 GBP'000
Office and staff costs recharges
Amberton Asset Management 26 24
There is no ultimate controlling party of the Company.
All platform loans and preference shares bear interest at a commercial rate.
14. FINANCIAL INSTRUMENTS - Fair values and risk management
Sancus BMS loans and loan equivalents
30 June 2018 31 December
(unaudited) 2017 (audited)
Non-current GBP'000 GBP'000
Sancus BMS loans 20,837 24,238
Investment in Sancus Loan Notes - 3,000
Sancus Loans Limited loans 9,729 -
------------- ----------------
Total Non-current Sancus BMS loans and loan
equivalents 30,566 27,238
------------- ----------------
Current
Sancus BMS loans 11,453 8,560
Investment in Sancus Loan Notes 3,079 7,907
Loan equivalents 2,180 2,621
Sancus Loans Limited loans 15,153 -
------------- ----------------
Total Current Sancus BMS loans and loan equivalents 31,865 19,088
------------- ----------------
Total Sancus BMS loans and loan equivalents 62,431 46,326
============= ================
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 2018 31 December
(unaudited) 2017 (audited)
Level 3 Level 3
GBP GBP
FinTech Ventures investments 23,936 29,598
Investments in Sancus Loan Notes 3,079 10,907
Other investments at fair value 558 542
------------- ----------------
Total assets as fair value 27,573 41,047
============= ================
The classification and valuation methodology remains as noted in the 2017 Annual Report. In relation to the Level 3 valuation methodology for the FinTech Ventures investments the Board assesses the fair value based on either the value at the last capital transaction or valuation techniques, performed internally or by an independent third-party expert. Factors considered in these valuation analyses included discounted cashflows, comparable company and comparable transaction analysis. Key inputs used in the discounted cashflows 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 2017 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.
FinTech Ventures' Investments Equity Loans Total
30 June 2018 GBP GBP GBP
Opening fair value 26,470 3,128 29,598
New investments/loans advanced 200 1,960 2,160
Unrealised gains/(losses) recognised
in profit and loss (8,251) - (8,251)
Foreign exchange gain 300 129 429
Closing fair value 18,719 5,217 23,936
======== ====== ========
Equity Loans Total
GBP GBP GBP
31 December 2017
Opening fair value 34,699 1,405 36,104
New investments/loans advanced 1,455 5,494 6,949
Reclassification of loan - 418 418
Disposals/loan repayments - (414) (414)
Unrealised gains/(losses) recognised
in profit and loss (8,322) (3,597) (11,919)
Foreign exchange loss (1,362) (178) (1,540)
Closing fair value 26,470 3,128 29,598
======== ======== =========
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 Significant Relationship
and key inputs GBP'000 GBP'000 any changes unobservable of unobservable
in valuation inputs inputs to fair
techniques value
from prior
years
At 30 At 31
June 2018 December
2017
----------- ----------- -------------- -------------- -----------------
Market comparable
transaction based
on recent fundraising
activity, adjusted Equity raises
for any relevant completing
risk 11,981 15,346 H1 2018 None None
----------- ----------- -------------- -------------- -----------------
Fair value based
on cost and adjusted
for FX movement
and any new investment
(WC loan, convertible
note etc) 2,123 2,833 None None None
----------- ----------- -------------- -------------- -----------------
Valuation technique Fair Value Fair Value Reason for Significant Relationship
and key inputs GBP'000 GBP'000 any changes unobservable of unobservable
in valuation inputs inputs to fair
techniques value
from prior
years
At 30 At 31
June 2018 December
2017
----------- ----------- ---------------------- --------------------- ---------------------
Cash flows
are discounted
by a range
of 18.1-26.1%
for cost of
equity and
15-17.5% for
illiquidity
of the investment.
