TIDMGLIF
RNS Number : 6897M
GLI Finance Limited
18 September 2019
18 September 2019
The information contained within this announcement is deemed by
the Company to constitute inside information stipulated under the
Market Abuse Regulation (EU) No. 596/2014. Upon the publication of
this announcement via the Regulatory Information Service, this
inside information is now considered to be in the public
domain.
GLI Finance Limited
("the Group" or "GLI")
Interim Report and
Unaudited Condensed Consolidated Financial Statements
For the six month period ended 30 June 2019
Group Highlights
While the headline financial results for the first six months
remain disappointing, they mask some crucial developments in asset
efficiency and cost controls that have led to a significant
improvement in return on tangible assets in our core business.
Impressive loan growth in asset backed secured lending in our
offshore jurisdictions, together with the establishment of offices
in our future growth markets in the UK and Ireland are where
operations have barely begun, lay the foundations for improved
financial results in the years ahead.
-- Group loss for the half year is GBP6.1m (H1 2018: loss
GBP9.3m) and Group net assets are GBP44.0m (31 December 2018:
GBP50.2m).
-- The overall result once again impacted by material write
downs within the FinTech portfolio.
-- The Group is focussed on the repayment of the Zero Dividend
Preference shares ("ZDPs") due on 5 December 2019. The total amount
due on maturity was originally GBP27.2m which had reduced to
GBP20.4m at 30 June 2019 following a series of buybacks by the
Company. Post period end, following further buy backs, the amount
due has fallen to GBP16.8m at the end of August 2019.
-- Whilst we are focussed on selling down our on-balance sheet
loan exposure and using cash assets to repay the ZDPs on maturity,
there will likely be a near term funding gap as loans take longer
to repay. We are in active discussions with the major ZDP holders
and are exploring options including extending the current ZDPs for
a further year with a coupon of 7% or potentially issuing further
bonds under its existing bond instrument.
Sancus BMS Highlights
-- Over the last twelve months, we have scrutinised capital
allocation and we have been divesting assets where return on
capital, on a risk adjusted basis, is below other areas of the
business. This has led to a gradual divestment of our SME lending
activities where loans tend to deserve a higher risk weighting and
require significant use of our own balance sheet. We have
redirected resources to our asset backed secured lending activities
where third-party funding is more accessible and our balance sheet
less utilised;
-- Costs have been managed well during the period and we have
seen a reduction in operating expenses by GBP0.5m largely in
employment costs;
-- The combination of better asset utilisation and better cost
control have delivered an improvement in return on tangible assets
and our return on tangible equity rose to 6.1% compared to a
negative return on equity for the full year 2018 of 1.7%;
-- Strong growth has been delivered across the asset backed
secured lending businesses. Over the last twelve months we have
delivered a 24% increase in the loan book from GBP151m at 30 June
2018 to GBP188m at 30 June 2019;
-- A key growth initiative for the Group has been the
establishment of the UK business in April 2019 and Irish business
in December 2018. These have significantly larger markets than we
are presently operating in and we expect the future growth of the
Group to be driven by these jurisdictions. The pipeline for these
two new businesses is strong but the initial loan deployment has
been somewhat impacted by Brexit. Thus, the offshore regions still
dominate and the full impact of opening in these two larger markets
is yet to be reflected;
-- In line with our focus to improve asset efficiency and the
quality of our financials, for the first half of the year proforma*
on-balance sheet loan exposure reduced by 43% compared to 30 June
2018, with revenue falling by far less, 15% from GBP6.3m to
GBP5.4m;
-- Proforma operating profit for the first half of the year was
GBP0.3m (June 2018: GBP1.4m). The reduction is partly due to
timings of one-off large exit fees and the loss of the BMS Irish
admin fees, plus associated costs in our UK and Irish jurisdictions
where the revenue stream is not yet up to its full potential.
Results are also impacted by a GBP1.2m IFRS 9 provision in the
period (30 June 2018: GBP0.5m). Half of this movement relates to an
SME loan within the BMS UK Fund where the underlying SME business
is facing financial difficulties;
-- We continue to diversify and grow our sources of capital and
lending capacity. At 30 June 2019, Sancus had loans outstanding of
GBP188m with Co-Funders providing GBP173m, equating to a co-funding
ratio of 92%. This is up from last year where Sancus had loans
outstanding of GBP151m and Co-Funding of GBP135m equating to an 89%
ratio. The three main sources of syndicated capital are the GBP45m
credit facility (GBP34m loans in HIT at 30 June 2019) with
Honeycomb Investment Trust plc ("HIT"), the Sancus Loan Notes
("SLNs") GBP25m and individual Co-Funders GBP114m.
FinTech Ventures Highlights
-- The carrying value of FinTech Ventures portfolio is GBP8.7m (GBP13.8m at 31 December 2018);
-- NAV per share for FinTech Ventures portfolio is 3.2 pence (31 December 2018: 5.1 pence);
-- The write down in the period relates primarily to three of
our platforms. One of the platforms has disappointingly ceased
trading in September 2019 following an enforcement by their debt
provider. Another of the platforms is finding it difficult to
secure the additional equity capital they require. The third
platform where we have suffered a write down has secured further
equity capital during H1 2019, but the providers of the new equity
have negotiated a favourable liquidation preference which has
impacted our value.
* A proforma reconciliation to Statutory Results is noted in
Table 1 and Table 3.
Enquiries
GLI Finance Limited
Andy Whelan
+44 (0)1534 708900
Liberum Capital (Nominated Adviser and Corporate Broker)
Chris Clarke
Steve Pearce
+44 (0) 20 3100 2000
Instinctif Partners (PR Advisor)
Tim Linacre
Katie Bairsto
+44 (0)207 457 2020
CHAIRMAN'S STATEMENT
Positioning the business for the future
Our focus remains on maximising the earning potential of our two
distinct business units, whilst recognising that Sancus is the key
for GLI's future.
Sancus BMS comprises the Group's property backed and SME lending
businesses. FinTech Ventures represents the Group's investments in
a portfolio of SME focussed lending platforms. Over the last few
years we have seen the valuation of the FinTech Ventures portfolio
become a much smaller part of the Group's assets as businesses have
failed and numerous valuations in the sector have reduced. However,
we continue to work hard to maximise the value from this portfolio,
but as previously highlighted this has proven to be extremely
challenging, as we are a minority investor with limited financial
resources to support the platforms.
Sancus BMS is our core trading business and continues to show
good growth with 24% increase in the loan book from GBP151m at 30
June 2018 to GBP188m at 30 June 2019. Over the past six months, the
loan book has increased by 12% from GBP168m to GBP188m. Sancus BMS
revenue on a statutory reporting basis has remained flat at GBP6.8m
for the six months ended 30 June 2019 compared to GBP6.9m in the
prior period. GBP1.6m of this revenue related to Sancus Loans
Limited ("SLL") which increased by 148% in comparison to the prior
period, highlighting the demand we have seen in loan origination.
In our view, to show the true economic performance of the Group,
all Co-Funders should be assessed in the same way. However, as SLL
is 100% owned by Sancus BMS Group Limited (as it was required to be
set up as an SPV for the HIT facility) it is consolidated into the
Group's results. In our proforma statements on Table 1 the SLL
results have been deducted from the consolidated statement of
comprehensive income ("SOCI") and the consolidated statement of
financial position ("SOFP") and we show the results on a net basis
which is the same for all our other syndicated arrangements.
Sancus BMS revenue on a proforma basis has not moved in line
with the loan book growth with a reduction of 15% (GBP0.9m)
compared to the same period last year. This is in part due to a
reduction in exit fees of GBP0.3m which by their nature are lumpy
and will vary by period. In addition, the sale of the Irish BMS
Fund mandate last year contributed to a GBP0.3m reduction in admin
fee income. However, the reduction in admin revenue is materially
less than the associated fall in assets used to support the SME
lending activities. Interest income is expected to decrease further
over the remainder of this year as we reduce our on-balance sheet
loan book to use funds to repay the ZDPs. This is in line with our
long-term strategy to increase return on tangible assets over time
with reduced on-balance sheet risk exposure.
The growth in the loan book is a factor of growth in Co-Funder
appetite, which includes the GBP45m HIT facility that was launched
in January 2018, of which the loan balance at the end of June 2019
was GBP34m. In addition to this facility and regular participation
by Co-Funders, we also have the Sancus Loan Note programme that has
proven very successful and provides Co-Funders with the option of
participating in a wider pool of loans with a fixed rate of return.
As seen by the HIT facility this diversification of funding has
allowed us to grow the Sancus BMS loan book and we continue to look
at other similar debt providers to aid expansion plans.
ZDPs
The repayment of our ZDPs on 5 December 2019 remains at the
forefront of our mind and we have made good progress acquiring
those which have become available in the market over the last 12
months. We have spent GBP9.4m on buybacks up to the date of this
report with a total of 7.9m ZDP shares now held by the Group. This
has reduced the ZDP liability to GBP16.8m at the end of August
2019. Whilst we are focussed on selling down our on-balance sheet
loan exposure and using cash assets, there will likely be a near
term funding gap as loans take longer to repay. We have been
exploring several options to fund this potential gap. This includes
letting a portion of the ZDPs run past the scheduled repayment date
and repaying the liability as liquidity becomes available to enable
the Company lawfully to redeem the ZDPs, which although
contemplated by the Company's articles of incorporation and the ZDP
prospectus, is not our preferred route. We have engaged with the
major ZDP holders and are looking into the potential extension of
the current ZDPs for a further year with a coupon of 7% or issuing
further Bonds under the current Bond instrument.
Taking into account the varying possible outcomes of factors and
assumptions listed above, these constitute a material uncertainty
that may cast significant doubt over the Company's and Group's
ability to continue as a going concern, such that it may be unable
to release its assets and discharge its liabilities in the normal
course of business. The Directors expect that if they are able to
action the mitigations being considered above, the material
uncertainties will be extinguished. Refer Note 2(c) for further
details.
Brexit
The uncertainties created by Brexit makes it very difficult to
predict what impact this will have on the UK property lending
market. However, Sancus has further tightened its credit processes
to decline proposals where the repayment strategy is based upon
bull market behaviour. This was due to our continued fears that
global economies are at or are reaching the peak of this long bull
market cycle and the threat of a global recession or correction in
stock and bond markets is increasing. However, we do believe that
the medium-term benefits will be positive for alternative lenders
as banks will step back further from their lending activities as
they closely monitor their Tier 1 Capital ratios. In the immediate
future, businesses may pause and take a wait and see approach for
new projects, however, for already committed projects we expect
them to continue to push forward and execute on their plans. In any
stressful period, there are arbitrage pricing opportunities and
Sancus will seek to benefit from such instability.
