TIDMDFCH
RNS Number : 8826M
Distribution Finance Cap. Hldgs PLC
19 September 2019
Distribution Finance Capital Holdings plc
("DFC Holdings" or together with its subsidiary "DFC Ltd", "DFC"
or the "Company")
Interim Results for the six months to June 2019
DFC is pleased to announce its half year results for the 6
months ending 30 June 2019. Assets rose 48% to GBP168m (December
2018: GBP114m), with gross income up 181% to GBP5.8m compared to
the six months to June 2018 (GBP1.9m). Losses before tax were
GBP7.3m, which included GBP3.3m of costs related to the demerger
from TruFin Plc and IPO.
Overall performance across the business has been in line with
expectations, and DFC continues to have a strong pipeline with 66
manufacturers now signed at the end of June (December 2018: 45),
and over GBP290m of credit lines extended to UK SMEs (December
2018: GBP200m). During the first half of 2019 we have signed
several large manufacturers in the motorcycle and motorhome spaces
and are seeing increasing traction with larger players at both a
manufacturer and distributor level as our brand becomes
increasingly well established.
Chris Dailey, CEO of DFC commenting on the results said: "The
first 6 months of the year have seen the business continue to scale
in line with our plans, and these results represent a particularly
strong performance given the competing demands on the DFC team as
we completed the demerger and IPO and progressed our bank licence
application."
Outlook
While there is clearly uncertainty in the wider economic
environment given the continuing questions around the UK's exit
from the EU, we have as yet seen little impact, with retail sales
from our funded dealers ahead of expectations in August and overall
lending volumes coming through for September running ahead of plan.
It is clearly difficult to predict the outcome and any impact but
given the diverse range of industries DFC funds and the mix of
products we believe we are well positioned to meet any
challenges.
Our bank licence application, as confirmed in early August, has
now been resubmitted. We have had good dialogue with the regulators
and in line with our previous guidance the Board expects to launch
the bank during Q4 2019.
We continue to see significant opportunities in the SME market
where current funders are unable or unwilling to provide the right
type of lending to businesses. Whilst our recent focus has been to
support the growth in our existing businesses and on the bank
licence process, the Board has also continued to develop its
thinking so that as we look into the first half of 2020 we will be
well positioned to accelerate our growth by delivering innovative
lending products which expand the choice available for our
customers.
Enquiries
Distribution Finance Capital Holdings plc
Chris Dailey, Chief Executive Officer
Gavin Morris, Chief Financial Officer
http://www.dfcapital-investors.com +44 (0) 20 3937 6406
Macquarie Capital (Europe) Limited (NOMAD and broker)
Alex Reynolds
Jonny Allison +44 (0) 20 3037 2000
Forward looking statements
This document contains forward looking statements with respect
to the business, strategy and plans of the company and its current
goals and expectations relating to its future financial condition
and performance. Statements that are not historical facts,
including statements about DFC or management's beliefs and
expectations, are forward looking statements. By their nature,
forward looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that will occur
in the future. DFC's actual future results may differ materially
from the results expressed or implied in these forward-looking
statements as a result of a variety of factors. These include UK
domestic and global economy and business conditions, risks
concerning borrower credit quality, market related risks including
interest rate risk, inherent risks regarding market conditions and
similar contingencies outside DFC's control, any adverse experience
in inherent operational risks, any unexpected developments in
regulation or regulatory and other factors.
Interim Financial Report
For the six month period ended 30 June 2019
Chairman's Statement
As Chairman of Distribution Finance Capital (referred to as
"DFC", the "Group", the "Company" and "we"), it is very pleasing to
see how the business has continued to evolve and grow over the past
6 months. It has been a busy period, with our demerger and separate
listing on the AIM market in May, a transaction which was done in
under 3 months and successfully provided the basis for us to
progress our bank licence application, although we were unable to
complete the final stages required within the statutory timeline.
Following the withdrawal of our application at the start of June,
we re-submitted in early August and we remain confident that with
the required changes made we will be in a position to complete the
licencing process during Q4 of this year and launch to market with
a range of deposit products.
Of course the work needed to execute on the demerger and
listing, and to complete the licence application, caused
considerable disruption to the business. Despite this it is a
significant achievement that we continued to operate the core
lending activity very much in line with plan, with assets vs. the
year end up 48% at GBP168 million, which was ahead of plan.
Maintaining Strong Governance
I would like to take this opportunity to thank David Bateman,
who stepped down from the Board at listing, for all his support. He
was instrumental in the early stages of DFC's set up and he's
provided great advice and support over the last couple of years. At
the same time, I am happy to welcome James van den Bergh to the
Board, who I'm sure will provide the same level of commitment and
insight into the future.
DFC has operated with a high degree of governance over the past
18 months in anticipation of becoming a bank. Since early 2018 the
Board has had a majority of independent directors and in line with
any UK bank we have run a range of governance committees at both a
Board and Executive Level. I would like to thank both Mark Stephens
(Chair of REMCO, NOMCO and Board Risk) and Carole Machell (Chair of
Board Audit) in particular for their support over the past 6 months
as the listing process resulted in a considerable amount of work
and review by all the key governance committees of the business.
The whole Board has demonstrated great commitment and reacted with
vigour to the challenges of the last 6 months.
At executive level we are very lucky to have Chris Dailey at the
head of an excellent executive management team and he and they
deserve the credit for a great performance and indeed staff
commitment and capability at all levels has been exemplary.
Nevertheless, we have further strengthened the business with
additional hires into key positions including a General Counsel. We
fully anticipate being a listed bank by the end of the year and are
confident we have the framework and resources in place to meet the
best standards of corporate governance, risk management and
controls which you would expect.
Outlook
Our first half performance is testament to the strength and
depth we have built across the business in terms of people and the
value of our proposition in the market. Customer growth in
particular has been very encouraging, proving, as we move into our
second full year of operation, the underlying value of the
proposition.
While clearly there is some uncertainty in certain sectors of
the market given the broader macro-economic situation, but as yet
we have not seen any significant changes to customer behaviour. Our
model is deliberately designed to operate across different industry
sectors, which will allow us to rebalance our business quickly
should the need arise.
Looking at where we have come from in such a short time, I look
forward with great confidence to leading a highly capable
entrepreneurial team at both a board and executive level. There are
considerable opportunities to accelerate our growth and build on
the very solid and impressive foundations we have laid down.
Chief Executive's Statement
From an idea and a start in June 2016 with just 2 people, a
lending pilot launch in mid 2017 which grew to GBP30m of assets at
the end of 2017 to now a stand-alone listed lending business with
over 70 people, 66 manufacturers signed up and over GBP290m of
credit lines extended to SMEs it has been an amazing journey so
far. DFC has established itself over the past 3 years and the first
half of 2019 has seen the business start to reach real maturity. I
am honoured to have led the business as we have gone on this
journey and am excited by the future we have ahead of us.
Clearly the most significant development in the first half of
the year has been the demerger from TruFin Plc. TruFin Plc was an
excellent owner, and I would like to take this opportunity to thank
Henry Kenner in particular for his support, and I'm delighted he
has agreed to remain on the Board where he can continue to provide
insight and a broader strategic view which has been invaluable to
me and the team over the past 3 years. The demerger, while earlier
than planned, has given DFC a firm footing on which to continue to
grow and an enviable investor base for a firm of our size and
maturity. We see considerable opportunity for growth in our
business, in the context of an SME funding market which continues
to evolve in the coming years, and I am grateful for the support
our shareholders have shown and the confidence they have
demonstrated in the future prospects of our business.
Commercial Performance
Given our underlying asset mix our business remains quite
seasonal, so it is pleasing that our results today, when compared
to the first half of 2018 show an excellent 162% increase in assets
and 181% rise in gross income to GBP168m and GBP5.4m respectively.
Promisingly, we have also seen a significant rise on credit lines
granted to customers as our brand and market reputation has begun
to flow through. At just over GBP290m of extended credit lines, an
increasing amount of our focus is on driving in-life utilisation at
this level, with 66 manufacturers signed as well representing a
further potential GBP300m-400m of as yet unapproved but demanded
credit across their SME customer bases - we have already a very
significant pipeline to execute even before considering the
considerable opportunities which exist for both new products and
customers.
As we have grown, we have continued to invest in both our
people, notably doubling the size of our account management team to
drive the execution of the current pipeline and ensure we maintain
customer service levels. Critically we have also invested in our
technology, and during the first half of 2019 we made several
enhancements to our customer self service capability, and have
begun the build out of our digital origination platform. This will
facilitate the 2020 launch of a broader range of products both for
our current customers and for new segments. As set out at IPO, we
are committed to building a blended service model which addresses
customers' desire for best-in-class digital experience and a
flexible and personal level of service.
Risk Management
Since the balance sheet date of June 2019 DFC has incurred its
first actual credit losses and as we can see our provisions at June
2019, at 38bp have risen from year end. These levels are in line
with expectations and after over 2 years of lending and over
GBP700m advanced to customers this reflects that we have been able
to fully test our security model and loss assumptions before we
scale further. The good news is that everything we expected from
our people and our security, controls and asset based lending model
was in line with expectations, demonstrating our overall risk
management approach is robust and our underlying assumptions on
recovery in a problem loan scenario are in line with actual
results.
Overall, DFC's portfolio continues to perform well and our
multi-level security model with overall portfolio advances running
at 87% LTV vs. wholesale asset values provides considerable
security across our loan book.
Outlook
The next 6 months are key for DFC in its development, with the
expected launch of the bank and the development of new products and
markets to deliver the plan for 2020 and beyond. Since the period
end we have undertaken further investment to ensure we are well
positioned to support our further plans but we have also retained
an unyielding focus on executing for our current customers and
pipeline and managing our risk.
In terms of Brexit, we have considered the possible impact for
DFC of the removal of passporting - requiring us to consider
different options in the event we decide to expand our lending
outside of the UK market. However, from a regulatory perspective
our more immediate focus is on delivering the bank launch in the
UK. In terms of the Brexit related impact on the ground we have yet
to see any material change to customer decisions, although we are
alert to the risk that macro events will impact the product turn
and corresponding SME ordering profile in the second half of the
year. In addressing this risk we have the advantage that we are
relatively diverse in terms of asset mix, and we also have a good
spread of manufacturer relationships such as with European (EU and
non-EU) and US companies which may be experiencing different
dynamics in their home or other markets. While we cannot be sure
what the future may bring as the political situation evolves we do
not see that there are material risks to the model at this time. As
a business we will continue to monitor as events develop further
and work closely with our customers at both a manufacturer and SME
level to address any risks and also potential opportunities.
I remain convinced we have a great business and with the
continued support of our customers, people, investors and partners
we can deliver our business plan and accelerate our growth and
capitalise on the many opportunities which we have in front of
us.
Financial Highlights
30 Jun 2019 30 Jun 2018 31 Dec 2018
Financials and KPI' 6-month 6-month 12-month
Gross Revenue (GBP'000) 5,406 1,925 5,179
Loan Book (GBP'000) 168,027 64,138 113,795
Net Assets (GBP'000) 70,780 57,761 54,553
KPIs
Loans advanced to customers in
period (GBPmillion) 206 92 233
No. of manufacturer agreements
in place 66 36 45
No. of live dealers 658 380 533
Total credit available to dealers
(GBPmillion) 290 131 200
-- Gross revenues were GBP5.4 million for the six month period
to 30 June 2019 compared against GBP1.9 million for the six month
period to 30 June 2018 and GBP5.2 million for the 12 month period
up to 31 December 2018. This represents a 181% growth in gross
revenues against 30 June 2018 results and the Group has recognised
more revenue in a six-month period than the prior full year.
-- Customer loan receivables increased by GBP55 million,
representing a 48% increase from December 2018 position, giving a
gross loan receivable balance at 30 June 2019 of GBP168
million.
