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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Orchard Funding Group Plc | LSE:ORCH | London | Ordinary Share | GB00BYZFM569 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 29.00 | 28.00 | 30.00 | 29.00 | 29.00 | 29.00 | 0.00 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Security Brokers & Dealers | 7.86M | 1.71M | 0.0802 | 3.62 | 6.19M |
From Apr 2019 to Apr 2024
TIDMORCH
RNS Number : 7491T
Orchard Funding Group PLC
17 October 2017
17 October 2017
Orchard Funding Group PLC
('Orchard Funding Group' or the 'company' or the 'group')
Full Year Results
For the 12 months ended 31 July 2017
Orchard Funding Group PLC, the finance company which specialises in insurance premium finance and the professions funding market, announces its audited full year results for the year ended 31 July 2017.
Highlights
-- The group continues to be strongly cash generative, with revenues in the period increasing by 31.4% to GBP4.56 million for the 12 months to 31 July 2017 (31 July 2016: GBP3.47 million)
-- Profit after tax rose as the increased investment from last year began to feed through onto the bottom line. The increase was 34.0% compared to a fall in 2016 of 2.9%.- GBP1.34 million compared to GBP1.00 million in the previous year
Hot Features
Premium
-- Earnings Per Share ("EPS") rose in the period by 33.2% to 6.26p (31 July 2016 4.70p)
-- The group lent GBP63.35 million to clients in the 12 months to 31 July 2017 an increase of 30.5% (31 July 2016 GBP48.56 million)
-- In August 2016, Barclays bank increased our facility from GBP10 million to GBP15 million
-- We have also further increased our access to liquidity in July 2017 with a new bank funder providing us with a facility from August 2017
-- The board remains committed to implementing its progressive dividend policy in 2018
Ravi Takhar, Chief Executive Officer of Orchard, said: ""I am very pleased with Orchard's performance during the year. We are passionate about our business and continue to grow in a prudent and controlled manner. We will continue to focus on our core markets and as we have already demonstrated this will result in an increased share of those markets. Trading since the period end has continued to be robust and in line with management expectations. We have a number of strategic avenues available to us to support the group's growth and we look forward to the year ahead with cautious optimism."
The board is pleased to propose a final dividend of 2 pence per share to be paid on 22 December 2017 to shareholders on the register on 8 December 2017, with an ex-dividend date of 7 December 2017. The final dividend is subject to shareholder approval at the company's upcoming annual general meeting ("AGM").
The AGM is to be held on 16 December 2017 at the company's registered office. Notice of the AGM will be sent out in November 2017.
For further information please contact
Orchard Funding Group PLC +44 (0)1582 635 507
Ravi Takhar, Chief Executive Officer
finnCap Limited (Nomad and Broker) +44 (0)20 7220 0579
Jonny Franklin-Adams (Corporate Finance)
Emily Watts (Corporate Finance)
Jeremy Grime (Research Director)
For Investor Relations please go to: www.orchardfundinggroupplc.com
Group financial highlights
2017 2016 2015
Lending volume GBP63.35m GBP48.56m GBP43.81m
Revenue GBP4.56m GBP3.47m GBP3.41m
Gross profit GBP4.15m GBP3.15m GBP2.46m
Profit before tax(1) GBP1.64m GBP1.27m GBP1.29m
Profit after tax(1) GBP1.34m GBP1.00m GBP1.03m
EPS (pence)(2) 6.26 4.70 8.77
DPS (pence)(3) 3.00 2.81 1.17
Return on capital employed(4) 6.73% 6.41% 8.24%
Return on equity 10.16% 8.14% 8.89%
------------------------------- ---------- ---------- ----------
1. Costs associated with the parent are included in the profit before and after tax above. These are not reflected in the information on subsidiaries shown below.
2. There are no factors which would dilute earnings therefore fully diluted earnings per share are identical.
3. Dividends per share are based on interim dividends paid in the year and proposed final dividend for the year.
4. See the Group strategic report for further information on key performance indicators ("KPIs").
Information on segments
2017 2016 2015
Insurance premium funding
Lending volume GBP43.04m GBP32.79m GBP28.28m
Revenue GBP3.06m GBP2.26m GBP2.13m
Gross profit GBP2.66m GBP1.94m GBP1.71m
Profit before tax GBP1.56m GBP1.06m GBP0.99m
Profit after tax GBP1.37m GBP0.94m GBP0.77m
Return on capital employed 9.15% 7.79% 9.04%
Professional fee funding
Lending volume GBP20.31m GBP15.77m GBP15.53m
Revenue GBP1.50m GBP1.21m GBP1.28m
Gross profit GBP1.49m GBP1.21m GBP0.75m
Profit before tax GBP0.68m GBP0.73m GBP0.36m
Profit after tax GBP0.57m GBP0.58m GBP0.29m
Return on capital employed 8.91% 11.55% 7.64%
The information given above relates to the main subsidiaries. Orchard Finance is not included as its results in terms of income, expenditure, assets and liabilities are negligible (gross assets were GBP8.3k and total liabilities GBP7.5k, giving net assets of GBP0.8k at 31 July 2017 (GBP0.07k at 31 July 2016).
In the six months to 31 January 2017, the board reported segmental information by sub dividing insurance premium funding between direct and broker finance companies. The risks, security and average returns are not materially different between these types of business therefore there is no meaningful information to be gained by separating them. They have therefore been merged in these accounts. The amounts originally formed part of the half year accounts which were unaudited. These figures are therefore also unaudited.
