TIDMGLIF
RNS Number : 8394I
GLI Finance Limited
26 March 2018
GLI Finance Limited
("the Group" or "GLI")
Final Results for the Year Ended
31 December 2017
GLI Finance announces its Final Results for the year ended 31
December 2017
Year ended Year ended
31 December 2017 31 December
2016
GBP'000 GBP'000
Total revenue 11,634 12,028
Net operating
profit 101 (2,833)
Loss before tax (15,184) (16,355)
Basic and diluted
Loss Per Share (5.01p) (6.49p)
HIGHLIGHTS
Group Highlights
-- Improvement in operating profit to GBP0.1m from a loss of
GBP2.8m in 2016 reflecting strong revenue growth in Sancus BMS,
reduced interest costs and operational cost savings.
-- Group revenue of GBP11.6m decreased by 3% from GBP12.0m in 2016.
-- Adjusting for the sale of the SQN Secured Income Fund shares
("SSIF")*, revenue increased 18%.
-- Stabilisation of the FinTech Ventures portfolio following the
write downs in the first six months.
-- Group NAV is GBP74.8m (2016: GBP90.7m).
-- Sale of the Group's equity holding in SSIF for GBP22.7m and
subsequent repayment of the Group's syndicated loan of
GBP11.9m.
-- In accordance with the Group's stated policy of paying
dividends out of net cash generation, no dividend will be declared
for the period. The Group remains committed to reconvene dividends
as soon as practicable.
Sancus BMS Highlights
-- Revenue growth of 11.4% excluding SSIF dividends.
-- Net operating profit up 26% to GBP1.6m following revenue
growth and a reduction in debt costs.
-- 26% growth in managed loan book to GBP218m with a default
rate of under 0.5% reflecting strong underwriting controls.
-- A special purpose lending vehicle established post year end
with a GBP50m lending capacity, backed by a GBP45m credit facility
with Honeycomb Investment Trust plc ("HIT").
-- Improved performance by Sancus Finance and Sancus Funding**
("Sancus UK") with operating loss reduced by GBP0.8m to GBP1.5m
with targeted break-even by the end of 2018. Sancus Funding now
fully FCA authorised.
FinTech Ventures Highlights
-- FinTech Ventures portfolio stabilised in the second half of
the year following the GBP12.6m write down taken in the first half
and a GBP1.7m foreign exchange loss for the year.
-- The carrying value of FinTech Ventures portfolio reduced to
GBP29.6m from GBP36.1m at 31 December 2016.
-- NAV for FinTech Ventures portfolio 10.0 pence (31 December 2016:13.3 pence).
-- Portfolio companies moving toward break-even with the
majority forecast to achieve break-even during 2018.
-- Further investment made of GBP1.5m in five platform companies
primarily in the form of convertible loan notes during the
year.
-- Several of the platforms are expected to successfully raise
further equity during 2018 to fund future growth.
Andy Whelan, CEO commented:
"The year saw a lot of change as I continued the work I started
on my appointment in December 2015. Two years into my role I can
see real progress.
Sancus BMS is the key operating unit within the Group and is
starting to deliver on its potential. The businesses that comprise
Sancus BMS are good businesses, well run, with the ability to
deliver healthy returns. We are delighted to have secured the
credit facility from HIT which was announced in January 2018 which
will help drive further growth.
We have taken some tough decisions on the FinTech Ventures
portfolio and made substantial write-downs in the first half of the
year. I am delighted that no further net write-down was required at
the end of the year. With most of the restructuring that is
required now complete we will seek to maximise the value of the
portfolio going forward"
*On the 27 April 2017 The SME Loan Fund ("SMEF") was renamed to
the SQN Secured Income Fund ("SSIF").
** Funding Knight changed its name to Sancus Funding on 16
January 2018.
For further information:
GLI Finance +44 (0)1534 708900
Andy Whelan
Nominated Adviser and Broker
+44 (0)207 100
Liberum Capital Limited 2000
Steve Pearce
Chris Clarke
Jonathan Wilkes-Green
Public Relations Adviser
+44 (0)207 457
Instinctif Partners 2020
Tim Linacre
Ambrose Fullalove
CHAIRMAN'S STATEMENT
Positioning the business for the future
As the CEO points out in his review, 2017 was a year of driving
through change. The business structure has been greatly simplified
with two distinct business units.
Sancus BMS comprises the Group's property backed and SME lending
businesses. FinTech Ventures represents the Group's investments in
11 SME focussed lending platforms.
Sancus BMS offers the opportunity for strong growth and will be
the engine of the business going forward.
We took the decision during the first half of the year to reduce
the carrying value of several of the platforms within the FinTech
Ventures portfolio writing down some of the legacy loans and
investments. Whilst there have been some changes to the valuations
of individual investments in the second half of the year I am
pleased to report that the aggregate value of the investment
portfolio has stabilised in the second half of the year. We shall
now explore ways of maximising the value of the portfolio for the
benefit of shareholders.
The launch of a special purpose lending vehicle with a GBP50m
lending capacity, backed by a GBP45m facility with HIT in January
of 2018 was an important step in the expansion plans for Sancus
BMS. The granting of the line is an endorsement of the thorough
credit processes used within Sancus BMS, and we are exploring other
funding lines and working capital focussed facilities, in
particular for the UK Sancus businesses.
Overview
We expect the economies in which we operate to remain supportive
of our businesses for the foreseeable future. The alternative
finance sector continues to develop rapidly and we believe we are
well positioned to benefit from this trend across both parts of our
business.
Sancus BMS Group continues to grow and we have a solid
profitable business with a strong pipeline and some exciting growth
plans which the funding facility will also help provide. With
regards to the FinTech Ventures portfolio, several of our platforms
are performing strongly and we remain confident of achieving a good
return on our investment as transactions materialise in due course.
Across the 11 platforms we are invested in, the majority of them
are forecasting to reach break-even by the end of 2018. We are,
however, a passenger on their growth journey with limited capital
available in GLI itself and hence we provide support with regard to
the strategy and its execution, as well as assisting with capital
restructuring and fundraising.
Dividend and Shareholders
I am grateful to all our shareholders who have kept confidence
with the Group through what has been a difficult period,
particularly in light of the significant decline in the share
price. We believe that the share price is trading well below the
inherent value of the business and we look forward to the share
price reflecting all of the significant work by the CEO and his
Executive Team to simplify the business model and improve
shareholder communication. In line with our dividend policy, it is
not proposed to declare a dividend for this financial year but we
are committed to reinstating one as soon as feasible.
Patrick Firth
Chairman
Date: 26 March 2018
CHIEF EXECUTIVE OFFICER'S REVIEW
Gaining momentum
In the period since my appointment the business has undergone
substantial change. The year under review saw a continuation of the
strategy I set out; the business has been simplified, the FinTech
Ventures portfolio stabilised, and Sancus BMS positioned for
growth.
For the first time since the restructure, the Group is now
producing an operating profit. Whilst this was small in 2017, it is
a big step in the right direction and gives the management team a
very solid and stable foundation to build from.
We have seen revenue growth in Sancus BMS, have reduced costs by
over GBP2m and are working with the companies within the FinTech
Ventures portfolio to maximise value.
The execution of the strategy I started is not yet complete,
however I am optimistic about the prospects. The HIT Funding
Facility will further enable Sancus BMS growth. The majority of the
portfolio companies in FinTech Ventures are heading towards
break-even which, in my view, will facilitate obtaining significant
external funding and accelerate their growth potential.
I will now provide further detail on the operational and
financial performance of the Group looking at Sancus BMS and
FinTech Ventures separately.
Sancus BMS
Sancus BMS continues to grow strongly with the total loan book
advances increasing 26% year on year to GBP218m. On a like for like
basis, year on year revenue within the Sancus BMS Group has
increased by 13% (Table 5 in the Financial Review). The percentage
revenue growth is not proportional to the loan book advances due to
the introduction of the Sancus Loan Notes ("SLNs"), the irregular
nature of loan earn outs and the BMS administration fee being
fixed.
The SLNs comprise a planned series of Special Purpose Vehicles
("SPVs") designed to act like securitisation vehicles to help
offset capital constraints and enable additional co-funder
participation in loan opportunities. These are attractive to new
clients that want to invest in an independently managed (by
Amberton Asset Management) listed product rather than via direct
participation. The first SLN was launched with the equity portion
provided by Sancus BMS in the form of transferred loans and created
a lag on the revenue being earned given Sancus's junior position in
the equity. SLN2 and SLN3 were both launched with cash and
therefore there was a time lag prior to investment. This served to
initially reduce the investment return to Sancus BMS. The decision
has been made to repay SLN1 post year end, partly using the HIT
facility. It is not currently expected that the other two loan
notes will be repaid prior to maturity and we are actively
exploring the option of further loan notes or similar structures in
the near future. The loss of revenue in creating the loan notes was
unfortunate but required in order for us to demonstrate proof of
concept on this new innovative structure. This has allowed us to
issue further loan notes with each subsequent note being issued at
a lower interest rate cost.
Our strong underwriting criteria and procedures continue to
deliver very impressive default rates with losses being maintained
at less than 0.5% across the Sancus BMS portfolio. It should be
noted that there is always the risk of further defaults and
potential losses as lending is not risk free, however the expected
risk adjusted return is considered very attractive.
Sancus Funding, which changed its name from Funding Knight at
the beginning of 2018, transferred into Sancus BMS from FinTech
Ventures during the year as it is now 100% owned by the Group. With
the full FCA authorisation having been obtained in July 2017,
Sancus Funding and Sancus Finance (which combined we will refer to
as Sancus UK) are increasingly being managed as one business and we
are making good progress on the repositioning of Sancus UK. We have
seen a new MD join at the beginning of 2018 whose key task is to
increase performance and bring down costs. These entities had a
strong finish to 2017 with a record number of loan originations.
However, management are acutely aware that performance in these
entities needs to continue to improve and are focussed on achieving
profitability during the coming year.
Over the last year, Sancus BMS has been creating the Sancus
Digital platform consisting of a proprietary Loan Management System
(LMS) for administering loans across all Sancus jurisdictions with
on demand real time management reporting. Onshore funders are able
to access account information and participate in loan funding
opportunities through a LMS integrated transactional portal. Early
2018 saw the launch of our online platform for offshore co-funders
and has been very well received by this key stakeholder group.
Offshore co-funders are able to access their account information
real time through a LMS integrated reporting portal. This enables
co-funders to access statements and see details of individual loans
they are funding and access relevant loan documents. Dual
authentication for online access has also been implemented for
additional security.
FinTech Ventures
The majority of the platforms within our FinTech Ventures
portfolio continue to grow strongly and the loan origination has
increased year on year by an impressive 43%. Following the write
downs required in the first six months of this year, the portfolio
has been stable and it's pleasing to see a small write-up in
aggregate valuation during the second 6 months. There has, however,
been some material movements in value across some of the individual
platforms within the portfolio. The value of our holding in one of
our platforms has increased by over 181% following a material third
party equity raise which is due to complete in early April 2018.
This was largely offset by a 43% reduction in the valuation of our
investment in another platform which is currently undergoing a
capital restructuring.
During the year, further investments, with an aggregate value of
GBP1.5m and largely in the form of convertible loan notes, have
been made into Open Energy Group, LiftForward, Finexkap, UK Bond
Network and Trade River USA, to continue to support their growth
plans. The movement in foreign currency rates since 31 December
2016 has resulted in a GBP1.7m reduction in the fair value of our
investments, primarily arising from the 9.5% devaluation of USD
versus GBP.
Several of the platforms are currently undergoing capital
restructurings, many of which involve securing further equity or
institutional funding at a lower rate than their current cost of
capital. We continue to improve the level of monitoring and
influence over the platforms in which we hold investments in order
to protect our interests and ensure we are well positioned for the
expected upside in due course.
Summary of Financial Performance
For the first time since the corporate restructure, the Group is
now producing an operating profit. The net operating profit of
GBP0.1m in 2017 reflects a significant improvement compared to the
net operating loss of GBP2.8m in 2016 and has been delivered
through the hard work of the management team with a focus on both
sales and driving efficiencies across the Group. Whilst this is
clearly encouraging, we are confident of building on this
performance by improving profits and looking to get back to a
position where we can recommence paying dividends, in line with our
policy noted below. The focus on driving efficiencies has enabled
us to reduce costs by GBP2m in the year, by insourcing more
functions, such as Group accounting and administration and reducing
legal and professional fees in Fintech Ventures. We continue to
look for further efficiencies across the Group.
I am very pleased to report that the FinTech Ventures portfolio
has stabilised in the second half of 2017 with no further net
write-down on the portfolio being required. As I have noted before,
we are largely a passenger, but with Board and advisory rights, on
the FinTech Ventures portfolio. However, as it makes up a large
proportion of our gross assets (28%) we do spend a lot of time and
effort working with the management teams of the platforms and
introducing them wherever we can to potential new investors as well
as providing assistance on capital raises. 2018 is a key year for a
lot of the platforms with most of them forecasting to achieve
break-even. We have seen that getting to this break-even stage is a
key milestone to attract further larger capital injections required
to take them to another level where we can see the potential for
decent returns.
Dividend Policy
The Group dividend policy recognises the need to balance
dividend payments in the short term with the opportunities to grow
the business for shareholders in the longer term. As such the
Group's policy is to make dividend payments which are consistent
with prudent capital and liquidity management, covered by cash
earnings and realised profits on the sale of investments. Any
dividend will be set at a rate that is affordable. GLI is committed
to providing a stable progressive platform for future growth.
Where deemed appropriate and subject to the criteria outlined
above, any dividend payment will be made half yearly, with a
weighting of approximately one third in September as an interim
dividend and two thirds in March as a final dividend.
Post Balance Sheet Events
HIT Funding Facility
A special purpose loan vehicle called Sancus Loans Limited which
is non-recourse to GLI has been established with a GBP50m funding
capacity. This has been backed by a GBP45m credit facility from
HIT, with a term of 3 years, of which GBP17.5m had been drawn and
deployed immediately.
Related Party Transactions
Related party transactions are disclosed in Note 21. There have
been no material changes in the related party transactions
described in the last annual report.
Governance, Risk Management and Operations
Effective governance processes both at subsidiary and holding
company level continue to be a priority for the Board. This is
critical to ensuring that only well-considered risks are taken, and
expected returns emerge as planned. At Group level we have
implemented projects to take a more strategic approach to the
assessment, reporting and management of investment risk.
Operationally a number of technology projects were completed
during the year, in particular to provide Sancus BMS Group with a
proprietary loan management system and enhanced online
functionality.
Long-term strategy and business objectives
As highlighted in the Strategic Plan, we have made excellent
progress in delivering against the objectives we agreed as a Board
towards the end of 2016.
Sancus BMS continues to grow strongly and I am delighted that
our strong underwriting criteria continue to deliver exceptionally
low loss rates. The coordination across the executive and senior
management team, complemented with strong new business development
expertise, is delivering a healthy flow and pipeline of lending
opportunities. Our solid reputation in the markets in which we
operate is also enabling us to lower our cost of funding, through
the extension of our successful loan note program and the credit
facility from HIT.
I am very pleased that the aggregate value of our FinTech
Ventures portfolio has stabilised during the second half following
our decision to take material write downs on a few platforms during
the first half of 2017. We continue to enhance the level of
monitoring and governance of our FinTech companies and have strong
relationships with the platforms we are involved with.
Outlook
The Group has gone through a period of sustained change over the
past two years. We are now in a solid position with the potential
for strong risk-adjusted performance for the Group. However, I
fully appreciate that we have two businesses; Sancus BMS and the
FinTech Ventures portfolio which might not ordinarily be grouped
together. Therefore, I will continue to consider how we can
maximise their value in the future.
I would like to thank our shareholders for their continued
support and patience.
Andrew Whelan
Chief Executive Officer
26 March 2018
FINANCIAL REVIEW
Overview
Our focus remains on the operating profits of Sancus BMS and the
growth in the fair value of FinTech Ventures' investments.
Sancus BMS includes the three Sancus entities (Sancus Jersey,
Sancus Gibraltar and Sancus Guernsey) along with Sancus Finance,
Sancus Funding, BMS and Amberton. It is worth noting that the prior
year comparisons do not include a full years' worth of trading for
Sancus Gibraltar and Sancus Funding as these were not brought into
the Group until the second half of 2016. The adjustment for these
entities would have resulted in an additional GBP0.9m of revenue
and GBP1m of costs so on a net operating profit basis a GBP0.1m
adjustment, so comments made below are on the Statutory Results. A
proforma set of results for the Sancus BMS Group by entity is shown
in Table 5.
The results for the year showed that we reached profitability on
a net operating basis with a GBP0.1m profit this year versus a
GBP2.8m loss in the prior year. The overall loss of GBP15.2m in
2017 was largely caused by the GBP12.3m write down on the FinTech
Ventures portfolio in the first half of the year and a GBP1.5m FX
loss for the year. We do still however hold equity stakes in all 11
platforms, with some valued at zero, but in total with a valuation
of GBP29.6m. The second half of the year has seen some positive
developments with several of the platforms and it is pleasing that
the aggregate value of the portfolio has stabilised. Given the
early stage of several of these platforms, there remains a risk
that some of them may potentially not succeed and future capital
funding into these platforms is critical. Several of the platforms
are expecting to conduct equity raises during 2018 and we will
continue to support management wherever we can.
The overall Group performance in the year is showing positive
signs and reflects the hard work that has been put into the
restructuring of the Group and cost saving initiatives over the
past two years. Sancus BMS has shown a good performance with 11.4%
revenue growth on prior year excluding SSIF dividends and cost
savings made in Sancus Funding and Sancus Finance of GBP0.8m,
producing a 26% increase on Sancus BMS operating profit of GBP1.6m
versus GBP1.2m in 2016.