Summarised Statement of Profit or Loss and Other Comprehensive
Income:
30 Jun 2019 30 Jun 2018 31 Dec 2018
6-month 6-month 12-month
GBP'000 GBP'000 GBP'000
Gross revenues 5,406 1,925 5,179
Interest expense (2,814) (1,721) (3,503)
Net income 2,592 204 1,676
Operating expenses (7,130) (4,076) (8,654)
Impairment charges (513) (86) (116)
Provisions for commitments and
other liabilities (31) (98) (171)
Exceptional items (2,187) - -
Loss before taxation (7,269) (4,055) (7,265)
Taxation - - -
Loss after taxation (7,269) (4,055) (7,265)
------------------ ------------------- -------------------
Other comprehensive income 9 - 1
Total comprehensive loss (7,260) (4,055) (7,264)
------------------ ------------------- -------------------
Basic earnings per share (pence) (17) (43) (54)
Basis of preparation
Distribution Finance Capital Holdings Plc (the "Company" or
"DFCH Plc") acquired Distribution Finance Capital Ltd ("DFC Ltd")
on 8(th) May 2019 and on 9(th) May 2019 gained admission to the
Alternative Investment Market on the London Stock Exchange. Merger
accounting methodology has been used for preparing these
consolidated interim financial statements, meaning comparative
information will be prepared as if the Group had existed and been
formed in prior periods. This will enable informative comparatives
to users given the underlying activities and management structure
of the Group remain largely unchanged following the IPO. Therefore,
these condensed financial statements have been prepared in
accordance with the presentation and accounting standards applied
within the audited financial statements of Distribution Finance
Capital Ltd for the year 31 December 2018.
Gross revenues
Gross revenues predominantly comprise interest and similar
income due on advances to customers together with customer facility
and related fees. Gross revenues also include interest on bank cash
balances and gains on debt securities.
Gross revenues were GBP5.41 million for the period, increasing
by GBP3.48 million (181%) from June 2018. This was driven by the
growth of the Group's loan book over this period to GBP168.1
million at June 2019 from GBP64.1 million at June 2018.
For the six month period to 30 June 2019 assets yielded 7.9% on
average compared to 8.2% for the period to June 2018. This
reduction is driven by the funding of more large customers and
having to diversify the book into more industry sectors quicker
than intended arising from liquidity constraints of our primary
funding facilities during the second-half of 2018. Whilst not
ideal, the advantage of this has been that we expanded our
footprint quicker in terms of manufacturer relationships achieving
a broader base from which to accelerate growth through 2019.
Interest expense
Interest expense is made up of interest on the Group's wholesale
funding facility, interest on loans from the Trufin Group and
interest on preference shares.
Interest expense was GBP2.81 million for the period, increasing
by GBP1.09 million (64%) from June 2018. This increase is
significantly lower than the proportional increase in the customer
loan book as the cost of funds, expressed as a percentage of
average customer receivables, reduced from 7.4% for June 2018 to
4.1% for June 2019. This reduction in cost of funds reflects the
higher rate Trufin Group loan notes in place during the first
quarter of 2018, the higher proportion of undrawn facility fees due
on the wholesale funding facility to June 2018 and the equity
injection of GBP25 million received from the Trufin Group in May
2019 upon demerger.
In June 2019 the Group entered into a revolving mezzanine credit
facility of GBP40.3 million with funds affiliated with Ares
Management Corporation. Alongside the existing Citibank facility,
this has led to an increase in the wholesale cost of funds as the
Group enters the second half of 2019.
Net income
Net income was GBP2.59 million for the period, increasing by
GBP2.39 million (1,171%) from June 2018.
The net interest margin for the period was 3.8% compared to 0.9%
for the period to June 2018. The increase in the net interest
margin is due to the asset yield and cost of funds factors referred
to above.
Operating expenses
As a business we have been effectively operating with the
structures and governance of a bank since the first half of 2018.
Operating expenses have increased from GBP4.08 million in June 2018
to GBP7.13 million in the period. The increased operating expenses
reflect the investment made in staff resources and infrastructure
to meet the significant growth achieved over the past 12 months and
going forwards.
The operating expenses in the current period include GBP1.07
million of management and directors' bonuses paid in relation to
the demerger and IPO. These bonuses were predominantly to cover the
cost of loans advanced in respect of tax liabilities on shares
issued to these individuals to reduce the dilution impact of their
shareholdings arising from the issue of shares to Trufin prior to
the demerger.
Impairment charges
Impairment charges for the period were GBP0.51 million,
increasing by GBP0.43m from June 2018. These impairment charges
relate to increases in IFRS 9 provisions. There have been no
write-offs experienced by the business through to June 2019. The
increase in impairment charge for the period to June 2019 compared
to the equivalent period in 2018 results from the significant
increase in loan book during the respective periods and also the
increase in the IFRS9 provision (expressed as a percentage of the
loan book) from 0.15% in December 2018 to 0.38% in June 2019
compared to an increase from 0.21% in December 2017 to 0.23% in
June 2018. This increase in the IFRS 9 provision % relates to
increases in the stage 3 provision from a small number of stage 3
cases arising in the period.
Exceptional items
Exceptional items of GBP2.19 million in the period relate to the
professional fees incurred by the Group in respect of the demerger
and IPO transaction that have been recognised as an expense.
Summarised Statement of Financial Position:
30 Jun 2019 30 Jun 2018 31 Dec 2018
6-month 6-month 12-month
GBP'000 GBP'000 GBP'000
Cash held at bank 34,544 33,556 7,556
Loans and advances to customers 168,027 64,138 113,795
Other assets 24,723 2,193 8,972
Total Assets 227,294 99,887 130,323
Financial liabilities 141,035 36,625 72,445
Other liabilities 15,479 5,501 3,326
Total Liabilities 156,514 42,126 75,771
Total Equity 70,780 57,761 54,553
--------------- ---------------- ----------------
The assets of the Group increased during the period by 74% to
GBP227.3 million, primarily driven by the growth in the loan
portfolio and also in respect of the equity injection of GBP25
million received in May 2019 prior to the demerger from Trufin.
The liabilities of the Group increased during the period by 107%
to GBP156.5 million, primarily driven by an increase in wholesale
funding.
Loans and advances to customers
Loan originations in the period were GBP206.0 million which is
significantly ahead of loan originations in both the first half of
2018 (GBP92.1 million, 124% increase) and the second half (GBP141.3
million, 46% increase).
DFC finances SME's operating across the distribution supply
chain and primarily focuses on financing products in five
sectors:
-- recreational vehicles, lodges and caravans;
-- marine (typically smaller marine craft);
-- motor vehicles (typically mopeds, scooters, motorcycles and
light commercial vehicles but not cars);
-- industrial equipment; and
-- agricultural equipment
The Gross Loan receivables balance across these sectors at 30
June 2019, 31 December 2018 and June 2018 is shown in the table
below.
30 Jun 2019 31 Dec 2018 30 Jun 2018
GBP'000 GBP'000 GBP'000
Recreational Vehicles 86,595 56,489 35,918
Marine 29,019 25,520 16,266
Industrial Equipment 27,371 18,005 2,013
Motor Vehicles 18,136 9,724 6,285
Agricultural Equipment 8,024 4,375 3,924
Gross loan receivables 169,145 114,113 64,406
The table shows the continuing growth across all sectors in the
six month periods ended December 2018 and June 2019 and the
increased sector diversification of the loan book over this
time.
Other assets
The increase in other assets during the period by 176% to
GBP24.7 million is predominantly driven by the increase in debt
securities held (UK Treasury Bills) from GBP5.0 million in December
2018 to GBP19.0 million at June 2019. This increase in debt
securities is in part the initial utilisation of an element of the
GBP25.0 million of equity received in May 2019 prior to the
demerger.
Financial liabilities
Financial liabilities have increased during the period by 95% to
GBP141.0 million. This mainly reflects an increase in wholesale
funding during the period from GBP59.0 million to GBP121.5 million.
This results from an increase in the senior drawing under the
wholesale funding facility to fund the increase in the loan book
together with the execution and drawing of a senior mezzanine
facility in June 2019 that is in conjunction with this existing
wholesale facility. The senior facility of this wholesale funding
agreement was increased from GBP100.0 million to GBP155.0 million
with the term extended by 12 months to December 2020. The senior
mezzanine facility is GBP40.3 million with a concurrent term to
December 2020.
Funding from the Trufin Group has also increased during the
period from GBP10.3 million in December 2018 to GBP19.5 million in
June 2019. This has resulted from receiving an additional GBP5
million in loan agreements from the TruFin Group and also
converting GBP3.5 million of preference shares plus accrued
interest into loan agreements prior to the IPO of DFCH plc.
Principal and Emerging Risks
The Group has developed and follows a "Risk Management
Framework" which details how DFC defines and manages risks which
are relevant to its business model and operations. It sets the
requirements for our governance, culture and risk appetite
frameworks supported by the Principal Risks structure which creates
a common language to support the day to day management of those
risks by efficiently and effectively identifying, measuring,
control and monitoring of those risks in line with the firm's
governance, culture and risk appetite.
The Corporate Governance Framework details the governance
accountability and structures put in place for the management of
DFC's operations to deliver against its strategic vision.
The Board and Management are committed to creating an effective
risk culture across the firm and we lay this out in our Code of
Ethics framework which details the values which underpin the DFC
proposition and how we will apply them.
Finally, the Risk Appetite Framework details the requirements
and responsibility to set and allocate the firms risk appetite
across the firm to support its strategic vision. Our aim is to have
a Risk Appetite Framework which ensures there is a clear Business
and Risk Strategy which aligns to the Boards Risk Appetite, and we
describe this in such a way that it is understandable and is driven
appropriately through the firm.
We have defined principal risks to help shape our policy and
control framework. They create structure to our policy framework
and clear ownership/responsibility for assessing performance and
completeness.
Credit Risk:
The risk of financial loss arising from a client, customer or
counterparty failing to meet their financial obligations to DFC to
repay in accordance with agreed terms. The Group takes a proactive
approach to monitoring the credit risk of its commercial lending
through regular contact and review of its customers. In addition to
the comprehensive customer onboarding process, the Group also
conducts asset audits to verify the collateral status throughout
the life of the loan.
Treasury Risk:
Treasury Risk covers three highly related risks relating to the
management of the resulting customer assets and liabilities. The
Group uses a monthly Asset and Liability Committee (ALCO) as a
forum to monitor and discuss these risks. Furthermore, treasury
risk Key Performance Indicators ("KPIs") are agreed and reported on
a monthly basis to the Board.
Liquidity Risk - the risk that the Group is not able to meet its
financial obligations as they fall due or that it does not have the
tenor and composition of funding and liquidity to support its
assets.
Capital Risk - the risk that the Group has an insufficient
amount or type of capital to support the regulatory requirements of
its business activities through normal and stressed conditions.
Interest Rate Risk - the risk of financial loss through
un-hedged or mismatched asset and liability positions due to
interest rate changes.
Operational Risk:
Operational risk is defined as the risk of loss resulting from
inadequate or failed internal processes, people and systems or from
external events (e.g. fraud). The Operational Risk Framework covers
all processes, people and systems and sets across the firm the:
Risk Management Process we promote of Identify, Measure, Control
and Monitor; Coverage and requirements for Risk and Control Self
Assessments and New Product Approval; and setting of Key Risk and
Control Indicators across all risks. A robust operational event
management and escalation process is in place which includes a risk
events register. Use and monitoring of insurance including
professional indemnity and D&O liability insurance. At a
minimum, these indicators are reviewed at a monthly formal
Operating Committee.
Conduct Risk:
The risk of detriment caused to DFC's customers due to
inappropriate execution of its business activities and processes,
including the sale of unsuitable products. The Conduct Risk Policy
outlines our approach and process for ensuring good customer
conduct outcomes. It is supported by specific policies on
Anti-Bribery and Corruption; Conflicts of Interest, Financial
Crime, Onboarding/Anti-Money Laundering/Know Your Customer, and
Whistleblowing policies which detail the specific steps and
responsibilities across the firm including the firm's Money
Laundering Reporting Officer who sits within the Risk function.
Reputational Risk:
Reputational risk is the risk of loss or imposition of
penalties, damages or fines from the failure of the firm to meets
it legal obligations including regulatory requirements. DFC
operates within the context of the UK legal and regulatory
environment and the Reputational Risk policy sets responsibility
within DFC is ensure the firm is aware of both current and upcoming
legal or regulatory changes and plans/implements those requirements
appropriately.