Significant
There has been internal
no change in sensitivities
valuation techniques. are also applied A smaller adjustment
Recent market to the forecasts, for these factors
comparable creating high would increase
transaction and low cases the fair value
data became used in the - see sensitivity
Discounted cash available (see weighted average analysis noted
flow forecasts 10,390 11,961 above). output below
----------- ----------- ---------------------- --------------------- ---------------------
Fair value
Investment in which closely
redeemable approximates
preference shares the net asset
of the loan notes value of the
is valued at fair Loan Note Special
value 3,079 10,907 None purpose vehicles None
----------- ----------- ---------------------- --------------------- ---------------------
Total Level 3 at
Fair Value 27,573 41,047
----------- ----------- ---------------------- --------------------- ---------------------
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.
Effect on consolidated
statement of comprehensive
income
30 June 2018
GBP'000
10% per annum increase in revenue 5,063
10% per annum decrease in revenue (5,063)
3% increase in discount rate (633)
3% decrease in discount rate 601
5% increase in illiquidity discount (123)
5% decrease in illiquidity discount 123
The DCF methodology has been used on different investments and a different number of investments this period compared to the prior period. As a result, no prior period comparative has been given as it would not provide a meaningful comparison.
Assets at Amortised Cost
30 June 2018 31 December 2017
(unaudited) (audited)
GBP'000 GBP'000
Sancus BMS loans and loan equivalents 34,470 35,419
Sancus Loans Limited loans 24,882 -
Loans through platforms 891 908
Trade and other receivables 6,317 4,170
Cash and cash equivalents 5,067 3,016
Total assets at amortised cost 71,627 43,513
============= =================
Liabilities at Amortised Cost
30 June 2018 31 December 2017
(unaudited) (audited)
GBP'000 GBP'000
ZDP shares 25,347 24,714
Corporate Bond 10,000 10,000
HIT facility 22,629 -
Trade and other payables 3,189 2,935
Total liabilities at amortised cost 61,165 37,649
============= =================
Refer to Note 11 for further information on liabilities.
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 deemed to be nil where LTV is equal to or less than 100%, as it is assumed that the asset can be sold and full recovery made.
The following table provides information on amounts reserved for ECL on loans and loan equivalents as at 30 June 2018 based on the model adopted by management.
Low Risk Medium High Risk Total
Risk
50% to 65% to
Typical Loan to Value 0% to 50% 65% 100%
Loan by
Probability of default 1% 2% Loan
Probability of loss given Loan by
default 0% 0% Loan
ECL (GBP'000) - - 1,868 1,868
Movement of provision for ECL in the period
GBP'000
At 1 January 2018 1,350
Charged through profit and loss in the period 518
--------
At 30 June 2018 1,868
========
15. CHANGES IN ACCOUNTING POLICY
IFRS 9 'Financial Instruments'
IFRS 9 'Financial Instruments' addresses the classification, measurement and derecognition of financial assets and liabilities. It replaces the multiple classification and measurement models in IAS 39 and is effective for reporting periods beginning on or after 1 January 2018. As such the Group has adopted IFRS 9 for the first time in this set of Interim Financial Statements.
Key requirements of IFRS 9
Classification and measurement of debt assets will be driven by the entity's business model for managing the financial assets and the contractual cash flow characteristics of those financial assets.
There are three principal classification categories for financial assets that are debt instruments: (i) amortised cost, (ii) fair value through other comprehensive income and (iii) fair value through profit and loss. Equity investments in scope of IFRS 9 are measured at fair value with gains and losses recognised in profit and loss unless an irrevocable election is made to recognise gains or losses in other comprehensive income.
IFRS 9 also introduces a new expected credit loss impairment model, as opposed to the incurred credit loss model currently implemented under IAS 39. This requires entities to account for expected credit losses at initial recognition and changes to expected credit losses at each reporting date to reflect changes in credit risk since initial recognition.
Finally, under IFRS 9 greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. Enhanced disclosure requirements about an entities risk management activities have also been introduced.
Impact of IFRS 9 - Classification and measurement
Sancus BMS loans, HIT loans, BMS fund investments, loan equivalents and loans through platforms are held solely for the collection of contractual cash flows, being interest, fees and payment of principal. These assets continue to be held at amortised cost on adoption of IFRS 9, and hence there is no change in classification or measurement of these assets.