Overview
We have made significant strides to lay the foundation for
growth and operational improvements to create and build shareholder
value in the Sancus BMS Group. The funding facility, Loan Note and
Co-funder network helps to support this growth, but we are also
continuing to secure a steady flow of new Co-Funders due to the
attractive risk-adjusted returns that are available on our lending
opportunities. Our focus for the foreseeable future is growing the
UK and Irish operations and continuing to expand the offshore
jurisdictions.
We shall continue carefully managing the FinTech Ventures
portfolio and explore options to maximise the return to
Shareholders, although we note the continuing challenges on these
investments and the poor performance to date.
We are also pleased to welcome Nick Wakefield as a Director of
the Company. Nick was proposed as a representative of our largest
shareholder and brings significant experience to the Board.
Following shareholder feedback at the 2019 AGM a new Company
Remuneration Policy is being prepared and details of this will be
included in our 2019 Annual Report.
Dividend and Shareholders
In line with our dividend policy, it is not proposed to declare
a dividend for this period. We expect our investments in Ireland
and the UK together with further focus on operational matters to
drive cash flow in the coming years. This will allow us to resume
the dividend. I am grateful to all our shareholders who have kept
confidence with the Group through what continues to be a
challenging period as reflected in the depressed share price. We
believe that the share price is trading well below the inherent
value of the business and we look forward to seeing it recover in
due course on the back of the strong growth delivered by the
Executive Team within Sancus BMS.
Patrick Firth
Chairman
Date: 17 September 2019
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
During the first half of 2019 Sancus BMS has seen a flurry of
asset backed secured loan activity and we have spent considerable
time, energy and focus on the UK and Irish operations to ensure
they are well positioned to grow in the coming months. We have felt
the effects of Brexit, which has created a more cautious
environment and look forward to a conclusion on this hopefully in
the final quarter of this year. We continue to work closely with
the FinTech Ventures portfolio providing support where we can. No
further capital has been invested in the portfolio during 2019 and
it remains a challenging market for many of the platforms to raise
capital.
The Group results for the first half of 2019 produced a revenue
of GBP7.1m (30 June 2018: GBP7.2m) and an operating loss of GBP0.1m
(30 June 2018: profit GBP0.6m). As we go onto explain below, the
statutory results include the revenue and debt costs of the HIT
facility which saw a significant increase from last June as we have
utilised our Co-Funder base to grow the loan book. The Group net
assets have decreased in the period from GBP50.2m at 31 December
2018, to GBP44.0m at 30 June 2019, largely impacted by the GBP5.2m
write down of the FinTech Ventures portfolio.
Sancus BMS
The Board believes our economic performance is best illustrated
from our proforma statements. In our view, all Co-Funders should be
assessed in the same way. However, as Sancus Loans Limited ("SLL")
is 100% owned by Sancus BMS Group Limited (as it was required to be
set up as an SPV for the HIT facility) it is consolidated into the
Group's results. In our proforma statements the SLL results have
been deducted from the consolidated statement of comprehensive
income ("SOCI") and the consolidated statement of financial
position ("SOFP") noted below and we show the results on a net
basis which is the same for all our other Co-Funder arrangements.
We show the reconciliation of the proforma statements with
accounting statements below.
Financial Results for the six months ended 30 June 2019 (Table
1) - Sancus BMS Group
Sancus BMS SOCI Proforma Results 30 June 2019 30 June Movement Movement
GBP'000 2018 % GBP'000
GBP'000
Sancus BMS interest on loans 1,620 1,784 (9%) (164)
Sancus BMS Fees and Other Income 3,530 4,486 (21%) (956)
Sancus Loans Limited Fees and
Other Income 271 75 261% 196
Revenue 5,421 6,345 (15%) (924)
Interest costs (891) (985) 10% 94
Other cost of sales (253) (110) (130%) (143)
Total Cost of Sales (1,144) (1,095) (4%) (49)
Gross profit 4,277 5,250 (19%) (973)
Operating expenses (2,779) (3,327) 16% 548
Changes in expected credit losses
("ECLs") (IFRS 9) (1,175) (518) (127%) (657)
Net operating profit 323 1,405 (77%) (1,082)
Other net (losses) / gains (753) 227 (432%) (980)
Goodwill impairment - (2,139) 100% 2,139
Tax (144) (162) 11% 18
Loss for the period (574) (669) 14% 95
Reconciliation to SOCI - Revenue 30 June 30 June Movement Movement
2019 2018 % GBP'000
GBPm GBPm
Revenue per proforma Sancus BMS
SOCI 5,421 6,345 (15%) (924)
Less Sancus Loans Limited Fee
and Other Income (271) (75) (261%) (196)
Sancus Loans Limited Revenue 1,611 649 148% 962
Revenue per Sancus BMS SOCI (Note
3) 6,761 6,919 (2%) (158)
Reconciliation to SOCI - Cost 30 June 30 June Movement Movement
of Sales 2019 2018 % GBP'000
GBPm GBPm
Cost of sales per proforma Sancus
BMS SOCI (1,144) (1,095) (4%) (49)
Sancus Loans Limited interest
costs (1,340) (574) (133%) (766)
Cost of Sales per Sancus BMS
SOCI (Note 3) (2,484) (1,669) (49%) (815)
Sancus BMS Entity Results (Table 2)
GBP'000 2019 - Half Year 2018 - Half Year %
Offshore BMS UK Total Offshore BMS UK Total
--------- ------ ------ -------- --------- ------ -------- -------- -------
Revenue 4,263 807 351 5,421 3,754 1,924 667 6,345 (15%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
Other Cost
of Sales (183) - (70) (253) (35) - (75) (110) (130%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
Operating
Expenses (1,488) (453) (838) (2,779) (1,383) (851) (1,093) (3,327) 16%
--------- ------ ------ -------- --------- ------ -------- -------- -------
Change in
ECLs (565) (610) - (1,175) (518) - - (518) (127%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
Debt costs (891) (985) 10%
--------- ------ ------ -------- --------- ------ -------- -------- -------
Net Operating
Profit 2,027 (256) (557) 323 1,818 1,073 (501) 1,405 (77%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
Loan Book
GBPm 186 34 5 225 151 81 13 246 (8%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
On-balance
sheet loans
GBPm gross
of IFRS
9 (Table
4) 15 9 0 24 16 21 1 38 (38%)
--------- ------ ------ -------- --------- ------ -------- -------- -------
Revenue
Sancus BMS Group revenue on a proforma basis was GBP5.4m for the
first half of the year (H1 2018: GBP6.3m). On a statutory basis
revenue was GBP6.8m (H1 2019: GBP6.9m). A reconciliation between
the proforma and statutory results is included in Table 1. The
reduction in the period is partly due to the sale of the BMS Irish
Fund in May 2018, therefore we no longer receive admin fees for
this fund, and we have had movements in the exit fees during the
period compared to prior year, which by their nature tend to be
quite sizable and lumpy. Our asset backed secured lending
activities within the Sancus offshore jurisdictions have had a
solid first six months with a 14% increase in revenue, although we
are always pursuing more loan origination and deployment. For BMS,
which focuses on SME lending, revenue has decreased by 58% compared
to the same period last year as a result of the sale of the BMS
Irish Fund in July 2018 and the reduction in the advisory fee
charged to the UK Fund. The UK has also seen a 47% revenue decrease
from the closure of our supply chain finance offering. The UK and
Ireland asset backed lending businesses are our primary focus going
forward. The UK office only became fully operational in April 2019
and we are expecting to report an improvement of this revenue
stream in the second half of the year, albeit we are concerned that
Brexit may have an adverse effect on our expectations. Revenues
from interest income on loans relates to the Sancus BMS on-balance
sheet loans. These have reduced in the period by 9% as on-balance
sheet loans have reduced. Revenues from interest income on loans
relates to the Sancus BMS on-balance sheet loans. These have
reduced in the period by 9% as on-balance sheet loans have
reduced.
Total Cost of Sales
Total cost of sales which includes interest and other direct
costs, has remained flat in the period with lower interest costs
(reducing our capital intensity) being offset by higher loan broker
costs from new Sancus loan introductions.
o GBP10m 5-year Bond (7%) matures 30 June 2021, interest paid
half yearly;
o GBP20.8m 2019 ZDPs (5.5%) income entitlement and principal due
on expiry 5 December 2019 (net due GBP16.8m as at 31 August
2019).
To measure business unit performance, finance costs are
allocated to Sancus BMS to recognise its use of the Group's debt
facilities in its lending activities. FinTech Ventures is treated
as being funded by equity. This allocation best matches the risk
profile of each business unit with its capital structure, as well
as recognising that interest costs are effectively serviced by
interest income from Sancus BMS.
Operating Expenses
We continue to manage costs carefully and within the Sancus BMS
Group GBP0.5m of cost savings were achieved in the period with
operating expenses for the first 6 months falling from GBP3.3m to
GBP2.8m. Savings relate predominantly to employment costs.
Headcount in the period has reduced by a further 5 heads to 35 in
the Sancus BMS Group at the end of June 2019.
IFRS 9
We have had a movement in expected credit losses (IFRS 9) of
GBP1.2m in the period (GBP0.5m in June 2018). Half of this movement
relates to an SME loan within the BMS UK Fund where the underlying
SME business is facing financial difficulties.
The majority of the remainder of the movement in expected credit
losses relates to our Sancus asset backed lending loan portfolio
and is as a result of a couple of secured loans going into default,
which we are actively working on to resolve (Refer Note 21).
Other net (losses) and gains
We have reported a GBP0.7m other net loss in the period (30 June
2018: gain GBP0.2m). This balance includes revaluations of our
associate holdings in Amberton Asset Management and Sancus Isle of
Man ("IOM"), but the largest movement was due to additional costs
associated with Sancus Properties Limited which accounted for
GBP0.6m of the loss. These costs relate to security previously held
by a former borrower. During the period unbudgeted remediation
expenses were incurred to enable them to be sold at the highest
possible value in due course.
Sancus Properties Limited
In August 2018 a 100% owned SPV called Sancus Properties Limited
was incorporated to hold assets previously held by a former
borrower. The intention remains to realise these assets via orderly
transactions; the timing of which will be determined so as to best
deliver shareholder capital. These assets are reported under IAS2
Inventories whereby they are held at the lower of cost or NRV. As
at 30 June 2019 they had a value assigned to them of GBP4.1m and
consist of a combination of houses, a block of apartments and a
large plot of land. We continue to make progress with the portfolio
and have sold one house during the period with the block of
apartments due on the market very shortly. We continue to look at
all options to ensure the greatest return for shareholders whilst
balancing the risk/reward and liquidity of each.
Honeycomb Investment Trust (HIT) Facility
A special purpose loan vehicle called Sancus Loans Limited
("SLL"), which is non-recourse to GLI, was established during 2018
with a GBP50m funding capacity. This has been backed by a GBP45m
credit facility from HIT, with a term of 3 years. Sancus has GBP5m
equity invested in this vehicle. Although non-recourse to GLI the
SPV is 100% owned by the Group and is therefore consolidated. As a
result, both the Sancus Loans Limited loans and HIT facility appear
on the consolidated balance sheet but deducted from our proforma
results as noted earlier.