Below are revised tables showing the combined situation for the six months to 31 January 2017 and the six months to 31 January 2016. These figures are unaudited.
6 months 6 months
to 31 to 31
January January
2017 2016
Insurance premium funding
Lending volume GBP20.6m GBP16.46m
Revenue GBP1.44m GBP1.06m
Gross profit GBP1.25m GBP0.68m
Profit before tax GBP0.71m GBP0.57m
Profit after tax GBP0.62m GBP0.51m
Return on capital employed 3.87% 3.86%
Professional fee funding
Lending volume GBP10.52m GBP7.17m
Revenue GBP0.68m GBP0.58m
Gross profit GBP0.68m GBP0.58m
Profit before tax GBP0.36m GBP0.38m
Profit after tax GBP0.29m GBP0.30m
Return on capital employed 3.85% 5.54%
At the end of the six months to 31 January 2016, Orchard Funding (professional fee funding) had a substantial amount of cash in the bank, post the IPO a few months earlier. The return on capital employed (ROCE) percentage takes account of bank balances and therefore the ROCE is disproportionately high for that period.
Chairman's statement
Orchard Funding Group plc has had a very satisfactory year. I am pleased to report that this success has been driven by a significant increase in overall lending volumes, which grew by 30.5% to GBP63.35m. This in turn fed through to an increase in group revenues of 31.4% to GBP4.56m, a record for the group. The position at the year end showed a 6.7% increase in shareholders' equity from GBP12.34m to GBP13.17m.
Investment in staff and systems meant that administrative costs in the business grew by 33.3% to GBP2.51m. This was a little ahead of the growth rates seen in both lending and revenue but your board considers these investments to be important and necessary to ensure that the business continues to support and delight our customers and continue to provide them with the levels of service that they have, rightly, come to expect of us.
The group's profit before tax rose by 29.1% to GBP1.64m, ahead of market commentators' expectations. Group earnings per share rose by 33.2% to 6.26p, a more than respectable outcome for the year.
The level and growth of dividends announced by any company is often seen as a mark of the confidence that the directors have in the future of the business in question. It is no different for Orchard Funding Group and we are happy to propose a 6.76% increase in the annual dividend (including the interim dividend) to 3.00p.
The group's main focus of operations is the insurance premium finance market, currently an area growing well and showing every sign of continuing to so do. The best of that growth for the Orchard Group, we believe, will come from the direct insurance side of the business. Although the professional fee funding market is an important part of the group's profit stream, the rates of growth expected from this area by your board are likely to be more modest by comparison.
The macro background remains generally favourable for the group. Interest rates in the UK remain low but should they rise in the future the group is well placed to react quickly. Loans are generally for a 10 month period and none are longer than 12 months in duration.
However, if conditions are of benefit to the group then they are inevitably also helpful to our competitors. We have seen strong competition in some areas of our focus with pressure being put upon rates. The largest players in the insurance premium finance market continue to aggressively protect their market positions. We are seeing increasing examples of insurance brokers entering into 2-3 year exclusivity agreements and receiving substantial advance commission payments in return for introducing their business to certain insurance premium finance providers. That said, we believe that we are in a strong position to continue to grow our lending volumes at acceptable rates without needing to resort to such tactics.
Your board remains focussed on the cost of our own borrowing and continually looks to seek out new ways in which to keep this as low as possible. Potential sources of liquidity for the group are always examined and we continue to keep all our options under review.
During the year we acquired Orchard Finance which operated Orchard Lending Club, a peer-to-peer initiative. It is still early days but we believe that this is the first product in the insurance premium/professional fee funding space to be introduced in the UK market, and has attracted considerable interest in the financial press.
As we reported at the interim stage the new consumer credit application regime has led to delays in applications as the FCA is inundated. To try and avoid these delays, we have created structures to enable brokers to rely on our regulatory permissions whilst still obtaining the benefits of lending without the regulatory burden. Interest in this approach remains considerable and we believe we are the only providers of such a service in the UK at present.
As shareholders would expect, the board continues to assess markets adjacent to our current areas of business where we are able to bring our expertise, products and solutions to bear for the benefit of these markets. We will, of course, report on any developments as and when the occasion arises.
I am also very pleased to report that the board of Orchard Funding Group has been strengthened with the appointment of Mr. Iacovos Koumi as a non-executive director. Iac brings many years of experience in matters of finance and banking and we have already benefitted from his wisdom in our deliberations. We welcome him warmly.
The board is very satisfied with the progress of the group to date. We will continue to examine all appropriate strategic avenues for the group and will also continue to make the appropriate investments necessary to ensure continuing success while, at the same time, remaining focussed on the cost of our borrowing, the rates returned and the size and quality of the loans we provide.
We look to the future with confidence.
David A Clark
Chairman
16 October 2017
Chief executive's review
We are pleased to report that we continue to build on the progress we made last year.
Our lending and our pipeline of new clients continue to grow in all the markets in which we operate.
Our two key competitors are still the largest suppliers of premium funding and professions finance in the UK market. Both companies continue aggressively to protect their multi-billion pound patch, but our focused sales effort continues to win us new business.
We have also significantly improved the liquidity available to the group, by renewing our GBP15m facility with our existing bankers for a further 12 months and obtaining a new banking facility from another banking institution.
Our investors are aware that we have been working on obtaining a bank licence. I am pleased to report that this process is moving forward in a positive direction and gaining momentum. We will continue to update investors with our progress on this exciting development to the business.