Group debt costs have reduced following the syndicated loan
repayment in March 2017 when the SSIF shares were sold, reflecting
below the reduction of the SSIF dividend income compared to prior
year, but also a reduction in interest costs.
At Group level, further savings have been made on operating
costs including administration, legal, marketing and staff
costs.
The FX loss of GBP1.5m for the year largely reflects our USD
exposure on our platforms. The Treasury Committee continuously
monitors the currency position, however due to the ever-changing
valuations of the platforms the Board's stance on hedging remains
as prior that we do not currently hedge our position.
Goodwill impairment reviews on Sancus Jersey and Sancus Finance
have been carried out as at 31 December 2017 and no impairment has
been deemed necessary. A full annual impairment review for Sancus
Gibraltar was carried out at 30 June 2017. Further details in
respect of the testing and methodology is noted in Note 10.
Financial Results for the year ended 31 December 2017 (Table
1)
2017 2016 Movement Movement
GBP'000 GBP'000 % GBP'000
Sancus BMS interest on loans
and fee and other income 10,038 9,007 11% 1,031
FinTech Ventures interest
on loans and fee and other
income 1,293 628 106% 665
SSIF dividends 303 2,393 (87%) (2,090)
Revenue 11,634 12,028 (3%) (394)
Interest costs (2,178) (3,774) (42%) 1,596
Other cost of sales (270) (78) (246%) (192)
Gross profit 9,186 8,176 12% 1,010
Operating expenses (9,085) (11,009) 17% 1,924
Net operating profit/(loss) 101 (2,833) 104% 2,934
Fair Value, Goodwill and
other net losses (13,802) (18,044) 24% 4,242
FX (loss)/gain (1,463) 4,425 (133%) (5,888)
Tax (20) (83) 76% 63
Loss for the year (15,184) (16,535) 8% 1,351
Revenue
Total revenue for the year reduced by 3% to GBP11.6m (2016:
GBP12m), the reduction however is due to structural changes within
the Group and the sale of the shares held in SSIF in March 2017
(refer Note 7). Excluding the SSIF dividends which as now sold we
will no longer receive, revenue was up by 18%.
The principal driver of revenue growth within Sancus BMS has
been fee income from arrangement and commitment fees arising from
the increase in loan origination. However, the increase in fees has
been somewhat offset by a reduction in interest income as on
balance sheet funds have not grown due to capital constraints and
the Sancus Loan Notes have also caused a reduction in income,
particularly in the first half of 2017.
Revenues from interest income from loans and preference shares
held in FinTech Ventures increased in the year as additional loans
and accrued interest were acquired as part of the sale of our
shares in SSIF.
Interest Costs
Interest costs have decreased in the year from GBP3.8m to
GBP2.2m as the syndicated loan of GBP11.9m was repaid in March
2017. As intended, the repayment of the syndicated loan enabled us
to reduce our weighted average interest cost for the year ended 31
December 2017 down to 5.9% (from 7.5% at 31 December 2016). At the
year end, interest bearing debt comprised:
o GBP10m 5-year Bond (7%) matures 30 June 2021, interest paid
half yearly; and
o GBP20.7m 2019 ZDPS (5.5%) income entitlement and principal due
on expiry 5 December 2019 (GBP24.7m).
To measure business unit performance, finance costs are
allocated to Sancus BMS to recognise its use of the Group's debt
facilities in its lending activities. FinTech Ventures is treated
as being funded by equity. This allocation best matches the risk
profile of each business unit with its capital structure, as well
as recognising that interest costs are effectively serviced by
interest income from Sancus BMS.
Operating Expenses
Operating expenses for the year of GBP9.1m compared to GBP11.0m
in 2016.
Our focus on improving efficiency delivered GBP2m reduction in
costs. These cost savings have largely been achieved by insourcing
more functions, such as our group accounting by implementing Xero
accounting system across the Group, particularly at the Group Head
Office. Within FinTech Ventures, we have successfully reduced our
legal and professional fees.
Sancus BMS's operating expenses have remained flat year on year
with an increase in employment costs from the investment into
business development resources and the expansion of its operations
in the Offshore entities. However, this has been mostly offset by
cost savings in Sancus Finance and Sancus Funding.
Fair Value adjustments and other net losses including FX (Table
2)
In total the fair value adjustments and other net losses in the
year produced a loss of GBP15.3m. The breakdown is shown in the
table below.
GBP'000 H1 2017 H2 2017 Full Year
2017
--------------------------- --------- -------- ----------
FinTech Ventures loan
provision (2,790) - (2,790)
--------------------------- --------- -------- ----------
FinTech Ventures loan
write down (806) - (806)
--------------------------- --------- -------- ----------
FinTech Ventures equity
fair value movement (8,630) 306 (8,324)
--------------------------- --------- -------- ----------
FinTech Ventures other (332) - (332)
--------------------------- --------- -------- ----------
Total FinTech Ventures
before FX Loss (12,558) 306 (12,252)
--------------------------- --------- -------- ----------
FinTech Ventures FX
Loss (992) (669) (1,661)
--------------------------- --------- -------- ----------
Total FinTech Ventures (13,550) (363) (13,913)
--------------------------- --------- -------- ----------
Amberton NAV movement (381) (76) (457)
--------------------------- --------- -------- ----------
Sancus BMS FX movement 169 29 198
--------------------------- --------- -------- ----------
Sancus BMS other movement 80 (220) (140)
--------------------------- --------- -------- ----------
Total Sancus BMS (132) (267) (399)
--------------------------- --------- -------- ----------
SSIF realised loss
on sale (953) - (953)
--------------------------- --------- -------- ----------
Total Losses on financial
assets at FVTPL (14,635) (630) (15,265)
--------------------------- --------- -------- ----------
The loan provision and loan write-down made during the first
half of the year related to legacy GLI loans which were previously
held within the SSIF portfolio. As part of the sale of GLI's stake
in SSIF, these were transferred back to GLI. The equity write-down
related to two platforms, one which was in the process of looking
to raise further equity capital and based on the expressions of
interest at the time, management believed it was prudent to reduce
our holding value of this investment by GBP6.1m. The second equity
write down of GBP2.5m related to one of the platforms which was
performing behind forecasts.
Dividend Policy
A dividend of 0.625 pence per share was paid in April 2017 in
relation to quarter four 2016. In line with the Group's announced
dividend policy whereby dividends are only paid out of net cash
generated in the period there will be no dividend declared for the
year.
Financial Position (Table 3)
GBP'000 31 December 2017 31 December
2016
Sancus BMS on Balance Sheet
Loans and loan equivalents 46,326 38,821
Shares in SSIF - 23,781
Goodwill 25,033 25,033
FinTech Ventures' Loan
and loan equivalents 839 4,034
FinTech Ventures' Investment
Portfolio 29,598 36,104
Group Cash, trade receivables
and other assets 10,656 14,347
Total assets 112,452 142,120
Total liabilities (37,649) (51,252)
Group net assets 74,803 90,868
The Group's Net assets have decreased in the year by GBP16.1m to
GBP74.8m, predominantly due to the fair value adjustments noted in
Table 2.
Sancus BMS on Balance Sheet Loans and loan equivalents (Table
4)
On balance sheet loan and loan equivalents have increased in the
year from GBP38.8m to GBP46.3m, with an increase in the BMS Funds
and SLNs being the primary driver for the increase. The IOM
Preference shares which are included as an asset and a payable have
reduced in the year as a result of a review by the Sancus IOM Board
as to the optimum capital structuring of the business.
GBP'000 31 December 31 December
2017 2016
----------------------------------- ------------ ------------
Sancus Jersey 4,808 3,659
----------------------------------- ------------ ------------
Sancus Gibraltar 5,896 4,968
----------------------------------- ------------ ------------
Sancus Guernsey 718 1,180
----------------------------------- ------------ ------------
BMS - Investment in the funds
and other loans 22,045 19,114
----------------------------------- ------------ ------------
Sancus UK 1,002 -
----------------------------------- ------------ ------------
Sancus Loan Notes 10,907 7,500
----------------------------------- ------------ ------------
IOM preference shares 950 2,400
----------------------------------- ------------ ------------
Total Sancus BMS on Balance
Sheet Loans and loan equivalents 46,326 38,821
----------------------------------- ------------ ------------
Shares held in SSIF were sold in the year, raising GBP22.7m in
cash which was partly used to repay the syndicated loan.
Goodwill has remained at GBP25.0m and a full impairment review
has been carried out on Sancus Jersey and Sancus Finance at the
year end and Sancus Gibraltar at the half year. No impairment to
Goodwill was deemed necessary. A breakdown of the balances is
provided in Note 10.
The FinTech Ventures loans and loan equivalents of GBP0.8m (31
December 2016: GBP4.0m) has decreased during the year due to the
repayment of certain loans and the write down and provision against
the loans acquired from the sale of SSIF.
FinTech Ventures portfolio was valued at GBP29.6m at the year
end (31 December 2016: GBP36.1m). This relates to equity,
preference shares and working capital loans. The movement in the
year includes an GBP8.3m write down on fair value adjustments, a
GBP3.6m loan provision and loan write down and a GBP1.7m FX loss on
the USD exposure of the portfolio with the remaining movement being
the net additions and repayments in the year (Table 2).
The Group's liabilities have reduced by GBP13.6m to GBP37.6m in
the year following the repayment of the syndicated loan with the
Group gearing ratio now at 33% (31 December 2016: 36%).
Cashflow
Cash flows used in operating activities for the year to 31
December 2017 was GBP7.3m compared to GBP8.7m in the prior year.
During the year we sold our holding in SSIF, raising GBP22.7m
resulting in net cash inflow from investing activities of GBP14.8m
(31 December 2016: GBP9.0m). Cash used in financing activities in
the year was GBP14.1m (31 December 2016: GBP8.3m) including the
repayment of the syndicated loan (GBP11.9m) and the payment of the
Q4 2016 GLI dividend (GBP1.3m).
Sancus BMS
Financial Review
Proforma Results of Operating Entities in Sancus BMS
The table below provides comparative figures for the three
operating businesses within Sancus BMS as if they had been wholly
owned by the Group for the last 2 years. The adjustments made to
the 2016 statutory results for a full years' worth of trading for
Sancus Gibraltar and Sancus Funding were an additional GBP0.9m for
revenue, GBP1m of operating expenses so a GBP0.1m loss adjustment
on net operating profit basis. Revenue has also been normalised to
exclude earnings in 2016 on Sancus's participation in the
syndicated loan to GLI and non-recurring earnings in BMS. No
adjustments have been made to 2017 revenue. Tables 6,7,8 reflect
actual results, so have not been normalised to exclude
non-sustainable earnings, but intercompany items have been
eliminated.
Table 5
2017 2016 2017 v 2
2016 Movement
--------------- ------------------------------------------------ -------------------------------------------- ------------------
GBP'000 Sancus BMS Sancus Total Sancus BMS Sancus Total % GBP'000
UK* UK *
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Total
revenue 5,363 3,588 1,087 10,038 4,859 3,163 854 8,876 13% 1,162
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Other
cost of
sales (15) - (255) (270) (35) - (43) (78) (246%) (192)
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Operating
expenses (2,510) (1,469) (2,361) (6,340) (1,872) (1,320) (3,184) (6,376) 1% 36
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Net operating
profit/(loss) 2,838 2,119 (1,529) 3,428 2,952 1,843 (2,373) 2,422 42% 1,006
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Allocated
debt costs - - - (1,878) - - - (1,887) 0% 9
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Net profit
after
debt costs - - - 1,550 - - - 535 190% 1,015
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Cost income
ratio 46.8% 40.9% 217.2% 63.2% 38.5% 41.7% 373.0% 71.8% 12% 8.7%
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
Total GBP118.9m GBP81.3m GBP18.2m GBP218.4m GBP100.9m GBP50.8m GBP21.7m GBP173.4m 26% GBP45.0m
Loan Book
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
On Balance GBP22.3m** GBP22.0m*** GBP1m GBP45.3m GBP17.3m GBP19.1m - GBP36.4m 24% GBP8.9m
sheet
loans
--------------- ----------- ------------ --------- ---------- ---------- --------- --------- ---------- ------- ---------
*Sancus Finance and Sancus Funding combined results.
** Sancus Loan Notes included in Sancus total.
*** Includes BMS UK and Irish fund loans held by GLI GBP1m and
BMS GBP21m.
Year on year, revenue has increased by 13% with operating
expenses remaining flat in total overall, resulting in an increase
in Operating Profit before Interest (OPBI) of 42%, being a GBP1m
increase. Revenue within Sancus and BMS has increased by 10% and
13% respectively with the revenues after cost of sales in Sancus UK
remaining flat.
We have seen an increase in costs within Sancus as the team has
been built out to expand operations. The team now in place is
largely complete and we would not expect these costs to increase at
the same rate going forward. There are plans in place however to
open an Irish office during the second half of 2018 to extend the
Sancus property backed lending model.
On the 29 January 2018 it was announced that a special purpose
loan vehicle called Sancus Loans Limited which is non-recourse to
GLI has been established with a GBP50m funding capacity. This has
been backed by a GBP45m credit facility from HIT, with a term of 3
years, of which GBP17.5m had been drawn and deployed immediately.
This will allow Sancus to further complement its existing co-funder
base particularly in funding larger loan opportunities and will
support further loan book growth through 2018 and beyond.
The costs within Sancus UK have been reduced by GBP0.8m in the
year primarily as a result of reduction in headcount, and we
continue to seek out further efficiencies as the business becomes
more integrated.
Over the years, BMS revenues have changed in nature -
transaction related fees and interest on loans from own capital
have been largely replaced by returns from the loan funds they
advise together with related advisory fees.
Sancus
www.sancus.com
Sancus has loaned in total GBP432m since it became fully
operational in January 2014, including the Isle of Man.
On average, the profile of the loan book is as follows:
-- Loans size is GBP1.9m;
-- duration is 18 months;
-- interest rates charged are 10.3%, and
-- loan to Values (LTV) are 50%.
The total loan book has increased by 18% from GBP100.9m at the
end of December 2016 to GBP118.9m at the end of December 2017.
The purchase of Sancus Gibraltar added GBP22m to the loan book
at acquisition and half of the organic growth in 2016 came through
further deployment of capital in Sancus Gibraltar.
Co-funder participation increased by 15.6% during 2017, up to
GBP96.6m, with GBP25.8m deployed across the Sancus Loan Notes and
GBP70.8m deployed directly into individual loans.
Transaction fees have increased by 13% during 2017 as a result
of the increase in loan origination, as well as transaction
specific exit fees.
Interest income in absolute terms saw a marginal decrease from
2015 to 2016 due to the time taken to deploy the funds raised
through the Sancus Loan Note 1 which was launched in November 2016.
We saw a slight uptick in 2017 in absolute terms but interest
income is not increasing in line with the growth of the loan book
for the reasons noted earlier re the loan notes. Lending rates have
been maintained at around 10% and as such interest revenue is
expected to recover.
Sancus entities continue to enjoy excellent retention rates
amongst co-funders, as they seek both to recycle and deploy
additional capital upon maturity of existing loans to exploit new
opportunities. With attractive risk returns and Sancus's track
record of a default lower than 0.5% (but no losses) since
inception, strong appetite to participate in loans is expected to
continue from existing and new co-funders.
Co-funder fees are down slightly in the second half of 2017 as
the average balance of co-funder participations fell temporarily,
until improving in the last month of the year as lending
opportunities became available.
At year end, Sancus entities reported a strong pipeline of
potential new loans. Allied with strong demand for co-funder
participation and the HIT funding line, this positions the
businesses strongly to exploit further opportunities for revenue
growth in 2018.
BMS Finance
www.bms-finance.com
BMS has loaned and advised in total GBP152m since it became
fully operational in 2004.
The loan book funded by external capital has increased
significantly from December 2014 to December 2017 (601%) and by 61%
since the end of 2016. The main drivers being the growth in the UK
loan fund which was launched in August 2014 and the launch of the
Irish loan fund in March 2016. The decrease in BMS deployed capital
from GBP13.8m in December 2015 to GBP13.3m at the end of December
2016 arose following the launch of the Irish fund through BMS
seeding the fund with loans from its own balance sheet. Third party
investors funded circa 50% of the capital required for the fund to
take on these loans, releasing cash to BMS to use for its overall
funding commitments into both funds. This has increased to GBP21m
this year.
Total income has remained relatively flat year on year as
advisory fees earned from the funds are fixed in nature and lending
activity directly from the BMS balance sheet decreased as focus
continued towards advising the funds. The income arising from fund
holdings is BMS's share of the total return on the underlying book
of each fund which consists of long term loans to SME's priced
between 12% and 14% with return kicker mechanisms attached.
Historically the net return to investors after fund costs has
averaged between 10% to 12%.
Default rates within the loan funds continue to remain low at
less than 0.5%.
Sancus Finance and Sancus Funding (Sancus UK)
www.sancus.com
Since inception, Sancus Finance and Sancus Funding has arranged
over GBP200m of funding for its SME clients.
Key developments over the last 12 months:
-- The business repositioned its offering over the year in
response to borrower demand and feedback from funders, with a focus
on supply chain finance, education finance and invoice trading;
-- improved offering for funders with access to credit-enhanced
options in the form of 90% credit insurance (supply chain finance)
and first loss protection from Sancus Finance (supply chain finance
or invoice trading);
-- significant enhancements to online platform, improving user
experience and better reporting for funders;
-- Sancus Finance and Sancus Funding now run on a combined basis
with drive to realise cost synergies through combined offices,
senior management and reduced overall headcount; and
-- Sancus Funding secured full FCA authorisation.