Revenue within Sancus Loans Limited has increased by GBP1m in
the period from GBP0.6m to GBP1.6m for the period ended 30 June
2019. This reflects the increased draw down of the facility from
GBP23m in June 2018 to GBP32m in June 2019 (maximum facility
GBP45m). At the period end, interest bearing debt comprised:
o GBP32m HIT facility (7.25%) (maximum facility GBP45m),
interest paid monthly.
Sancus BMS Proforma Statement of Financial Position (Table
3)
GBP'000 30 June 30 June 30 June 31 December 31 December 31 December
2019 2019 SLL 2019 2018 2018 SLL 2018
(unaudited) Proforma (audited) Proforma
Note 3 Note 3
Sancus BMS on-Balance
Sheet Loans and
loan equivalents 20,909 - 20,909 26,678 - 26,678
------------- ---------- ---------- ------------ ------------ ------------
Sancus Loans Limited
loans 33,913 33,913 - 25,639 25,639 -
------------- ---------- ---------- ------------ ------------ ------------
Goodwill 22,894 - 22,894 22,894 - 22,894
------------- ---------- ---------- ------------ ------------ ------------
Sancus Properties
Limited 4,110 - 4,110 4,404 - 4,404
------------- ---------- ---------- ------------ ------------ ------------
Trade and other
receivables 8,012 1,954 6,058 4,678 2,005 2,673
------------- ---------- ---------- ------------ ------------ ------------
Other assets 4,235 - 4,235 3,839 - 3,839
------------- ---------- ---------- ------------ ------------ ------------
Cash and cash equivalents 3,727 2,172 1,555 3,856 364 3,492
------------- ---------- ---------- ------------ ------------ ------------
Total Assets 97,800 38,039 59,761 91,988 28,008 63,980
------------- ---------- ---------- ------------ ------------ ------------
ZDPs payable (19,991) - (19,991) (24,059) - (24,059)
------------- ---------- ---------- ------------ ------------ ------------
Bond payable (10,000) - (10,000) (10,000) - (10,000)
------------- ---------- ---------- ------------ ------------ ------------
HIT Debt (32,446) (32,446) - (22,684) (22,684) -
------------- ---------- ---------- ------------ ------------ ------------
Other Liabilities (1,953) (27) (1,926) (1,723) (25) (1,698)
------------- ---------- ---------- ------------ ------------ ------------
Total Liabilities (64,390) (32,473) (31,917) (58,466) (22,709) (35,757)
------------- ---------- ---------- ------------ ------------ ------------
Sancus BMS net
assets 33,410 5,566 27,844 33,522 5,299 28,223
------------- ---------- ---------- ------------ ------------ ------------
Sancus own equity
within SLL 5,566 5,299
------------- ---------- ---------- ------------ ------------ ------------
Sancus BMS net
assets including
SLL equity 33,410 33,522
------------- ---------- ---------- ------------ ------------ ------------
Sancus BMS on-Balance Sheet Loans and loan equivalents (Table
4)
On-balance sheet loan and loan equivalents have decreased in the
period from GBP26.7m to GBP20.9m. As previously noted, the
disinvestment from SME lending is allowing asset utilisation to
improve, which will drive an improvement in ROTA and shareholder
value over time. As we have also seen from our loan book funding,
our access to capital has also improved allowing funding of asset
backed secured loans from other sources such as the HIT facility,
SLNs and Co-Funders.
GBP'000 30 June 31 December
2019 2018
Jersey 10,843 8,219
-------- ------------
Gibraltar 3,745 6,268
-------- ------------
Guernsey 438 310
-------- ------------
BMS - Investment in the fund and other loans 8,554 10,074
-------- ------------
Sancus UK 74 143
-------- ------------
Sancus Loan Notes - 3,311
-------- ------------
IOM preference shares - 950
-------- ------------
Ireland 85 -
-------- ------------
IFRS 9 Provision (2,830) (2,597)
-------- ------------
Total Sancus BMS on-Balance Sheet Loans and
loan equivalents (ex SLL) 20,909 26,678
-------- ------------
Marketing
We continue to grow our market share. The Sancus brand is
becoming increasingly well-known and we are receiving a healthy
flow of new lending opportunities with strong growth in new
Co-Funders.
Loan Book
Whilst the Sancus asset backed lending loan book has grown
strongly by 24% (to GBP188m) year on year, this has been somewhat
offset by a GBP47m reduction in the BMS loan book over the same
period from the sale of the Irish BMS Fund and a reduction in the
UK BMS Fund. We have seen the HIT facility increase by 36% from the
same period last year as well as the loan notes up 35% and
Co-Funders up 24%. Our on-balance sheet loans have decreased by 19%
from 31 December 2018 and 43% from 30 June 2018, in line with our
ZDP repayment strategy and the continued focus on improving
ROTA.
Loan deployment for asset backed lending is a key metric we use
to monitor the performance of the Sancus BMS Group. Over the last
two years we have seen a steady increase in loan deployments from
GBP102m for the full year 2017 and GBP115m for the full year 2018
representing a 12% increase. For the first six months of 2019 loan
deployment was 28% ahead of last year at GBP73m (H1 2018: GBP57m).
We have set ourselves stretching targets for this year
incorporating the new asset backed lending for the UK and
Ireland.
The UK and Ireland has seen slower loan deployment than
anticipated but we fully expect this to grow in the second half of
the year, albeit Brexit is causing a strong head wind that cannot
be ignored. A final resolution to this debacle is required as soon
as possible as the UK economy is being damaged by the continued
uncertainty.
Sancus Loan Notes
The Sancus Loan Notes ("SLNs") comprise a planned series of
Special Purpose Vehicles ("SPVs") designed to act like
securitisation vehicles to help diversify our funding options and
enable additional Co-Funder participation in diversified loan
portfolios. These are attractive to new clients that want to
participate in a pooled vehicle, delivered across a number of
loans, rather than via direct participation in individual loans.
SLN4 had a successful launch in July 2018, and has now grown to
GBP7.4m, which matures on 30 September 2019 and has a coupon of 6%.
As part of the structure of the loan notes, Sancus BMS provides
first loss positions. For SLN4 this exposure is 20% of the total
capital in these Loan Notes. On 8 November 2018 SLN5 was launched
with GBP6.5m and is now at GBP17.1m with a coupon of 7%. Sancus BMS
has a 10% first loss position on this Loan Note.
Technology
The Group continues to invest in its technology. Following the
successful launch of the Group's proprietary Loan Management System
(LMS) in 2017, an online reporting platform for offshore Co-Funders
was rolled out in 2018. We have now rolled out a fully online
transactional platform in the UK.
Sancus BMS Group KPIs
We set out in our 2018 Annual Report that we will be reporting
our KPIs going forward to demonstrate the progress we are making
over time. We are committed to driving shareholder value through
judicious growth, improving asset utilisation and cost controls. We
believe the share price will positively reflect improvement in
these metrics overtime (Refer to Note 20 Performance Measures).
Sancus BMS Group KPIs (Table 5)
30 June 31 December 2018
2019 Full Year
6 months GBPm
GBPm
Total Sancus BMS Loan Book 225 219
Sancus Asset Backed Lending
Loan Book 188 168
Sancus on-balance sheet loans
excluding SLL* 21 27
Sancus Loan Deployment 73 115
Proforma Revenue 5,421 11,664
Total Costs 5,098 11,845
Net Operating Profit / (Loss) 323 (181)
Tangible Assets 45,993 48,455
Tangible Equity 10,516 10,628
ROTA 1.4% (0.4%)
ROTE 6.1% (1.7%)
Cost Income Ratio 94% 102%
* Sancus Loans Limited ("SLL") - refer Table 4 for Sancus
on-balance sheet loan breakdown.
Return on Total Assets ("ROTA")
We have seen an improvement in this ratio in the first half of
the year from (0.4%) for the year ended 31 December 2018 to 1.4%
annualised for the first six months of 2019 as operating profits
have increased and the total tangible assets figure has reduced
following the reduction of our on-balance sheet loans and
concurrent reduction in our liability to purchase the ZDPs in the
market.
Cost Income Ratio ("CIR")
The total costs include operating expenses, debt costs and
broker costs as set out in Note 20. CIR for the first half of 2019
has reduced to 94% from 102% for the full year 2018. Cost
efficiencies have been delivered across a number of areas, but
primarily in employment costs.
Return on Tangible Equity ("ROTE")
Equity has been adjusted to exclude goodwill, so we can monitor
the return we are making on tangible equity. The return, being the
net operating profit figure noted above has increased to GBP323k in
this first half year compared to a loss for the full year in 2018
of GBP181k when there was a large provision from the adoption of
IFRS 9 in the year. ROTE on an annualised basis for the first half
of 2019 was 6.1% compared to negative 1.7% for the full year 2018
results.
FinTech Ventures
Financial Results for the six months ended 30 June 2019 (Table
6) - FinTech Ventures
30 June 2019 30 June Movement Movement
GBP'000 2018 % GBP'000
GBP'000
Revenue 325 260 25% 65
Operating expenses (234) (637) 63% 403
FinTech Ventures fair value movement (5,190) (8,251) 37% 3,061
FinTech Ventures foreign exchange
gain 39 429 (91%) (390)
Other net gains 54 20 170% 34
Total Loss after tax (5,006) (8,179) 39% 3,173
30 June 2019 31 Dec 2018 Movement Movement
GBP'000 GBP'000 % GBP'000
FinTech Ventures Portfolio 8,665 13,804 (37%) (5,139)
FinTech Total Net Assets 9,791 15,598 (37%) (5,807)
It is disappointing to again be reporting further write downs in
the FinTech Ventures portfolio. As we have previously outlined, we
are largely a passenger on this journey and due to capital
constraints, we have not been able to follow our money into these
platforms. Whilst FinTech as a sector continues to grow strongly,
the increased competition is making it increasingly difficult for
smaller players, particularly those that are loss making, to raise
further equity. Investors are much more discerning regarding
potential valuations and are seeking key unique service
propositions as to why a particular platform will succeed. For
several of our platforms, it is taking longer for them to achieve
breakeven than previously envisaged and they are currently seeking
to raise further equity to fund further growth and to see them
through to sustained profitability. Competing demands for our
capital means that the platforms have often had to secure new
third-party investors. Given the plethora of investment
opportunities, these investors are often able to negotiate
favourable terms and frustratingly, we have often not been able to
follow our money.
We have a further GBP5.2m write down across the FinTech Ventures
portfolio in the period. The write down relates primarily to three
of our platforms. One of the platforms has disappointingly ceased
trading in September 2019 following an enforcement by their debt
provider. Another of the platforms is finding it difficult to
secure the additional equity capital they require. The third
platform where we have suffered a write down has secured further
equity capital during H1 2019, but the providers of the new equity
have negotiated a favourable liquidation preference which has
impacted our value.