We remain a small, lean, hardworking and profitable finance company in a huge financial services market. We are passionate about our business and have now operated in our market for nearly 17 years. We will continue to work as hard as we can and to the best of our abilities. We are confident that this will result in an increased share of our market.
Insurance premium finance and professional fee finance is a multi-billion pound market, which is dominated by two large and well managed companies. We will continue to work hard to take a very small portion of the market for the group. We have the capital, liquidity and a great team to achieve our conservative plans and projections for the business and are looking forward to our continued growth over the coming years.
We paid a dividend of 1.405p per share in December and an interim of 1p per share in April. I am happy to announce that the board will propose a final dividend of 2p per share to be paid in December 2017, subject to shareholder approval.
Ravi Takhar
Chief executive officer
16 October 2017
Group strategic report
Strategy and objectives
The group's principal objective is to increase our profitability in a prudent, sustainable manner. The reason for this is that our stakeholders (employees, shareholders, partners, other customers, creditors and government) will all benefit from profit growth in the group.
We have two main financial strategies for doing this:
-- to grow our lending book profitably. In the short to medium term, the directors believe that the group's aims will be achieved first by increasing the number of our insurance broker and professional firm clients and secondly, by increasing the volume of business from our insurance broker and professional firm partners. This will come from a dedicated sales team who have achievable targets and by additional funding. Growth in our book also requires further increasing our capital base which will enable us to support higher levels of borrowing, leading to better liquidity and economies of scale;
-- to obtain a bank licence. This will enable us to increase our liquidity further and reduce our reliance on commercial lenders.
Our financial strategy is bolstered by our non-financial strategies. First, we consider those brokers and professional firms with whom we work as our partners. We provide them with the tools they require to run their own finance businesses or we directly provide their customers with finance. We have found that in this way these businesses become supportive participants in our objectives because they see how this will assist them in achieving theirs. Our sales team are given support in meeting the targets set for them by finding these target partners, arranging prospect meetings and, where required, making use of senior personnel to help them close the deal. Care of our partners is of paramount importance in our business culture and this aspect is a constant part of training for all staff. Feedback from our partners in this area has been positive. Performance targets set for our staff (for example, answering partner enquiries promptly) have all been met.
The aim going forward is to build strongly on our core markets. The board does consider complementary markets to augment the group's core businesses but will only enter these if, after detailed analysis, it will assist in achieving the overall objectives.
Our business model
The group has two main businesses:
-- Providing credit to limited companies, partnerships and consumers to enable them to spread the cost of their insurance premiums, both through premium funding companies, owned by independent insurance intermediaries, and directly on behalf of other independent insurance intermediaries; (mainly conducted by Bexhill) and
-- Providing credit to entities similar to those dealt with by Bexhill to enable them to spread the cost of their professional fees (conducted by Orchard).
Bexhill
Bexhill borrows up to 75% of the amount advanced to each of its clients from its bankers. The balance is provided by Bexhill from its own resources. Its capital and reserves were GBP2.94m as at 31 July 2017. Barclays has renewed Bexhill's facility each year since 2002. Bexhill's current facility is GBP15.0 million. Barclays performs regular reviews and supplements these with an audit every six months by external independent auditors. Bexhill has operated within a disciplined lending environment since its inception. Insurance broker borrowing limits are set based on financial information, credit reports, regulatory requirements and other qualitative factors obtained from the broker. In addition, an annual review process, including regulatory permissions and credit checks, is conducted and each broker is monitored monthly for the company's financial exposure to that broker.
Bexhill's external cost of finance was approximately 3.4% in the financial year to 31 July 2017.
Orchard
Orchard borrows through Orchard Finance (badged under Orchard Lending Club), the peer to peer lender which was set up last year. At 31 July 2017 Orchard's capital and reserves were GBP0.68m. In the past Orchard's business was subject to regular audits by its finance supplier. That led to Orchard developing a highly disciplined approach. The directors also set credit limits on professional firms and obtain credit reports as part of the underwriting process. In addition, Orchard performs an annual review process and monitors exposure to each accountancy and professional firm monthly.
Orchard's external cost of finance was, on average, 4.06% in the financial year to 31 July 2017.
As stated in the second paragraph above, a bank licence will increase our liquidity and reduce reliance on third party financing.
With both companies it is the simplicity of the premise which is the greatest strength - borrow money at one rate and lend it at a higher rate. Cash flow is good and overhead is well controlled.
The business environment
The insurance premium finance market in which the group operates is still expected by the board to grow over the next five years in line with the general insurance market. We believe that most of our premium finance growth will come from the direct insurance side rather than from broker premium funding companies, although the premium funding company activities will remain the largest part of the business for the foreseeable future (see our business model above). The market for professional fee finance is also expected to grow, although growth in this area is not expected to match the insurance premium funding side.
In June 2016 the UK voted to leave the European Union. This has created a situation of uncertainty for business generally. Given our market, the board believes that the direct effect of Brexit on Orchard will be minimal in the short term. Conditions arising from this process (e.g. a fall in sterling) appear to have had little impact on us so far.
In August 2016 the Bank of England cut its base rate to 0.25%. Recent statistics regarding the rate of inflation indicate that rates will remain low in the very short term but are likely to rise as inflation and debt rises. Even if rates do increase, the nature of the business will allow fairly quick reaction to this (our business is short term loans - ten months on average and none over twelve months). The board believes that further opportunities will present themselves as liquidity becomes more important to businesses and individuals (for borrowers our service is an additional line of liquidity).