Sancus Finance advanced over GBP37m in working capital financing
for businesses during the year. Origination volumes in the new
product areas grew quarter on quarter, with strong momentum heading
into 2018. The shift to lower-risk products is reflected in
significantly improved default rates, with losses of less than 1%
in 2017.
It is a strategic priority for the group to make the business
profitable during the course of 2018 by continuing to accelerate
the provision of working capital funding through Sancus Finance and
secured property funding and asset backed lending through Sancus
Funding, while at the same time maintaining cost discipline across
the businesses.
FinTech Ventures
Financial Review
FinTech Ventures Portfolio Asset Split (Table 9)
GBP'000 31 December 31 December
2017 2016
---------------------------------- ------------ ------------
Equity 24,554 31,294
---------------------------------- ------------ ------------
Preference Shares 1,916 3,405
---------------------------------- ------------ ------------
Loans 3,128 1,405
---------------------------------- ------------ ------------
Total FinTech Ventures portfolio 29,598 36,104
---------------------------------- ------------ ------------
Total Number of Platforms 11 11
---------------------------------- ------------ ------------
Number of Platforms valued
at zero 2 2
---------------------------------- ------------ ------------
The total fair value at 31 December 2017 of GBP29.6m is made up
of investments in the following instruments: GBP24.6m Equity,
GBP1.9m Preference Shares, and GBP3.1m of Working Capital Loans.
During 2016 and the first half of 2017 some tough decisions have
been made to write down the valuations of several of the platforms
in the portfolio. However, it is encouraging to see that the
aggregate portfolio valuation has stabilised, delivering a small
net write up, in the second half of 2017.
There have, however, been some material movements in value of
individual platforms within the portfolio. One of the platforms in
which we are invested has performed very strongly during the year,
exceeding its forecasts, and has received several very positive
terms sheets, including from some well-known equity houses and
international banks. As a result, our valuation at year end has
increased by over 181% and we believe there is considerable
potential for it to increase further in due course. This increase
has been largely offset by a 43% reduction in the valuation of our
investment in another platform which has recently undergone a
capital restructuring, which has resulted in some of our securities
being written off.
The minority stakes in the start-up platforms acquired by the
Group during 2014 and 2015 are considered to have the potential to
deliver significant returns in due course. What was not initially
obvious at the time the investments were made was the time and
funding it might require for these businesses to reach
profitability. As a portfolio of early stage businesses, it is
perhaps inevitable that some platforms have either failed or have
underperformed to the point where it has been appropriate to take
write-downs. Several of the platforms continue to perform well with
good year on year growth, and it is very pleasing that we have
started to be able to make some upward adjustments to fair values,
largely linked to where there has been a successful third party
fund raise. Whilst investment risk related to this portfolio will
remain an ongoing feature we hope to see an increase in successful
third party equity raises in the foreseeable future with several
being considered in 2018.
The valuation methodology employed by the Group is unchanged and
remains compliant with IFRS13, based on a fair value approach and
taking into account the International Private Equity and Venture
Capital Valuation Guidelines ("IPEV"), which provides guidance on
fair value valuation practices. We continue to utilise the services
of independent valuation experts and recent transaction prices to
complement our internally managed discounted cash flow models.
Total FinTech Ventures' Investments
Return on Investment (ROI)
Table 11
Year 2013 2014 2015 2016 H1 - H2 - 2017
2017 2017
------------------------ ------ ------- --------- -------- --------- ------- ---------
Balance brought
forward - 2,406 15,931 38,806 36,104 28,922 36,104
------------------------ ------ ------- --------- -------- --------- ------- ---------
New investment 2,422 4,969 35,674 8,678 918 1,024 1,942
------------------------ ------ ------- --------- -------- --------- ------- ---------
Disposals/loan
repayments (1) - - (12,779) (1,412) (414) - (414)
------------------------ ------ ------- --------- -------- --------- ------- ---------
Transfer of investment
from SSIF (2) - - - - 5,007 - 5,007
------------------------ ------ ------- --------- -------- --------- ------- ---------
Reclassification - - - - 418 - 418
------------------------ ------ ------- --------- -------- --------- ------- ---------
Transfer from - - - (2,536) - - -
Associate to
Subsidiary -
Sancus Finance
------------------------ ------ ------- --------- -------- --------- ------- ---------
Gains/(losses) (16) 8,556 (20) (7,432) (13,111) (348) (13,459)
------------------------ ------ ------- --------- -------- --------- ------- ---------
Fair Value 2,406 15,931 38,806 36,104 28,922 29,598 29,598
------------------------ ------ ------- --------- -------- --------- ------- ---------
Return on Investment
(3) -1.3% 177.1% 0.2% -17.1% -30.3% 0.1% -29.8%
------------------------ ------ ------- --------- -------- --------- ------- ---------
2013-2017 (4) -24.3%
------------------------ ------ ------- --------- -------- --------- ------- ---------
Net Asset Value
per GLI Ordinary
Share 1.7p 14.1p 16.9p 13.3p 10.0p 10.0p 10.0p
------------------------ ------ ------- --------- -------- --------- ------- ---------
Notes
1 Included in 2015 disposals is GBP9.2m in relation to the
novation of securities to SMEF in return for shares in the fund.
The remaining disposals were loan repayments by platforms.
2 In March 2017 certain loans were acquired from SSIF.
3 Calculated using total revenue, including interest, other
income, realised and unrealised gains and losses, divided by the
average cost for the given year.
4 Calculated as total return for the year over the total cost of
the portfolio as at 31 December 2017.
5 Sancus Funding as a subsidiary is not included in the above
table.
In the second half of 2017, the valuations stabilised resulting
in an ROI of 0.1% which represented a small gain due to FX losses
offsetting interest income. This resulted in an overall loss for
the year of 29.8%. All data quoted includes movements in FX.
Platform Exposure
Table 12
Platform Platform NAV per
exposure share (pence)
GBP'm
------------------------ ---------- ---------------
1 8.4 2.7
------------------------ ---------- ---------------
2 5.3 1.7
------------------------ ---------- ---------------
3 4.9 1.6
------------------------ ---------- ---------------
4 4.2 1.3
------------------------ ---------- ---------------
5 2.5 0.8
------------------------ ---------- ---------------
6 - 11 4.3 1.4
------------------------ ---------- ---------------
Total Fair Value
of Portfolio 29.6 9.5
------------------------ ---------- ---------------
Loans through platforms
and accrued interest 1.5 0.5
------------------------ ---------- ---------------
Total Net Assets
of FinTech Ventures 31.1 10.0
------------------------ ---------- ---------------
For commercial reasons we do not disclose the carrying value of
each platform, but to provide some transparency regarding the
portfolio exposure the above table splits out the platform exposure
by amount for the largest 5 holdings and NAV per share.
As at 31 December 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes 31 December 31 December 2016
2017 *
GBP'000 GBP'000
Interest on loans 4,573 4,650
SSIF dividends 303 2,393
Fee and other income 5 6,758 4,985
----------- -----------------------
Total revenue 11,634 12,028
Interest costs (2,178) (3,774)
Other cost of sales (270) (78)
----------- -----------------------
Gross profit 9,186 8,176
----------- -----------------------
Operating expenses
Administration and secretarial
fees 233 672
Legal and professional fees 635 2,071
Other expenses 6 8,217 8,266
----------- -----------------------
Total operating expenses 9,085 11,009
----------- -----------------------
Net operating profit/(loss) 101 (2,833)
----------- -----------------------
Losses on financial assets
at fair value through profit
and loss
SSIF loss on disposal / fair
value adjustment 7 (953) (1,529)
Net loss on de-recognition
of SSIF as a subsidiary - (1,208)
Share of loss of associates
and joint ventures 8 (454) (22)
FinTech Ventures fair value
adjustment 22 (13,459) (7,432)
Other net (losses)/gains (399) 718
----------- -----------------------
Losses on financial assets
at fair value through profit
and loss (15,265) (9,473)
----------- -----------------------
Goodwill impairment 10 - (4,146)
Loss before tax (15,164) (16,452)
----------- -----------------------
Income tax expense 15 (20) (83)
----------- -----------------------
Loss for the year after tax (15,184) (16,535)
=========== =======================
Other comprehensive income
Items that may subsequently
be reclassified to profit or
loss:
Foreign exchange on consolidation - 163
----------- -----------------------
Total comprehensive loss for
the year (15,184) (16,372)
=========== =======================
Loss for the year after tax
attributable to:
Equity holders of the Company (15,164) (17,593)
Non-controlling interest (20) 1,058
----------- -----------------------
(15,184) (16,535)
=========== =======================
Total comprehensive (loss)/income
attributable to:
Equity holders of the Company (15,164) (17,430)
Non-controlling interest (20) 1,058
----------- -----------------------
(15,184) (16,372)
=========== =======================
Basic and Diluted Loss per
Ordinary Share 9 (5.01)p (6.49)p
=========== =======================
* Other cost of sales was netted off Fee and other income in the
prior year.
All losses are from continuing operations in both 2017 and
2016.
As at 31 December 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 31 December 2016
2017 *
ASSETS Notes GBP'000 GBP'000
Non-current assets
Property and equipment 63 98
Goodwill 10 25,033 25,033
Other intangible assets 11 530 520
Sancus BMS loans 19 24,238 19,216
Investment in Sancus Loan Notes 19 3,000 7,500
----------- ----------------
Total Sancus BMS loans and
loan equivalents 27,238 26,716
19,
FinTech Investments 22 29,598 36,104
Other investments 19 542 873
Investments in joint ventures
and associates 19 2,266 528
----------- ----------------
Total Non-current assets 85,270 89,872
----------- ----------------
Current assets
Investment in SSIF - 23,781
Loans through platforms 19 908 4,034
Sancus BMS loans 19 8,560 3,900
Investment in Sancus Loan Notes 19 7,907 -
Loan equivalents 19 2,621 8,205
----------- ----------------
Total Sancus BMS loans and
loan equivalents 19,088 12,105
Trade and other receivables 12 4,170 2,712
Cash and cash equivalents 3,016 9,616
----------- ----------------
Total Current assets 27,182 52,248
----------- ----------------
Total assets 112,452 142,120
=========== ================
EQUITY
Share premium 13 112,557 111,942
Treasury shares 13 (1,162) (1,734)
Distributable reserve 13 - 34,803
Retained earnings (36,588) (54,268)
----------- ----------------
Capital and reserves attributable
to equity holders of the Group 74,807 90,743
----------- ----------------
Non-controlling interest (4) 125
Total equity 74,803 90,868
----------- ----------------
LIABILITIES
ZDP shares 14 24,714 23,436
Corporate bond 14 10,000 8,500
----------- ----------------
Non-current liabilities 14 34,714 31,936
----------- ----------------
Current liabilities
Syndicated loan 14 - 11,920
Trade and other payables 14 2,935 7,396
----------- ----------------
Total current liabilities 14 2,935 19,316
----------- ----------------
Total liabilities 37,649 51,252
----------- ----------------
Total equity and liabilities 112,452 142,120
=========== ================
* Reclassified. See Note 11.
The financial statements were approved by the Board of Directors
on 26 March 2018 and were signed on its behalf by:
Director: Patrick Firth Director: John Whittle
As at 31 December 2017
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share Share Treasury Distributable Foreign Retained Capital Non-controlling Total
Capital Premium Shares **Reserve Exchange **Earnings/ and reserves Interest Equity
Reserve (Losses) attributable
to
equity
holders
of
the Company
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31
December 2016 - 111,942 (1,734) 34,803 - (54,268) 90,743 125 90,868
Transferred to
management
(Note
13) - - 572 - - - 572 - 572
Transfer of
distributable
reserves to
retained
earnings (Note
13) - - - (34,803) - 34,803 - - -
Acquisition of
non-controlling
interest in
Sancus
Finance - - - - - (241) (241) (109) (350)
Dividends paid* - 615 - - - (1,718) (1,103) - (1,103)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Transactions
with owners - 615 572 (34,803) - 32,844 (772) (109) (881)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Total
comprehensive
loss for the
year - - - - - (15,164) (15,164) (20) (15,184)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Balance at 31
December 2017 - 112,557 (1,162) - - (36,588) 74,807 (4) 74,803
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Balance at 31
December 2015 - 87,405 - 34,803 (163) (28,953) 93,092 13,791 106,883
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Net proceeds
from Ordinary
Shares issued
(Note 13) - 24,537 - - - - 24,537 - 24,537
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Treasury shares
(Note 13) - - (1,734) - - - (1,734) - (1,734)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Dividends paid - - - - - (6,117) (6,117) - (6,117)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Other reserves
movement - - - 1,973 1,973 130 2,103
--------------------------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Acquisition of
non-controlling
interest in
Sancus
Finance - - - - - 416 416 (416) -
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Acquisition of
NCI without
change
in control in
SBHL - - - - - (4,096) (4,096) (1,745) (5,841)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Disposal of
non-controlling
interest - - - - - - 102 102 (12,693) (12,591)
----------------- --------- --- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Transactions
with owners - 24,537 (1,734) - - (7,722) 15,081 (14,724) 357
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Profit /(loss)
for the year - - - - - (17,593) (17,593) 1,058 (16,535)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Foreign exchange
on
consolidation - - - - 163 - 163 - 163
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Total
comprehensive
income/(loss)
for the year - - - - 163 (17,593) (17,430) 1,058 (16,372)
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
Balance at 31
December 2016 - 111,942 (1,734) 34,803 - (54,268) 90,743 125 90,868
----------------- -------------- -------- --------- -------------- --------- ----------------------- ------------- ---------------- ----------
* During the year ended 31 December 2017, the Company made one
dividend payment, totalling 0.625 pence per Ordinary Share in
relation to Q4 2016.
** Distributable Reserves have been combined with retained
earnings/(losses) to simplify the presentation of reserves (Note
13).
For the year ended 31 December 2017
CONSOLIDATED STATEMENT OF CASH FLOWS
31 December 31 December
2017 2016 *
Notes GBP'000 GBP'000
Cash flows (used in)/from operations 16 (1,649) 5,565
Increase on Sancus BMS loans (5,384) (6,727)
Decrease on loans through platforms 2,726 -
Investment in Sancus Loan Notes (3,000) (7,500)
----------- -----------
Net Cash flows used in operating activities (7,307) (8,662)
----------- -----------
Investing activities
Net cash on disposal of subsidiaries - 12,621
Net cash acquired on acquisition of subsidiaries - 4,477
Acquisition of non-controlling interest
and connected entities (849) (528)
Purchase of investments - Fintech Ventures (6,949) (8,678)
Sale of investments/repayment of loans in
FinTech Ventures 414 1,412
Other cost of investment (180)
Sale of SSIF investment 22,675 -
Property, equipment and other intangibles
acquired (298) (321)
----------- -----------
Net cash inflow from investing activities 14,813 8,983
----------- -----------
Financing activities
Proceeds from issue of Ordinary Shares - 7,036
Repayment of syndicated loan 14 (11,920) (9,520)
Interest paid on debt facilities 14 (868) -
Dividends paid (1,318) (5,799)
----------- -----------
Net cash used in financing activities (14,106) (8,283)
----------- -----------
Net decrease in cash and cash equivalents (6,600) (7,962)
Cash and cash equivalents at beginning of
year 9,616 17,415
Effect of foreign exchange rate changes
during the year - 163
Cash and cash equivalents at end of year 3,016 9,616
=========== ===========
* The increase in Sancus BMS loans has been reclassified to
operating cash flows, having been disclosed as a financing activity
in the prior year statutory accounts.
The investment in Sancus Loan Notes is considered an operating
activity since it generates operating cash flows.
GLI Finance Limited
For the year ended 31 December 2017
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
GLI Finance Limited (the "Company"), and together with its
subsidiaries, ("the Group") was incorporated, and domiciled in
Guernsey, Channel Islands, as a company limited by shares and with
limited liability, on 9 June 2005 in accordance with The Companies
(Guernsey) Law, 1994 (since superseded by The Companies (Guernsey)
Law, 2008). Until 25 March 2015, the Company was an Authorised
Closed-ended Investment Scheme and was subject to the Authorised
Closed-ended Investment Scheme Rules 2008 issued by the Guernsey
Financial Services Commission ("GFSC"). On 25 March 2015, the
Company was registered with the GFSC as a Non-Regulated Financial
Services Business, at which point the Company's authorised fund
status was revoked. The Company's Ordinary Shares were admitted to
trading on the AIM market of the London Stock Exchange on 5 August
2005 and its issued zero dividend preference shares were listed and
traded on the Standard listing Segment of the main market of the
London Stock Exchange with effect from 5 October 2015.
The Company does not have a fixed life and the Articles do not
contain any trigger events for a voluntary liquidation of the
Company.
The Company is an operating company for the purpose of the AIM
rules. The Executive Team is responsible for the management of the
Company.
As at 31 December 2017, the Group comprises the Company and its
subsidiaries (please refer to Note 17 for full details of the
Company's subsidiaries).
Given the changes made as a result of the strategic review, the
Company has taken advantage of the exemption conferred by the
Companies (Guernsey) Law, 2008, Section 244, not to prepare company
only financial statements.
2. ACCOUNTING POLICIES
(a) Basis of preparation
The consolidated and separate financial statements have been
prepared in accordance with International Financial Reporting
Standards ("IFRS"), as adopted by the European Union ("EU"), and
all applicable requirements of Guernsey Company Law. The financial
statements have been prepared under the historical cost convention,
as modified for the measurement of investment at fair value through
profit or loss. The principal accounting policies of the Group have
remained unchanged from the previous year and are set out below.