Macro-economic Risk and Brexit:
The Directors, at least quarterly, perform a review of current
economic projections and a horizon scan of risks and proposed
management actions to mitigate where possible a perceived risk
outside of risk appetite. The Group's structure and license
requirements are not impacted by Brexit as it only lends to UK
based firms from a UK legal entity. However, the Group could be
impacted by varying demand for credit and higher loss rates from
customers due to changes in macro-economic factors (such as weak
GDP, or higher interest rates in the UK), or from higher costs of
doing business for our customers (such as higher import prices due
to potential new tariffs or extreme movements in the purchasing
power of Sterling). These potential risks could impact our
customers margins, profitability and in more extreme scenarios lead
to much higher levels of insolvency. However, as the Group is
primarily a secured lender on short duration loans with uncommitted
lines, there are a number of management levers which can be applied
rapidly, and the Directors will continue to actively monitor the
situation to ensure customers are supported within the agreed risk
appetite. On this basis Brexit is not expected to cause a material
adverse impact on the Group's resources.
Risk Management
The Group has risk committees and formal risk procedures in
place which aim to manage risk effectively. The systems and
processes, guidelines and policies are continually reviewed and
updated and effectively communicated to all personnel to ensure
that resources, governance and infrastructure are appropriate for
the increasing size and complexity of the business.
We manage the risks of the Group by making judgements, including
decisions (based on assumptions about economic factors) about the
level and types of risk that the Group is willing to accept in
order to achieve its business objectives, the maximum level of risk
the Group can assume before breaching constraints determined by
liquidity needs and its legal obligations.
Directors' Responsibility Statement
The Directors confirm, to the best of their knowledge, that the
condensed consolidated set of financial statements has been
prepared in accordance with IAS 34 'Interim Financial Reporting' as
adopted by the European Union, and that the Interim Financial
Report herein includes a fair review of the information required by
DTR 4.2.7R and DTR 4.2.8R.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial information differs from
legislation in other jurisdictions.
By order of the Board
.................................
Chris Dailey
Director
18 September 2019
Independent Review Report to Distribution Finance Capital
Holdings Plc
Deloitte LLP (referred to as "we" within the independent review
report to Distribution Finance Capital Holdings Plc only) have been
engaged by the Group to review the condensed consolidated set of
financial statements in the interim financial report for the six
months ended 30 June 2019 which comprises the profit and loss
account, the statement of financial position, the statement of
changes in equity, the cash flow statement and related notes 1 to
29. We have read the other information contained in the interim
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated set of financial statements.
This report is made solely to the Group in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Group 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 Group, for our review work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim financial report in accordance with the AIM
Rules of the London Stock Exchange.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed consolidated set of financial
statements included in this interim financial 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 Group a conclusion on
the condensed consolidated set of financial statements in the
interim financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council 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 consolidated set of
financial statements in the interim financial report for the six
months ended 30 June 2019 is not prepared, in all material
respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the AIM Rules of the London
Stock Exchange.
Deloitte LLP
Statutory Auditor
London, UK
18 September 2019
Unaudited Condensed Consolidated Statement of Profit or Loss and
Other Comprehensive Income
6 months 6 months Year ended
ended ended 31 December
30 June 2019 30 June 2018 2018
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
Interest and similar
income 4 5,208 1,763 4,828
Interest and similar
expenses 6 (2,814) (1,721) (3,503)
Net interest income 2,394 42 1,325
------------------------ ------------------------- ---------------------
Fee income 7 180 162 351
Net fee income 180 162 351
------------------------ ------------------------- ---------------------
Gains on debt securities 19 18 - -
Total operating income 2,592 204 1,676
------------------------ ------------------------- ---------------------
Staff costs 8 (5,467) (2,717) (5,851)
Other operating expenses 9 (1,540) (1,340) (2,695)
Depreciation and amortisation 15,16 (123) (19) (108)
Total operating loss
before (4,538) (3,872) (6,978)
------------------------ ------------------------- ---------------------
impairment losses
Provision for commitments
and other liabilities 11 (31) (98) (171)
Net impairment loss on
financial assets 12 (513) (86) (116)
Exceptional expenses 10 (2,187) - -
Loss before taxation (7,269) (4,055) (7,266)
------------------------ ------------------------- ---------------------
Taxation 14 - - -
Loss after taxation (7,269) (4,055) (7,266)
------------------------ ------------------------- ---------------------
from continuing operations
Other comprehensive income:
Items that may subsequently
be transferred to profit
or loss:
Fair value movements
on debt securities 19 9 - 1
Total other comprehensive 9 - 1
------------------------ ------------------------- ---------------------
income for the year,
net of tax
Total comprehensive loss
for the (7,260) (4,055) (7,264)
------------------------ ------------------------- ---------------------
year attributable to
equity holders
Earnings per share
pence pence pence
Basic and diluted EPS 27 (17) (43) (54)
The notes on pages 18 to 46 are an integral part of these
financial statements.
Unaudited Condensed Consolidated Statement of Financial
Position
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
Assets
Cash and cash equivalents 34,544 33,556 7,556
Loans and advances to customers 18 168,027 64,138 113,795
Debt securities 19 19,042 - 4,994
Trade and other receivables 20 4,298 1,696 2,862
Property, plant and equipment 15 226 123 230
Right-of-use assets 448 - -
Intangible assets 16 687 374 620
Assets classified as held
for sale 17 22 - 266
Total Assets 227,294 99,887 130,323
------------------- ----------------- ---------------------
Liabilities
Trade and other payables 24 14,178 5,298 2,479
Financial liabilities 23 141,035 36,625 72,445
Lease liabilities 424 - -
Provisions and contingent
liabilities 11 877 203 846
Total Liabilities 156,514 42,126 75,771
------------------- ----------------- ---------------------
Equity
Issued share capital 21 1,066 17 17
Share premium 94,911 35,994 35,994
Merger reserve 22 (20,626) - -
Retained (loss) / earnings (4,572) 21,750 18,541
Total Equity 70,780 57,761 54,553
------------------- ----------------- ---------------------
Total Equity and Liabilities 227,294 99,887 130,323
------------------- ----------------- ---------------------
The notes on pages 18 to 46 are an integral part of these
financial statements.
These financial statements were approved by the Board of
Directors and authorised for issue on 18 September 2019. They were
signed on its behalf by:
.................................
Chris Dailey
Director
Registered number: 11911574
Unaudited Condensed Consolidated Statement of Cash Flow
6 months 6 months Year ended
ended ended 31 December
30 June
2019 30 June 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------------- --------------
Cash flows from operating activities:
Loss before taxation (7,260) (4,055) (7,264)
Adjustments for:
Depreciation of property, plant
and equipment 53 17 59
Amortisation of intangible
assets 70 2 49
Interest income on debt securities (27) - (1)
Interest & fees received (5,388) (1,925) (5,179)
Interest expense 2,472 1,463 3,503
Increase in provisions 524 71 105
Impairment of aged receivables
& other commitments 20 15 182
Taxation paid - - -
Operating cash flows before
movements in (9,536) (4,412) (8,546)
working capital
Increase in loans and advances
to customers (54,863) (33,770) (83,201)
Increase in trade and other
receivables (1,062) (591) (1,292)
Increase / (decrease) in trade 11,448 (1,189) 1,886
and other payables
Cash used in operations (44,477) (35,550) (82,607)
Interest received from customers 5,054 1,713 4,450
Net cash used in operating
activities (48,959) (38,250) (86,703)
-------------------- -------------- --------------
Cash flows from investing activities:
Purchase of debt securities (35,089) - (5,993)
Proceeds from sale and maturity
of debt securities 21,068 - 1,000
Purchase of property, plant
and equipment (49) (102) (253)
Purchase of intangible assets (137) (376) (669)
Net cash used in investing
activities (14,207) (478) (5,915)
-------------------- -------------- --------------
Cash flows from financing activities:
Issue of new shares 25,000 32,710 26,004
Issue of preference share capital 50 - -
Increase in financial liabilities 67,257 43,630 79,926
Repayment of financial liabilities - (10,000) (10,000)
Interest paid (2,154) (514) (2,215)
Net cash from financing activities 90,153 65,826 93,716
-------------------- -------------- --------------
Net increase in cash and cash
equivalents 26,988 27,098 1,098
Cash and cash equivalents at
start of the year 7,556 6,458 6,458
-------------------- -------------- --------------
Cash and cash equivalents at
end of the 34,544 33,556 7,556
-------------------- -------------- --------------
period
Unaudited Condensed Consolidated Statement of Changes in
Equity
Share Retained
(loss)
Share premium / Merger
capital account earnings reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 December
2017 5 3,296 (4,765) - (1,464)
------------ --------------- --------------- ------------ -------------
(Audited)
Loss after taxation - - (4,055) - (4,055)
Debt to equity conversion 6 (3,296) 30,571 - 27,281
New issue of shares - DFC
Ltd 6 35,994 - - 36,000
Balance at 30 June 2018
(Unaudited) 17 35,994 21,751 - 57,761
------------ --------------- --------------- ------------ -------------
Loss after taxation - - (3,211) - (3,211)
Other comprehensive income - - 1 - 1
Balance at 31 December
2018 17 35,994 18,541 - 54,551
------------ --------------- --------------- ------------ -------------
(Audited)
Effect of change in accounting
policy - - 16 - 16
for IFRS16
Restated balance at 17 35,994 18,557 - 54,567
------------ --------------- --------------- ------------ -------------
31 December 2018 (Unaudited)
Loss after taxation - - (4,048) (3,221) (7,269)
Other comprehensive income - - 9 - 9
New issue of shares - DFC
Ltd 7 24,993 - - 25,000
Arising on consolidation (24) (60,987) (18,557) (17,405) (96,973)
New issue of shares - DFCH
Plc 1,066 94,911 (532) - 95,445
Balance at 30 June 2019
(Unaudited) 1,066 94,911 (4,571) (20,626) 70,780
------------ --------------- --------------- ------------ -------------
The notes on pages 18 to 46 are an integral part of these
financial statements.
Refer to note 21 for further details on equity movements during
the periods.
Notes to the Unaudited Condensed Consolidated Interim Financial
Statements
1. Basis of preparation
1.1 General information
The condensed set of financial statements has been prepared for
Distribution Finance Capital Holdings Plc (the "Company" or "DFCH
Plc") and its wholly owned subsidiary, Distribution Finance Capital
Ltd ("DFC Ltd") (together, the "Group").
DFCH Plc is registered and incorporated in England and Wales
whose company registration number is 11911574. The registered
office is 12 Groveland Court, London, EC4M 9EH. The Company's
ordinary shares were listed on the Alternative Investment Market
("AIM") of the London Stock Exchange on 9 May 2019. The Company
subscribed 106,641,926 ordinary shares in the initial public
offering, at a consideration of 90p per share, giving a total
market capitalisation of GBP96 million.
The principal activity of the Company is that of an investment
holding company. The principal activity of the Group is the
provision of niche commercial lending activities including
short-term financing to dealers.
These financial statements are presented in pounds sterling,
which is the currency of the primary economic environment in which
the Group operates, and are rounded to the nearest thousand pounds,
unless stated otherwise.
1.2 Basis of accounting
The condensed consolidated set of financial statements included
in this Interim Financial Report has been prepared in accordance
with International Accounting Standard 34 'Interim Financial
Reporting' ('IAS 34'), as adopted by the European Union and the
Interim Financial Report has been prepared in accordance with the
Disclosure and Transparency Rules ('DTR') of the Financial Conduct
Authority.
The condensed set of financial statements included within this
interim financial report for the six months ended 30 June 2019
should be read in conjunction with the annual audited financial
statements of Distribution Finance Capital Ltd for the year ended
31 December 2018.
The annual financial statements of Distribution Finance Capital
Limited are prepared in accordance with International Financial
Reporting Standards ('IFRS') as adopted by the European Union.
The statutory financial statements of DFC Ltd for the year ended
31 December 2018 have been reported on by the Company's auditors,
Deloitte LLP, and have been delivered to the Registrar of
Companies. The report of the auditors on those financial statements
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) or
(3) of the Companies Act 2006.
The condensed consolidated financial information for the six
months ended 30 June 2019 has been prepared using accounting
policies consistent with IFRS. The interim information, together
with the comparative information contained in this report for the
year ended 31 December 2018, does not constitute statutory
financial statements within the meaning of section 434 of the
Companies Act 2006. The financial information is unaudited but has
been reviewed by the Company's auditor, Deloitte LLP, and their
report appears on page 13 of this interim financial report.