No further investments have been made during the period. The
movement in foreign currency rates since 31 December 2018 has
resulted in a marginal GBP39k increase in the fair value of our
investments. GBP82k has been received in respect of two previously
written down platforms. We continue to carefully monitor and
actively engage with the platforms in which we hold investments in
order to protect our interests.
Group
ZDPs
The maturity of the ZDPs on 5 December 2019 is a key priority
for the coming months. As at the end of August 2019, the liability
has been reduced by 38% to GBP16.8m via the series of buy backs
which we have been able to complete over the last 18 months. This
has been achieved by reducing exposure to loans on our balance
sheet.
By their nature, bridging and development loans often extend,
and their repayment date is more uncertain. Moreover, we have found
that Brexit has had an impact on the secondary liquidity of loans.
It is likely that there is a timing issue in that not all loans
have repaid as expected and as such, there will likely be a near
term funding gap. We are in active discussions with the larger ZDP
shareholders to explore the options available to us, which include
the following:
-- Roll the existing ZDPs for a further 1 year at an increased rate of 7%;
-- Fund the gap by issuing ZDP shareholders units in the GLI
bond, which matures on 30 June 2021. This bond pays a coupon of 7%
semi-annually and ranks higher in the liquidity preference than the
current ZDPs.
Subject to liquidity, we intend to recommence the buyback
programme to reduce the outstanding balance on the ZDPs using
monies from on-balance sheet loans, which are repaid prior to 5
December 2019.
Costs
A thorough review of the cost allocation within the Group was
conducted in H1 2019. Whilst overall Head Office and FinTech costs
reduced by 25% to GBP0.8m, FinTech costs reduced by GBP0.4m
following the new allocation basis, and Head Office costs increased
by GBP0.1m.
Remuneration
As referred to in the Chairman's Statement, we are reviewing the
Group's Remuneration policy following shareholder feedback from the
2019 AGM and will provide full details of this in the 2019 Annual
Report.
Strategic Objectives
The Group's strategy is to maximise shareholder value through
growing the profitability of Sancus BMS and realising value from
its investments in FinTech Ventures. We are focussed on the main
key targets below, which we believe will maximise shareholder
value.
Become a capital light entity
We have been focussed on reducing our on-balance sheet loan book
exposure and deploying these funds into acquiring and repaying the
ZDPs due on 5 December 2019. This in turn will de-risk our balance
sheet and improve ROTA. At the end of June 2019 ROTA was 1.4% (31
December 2018: (0.4%)).
The ZDP liability has been reducing by buying back ZDPs as these
have become available. At the end of August 2019, we held 7,934,460
ZDPs, reducing the liability by 38% from GBP27.2m due on maturity
to GBP16.8m at end of August 2019. The intention remains to repay
the ZDPs on maturity and we are exploring all options available to
us to do so as discussed in the CEO report.
Sancus needs capital to underwrite its deal flow but continual
efforts to diversify and grow our Co-Funders improves our ability
to syndicate and drive better returns on the Company's assets.
Focus on creating shareholder value
We believe value creation will be achieved by:
-- Revenue growth - this is largely driven by loan deployment.
-- Improving our ROTA - by reducing our on-balance sheet loan
book and increasing operating profits.
-- Increasing operating profits - by increasing gross margin and reducing costs.
Over time we expect Ireland and the UK to be our largest revenue
generating entities and as noted our focus is on growing these. The
UK office was opened in London in April 2019 (after closing the
larger Basingstoke office). Whilst revenue in the UK has been
modest to date, the pipeline is healthy, and we expect revenue to
pick up in the second half. The position is similar in Ireland. The
UK business also benefits from our own proprietary fully
transactional electronic platform. These are the largest potential
markets and are key for growth.
The loan book has grown by 24% over the last year as referred to
earlier.
We have seen an improvement in Sancus BMS Group ROTA from (0.4%)
in 2018 to 1.4% at 30 June 2019.
2019 has seen a reorganization within the Group. We have reduced
headcount across the Group by a further 6 in the first half of the
year, resulting in an improved cost income ratio.
Profitably expand the funding base
Growing and diversifying pools of lending capital is critical
for our growth. Our funding sources include institutional,
corporate and high net worth individuals. We continue to launch
further loan notes through Amberton Asset Management or similar
structured vehicles to expand our Co-Funder base. SLN4 matures on
30 September 2019 and it is the intention to grow SLN5, which has a
maximum mandate of GBP50m and matures on 8 November 2021.
We also continue to target the Co-Funder base and nurture
relationships. The HIT funding line is designed to be complementary
to our Co-Funder base and work alongside it to complete on larger
sized loans which have a greater revenue impact on the Group. Our
total syndicated lending has increased by 28% in the last six
months from GBP135m at 31 December 2018 to GBP173m at 30 June
2019.
We also continue to explore long term financing lines that sit
alongside our syndicated lending approach.
Realise value from FinTech Ventures Investments
We continue to assist platforms with strategy, corporate finance
and capital restructuring within the FinTech Ventures portfolio.
Two platforms successfully completed capital restructurings during
H1 2019, and several other platforms are looking to raise equity
over the next 12 months. Monitoring and governance of FinTech
Ventures continues.
It remains a challenging market for many of the FinTech
platforms to raise further capital, which in several cases is
impacting their growth. Sadly, the outcome is binary in that they
will either succeed or be forced into administration.
Outlook
The Group has gone through a period of sustained change over the
past three years. Our focus on growth, stringent capital allocation
and profitability will drive value for shareholders. This year we
are changing the shape of the Group to reduce our debt costs and
on-balance sheet risk exposure.
However, I fully appreciate that we have two businesses; Sancus
BMS and the FinTech Ventures portfolio, which might not ordinarily
be grouped together. Therefore, I will continue to consider and
explore how we can maximise their values independently in the
future.
We are now in a solid position with the potential for strong
risk-adjusted performance for the Group. The asset backed secured
lending activity of Sancus is clearly the Group's future. It has
created a strong niche in the alternative lending sector, a robust
loan system with two electronic platforms and has the ability to
significantly grow its operation and profitability. My medium-term
target is to achieve a "live" loan book of GBP500m from GBP270m at
the end of June 2019 (includes IOM), which will enable the Company
to recommence its dividend programme and strengthen our balance
sheet reserves.
We remain highly focussed on our liability to repay the ZDPs,
which mature in December 2019 and I have been in contact with some
of the larger ZDP shareholders to discuss the various options (as
previously highlighted) available to the Company. Whilst no
decision has been made we will actively pursue all options
available, which could also potentially include repaying them from
the proceeds of selling some assets. We will provide an update to
shareholders in due course.
Finally, I want to thank all shareholders for their continued
support during this period of change. I fully acknowledge that the
journey to date has been disappointing. However, we have
successfully aligned the business to focus on Sancus, which through
its multi-jurisdictional asset backed secured lending service, is
in a strong position to deliver future growth, profitability and in
due course recommence the dividend programme.
Andrew Whelan
Chief Executive Officer
17 September 2019
RISKS, UNCERTAINTIES AND RESPONSIBILITY STATEMENT
Risks and uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the group's performance over the
remainder of the financial year. These include, but are not limited
to, Capital and liquidity risk, Regulatory and compliance risk,
Market risk, Credit risk, Operational risk - execution of Sancus
BMS strategy and Investment risk - platform valuation. These risks
remain unchanged from December 2018 and are not expected to change
in the 6 months to the end of the financial year. Further details
on these risks and uncertainties can be found in the December 2018
Annual Report.
Responsibility statement
The Directors confirm that to the best of their knowledge:
-- The Interim Report has been prepared in accordance with the
AIM rules of the London Stock Exchange;
-- This financial information has been prepared in accordance
with IAS 34 as adopted by the EU;
-- The interim results include a fair review of the important
events during the first half of the financial year and their impact
on the financial information as required by DTR 4.2.7R; and
-- The interim results include a fair review of the disclosure
of related party transactions as required by DTR 4.2.8R.
Approved and signed on behalf of the Board of Directors
17 September 2019
INDEPENT REVIEW REPORT TO GLI FINANCE LIMITED
We have been engaged by the Company to review the condensed set
of Consolidated Financial Statements in the Interim Report for the
six months ended 30 June 2019 which comprises the Condensed
Consolidated Statement of Comprehensive Income, the Condensed
Consolidated Statement of Financial Position, the Condensed
Consolidated Statement of Changes in Shareholders' Equity, the
Condensed Consolidated Statement of Cash Flows and related Notes 1
to 21. We have read the other information contained in the Interim
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of Consolidated Financial Statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK & Ireland)
2410 "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The Interim Report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the Interim Report in accordance with the AIM Rules of
the London Stock Exchange.
As disclosed in Note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of Financial Statements included
in this Interim Report has been prepared in accordance with
International Accounting Standard 34 "Interim Financial Reporting,"
as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of Financial Statements in the Interim Report
based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK & Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of Financial Statements
in the Interim Report for the six months ended 30 June 2019 is not
prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the AIM Rules of the London Stock Exchange.
Material uncertainty relating to going concern
We draw attention to Note 2(c) in the financial statements,
which indicates that there is a material uncertainty over the
timing and quantum of cash flows needed to generate sufficient cash
reserves to repay the ZDP shares on the maturity date of 5 December
2019 and extinguish its liabilities as they fall due. The
mitigations identified by the Directors are inherently uncertain as
to their success.
As stated in Note 2(c), these events or conditions indicate that
a material uncertainty exists that may cast significant doubt on
the Group's and the Company's ability to continue as a going
concern. Our conclusion is not modified in respect of this
matter.
Deloitte LLP
Guernsey, Channel Islands
17 September 2019
For the period ended 30 June 2019
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Notes Period ended Period ended
30 June 2019 30 June 2018
(unaudited) (unaudited)
GBP'000 GBP'000
Revenue 4 7,086 7,179
Cost of sales 5 (2,488) (1,669)
Gross profit 4,598 5,510
Operating expenses 6 (3,565) (4,370)
Changes in expected credit losses 17 (1,175) (518)
------------ ------------
Operating profit (142) 622
FinTech Ventures fair value movement 17 (5,190) (8,251)
FinTech Ventures foreign exchange gain 17 39 429
Other net (losses)/gains (699) 247
Impairment of goodwill - (2,139)
Loss for the period before tax (5,992) (9,092)
Income tax expense (144) (162)
------------ ------------
Loss for the period after tax (6,136) (9,254)
Other comprehensive losses
Foreign exchange arising on consolidation (5) -
------------ ------------
Total comprehensive loss for the year (6,141) (9,254)
============ ============
Basic and Diluted loss per Ordinary
Share 7 (2.02)p (3.03)p
============ ============
The accompanying Notes form an integral part of these financial
statements.
