TIDMORCH
RNS Number : 9932I
Orchard Funding Group PLC
27 March 2018
Orchard Funding Group PLC
("Orchard Funding Group" or the "company" or the "group")
Half Yearly Results
For the six months ended 31 January 2018
Orchard Funding Group, the finance group which specialises in
insurance premium finance and the professions funding market, is
pleased to announce its unaudited results for the six months ended
31 January 2018.
Highlights
-- The group lent GBP34.35 million for the six months to 31
January 2018; on a like for like basis, an extra GBP3.24 million of
lending over the six months to 31 January 2017 and a 10.4%
improvement.
-- Group turnover has increased by 25.9% from GBP2.12 million in
the six months to 31 January 2017, to GBP2.67 million in the six
months to 31 January 2018.
-- Group profit before tax was GBP0.99 million, up by 22.2% on the six months to 31 January 2017.
-- The board is again recommending an interim dividend of 1
pence per share (31 January 2017: 1 pence).
Ravi Takhar, Chief Executive Officer of the company, stated:
"Orchard continues to perform in a consistent and positive
manner. The leading players in our market continue to compete
aggressively with our offering, but we are still standing firm and
continuing to grow. We have a number of exciting new initiatives
including the launching of new product lines in the school fees
market, property market and leisure market, which we intend to
launch over the coming year. Our bank licence application process
is moving forward in a positive manner and we have appointed a new
Chairman, Gary Jennison, the former CEO of Secured Trust Bank, to
add to the strength of our existing team. I am also delighted to
confirm that we have created and implemented new state of the art
IT, and this will further enhance our competitiveness going
forward. We continue to offer outstanding and personal service to
our clients and look forward to the continued and consistent growth
of our business."
For further information, please contact:
Orchard Funding Group PLC +44 (0)1582 346 248
Ravi Takhar, Chief Executive Officer
finnCap Limited (Nomad and Broker) +44 (0)20 7220 0579
Corporate Finance
Jonny Franklin-Adams
Emily Watts
Corporate Broking
Tim Redfern
Richard Chambers
For Investor Relations please go to:
www.orchardfundinggroupplc.com
Chairman's statement
I am pleased to report on my first set of results since I was
appointed on 1 November 2017.
The group has delivered on some of its potential by growing its
new lending and its loan book strongly in the first half of the
current financial year. Both measures have shown double digit
growth over the six month period to 31 January 2018. We have
stepped up new business sales activity and have recently increased
the size of our sales force and, indeed, are actively looking to
expand further our sales capacity. We have a strong capability to
process short term loans efficiently, our processing platform is
scalable and we are confident in our operational capability to
handle further growth in lending volumes. Accordingly we continue
to look at adjacent sectors such as school fees funding to
complement our lending in insurance premium financing and
professional fees.
We have a very small market share in both our core markets and
we compete with some very large lenders. However, our personal and
distinct customer service sets us apart and we intend to continue
with this personal touch. The insurance premium financing market
continues to grow strongly and we expect to see further growth in
our lending over the remainder of the financial year.
We have a strong capital position and adequate external funding
lines through Barclays and Conister Trust to finance the expected
growth. However, we continue to review our liquidity strategies
including the possible application to the Prudential Regulation
Authority (PRA) for the company to secure a banking licence which
would allow us much greater flexibility to raise funding in the
future. We are confident that the PRA will welcome our application
later this year. As we have reported two years ago, a banking
licence has been a long-standing strategic goal for Orchard but, in
keeping with our cautious approach to growth, we have made sure we
understand the costs and the risks associated with being a bank. We
are now clear it is the right thing for us to do, so we are
progressing this much more strongly now.
Over the past year, we have taken steps to prepare for the
issuance of a banking licence through the appointment of additional
personnel who understand the regulatory environment. We will
continue to add people as required in order to provide the required
assurance to the banking regulator and to our shareholders.
I agreed to join the board as I have confidence in the
management team and the Company's ability to expand given its
extremely high quality loan book. We are encouraged by the
potential for growing the new business lending, the loan book,
interest income and profits whilst maintaining the quality of the
loan book.
Current trading and outlook
We are pleased with the new business momentum which has
continued to build as the third quarter progresses and there has
been no material change to the underlying performance of the
business since the start of the second half of the financial year
ending 31 July 2018.