Sale of DFC Limited and listing of DFCH PLC
On 8(th) May 2019 DFC Ltd was sold by the TruFin Group to DFCH
Plc. On 9(th) May 2019, DFCH Plc gained admission to the
Alternative Investment Market on the London Stock Exchange. During
this transaction, shares that were held by the then controlling
party of the Company, TruFin Group, were sold to external investors
such that no individual shareholder held more than 50% of the
shares in the Group. This transaction resulted in a change in
ownership and control of DFC Ltd which is now a wholly owned
subsidiary of the DFCH Plc. This change in control and ownership
requires the Group to assess how to account for the transactions in
accordance with applicable IFRS accounting standards.
The first part of the transaction was the sale of DFC Ltd from
the TruFin Group so that DFC Ltd became a wholly owned subsidiary
of the DFCH Plc. In exchange for the shares held by the TruFin
Group, they were given shares in DFCH Plc which resulted in TruFin
becoming the controlling party in the Company. Resultantly, this
transaction has been deemed a combination of businesses under
common control given TruFin can be identified as both the acquiree
and acquirer in this transaction, therefore, TruFin did not
relinquish control during this transaction. Given that control is
not transitory in this transaction, IFRS 3 cannot be applied as it
does not meet the definition of a combination of businesses. In
such scenarios where IFRS 3 cannot be applied, the Group will
consider other applicable accounting standards to assist with the
treatment of the combination.
The second part of the transaction constituted the admission of
the Company's shares on the Alternative Investment Market (AIM) of
the London Stock Exchange on 9 May 2019. A key component and
objective of the initial public offering was for the controlling
party to reduce their shareholding below 50% so no party had a
controlling interest in the Company. Although this transaction
clearly indicates a loss of control by TruFin, the principal
activity of DFCH Plc is that of an investment holding company given
its primary activity is the ownership of a single subsidiary, DFC
Ltd. This is not deemed sufficient to be considered a 'business'
under IFRS given the Company does not offer any value or return to
the Group. Therefore, IFRS 3 Business Combinations cannot be
applied because the Company does not meet the definition of a
business so cannot be deemed a combination of businesses.
In the absence of applicable IFRS accounting standards to
follow, the Group has assessed the applicability of other relevant
standards to adopt. Given that the underlying management and
operating activities of the Group remain unchanged from the
transaction, the Directors have taken this into consideration and
elected to adopt "Merger Accounting", defined in FRS 102, using the
book value accounting method in order to prepare the consolidated
financial statements of the Group.
The principles of merger accounting are as follows:
-- Assets and liabilities of the acquired entity are stated at
predecessor carrying values. Fair value measurement is not
required.
-- No new goodwill arises in merger accounting.
-- Any difference between the consideration given and the
aggregate book value of the assets and liabilities of the acquired
entity at the date of transaction is included in equity in retained
earnings or in a separate "Merger Reserve" account.
By way of using the merger accounting methodology for preparing
these consolidated interim financial statements, comparative
information will be prepared as if the Group had existed and been
formed in prior periods. The Directors agree this will enable
informative comparatives to users given the underlying activities
and management structure of the Group remain largely unchanged
following the IPO. Therefore, these condensed financial statements
have been prepared in accordance with the presentation and
accounting standards applied within the audited financial
statements of Distribution Finance Capital Ltd for the year ended
31 December 2018. These condensed financial statements should be
read in conjunction with the audited financial statements of
Distribution Finance Capital Ltd for the year ended 31 December
2018.
The financial statements have been prepared in accordance with
European Union Endorsed International Financial Reporting Standards
(IFRSs) and the IFRS Interpretations Committee (formerly the
International Financial Reporting Interpretations Committee
(IFRIC)) interpretations. The condensed set of financial statements
included in this Interim Financial Report has been prepared in
accordance with International Accounting Standards 34 'Interim
Financial Reporting' ('IAS 34').
The financial statements have been prepared on a going concern
basis and under the historical cost convention except for the
treatment of certain financial instruments.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation. The consolidated financial statements
contained in this document consolidate the statements of total
comprehensive income, statements of financial position, cash flow
statements, statements of changes in equity and related notes for
Distribution Finance Capital Holdings Plc and Distribution Finance
Capital Ltd, which together form the "Group", which have been
prepared in accordance with applicable IFRS accounting
standards.
1.3 Principal accounting policies
The principal accounting policies adopted in the preparation of
this financial information are set out below. These policies have
been applied consistently to all the financial periods
presented.
1.4 Going concern
Following the GBP25 million cash injection from TruFin prior to
the initial public offering and the subsequent successful listing
on the AIM market, the Directors have assessed the Group's ability
to continue in operational existence for at least 12 months from
the reporting date.
The Directors have a reasonable expectation that the Group has
adequate resources to meet its obligations for at least 12 months
from the balance sheet date. Accordingly, they continue to adopt
the going concern basis of accounting in preparing the financial
statements.
1.5 Critical accounting estimates and judgements
In accordance with IFRS accounting standards, the Directors of
the Group are required to make judgements, estimates and
assumptions in certain subjective areas whilst preparing these
financial statements. The application of these accounting policies
may impact the reported amounts of assets, liabilities, income and
expenses and actual results may differ from these estimates.
Any estimates and underlying assumptions used within the
statutory financial statements are reviewed on an ongoing basis,
with revisions recognised in the period in which they are adjusted,
and any future periods affected.
Further details can be found in note 3 of these financial
statements on the critical accounting estimates and judgements used
within these financial statements.
1.6 Foreign currencies
The financial statements are expressed in Pounds Sterling, which
is the functional and presentational currency of the Group.
Transactions in foreign currencies are translated to the Group's
functional currency at the foreign exchange rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are retranslated to
the functional currency at the foreign exchange rate ruling at that
date. Non-monetary assets and liabilities that are measured in
terms of historical cost in a foreign currency are translated using
the exchange rate at the date of the transaction. Foreign exchange
differences arising on translation are recognised in the statement
of income.
2. Summary of significant accounting policies
The same accounting policies, presentation and methods of
computation are followed in the condensed consolidated set of
financial statements as applied in the DFC Ltd.'s latest annual
audited financial statements for the year ended 31 December 2018,
with the exception of Merger Reserve, Earnings Per Share, Segmental
Reporting and Leasing accounting policies. Furthermore, any
adoption of new and amended standards are also set out below.
The preparation of interim condensed consolidated financial
statements in compliance with IAS 34 requires the use of certain
critical accounting judgements and key sources of estimation
uncertainty. It also requires the exercise of judgement in applying
the Group's accounting policies. There have been no material
revisions to the nature and the assumptions used in estimating
amounts reported in the annual audited financial statements of DFC
Ltd. for the year ended 31 December 2018.
2.1 Merger Reserve
As detailed in section 1.2 of the notes to these financial
statements, following the initial public offering of DFCH Plc, the
Company is now the ultimate controlling party of the Group. The
Board of Directors elected to account for the transaction using
merger accounting which prescribes that any difference between the
consideration given and the aggregate book value of the assets and
liabilities of the acquired entity at the date of transaction is
included in equity in retained earnings or in a separate reserve
account. Therefore, on consolidation of the Group financial
statements, the difference between the consideration paid (proceeds
from the initial public offering) and the book value of
Distribution Finance Capital Ltd is recognised as a Merger Reserve,
in accordance with relevant accounting standards relating to
businesses under common control.
2.2 Earnings per share
In accordance with IAS 33, the Group will present on the face of
the consolidated statement of comprehensive income basic and
diluted EPS for:
-- Profit or loss from continuing operations attributable to the
ordinary equity holders of Distribution Finance Capital Holdings
Plc; and
-- Profit or loss attributable to the ordinary equity holders of
Distribution Finance Capital Holdings Plc for the period for each
class of ordinary shares that has a different right to share in
profit for the period.
Basic EPS is calculated by dividing profit or loss attributable
to ordinary equity holders of the Group by the weighted average
number of ordinary shares outstanding during the period.
Diluted EPS is calculated by adjusting the earnings and number
of shares for the effects of dilutive options and other dilutive
potential ordinary shares.
Adjusted basic earnings per share is calculated using the basic
loss per share calculation above after allowing for adjusted items
such as expenses including taxes, minority interests and preference
dividends. The number of shares is calculated by adjusting the
shares in issue at the beginning of the period by the number of
shares bought back or issued during the period, multiplied by a
time-weighting factor. Contingently issuable shares are included in
the basic EPS denominator when the contingency has been met.
Adjusted diluted earnings per share is calculated after
adjusting the weighted average number of shares used in the
adjusted basic earnings per share calculation to assume the
conversion of all potentially dilutive shares.
There are no adjustments to account for in any of the periods
presented and therefore the adjusted earnings per share is
determined to be the same as the basic and diluted earnings per
share.
2.3 Segmental Reporting
IFRS 8 Operating segments requires particular classes of
entities (essentially those with publicly traded securities) to
disclose information about their operating segments, products and
services, the geographical areas in which they operate, and their
major customers. Information is based on the Group's internal
management reports, both in the identification of operating
segments and measurement of disclosed segment information.
The Group's product offering and the markets to which they are
offered are so similar in nature that they are reported as one
class of business. All customers are currently UK-based only. As a
result, the chief operating decision maker uses only one segment to
control resources and assess the performance of the entity, while
deciding the strategic direction of the Group.
However, in accordance with IFRS 8, the Group will continue to
monitor its activities to ensure any further reportable segments
are identified and the appropriate reporting and disclosures are
made.
2.4 Leasing
IFRS 16 introduces a comprehensive model for the identification
of lease arrangements and accounting treatments for both lessors
and lessees. IFRS 16 supersedes the approach of IAS 17 Leases and
the related interpretations and is mandatory effective to
accounting periods beginning on or after 1 January 2019. The Group
has adopted IFRS 16 for the six month period ending 30 June 2019.
At the period ending 30 June 2019, the Group only has property
leases which meet the classification requirements of IFRS 16.
IFRS 16 distinguishes leases and service contracts on the basis
of whether an identified asset is controlled by a customer for
which these are deemed as right-of-use assets. The lessee is
required to recognise a right-of-use asset representing the Group
right of use and control over the leased asset. Furthermore, the
Group is required to recognise a lease liability representing its
obligation to make lease payments over the relevant term of the
lease.
The right-of-use asset is initially measured at cost and
subsequently measured at cost (subject to certain exceptions) less
accumulated depreciation and impairment losses, adjusted for any
remeasurement of the lease liability. The lease liability is
initially measured at the present value of the lease payments that
are not paid at that date. Subsequently, the lease liability is
adjusted for interest and lease payments, as well as the impact of
lease modifications, amongst other variables. Furthermore, the
classification of cash flows will also be affected because
operating lease payments under IAS 17 are presented as operating
cash flows; whereas under the IFRS 16 model, the lease payments
will be split into a principal and an interest portion which will
be presented as financing and operating cash flows
respectively.
The Group has elected not to retrospectively restate prior
period comparatives given the Directors deem the impact of the new
accounting standard to be immaterial. As such, the Directors have
elected to follow the 'modified retrospective approach' whereby the
Group does not restate prior period comparatives and instead
recognises an adjustment in equity to the opening reserves balance
at 1 January 2019.
3. Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial information in accordance with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and reported
amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The judgements and estimates that have a significant effect on
the amounts recognised in the historical financial information
noted below.
3.1 Critical accounting judgements
The Board Audit Committee assessed and reviewed the critical
accounting judgement in respect of the recognition of transferred
assets and equity raising transaction cost.
Loan derecognition
In December 2017 DFC Ltd sold the majority of its loan assets to
DFC Funding No1 Limited. As part of this transaction DFC Funding
No1 entered into a two year senior debt facility to December 2019
with an external funder, secured on this floating pool of
underlying assets sold by the Group. This facility was subsequently
extended to December 2020. On the basis that the Group retains
substantially all the risks and rewards of ownership of these
transferred financial assets, the Group has continued to recognise
the financial assets and also recognised a collateralised borrowing
for the proceeds received.
Transaction costs directly incremental to equity raising
In May 2019 the Group executed a complex transaction, as
detailed in section 1.2 of these financial statements, which
included a GBP25 million equity injection from the TruFin Group and
subsequent listing on the AIM stock market. Throughout the
transaction, the Group engaged with a number of external
professional services companies which in some cases provided
advisory services throughout the transaction. Resultantly, the
Group incurred a material amount of costs associated with the
overall transaction.