As at 30 June 2019
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
30 June 2019
31 December
(unaudited) 2018 (audited)
ASSETS Notes GBP'000 GBP'000
Non-current assets
Fixed assets 8 1,186 31
Goodwill 9 22,894 22,894
Other intangible assets 10 450 571
Sancus BMS loans and loan equivalents 17 7,923 14,916
FinTech Ventures investments 17 8,665 13,804
Other investments - 327
Investments in joint ventures and associates 2,919 2,855
------------ ---------------
Total Non-current assets 44,037 55,398
------------ ---------------
Current assets
Loans through platforms 870 883
Other assets 12 4,110 4,404
Sancus BMS loans and loan equivalents 17 46,899 37,401
Trade and other receivables 11 8,315 5,656
Cash and cash equivalents 5,061 5,863
Total current assets 65,255 54,207
------------ ---------------
Total assets 109,292 109,605
============ ===============
EQUITY
Share premium 13 112,557 112,557
Treasury shares 13 (1,099) (1,162)
Retained earnings (67,479) (61,168)
------------ ---------------
Total Equity 43,979 50,227
------------ ---------------
LIABILITIES
Non-current liabilities 14 43,214 32,684
Current liabilities 14 22,099 26,694
Total liabilities 65,313 59,378
------------ ---------------
Total equity and liabilities 109,292 109,605
============ ===============
The financial statements were approved by the Board of Directors
on 17 September 2019 and were signed on its behalf by:
Director: Patrick Firth Director: John Whittle
The accompanying Notes form an integral part of these financial
statements.
For the period ended 30 June 2019
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (Unaudited)
Notes Share Treasury Foreign Retained Capital Non-controlling Total
Premium Shares Exchange Earnings/ and reserves Interest Equity
Reserve (Losses) attributable
to
equity
holders
of
the Company
GBP'000 GBP'000 GBP,000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31
December 2018
(audited) 112,557 (1,162) 1 (61,169) 50,227 - 50,227
Transferred from
management 13 13 - (336) - - (336) - (336)
Bonuses settled
by shares 13 - 399 - (170) 229 - 229
Transactions with
owners - 63 - (170) (107) - (107)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Total
comprehensive
loss for
the period - - (5) (6,136) (6,141) - (6,141)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Balance at 30
June
2019 (unaudited) 112,557 (1,099) (4) (67,475) 43,979 - 43,979
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Balance at 31 December
2017 (audited) 112,557 (1,162) - (36,588) 74,807 (4) 74,803
Adjustment on
adoption of IFRS
9 - - - (1,350) (1,350) - (1,350)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Restated balance
at 1 January
2018 112,557 (1,162) - (37,938) 73,457 (4) 73,453
Acquisition of
non-controlling
interest in
Sancus Finance - - - (67) (67) 4 (63)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Transactions with
owners - - - (67) (67) 4 (63)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Total
comprehensive
loss for
the period - - - (9,254) (9,254) - (9,254)
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
Balance at 30
June
2018 (unaudited) 112,557 (1,162) - (47,259) 64,136 - 64,136
------------------ --- ------ -------- --------- --------- ---------- ------------- ---------------- --------
For the period ended 30 June 2019
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Period ended Period ended
30 June 2019 30 June 2018
(unaudited) (unaudited)
Notes GBP'000 GBP'000
Cash outflow from operations, excluding
loan movements 15 (1,853) (192)
Increase in Sancus BMS loans (1,182) (936)
Decrease in loans through platforms 13 8
Decrease in loans to UK and Irish
SARLS 1,515 -
Increase in loans through the HIT
facility (8,242) (24,882)
Repayment of Sancus Loan notes 3,311 8,015
------------ ------------
Net cash outflow from operating activities (6,438) (17,987)
------------ ------------
Cash inflows/(outflows) from investing
activities
Acquisition of non-controlling interest - (63)
Disposal of IOM Preference Shares 950 -
Repayments / (Investments) in FinTech
Ventures 70 (2,160)
Divestment in UK and Irish SARLS 82 -
Expenditure on SPL Properties 12 (708) -
Sale of SPL Properties 12 435 -
Investment in joint venture - (200)
Expenditure on fixed assets and intangibles (172) (131)
------------ ------------
Net cash inflow/(outflow) from investing
activities 657 (2,554)
------------ ------------
Cash inflows/(outflows) from financing
activities
Draw down of HIT facility 15 9,706 22,592
Purchase of own shares (336) -
Capital element of lease payments 15 (101) -
Repayment of ZDPs 15 (4,290) -
------------ ------------
Net cash inflow from financing activities 4,979 22,592
------------ ------------
Net (decrease)/increase in cash and
cash equivalents (802) 2,051
Cash and cash equivalents at beginning
of period 5,863 3,016
Cash and cash equivalents at end of
period 5,061 5,067
============ ============
The accompanying Notes form an integral part of these financial
statements.
For the period ended 30 June 2019
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
1. GENERAL INFORMATION
GLI Finance Limited (the "Company"), and together with its
subsidiaries, ("the Group") was incorporated, and domiciled in
Guernsey, Channel Islands, as a company limited by shares and with
limited liability, on 9 June 2005 in accordance with The Companies
(Guernsey) Law, 1994 (since superseded by The Companies (Guernsey)
Law, 2008). Until 25 March 2015, the Company was an Authorised
Closed-ended Investment Scheme and was subject to the Authorised
Closed-ended Investment Scheme Rules 2008 issued by the Guernsey
Financial Services Commission ("GFSC"). On 25 March 2015, the
Company was registered with the GFSC as a Non-Regulated Financial
Services Business, at which point the Company's authorised fund
status was revoked. The Company's Ordinary Shares were admitted to
trading on the AIM market of the London Stock Exchange on 5 August
2005 and its issued zero dividend preference shares were listed and
traded on the Standard listing Segment of the main market of the
London Stock Exchange with effect from 5 October 2015.
The Company does not have a fixed life and the Articles do not
contain any trigger events for a voluntary liquidation of the
Company.
The Company is an operating company for the purpose of the AIM
rules. The Executive Team is responsible for the management of the
Company.
As at 30 June 2019, the Group comprises the Company and its
subsidiaries.
The Company has taken advantage of the exemption conferred by
the Companies (Guernsey) Law, 2008, Section 244, not to prepare
company only financial statements which is consistent with the 2018
Annual Report.
2. ACCOUNTING POLICIES
(a) Basis of preparation
These condensed consolidated financial statements ("financial
statements") have been prepared in accordance with International
Financial Reporting Standard (IAS) 34 'Interim Financial
Reporting', as adopted by the European Union and all applicable
requirements of Guernsey Company Law. They do not include all the
information and disclosures required in annual financial statements
and should be read in conjunction with the Company's annual audited
financial statements for the year ended 31 December 2018, which
have been prepared in accordance with International Financial
Reporting Standards ("IFRS") as endorsed by the European Union.
The Group does not operate in an industry where significant or
cyclical variations, as a result of seasonal activity, are
experienced during any particular financial period.
These financial statements were authorised for issue by the
Company Directors on 17 September 2019.
(b) Principal accounting policies
The same accounting policies and methods of computation are
followed in these financial statements as in the last annual
financial statements for the year ended 31 December 2018 except for
changes in accounting policy brought about by the adoption of new
accounting standards. These changes are detailed in Note 18.
(c) Going Concern
The Board has assessed the Group's financial position as at 30
June 2019 and the factors that may impact its performance in the
forthcoming year. In assessing the prospects of the Group, the
Directors in particular are focussed on the repayment of the ZDPs
due on 5 December 2019.
We set out in the Annual Report 2018 that we expected the
repayment of the ZDPs to be repaid from using cash reserves of the
Group, by running down the on-balance sheet loans, but we could
also call upon other assets to raise cash, including the sale of
shares held in treasury, the sale of the FinTech Ventures portfolio
and other assets as well as the option of obtaining a short term
loan if there was a shortfall. By their nature, bridging and
development loans often extend, and their repayment date is more
uncertain. Moreover, we have found that Brexit has had an impact on
the secondary liquidity of loans. It is likely that we will face a
near term funding gap as not all loans have repaid as expected and
there could be further timing issues going forward.
We have engaged with the larger ZDP holders as to exploring the
options available to us, which include rolling the existing ZDPs
for a further year at an increased rate of 7%, or by issuing ZDP
holders with units in the existing GLI Bond. We will also try to
realise other assets on our balance sheet and all options available
to us will be explored.
As noted in our Annual Report and taking into account the
varying outcomes of factors and assumptions listed above these
constitute a material uncertainty that may cast significant doubt
over the Company's and Group's ability to continue as a going
concern, such that it may be unable to release its assets and
discharge its liabilities in the normal course of business.
The Directors expect that if they are able to action the
mitigations in accordance with the plan outlined above, the
material uncertainly will be extinguished. The Directors are
therefore of the opinion that the Company and the Group will have
adequate financial resources to continue in operation and meet its
liabilities as they fall due for the foreseeable future and
continue to adopt the going concern basis in preparing the
financial statements.
(d) Critical accounting estimates and judgements in applying accounting policies
The critical accounting estimates and judgements are as outlined
in the financial statements for the year ended 31 December
2018.
3. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the
manner in which the Executive Team reports to the Board, which is
regarded to be the Chief Operating Decision Maker (CODM) as defined
under IFRS 8. The Executive Team is responsible for allocating
resources and assessing performance of the Group, as well as making
strategic investment decisions, subject to the oversight of the
Board of Directors. The Executive Team is responsible for the
entire Group and considers it to have two operating segments as
well as group treasury.
The segments are as follows:
Sancus BMS
- Platforms with an established business model
- Amberton - fundraising for Sancus BMS
- Investments in the BMS loan funds
- HIT facility
FinTech Ventures
- FinTech Ventures platform investments
Group Treasury
- Group Treasury - Primarily includes cash balances and related
expenses to manage the Group's consolidated position and listed
holding company
The accounting policies of each segment are the same as the
accounting policies of the Group, therefore no differences arise
between the segment report and the Group statements.