Our long term strategic objective is to have a banking licence
to have flexibility to raise funding in the future, I believe there
remains considerable scope to pursue our strategic priorities by
developing the business model organically and pursuing attractive
acquisition opportunities.
Gary Jennison
Chairman
Chief Financial Officer's summary
The figures for the six month period ended 31 January 2017
demonstrate growth over the equivalent half year in 2016/2017 - in
lending, turnover and profitability.
Gross revenue is up 25.9% compared to the six months to 31
January 2017. Profit before tax has likewise increased by
22.2%.
The bank application process announced last year continues to
move forward in a positive manner.
Key Performance Indicators (KPIs)
KPIs for the group revolve around good quality lending,
evidenced by a sound underwriting process and multiple layers of
credit protection. However, like all similar businesses, lending is
not risk free.
In the past, the group has reported in terms of there being two
core areas - insurance premium funding and funding for
professionals. The nature of these is so similar that any
segregation would not give meaningful information to users of the
financial statements. Both areas are managed on a similar basis,
carry similar risks and rewards and need to comply with the same
regulations.
The board has identified the following financial KPIs:
-- Lending.
-- Gross rate on loans made.
-- Borrowing and other capital resources.
-- Cost of borrowing.
Group 6 Months 6 Months Year
to to to
31 January 31 January 31 July
2018 2017 2017
Loans made in the GBP34.35 GBP31.11 GBP63.35
year (GBPm)
Average gross rate
on loans made 6.54% 5.75% 6.06%
Level of borrowing GBP14.87 GBP12.16 GBP13.79
(GBPm)
Own capital resources GBP13.54 GBP12.68 GBP13.17
(GBPm)
Cost of borrowing GBP0.24 GBP0.15 GBP0.33
(GBPm)
Costs have also risen over the period, again in line with
expectations and our increased income.
Interest payable is considerably higher than in the equivalent
half year as a result of the growth in lending. We have seen an
increase in base rate (0.25%) during the half year but, mainly
because our loans are short term, this has made little difference
to the business.
Administrative expenses have increased by 25% compared to the
six months to 31 January 2017.
Most of the increase in administrative expenses arises from the
additional provision for impairment of debts.
With the advent of International Financial Reporting Standard
Number 9 (IFRS9), entities need to assess a variety of factors,
including macroeconomic ones, to establish if there may be
impairment of debts. In addition, as part of the bank application
process, we are required to assess and measure credit risk. As a
result of this assessment, and although our default rates have not
altered, the board have decided that provision needs to be made and
have therefore estimated that a provision of approximately 0.7% of
debtors would be reasonable in the circumstances.
The main driver of this is the uncertainty surrounding business
generally at present. Our business is no different.
86.1% of the group's income comes from insurance (2017 - 78.1%).
It is still the largest part of the business so, as might be
expected, insurance accounts for the largest proportion of income
and profits.
We currently have a facility with Barclays Bank plc of GBP15
million of which approximately 92% was in use at 31 January 2018
(GBP15 million and 79% respectively at 31 January 2017). There is
also a facility with Conister Bank Limited of GBP4 million of which
GBP1 million (25%) was utilised during the period (GBPNil in
2017).
With this additional availability of bank funding, together with
our own net assets of GBP13.54 million at 31 January 2018 (GBP12.68
million - 31 January 2017), the group is well set for continued
growth.
The board is pleased to declare an interim dividend of 1 pence
per share to be paid on 29 June 2018 to shareholders on the
register at 15 June 2018, with an associated ex-dividend date of 14
June 2018.