The business environment has certainly provided some challenges this year (e.g. the uncertainty over Brexit and increased competition) but it still affords a real opportunity for the group, with a growing market for its products and, currently, relatively stable interest rates.
Principal risks and uncertainties
The group's activities expose it to a variety of financial risks;
-- credit risk; -- liquidity risk; and -- cash flow interest rate risk.
The group's overall risk management programme focuses on reducing the effect of these risks on the group's financial performance. A regular assessment of the principal risks affecting the group is carried out by the board of directors. It identifies, evaluates and mitigates financial risks and has written policies for credit risk and liquidity risk.
The principal risks, an explanation of what they are, their impact on the group and how they are mitigated, are shown in Table 1. Our sole business is lending money and therefore the risks apply to this area (although we have segmented these for reporting purposes).
There are other risks associated with general financial uncertainty in this business (or in any other business), e.g. loss of staff and insurance risk. These have been reviewed but are not key or principal risks.
Table 1 principal risks
Assessment
Explanation Impact on of change
Risk of risk the group in risk Mitigation
year-on-year of risk
----------- ------------------ --------------------- -------------- ---------------------
Credit The risk A major loss This is Money is only
risk that debtors could have an ongoing lent for periods
will default. a serious situation. up to one
effect on There has year through
group profit. been no regulated
Although loans change introducers
to insurance in this who guarantee
broking finance risk. the loans.
companies Borrowing
can be substantial, limits are
we have a set based
claim on the on prudent
underlying underwriting
agreements principles.
which are Impairment
considerably reviews are
smaller. For regularly
this reason conducted
any losses to identify
are likely potential
to come from problems early.
relatively
small debts,
therefore
these would
have little
impact on
liquidity
or solvency.
----------- ------------------ --------------------- -------------- ---------------------
Liquidity A lack of If our funding This is Our bankers
risk funding had been halved an ongoing have supported
to finance for the whole situation. us since 2002
our business. of the 2017 There has and last year
year, and been no increased
there had change our funding
been no changes in this by 50%. They
in overheads, risk. have renewed
there would our facility
still have for another
been a pre-tax year and have
profit of indicated,
approximately so far as
GBP0.7m. There they are able,
is no threat that they
to solvency have no wish
or own liquidity to withdraw
through a that support.
reduction Other lines
in funding. of credit
have since
been opened
to us and
we have our
own resources
to draw on
which were
GBP13.2m at
31 July 2017.
----------- ------------------ --------------------- -------------- ---------------------
Cash flow An increase Loans already This is Management
interest in bank made will an ongoing is in regular
rate risk rate means be effectively situation. contact with
that loans charged at There has its bankers
already a lower margin been no and routinely
made need for part of change reviews the
to be covered the borrowing in this financial
by new borrowing term. risk. situation
at a higher In any realistic in the economy.
rate. scenario, Loans made
liquidity are relatively
and solvency short term
would not (no more than
be significantly twelve months
affected. with the average
at ten) so
any increase
is likely
to have a
fairly short
term impact.
----------- ------------------ --------------------- -------------- ---------------------
IT risk Disruption Persistent This is There are
to or failure failures would an ongoing in place business
of our IT have an enormous situation. continuity
systems. impact on There has procedures
our business been no and security
and could change measures in
lead to its in this the event
collapse. risk. of IT failures
Clearly, this or disruption,
would affect including
solvency. backup IT
However, our systems for
controls are business critical
such that systems. These
even a minor are reviewed
disruption with our providers
is very quickly at least annually
picked up but more frequently
and action if work is
taken. We being carried
have never out on the
had this type system.
of failure.
----------- ------------------ --------------------- -------------- ---------------------
In summary:
-- credit risk is reduced by a robust system of checks on borrowers and by third party guarantees;
-- liquidity risk has been alleviated by a new source of funding from another bank and should be further eased by obtaining a bank licence;
-- cash flow interest rate risk is mitigated by the fact that loans are short term and by regular interaction with our bankers; and
-- risk from disruption of the IT system is avoided by thorough business continuity procedures.
Our internal control systems ensure that the incidence of fraud or error is kept to a minimum. Much of the process is automated and provided and maintained by a third party.
The nature of the business is that loans are made either to introducer finance companies or to clients of our introducing partners. Although there is high concentration when lending to finance companies (at 5 October 2017 the largest nominal exposure was 21.93% of our loans), the individual debts making up these loans are assigned to us in the event of default. The reality, therefore, is that our exposure is low. At 5 October 2017, (the latest date of review), total outstanding loans were GBP27.95m, of which the highest was GBP0.49m, representing 1.75% of the outstanding amounts. This was the level of our highest exposure at that date. The situation was similar throughout the year and is expected to remain so for the foreseeable future.
We have experienced late payments in the past. The majority of these are through clients of our introducers (or the introducers themselves) changing banking details. Where there are other issues which cause late payment we investigate these. During the year to 31 July 2017 there was one situation which arose causing a loss of GBP52,681 (see note 10). Because of the size of the individual repayments. any impact on our business through late payments would be negligible.
Development and performance of the business
The fundamental function of the business (whether the insurance side or fee funding side) is to lend money safely. To do this the group has relied on obtaining funding to provide loans to clients of its partners (insurance intermediaries and professional firms). The ability to provide this money is crucial to the business and availability of funds is a key area to enable future growth. For this reason the bank licence is being applied for.