30 June 2019 30 June 2018
Sancus FinTech Group Total Sancus FinTech Group Total
GBP'000 BMS Ventures Treasury Group BMS Ventures Treasury Group
Revenue 6,761 325 - 7,086 6,919 260 - 7,179
Cost of sales (2,484) - (4) (2,488) (1,669) - - (1,669)
------- --------- --------- ------- ------- --------- --------- -------
Gross profit/(loss) 4,277 325 (4) 4,598 5,250 260 - 5,510
Operating expenses (2,779) (234) (552) (3,565) (3,327) (637) (406) (4,370)
Changes in expected
credit losses (1,175) - - (1,175) (518) - - (518)
------- --------- --------- ------- ------- --------- --------- -------
Operating profit/(loss) 323 91 (556) (142) 1,405 (377) (406) 622
FinTech Ventures fair
value movement - (5,190) - (5,190) - (8,251) - (8,251)
FinTech Ventures foreign
exchange gain - 39 - 39 - 429 - 429
Other net (losses)/gains (753) 54 - (699) 227 20 - 247
Impairment of goodwill - - - - (2,139) - - (2,139)
------- --------- --------- ------- ------- --------- --------- -------
Loss for the period
before tax (430) (5,006) (556) (5,992) (507) (8,179) (406) (9,092)
Income tax expense (144) - - (144) (162) - - (162)
Loss for the period
after tax (574) (5,006) (556) (6,136) (669) (8,179) (406) (9,254)
------- --------- --------- ------- ------- --------- --------- -------
Other comprehensive
income
Foreign exchange on
consolidation (5) - - (5) - - - -
Total comprehensive
loss for the period (579) (5,006) (556) (6,141) (669) (8,179) (406) (9,254)
======= ========= ========= ======= ======= ========= ========= =======
30 June 2019 31 December 2018
Sancus FinTech Group Total Group Sancus FinTech Group Total
GBP'000 BMS Ventures Treasury BMS Ventures Treasury Group
ASSETS
Non-current assets
Fixed assets 824 - 362 1,186 31 - - 31
Goodwill 22,894 - - 22,894 22,894 - - 22,894
Other intangible
assets 450 - - 450 571 - - 571
Sancus BMS loans
and loan equivalents 7,923 - - 7,923 14,916 - - 14,916
FinTech Ventures
investments - 8,665 - 8,665 - 13,804 - 13,804
Other investments - - - - 327 - - 327
Joint ventures and
associates 2,919 - - 2,919 2,855 - - 2,855
Total Non-current
assets 35,010 8,665 362 44,037 41,594 13,804 - 55,398
------ --------- --------- ----------- ------- --------- --------- -------
Current assets
Loans through platforms 42 828 - 870 55 828 - 883
Other assets 4,110 - - 4,110 4,404 - - 4,404
Sancus BMS loans
and loan equivalents 46,899 - - 46,899 37,401 - - 37,401
Trade and other receivables 8,012 290 13 8,315 4,678 972 6 5,656
Cash and cash equivalents 3,727 15 1,319 5,061 3,856 1 2,006 5,863
Total current assets 62,790 1,133 1,332 65,255 50,394 1,801 2,012 54,207
------ --------- --------- ----------- ------- --------- --------- -------
Total assets 97,800 9,798 1,694 109,292 91,988 15,605 2,012 109,605
====== ========= ========= =========== ======= ========= ========= =======
LIABILITIES
Non-current liabilities 43,027 - 187 43,214 32,684 - - 32,684
Current liabilities 21,363 7 729 22,099 25,782 7 905 26,694
------ --------- --------- ----------- ------- --------- --------- -------
Total liabilities 64,390 7 916 65,313 58,466 7 905 59,378
====== ========= ========= =========== ======= ========= ========= =======
Net Assets 33,410 9,791 778 43,979 33,522 15,598 1,107 50,227
====== ========= ========= =========== ======= ========= ========= =======
Sancus BMS is treated as being funded by the debt facilities
whilst FinTech Ventures is treated as being funded by equity. This
allocation best matches the risk profile of each business unit with
its capital structure, as well as recognising that interest costs
are effectively serviced by interest and fee income from Sancus
BMS.
4. FEE AND OTHER INCOME
30 June 2019 30 June 2018
(unaudited) (unaudited)
GBP'000 GBP'000
Co-Funder fees 965 862
Earn out (exit) fees 561 874
Advisory fees 325 648
Transaction fees 1,227 2,102
Total revenue from contracts with customers 3,078 4,486
------------- -------------
Interest on loans 1,945 2,044
HIT interest income 1,611 649
Other income 452 -
------------- -------------
Total Revenue 7,086 7,179
============= =============
5. COST OF SALES
30 June 2019 30 June 2018
(unaudited) (unaudited)
GBP'000 GBP'000
Interest costs 895 985
HIT interest costs 1,340 574
Other cost of sales 253 110
------------- -------------
Total cost of sales 2,488 1,669
============= =============
6. OPERATING EXPENSES
30 June 2019 30 June 2018
(unaudited) (unaudited)
GBP'000 GBP'000
Administration and secretarial fees 63 94
Amortisation and depreciation 263 148
Audit fees 107 119
Corporate Insurance 28 10
Directors Remuneration 49 46
Employment costs 2,260 2,979
Investor relations expenses 44 40
Legal and professional fees 106 163
Marketing expenses 22 48
NOMAD fees 38 56
Other office and administration costs 404 527
Pension costs 155 113
Registrar fees 17 21
Sundry 9 6
------------ ------------
3,565 4,370
============ ============
7. LOSS PER ORDINARY SHARE
Consolidated loss per Ordinary Share has been calculated by
dividing the consolidated loss attributable to Ordinary
Shareholders in the period by the weighted average number of
Ordinary Shares outstanding (excluding treasury shares) during the
period. There was no dilutive effect for potential Ordinary Shares
during the current or prior periods.
Note 13 describes the warrants in issue and Note 16 describes
the unexercised share options in issue. As both the warrants and
share options are out of the money they have not been considered to
have a dilutive effect on the calculation of Loss per ordinary
share.
30 June 2019 30 June 2018
(unaudited) (unaudited)
Number of shares in issue 312,065,699 312,065,699
Weighted average number of shares outstanding
(excluding treasury shares) 304,520,121 305,911,597
Consolidated loss attributable to Ordinary
Shareholders in the period GBP6,136,000 GBP9,254,000
Consolidated Loss per Ordinary Share (2.02)p (3.03)p
8. FIXED ASSETS
Right of use Property & Total
assets Equipment
Cost GBP'000 GBP'000 GBP'000
At 31 December 2018 - 261 261
Amounts recognised on adoption
of IFRS 16 (Note 18) 892 - 892
------------- ----------- --------
At 1 January 2019 892 261 1,153
Additions in the period 233 164 397
------------- ----------- --------
At 30 June 2019 1,125 425 1,550
============= =========== ========
Accumulated depreciation GBP'000 GBP'000 GBP'000
At 31 December 2018 - 230 230
Charge in the period 116 18 134
-------- -------- --------
At 30 June 2019 116 248 364
======== ======== ========
Net book value 30 June 2019 1,009 177 1,186
======== ======== ========
Net book value 31 December 2018 - 31 31
======== ======== ========
9. GOODWILL
At 30 June 2019 and 31 December 2018 22,894
=======
Goodwill at 30 June 2019 and 31 December
2018 comprises:
GBP'000
Sancus Jersey 14,255
Sancus Gibraltar 8,639
--------
Total 22,894
========
Impairment tests
The carrying amount of goodwill arising on the acquisition of
certain subsidiaries is assessed by the Board for impairment on an
annual basis or sooner if there has been any indication of
impairment. At 30 June 2019 there has been no indication of
impairment and a full review will be carried out as at 31 December
2019.
10. OTHER INTANGIBLE ASSETS
Cost GBP'000
At 31 December 2018 1,576
Additions in the period 8
----------
At 30 June 2019 1,584
==========
Amortisation
At 31 December 2018 1,005
Charge for the period 129
----------
At 30 June 2019 1,134
==========
Net book value at 30 June 2019 450
==========
Net book value at 31 December 2018 571
==========
Intangible assets comprise capitalised contractors' costs and
costs related to core systems development. No impairment provision
has been recorded. The amortisation charge has been recorded within
Operating Expenses.
11. TRADE AND OTHER RECEIVABLES
31 December
30 June 2019 2018
(unaudited) (audited)
Current GBP'000 GBP'000
Dividend income receivable 68 68
Loan fees and similar receivable 2,102 1,359
Preference share dividends receivable 160 -
Loan interest receivable 3,518 3,646
Receivable from associated companies 293 51
Other trade receivables and prepaid expenses 2,174 532
8,315 5,656
============ ===========
12. OTHER ASSETS
Properties Development Total
held for sale properties
Cost GBP'000 GBP'000 GBP'000
At 31 December 2018 1,377 3,027 4,404
Transfers (509) 509 -
Additions 12 696 708
Disposals (435) - (435)
Write downs - (567) (567)
--------------- ------------ --------
At 30 June 2019 445 3,665 4,110
=============== ============ ========
Other assets comprise of a number of repossessed properties and
developments which were previously held as security against certain
loans which have defaulted. These assets are held at the lower of
cost and net realisable value.
13. SHARE CAPITAL, SHARE PREMIUM & DISTRIBUTABLE RESERVE
GLI Finance Limited has the power under its articles of
association to issue an unlimited number of Ordinary Shares of nil
par value.
No Ordinary Shares were issued in the period to 30 June 2019
(Period to 30 June 2018: Nil).
Share Capital
Number of Ordinary Shares - nil par value
-----------
At 30 June 2019 (unaudited) and 31 December 2018 (audited) 312,065,699
-----------
Share Premium
Ordinary Shares - nil par value GBP'000
-------
At 30 June 2019 (unaudited) and 31 December 2018 (audited) 112,557
-------
Treasury Shares
As at 30 June 2019 a total of 7,925,999 Ordinary Shares, with an
aggregate value of GBP1,098,814 were held by a Subsidiary, Sancus
BMS Group Limited ("SBMSGL") and eliminated on consolidation (31
December 2018: 6,154,102 Ordinary Shares, with an aggregate value
of GBP1,161,975).
31 December
30 June 2019 2018
(unaudited) (audited)
GBP'000 GBP'000
Balance at start of the period/year 1,162 1,162
GLI shares transferred by SBMSGL to key members
of management (399) -
GLI shares purchased by SBMSGL from BMS management 336 -
Balance at end of period/year 1,099 1,162
============ ===========
Warrants in Issue
On 25 February 2016, Shareholders approved special resolutions
authorising the issue of warrants to Golf Investments Limited which
confer the warrant holder the right to subscribe for up to
32,000,000 new Ordinary Shares in the capital of the Company at the
following subscription prices:
10,000,000 Ordinary Shares at 40 pence per Ordinary Share;
10,000,000 Ordinary Shares at 45 pence per Ordinary Share;
12,000,000 Ordinary Shares at 55 pence per Ordinary Share.
These warrants expire on 25 February 2020.
On 16 September 2016, Shareholders approved a special resolution
authorising the issue of warrants to Golf Investments Limited which
confer the warrant holder the right to subscribe for up to
10,000,000 shares at 37 pence per Ordinary Share, exercisable up to
9 August 2020.
As at 30 June 2019, the above warrants were in issue but not yet
exercised. On issue of these warrants, no provision has been made
for a fair value adjustment, as following the Board's assessment of
the fair value it was not deemed to be materially different to the
current carrying value of GBPNil.