Complexity arises given that IAS 32 provides prescriptive
guidance that transaction costs which are incremental and directly
attributable to the issuance of new equity instruments can be
deducted from equity rather than recognised as an expense in the
profit or loss. This presents difficulty because the activities of
the GBP25 million equity injection by TruFin were strictly
conditional on the sale of DFC Ltd to DFCH Plc and successful IPO
of DFCH Plc. Although the majority of the costs were incurred due
to the sale of DFC Ltd and IPO, these were not necessarily equity
raising as no consideration was generated from these transactions
alone. However, due to the interdependencies of the GBP25 million
equity injection to these events, a portion of the costs can be
allocated to the raising of equity and resultantly be deducted from
equity. This requires a degree of subjectivity given some of the
transaction costs are grouped and cover various activities so at
times a subjective apportionment is followed so that only those
transaction costs are accounted for through equity reserves with
the remainder through the profit or loss.
3.2 Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period, that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below:
Loan impairment
-- Where an asset has a maturity of 12 months or less, the "12 month ECL" and the "lifetime ECL" have the same
effective meaning and accordingly for such assets the calculated loss allowance will be the same whether such an
asset is at Stage 1 or Stage 2. Given the preponderance of short term lending, the Group's combined loss
allowance is not materially affected by the allocation of assets between Stages 1 and 2, nor by any significant
subjectivity in the forward-looking estimates that are applied.
-- The probability of default ("PD") is an estimate of the likelihood of default over a given time horizon and is a
key input to the ECL calculation. The Group uses credit scores from credit reference agencies to calculate the PD
for loans and advances to customers. The score is a 12-month predictor of credit failure and, in the absence of
internally generated loss history, the Group believes that it provides the best proxy for the credit quality of
the loan portfolio.
-- Exposure at default ("EAD") is an estimate of the exposure at a future default date, taking into account expected
changes in the exposure after the reporting date, including repayments of principal and interest, whether
scheduled by contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed
payments.
-- Loss given default ("LGD") is an estimate of the loss arising on default. It is based on the difference between
the contractual cash flows due and those that the lender would expect to receive, in particular taking into
account wholesale collateral values and certain buy back options.
The Group has considered the key areas of estimation used within
the IFRS 9 impairment calculation and identified the variables
which propose a material risk in terms of the preparation of the
financial statements. The only variable considered to present a
material risk of estimation uncertainty is the collateral values
which are used within the loss given default (LGD) calculation. The
Group has assessed that if the loss given default increased by a
factor of 4, this would generate an additional provision of
approximately GBP750,000 at 30 June 2019.
4. Interest and similar income
6 months 6 months Year ended
ended ended 31 December
30 June
30 June 2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
On loans and advances to customers 5,172 1,761 4,799
On loans and advances to banks 32 2 29
On employee loan agreements 4 - -
5,208 1,763 4,828
------------------------ ------------------- -----------------------
5. Operating segments
IFRS 8 Operating segments requires particular classes of
entities (essentially those with publicly traded securities) to
disclose information about their operating segments, products and
services, the geographical areas in which they operate, and their
major customers. Information is based on DFC's internal management
reports, both in the identification of operating segments and
measurement of disclosed segment information.
It is the Director's view that DFC's products and the markets to
which they are offered are so similar in nature that they are
reported as one class of business. All customers are currently
UK-based only. As a result, it is considered that the chief
operating decision maker uses only one segment to control resources
and assess the performance of the entity, while deciding the
strategic direction of DFC.
6. Interest and similar expense
6 months 6 months Year ended
ended ended 31 December
30 Jun 2019 30 June 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Interest paid to related parties 359 774 1,026
Wholesale funding interest 2,662 781 2,145
Preference shares (207) 166 332
2,814 1,721 3,503
----------------------- ------------------- ------------------
As detailed in note 23, during the six month period ending 30
June 2019, GBP3.5 million of preference shares plus accrued
interest were converted in to loan agreements. The interest expense
accrued on the preference shares was calculated under an effective
interest rate (EIR) method. Whereas, the calculation of the
interest accrued for the conversion to debt was calculated on a
straight line basis which resulted in a write back in interest
expense during the period.
7. Fee income
6 months 6 months Year ended
ended ended 31 December
30 June
30 Jun 2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Facility-related fees 180 162 351
180 162 351
---------------------- ----------------- --------------------
8. Staff costs
Analysis of staff costs:
6 months 6 months Year ended
ended ended 31 December
30 June
30 June 2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Wages and salaries 4,524 2,010 4,578
Consulting costs 20 442 622
Social security costs 809 215 515
Pension costs arising on 114 50 136
defined contribution schemes
----------------------- ------------------ ------------------
5,467 2,717 5,851
----------------------- ------------------ ------------------
Consulting costs are recognised within personnel costs where the
work performed would otherwise have been performed by employees.
Consulting costs arising from the performance of other services is
included within other operating expenses.
9. Other operating expenses
6 months 6 months Year ended
ended ended 31 December
30 June 2019 30 June 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
IT related expenses 468 177 463
Property leasing costs 173 112 340
Audit & consulting fees 131 118 229
Management fees 26 32 69
Legal and compliance fees 88 74 98
VAT related expenses 132 302 468
Sundry expenses 522 525 1,028
1,540 1,340 2,695
----------------------- ------------------ ------------------
10. Exceptional expenses
6 months 6 months Year ended
ended ended 31 December
30 June 2019 30 June 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Sale and IPO costs 2,187 - -
2,187 - -
---------------- ------------------- --------------------
The Directors consider these items to be exceptional in nature
as they are directly attributable to the sale of DFC Ltd and
initial public offering transaction as outlined in note 1 of these
financial statements. The Group will not incur costs of this nature
in the foreseeable future and given the materiality of these costs
the Directors wish to highlight these within the financial
statements.
11. Provision for commitments and other liabilities
Analysis for movements in provision for commitments and other
liabilities:
6 months 6 months Year ended
ended ended 31 December
30 June 2019 30 June 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
At period opening date 846 105 105
Share schemes tax liability 31 - 737
Customer billing adjustment - - 4
Onerous lease provision - 98 -
At period closing date 877 203 846
--------------------------- --------------------------- --------------------
12. Net impairment loss on financial assets
6 months 6 months Year ended
ended ended 31 December
30 June 2019 30 June 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
At period opening date 180 64 64
Charge for impairment losses 513 85 116
Amounts written off in the
year - - -
Amounts recovered in the
year - - -
At period closing date 693 149 180
------------------------- ------------------- --------------------
13. Loss before income tax
Loss before income tax is stated after charging:
6 months 6 months Year ended
ended ended 31 December
30 June 2019 30 June 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Depreciation of property,
plant and equipment 53 17 59
Amortisation of intangible
assets 70 2 49
Staff costs 5,467 2,717 5,851
Operating lease rentals 115 195 278
14. Taxation
Analysis of tax charge recognised in the period:
6 months 6 months Year ended
ended ended 31 December
30 June 2019 30 June 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Current tax charge/ (credit) - - -
Deferred tax (credit)/ charge - - -
-------------------- -------------------- ---------------------
Total tax (credit)/ charge - - -
-------------------- -------------------- ---------------------
15. Property, plant and equipment
Furniture,
Telephony
Leasehold Fixtures Computer &
Improvements & Fittings Hardware Communications Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January
2018
(Audited) - 11 32 4 47
Additions - 10 91 1 102
Disposal - - - - -
At 30 June
2018
(Unaudited) - 21 123 5 149
---------------------- --------------- --------------- -------------------------- ---------------
Additions 23 83 43 1 150
Disposal - - - - -
At 31
December
2018
(Audited) 23 104 166 6 299
---------------------- --------------- --------------- -------------------------- ---------------
Additions 3 10 36 - 49
Disposal - - - - -
At 30 June
2019
(Unaudited) 26 114 202 6 348
---------------------- --------------- --------------- -------------------------- ---------------
Depreciation
At 1 January
2018
(Audited) - (3) (6) (1) (10)
Depreciation
charge
for the
period - (3) (12) (1) (16)
At 30 June
2018
(Unaudited) - (6) (18) (2) (26)
---------------------- --------------- --------------- -------------------------- ---------------
Depreciation
charge
for the
period (3) (12) (27) (1) (43)
At 31
December
2018
(Audited) (3) (18) (45) (3) (69)
---------------------- --------------- --------------- -------------------------- ---------------
Depreciation
charge
for the
period (4) (18) (30) (1) (53)
At 30 June
2019
(Unaudited) (7) (36) (75) (4) (122)
---------------------- --------------- --------------- -------------------------- ---------------
Net Book
Value
At 1 January
2018
(Audited) - 8 26 3 37
At June 2018
(Unaudited) - 15 105 3 123
At 31
December
2018
(Audited) 20 86 121 3 230
At 30 June
2019
(Unaudited) 20 78 127 2 226
---------------------- --------------- --------------- -------------------------- ---------------
The Group holds no assets under finance leases.
16. Intangible assets
Computer
Software
GBP'000
Cost
At 1 January 2018 (Audited) -
Additions from internal development 358
Additions from separate acquisitions 18
At 30 June 2018 (Unaudited) 376
Additions from internal development 216
Additions from separate acquisitions 77
At 31 December 2018 (Audited) 669
Additions from internal development 133
Additions from separate acquisitions 4
At 30 June 2019 (Unaudited) 806
---------------
Amortisation
At 1 January 2018 (Audited) -
Amortisation charge for the
period (3)
At 30 June 2018 (Unaudited) (3)
Amortisation charge for the
period (46)
At 31 December 2018 (Audited) (49)
Amortisation charge for the
period (70)
At 30 June 2019 (Unaudited) (119)
---------------
Carrying amount
At 1 January 2018 (Audited) -
At 30 June 2018 (Unaudited) 374
At 31 December 2018 (Audited) 620
At 30 June 2019 (Unaudited) 687
---------------
In the six month period to 30 June 2019, the Group capitalised
GBP93,000 (Dec18: GBP210,000) of consultancy costs and GBP40,000
(Dec18: GBP365,000) of employee costs in relation to the
development of software platforms aimed at improving the commercial
lending processes and development of retail customer deposits
platform. The amortisation period for these software costs is
within a range of 3-5 years following an individual assessment of
the asset's expected life. The Group performed an impairment review
at 31 December 2018 and concluded no impairment was required. The
next impairment review will be conducted prior to the 31 December
2019 financial statements.
17. Assets classified as held for sale
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Opening balance 266 - -
Initial recognition 3 - 257
Fair value adjustment (35) - -
Transaction costs 13 - 9
Disposal proceeds (225) - -
Closing balance 22 - 266
----------------------- ----------------------- ------------------------
18. Loans and advances to customers
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Gross loan receivables 169,145 64,406 114,113
Less: allowances for impairment
losses (647) (150) (169)
Less: effective interest rate
adjustment (471) (118) (149)
Net loan receivables 168,027 64,138 113,795
------------------- ---------------- -------------------
Refer to note 25 for details on the expected maturity analysis
of the gross loans receivable balance.
Refer to note 12 and 25 for further details on the impairment
losses recognised in the periods.
Ageing analysis of gross loan receivables is as follows:
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Neither past due nor impaired 167,158 63,667 113,253
Past due: 0-30 days 1,148 728 645
Past due: 31-60 days 84 11 119
Past due 61-90 days 47 - 32
Past due: More than 91 days 41 - 14
Impaired 667 - 51
169,145 64,406 114,113
------------------- ----------------- -------------------
19. Debt securities
During the six month period ending 30 June 2019 the Group has
purchased UK Treasury Bills with a total nominal value of GBP35
million and received maturity proceeds of GBP21 million. The
securities are valued at fair value through other comprehensive
income ("FVTOCI") using closing bid prices at the reporting
date.
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Opening balance 4,993 - -
Purchased debt securities 35,089 - 5,993
Realised gain 18 - -
Unrealised gain 9 - 1
Proceeds from maturing securities (21,067) - (1,000)
Closing balance 19,042 - 4,994
--------------------- ----------------------- --------------------
Refer to note 25 for details of the maturity profile of these
securities.
20. Trade and other receivables
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Trade receivables 398 116 79
Accrued Income 246 181 401
Other debtors 1,737 492 1,190
Prepayments 1,917 907 1,191
4,298 1,696 2,861
------------------- --------------- -------------------
Trade receivables above are stated net of a loss allowance of
GBP46,000 (Dec 2018: GBP10,890). All receivables are due within one
year, refer to note 25 for the expected maturity profile.