The ability to find borrowers is also key to the business. This has been discussed at the beginning of the Group strategic report. The more formal and extensive marketing plan, launched in the previous year, has now reaped benefits. Our recruits to the sales team are contributing substantially to the growth of the group.
Our margin is another key area. Upward changes in base rate could erode our margins (but only in the short term). Should rates increase, our rates would also increase to reflect this. Our own analysis indicates that the influence on our business would be negligible. Indeed, there was a reduction in bank rate during the year which has had very little impact.
Overheads in this business are relatively stable. We have increases resulting from an increased sales function, increasing our bank borrowings and enhancements to our IT systems. Other overheads have not altered significantly.
The board has identified the following financial KPIs:
-- Lending. -- Gross rate on loans made. -- Borrowing and other capital resources. -- Cost of borrowing.
The tables below give a breakdown of our KPIs on a group basis and by segment.
2017 2016 2015
Group
Loans made in the GBP63.35m GBP48.56m GBP43.81m
year
Average gross rate
on loans made 6.06% 6.22% 7.41%
Level of borrowing GBP13.79m GBP9.24m GBP7.06m
Own capital resources GBP13.17m GBP12.34m GBP11.64m
Cost of borrowing GBP0.33m GBP0.24m GBP0.85m
----------------------- ---------- ---------- ----------
Insurance premium
funding
Loans made in the GBP43.04m GBP32.79m GBP28.28m
year
Average gross rate
on loans made 5.49% 5.64% 6.05%
Level of borrowing GBP13.54m GBP9.2m GBP7.06m
Own capital resources GBP2.94m GBP2.42m GBP2.28m
Cost of borrowing GBP0.32m GBP0.24m GBP0.33m
Revenue GBP3.06m GBP2.26m GBP2.13m
PBT GBP1.56m GBP1.06m GBP0.99m
Professional fee funding
Loans made in the GBP20.31m GBP15.77m GBP15.53m
year
Average gross rate
on loans made 7.27% 7.44% 8.11%
Level of borrowing GBP0.25m GBP0.04m GBP0.00m
Own capital resources GBP0.68m GBP0.52m GBP0.54m
Cost of borrowing GBP0.01m GBP0.00m GBP0.52m
Revenue GBP1.50m GBP1.21m GBP1.28m
PBT GBP0.68m GBP0.73m GBP0.36m
---------- ---------- ----------
NB. In the audited accounts loans made, revenue and PBT are shown in graphical form. We are unable to do this in the preliminary announcement so these are shown as part of the tables.
In 2015 Orchard was funding its business through Bracken Holdings Limited at an average cost of 12%. Profit was therefore disproportionately low in 2015.
In terms of non-financial indicators, the most important of these is quality of management and staff.
Our senior members of staff have a substantial number of years of experience between them working in the business. Because, over the years, they have taken on additional responsibilities, they know each area of the business well.
All our staff are fully trained for the role which they take. Customer care is of paramount importance in our business culture and this aspect is a constant part of training for all staff members. Feedback from our partners in this area has been very positive. Performance targets set for our staff have all been met.
People are happy to contribute towards our success and their views are always listened to by senior management. In many cases ideas which come forward are put into action and in all cases explanations are given when this does not happen.
Going concern
The financial statements have been prepared on a going concern basis which assumes that the group will be able to continue its operations for the foreseeable future.
The directors continually assess the prospects of the group. Forecasts are prepared for a three year period, on a rolling basis. These are also subject to sensitivity analysis, the main aspect of which is the value of loans made. In all scenarios, there is no indication that there will be a problem in continuing as a going concern. However, it is important to appreciate that the further away in time the estimate, the less reliable it is. The forecasts are prepared on the basis that bank base rate will remain where it is. This is clearly highly unlikely in the longer term. However, should rates from the bank rise we are in a position to react (as mentioned in the section on cash flow interest rate risk above), within a short period of time, with relatively little impact on our margins.
The key assumptions and bases used in the forecasts are:
-- Loans through our partners will grow from circa GBP64m in 2017 to circa GBP120m in 2020; -- Liquidity will be available to fund those loans; -- Margins will remain stable on both corporate and direct business;
-- Overhead will increase at the rate of inflation with stepped increases at certain points (when capacity constraints are hit);
-- The funding system will be able to accommodate the increased business.
The consolidated statement of financial position shows the situation at the year end in detail.
The two subsidiaries have traded for a number of years and have grown at a rate commensurate with finance available at a given point in time.
The directors have prepared and reviewed financial projections for the 12 month period from the date of signing of these financial statements. Based on the level of existing cash and the projected income and expenditure, the directors have a reasonable expectation that the company and group have adequate resources to continue in business for the foreseeable future. Accordingly the going concern basis has been used in preparing the financial statements.
Environmental, social responsibility, community, human rights issues and gender diversity
The group is a small group. The impact of the group on the environment consists of power used in an office environment and fuel used for getting to and from work. Environmental issues are therefore negligible.
The group operates out of an office in Luton. Most of our employees are based in the local area. We therefore contribute to the economy of the local community. None of our employees earn less than GBP10 per hour (before any bonuses). We provide health club membership and childcare for any staff who wish it. We review the background of our suppliers and will not use any supplier which, as far as we are aware, breaches our own high standards as regards human rights.
The main board of directors is currently all male. The main reason for this situation is that the group took in outside board members who were best suited to the positions. The board of the two subsidiaries consist of one male and two females each. Males make up 41.67% of the employees in total (36.00% in 2016).