Comparative information in the primary statements is given for the
year ended 31 December 2016.
The Group does not operate in an industry where significant or
cyclical variations, as a result of seasonal activity, are
experienced during any particular financial period.
Going Concern
The Board has assessed the Group's financial position as at 31
December 2017 and the factors that may impact its performance in
the forthcoming year. After considering the maturity profile of the
debt structure of the Group and projected cash flows, the Directors
are of the opinion that it is appropriate to prepare these
financial statements on a going concern basis.
Refer the Viability Statement for further comment on the
solvency and liquidity of the Group.
(b) Basis of consolidation
The financial statements comprise the results of GLI Finance
Limited and its subsidiaries for the year ended 31 December 2017.
The subsidiaries are all entities where the Company has the power
to control the investee, is exposed, or has rights to variable
returns and has the ability to use its power to affect these
returns. Subsidiaries are fully consolidated from the date on which
control is transferred to the Company. They are deconsolidated from
the date that control ceases. Profit or loss and other
comprehensive income of subsidiaries acquired or disposed of during
the year are recognised from the effective date of acquisition, or
up to the effective date of disposal, as applicable. Intercompany
transactions, balances and unrealised gains on transactions between
Group companies are eliminated in full on consolidation.
Non-controlling interests, presented as part of equity,
represent the portion of a subsidiary's profit or loss and net
assets that is not held by the Group. The Group attributes total
comprehensive income or loss of subsidiaries between the owners of
the parent and the non-controlling interests measured at their
proportionate share of net assets acquired.
(c) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held on
call with banks and other short term highly liquid investments that
are readily convertible into known amounts of cash and which are
subject to an insignificant risk of changes in value.
(d) Dividends
Dividend distributions are made at the discretion of the
Company. A dividend distribution to shareholders is accounted for
as a reduction in retained earnings. A proposed dividend is
recognised as a liability in the period in which it has been
approved and declared.
(e) Expenditure
All expenses are accounted for on an accruals basis. The
management fees, administration fees, finance costs and all other
expenses (excluding share issue expenses which were offset against
share premium) are charged through the Consolidated Statement of
Comprehensive Income.
(f) Financial assets and liabilities
Recognition and initial measurement
Financial assets and financial liabilities are initially
recognised on the trade date, which is the date on which the Group
becomes party to the contractual provisions of the instrument.
Financial assets and financial liabilities at fair value through
profit or loss are initially recognised at fair value, with
transaction costs recognised in the Consolidated Statement of
Comprehensive Income. Financial assets and financial liabilities
not at fair value through profit or loss are initially recognised
at fair value plus transaction costs that are directly attributable
to their acquisition or issue.
Subsequent to initial recognition, financial assets are either
measured at fair value or amortised cost. Financial liabilities are
either measured at fair value or amortised cost. Realised gains and
losses arising on the derecognition of financial assets and
liabilities are recognised in the period in which they arise.
Fair value measurement
"Fair value" is the price that would be received to sell an
asset or be paid to transfer a liability in an orderly transaction
between market participants at the measurement date in the
principal or, in its absence, the most advantageous market to which
the Group has access at that date. The fair value of a liability
reflects its non-performance risk.
When available, the Group measures the fair value of an
instrument using quoted price in an active market for that
instrument. A market is regarded as "active" if transactions of the
asset or liability take place with sufficient frequency and volume
to provide pricing information on an on-going basis. The Group
measures financial instruments quoted in an active market at a mid
price.
If there is no quoted price in an active market, the Group uses
valuation techniques that maximise the use of relevant observable
inputs and minimise the use of unobservable inputs. The chosen
valuation technique incorporates all of the factors that market
participants would take into account in pricing a transaction.
Please refer to Note 19.
The Group recognises transfers between levels of the fair value
hierarchy as at the end of the reporting period during which the
change has occurred.
If in the case of any investment the Directors at any time
consider that the above basis of valuation is inappropriate or that
the value determined in accordance with the foregoing principles is
unfair, they are entitled to substitute what in their opinion, is a
fair value.
Gains and losses arising from changes in the fair value of the
financial assets and liabilities at fair value through profit or
loss are included in the Consolidated Statement of Comprehensive
Income in the period in which they arise.
Loans and receivables
Non-derivative financial assets such as loans, loan equivalents,
trade and other receivables with fixed or determinable payments and
not quoted in an active market, are initially recognised at fair
value plus transaction costs that are directly attributable to the
acquisition, and are subsequently carried at amortised cost using
the effective interest rate method, less provision for impairment.
The effect of discounting on these trade and other receivables is
not considered to be material.
The Group has loans and receivables with embedded prepayment
options. Given the low probability of exercise and undetermined
exercise dates, the value attributed to these embedded derivatives
is considered to be GBP nil.
Debt and Equity Instruments
Debt and equity instruments issued by a group entity are
classified as either financial liabilities or as equity in
accordance with the substance of the contractual arrangements and
the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities.
Equity instruments are recorded at the proceeds received less
any direct costs of issue. Financial liabilities, including
borrowings and trade payables, are recorded at amortised cost.
Interest cost of such liabilities is allocated over the appropriate
period.
Derecognition
Sales of all financial assets are recognised on trade date - the
date on which the Group disposes of the economic benefits of the
asset. Financial assets are derecognised when the rights to receive
cash flows from the asset have expired or the Group has transferred
substantially all risks and rewards of ownership.
On derecognition of a financial asset, the difference between
the carrying amount of the asset (or the carrying amount allocated
to the portion of the asset derecognised) and the consideration
received (including any new asset obtained less any new liability
assumed) is recognised in the Consolidated Statement of
Comprehensive Income. Any interest in such transferred financial
assets that is created or retained by the Company is recognised as
a separate asset or liability.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
(g) Foreign currency translation
Functional and presentation currency
The financial statements of the Group are presented in the
currency of the primary economic environment in which the Company
operates (its functional currency). The Directors have considered
the primary economic currency of the Company and considered the
currency in which finance is raised, distributions made, and
ultimately what currency would be returned if the Company was wound
up. The Directors have also considered the currency to which the
underlying investments are exposed. On balance, the Directors
believe Sterling best represents the functional currency of the
Company. Therefore the books and records are maintained in Sterling
and for the purpose of the financial statements, the results and
financial position of the Group are presented in Sterling, which is
also the presentation currency of the Group.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the Consolidated Statement
of Comprehensive Income.
Non-monetary items measured at historical cost are translated
using the exchange rates at the date of the transaction (not
retranslated). Non-monetary items measured at fair value are
translated using the exchange rates at the date when fair value was
determined.
All subsidiaries are presented in Sterling, which is their
primary currency in which they operate.
Translation differences on non-monetary items are reported as
part of the fair value gain or loss reported in the Consolidated
Statement of Comprehensive Income.
Foreign exchange differences arising on consolidation of the
Group's foreign operations are taken to the foreign exchange
reserve. The rates of exchange as at the year end are as
follows:
31 December 31 December
2017 2016
GBP1: USD1.3508 GBP1: USD1.2340
GBP1: EUR1.1258 GBP1: EUR1.1731
(h) Goodwill
Goodwill represents the future economic benefits arising from a
business combination that are not individually identified and
separately recognised. Goodwill is measured as the excess of (a)
the aggregate of: (i) the consideration transferred measured in
accordance with IFRS 3, which generally requires acquisition-date
fair value; (ii) the amount of any non-controlling interest in the
acquiree measured in accordance with IFRS 3; and (iii) in a
business combination achieved in stages, the acquisition-date fair
value of the acquirer's previously held equity interest in the
acquiree; over (b) the net of the acquisition-date amounts of the
identifiable assets acquired and the liabilities assumed measured
in accordance with IFRS 3. Goodwill is carried at cost less
accumulated impairment losses. Refer to Note 2 (k) for a
description of impairment testing procedures.
(i) Interest costs
Interest costs are recognised when economic benefits are due to
debt holders. Interest costs are accrued on a time basis, by
reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts
estimated future cash payments through the expected life of the
financial liability to the liability's net carrying amount on
initial recognition.
(j) Other intangible assets
Intangible assets with finite useful lives are amortised to
profit or loss on a straight-line basis over their estimated useful
lives. Useful lives and amortisation methods are reviewed at the
end of each annual reporting period, or more frequently when there
is an indication that the intangible asset may be impaired, with
the effect of any changes accounted for on a prospective basis.
Amortisation commences when the intangible asset is available for
use. The residual value of intangible assets is assumed to be
zero.
Computer hardware and software
Costs associated with maintaining computer software programmes
are recognised as an expense as incurred. Development costs that
are directly attributable to the design and testing of identifiable
and unique software products controlled by the Company are
recognised as intangible assets when the following criteria are
met:
-- it is technically feasible to complete the software product
so that it will be available of use;
-- management intends to complete the software product and use or sell it;
-- there is an ability to use or sell the software product;
-- it can be demonstrated how the software product will generate
probable future economic benefits;
-- adequate technical, financial and other resources to complete
the development and to use or sell the software product are
available; and
-- the expenditure attributable to the software product during
its development can be reliably measured.
Directly attributable costs that are capitalised as part of the
software product include the software development employee costs
and third party contractor costs. Other development expenditures
that do not meet these criteria are recognised as an expense as
incurred. Development costs previously recognised as an expense are
not recognised as an asset in a subsequent period. Capitalised
development costs are recorded as intangible assets and amortised
from the point at which the asset is ready for use over their
estimated useful lives, which does not exceed four years.
(k) Impairment testing of goodwill, intangible assets and property and equipment
An impairment loss is recognised for the amount by which the
asset's or cash-generating unit's carrying amount exceeds its
recoverable amount, which is the higher of fair value less costs of
disposal and value-in-use. To determine the value-in-use,
management estimates expected future cash flows from each
cash-generating unit and determines a suitable discount rate in
order to calculate the present value of those cash flows. The data
used for impairment testing procedures are directly linked to the
Group's latest approved budget, adjusted as necessary to exclude
the effects of future reorganisations and asset enhancements.
Discount factors are determined individually for each
cash-generating unit and reflect management's assessment of
respective risk profiles, such as market and asset-specific risks
factors.
Impairment losses for cash-generating units reduce first the
carrying amount of any goodwill allocated to that cash-generating
unit. Any remaining impairment loss is charged pro rata to the
other assets in the cash-generating unit. With the exception of
goodwill, all assets are subsequently reassessed for indications
that an impairment loss previously recognised may no longer exist.
An impairment loss is reversed if the asset's or cash-generating
unit's recoverable amount exceeds its carrying amount.
All impairments or subsequent reversals of impairments are
recognised in the Consolidated Statement of Comprehensive
Income.
(l) Investment in Joint Venture and associates
A joint venture is a joint arrangement over which the Group has
joint control. An associate is an entity over which the Group has
significant influence but is not a subsidiary.
An investment in a joint venture or associate is accounted for
by the Group using the equity method except for certain FinTech
Ventures associates as described in Note 3.
Any goodwill or fair value adjustment attributable to the
Group's share in the joint venture or associate is not recognised
separately and is included in the amount recognised as an
investment.
The carrying amount of the investment in a joint venture or
associate is increased or decreased to recognise the Group's share
of the profit or loss and other comprehensive income of the joint
venture or associate and adjusted where necessary to ensure
consistency with the accounting policies of the Group.
Unrealised gains and losses on transactions between the Group
and its joint venture or associate are eliminated to the extent of
the Group's interest in the entity. Where unrealised losses are
eliminated, the underlying asset is also tested for impairment.
(m) Non-Current Liabilities
Loans payable are recognised initially at fair value less
directly attributable transaction costs. Subsequent to initial
recognition, loans payable are stated at amortised cost using the
effective interest rate method.
The Zero Dividend Preference Shares ("ZDP shares") are
contractually required to be redeemed on their maturity date and
they will be settled in cash, thus, ZDP shares are classified as
liabilities (refer to Note 14) in accordance with IAS 32 Financial
Instruments: Presentation. After initial recognition, these
liabilities are measured at amortised cost, which represents the
initial proceeds of the issuance plus the accrued entitlement to
the date of these financial statements.
(n) Property and equipment
Tangible fixed assets include computer equipment, furniture and
fittings stated at cost less accumulated depreciation.
Depreciation is provided at rates calculated to write off the
cost of tangible property and computer software on a straight-line
basis over its expected useful economic life as follows:
Furniture and fittings 3 years
Computer equipment 2 to 4 years
(o) Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for
services provided in the normal course of business, net of
discounts, VAT and other sales-related taxes where applicable in
the Group. Revenue is reduced for estimated rebates and other
similar allowances. The Group has five principal sources of revenue
and related accounting policies are outlined below:
Interest on loans
Interest income is recognised when it is probable that the
economic benefits will flow to the Group and the amount of revenue
can be measured reliably. Interest income is accrued on a time
basis, by reference to the principal outstanding and at the
effective interest rate applicable, which is the rate that exactly
discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount on
initial recognition.
Dividend income
Dividend income from investments is recognised when the
shareholders' rights to receive payment have been established
(provided that it is probable that the economic benefits will flow
to the Group and the amount of revenue can be measured
reliably).
Fee income on syndicated and non-syndicated loans
In accordance with the guidance in IAS 18 Revenue, the Group
distinguishes between fees that are an integral part of the
effective interest rate of a financial instrument, fees that are
earned as services are provided, and fees that are earned on the
execution of a significant act.
Commitment and arrangement fees earned for syndicated loans are
recognised on origination of the loan as compensation for the
service of syndication. This is a reflection of the commercial
reality of the operations of the business to arrange and administer
loans for other parties i.e. the execution of a significant
act.
Consistent with the policy outlined above, commitment and
arrangement fees earned on loans originated for the sole benefit of
the Group are also recorded in revenue on completion of the service
of analysing or originating the loan. Whilst this is not in
accordance with the requirements of the effective interest rate
method outlined in IAS 39 Financial Instruments, this is not
considered to have a material impact on the financial performance
or financial position of the Group.
The Directors consider that the economic measurement of fee
revenues that relate specifically to the completion of a loan (exit
fees and warrants) cannot reliably be measured over the life of a
loan and such fees are duly recognised when earned and they become
unconditional. This is due to uncertainties and risk factors
including credit risk, timing risk, liquidity risk, quantum
uncertainty and conditions precedent. The Directors consider that
this treatment is prudent and best reflects the commercial
operations of the Group as an administrator of loan
arrangements.
Fee income earned by peer-to-peer subsidiary platforms
Fee income earned by subsidiaries whose principal business is to
operate online lending platforms that arrange financing between
co-funders and borrowers includes arrangement fees, trading
transaction fees, repayment fees and other lender related fees.
Revenue earned from the arrangement of financing is classified
as a transaction fee and is recognised immediately upon acceptance
of the arrangement by borrowers. Other transaction fees, including
revenue from co-funders in relation to the sale of their loan
participations in platform secondary markets is also recognised
immediately.
Loan repayment fees are charged on a straight line basis over
the repayments of the borrower's financing arrangement.
Advisory fees
Advisory fee income is invoiced and recognised on an accruals
basis in accordance with the relevant investment advisory
agreement.
(p) Share based payments
As explained in the Remuneration Report, the Company provides a
discretionary bonus, part of which is satisfied through the
issuance of the Company's own shares, to certain senior management.
The cost of such bonuses is taken to the Consolidated Statement of
Comprehensive Income with a corresponding credit to Shareholders'
Equity.
The fair value of any share options granted is determined at the
grant date and the expense is spread over the vesting period in
accordance with IFRS 2.
(q) Taxation
Current tax, including corporation tax in relevant jurisdictions
that the Group operates in, is provided at amounts expected to be
paid (or recovered) using the tax rates and laws that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences
that have originated but not reversed at the balance sheet date
where transactions or events that result in an obligation to pay
more tax in the future or a right to pay less tax in the future
have occurred at the balance sheet date. Timing differences are
differences between the Group's taxable profits, and its results as
stated in the financial statements, that arise from the inclusion
of gains and losses in tax assessments in periods different from
those in which they are recognised in the financial statements.
(r) Trade and other receivables
Receivables are recognised initially at fair value plus
transaction costs that are directly attributable to their
acquisition or origination. They are subsequently measured at
amortised cost.
(s) Trade and other payables
Payables are recognised initially at fair value and subsequently
stated at amortised cost using the effective interest rate
method.
(t) Treasury shares
Where the Company purchases its own Share Capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from Share Premium.
When such shares are subsequently sold or reissued to the
market, any consideration received, net of any directly
attributable incremental transaction costs, is recognised as an
increase in Share Premium. Where the Company cancels treasury
shares, no further action is required to the Share Premium account
at the time of cancellation.
(u) Warrants
Warrants are accounted for as either equity or liabilities based
upon the characteristics and provisions of each instrument and are
recorded at fair value as of the date of issuance.
(v) Adoption of new and revised Standards
Amendments to IFRSs that are mandatorily effective for the
current year
In the current year, the Group has applied a number of
amendments to IFRSs issued by the International Accounting
Standards Board (IASB) that are mandatorily effective for an
accounting period that begins on or after 1 January 2017. These
have been listed below and their adoption has not had any material
impact on the disclosures or on the amounts reported in these
financial statements.