FinTech Ventures investments relate to equity, preference shares and some working capital loans. Whilst some of these investments do attract interest the assets are held primarily to assist the development of the entities involved. These investments continue to be held at fair value with charges recognised in profit and loss on adoption of IFRS 9, and hence there is no change in classification or measurement of these assets.
Trade payables, financial liabilities and trade receivables are held solely for the collection and payment of contractual cash flows, being payments of principal and interest where applicable. These assets continue to be held at amortised cost on adoption of IFRS 9, and hence there is no change in classification or measurement of these assets and liabilities.
Impact of IFRS 9 - Impairment
Sancus BMS loans and loan equivalents have been assessed for credit risk based on information available at initial recognition, predominantly (but not solely) using Loan to Value (LTV). For each category of Credit risk loans have been categorized into Stage 1, Stage 2 and Stage 3 with Stage 1 being to recognise 12 month Expected Credit Losses (ECL), Stage 2 being to recognise Lifetime ECL not credit impaired and Stage 3 being to recognise Lifetime ECL credit impaired. The judgement used for a significant increase in credit risk includes for example moving up through the LTV brackets and 30 days past due.
A loan is considered to be in default when there is a failure to meet the legal obligation of the loan agreement. This would include provisions against loans that are considered by management as unlikely to pay their obligations in full without realisation of collateral. Provision for ECL has been calculated using the credit risk, the probability of default and the probability of loss given default, all underpinned by the LTV, historical position, forward looking considerations and on occasion subsequent events, and the subjective judgement of the Board. For first time adoption Credit risk and provision for ECL has been assessed at 30 June 2018 and 31 December 2017. Going forward credit risk and provision for ECL will be assessed at initial recognition and re-assessed at each reporting period-end. Given the nature of the loans (in most cases short term bridging loans), ECL assumes the life of the loan is consistent with contractual terms.
With respect to the loans to the UK SARL and Ireland SARL there is no direct exposure to individual loans. As a result these two loans have been assessed for credit risk based upon the Net Asset Value (NAV) of the SARLs, and their ability to repay the loans. Should the NAV of the SARLs fall materially then the loans will have been deemed to have fallen into Stage 2, with a further significant drop in NAV pushing the loans into Stage 3. Provision for ECL has been made according to the credit risk and the deemed ability of the SARL to repay the loan. Credit risk and ECL has been assessed at 30 June 2018 and 31 December 2017 and going forward will be re-assessed at each reporting period-end.
For trade and other receivables, the Group has applied the simplified approach to recognise lifetime expected credit losses.
The Group has elected to apply the exemption in IFRS 9 relating to transition for classification and measurement and impairment, and accordingly has not restated comparative periods. As a consequence:
-- Any adjustments to carrying amounts of financial assets and liabilities are recognised at the beginning of the current reporting period, with the difference recorded in opening retained earnings;
-- Provisions for impairment have not been restated in the comparative period;
-- Financial assets are not restated in the balance sheet for the comparative period, and hence a third balance sheet as at December 2016 is not presented.
Had prior year balances been restated Sancus BMS loans and loan equivalents would have been GBP1,350,000 lower than stated in the 2017 annual financial statements as follows:
GBP'000
Sancus BMS loans and loan equivalents as at 31 December 2017
under IAS 39 46,216
Amounts restated through retained earnings on adoption of IFRS
9 (1,350)
--------
Restated Sancus BMS loans and loan equivalents as at 31 December
2017 under IFRS 9 44,976
========
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 'Revenue from Contracts with Customers' specifies how and when to recognise revenue as well as requiring entities to provide users of financial statements with more favourable, relevant disclosures. The standard provides a single, principles based five step model to be applied to all contracts with customers. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, and hence has been adopted for the first time in this set of Interim financial statements. There has been no impact on timing of recognition or gross up for principal/agents considerations on the adoption of IFRS 15.