Approved by the directors and signed by order of the board
Liam McShane,
Company secretary
16 October 2017
Consolidated income statement
2017 2016
Notes GBP GBP
--------------------------------- ------ ------------ ------------
Continuing operations
Revenue 4 4,559,966 3,468,864
Finance costs 4 (329,478) (238,079)
Other operational costs 4 (77,550) (76,025)
Gross profit 4,152,938 3,154,760
Administrative expenses 4 (2,511,941) (1,884,030)
Operating profit and profit
before tax 1,640,997 1,270,730
Tax 7 (303,214) (266,653)
Profit for the year from
continuing operations 1,337,783 1,004,077
Other comprehensive income - -
Total comprehensive income
for the year attributable
to the owners of the parent 1,337,783 1,004,077
Earnings per share attributable
to the owners of the parent
during the year (pence)
Basic and diluted 8 6.26 4.70
--------------------------------- ------ ------------ ------------
Consolidated statement of financial position
2017 2016
Notes GBP GBP
------------------------------ ------ ----------- -----------
Assets
Non-current assets
Property, plant and
equipment 76,567 95,058
Intangible assets 74,914 43,873
Trade and other receivables 10 22,720 -
174,201 138,931
------------------------------ ------ ----------- -----------
Current assets
Trade and other receivables 10 28,523,011 22,003,868
Cash and cash equivalents:
Bank balances and
cash in hand 1,728,484 1,390,098
30,251,495 23,393,966
------------------------------ ------ ----------- -----------
Total assets 30,425,696 23,532,897
Equity and liabilities
Equity attributable to the
owners of the parent
Called up share capital 213,542 213,542
Share premium 8,691,910 8,691,910
Merger reserve 890,725 890,725
Retained earnings 3,369,664 2,545,449
Total equity 13,165,841 12,341,626
------------------------------- ------ ----------- -----------
Liabilities
Non-current liabilities
Borrowings 11 57,458 27,318
Deferred tax 7,482 10,078
64,940 37,396
------------------------------ ------ ----------- -----------
Current liabilities
Trade and other payables 12 3,181,938 1,657,030
Borrowings 11 13,733,504 9,207,927
Tax payable 279,473 288,918
17,194,915 11,153,875
------------------------------ ------ ----------- -----------
Total liabilities 17,259,855 11,191,271
------------------------------- ------ ----------- -----------
Total equity and liabilities 30,425,696 23,532,897
Consolidated statement of changes in equity
Called
up
share Retained Share Merger Total
capital earnings Premium reserve equity
GBP GBP GBP GBP GBP
Balance at 1 August
2015 213,542 1,841,398 8,691,910 890,725 11,637,575
Changes in equity
Total comprehensive
income - 1,004,077 - - 1,004,077
Transactions with
owners:
Dividends paid - (300,026) - - (300,026)
Balance at 31 July
2016 213,542 2,545,449 8,691,910 890,725 12,341,626
--------------------- -------- ---------- ---------- -------- -----------
Changes in equity
Total comprehensive
income - 1,337,783 - - 1,337,783
Transactions with
owners:
Dividends paid - (513,568) - - (513,568)
Balance at 31 July
2017 213,542 3,369,664 8,691,910 890,725 13,165,841
--------------------- -------- ---------- ---------- -------- -----------
Retained earnings consist of accumulated profits and losses of the group. They represent the amounts available for further investment in group activities. Only the element which constitutes profits of the parent company are available for distribution.
The share premium account arose on the IPO on 1 July 2015 at a premium of 95p per share. Costs of the IPO have been deducted from the account as permitted by IFRS.
The merger reserve arose through the formation of the group on 23 June 2015 using the capital reorganisation method as shown in note 2.3 on page 28 of the statutory accounts.
Consolidated statement of cash flows
2017 2016
GBP GBP
Cash flows from operating
activities:
Profit before tax 1,640,997 1,270,730
Adjustment for depreciation
and amortisation 47,913 20,521
Hire purchase interest 2,376 1,466
1,691,286 1,292,717
Increase in trade
and other receivables (6,541,863) (4,088,870)
Increase/(decrease) in trade
and other payables 1,524,908 (178,878)
(3,325,669) (2,975,031)
Tax paid (315,256) (253,245)
Net cash absorbed
by operating activities (3,640,925) (3,228,276)
Cash flows from investing
activities
Purchases of property,
plant and equipment (1,706) (61,924)
Purchase of intangible
fixed assets (58,757) (50,949)
Net cash absorbed
by investing activities (60,463) (112,873)
Cash flows from financing
activities
Dividends paid (513,568) (300,026)
Net proceeds from
borrowings 4,564,919 2,185,099
Borrowings repaid (11,577) (8,627)
Net cash generated
by financing activities 4,039,774 1,876,446
Net increase/(decrease)
in cash and cash equivalents 338,386 (1,464,703)
Cash and cash equivalents
at the beginning of the
year 1,390,098 2,854,801
Cash and cash equivalents
at the end of year 1,728,484 1,390,098
Notes to the consolidated financial statements
1. Preliminary announcement
Orchard Funding Group plc ("Orchard") is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the AIM market of the London Stock Exchange. The registered office is 721 Capability Green, Luton, Bedfordshire LU1 3LU and the principal place of business is the United Kingdom.
The preliminary announcement set out above does not constitute Orchard's statutory financial statements for the years ended 31 July 2017 or 2016 within the meaning of section 434 of the Companies Act 2006 but is derived from those audited financial statements. The auditor's report on the consolidated financial statements for the years ended 31 July 2017 and 2016 is unqualified and does not contain statements under s498(2) or (3) of the Companies Act 2006.