-- Amendments to IAS 7 Disclosure Initiative
-- Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses
-- Amendments to IFRS 12 Annual Improvements to IFRSs 2014-2016 Cycle
Amendments to IFRSs that are in issue but not yet effective
At the date of approval of these Consolidated Financial
Statements, the following standards and interpretations, which have
not been applied in these Consolidated Financial Statements, were
in issue but not yet effective:
-- IFRS 9 'Financial instruments'
IFRS 9 'Financial Instruments' addresses the classification,
measurement and derecognition of financial assets and liabilities.
It replaces the multiple classification and measurement models in
IAS 39 and is effective for reporting periods beginning on or after
1 January 2018.
Whilst we have not adopted this standard in this set of
financial statements we have outlined below how we plan on adopting
this standard in the next financial year and the impact that it may
have on the financial statements.
-- Key requirements of IFRS 9
Classification and measurement of debt assets will be driven by
the entity's business model for managing the financial assets and
the contractual cash flow characteristics of those financial
assets.
There are three principal classification categories for
financial assets that are debt instruments: (i) amortised cost,
(ii) fair value through other comprehensive income and (iii) fair
value through profit and loss. Equity investments in scope of IFRS
9 are measured at fair value with gains and losses recognised in
profit or loss unless an irrevocable election is made to recognise
gains or losses in other comprehensive income.
IFRS 9 also introduces a new expected credit loss impairment
model, as opposed to the incurred credit loss model currently
implemented under IAS 39. This requires entities to account for
expected credit losses at initial recognition and changes to
expected credit losses at each reporting date to reflect changes in
credit risk since initial recognition.
Finally, under IFRS 9 greater flexibility has been introduced to
the types of transactions eligible for hedge accounting,
specifically broadening the types of instruments that qualify for
hedging instruments and the types of risk components of
non-financial items that are eligible for hedge accounting.
Enhanced disclosure requirements about an entities risk management
activities have also been introduced.
-- Impact of IFRS 9 - Classification and measurement
Based on an analysis of the Group's financial assets and
liabilities as at 31 December 2017 the directors have assessed the
impact of IFRS 9 to the Group's consolidated financial statements
as follows:
Sancus BMS loans, loan equivalents and loans through platforms
are held solely for the collection of contractual cash flows, being
interest, fees and payments of principal. As such these assets are
expected to continue to be held at amortised cost upon the
application of IFRS 9.
Fintech Ventures investments relate to equity, preference shares
and some working capital loans. Whilst some of these investments do
attract interest the assets are held primarily to assist the
development of the entities involved. These investments are
currently held at fair value through profit and loss using the
exemption available under IAS 28.18 which states that when an
investment in an associate is held by, or is held indirectly
through, an entity that is a venture capital organisation, the
entity may elect to measure investments in those associates at fair
value through profit or loss in accordance with IAS 39. As such
these assets will continue to be measured at fair value through
profit and loss upon the application of IFRS 9.
Trade payables, financial liabilities and trade receivables are
held solely for the collection and payment of contractual cash
flows, being payments of principal and interest where applicable.
As such these assets will continue to be held at amortised cost
under IFRS 9.
-- Impact of IFRS 9 - Impairment
Sancus BMS loans and loan equivalents will be assessed for
credit risk on initial recognition. Credit Risk will be categorized
into stage 1, Stage 2 and Stage 3 with stage 1 being to recognise
12 month Expected Credit Losses (ECL), Stage 2 being to recognise
Lifetime ECL not credit impaired, and Stage 3 being to recognise
Lifetime ECL credit impaired. A loan is considered to be in default
when there is a failure to meet the legal obligation of the loan
agreement. Having regards for the principles of IFRS 9 this would
also include provisions against loans that are considered by
management as unlikely to pay their obligations in full without
realisation of collateral. Provision for ECL will be made at
initial recognition calculated using the credit risk, the
probability of default and the probability of loss, all underpinned
by the Loan to Value (LTV), historical position and on occasion
subsequent events, and the subjective judgement of the Board. At
each reporting period-end loans will be re-assessed for credit risk
and provision for ECL will be updated appropriately.
With respect to the loans to the UK SARL and Ireland SARL there
is no direct exposure to individual loans. As a result these two
loans will be assessed for credit risk based upon the Net Asset
Value of the SARLS, and their ability to repay the loans. Should
the Net Asset Value of the SARLS fall materially then the loans
will have deemed to have fallen into Stage 2, with a further
significant drop in Net Asset Value pushing the loans into Stage 3.
Provision for ECL will then be made according to the credit risk
and the deemed ability of the SARL to repay the loan.
Given historical and current levels of LTV historical losses
have been negligible, the directors anticipate that the application
of the ECL model will not result in any material earlier
recognition of credit losses. In respect of the Group's trade and
other receivables, the directors intend to apply the simplified
approach to recognise lifetime expected credit losses.
-- Impact of IFRS 9 - Hedge Accounting
The Group has not used any hedging instruments during 2016 or
2017 although exposure is monitored on a regular basis and the
Board reviews this approach quarterly. As a result, unless there is
a change in approach, IFRS 9 will have no impact.
Overall the directors do not anticipate that the application of
IFRS 9 will have a material impact on the Group's consolidated
financial statements.
-- Overall Impact of IFRS
Overall the directors do not expect the implementation of IFRS 9
to have a material impact on the financial statements.
-- IFRS 16 'Leases'
IFRS 16 was published in January 2016 and specifies how to
recognise, measure, present and disclose leases. The standard
provides a single lessee accounting model, allowing lessees to
recognise assets and liabilities for all leases unless the lease
term is 12 months or less or the underlying asset has a low value.
Lessors continue to classify leases as operating or finance, with
IFRS 16's approach to lessor accounting substantially unchanged
from its predecessor, IAS 17. IFRS 16 is effective for annual
reporting periods beginning on or after 1 January 2019. There are a
number of operating leases for premises occupied by the Group which
will lead to bringing a right of use asset onto the balance sheet
and corresponding lease liability. Current lease obligations are
stated in note 23. The overall profit and loss impact is expected
to be immaterial.
-- IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 was published in May 2016 and specifies how and when to
recognise revenue as well as requiring entities to provide users of
financial statements with more informative, relevant disclosures.
The standard provides a single, principles based five-step model to
be applied to all contracts with customers. IFRS 15 is effective
for annual reporting periods beginning on or after 1 January, 2018.
Material revenue streams have been reviewed and it is not
anticipated that there will be a material impact on timing of
recognition or gross up for principal/agent considerations.
Other IFRSs and amenedments that are in issue but not yet
effective which are not envisaged to have a material impact on the
financial statements are:
-- IFRS 17 'Insurance Contracts'
-- IFRS 2 (amendments) 'Classification and Measurement of Share-based Payment Transactions'
-- IFRS 4 (amendments) 'Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts'
-- IAS 40 (amendments) 'Transfers of Investment Property'
-- IFRS 10 and IAS 28 (amendments) 'Sale or Contribution of
Assets between an Investor and its Associate or Joint Venture'
-- Annual Improvements to IFRSs 2014-2016 Cycle 'Amendments to
IFRS 1 First-time Adoption of Inetrnational Financial Reporting
Standards and IFRS 28 Investments in Associates and Joint
Ventures'
-- IFRIC 22 'Foreign Currency Transactions and Advanced Consideration'
-- IFRIC 23 'Uncertainty over Income Tax Treatments'
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING
ACCOUNTING POLICIES
In the application of the Group's accounting policies, which are
described in Note 2, the directors are required to make judgements
(other than those involving estimations) that have a significant
impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates. There is no change in applying
accounting policies for critical accounting estimates and judgments
from the prior year.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Critical judgements in applying the group's accounting
policies
The following are the critical judgements, apart from those
involving estimations (which are dealt with separately below), that
the directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements.
Fair value accounting for FinTech Ventures' investments
Some of the group's Fintech Ventures investments meet the
definition of an associate. However, the Group has applied the
exemption available under IAS 28.18 which states that when an
investment in an associate is held by, or is held indirectly
through, an entity that is a venture capital organisation, the
entity may elect to measure investments in those associates at fair
value through profit or loss in accordance with IAS 39 - Financial
Instruments.
The Directors consider that the Group is of a nature similar to
a venture capital organisation on the basis that FinTech Ventures'
investments form part of a portfolio which is monitored and managed
without distinguishing between investments that qualify as
associate undertakings. Furthermore, the most appropriate point in
time for exit from such investments is being actively monitored as
part of the Group's investment strategy.
The Group therefore designates those investments in associates
which qualify for this exemption as fair value through profit or
loss. Refer to Note 22 for fair value techniques used. If the Group
had not applied this exemption the investments would be accounted
for using the equity method of accounting. This would have the
impact of taking a share of each investment's profit or loss for
the year and would also affect the carrying value of the
investments.
The Directors consider that equity and loan stock share the same
investment characteristics and risks and they are therefore treated
as a single unit of account for valuation purposes and a single
class for disclosure purposes.
IFRS 10 Control Judgements
Judgement is sometimes required to determine whether after
considering all relevant factors, the Group has control, joint
control or significant influence over an entity or arrangement.
Other companies may make different judgements regarding the same
entity or arrangement. The Directors have assessed whether or not
the Group has control over Sancus Loan Notes Limited, Sancus Loan
Notes 2 Limited and Sancus Loan Notes 3 Limited based on whether
the Group has the practical ability to direct the relevant
activities unilaterally. In making their judgement, the directors
considered the rights associated with its investment in preference
shares. After assessment, the directors concluded that the Group
does not have the ability to affect returns through voting rights
(the preference shares do not have voting rights) or other
arrangements such as direct management of these entities (the Group
does not have control over the investment manager).
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period, that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Impairment of goodwill
As detailed in Note 10, the Directors will review the carrying
value of goodwill and carry out an impairment review annually to
assess whether goodwill is impaired. In doing so, the Directors
have assessed the value in use of each cash generating unit through
an internal discounted cash flow analysis, details of which are set
out in Note 10. Given the nature of the Group's operations, the
calculation of value in use is sensitive to the estimation of
future cash flows and the discount rates applied, the impact of
which is also disclosed in note 10.
Refer Notes 2 (h) and (k) for accounting policies relating to
the valuation and impairment of goodwill.
Impairment of Loans
Loans made by the Group may, after funding, become
non-performing for a wide variety of reasons including non-payment
of principal or interest, as well as covenant violations by the
borrower in respect of the underlying loan documents. In such
circumstances, the Directors will make an assessment as to whether
this indicates objective evidence of impairment having taken into
account other factors including, but not limited to:
-- significant financial difficulty of the borrower;
-- default or delinquency in interest or principal payments;
-- a substantial reduction in performance of the underlying business;
-- a substantial fall in the value of the underlying security; or
-- it becoming probable that the borrower will enter bankruptcy
or financial reorganization
Assets, other than those measured at fair value, are assessed
for indicators of impairment at each statement of financial
position date. If there is objective evidence of impairment, an
impairment loss is recognised in profit or loss.
For financial assets carried at amortised cost, the amount of an
impairment is the difference between the asset's carrying amount
and the present value of estimated future cash flows, discounted at
the financial asset's original effective interest rate.
Fair Value of the FinTech Ventures' investments
The Group invests in financial instruments which are not quoted
in active markets and may receive such financial instruments as
distributions on certain investments. Fair values are determined by
using valuation techniques as detailed in Note 22.
The Group measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements.
-- Level 1 - Inputs that are quoted market prices (unadjusted)
in active markets for identical instruments. A market is regarded
as "active" if transactions of the asset or liability take place
with sufficient frequency and volume to provide pricing information
on an on-going basis. The Group measures financial instruments
quoted in an active market at a bid price.
-- Level 2 - Inputs other than quoted prices included within
Level 1 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category includes
instruments valued using: quoted market prices in active markets
for similar instruments; quoted prices for identical or similar
instruments in markets that are considered less than active; or
other valuation techniques in which all significant inputs are
directly or indirectly observable from market data. The chosen
valuation technique incorporates all of the factors that market
participants would take into account in pricing a transaction.
-- Level 3 - Inputs that are unobservable. This category
includes all instruments for which the valuation technique includes
inputs not based on observable data and the unobservable inputs
have a significant effect on the instrument's valuation. This
category includes instruments that are valued based on quoted
prices for similar instruments but for which significant
unobservable adjustments or assumptions are required to reflect
differences between the instruments. If in the case of any
investment the Directors at any time consider that the above basis
of valuation is inappropriate or that the value determined in
accordance with the foregoing principles is unfair, they are
entitled to substitute what in their opinion, is a fair value. In
this case, the fair value is estimated with care and in good faith
by the Directors in consultation with the Executive Team with a
view to establishing the probable realisation value for such shares
as at close of business on the relevant valuation day.
Given the early stage nature of the investee companies, the
valuations are sensitive to the cash flows assumed and discount
rates applied and management have made a number of material
judgements in concluding on the valuations. The methods and
valuation techniques used for the purposes of measuring fair value
are unchanged compared to the previous reporting year, although
transactional data has become available in some cases, eliminating
the need for reliance on the discounted cash flow method. All of
the FinTech Ventures investments are measured by Level 3.
4. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the
manner in which the Executive Team reports to the Board, which is
regarded to be the Chief Operating Decision Maker (CODM) as defined
under IFRS 8. The Executive Team is responsible for allocating
resources and assessing performance of the Group, as well as making
strategic investment decisions, subject to the oversight of the
Board of Directors. The Executive Team is responsible for the
entire Group and considers it to have two operating segments in
addition to Group Treasury. There has been one minor change in the
period which has been to move Sancus Funding from FinTech Ventures
to Sancus BMS as this now has an established business model and
work has begun to integrate into the Sancus BMS Group.
The segments are as follows:
Sancus BMS
-- Platforms with an established business model (now including
Sancus Funding, a wholly owned subsidiary)
-- Amberton - fundraising for Sancus BMS
-- Investments in the BMS loan funds
FinTech Ventures
-- Eleven platform investments
Group Treasury
-- Group Treasury - Primarily includes cash balances and related
expenses to manage the Group's listed holding company
-- SSIF (sold in March 2017, however is included in prior year comparatives)
The accounting policies of each segment are the same as the
accounting policies of the Group, therefore no differences arise
between the segment report and the Group statements.