Unimpaired, past due trade receivables are analysed as
follows:
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Not yet due 72 49 26
Past due: 0-30 days 86 7 11
Past due: 31-60 days 56 3 -
Past due: 61-90 days 42 6 5
Past due: More than 91 days 106 51 36
Impaired 36 - -
398 116 79
-------------------- ----------------- ---------------------
21. Equity
Analysis of the number of ordinary shares:
A Class B Class C Class Total
Ordinary Ordinary Ordinary Ordinary
Shares Shares Shares Shares
# # # #
Balance at 1 January 2018
(Audited) 5,000 - - 5,000
Debt to equity conversion 6,002 - - 6,002
Issue of new shares 5,808 - - 5,808
B class shares acquisition - 430 - 430
Transfer of shares (317) - 317 -
Balance at 30 June 2018 (Unaudited) 16,493 430 317 17,240
------------- ------------- ------------ -------------
Sub-division of A, B and
C class shares by 1:1000
shares 16,476,507 429,570 316,683 17,222,760
Balance at 31 December 2018
(Audited) 16,493,000 430,000 317,000 17,240,000
------------- ------------- ------------ -------------
Equity injection 6,530,303 - - 6,530,303
Transfer of B and C Class
shares into A Class shares 747,000 (430,000) (317,000) -
Arising on consolidation (23,770,303) - - (23,770,303)
Issuance of shares 106,641,926 - - 106,641,926
Balance at 30 June 2019 (Unaudited) 106,641,926 - - 106,641,926
------------- ------------- ------------ -------------
At 30 June 2019 (Unaudited)
Nominal value per share 1 pence n.a n.a 1 pence
Paid up share capital (GBP) 1,066,419 - - 1,066,419
Unpaid share capital (GBP) - - - -
22. Merger reserve
As detailed in note 1 of these financial statements, the Group
has elected to account for the change in ownership of DFC Ltd
through merger accounting under FRS 102. Alongside this approach
the Group is presenting the financial results using the
retrospective methodology which shows the Group results as if the
Group had been formed in prior periods. The Directors decided on
this approach given the underlying business activities and
operations of the Group remain largely unchanged following the
change in ownership so still provide useful comparatives.
By following this approach, the difference in the purchase price
of DFC Ltd and net assets of DFC Ltd at acquisition is not
recognised as goodwill but rather as an equity reserve adjustment,
which has been titled 'merger reserve'. The purchase price of DFC
Ltd equates to the proceeds from the AIM listing of DFCH Plc.
Furthermore, given the Group is following the retrospective
methodology, the Directors have elected to present the income
statement as if the Group had always existed, therefore, presenting
an income statement for the full six month period. In terms of the
accounting for the retained earnings within the six month period,
the losses incurred up to the acquisition date are accounted for
under the merger reserve and the losses incurred after the
acquisition date through the retained earnings account.
Analysis of the merger reserve account:
GBP000
Proceeds raised from listing 95,978
Net assets of DFC Ltd at acquisition date (75,352)
--------------
Merger reserve 20,626
--------------
23. Financial liabilities
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Loans with related parties 19,520 10,041 10,293
Wholesale funding 121,465 23,638 59,041
Preference Shares 50 2,945 3,111
141,035 36,625 72,445
---------------- -------------- -----------------
Prior to the IPO of DFCH Plc, DFC received an additional GBP5
million in loan agreements from the TruFin Group and also converted
GBP3.5 million of preference shares plus accrued interest into loan
agreements. At 30 June 2019 the Group has an outstanding loan
agreement with TruFin Holdings of GBP18.9 million with accrued
interest at the reporting date of GBP652,000. This loan has
principal repayments due of GBP5 million in December 2019, GBP5
million in June 2020 and final repayment of the remaining balance
in December 2020.
In April 2019 the Group increased its wholesale funding facility
from GBP100 million to GBP155 million and extended the term by 12
months such that the funding line now has a maturity of December
2020. In June 2019 alongside the existing wholesale funding
facility, the Group partnered with an external reputable lender to
provide a GBP40.3 million revolving mezzanine funding facility. At
30 June 2019 the drawn component of these funding facilities was
GBP121.1 million with an additional GBP282,000 in accrued
interest.
As part of the setup of the new Company, Distribution Finance
Capital Holdings Plc, in April 2019 a sole member decision was
granted authorising the allocation of 50,000 non-voting paid up
redeemable preference shares of GBP1.00 each.
The maturity profile of the financial liabilities are as
follows:
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Loans due within one year 10,282 10,085 69,910
Loans due in over a year 130,703 23,595 -
Preference shares 50 2,945 2,536
141,035 36,625 72,445
---------------- -------------- --------------------
24. Trade and other payables
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Accruals 2,190 611 580
Other payables 10,795 4,225 970
Payroll and other taxes 248 191 213
Trade payables 554 234 524
VAT 391 37 193
14,178 5,298 2,479
------------------ ---------------- ------------------
25. Financial instruments
The Directors have performed an assessment of the risks
affecting the Group through its use of financial instruments and
believe the principal risks to be: capital risk; credit risk; and
market risk, including interest rate risk.
This note describes the Group's objectives, policies and
processes for managing the material risks and the methods used to
measure them. The significant accounting policies regarding
financial instruments are disclosed in note 2.
Capital risk management
The Group manages its capital to ensure that it will be able to
continue as a going concern while providing an adequate return to
shareholders.
The capital structure of the Group consists of net debt
(borrowings disclosed in note 23) and equity (comprising issued
capital, share premium and retained earnings - see note 21).
The Group is not subject to any externally imposed capital
requirements.
Principal financial instruments
The principal financial instruments to which the Group is party,
and from which financial instrument risk arises, are as
follows:
-- Loans and advances to customers, primarily credit risk, and liquidity risk;
-- Debt securities, source of credit risk, liquidity risk and interest rate risk;
-- Trade receivables, primarily credit risk, and liquidity risk;
-- Cash and cash equivalents, which can be a source of credit
risk but are primarily liquid assets available to further business
objectives or to settle liabilities as necessary;
-- Trade and other payables;
-- Borrowings, which are used as sources of funds and to manage liquidity risk.
Summary of financial assets and liabilities:
Below is a summary of the financial assets and liabilities held
on the Group's statement of financial position at the reporting
dates. These values are reflected at their carrying amounts at the
respective reporting date:
Fair value
Liabilities
30 June 2019 Loans held through Other at
(Unaudited) at amortised Comprehensive amortised
Assets (GBP000s) cost Income (FVTOCI) cost Total
Cash and cash equivalents 34,544 - - 34,544
Loans and advances to
customers 168,027 - - 168,027
Debt securities - 19,042 - 19,042
Trade receivables 398 - - 398
Total financial assets 202,969 19,042 - 222,011
------------- ------------------------- ------------ ------------
Non-financial assets - - - 5,283
Total assets 202,969 19,042 - 227,294
------------- ------------------------- ------------ ------------
30 June 2019
(Unaudited)
Liabilities (GBP000s)
Preference shares - - 50 50
Other financial liabilities - - 140,985 140,985
Trade payables - - 554 554
Total financial liabilities - - 141,589 141,589
------------- ------------------------- ------------ ------------
Non-financial liabilities - - - 14,926
Total liabilities - - 141,589 156,515
------------- ------------------------- ------------ ------------
Fair value
Liabilities
31 December 2018 Loans held through Other at
(Audited) at amortised Comprehensive amortised
Assets (GBP000s) cost Income (FVTOCI) cost Total
Cash and cash equivalents 7,556 - - 7,556
Loans and advances to
customers 113,795 - - 113,795
Debt securities - 4,994 - 4,994
Trade receivables 79 - - 79
Total financial assets 121,430 4,994 - 126,423
------------- ------------------------- ---------------------- ------------
Non-financial assets - - - 3,900
Total assets 121,430 4,994 - 130,323
------------- ------------------------- ---------------------- ------------
31 December 2018
(Audited)
Liabilities (GBP000s)
Preference shares - - 3,111 3,111
Other financial liabilities - - 69,334 69,334
Trade payables - - 524 524
Total financial liabilities - - 72,969 72,969
------------- ------------------------- ---------------------- ------------
Non-financial liabilities - - - 2,802
Total liabilities - - 72,969 75,771
------------- ------------------------- ---------------------- ------------
Analysis of financial instruments by valuation model
The Group measures fair values using the following hierarchy of
methods:
-- Level 1 - Quoted market price in an active market for an identical instrument
-- Level 2 - Valuation techniques based on observable inputs. This category includes instruments valued using
quoted market prices in active markets for similar instruments, quoted prices for similar instruments that are
considered less than active, or other valuation techniques where all significant inputs are directly or
indirectly observable from market data
-- Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable
inputs).
Financial assets and liabilities that are not measured at fair
value:
Level Level
30 June 2019 Carrying Fair 1 2 Level 3
(Unaudited) amount value
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Financial assets not
measured at fair value
Loans and advances
to customers 168,027 168,027 - - 168,027
Trade receivables 398 398 - - 398
Cash and cash equivalents 34,544 34,544 34,544 - -
202,969 202,969 34,544 - 168,425
--------- --------- -------- -------- ---------
Financial liabilities
not
measured at fair value
Preference shares 50 50 - - 50
Other financial liabilities 140,985 140,985 - - 140,985
Trade payables 554 554 - - 554
141,589 141,589 - - 141,589
--------- --------- -------- -------- ---------
Level Level
31 December 2018 Carrying Fair 1 2 Level 3
(Audited) amount value
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Financial assets
not
measured at fair
value
Loans and advances
to customers 113,795 113,795 - - 113,795
Trade receivables 79 79 - - 79
Cash and cash equivalents 7,556 7,556 7,556 - -
121,430 121,430 7,556 - 113,874
--------- --------- -------- -------- ----------
Financial liabilities
not
measured at fair
value
Preference shares 3,111 3,111 - - 3,111
Other financial liabilities 69,334 69,334 - - 69,334
Trade payables 524 524 - - 524
72,969 72,969 - - 72,969
--------- --------- -------- -------- ----------
Fair values for level 3 assets were calculated using a
discounted cash flow model and the Directors consider that the
carrying amounts of financial assets and liabilities recorded at
amortised cost are approximate to their fair values.
Loans and advances to customers
Due to the short-term nature of loans and advances to customers,
their carrying value is considered to be approximately equal to
their fair value. These items are short term in nature such that
the impact of the choice of discount rate would not make a material
difference to the calculations.
Trade and other receivables, other borrowings and other
liabilities
These represent short-term receivables and payables and as such
their carrying value is considered to be equal to their fair
value.
There are no financial liabilities included in the statement of
financial position that are measured at fair value.
Financial assets and liabilities included in the statement of
financial position that are measured at fair value:
30 June 2019 Level 1 Level 2 Level 3
(Unaudited) GBP'000 GBP'000 GBP'000
Financial assets
measured at fair value
Debt securities 19,042 - -
19,042 - -
-------------- -------- ------------
Debt securities
The debt securities carried at fair value by the Company are
treasury bills. Treasury bills are traded in active markets and
fair values are based on quoted market prices.
There were no transfers between levels during the periods, all
debt securities have been measured at level 1 from acquisition.
Financial risk management
The Group's activities and the existence of the above financial
instruments expose it to a variety of financial risks.
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies. The overall
objective of the Board is to set policies that seek to reduce
ongoing risk as far as possible without unduly affecting the
Group's competitiveness and flexibility.
The Group is exposed to the following financial risks:
-- Credit risk
-- Liquidity risk
-- Market risk
-- Interest rate risk
Further details regarding these policies are set out below.
Credit risk
Credit risk is the risk that a customer or counterparty will
default on its contractual obligations resulting in financial loss
to the Group. One of the Group's main income generating activities
is lending to customers and therefore credit risk is a principal
risk. Credit risk mainly arises from loans and advances to
customers. The Group considers all elements of credit risk exposure
such as counterparty default risk, geographical risk and sector
risk for risk management purposes.