The accounting policies used for the year ended 31 July 2017 are unchanged from those used for the statutory financial statements for the year ended 31 July 2016. The 2017 statutory accounts will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
2. Compliance with accounting standards
While the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS.
Accounting standards adopted in the year
No new accounting standards that have become effective and adopted in the year have had a significant effect on the Group's Financial Statements.
Accounting standards issued but not yet effective
At the date of authorisation of the Financial Statements, there were a number of other Standards and Interpretations (International Financial Reporting Interpretation Committee - IFRIC) which were in issue but not yet effective, and therefore have not been applied in these Financial Statements. The Directors have not yet assessed the impact of the adoption of these standards and interpretations for future periods, but do not expect them to have any significant impact on the Group's financial statements.
3. Going concern
The financial statements have been prepared on a going concern basis which assumes that the Group will be able to continue its operations for the foreseeable future. The Directors have prepared and reviewed financial projections for the 12 month period from the date of signing of these financial statements. Based on the level of existing cash and the projected income and expenditure, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in business for the foreseeable future. Accordingly the going concern basis has been used in preparing the financial statements. This is discussed more fully in the Group strategic report.
4. Segment information
The group operates wholly within the United Kingdom therefore there is no meaningful information that could be given on a geographical basis. It does have, however, two discrete operating segments - insurance premium funding and professional fee funding.
The board assesses the performance of each sector based on operating profit (before tax and exceptional items, but after interest which is a cost of sale). The relative revenues, operating costs and operating profit are shown below. Segmental assets and liabilities are provided to the board and the CEO (the chief operating decision maker) and are not therefore disclosed further.
Insurance
premium Professional
2017 Total Central funding fee funding
GBP GBP GBP GBP
Revenue 4,559,966 - 3,058,044 1,501,922
--------------------------- ------------ ---------- ------------ -------------
Interest payable (329,478) - (321,117) (8,361)
Operational costs
and administrative
expenses (2,583,564) (592,245) (1,176,579) (814,740)
Goodwill on consolidation
written off (5,927) - - -
Operating profit/(loss)
before tax 1,640,997 (592,245) 1,560,348 678,821
Current tax expense (303,214) - (189,971) (113,243)
Profit/(loss) for
the year after tax 1,337,783 (592,245) 1,370,377 565,578
--------------------------- ------------ ---------- ------------ -------------
Insurance
premium Professional
2016 Total Central funding fee funding
GBP GBP GBP GBP
Revenue 3,468,864 - 2,259,577 1,209,287
--------------------------- ------------ ---------- ------------ -------------
Interest payable (238,079) - (238,079) -
Operational costs
and administrative
expenses (1,960,055) (514,161) (961,771) (484,123)
Operating profit/(loss)
before tax 1,270,730 (514,161) 1,059,727 725,164
Current tax expense (266,653) - (121,831) (144,822)
Profit/(loss) for
the period after tax 1,004,077 (514,161) 937,896 580,342
--------------------------- ------------ ---------- ------------ -------------
5. Expenses by nature
2017 2016
GBP GBP
Interest payable in
cost of sales 329,478 238,079
Employee costs (including
directors) 1,072,259 838,544
Advertising and selling
costs 218,855 151,791
Bank fees 437,566 353,577
Other expenses 860,811 616,143
------------------------------ ---------- ----------
Total cost of sales, other
operational costs and
administrative expenses 2,918,969 2,198,134
----------------------------- ---------- ----------
6. Finance income and costs
The group's income comes from making loans.
Interest payable on borrowings to finance these loans is therefore included as a cost of sale. The amount included was GBP329,478 (2016 GBP238,079).
7. Income tax expense
7.1 Current period tax charge:
2017 2016
GBP GBP
---------------------------------- --------- --------
Current tax expense 331,050 250,616
Adjustment re previous year
tax expense (25,240) 6,549
Deferred tax expense relating
to the origination and reversal
of temporary differences (2,596) 9,488
303,214 266,653
---------------------------------- --------- --------
7.2 Tax reconciliation
The tax assessed for the year differs from the main corporation tax rates in the UK (19% and 20%, 2016 - 20%).
The differences are explained below.
2017 2016
GBP GBP
--------------------------------- ---------- ----------
Profit for the financial period 1,640,997 1,270,730
--------------------------------- ---------- ----------
Applicable rate - 19.67% (2016
20%) 19.67% 20.00%
--------------------------------- ---------- ----------
Tax at the applicable rate 322,784 254,146
Effects of:
Expenses not deductible for
tax 5,263 7,737
Adjustment re previous year
tax expense (25,240) 6,549
Reduced rate of tax (17%) on
reversing timing differences 407 (1,779)
--------------------------------- ---------- ----------
Tax charge for the period 303,214 266,653
--------------------------------- ---------- ----------
8. Earnings per share
Earnings per share is based on the profit for the year of GBP1,337,783 (2016 GBP1,004,077) and the weighted average number of ordinary shares in issue during the year of 21,354,167 (2016 21,354,167). There are no options or other factors which would dilute these therefore the fully diluted earnings per share is identical.