For the year ended 31 December 2017
NOTES TO THE FINANCIAL STATEMENTS
4. SEGMENTAL REPORTING (Continued)
Sancus FinTech Group 31 December Sancus FinTech Group 31 December
GBP'000 BMS Ventures Treasury 2017 BMS Ventures Treasury 2016
Revenue
Interest on loans 3,280 1,293 - 4,573 4,237 413 - 4,650
SSIF dividends 303 - - 303 2,393 - - 2,393
Fee and other
income 6,758 - - 6,758 4,770 215 - 4,985
--------- --------- --------- ----------- ------- --------- --------- -----------
Total revenue 10,341 1,293 - 11,634 11,400 628 - 12,028
Interest costs (2,178) - - (2,178) (3,774) - - (3,774)
Other cost of
sales (270) - - (270) (78) - - (78)
--------- --------- --------- ----------- ------- --------- --------- -----------
Gross profit 7,893 1,293 - 9,186 7,548 628 - 8,176
--------- --------- --------- ----------- ------- --------- --------- -----------
Total operating
expenses (6,340) (1,673) (1,072) (9,085) (6,320) (2,875) (1,814) (11,009)
--------- --------- --------- ----------- ------- --------- --------- -----------
Net operating
profit/(loss) 1,553 (380) (1,072) 101 1,228 (2,247) (1,814) (2,833)
========= ========= ========= =========== ======= ========= ========= ===========
Losses on financial
assets at fair
value through
profit and loss
SSIF loss on disposal
/ fair value adjustment - - (953) (953) (1,529) - - (1,529)
Net loss on /
de-recognition
of SSIF as a subsidiary - - - - (1,208) - - (1,208)
Share of profit/(loss)
of associates
and
Joint ventures (454) - - (454) (22) - - (22)
FinTech Ventures
fair value adjustment - (13,459) - (13,459) - (7,432) - (7,432)
Other net gains
/ (losses) 54 (453) - (399) 167 553 (2) 718
--------- --------- --------- ----------- ------- --------- --------- -----------
Losses on financial
assets at fair
value through
profit or loss (400) (13,912) (953) (15,265) (2,592) (6,879) (2) (9,473)
Goodwill impairment - - - - (3,408) (738) - (4,146)
Profit/(loss)
before tax 1,153 (14,292) (2,025) (15,164) (4,772) (9,864) (1,816) (16,452)
--------- --------- --------- ----------- ------- --------- --------- -----------
Income tax expense (20) - - (20) (83) - - (83)
--------- --------- --------- ----------- ------- --------- --------- -----------
Profit/(loss)
for the year after
tax 1,133 (14,292) (2,025) (15,184) (4,855) (9,864) (1,816) (16,535)
========= ========= ========= =========== ======= ========= ========= ===========
Other comprehensive
income
Items that may
subsequently be
reclassified to
profit or loss:
Foreign exchange
on consolidation - - - - - 163 - 163
--------- --------- --------- ----------- ------- --------- --------- -----------
Total comprehensive
income/(loss)
for the year 1,133 (14,292) (2,025) (15,184) (4,855) (9,701) (1,816) (16,372)
========= ========= ========= =========== ======= ========= ========= ===========
Operating (loss)/profit
attributable to:
Equity holders
of the Company 1,153 (14,292) (2,025) (15,164) (5,913) (9,864) (1,816) (17,593)
Non-controlling
interest (20) - - (20) 1,058 - - 1,058
--------- --------- --------- ----------- ------- --------- --------- -----------
1,133 (14,292) (2,025) (15,184) (4,855) (9,864) (1,816) (16,535)
========= ========= ========= =========== ======= ========= ========= ===========
Total comprehensive
(loss)/income
attributable to:
Equity holders
of the Company 1,153 (14,292) (2,025) (15,164) (5,913) (9,701) (1,816) (17,430)
Non-controlling
interest (20) - - (20) 1,058 - - 1,058
--------- --------- --------- ----------- ------- --------- --------- -----------
1,133 (14,292) (2,025) (15,184) (4,855) (9,701) (1,816) (16,372)
========= ========= ========= =========== ======= ========= ========= ===========
For the year ended 31 December 2017
NOTES TO THE FINANCIAL STATEMENTS
4. SEGMENTAL REPORTING (Continued)
Sancus FinTech Group 31 December Sancus FinTech Group 31 December
GBP'000 BMS* Ventures Treasury 2017 BMS Ventures Treasury 2016
ASSETS
Non-current
assets
Property and
equipment 60 - 3 63 82 5 11 98
Goodwill 25,033 - - 25,033 25,033 - - 25,033
Other intangible
assets 530 - - 530 520 - - 520
Sancus BMS Loans 24,238 - - 24,238 19,216 - - 19,216
Investment in
Sancus Loan
Notes 3,000 - - 3,000 7,500 - - 7,500
------ --------- --------- ----------- ------- --------- --------- -----------
Total Sancus
BMS loans and
loan equivalents 27,238 - - 27,238 26,716 - - 26,716
FinTech Ventures
Investments - 29,598 - 29,598 - 36,104 - 36,104
Other Investments 542 - - 542 873 - - 873
Joint Ventures
and associates 2,266 - - 2,266 528 - - 528
------- --------- --------- -----------
Total Non-current
assets 55,669 29,598 3 85,270 53,752 36,109 11 89,872
------ --------- --------- ----------- ------- --------- --------- -----------
Current assets
Investment in
SSIF - - - - 23,781 - - 23,781
Loans through
platforms 69 839 - 908 - 4,034 - 4,034
Sancus BMS Loans 8,560 - - 8,560 3,900 - - 3,900
Investment in
Sancus Loan
Notes 7,907 - - 7,907 - - - -
Loan equivalents 2,621 - - 2,621 8,205 - - 8,205
------ --------- --------- ----------- ------- --------- --------- -----------
Total Sancus
BMS loans and
loan equivalents 19,088 - - 19,088 12,105 - - 12,105
Trade and other
receivables 2,796 616 758 4,170 1,854 748 110 2,712
Cash and cash
equivalents 926 - 2,090 3,016 5,619 480 3,517 9,616
------ --------- --------- ----------- ------- --------- --------- -----------
Total Current
assets 22,879 1,455 2,848 27,182 43,359 5,262 3,627 52,248
------ --------- --------- ----------- ------- --------- --------- -----------
Total assets 78,548 31,053 2,851 112,452 97,111 41,371 3,638 142,120
====== ========= ========= =========== ======= ========= ========= ===========
EQUITY
Share premium - - 112,557 112,557 - - 111,942 111,942
Treasury shares - - (1,162) (1,162) - - (1,734) (1,734)
Distributable
reserve - - - - - - 34,803 34,803
Retained earnings 41,514 31,051 (109,153) (36,588) 46,933 41,253 (142,454) (54,268)
------ --------- --------- ----------- ------- --------- --------- -----------
Capital and
reserves attributable
to equity holders
of the Group 41,514 31,051 2,242 74,807 46,933 41,253 2,557 90,743
------ --------- --------- ----------- ------- --------- --------- -----------
Non-controlling
interest (4) - - (4) 125 - - 125
Total equity 41,510 31,051 2,242 74,803 47,058 41,253 2,557 90,868
------ --------- --------- ----------- ------- --------- --------- -----------
LIABILITIES
Non-current
liabilities
ZDP shares 24,714 - - 24,714 23,436 - - 23,436
Corporate bond 10,000 - - 10,000 8,500 - - 8,500
------ --------- --------- ----------- ------- --------- --------- -----------
34,714 - - 34,714 31,936 - - 31,936
------ --------- --------- ----------- ------- --------- --------- -----------
Current liabilities
Syndicated loan - - - - 11,920 - - 11,920
Trade and other
payables 2,324 2 609 2,935 6,197 118 1,081 7,396
------ --------- --------- ----------- ------- --------- --------- -----------
2,324 2 609 2,935 18,117 118 1,081 19,316
------ --------- --------- ----------- ------- --------- --------- -----------
Total liabilities 37,038 2 609 37,649 50,053 118 1,081 51,252
------ --------- --------- ----------- ------- --------- --------- -----------
Total equity
and liabilities 78,548 31,053 2,851 112,452 97,111 41,371 3,638 142,120
====== ========= ========= =========== ======= ========= ========= ===========
5. FEE AND OTHER INCOME
31 December 31 December
2017 2016
GBP'000 GBP'000
Co-Funder fees 1,220 543
Earn out (exit) fees 1,062 207
Advisory fees 1,287 1,186
Transaction fees 2,782 2,516
Sundry income 407 533
------------ ------------
6,758 4,985
============ ============
6. OTHER EXPENSES
31 December 30 December
2017 2016
Other expenses: GBP'000 GBP'000
Audit fees 122 294
Amortisation and depreciation 322 270
Corporate Insurance 90 72
Directors Remuneration 117 203
Employment costs 5,664 5,298
Independent valuation fees 64 149
Investor relations expenses 96 183
Marketing expenses 169 286
NOMAD fees 96 55
Other office and administration costs 1,089 1,176
Pension costs 175 97
Registrar fees 33 109
Sundry 180 74
----------- -----------
8,217 8,266
=========== ===========
7. DISPOSAL OF SSIF (formerly The SME Loan Fund)
On 8 March 2017, the company sold its shares in SSIF at 90p per
share, valuing its holding at GBP22.7m. As part of this sale the
company agreed to purchase certain performing loans from SSIF for
cash in the amount of GBP5.27m (including accrued interest to 8
March 2017). Of the net proceeds GBP11.9m was used to repay the
syndicated loan.
8. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
31 December 31 December
2017 2016
GBP'000 GBP'000
At beginning of year 528 -
Additions 2,192 550
Share of profit of associate 3
Share of loss in joint venture (457) (22)
At end of year 2,266 528
============ ============
The investment in joint venture relates to a 50% share in
Amberton Asset Management Limited.
Details of material associates
Principal Place of Proportion of ownership
Activity Incorporation interest/voting rights
held by the group
-------------- ---------------- ---------------- --------------------------
31 December 31 December
2017 2016
-------------- ---------------- ---------------- ------------ ------------
Sancus (Isle Holding
of Man) Company
Holdings for Sancus
Limited (IOM) Limited Guernsey 29.3% 7.1%
-------------- ---------------- ---------------- ------------ ------------
The above associate is accounted for using the equity method in
these consolidated financial statements as set out in the Group's
accounting policies in Note 2. This investment will allow the Group
to benefit from the growth of the Isle of Man business as it
continues to execute its strategy.
Summarised financial information in respect of Sancus (Isle of
Man) Holdings is set out below. The summarised financial
information below represents amounts in associates' financial
statements prepared in accordance with IFRSs.
31 December 31 December
2017 2016
-------------------------------------- ------------ ------------
GBP'000 GBP'000
-------------------------------------- ------------ ------------
Current assets 11,935 15,641
-------------------------------------- ------------ ------------
Current liabilities (388) (175)
-------------------------------------- ------------ ------------
Non-current liabilities (6,885) (11,000)
-------------------------------------- ------------ ------------
Equity attributable to owners
of the company 4,662 4,466
-------------------------------------- ------------ ------------
Revenue 630 395
--------------------------------------
Profit or loss from continuing
operations 195 123
--------------------------------------
Reconciliation of the above summarised financial information
to the carrying amount of the interest in Sancus (Isle
of Man) Holdings Limited recognised in the consolidated
financial statements:
------------------------------------------------------------------
31 December 31 December
2017 2016
--------------------------------------
GBP'000 GBP'000
-------------------------------------- ------------ ------------
Net assets of associate 4,662 4,466
-------------------------------------- ------------ ------------
Proportion of the Group's ownership 1,366 -
interest in the associate
-------------------------------------- ------------ ------------
Goodwill arising on acquisition 754 -
-------------------------------------- ------------ ------------
Carrying amount of the Group's 2,120 -
interest in the associate
-------------------------------------- ------------ ------------
In 2016 the Group's interest in Sancus (Isle of Man) Holdings
was accounted for as an investment. During 2017, 22.2% of the
Sancus Isle of Man shares were acquired from the Directors of
Sancus Group taking the holding at the end of 2017 to 29.3%.
9. LOSS PER ORDINARY SHARE
Consolidated loss per Ordinary Share has been calculated by
dividing the consolidated loss for the year after tax attributable
to Ordinary Shareholders of GBP15,164,402 (31 December 2016: loss
of GBP17,593,313) by the weighted average number of Ordinary Shares
(excluding treasury shares) outstanding during the period of
302,673,708 (31 December 2016: 270,934,270). There was no dilutive
effect for potential Ordinary Shares during the current or prior
periods.
Note 13 describes the warrants in issue which are currently out
of the money, and therefore have not been considered to have a
dilutive effect on the calculation of Loss per Ordinary Share.
Share options as noted in Note 20 are also out of the money and
have therefore not been considered to have a dilutive effect on the
calculation of Loss per Ordinary Share.
31 December 31 December
2017 2016
No. of shares 312,065,699 309,298,113
Weighted average no. of shares
in issue throughout the year 302,673,708 270,934,270
Loss per share (5.01)p (6.49)p
10. GOODWILL
31 December 31 December
2017 2016
GBP'000 GBP'000
Brought forward 25,033 14,255
Additions:
Acquisition of Sancus Finance - 5,547
Acquisition of Sancus Funding - 738
Acquisition of Sancus Gibraltar - 8,639
Impairment:
- Sancus Finance - (3,408)
- Sancus Funding - (738)
------------ ------------
Carried forward 25,033 25,033
============ ============
Goodwill comprises:
Sancus Jersey 14,255 14,255
Sancus Gibraltar 8,639 8,639
Sancus Finance 2,139 2,139
------- -------
25,033 25,033
======= =======
Impairment tests
The carrying amount of the goodwill arising on the acquisition
of certain subsidiaries is assessed by the Board for impairment on
an annual basis or more frequently if there has been an event which
suggests that there may have been an impairment.
The value in use of Sancus Jersey was based on an internal
Discounted Cash Flow ("DCF") valuation analysis using cash flow
forecasts for the years 2018 to 2022. The starting point for the
cash flows was the 2018 budget which was produced by Sancus Jersey
management and ratified by its board. Management's revenue forecast
applied a compound annual growth rate (CAGR) to revenue of 15%. A
cost of equity discount rate of 13.5% (as determined by independent
valuation experts), which is reflective of Sancus's cost of equity,
was employed in the valuation model. The resultant valuation
indicated that no impairment of goodwill was required, with
significant headroom.
The value in use of Sancus Finance was also determined using a
similar DCF basis starting from the 2018 budgets, but using a
revenue CAGR of 36% (which reflects accelerated near term growth,
reducing from 25% to 10% throughout the years 2019 to 2022) and a
cost of equity discount rate of 18.1%, both higher than that
applied in the valuation of Sancus Jersey, to take into account the
fact that this business is still in a development stage. The
resultant valuation indicated that no impairment of goodwill was
required, with significant headroom. This surplus was not
considered a reversal of previous impairments.
The value in use of Sancus Gibraltar was also determined on a
similar DCF basis starting from the 2018 budgets, but using a CAGR
of 13% and a cost of equity discount rate of 14.0%. The resultant
valuation indicated that no impairment of goodwill was required,
again with significant headroom.
Goodwill valuation sensitivities
When the discounted cash flow valuation methodology is utilised
as the primary goodwill impairment test, the variables which
influence the results most significantly are the discount rates
applied to the future cash flows and the revenue forecasts.
The table below shows the impact on the Consolidated Statement
of Comprehensive Income of stress testing the period end goodwill
valuation with a decrease in revenues of 10% and an increase in
cost of equity discount rate of 3%. These potential changes in key
assumptions fall within historic variations experienced by the
business (taking other factors into account) and are therefore
deemed reasonable.
Sensitivity Applied Reduction in headroom implied by
sensitivity
Sancus Sancus Sancus Total
Jersey Finance Gibraltar GBP'000
GBP'000 GBP'000 GBP'000
10% decrease in
revenue per annum 3,822 1,406 2,644 7,872
3% increase in cost
of Equity discount
rate 5,108 817 4,097 10,022
Neither scenario results in an implied reduction of
Goodwill.
11. INTANGIBLE ASSETS
GBP'000
Cost
At 1 January 2017 1,050
Additions from internal development 262
At 31 December 2017 1,312
=======
GBP'000
Amortisation
At 1 January 2017 530
Charge for the year 252
At 31 December 2017 782
=======
Net book value 31 December 2017 530
===
Net book value 1 January 2017 520
===
Intangible assets comprise capitalised contractors' costs and
other costs related to core systems development. In the prior year
these were disclosed within Property and equipment but have now
been separately disclosed with the prior year reclassified. No
impairment provision has been recorded. The amortisation charge has
been recorded in Other expenses.
12. TRADE AND OTHER RECEIVABLES
31 December 31 December
2017 2016
GBP'000 GBP'000
Dividend income receivable 68 371
Loan fees and similar receivable 930 121
Loan interest receivable 1,973 940
Preference share dividends receivable 607 415
Other trade receivables and prepaid
expenses 592 865
4,170 2,712
=========== ===========
13. SHARE CAPITAL, SHARE PREMIUM & DISTRIBUTABLE RESERVE
GLI Finance Limited has the power under its articles of
association to issue an unlimited number of Ordinary Shares of no
par value.
During the year the Company issued the following additional
Ordinary Shares:
2017
--------------- ----------------------------- --------------------
Date No of shares Share Premium Reason for issue
issued GBP
--------------- ------------- -------------- --------------------
2016 fourth quarter
21 April 2017 2,767,586 615,239 scrip dividend
--------------- ------------- -------------- --------------------
2,767,586 615,239
--------------- ------------- -------------- --------------------
2016
---------------- ----------------------------- -----------------------
Date No of shares Share Premium Reason for issue
issued GBP
---------------- ------------- -------------- -----------------------
20 January
2016 51,020 18,750 Bonus entitlement
---------------- ------------- -------------- -----------------------
2015 fourth quarter
22 March 2016 237,230 79,709 scrip dividend
---------------- ------------- -------------- -----------------------
2016 first quarter
13 June 2016 270,015 84,650 scrip dividend
---------------- ------------- -------------- -----------------------
Acquisition of Sancus
30 June 2016 43,408,360 13,500,000 Gibraltar
---------------- ------------- -------------- -----------------------
Increased stake
in GLIF BMS Holdings
30 June 2016 11,093,247 3,450,000 Limited
---------------- ------------- -------------- -----------------------
Placing with Somerston
15 August 2016 23,020,560 7,036,374 Group
---------------- ------------- -------------- -----------------------
16 September 2016 second quarter
2016 295,943 83,974 scrip dividend
---------------- ------------- -------------- -----------------------
02 December BIS Management Seller
2016 686,784 213,591 share portion
---------------- ------------- -------------- -----------------------
15 December 2016 third quarter
2016 317,590 69,552 scrip dividend
---------------- ------------- -------------- -----------------------
79,380,749 24,536,600
---------------- ------------- -------------- -----------------------
31 December 31 December
Share Capital 2017 2016
Shares in Shares in
Ordinary Shares - nil par value issue issue
Balance at start of year 309,298,113 229,917,364
Issued during the year 2,767,586 79,380,749
----------- -----------
Balance at end of the year 312,065,699 309,298,113
=========== ===========
31 December 31 December
Share Premium 2017 2016
Ordinary Shares - nil par value GBP'000 GBP'000
Balance at start of year 111,942 87,405
Issued during the year 615 24,537
Balance at end of the year 112,557 111,942
=========== ===========
Ordinary shareholders have the right to attend and vote at
Annual General Meetings and the right to any dividends or other
distributions which the company may make in relation to that class
of share.
Treasury Shares
As at 31 December 2017 a total of 6,154,102 (2016: 8,632,619)
Ordinary Shares, with an aggregate value of GBP1,161,975 (2016:
GBP1,733,283) were held by a Subsidiary, Sancus BMS Group Limited
and eliminated on consolidation. These shares were part
consideration for this company's minority shareholding in Sancus
Gibraltar purchased by the Group in June 2016.
31 December 31 December
2017 2016
GBP'000 GBP'000
Balance at start of the year 1,734 -
Acquired through Group restructure
in June 2016 - 1,900
GLI shares transferred to key
members of management (572) (166)
Balance at end of year 1,162 1,734
=========== ===========
The GLI shares transferred to key members of management relate,
in the main, to discretionary bonus paid in shares.
Warrants in Issue
On 25 February 2016, Shareholders approved special resolutions
authorising the issue of warrants to Golf Investments Limited which
confer the warrant holder the right to subscribe for up to
32,000,000 new Ordinary Shares in the capital of the Company at the
following subscription prices:
10,000,000 Ordinary Shares at 40 pence per Ordinary Share;
10,000,000 Ordinary Shares at 45 pence per Ordinary Share;
and,
12,000,000 Ordinary Shares at 55 pence per Ordinary Share.
These warrants expire on 25 February 2020.