16. 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. Sancus BMS has invested GBP3m of its own capital in SLN2 which sits in a GBP3m first loss position. For SLN3 and SLN4, Sancus BMS has no capital invested but has a 20% first loss position. As all the loans within the SLNs are asset backed with loan to values typically below 65%, the probability of these first loss positions being called upon is considered low, but the positions have been included within the calculations for IFRS9 provisioning.
Sancus Finance
Sancus Finance provides a 10% first loss position on certain working capital transactions and its obligations are supported by a Group Guarantee of up to GBP2m.
For IFRS9 purposes in calculating our capital at risk provision ratio of 2.3%, we have included the Sancus on balance sheet loans (GBP43m), plus the full amount of those loans which include the first loss risk position we have with HIT (GBP20m) and the Loan Notes (GBP18m).
17. POST PERIOD END EVENTS
Sale of BMS Irish Loan Assets
On the 3 July 2018 it was announced that the Company had sold its 30.3% interest in the assets held in the BMS Finance (Ireland) SARL at par to BPC Ireland Lending Designated Activity Company ("BPC"), a fund managed by Beach Point Capital (Ireland) DAC ("BPCI"). Following the sale of the loan assets BMS Ireland will be wound up with cash distributed to investors. This completed on 14 September 2019 and a cash consideration of approximately GBP7.0 million was received, which included GBP275,000 payable to BMS Finance AB Limited ("BMS AB"), which will cease to be the investment adviser to BMS Ireland upon completion of the Transaction. The net proceeds of the Transaction will be redeployed for general investment purposes including the launch of Sancus BMS' property backed lending business in Ireland which commenced activities in August 2018. The Company believes that this business should generate a higher return on capital compared to the historic SME lending business.
Acquisition of Group ZDPs
During July and August 2018, the Company has acquired 427,790 ZDPs at an average price of GBP1.09. These shares are held by the Company as treasury shares. 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.
Incorporation of Sancus Developments Limited
Subsequent to 30 June 2018 the Group, via a newly incorporated subsidiary Sancus Developments Limited, has entered into a Development Framework Agreement regarding security previously held by a former borrower. In addition, a further portfolio of real estate assets previously held by the borrower have been purchased by the company. The intention is to realise these assets via orderly transactions; the timing of which will be determined so as to best preserve shareholder capital. This includes potential development of assets under a development framework agreement entered into with the previous borrower. In accordance with IFRS9, a provision for impairment has been recorded on the Group's overall exposure to this portfolio given the uncertainties over the timing of such realisations and ultimate value.
FFICERS AND PROFESSIONAL ADVISERS
Directors
Non-executive: Patrick Anthony Seymour Firth (Chairman)
John Richard Whittle
Executive: Andrew Noel Whelan
Emma Stubbs
The Address of the Directors is the Company's registered
office
Executive Team:
Chief Executive Officer: Andrew Whelan
Chief Financial Officer Emma Stubbs
Chief Operating Officer Aaron Le Cornu
UK Managing Director: Dan Walker (joined 2 January 2018)
Registered office: 1(st) Floor
10 Lefebvre Street
St Peter Port
Guernsey, GY1 2PE
Channel Islands
Nominated Adviser and Liberum Capital Limited
Broker:
Ropemaker Place
25 Ropemaker Street
London, EC2Y 9LY
United Kingdom
Administrator and Company Praxis Fund Services Limited
Secretary:
Sarnia House
Le Truchot
St Peter Port
Guernsey, GY1 1GR
Channel Islands
Legal Advisers in the Carey Olsen
Channel Islands
P.O. Box 98
Carey House
Les Banques
St Peter Port
Guernsey, GY1 4BZ
Channel Islands
Legal Advisers in the Stephenson Harwood
UK
1 Finsbury Circus
London, EC2M 7SH
United Kingdom
Legal Advisers in the Pepper Hamilton LLP
US:
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103-2799
Bankers: Barclays International
1(st) Floor, 39041 Broad Street
St Helier
Jersey, JE4 8NE
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 EAENDALXPEAF
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September 24, 2018 02:01 ET (06:01 GMT)
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