14. LIABILITIES
31 December
30 June 2019 2018
Non-current liabilities (unaudited) (audited)
GBP'000 GBP'000
Corporate bond (1) 10,000 10,000
HIT facility (2) 32,446 22,684
Lease Creditor 768 -
------------ -----------
Total non-current liabilities 43,214 32,684
============ ===========
Current liabilities 30 June 2019 31 December
(unaudited) 2018 (audited)
GBP'000 GBP'000
ZDP shares (3) 19,991 24,059
Accounts payable 212 278
Accruals and other payables 1,349 1,679
Tax payable 323 454
Deferred income 6 67
Lease creditor 218 -
Payable to related party - 157
Total current liabilities 22,099 26,694
============ ==========================
30 June 2019 30 June 2018
Interest costs on debt facilities (unaudited) (unaudited)
GBP'000 GBP'000
Corporate bond (1) 347 347
HIT Facility (2) 1,340 573
ZDP Shares (3) 530 633
Lease interest 18 -
Total interest cost on debt facilities 2,235 1,553
============= ============
(1) Corporate Bond
On 30 June 2016, GLI Finance issued GBP10m corporate bonds as
part of the acquisition of Sancus Gibraltar. The bond maturity date
is 30 June 2021 and they bear interest at 7% (2018: 7%).
(2) HIT Facility
On 29 January 2018, GLI Finance signed a new funding facility
with Honeycomb Investment Trust plc (HIT). The funding line has a
term of 3 years and comprises a GBP45m accordion and revolving
credit facility. The facility bears interest at 7.25%.
The HIT facility has portfolio performance covenants including
that actual loss rates are not to exceed 4% in any twelve month
period and underperforming loans are not to exceed 10% of the
portfolio.
Sancus BMS Group has a GBP5m first loss position on the HIT
facility. GLI has also provided HIT with a guarantee, capped at
GBP2m that will continue to ensure the orderly wind down of the
loan book, in the event of the insolvency of Sancus BMS Group,
given its position as facility and security agent.
(3) ZDP shares
The ZDP shares have a maturity date of 5 December 2019 with a
final capital entitlement of GBP1.30696 per ZDP share, and bear
interest at an average rate of 5.5% (2018: 5.5%).
Refer to the Company's Memorandum and Articles of Incorporation
for full detail of the rights attached to the ZDP shares. This
document can be accessed via the Company's website
www.glifinance.com.
In accordance with article 7.5.5 of the Company's Memorandum and
Articles of Incorporation, the Company may not incur more than
GBP30m of long term debt without the prior approval from the ZDP
shareholders. The Memorandum and Articles also specify that two
debt cover tests must be met in relation to the ZDPs.
At 30 June 2019 the Company was in compliance with these
covenants as Cover Test A was 2.89 (minimum of 1.7) and Cover Test
B was 3.82 (minimum of 3.25).
At the period end senior debt borrowing capacity amounted to
GBP20m. The HIT facility does not impact on this capacity as this
is non-recourse to GLI.
15. NOTES TO THE CASH FLOW STATEMENT
30 June 2019 30 June 2018
Cash generated from operations (excluding
loan movements) (unaudited) (unaudited)
GBP'000 GBP'000
Loss for the period (6,136) (9,254)
Adjustments for:
Net loss on FinTech Ventures 5,166 7,802
Other net losses/(gains) 393 (316)
Accrued interest on ZDPs 530 633
Impairment of financial assets 1,175 518
Impairment of SPL assets 567 -
Gain on purchase of ZDPs (308) -
Impairment of goodwill - 2,139
Amortisation/depreciation of fixed assets 263 148
Amortisation of debt issue costs 56 37
Changes in working capital:
Trade and other receivables (2,703) (2,126)
Trade and other payables (856) 227
Cash outflow from operations, excluding
loan movements (1,853) (192)
============ ============
Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be classified
in the Group's consolidated cash flow statement as cash flows from
financing activities.
Amortisation
of debt
1 January Financing Additions issue costs Other 30 June
2019 cash flows(1) Non-cash Non-cash Non-cash 2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ZDP Shares 24,059 (4,290) - - 222(2) 19,991
Corporate Bond 10,000 - - - - 10,000
HIT Facility 22,684 9,706 - 56 - 32,446
Lease Liability 892 (101) 233 - (38)(3) 986
---------- --------------- ------------ ------------- ---------- --------
Total liabilities from
financing activities 57,635 5,315 233 56 184 63,423
========== =============== ============ ============= ========== ========
Amortisation
of debt Interest
1 January Financing Additions issue costs Accruals 30 June
2018 cash flows(1) Non-cash Non-cash Non-cash 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ZDP Shares 24,714 - - - 633 25,347
Corporate Bond 10,000 - - - - 10,000
HIT Facility - 22,592 - 37 - 22,629
---------- --------------- ------------ ------------- ---------- --------
Total liabilities from
financing activities 34,714 22,592 - 37 633 57,976
========== =============== ============ ============= ========== ========
(1) These amounts can be found under financing cash flows in the
cash flow statement.
(2) Interest accruals
(3) Cash paid in previous period
16. RELATED PARTY TRANSACTIONS
Transaction with the Directors/Executive Team
Non-executive Directors
As at 30 June 2019, the non-executive Directors' annualised
fees, excluding all reasonable expenses incurred in the course of
their duties which were reimbursed by the Company, were as detailed
in the table below:
30 June 2019 30 June 2018
GBP GBP
Patrick Firth (Chairman) 50,000 50,000
John Whittle 42,500 42,500
Nick Wakefield 35,000 -
On 4 June 2019 Mr Wakefield was appointed as a non-executive
Director to the Board. Mr Wakefield's directorships were listed in
the RNS issued on 5 June 2019. Golf Investments Limited ("Golf"),
of which Mr Wakefield is a Director, holds 50,815,167 ordinary
shares in the Company. Golf is part of the Somerston Group of
companies which collectively holds 83,017,496 ordinary shares in
the Company, representing 26.6 per cent of the current issued share
capital. Other than directors' fees and expenses in relation to Mr
Wakefield's appointment as a director the Group does not transact
with either Golf or Somerston.
There was no increase in the other Directors' base fees during
the period ended 30 June 2019. Total Directors' fees charged to the
Company for the period ended 30 June 2019 were GBP48,839 (30 June
2018: GBP46,250).
Executive Team
For the period ended 30 June 2019, the Executive Team members'
remuneration from the Company, excluding all reasonable expenses
incurred in the course of their duties which were reimbursed by the
Company, were as detailed in the table below:
30 June 2019 30 June 2018
GBP'000 GBP'000
Aggregate remuneration in respect of qualifying
service - fixed salary 364 353
Aggregate amounts contributed to Money Purchase
pension schemes 51 46
Aggregate bonus paid (cash) - 125
All amounts have been charged to Operating Expenses.
At the Company's annual general meeting ("AGM") held on 10 May
2017 Shareholders approved terms for a revised long-term incentive
scheme, pursuant to which members of the Executive Team will be
entitled to receive options to subscribe for new Ordinary Shares in
the capital of the Company ("Share Options") at strike prices of
25p, 30p and 35p and will vest on the first, second and third
anniversaries of the respective grant (the "New Scheme"). The New
Scheme took effect from the date of the AGM and replaced the
previous Executive Bonus Scheme. The Remuneration Committee will be
issuing a revised Executive Bonus Scheme following shareholder
feedback from the 2019 AGM. Further details of this will be
included in the 2019 Annual Report.
Directors' and Persons Discharging Managerial Responsibilities
("PDMR") shareholdings in the Company
As at 30 June 2019, the Directors had the following beneficial
interests in the Ordinary Shares of the Company:
30 June 2019 31 December 2018
No. of Ordinary % of total No. of Ordinary % of total
Shares Held issued Ordinary Shares Held issued Ordinary
Shares Shares
Patrick Firth (Chairman) 278,669 0.09 278,669 0.09
John Whittle 104,550 0.03 104,550 0.03
Andrew Whelan 9,553,734 3.06 8,051,912 2.58
Emma Stubbs 1,380,940 0.44 1,005,485 0.32
Aaron Le Cornu 1,405,790 0.45 1,405,790 0.45
Dan Walker 911,300 0.29 - -
Nick Wakefield - - - -
In the six month period to June 2019 and the year to December
2018, none of the above received any amounts relating to their
shareholding. As at 30 June 2019 there were 3,333,333 unexercised
share options for Ordinary Shares of the Company (31 December 2018:
3,333,333 and 30 June 2018: Nil). These options are currently out
of the money.
During the period Mr Whelan received GBP20,567 in relation to
the coupon on his holding of GBP592,500 GLI Bonds (30 June 2018:
GBP20,567).
Transactions with connected entities
The following significant transactions with connected entities
took place during the current period:
30 June 2019 30 June 2018
Balance Interest Balance Interest
GBP'000 accrued GBP'000 accrued
in the period in
the period
GBP'000 GBP'000
Loans (and corresponding interest
receivable) to entities in
which GLI Group has a significant
stake 2,201 174 5,217 252
Preference shares (and corresponding
interest receivable) in entities
which GLI Group has a significant
stake - 129 1,943 77
30 June 31 December
(Payable)/receivable (to)/from 2019 2018
related parties
GBP'000 GBP'000
Sancus (IOM) Holdings Limited - 2
Sancus (IOM) Limited 281 43
Amberton Asset Management 12 (151)
Office and staff costs recharges
30 June 30 June
2019 2018
Amberton Asset Management 17 26
--------- ------------
There is no ultimate controlling party of the Company.
All platform loans and preference shares bear interest at a
commercial rate.
17. FINANCIAL INSTRUMENTS - Fair values and risk management
Sancus BMS loans and loan equivalents
30 June 2019 31 December
(unaudited) 2018 (audited)
Non-current GBP'000 GBP'000
Sancus BMS loans 3,943 11,316
Sancus Loans Limited loans 3,980 3,600
------------- ----------------
Total Non-current Sancus BMS loans and loan
equivalents 7,923 14,916
------------- ----------------
Current
Sancus BMS loans 16,864 10,975
Investment in Sancus Loan Notes - 3,311
Loan equivalents 102 1,076
Sancus Loans Limited loans 29,933 22,039
------------- ----------------
Total Current Sancus BMS loans and loan equivalents 46,899 37,401
------------- ----------------
Total Sancus BMS loans and loan equivalents 54,822 52,317
============= ================
Fair Value Estimation
The financial assets and liabilities measured at fair value in
the Consolidated Statement of Financial Position are grouped into
the fair value hierarchy as follows:
30 June 2019 31 December
(unaudited) 2018 (audited)
Level 3 Level 3
GBP GBP
FinTech Ventures investments 8,665 13,804
Investments in Sancus Loan Notes - 3,311
Other investments at fair value 2,919 3,182
------------- ----------------
Total assets at fair value 11,584 20,297
============= ================
The classification and valuation methodology remains as noted in
the 2018 Annual Report. In relation to the Level 3 valuation
methodology for the FinTech Ventures investments the Board assesses
the fair value based on either the value at the last capital
transaction or valuation techniques, performed internally or by an
independent third-party expert. Factors considered in these
valuation analyses included discounted cash flows, comparable
company and comparable transaction analysis. Key inputs used in the
discounted cash flows include costs of equity, illiquidity discount
rates, revenue and costs growth rates, interest margins, bad debt
expense and tax rates. These are consistent with the inputs
described in the 2018 Annual Report and adjusted where necessary.