On 16 September 2016, Shareholders approved a special resolution
authorising the issue of warrants to Golf Investments Limited which
confer the warrant holder the right to subscribe for up to
10,000,000 shares at 37 pence per Ordinary Share, exercisable up to
9 August 2020.
As at 31 December 2017, the above warrants were in issue but not
yet exercised. On issue of these warrants, no provision has been
made for a fair value adjustment, as following the Board's
assessment of the fair value it was not deemed to be materially
different to the current carrying value of GBPNil.
Distributable Reserve
As at 31 December 2017, the Distributable Reserve stood at
GBPNil, following a transfer of this balance to retained earnings
in the year. (31 December 2016, the Distributable Reserve stood at
GBP34,802,740).
Whilst UK Legislation only permits companies to pay dividends
out of profits for distribution (i.e. realised profits), under the
Companies (Guernsey) Law 2008, this operates on a solvency model
and therefore does not have any impact on dividend
distribution.
14. LIABILITIES
31 December 31 December
2017 2016
Non-current liabilities GBP'000 GBP'000
ZDP shares (1) 24,714 23,436
Corporate Bond (2) 10,000 8,500
34,714 31,936
=========== ===========
31 December 31 December
2017 2016
Current liabilities GBP'000 GBP'000
Syndicated Loan (3) - 11,920
Accounts payable 319 2,582
Accruals and other payables 1,432 1,624
Dividend payable - 215
Other staff costs 240 375
Payable to related party* 950 2,400
Preference shares - 200
2,935 19,316
=========== ===========
*Relates to the amount owing by Sancus BMS Group Limited to
Sancus IOM Holdings Limited for its subscription for preference
shares, which is due in respect of issued but uncalled preference
shares and does not bear interest.
31 December 31 December
2017 2016
Interest costs on debt facilities GBP'000 GBP'000
ZDP Shares (1) 1,279 1,275
Corporate Bond (2) 648 298
Syndicated Loan (3) 220 1,597
2,147 3,170
============= ===========
(1) ZDP shares
The ZDP Shares have a maturity date of 5 December 2019 with a
final capital entitlement of GBP1.30696 per ZDP Share.
Refer to the Company's Memorandum and Articles of Incorporation
for full detail of the rights attached to the ZDP Shares. This
document can be accessed via the Company's website
www.glifinance.com.
During the year, the interest costs accrued on the ZDPs amounted
to GBP1.3m (31 December 2016: GBP1.3m), at an average interest rate
of 5.5% (31 December 2016: 5.5%).
In accordance with article 7.5.5 of the Company's Memorandum and
Articles of Incorporation, the Company may not incur more than
GBP30m of long term debt without the prior approval from the ZDP
shareholders. The Memorandum and Articles also specify that two
debt cover tests must be met in relation to the ZDPs.
At 31 December 2017 the Company was in compliance with these
covenants as Cover Test A was 3.26 (minimum of 1.7) and Cover Test
B was 4.09 (minimum of 3.25).
At the year end senior debt borrowing capacity amounted to
GBP20m after the repayment of the syndicated Loan (see Note
14.3).
(2) Corporate Bond
On 30 June 2016 GLI Finance issued GBP10m corporate bonds as
part of the acquisition of Sancus Gibraltar. As at 31 December 2017
Sancus BMS Group Limited holds GBPNil of these (31 December 2016:
GBP1.5m leaving a balance on consolidation of GBP8.5m). The bond
maturity date is 30 June 2021 and they bear interest at 7%.
During the year the interest costs to the Group on the bonds
amounted to GBP0.6m (31 December 2016: GBP0.3m).
(3) Syndicated Loan Facility
On 15 March 2017, the Syndicated Loan Facility of GBP14.9m was
repaid. GBP11.9m was repaid to external parties and GBP3.0m was
paid to Sancus BMS Group Limited to settle their participation in
the loan.
In the period to 15 March 2017 interest costs to the Group on
the Loan Facility amounted to GBP0.2m (year to 31 December 2016:
GBP1.6m).
15. TAXATION
The Company is exempt from Guernsey taxation under the Income
Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed annual fee
of GBP1,200 (31 December 2016: GBP1,200) is payable to the States
of Guernsey in respect of this exemption.
Reconciliation of tax charge
31 December 31 December
2017 2016
GBP'000 GBP'000
Accounting loss before tax (15,164) (16,452)
Accounting profit/(loss) before
tax relating to non Guernsey resident
companies 685 (1,403)
UK Corporation Tax at 19% (2016:
20%) (118) 134
Gibraltar Corporation Tax at 10% 138 83
Utilisation of tax losses and other
adjustments - (134)
Tax expense 20 83
=========== ===========
Certain of the Group's subsidiaries have losses available for
carry forward and offset against future trading profit of
GBP15,065,000 (31 December 2016: GBP7,340,000).
31 December 31 December
2017 2016
GBP'000 GBP'000
Consolidated loss
Losses brought forward restricted
to UK (7,158) (7,826)
Losses brought forward restricted
to Guernsey (182) (116)
Losses (in year)/utilised in UK (7,693) 668
Losses (in year)/utilised in Guernsey (32) (66)
Losses carried forward UK (14,851) (7158)
----------- -----------
Losses carried forward Guernsey (214) (182)
----------- -----------
Deferred income tax assets in respect of capital losses, trading
losses and non-trade deficits have not been recognised as their
future recovery is uncertain or not currently anticipated.
16. CASH GENERATED FROM OPERATIONS
31 December 31 December
2017 2016
GBP'000 GBP'000
Loss for the year (15,184) (16,535)
Adjustments for:
Net losses on FinTech Ventures 13,459 7,432
Net losses on fair value of SSIF 953 1,529
Net loss on associate of SSIF - 1,208
Other net losses/(gains) 399 (718)
Non-cash item on finance costs
on ZDPs 1,278 1,275
Amortisation/depreciation of fixed
assets 322 272
Other non-cash 1,136 1,358
Goodwill write off - 4,146
Changes in working capital:
Trade and other receivables (1,533) 1,949
Trade and other payables (2,479) 3,649
Cash (outflow)/inflow from operations (1,649) 5,565
=========== ===========
17. CONSOLIDATED SUBSIDIARIES
The Directors consider the following entities as wholly
and partly owned subsidiaries of the Group and their
results and financial positions are included within
its consolidated results.
Subsidiary entity Date of Country Nature of Percentage
incorporation of holding holding
incorporation
-------------------- ---------------- ---------------- ----------------- -----------
Sancus BMS Group 27 December Directly held
Limited ("SBMS") 2013 Guernsey -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus BMS Holdings
Limited ("SBHL")
(formerly GLIF
BMS Holdings 5 November United Indirectly held
Limited ("GBHL")) 2012 Kingdom -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
BMS Finance AB
Limited ("BMS 24 November United Indirectly held
Finance AB") 2006 Kingdom -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus Services
Limited
(formerly GLI
Finance (UK) 21 October United Indirectly held
Limited) 2014 Kingdom -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus (Jersey) 1 July Indirectly held
Limited 2013 Jersey -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus (Guernsey) 18 June Indirectly held
Limited 2014 Guernsey -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus (Gibraltar) 10 March Indirectly held
Limited 2015 Gibraltar -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus Funding
Limited
(formerly Funding 17 February United Indirectly held
Knight Limited) 2011 Kingdom -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
Sancus Finance 7 January United Indirectly held
Limited 2011 Kingdom -Equity Shares 98.2%
-------------------- ---------------- ---------------- ----------------- -----------
FinTech Ventures 9 December Directly held
Limited 2015 Guernsey -Equity Shares 100%
-------------------- ---------------- ---------------- ----------------- -----------
18. FINTECH VENTURES AND OTHER INVESTMENTS
The Directors consider the following entities as associated
undertakings of the Group as at 31 December 2017.
Name of Investment: Nature Country Percentage Measurement
of holding of incorporation holding
-------------------- ---------------- ------------------ ----------- ------------
FinTech Ventures:
-------------------- ---------------- ------------------ ----------- ------------
LiftForward Indirectly United 18.40% Fair Value
Inc. held - States
Equity of America
-------------------- ---------------- ------------------ ----------- ------------
Finexkap Indirectly France 29.80% Fair Value
held -
Equity
-------------------- ---------------- ------------------ ----------- ------------
Ovamba Solutions Directly United 20.48% Fair Value
Inc. held - States
Equity of America
-------------------- ---------------- ------------------ ----------- ------------
The Credit Indirectly United 22.24% Fair Value
Junction Holdings held - States
Equity of America
-------------------- ---------------- ------------------ ----------- ------------
Funding Options Indirectly United 28.90% Fair Value
Limited held - Kingdom
Equity
and Preference
Shares
-------------------- ---------------- ------------------ ----------- ------------
TradeRiver Directly Guernsey 43.9% Fair Value
Finance Limited held -
Equity
and Preference
Shares
-------------------- ---------------- ------------------ ----------- ------------
TradeRiver Directly United 30.25% Fair Value
USA Inc held - States
Equity of America
and Preference
Shares
-------------------- ---------------- ------------------ ----------- ------------
Open Energy Directly United 23.10% Fair Value
Group Inc held - States
Equity of America
-------------------- ---------------- ------------------ ----------- ------------
MytripleA Directly United 15.00% Fair Value
held - Kingdom
Equity
-------------------- ---------------- ------------------ ----------- ------------
UK Bond Network Directly United 21.11% Fair Value
Limited held - Kingdom
Equity
-------------------- ---------------- ------------------ ----------- ------------
Finpoint Limited Directly United 21.12% Fair Value
held - Kingdom
Equity
-------------------- ---------------- ------------------ ----------- ------------
Other Investments:
-------------------- ---------------- ------------------ ----------- ------------
BMS Finance Indirectly Luxembourg 30.25% Fair Value
(Ireland) Sarl & Directly
held -
Equity
-------------------- ---------------- ------------------ ----------- ------------
BMS Finance Indirectly Luxembourg 25.24% Fair Value
(UK) Sarl held -
Equity
-------------------- ---------------- ------------------ ----------- ------------
No significant restrictions exist on the ability of these
associates to transfer funds to the Group in the form of cash
dividends, or to repay loans or advances made by the Group.
19. FINANCIAL RISK MANAGEMENT
The Group is exposed to financial risk through its investment in
a range of financial instruments, ie. in the equity and debt of
investee companies and through the use of debt instruments to fund
its investment in loans. Such risks are categorised as capital
risk, liquidity risk, investment risk, credit risk, and market risk
(market price risk, interest rate risk and foreign currency
risk).
Comments supplementary to those on risk management in the
Corporate Governance section of this report as are included
below.
(1) Capital Risk Management
The Group's capital comprises ordinary shares as well as a
number of debt instruments. Its objective when managing this
capital is to enable the Group to continue as a going concern in
order to provide a consistent appropriate risk-adjusted return to
shareholders, and to support the continued development of its
investment activities. Details of the Group's equity is disclosed
in Note 13 and of its debt in Note 14.
The Group and its subsidiaries are not subject to regulatory or
industry specific requirements to hold a minimum level of capital,
other than the legal requirements for Guernsey incorporated
entities. The Group considers the amount and composition of its
capital is currently in proportion to its risk profile.
The Group monitors the ratio of debt (loans payable, bonds and
ZDP Shares) to other capital which, based upon shareholder
approval, is limited to 5 to 1 (or 500%). At year end this ratio
stood at 46% (31 December 2016: 48%).
(2) Liquidity risk
Liquidity risk is the risk that arises when there is a mismatch
in the maturity of assets and liabilities, which results in the
risk that liabilities may not be settled at contractual maturity.
The Group's investments are generally more illiquid than publicly
traded securities.
The Group Treasury Committee meets twice monthly to manage the
liquidity position of the Group. Where necessary contingency plans
are made to realise assets which are reasonably liquid in the short
term.
The following table analyses the Group's financial assets and
liabilities into relevant maturity groupings based on the period to
the contractual maturity date. The amounts in the table are the
contractual undiscounted cash flows, assuming interest rates in
effect at the year end.
Current Non-current
Within 12
months 1 to 5 years
31 December 2017 GBP'000 GBP'000
Assets
Sancus BMS loans and loan equivalents 11,181 24,238
Loan notes 7,907 3,000
FinTech Ventures Investments 3,508 26,090
Other Investments at Fair value - 542
Joint ventures and associates - 2,266
Loans through Platforms 908 -
Trade and other receivables 4,170 -
Cash and cash equivalents 3,016 -
----------
Total assets 30,690 56,136
========== =============
Liabilities
ZDP Shares - 24,714
Corporate Bond - 10,000
Trade and other payable 2,935 -
------
Total liabilities 2,935 34,714
====== =======
Net Liquidity 27,755 21,422
======= =======
(3) Interest rate risk
Interest rate risk is the risk that the value of financial
instruments will fluctuate due to changes in market interest rates
and that mismatches in the interest rates applying to assets and
liabilities will impact on the Group's earnings.
The Group's cash balances, debt instruments and loan notes are
exposed to interest rate risk.
The Group did not enter into any interest rate risk hedging
transactions during the current or prior years.
The table below summarises the Group's exposure to interest rate
risk:
Floating Fixed Rate
rate Financial Financial
Instruments Instruments Total
31 December 2017 GBP'000 GBP'000 GBP'000
Assets
BMS Loans and loan equivalents 1,064 45,262 46,326
Financial assets at fair
value through profit and
loss - 3,128 3,128
Loans through Platforms - 908 908
Cash and cash equivalents 3,016 - 3,016
Total assets 4,080 49,298 53,378
================ ============= ========
Liabilities
ZDP shares payable - 24,714 24,714
Corporate Bond - 10,000 10,000
-------
Total liabilities - 34,714 34,714
------ ------- -------
Total interest sensitivity
gap 4,080 14,584 18,664
====== ======= =======
31 December 2016
Assets (restated)
Sancus BMS Loans and loan
equivalents 563 38,258 38,821
Financial assets at fair
value through profit and
loss - 2,040 2,040
Loans through Platforms - 4,034 4,034
Cash and cash equivalents 9,616 - 9,616
------- ------- -------
Total assets 10,179 44,332 54,511
======= ======= =======
Liabilities
Loans payable - 11,920 11,920
ZDP shares payable - 23,436 23,436
Corporate Bond - 8,500 8,500
-------
Total liabilities - 43,856 43,856
------- ------- -------
Total interest sensitivity
gap 10,179 476 10,655
======= ======= =======
Interest rate sensitivities
Given that the majority of financial assets and liabilities are
at fixed rates the Group is not materially exposed to changes in
interest rates in relation to existing assets/liabilities (2016:
similar exposure).
The GLI Treasury Committee reviews interest rate risk on an
ongoing basis, and the exposure is reported quarterly to the Board
and/or Audit and Risk Committee.
(4) Investment risk
Investment risk is defined as the risk that an investment's
actual return will be different to that expected. Investment risk
primarily arises from the Group's exposure to its FinTech Ventures
portfolio. This risk in turn is driven by the underlying risks
taken by the platforms themselves - their own strategic, liquidity,
credit and operational risks.
The Group's framework for the management of this risk includes
the following:
-- Seats on the boards of most of the platforms, which allow
input into strategy and monitoring of progress;
-- pre-emptive rights on participation in capital raises, or the
support for capital raises, to protect against dilution;
-- regular monitoring of the financial results of platforms;
-- bi-annual reviews of the valuations of platforms, which
provide an opportunity to test the success of platforms'
strategies, and,
-- quarterly reporting to the Board on these matters.
The methodology for the valuation of such investments is noted
above.
Investment valuation sensitivities
The following table gives information about how the fair values
of financial assets categorised as level 3 in the fair value
hierarchy are determined by the Company:
Valuation Fair Value Fair Reason for Significant Relationship
technique GBP'000 Value any changes unobservable of unobservable
and key inputs GBP'000 in valuation inputs inputs
techniques to fair
from prior value
years
At 31 At 31
December December
2017 2016
--------------------- ----------- ---------- --------------- -------------------- -----------------
Market comparable 15,346 - Equity raises Transaction A smaller
transaction completing price negatively adjustment
based on recent Q4 17/Q1 adjusted for these
fundraising 18 by a range factors
activity, of 0-50% would increase
adjusted for for completion the fair
any relevant risk, nature value
risk of fundraising
and other
risks
Cashflows
are discounted
by a range
of 18.1-26.1%
for cost
of equity
and 15-17.5%
for illiquidity
of the investment.
Significant
There has internal
been no sensitivities A smaller
change in are also adjustment
valuation applied to for these
techniques. the forecasts, factors
Recent market creating would increase
comparable high and the fair
transaction low cases value-
data became used in the see sensitivity
Discounted available weighted analysis
cashflow forecasts 11,961 27,597 (see above) average output noted below
Fair value
based on cost
and adjusted
for FX movement
and any new
investment
(WC loan,
convertible
note etc) 2,291 8,507 None None None
----------- ----------
Fair value
Investment which closely
in redeemable approximates
preferences the net asset
shares of value of
the loan notes the Loan
is valued Note Special
on fair value 10,907 7,500 None purpose vehicles None
----------- ----------
40,505 43,604
----------- ----------
When the discounted cash flow ("DCF") valuation methodology is
utilised, the variables which influence the resultant valuations
most significantly are the discount rates applied to the future
cash flows, the revenue forecasts and the illiquidity discounts.
The table below shows the impact of stressing year end valuations
by the sensitivities which the Board believe to be reasonably
foreseeable:
Increasing and decreasing revenues by 10%
Increasing and decreasing discount rates by 3% (discount rates
in valuation models average 18.1%-26.1%)
Increasing and decreasing illiquidity discounts by 5% (discounts
applied in valuation models vary between 15% and 17.5%)
Consolidated Statement
of Comprehensive
Income
31 December
2017
GBP'000
10% pa increase in revenue 3,268
10% pa decrease in revenue (3,268)
3% increase in discount rate (1,570)
3% decrease in discount rates 2,154
5% increase in illiquidity discount (411)
5% decrease in illiquidity discount 411
The DCF methodology has been used on different investments and a
different number of investments this year compared to the prior
year. As a result, no prior year comparative has been given as it
would not provide a meaningful comparison.