9. Dividends
2017 2016
GBP GBP
------------------------------------- ---------- ----------
Amounts recognised as distributions
to equity holders in the period:
Final dividend for the year
ended 31 July 2016 of 1.405p 300,026 -
(2015 Nil) per share
Interim dividend for the year
ended 31 July 2017 of 1p (2016
1.405p) per share 213,542 300,026
513,568 300,026
------------------------------------- ---------- ----------
Proposed final dividend for
the year ended 2017 of 2p (2016
1.405p) per share 427,083 300,026
------------------------------------- ---------- ----------
10. Trade and other receivables
2017 2016
Group Group
GBP GBP
Non-current
Other receivables 22,720 -
-------------------- ----------- -----------
22,720 -
-------------------- ----------- -----------
Current
Trade receivables 28,412,738 21,799,397
Other receivables 86,321 170,947
Prepayments 23,952 33,524
--------------------
28,523,011 22,003,868
-------------------- ----------- -----------
Standard credit terms for trade receivables are based on the length of the loan but payments are due on a monthly basis. The directors consider that the carrying amount of trade and other receivables approximates their fair value. There are impaired debts at the year end amounting to GBP52,681 (2016 GBPNil). Provision has been made in full for these. The value of debts which were past due but not impaired at the year end was GBPNil (2016 GBPNil).
11. Borrowings
2017 2016
Group Group
GBP GBP
------------------------- ----------- ----------
Non-current:
Other loans 41,170 1,100
Hire purchase contracts 16,288 26,218
57,458 27,318
Current:
Bank loan 13,519,513 9,174,044
Other loans 204,490 25,110
Hire purchase contracts 9,501 8,773
13,733,504 9,207,927
11.1 Terms and repayment of debt schedule
The bank loan is due within one year.
The other loans fall due as follows:
2017 2016
Group Group
GBP GBP
------------------------ -------- -------
Within 1 year 204,490 25,110
Later than 1 year but
no later than 3 40,170 100
Later than 3 years but
no later than 5 1,000 1,000
------------------------ -------- -------
245,660 26,210
------------------------ -------- -------
The minimum payments under hire purchase contracts are as follows:
2017 2016
Group Group
GBP GBP
------------------------ -------- --------
Within 1 year 11,036 11,036
Later than 1 year but
no later than 5 17,568 29,144
------------------------ -------- --------
28,604 40,180
Future finance charges (2,815) (5,189)
------------------------ -------- --------
25,789 34,991
------------------------ -------- --------
The present value of hire purchase liabilities are as follows:
Within 1 year 9,501 8,773 Later than 1 year but no later than 5 16,288 26,218 ------------------------ ------- ------- Future finance charges 25,789 34,991
Bank borrowings are secured by a fixed and floating charge over all the assets of Bexhill UK Limited, bear interest at rates of 2.90% above LIBOR plus any associated costs, and are repayable within one year of the advances. The maximum drawdown facility is currently GBP15m therefore at 31 July 2017 GBP1,480,487 was undrawn.
Other borrowings are unsecured and bear interest at varying rates between 4.00% and 6.25%.
Hire purchase liabilities are secured on the assets that they finance and bear interest at varying rates.
12. Trade and other payables
2017 2016
Group Group
GBP GBP
Trade payables 2,832,827 1,469,707
Other payables 40,028 33,584
Other tax and social security
costs 42,623 34,187
Accrued expenses 266,460 119,552
-------------------------------
3,181,938 1,657,030
------------------------------- ---------- ----------
The directors consider that the carrying value of trade and other payables approximates their fair value.
13. Financial instruments
The company is exposed to the risks that arise from its use of financial instruments. The objectives, policies and processes of the company for managing those risks and the methods used to measure them are detailed in note 3 to the statutory accounts.
13.1 Principal financial instruments
The principal financial instruments used by the company, from which financial instrument risk arises, are as follows:
-- Cash and cash equivalents
-- Trade and other receivables
-- Trade and other payables
-- Borrowings
13.2 Financial instruments by category
The group held the following financial assets at the reporting date:
2017 2016
Group Group
GBP GBP
------------------------------ ----------- -----------
Loans and receivables:
Trade and other receivables:
non-current 22,720 -
Trade and other receivables:
current 28,499,059 21,970,344
Cash and cash equivalents:
Bank balances and cash
in hand 1,728,484 1,390,098
------------------------------ -----------
30,250,263 23,360,442
------------------------------ ----------- -----------
The group held the following financial liabilities at the reporting date:
2017 2016
Group Group
GBP GBP
----------------------------------- ----------- -----------
Other financial liabilities
at amortised cost:
Interest bearing loans
and borrowings:
Borrowings payable: non-current 57,458 27,318
Borrowings payable: current 13,733,504 9,207,927
Trade and other payables 3,139,315 1,622,843
----------------------------------- ----------- -----------
16,930,277 10,858,088
----------------------------------- ----------- -----------
13.3 Fair value of financial instruments
The fair values of the financial assets and liabilities are not materially different to their carrying values due to the short term nature of the current assets and liabilities.
13.4 A Financial risk management
The company's policies for financial risk management are outlined in note 3 on page 32 of the statutory accounts.
14. Treatment of borrowings
The group borrows money from its bankers and lends this on, together with its own funds, to its customers.
Any increase in activity leads to an increase in debtors and an associated increase in borrowings. If the company was one which bought and sold goods or services the money borrowed would be similar to the company's stock in trade and the change in creditors would be shown as part of operating cash flows. However, accounting standards require cash flows from financing to be shown separately and this means that there appears to be a large outflow of cash from the company's operations which is then covered by borrowings. For reasons stated above this is not the case.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKADDFBDDFKD
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October 17, 2017 02:00 ET (06:00 GMT)
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