Credit risk management
The Group's credit committee is responsible for managing the
Group's credit risk by:
-- Ensuring that the Group has appropriate credit risk practices, including an effective system of internal control;
-- Identifying, assessing and measuring credit risks across the Group from an individual instrument to a portfolio
level;
-- Creating credit policies to protect the Group against the identified risks including the requirements to obtain
collateral from borrowers, to perform robust ongoing credit assessment of borrowers and to continually monitor
exposures against internal risk limits;
-- Limiting concentrations of exposure by type of asset, counterparty, industry, credit rating, geography location;
-- Establishing a robust control framework regarding the authorisation structure for the approval and renewal of
credit facilities;
-- Developing and maintaining the Group's risk grading to categorise exposures according to the degree of risk
default. Risk grades are subject to regular reviews; and
-- Developing and maintaining the Group's processes for measuring Expected Credit Loss (ECL) including monitoring of
credit risk, incorporation of forward looking information and the method used to measure ECL.
Significant increase in credit risk
The Group continuously monitors all assets subject to Expected
Credit Loss as to whether there has been a significant increase in
credit risk since initial recognition, either through a significant
increase in Probability of Default ("PD") or in Loss Given Default
("LGD").
The following is based on the procedures adopted by the
Group:
Granting of credit
The Business Development Team prepare a Credit Application which
sets out the rationale and the pricing for the proposed loan
facility, and confirms that it meets the Group's product,
manufacturer programme and pricing policies. The Application will
include the proposed counterparty's latest financial information
and any other relevant information but as a minimum:
-- Details of the limit requirement e.g. product, amount, tenor, repayment plan etc,
-- Facility purpose or reason for increase,
-- Counterparty details, background, management, financials and ratios (actuals and forecast),
-- Key risks and mitigants for the application,
-- Conditions, covenants & information (and monitoring
proposals) and security (including comments on valuation),
-- Pricing,
-- Confirmation that the proposed exposure falls within risk appetite,
-- Clear indication where the application falls outside of risk appetite.
The Credit Risk Department will analyse the financial
information, obtain reports from a credit reference agency,
allocate a risk rating, and make a decision on the application. The
process may require further dialogue with the Business Development
Team to ascertain additional information or clarification.
Each mandate holder and Committee is authorised to approve loans
up to agreed financial limits and provided that the risk rating of
the counterparty is within agreed parameters. If the financial
limit requested is higher than the credit authority of the first
reviewer of the loan facility request, the application is sent to
the next credit authority level with a recommendation.
The Executive Risk Committee reviews all applications that are
outside the credit approval mandate of the mandate holder due to
the financial limit requested or if the risk rating is outside of
policy but there is a rationale and/or mitigation for considering
the loan on an exceptional basis.
Applications where the counterparty has a high-risk rating of 6
are sent to the Executive Risk Committee for a decision based on a
positive recommendation from Credit Risk department. Where a
limited company has such a risk rating, the Executive Risk
Committee will consider the following mitigating factors:
-- Existing counterparty which has met all obligations in time and in accordance with loan agreements,
-- Counterparty known to credit personnel who can confirm positive experience,
-- Additional security, either tangible or personal guarantees where there is verifiable evidence of personal net
worth,
-- A commercial rationale for approving the application, although this mitigant will generally be in addition to at
least one of the other mitigants.
Identifying significant increases in credit risk
The short tenor of the current loan facilities reduces the
possible adverse effect of changes in economic conditions and/or
the credit risk profile of the counterparty.
The Group nonetheless measures a change in a counterparty's
credit risk mainly on payment performance and end of contract
repayment behaviour. The regular collateral audit process and
interim reviews may highlight other changes in a counterparty's
risk profile, such as the security asset no longer being under the
control of the borrower. The Group views a significant increase in
credit risk as:
-- A two-notch reduction in the Company's counterparty's risk rating, as notified through the credit rating agency
alert system.
-- A counterparty defaults on a payment due under a loan agreement.
-- Late contractual payments which although cured, re-occur on a regular basis.
-- Counterparty confirmation that it has sold DFC financed assets but delays in processing payments.
-- Evidence of a reduction in a counterparty's working capital facilities which has had an adverse effect on its
liquidity.
-- Evidence of actual or attempted sales out of trust or of double financing, of assets funded by the Group.
An increase in significant credit risk is identified when any of
the above events happen after the date of initial recognition.
Identifying loans and advances in default and credit
impaired
The Group's definition of default for this purpose is:
-- A counterparty defaults on a payment due under a loan agreement and that payment is more than 30 days overdue; or
-- The collateral that secures, all or in part, the loan agreement has been sold or is otherwise not available for
sale and the proceeds have not been paid to the lending company; or
-- A counterparty commits an event of default under the terms and conditions of the loan agreement which leads the
lending company to believe that the borrower's ability to meet its credit obligations to the lending company is
in doubt.
The short tenor of the loans extended by the Group means that
significant economic events are unlikely to influence
counterparties' ability to meet their obligations to the Group.
Exposure at default (EAD)
Exposure at default ("EAD") is the expected loan balance at the
point of default and, for the purpose of calculating the ECL,
management have assumed this to be the balance at the reporting
date.
Expected Credit Losses (ECL)
The ECL on an individual loan is based on the credit losses
expected to arise over the life of the loan, being defined as the
difference between all the contractual cash flows that are due to
the Group and the cash flows that it actually expects to
receive.
This difference is then discounted at the original effective
interest rate on the loan to reflect the disposal period of such
assets underlying the original contract.
Regardless of the loan status stage, the aggregated ECL is the
value that the Group expects to lose on its current loan book
having assessed each loan individually.
To calculate the ECL on a loan, the Group considers:
1. Counterparty PD; and
2. LGD on the asset
whereby: ECL = EAD x PD x LGD
Forward looking information
In its ECL models, the Group applies the following sensitivity
analysis of forward-looking economic inputs:
-- GDP growth
-- LIBOR
-- Retail Price Index ("RPI")
However, in making its assessment of the impact of these key
forward looking economic assumptions, the Group has placed reliance
on the short-dated nature of its loans which do not extend beyond
12 months. Given the current loan book has an average tenor of 4
months, the forward looking economic inputs above do not affect the
ECL significantly.
Maximum exposure to credit risk
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Cash and cash equivalents 34,544 33,556 7,556
Loans and advances to customers 168,027 64,138 113,795
Trade receivables 398 116 79
202,969 97,810 121,430
------------------ ---------------------- -------------------
Collateral held as security
30 June 30 June 31 December
2019 2018 2018
Fully collateralised (Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Loan-to-value* ratio:
Less than 50% 3,172 1,357 2,129
51% to 70% 14,583 4,942 5,969
71% to 80% 37,435 15,752 35,946
81% to 90% 35,741 12,157 30,026
91% to 100% 77,398 30,149 39,937
168,329 64,357 114,007
---------------------- ----------------------- ----------------------
Partially collateralised
Collateral value relating to
loans - 22 -
---------------------- ----------------------- ----------------------
over 100% loan-to-value
Unsecured lending 816 27 106
---------------------- ----------------------- ----------------------
* Calculated using wholesale collateral values. Wholesale
collateral values represent the invoice total (including applicable
VAT) from the invoice received from the supplier of the product.
The wholesale amount is typically expected to be less than the
recommended retail price (RRP) of the product.
The Group's lending activities are asset based so it expects
that the majority of its exposure is secured by the collateral
value of the asset that has been funded under the loan agreement.
The Group has title to the collateral which is funded under loan
agreements. The collateral comprises boats, motorcycles,
recreational vehicles, caravans and industrial and agricultural
equipment. The collateral has low depreciation and is not subject
to rapid technological changes or redundancy. There has been no
change in the Group's assessment of collateral and its underlying
value in the reporting period.
The assets are generally in the counterparty's possession, but
this is controlled and managed by the asset audit process. The
audit process checks on a periodic basis that the asset is in the
counterparty's possession and has not been sold out of trust or is
otherwise not in the counterparty's control. The frequency of the
audits is determined by the risk rating assessed at the time that
the borrowing facility is first approved.
Additional security may also be taken to further secure the
counterparty's obligations and further mitigate risk. Further to
this, in many cases, the Group is often granted, by the
counterparty, an option to sell-back the underlying collateral.
Based on the Group's current principle products, the
counterparty repays its obligation under a loan agreement with the
Group at or before the point that it sells the asset. If the asset
is not sold and the loan agreement reaches maturity, the
counterparty is required to pay the amount due under the loan
agreement plus any other amounts due. In the event that the
counterparty does not pay on the due date, the Group's customer
management process will maintain frequent contact with the
counterparty to establish the reason for the delay and agree a
timescale for payment. Senior Management will review actions on a
regular basis to ensure that the Group's position is not being
prejudiced by delays.
In the event DFC determines that payment will not be made
voluntarily, it will enforce the terms of its loan agreement and
recover the asset, initiating legal proceedings for delivery, if
necessary. If there is a shortfall between the net sales proceeds
from the sale of the asset and the counterparty's obligations under
the loan agreement, the shortfall is payable by the counterparty on
demand.
Concentration of credit risk
The Group maintains policies and procedures to manage
concentrations of credit at the counterparty level and industry
level to achieve a diversified loan portfolio.
Credit quality
An analysis of the Group's credit risk exposure for loan and
advances per class of financial asset, internal rating and "stage"
is provided in the following tables. A description of the meanings
of Stages 1, 2 and 3 was given in the accounting policies set out
above.
30 June
30 June 2019 (Unaudited) 2019
Credit rating Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Above average (Risk rating
1-2) 90,423 - - 90,423
Average (Risk rating 3-5) 37,345 19,455 - 56,800
Below average (Risk rating
6+) 13,968 7,189 765 21,922
Gross carrying amount 141,736 26,644 765 169,145
--------- -------- -------- ------------
Loss allowance (154) (38) (455) (647)
Carrying amount 141,582 26,606 310 168,498
--------- -------- -------- ------------
31 December
31 December 2018 (Audited) 2018
Credit rating Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Above average (Risk rating
1-2) 54,987 - - 54,987
Average (Risk rating 3-5) 28,998 14,915 - 43,913
Below average (Risk rating
6+) 7,374 7,705 134 15,213
Gross carrying amount 91,359 22,620 134 114,113
-------- -------- -------- ------------
Loss allowance (88) (32) (49) (169)
Carrying amount 91,271 22,588 85 113,944
-------- -------- -------- ------------
The below table shows the behavioural pattern of loans to
customers in terms of the IFRS 9 staging:
Gross Carrying Amount Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
As at 31 December 2018 (Audited) 91,359 22,620 134 114,113
Transfer to stage 1 11,101 (11,101) - -
Transfer to stage 2 (8,342) 8,422 (80) -
Transfer to stage 3 (228) (681) 909 -
Loans originated 154,246 29,781 51 184,078
Loans repaid (106,400) (22,397) (249) (129,046)
As at 30 June 2019 (Unaudited) 141,736 26,644 765 169,145
---------- ----------- -------- --------------
Gross Carrying Amount Stage 1 Stage 2 Stage 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
As at 31 December 2017 (Audited) 30,390 - - 30,390
Transfer to stage 1 521 (521) -
Transfer to stage 2 (26,577) 26,577 -
Transfer to stage 3 (128) (286) 414 -
Loans originated 202,329 - 3 202,332
Loans repaid (115,176) (3,150) (283) (118,609)
As at 31 December 2018 (Audited) 91,359 22,620 134 114,113
----------- --------- -------- --------------
*During the period ending 31 December 2018, GBP257,000 relating
to assets which were repossessed from a customer in administration,
as outlined in note 17, have been classified in the above table
under stage 3 loan repaid.
Analysis of credit quality of trade receivables:
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Status at balance sheet date
Not past due, nor impaired 160 49 26
Past due but not impaired 224 67 53
Impaired 60 - 11
Total gross carrying amount 444 116 90
--------------------- ------------ ----------------------
Loss allowance (46) - (11)
Carrying amount 398 116 79
--------------------- ------------ ----------------------
Net trade receivables 398 116 79
--------------------- ------------ ----------------------
The Group has assessed the trade receivables in accordance with
IFRS 9 as follows:
30 June 30 June 31 December
2019 2018 2018
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Gross receivable:
Stage 1 355 116 65
Stage 2 29 - 1
Stage 3 60 - 23
444 116 90
---------------------- ----------------- ---------------------
Loss allowance:
Stage 1 (23) - -
Stage 2 - - -
Stage 3 (23) - (11)
(46) - (11)
---------------------- ----------------- ---------------------
Carrying amount:
Stage 1 333 116 65
Stage 2 29 - 1
Stage 3 36 - 12
398 116 79
---------------------- ----------------- ---------------------
Amounts written off
The contractual amount outstanding on financial assets that were
written off during the reporting period and are still subject to
enforcement activity is GBPnil at 30 June 2019 (31 December 2018:
GBPnil).