With regards to market comparable transactions, a total discount
of GBP900k was applied to reflect completion risk of transactions
not yet finalised.
(5) Credit risk
Credit risk is defined as the risk that a borrower/debtor may
fail to make required repayments within the contracted time scale.
The Group invests in senior debt, senior subordinated debt, junior
subordinated debt and secured loans.
Credit risk is taken in the following ways:
-- Direct lending to third party borrowers;
-- Investing in loan funds (the BMS Sarls);
-- Lending to associated platforms; and,
-- Loans arranged by associated platforms.
The maximum investment size, at the time of the investment, will
generally be limited to 15% of the Group's Gross Assets. However,
the Group may make larger investments and it may seek to syndicate
or sell down a portion of any such investment.
The Group mitigates credit risk on its loan portfolio by only
entering into agreements related to loan instruments in which the
operating strength of the investee companies is considered
sufficient to support the loan amounts outstanding. This
determination of whether the loan instruments are sufficiently
supported is made by the Executive Team at the time of the
agreements, and the Executive Team continues to evaluate the loan
instruments in the context of these agreements.
The entities in the Sancus BMS Group operate Credit Committees
which are responsible for evaluating and deciding upon loan
proposals, as well as monitoring the recoverability of loans, and
taking action on any doubtful accounts. All lending undertaken by
Sancus BMS is secured. The credit committee reports to the Sancus
BMS Board on a quarterly basis.
Credit risk exposure is set out in the table below. At the
year-end there is no accrued interest which is considered
uncollectable (31 December 2016: GBPnil).
The risk of default on bank accounts and other short-term
financial assets is considered negligible, since the counterparties
are reputable banks with high quality external credit ratings.
31 December 2017
Credit Risk (GBP'000) Amounts Provisions Net exposure
advanced / Write
offs
Sancus BMS loans and loan
equivalents 46,326 - 46,326
FinTech Ventures Investments 5,918 (2,790) 3,128
Loans through Platforms 908 - 908
Total 53,152 (2,790) 50,362
========== =========== =============
Credit Risk exposure of third party funders/co-lenders in loans
managed/administered by the Group's subsidiaries
The credit risk on loans managed by Sancus BMS Group is borne by
third party funders/co-lenders, who are provided with sufficient
information to assess the risk at the time they enter the
transaction. In the case of Sancus Finance's supply chain product,
credit insurance is typically, put in place covering up to 90% of
the funders' exposure.
Sancus, BMS Finance and Sancus Finance have developed credit
policies, approval and monitoring processes to be effective for
each businesses' different type of lending (property-backed,
business cash flow and invoice/supply chain finance respectively).
Limited default experience indicate that the policies and processes
are proving effective.
(6) Market price risk
Following the sale of the investment in SSIF the Group has no
exposure to market price risk of financial assets valued on a Level
1 basis as disclosed in Note 22.
Market price risk sensitivities
The following details the Group's sensitivity to a 5% increase
and decrease in the market prices of Level 1 financial instruments,
which were primarily the investment in SSIF. As at 31 December 2017
the Group had no investment in Level 1 financial instruments.
Consolidated Statement
of Comprehensive
Income
31 December 31 December
2017 2016
GBP'000 GBP'000
5% increase in market prices - 1,189
5% decrease in market prices - (1,189)
(7) Foreign exchange risk
Foreign exchange risk is the risk that the value of financial
instruments will fluctuate due to changes in foreign exchange
rates. The Group has made investments in currencies other than
Sterling and is therefore exposed to this risk.
The extent of exposure is set out in the table below.
31 December 2017
Balance Assets Liabilities Net In GBP Rates % of
sheet exposure applied Group
(000) total
assets
----------------- ------- ------------ ------- ------- --------- --------
Euro 9,298 - 9,298 8,259 1.12579 7.34%
----------------- ------- ------------ ------- ------- --------- --------
USD 20,840 - 20,840 15,428 1.35077 13.72%
----------------- ------- ------------ ------- ------- --------- --------
The exchange rates used by the Group to translate foreign
currency balances are as follows:
Currency 31 December 30 June 31 December 30 June 31 December
2017 2017 2016 2016 2015
---------- ------------ -------- ------------ -------- ------------
USD 1.3508 1.3027 1.2340 1.3311 1.4736
---------- ------------ -------- ------------ -------- ------------
EUR 1.1258 1.1402 1.1731 1.1984 1.3571
---------- ------------ -------- ------------ -------- ------------
Foreign exchange risk sensitivities
The sensitivity analysis below stresses the Group's outstanding
foreign currency denominated financial assets and liabilities by a
15% increase/decrease in Sterling.
Consolidated Statement
of Comprehensive
Income
31 December 31 December
2017 2016
GBP'000 GBP'000
15% decrease in foreign exchange
rates 4,180 5,712
15% increase in foreign exchange
rates (3,090) (4,222)
The Treasury Committee Team monitors the Group's currency
position on a regular basis, and the Board of Directors reviews it
on a quarterly basis. Although this risk may be hedged, the current
approach is not to do. No hedging instruments were used during
either 2017 or 2016.
20. SHARE-BASED PAYMENTS
On 26 September 2017, the Company granted a total of 10,00,000
options over ordinary shares of no par value to certain directors
of the Company. The Options will vest in three equal tranches on
the first, second and third anniversaries of the Grant with
exercise prices of 25p, 30p and 35p respectively. The options are
not subject to performance conditions.
The expense recognised for these share-based payments during the
year to December 2017 is GBP8,475 (2016: GBPNil).
Details of the share options outstanding during the year are as
follows:
31 December 2017 31 December 2016
Number Weighted Number Weighted
of share average of share average
options exercise options exercise
price price
p p
Outstanding at the beginning -
of the year - - -
Granted during the year 10,000,000 30 - -
-----------
Outstanding at the end
of the year 10,000,000 30 - -
=========== =========== ========== ==========
Exercisable at the end -
of the year - - -
=========== =========== ========== ==========
The estimated fair values of the options granted were 0.99p,
1.06p and 0.84p for the first, second and third tranches
respectively. The weighted average fair value of the options not
yet exercised is 0.96p. These fair values were calculated using The
Black-Scholes pricing model. The inputs to the model were as
follows:
Tranche Tranche Tranche
1 2 3
Weighted average exercise price 25p 30p 35p
Expected volatility 45% 40% 34%
Expected contracted life 2 years 3.5 years 5 years
Risk free rate 0.45% 0.50% 0.76%
The expected volatility was determined by reference to the share
price volatilities of the company itself, over the life of the
options.
21. RELATED PARTY TRANSACTIONS
Transaction with the Directors/Executive Team
Non-executive Directors
As at 31 December 2017, the non-executive Directors' annualised
fees, excluding all reasonable expenses incurred in the course of
their duties which were reimbursed by the Company, were as detailed
in the table below:
31 December 31 December
2017 2016
GBP GBP
Patrick Firth (Chairman) 50,000 50,000
John Whittle 42,500 40,000
Frederick Forni (1) - 37,500
James Carthew (1) - 40,000
(1) Resigned on 23 September 2016
There was no increase in the Directors' base fees during the
year ended 31 December 2017, but Mr Whittle received an additional
GBP2,500 as Chairman of the Audit Committee. Total Directors' fees
charged to the Company for the year ended 31 December 2017 were
GBP92,357 (31 December 2016: GBP86,380) with GBPNil (31 December
2016: GBPNil) remaining unpaid at the year end.
Executive Team
The Executive team consists of Andrew Whelan, Russell Harte
(ceased employment on 1 July 2017), Emma Stubbs, Aaron Le Cornu
(commenced employment 1 May 2017), Marc Krombach (ceased employment
29 April 2016) and Louise Beaumont (ceased employment 27 September
2016).
For the year ended 31 December 2017, the Executive Team members'
remuneration from the Company, excluding all reasonable expenses
incurred in the course of their duties which were reimbursed by the
Company, were as detailed in the table below:
31 December 31 December
2017 2016
------------------------------------ ------------ ------------
GBP'000 GBP'000
------------------------------------ ------------ ------------
Aggregate remuneration in respect
of qualifying service - fixed
salary 565 500
------------------------------------ ------------ ------------
Aggregate amounts contributed
to Money Purchase pension schemes 79 66
------------------------------------ ------------ ------------
Aggregate bonus paid (shares
and cash) 550 394
------------------------------------ ------------ ------------
See remuneration report for further details.
All amounts have been charged to Other Expenses.
At the Company's annual general meeting ("AGM") held on 10 May
2017 Shareholders approved terms for a revised long-term incentive
scheme, pursuant to which members of the Executive Team will be
entitled to receive options to subscribe for new Ordinary Shares in
the capital of the Company ("Share Options") at strike prices of
25p, 30p and 35p and will vest on the first, second and third
anniversaries of the respective grant (the "New Scheme"). The New
Scheme took effect from the date of the AGM and replaces the
previous Executive Bonus Scheme.
Directors' and Persons Discharging Managerial Responsibilities
("PDMR") shareholdings in the Company
As at 31 December 2017, the Directors had the following
beneficial interests in the Ordinary Shares of the Company:
31 December 2017 31 December 2016
No. of % of Ordinary No. of % of Ordinary
Ordinary Shares Ordinary Shares
Shares Shares
Held Held
Patrick Firth (Chairman) 278,669 0.09 271,049 0.09
John Whittle 104,550 0.03 - N/A
Andrew Whelan 8,051,921 2.58 3,800,000 1.23
Emma Stubbs 1,005,485 0.32 179,640 0.06
Aaron Le Cornu 445,790 0.15 - -
During the year, Mr Firth, Mr Whittle, Mr Whelan and Mrs Stubbs
received total amounts of GBP1,694, GBPNil, GBP43,506 and GBP2,022
(31 December 2016: GBP6,390, GBPNil, GBP95,000 and GBP3,026)
respectively from the Company by way of dividends on their Ordinary
Share holdings in the Company.
See Note 24 for details of the Directors' interests in the
Ordinary Shares of the Company as at the date of this report.
As at 31 December 2017, there were 10,000,000 unexercised share
options for Ordinary Shares of the Company (31 December 2016: Nil
Ordinary Shares) (Note 20).
During the year Mr Whelan received GBP41,475 in relation to the
coupon on his holding of GBP800,000 GLI Bonds.
Transactions with connected entities
The following significant transactions with connected entities
took place during the year:
31 December 31 December
2017 2016
-------------------------------- -------------------- --------------------
Balance Interest Balance Interest
GBP'000 accrued GBP'000 accrued
in the in the
year year
GBP'000 GBP'000
-------------------------------- --------- --------- --------- ---------
Platform loans & corresponding
interest
-------------------------------- --------- --------- --------- ---------
GLIF and investments in
Fintech Ventures 3,128 668 3,288 360
-------------------------------- --------- --------- --------- ---------
Platform preference shares
& corresponding interest
-------------------------------- --------- --------- --------- ---------
GLIF and investments in
Fintech Ventures 1,916 739 3,405 50
-------------------------------- --------- --------- --------- ---------
(Payable)/receivable to/from
related parties
-------------------------------- --------- --------- --------- ---------
Intercompany with Sancus
(IOM) Holdings Limited (950) - (2,400) -
-------------------------------- --------- --------- --------- ---------
Intercompany with Sancus 2 - - -
(IOM) Holdings Limited
-------------------------------- --------- --------- --------- ---------
Intercompany with Sancus 24 - - -
(IOM) Limited
-------------------------------- --------- --------- --------- ---------
31 December 31 December
2017 2016
GBP'000 GBP'000
Office and staff costs
recharges
-------------------------------- --------- --------- --------- ---------
Amberton Asset Management 47 163
-------------------------------- --------- --------- --------- ---------
There is no ultimate controlling party of the Company.
All platform loans bear interest at a commercial rate.
All preference shares bear interest at a commercial rate.
22. FINANCIAL INSTRUMENTS
Fair Value Estimation
The financial assets and liabilities measured at fair value in
the Consolidated Statement of Financial Position are grouped into
the fair value hierarchy as follows:
31 December 2017 31 December 2016
Level 1 Level 3 Level 1 Level 3
Assets GBP'000 GBP'000 GBP'000 GBP'000
Investment in
SSIF - - 23,781 -
FinTech Ventures
investments - 29,598 - 36,104
Investments in
Sancus Loan Notes - 10,907 - 7,500
Other investments
at Fair Value 2,808 - 873
--------- --------- --------
Total assets
at Fair Value - 43,313 23,781 44,477
=========== ========= ========= ========
The classification and valuation methodology remains as noted in
the 2016 Annual Report. In relation to the Level 3 valuation
methodology for the FinTech Ventures investments the Board assesses
the fair value based on either the value at the last capital
transaction or valuation techniques, performed internally or by an
independent third-party expert. Factors considered in these
valuation analyses included discounted cashflows and comparable
company and comparable transaction analysis. Key unobservable
inputs used in the discounted cashflows include costs of equity and
illiquidity discount rates. Other factors included revenue and
costs growth rates, interest margins, bad debt expense and tax
rates. These are consistent with the inputs described in the 2016
Annual Report and adjusted where necessary. The Board considers all
the information presented to it, including indicative bids,
internal analysis, and independent valuations, in order to reach,
in good faith, their value determination.
The investment in SSIF was sold on the 8 March 2017, raising
GBP22.7m in cash.
FinTech Ventures' Investments Equity Loans Total
31 December 2017 GBP GBP GBP
Opening fair value 34,699 1,405 36,104
New investments/loans advanced 1,455 5,494 6,949
Reclassification of loan - 418 418
Disposals/loan repayments - (414) (414)
Losses recognised in profit
and loss:
* Realised - - -
* Unrealised (9,684) (3,775) (13,459)
-------- -------- ---------
Closing fair value 26,470 3,128 29,598
======== ======== =========
Equity Loans Total
31 December 2016 GBP GBP GBP
Opening fair value 34,028 4,778 38,806
New investments/loans advanced 4,601 4,077 8,678
Transfer from Associate
to Subsidiary - Sancus
Finance (2,536) - (2,536)
Disposals/loan repayments (500) (912) (1,412)
Losses recognised in profit
and loss:
* Realised (500) (1,001) (1,501)
* Unrealised (394) (5,537) (5,931)
-------- -------- --------
Closing fair value 34,699 1,405 36,104
======== ======== ========
Assets at Amortised Cost
31 December 31 December
2017 2016
GBP'000 GBP'000
Sancus BMS loans and loan equivalents 35,419 31,321
Loans through platforms 908 4,034
Trade and other receivables 4,170 2,712
Cash and cash equivalents 3,016 9,616
Total assets at amortised cost 43,513 47,683
============ ============
Sancus BMS loans and loan equivalents has increased in the year
largely due to the participation by BMS and GLI in the UK and Irish
Funds. Loans through the platforms has reduced in the year from net
repayments and loan provisions.
Liabilities at Amortised Cost
31 December 31 December
2017 2016
GBP'000 GBP'000
ZDP Shares 24,714 23,436
Syndicated Loan - 11,920
Corporate Bond 10,000 8,500
Trade and other payables 2,935 7,396
Total liabilities at amortised
cost 37,649 51,252
============ ============
Refer to Note 14 for further information on liabilities.
23. COMMITMENTS AND CONTINGENCIES
As at 31 December 2017, the Group had the following aggregate
unrecognised commitments to loans denominated in Sterling, Euro and
US Dollar, due to its Associates and other underlying
investments:
Aggregate loan commitment by 31 December 31 December
currency 2017 2016
GBP'000 GBP'000
Sterling 60 1,066
Euro 255 703
US Dollar - 1,297
------------ ------------
315 3,066
============ ============
Operating lease commitments 31 December 31 December
2017 2016
GBP'000 GBP'000
Within one year 328 96
Between two and five years 883 235
Over 5 years 107 -
1,318 331
============ ============
All lease commitments relate to office space.
24. POST YEAR END EVENTS
Directors and PDMR Interests
At the date of these financial statements, the Directors and
PDMRs' beneficial interests in the Ordinary Shares of the Company
were:
No. of % of Ordinary
Ordinary Shares
Shares
Held
Patrick Firth (Chairman) 278,669 0.09
John Whittle 104,550 0.03
Andrew Whelan 8,051,921 2.58
Emma Stubbs 1,005,485 0.32
Aaron Le Cornu 1,105,790 0.35
Subsidiary - Name Change
On 16 January 2018, Funding Knight Limited changed its name to
Sancus Funding Limited.
HIT Funding Facility
On 29 January 2018 it was announced that a special purpose loan
vehicle called Sancus Loans Limited which is non-recourse to GLI
has been established with a GBP50m funding capacity. This has been
backed by a GBP45m credit facility from HIT, with a term of 3
years, of which GBP17.5m had been drawn and deployed
immediately.
Repayment of Sancus Loan Note 1
On 29 January 2018 it was announced that Sancus Loan Note 1 (the
"SPV") would be repaid early using the "HIT" funding facility noted
above. The SPV was launched in November 2016 with a 2 year life and
GBP17.55m in size; GBP7.5m of which were redeemable preference
shares subscribed for by Sancus. GBP5m of the c.GBP7.5m repaid to
Sancus, will be used as security under the terms of the new funding
facility.
There were no other significant post year end events that
require disclosure in these financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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