The Board considers all the information presented to it, including
indicative bids, internal analysis, and independent valuations, in
order to reach, in good faith, their value determination.
Assets at Amortised Cost
30 June 2019 31 December
2018
(unaudited) (audited)
GBP'000 GBP'000
Sancus BMS loans and loan equivalents 54,822 49,006
Loans through platforms 870 883
Trade and other receivables 8,315 5,656
Cash and cash equivalents 5,061 5,863
------------- ------------
Total assets at amortised cost 69,068 61,408
============= ============
Liabilities at Amortised Cost
30 June 2019 31 December
2018
(unaudited) (audited)
GBP'000 GBP'000
ZDP shares 19,991 24,059
Corporate Bond 10,000 10,000
HIT facility 32,446 22,684
Trade and other payables 1,890 2,635
Lease creditor 986 -
------------- ------------
Total liabilities at amortised cost 65,313 59,378
============= ============
Refer to Note 14 for further information on liabilities.
FinTech Ventures Investments Equity Loans Total
30 June 2019 GBP GBP GBP
At 31 December 2018 11,608 2,196 13,804
New investments/loans advanced 12 - 12
Unrealised losses recognised in
profit and loss (4,764) (426) (5,190)
Foreign exchange gain 34 5 39
At 30 June 2019 6,890 1,775 8,665
======== ====== ========
Equity Loans Total
31 December 2018 GBP GBP GBP
At 31 December 2017 26,470 3,128 29,598
New investments/loans advanced 200 2,419 2,619
Converted from accrued interest 293 - 293
Converted to Equity 2,071 (2,071) -
Unrealised losses recognised in
profit and loss (18,221) (1,413) (19,634)
Foreign exchange gain 795 133 928
At 31 December 2018 11,608 2,196 13,804
========= ======== =========
Level 3 investment valuation techniques used and key inputs
The following table gives information about how the fair values
of financial assets categorised as level 3 in the fair value
hierarchy are determined by the Company:
Valuation technique Fair Value Fair Value Reason for any Significant Relationship
and key inputs GBP'000 GBP'000 changes in valuation unobservable of unobservable
techniques from inputs inputs to fair
prior years value
At 30 At 31
June 2019 December
2018
----------- ----------- ---------------------- --------------------- ---------------------
Market comparable
transaction
based on recent
fundraising
activity, adjusted Equity raises
for any relevant completing H1
risk 7,498 12,637 2019 None None
----------- ----------- ---------------------- --------------------- ---------------------
Cash flows are
discounted by
a range of 25.1%
for cost of
equity and 15%
for illiquidity
of the investment.
Significant
internal
sensitivities
are also applied A smaller adjustment
to the forecasts, for these factors
creating high would increase
and low cases the fair value
There has been used in the - see sensitivity
Discounted cash no change in weighted average analysis noted
flow forecasts 1,167 1,167 valuation techniques. output below
----------- ----------- ---------------------- --------------------- ---------------------
Investment in - 3,311 None Fair value which None
redeemable preference closely approximates
shares of the the net asset
loan notes is value of the
valued at fair Loan Note special
value purpose vehicles
----------- ----------- ---------------------- --------------------- ---------------------
Other investments
at fair value Fair value which
including joint equates to share
ventures and of net assets
associates 2,919 3,182 None of the investment None
----------- ----------- ---------------------- --------------------- ---------------------
Total Level
3 at Fair Value 11,584 20,297
----------- ----------- ---------------------- --------------------- ---------------------
Sensitivities of key inputs
When discounted cash flow ("DCF") valuation methodology is
utilised, the variables which influence the resultant valuations
most significantly are the discount rates applied to the future
cash flows, the revenue forecasts and the illiquidity discounts.
The table below shows the impact of stressing year end valuations
by the sensitivities which the Board believe to be reasonably
foreseeable.
Sensitivities of key inputs
Effect on consolidated
statement of comprehensive
income
30 June 2019
GBP'000
20% pa increase in revenue 100
20% pa decrease in revenue (100)
5% increase in discount rate (88)
5% decrease in discount rate 137
10% increase in illiquidity discount (59)
10% decrease in illiquidity discount 59
Credit Risk
Credit risk is defined as the risk that a borrower/debtor may
fail to make required repayments within the contracted timescale.
The group invests in senior debt, senior subordinated debt, junior
subordinated debt and secured loans. Credit risk is taken in direct
lending to third party borrowers, investing in loan funds, lending
to associated platforms and loans arranged by associated platforms.
The group mitigates credit risk by only entering into agreements
related to loan instruments in which there is sufficient security
held against the loans or where the operating strength of the
investee companies is considered sufficient to support the loan
amounts outstanding.
Credit risk is determined on initial recognition of each loan
and re-assessed at each balance sheet date. It is categorized into
Stage 1, Stage 2 and Stage 3 with Stage 1 being to recognise 12
month Expected Credit Losses (ECL), Stage 2 being to recognise
Lifetime ECL not credit impaired and Stage 3 being to recognise
Lifetime ECL credit impaired.
Provision for ECL
Provision for ECL is made using the credit risk, the probability
of default (PD) and the probability of loss given default (PL) all
of which are underpinned by the Loan to Value (LTV), historical
position, forward looking considerations and on occasion,
subsequent events and the subjective judgement of the Board.
Preliminary calculations for ECL are performed on a loan by loan
basis using the simple formula: Outstanding Loan Value x PD x PL
and are then amended as necessary according to the more subjective
measures as noted above.
A probability of default is assigned to each loan. This
probability of default is arrived at by reference to historical
data and the ongoing status of each loan which is reviewed on a
regular basis. The probability of loss is arrived at with reference
to the LTV and consideration of cash that can be redeemed on
recovery.
Movement of provision for ECL in the period
30 June 2019 31 December
2018
GBP'000 GBP'000
At beginning of period/year 2,597 1,350
Charged through profit and loss in the period/year 1,175 1,247
Utilised in the period/year (942) -
At end of period/year 2,830 2,597
============= ============
18. CHANGES IN ACCOUNTING POLICY
IFRS 16 'Leases'
IFRS 16 requires lessees to recognise assets and liabilities for
all leases greater than 12 months in length unless the underlying
asset is of low value. This standard replaced IAS 17, the previous
lease accounting standard, and is effective for reporting periods
beginning on or after 1 January 2019. As such IFRS 16 has been
adopted for the first time in these condensed interim financial
statements.
All leases in the Group are currently classed as operating in
nature. In previous financial statements these leases have been
accounted for through the posting of a rental charge to profit and
loss in accordance with the requirements of IAS 17. No asset or
liability had previously been recognised on the balance sheet in
respect of such leases. IFRS 16 now requires us to recognise a
Right-of-use asset for all leases where the length of lease is
greater than 12 months and the underlying asset is greater in value
than c.GBP3,000 (considered to be a "low value asset"). In
addition, the standard requires us to recognise a corresponding
liability representing the discounted future lease payments until
the end of the lease. This liability determines the value of the
"Right-of-use" asset. In place of the previous rental charge under
IAS 17 the Group now suffers (under IFRS 16) an interest charge,
being the wind-down of the discount, and a depreciation charge
relating to the Right-of-use asset.
In accordance with the standard the Group has decided to use the
incremental borrowing rate (IBR) as a proxy for the discount rate
implicit in the lease. The IBR is defined as the rate that the
company would have to pay if it went out in to the market and
bought a similar asset under a finance arrangement. The IBR is
therefore company, asset and length of lease specific. Given it is
not practically possible to go into the market and obtain an IBR
for each right of use asset the IBR is an accounting estimate.
An IBR of 7.25% has been used to calculate the discounted future
lease payments and hence the opening value of each Right-of-use
asset. This has been arrived at by reviewing current commercial
property rates obtainable in the market, adjusted for the
particular circumstances of the company which holds the leases, and
then comparing to funding that the Group has raised historically.
It should be noted that moving the rate by c2% in either direction
does not alter the initial value materially.
On adoption of the standard on 1 January 2019 the Group
recognised Right-of-use assets amounting to GBP892,000, and a
corresponding Lease Liability of the same amount. The Right-of-use
assets are being depreciated on a straight-line basis over the
terms of the respective leases. In the 6 months to June 2019 the
Group has suffered depreciation from Right-of-use assets of
GBP116,000 and interest charges of GBP18,000. Under IAS 17, the
previous accounting standard, rental charges of GBP116,000 would
have been suffered. See Note 8 for other movements in the
period.
19. GUARANTEES
The Group undertakes a number of Guarantees and first loss
positions which are not deemed to be contingent liabilities under
IAS37 as there is no present obligation for these guarantees and it
is considered unlikely that these liabilities will crystallise.
HIT Facility
Sancus BMS Group has invested GBP5m of its own capital in Sancus
Loans Limited which sits in a GBP5m first loss position as part of
the HIT facility. GLI has also provided HIT with a guarantee,
capped at GBP2m that it will continue to ensure the orderly wind
down of the HIT related loan book, in the event of the insolvency
of Sancus BMS Group, given its position as facility and security
agent.
Sancus Loan Notes
Sancus BMS typically provides first loss positions as part of
the Loan Note structures. In SLN4, Sancus BMS has no capital
invested but has a 20% first loss position and in SLN5 a 10% first
loss position. For IFRS 9 purposes in calculating our capital at
risk provision ratio of 3.4%, we have included the Sancus
on-balance sheet loans plus the full amount of those loans which
include the first loss risk position we have with HIT and the Loan
Notes.
20. PERFORMANCE MEASURES
We have identified the below performance measures which for
Sancus BMS we will report on as we believe improving these will
improve shareholder value.
Return on Tangible Assets ("ROTA")
This is operating profit (including credit losses) divided by
total assets less goodwill and HIT (but adding back our GBP5m HIT
equity).
Cost Income Ratio
Total costs include operating expenses, cost of sales and
interest costs (excluding HIT interest costs) divided by total
revenue (total revenue being the proforma revenue which excludes
the gross HIT revenue and instead includes the net HIT fees
received).
21. POST PERIOD END EVENTS
Acquisition of Group ZDPs
Post period end, the Company has acquired a further 2,755,629
ZDPs at an average price of GBP1.213 taking the total ZDPs held in
treasury to 7,934,460. As well as reducing the liability on
maturity of the ZDPs in December 2019, these purchases deliver a
good return on capital given the ZDPs have been trading below their
accrued capital entitlement.
Defaulted loans
Post period end, an official receiver has been appointed to sell
the underlying properties of 2 loans that were in default at 30
June 2019. These loans were included in the 30 June 2019 IFRS 9
provision calculations.
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END
IR EADNXFELNEAF
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