Liquidity risk
Liquidity risk is the risk that the Group does not have
sufficient financial resources to meet its obligations as they fall
due, or will have to do so at an excessive cost. This risk arises
from mismatches in the timing of cash flows which is inherent in
all finance operations and can be affected by a range of
Group-specific and market-wide events.
Liquidity risk management
The Group has in place a policy and control framework for
managing liquidity risk. The Group's Asset and Liability Management
Committee (ALCO) is responsible for managing the liquidity risk via
a combination of policy formation, review and governance, analysis,
stress testing, limit setting and monitoring. The ALCO meets on a
monthly basis to review the liquidity position and risks. Daily
liquidity reports are produced and reviewed by the management team
to track liquidity and pipeline.
DFC Ltd is in the process of applying for a Bank Licence. One of
the key requirements is to a have a comprehensive liquidity
management process & documentation which is submitted to the
Prudential Regulation Authority (PRA) for approval. These documents
have been approved by the Board of Directors and submitted to the
PRA.
Liquidity stress testing
The Group has assessed its liquidity adequacy and viability for
the first 12 months of operations as a regulated bank, based on its
5-year business plan projections. Under this analysis, the Group is
confident that it will be able to meet all of its liabilities as
they fall due, even in a stress scenario.
A range of liquidity stress scenarios has been conducted (as
detailed in the Internal Liquidity Adequacy Assessment Process
"ILAAP" and Internal Capital Adequacy Assessment Process "ICAAP"),
which demonstrates that the Group's liquidity profile at the end of
this 12-month period will be sufficient to withstand a severe
stress at this time.
Maturity analysis for financial assets
The following maturity analysis is based on expected gross cash
flows:
Gross
30 June 2019 Carrying nominal Less than 1 - 3 3 months 1 - 5
(Unaudited) amount inflow 1 months months to 1 year years >5 years
-------- ---------- -------- ---------- ------- ---------
Financial assets
(GBP000s)
Cash and cash
equivalents 34,544 34,544 34,544 - - - -
Loans and advances 168,027 169,145 42,286 55,501 66,000 5,358 -
Debt securities 19,042 19,050 14,000 5,050 - - -
Trade receivables 398 444 133 222 89 - -
222,011 223,183 90,963 60,773 66,089 5,358 -
--------- -------- ---------- -------- ---------- ------- ---------
Maturity analysis for financial liabilities
The following maturity analysis is based on contractual gross
cash flows:
Gross
30 June 2019 Carrying nominal Less than 1 - 3 3 months 1 - 5
(Unaudited) amount outflow 1 months months to 1 year years >5 years
----------- ---------- ----------- ---------- ------------- ---------
Financial liabilities
(GBP000s)
Preference shares 50 50 - - - 50 -
Other financial
liabilities 140,985 153,362 611 1,978 15,684 135,089 -
Trade payables 554 554 554 - - - -
141,589 153,966 1,165 1,978 15,684 135,139 -
--------- ----------- ---------- ----------- ---------- ------------- ---------
Loan commitments - 4,635 4,635 - - - -
--------- ----------- ---------- ----------- ---------- ------------- ---------
Market risk
Market risk is the risk that movements in market factors, such
as foreign exchange rates, interest rates, credit spreads, equity
prices and commodity prices will reduce the Group's income or the
value of its assets.
The principal market risk to which the Group is exposed is
interest rate risk.
Interest rate risk management
The Group is exposed to the risk of loss from fluctuations in
the future cash flows or fair values of financial instruments
because of the change in market interest rates.
The Group's borrowings are at both fixed rates of interest and
LIBOR based. These borrowings fund existing loans and advances to
customers at fixed rate. To help mitigate interest rate risk the
Group may increase asset pricing accordingly on new assets funded
at its discretion. Additionally, the limited asset average loan
duration helps mitigate this interest rate risk.
For interest rate sensitivity analysis, the Group considers a
parallel 200 basis points ("bps") movement to be appropriate for
scenario testing based on the current economic outlook and industry
expectations.
The impact of changes in interest rates has been assessed in
terms of economic value of equity (EVE) and profit or loss.
Economic value of equity (EVE) is a cash flow calculation that
takes the present value of all asset cash flows and subtracts the
present value of all liability cash flows. This is a long-term
economic measure used to assess the degree of interest rate risk
exposure.
The estimate that a 200bps upward and downward movement in
interest rates would have impacted the economic value of equity
(EVE) is as follows:
30 June 31 December
2019 2018
(Unaudited) (Audited)
GBP'000 GBP'000
Change in interest rate (basis points)
Sensitivity of profit +200bps 1,106 588
Sensitivity of profit -200bps (415) (221)
The estimate of the effect of the same two interest rate shocks
applied on the next 12 months net interest income using a 200bps
upward and 200bps downward movement in interest rates is as
follows:
30 June 31 December
2019 2018
(Unaudited) (Audited)
GBP'000 GBP'000
Change in interest rate (basis points)
Sensitivity of EVE +200bps (422) (498)
Sensitivity of EVE -200bps 432 519
In preparing the sensitivity analyses above, the Group makes
certain assumptions consistent with the expected and contractual
re-pricing behaviour as well as behavioural repayment profiles
under the two interest rate scenarios.
26. Leasing commitments
The Group only has operating leases in the form of leasing of
property for office space. The lease agreements have a fixed term
with a maximum lease term of 5 years. The leasing arrangements
clearly specify the rental expense for the year which is fixed over
the life of the lease. The service charge expense has been
estimated over the life of the term and is not considered
materially variable. Rent and service charge invoices are paid
quarterly in advance. None of the leases have been granted an
interest-free period. Should the Group wish to renew the lease in
the future, this would require signing a new leasing agreement.
The Group did not engage in any subleasing or lease incentive
arrangements in any of the reporting periods and there was no
contingent rent payable for any of the reporting periods.
The Group as lessee:
30 June 31 December
2019 2018
(Unaudited) (Audited)
GBP'000 GBP'000
Lease payments under operating leases
recognised as an expense in the year 115 278
At the year-end dates the Group has lease agreements in respect
of properties for which the payments extend over a number of years.
The future minimum lease payments under non-cancellable leases are
as follows:
30 June 31 December
2019 2018
(Unaudited) (Audited)
GBP'000 GBP'000
Within one year 230 226
In the second to fifth years inclusive 330 489
After five years - -
Total future lease payments committed 561 715
27. Earnings per share
6 months 6 months Year ended
ended ended 31 December
30 June 2019 30 June 2018 2018
(Unaudited) (Unaudited) (Audited)
Number of Shares # # #
At period end 106,641,926 17,240 17,240,000
Basic and diluted - weighted average* 43,310,508 9,473,000 13,414,373
Earnings attributable to ordinary
shareholders GBP'000 GBP'000 GBP'000
Loss after tax attributable to
the shareholders (7,269) (4,055) (7,266)
Adjusted loss (5,082) (4,055) (7,266)
Earnings per share pence pence pence
Basic and diluted (17) (43) (54)
Adjusted (12) (43) (54)
Illustrative (29) (24) (42)
*weighted average shares has been calculated on the assumption
that the subdivision of shares is applied to all periods. See note
21 for further details.
The number of shares for each period shown has been calculated
based on a time-weighting approach. This takes into consideration
that on the 9(th) May 2019, Distribution Finance Capital Limited
effectively demerged from the TruFin Group at which time it had
17,240,000 ordinary class shares. Following the initial public
offering, Distribution Finance Capital Holdings Plc, the ultimate
controlling party of the Group, listed 106,641,926 ordinary shares
on the Alternative Investment Market (AIM).
For illustrative purposes, the Directors have elected to show
the earnings per share as if the transaction in May 2019, as
detailed in note 1 of these financial statements, did not occur in
order to provide a meaningful assessment of the Group's performance
during the six month period to 30 June 2019.
28. Related party disclosures
Key management personnel disclosures are provided in note 8 of
these financial statements.
Counterparty Description of transaction Amounts of transaction
TruFin On 7(th) May 2019, TruFin 6,530,303 A class ordinary shares in
Holdings Limited injected Distribution Finance Capital Ltd were
GBP25 million of equity in granted with a nominal value of GBP0.001
to Distribution Finance Capital each at a total consideration of GBP25
Ltd prior to the demerger million.
from the TruFin Group.
TruFin Distribution Finance Capital During the six month period ending
Ltd held a management service 30 June 2019, Distribution Finance
agreement with TruFin Plc Capital Ltd made payments of GBP26,400
which included a management (exc. VAT) to TruFin Plc in relation
charge of GBP18,750 per quarter. to management charges.
This agreement was terminated
on 7(th) May 2019.
TruFin As part of the transaction During the six month period ending
as outlined in note 1 of 30 June 2019, the Group incurred charges
these financial statements, of GBP700,000 (exc. VAT) to TruFin
TruFin incurred significant Plc in relation to the recharge of
costs in relation to the these transaction costs.
sale and subsequent IPO.
It was agreed prior to the
IPO that these costs were
to be borne by the Group.
TruFin As detailed in note 23, during In April 2019 Distribution Finance
the six month period ended Capital Limited received funding from
30 June 2019, Distribution Trufin Holdings of GBP5 million and
Finance Capital Ltd consolidated GBP3.8m of preference shares were redeemed
and increased funding from and replaced by an equivalent loan
TruFin Holdings. from Trufin Holdings. This together
with the existing GBP10 million loan
increased the total loan with Trufin
Holdings to GBP18.8 million.
TruFin Interest expense recognised In the six month period ended 30 June
within the period in accordance 2019 the Group recorded interest expense
with the signed loan agreements in relation to the loan agreements
with the TruFin Group. held with TruFin of GBP359,000. At
30 June 2019, the Group had interest
payable of GBP652,000.
Director Directors share transactions During the period ended 30 June 2019
Chris Dailey was awarded 84,121 A ordinary
shares in DFC Ltd. Immediately prior
to the admission of DFCH Plc to the
Alternative Investment Market Chris
Dailey held 433,121 A ordinary shares
and 290,000 B ordinary shares in DFC
Ltd these were exchanged for 3,220,701
ordinary shares in DFCH Plc. In addition
Chris Dailey purchased 55,555 DFCH
Plc ordinary shares upon placing.
During the period ended 30 June 2019
Gavin Morris was awarded 5,266 A ordinary
shares in DFC Ltd. Immediately prior
to the admission of DFCH Plc to the
Alternative Investment Market Gavin
Morris held 5,266 A ordinary shares
and 40,000 C ordinary shares in DFC
Ltd these were exchanged for 201,609
ordinary shares in DFCH Plc. In addition
Gavin Morris purchased 27,777 DFCH
Plc shares upon placing.
Henry Kenner and James van den Bergh
received 1,484,947 and 1,391,737 ordinary
shares in DFCH plc on Admission as
a result of shares held in Trufin or
awards in respect of such shares. In
addition James van den Bergh purchased
555,555 DFCH Plc ordinary shares upon
placing.
On placing of DFCH plc John Baines
and Carole Machell acquired 222,222
and 83,333 ordinary shares in DFCH
plc respectively.
Director Loan agreements held with During the six-month period ended 30
Directors of the Group. June 2019 loans were provided to Chris
Dailey and Gavin Morris to fund the
tax liability arising as a result of
their award of 84,121 and 5,266 A ordinary
shares in DFC Ltd respectively.
These loans in respect of Chris Dailey
and Gavin Morris amounted to GBP228,085
and GBP14,278 respectively.
Total loans due from Chris Dailey and
Gavin Morris as at 30 June 2019 were
GBP228,319 and GBP33,138 respectively.
Director Issuance of redeemable non-voting On 5 April 2019, to meet the minimum
preference shares. share capital requirements for public
companies the Company issued 50,000
redeemable non-voting preference shares
of GBP1.00 each to James van den Bergh.
29. Post balance sheet events
On 26 July 2019, DFC had a meeting with the Prudential
Regulation Authority ("PRA") and the Financial Conduct Authority
("FCA") where it was agreed that DFC would re-submit the required
information for its licence application following final checks. DFC
subsequently resubmitted its Bank licence application on 8 August
2019 following Board approval.
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 GMGMLZRDGLZZ
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