Liam McShane
Chief Financial Officer
Consolidated income statement
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2018 2017 2017
GBP GBP GBP
Continuing operations
Revenue 2 2,670,528 2,119,449 4,559,966
Finance costs 2 (240,362) (146,990) (329,478)
Other operational costs 2 (38,363) (38,775) (77,550)
---------------------------------- ------------ ------------ ------------
Gross profit 2,391,803 1,933,684 4,152,938
Administrative expenses 2 (1,396,535) (1,121,100) (2,511,931)
---------------------------------- ------------ ------------ ------------
Operating profit before
income tax 995,268 812,584 1,641,007
Income tax expense 3 (191,403) (172,450) (303,214)
---------------------------------- ------------ ------------ ------------
Profit for the period 803,865 640,134 1,337,793
Other comprehensive income - - -
---------------------------------- ------------ ------------ ------------
Total comprehensive income
for the period
attributable to the owners
of the parent 803,865 640,134 1,337,793
Earnings per share attributable
to the owners of the parent
during the period (pence)
Basic and diluted 4 3.76 3.00 6.26
----------------------------------
Consolidated statement of financial position
At 31 At 31 At 31
January January July
2018 2017 2017
GBP GBP GBP
------------------------------- ----------- ----------- -----------
Assets
Non-current assets
Property, plant and equipment 67,975 85,055 76,567
Intangible assets 58,908 39,226 74,914
Trade and other receivables 20,843 - 22,720
--------------------------------
147,726 124,281 174,201
-------------------------------
Current assets
Trade and other receivables 28,898,990 26,192,653 28,523,011
Cash and cash equivalents:
Bank balances and cash
in hand 2,481,328 1,439,981 1,728,484
-------------------------------- -----------
31,380,318 27,632,634 30,251,495
------------------------------- -----------
Total
assets 31,528,044 27,756,915 30,425,696
---------------------------------
Equity and liabilities
Equity attributable to
the owners of the parent
Called up share capital 213,542 213,542 213,542
Share premium 8,691,910 8,691,910 8,691,910
Merger reserve 890,725 890,725 890,725
Retained earnings 3,746,446 2,885,557 3,369,664
--------------------------------
Total
equity 13,542,623 12,681,734 13,165,841
--------------------------------- ----------- ----------- -----------
Liabilities
Non-current liabilities
Borrowings 52,806 60,951 57,458
Deferred
tax 7,482 8,925 7,482
---------------------------------
60,288 69,876 64,940
Current liabilities
Trade and other payables 2,628,354 2,503,625 3,181,938
Borrowings 14,821,072 12,103,712 13,733,504
Tax payable 475,707 397,968 279,473
---------------------------------
17,925,133 15,005,305 17,194,915
------------------------------- ----------- ----------- -----------
Total liabilities 17,985,421 15,075,181 17,259,855
-------------------------------- ----------- ----------- -----------
Total equity and liabilities 31,528,044 27,756,915 30,425,696
-------------------------------- ----------- ----------- -----------
Consolidated statement of changes in equity
Called
up
Share Retained Share Merger Total
capital earnings premium reserve Equity
GBP GBP GBP GBP GBP
--------------------- -------- ---------- ---------- -------- -----------
Balance at 1 August
2016 213,542 2,545,449 8,691,910 890,725 12,341,626
Changes in equity
Total comprehensive
income - 640,134 - - 640,134
Transactions with
owners:
Dividends paid - (300,026) - - (300,026)
----------------------
Balance at 31
January 2017 213,542 2,885,557 8,691,910 890,725 12,681,734
----------------------
Changes in equity
Total comprehensive
income - 697,649 - - 697,649
Transactions with
owners:
Dividends paid - (213,542) - - (213,542)
----------------------
Balance at 31
July 2017 213,542 3,369,664 8,691,910 890,725 13,165,841
----------------------
Changes in equity
Total comprehensive
income - 803,865 - - 803,865
Transactions with
owners:
Dividends paid - (427,083) - - (427,083)
----------------------
Balance at 31
January 2018 213,542 3,746,446 8,691,910 890,725 13,542,623
----------------------
The merger reserve arose through the formation of the group on
23 June 2015 using the consolidation method which treats the merged
companies as if they had been combined throughout the current and
comparative accounting periods. The accounting principles for these
combinations gave rise to a merger reserve in the consolidated
statement of financial position, being the difference between the
nominal value of new shares issued by the company for the
acquisition of the shares of the subsidiaries and each subsidiary's
own share capital.
The share premium account arose on the issue of shares on the
IPO on 1 July 2015 at a premium of 95p per share. Costs directly
attributable to the issue of shares have been deducted from the
account.
Consolidated statement of cash flows
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2018 2017 2017
GBP GBP GBP
--------------------------------- ------------ ------------
Cash flows from operating
activities:
Profit before income tax 995,268 812,584 1,640,997
Adjustment for depreciation
and amortisation 30,549 19,236 47,913
Hire purchase interest 858 1,342 2,376
----------------------------------
1,026,675 833,162 1,691,286
Increase in trade and other
receivables (374,102) (4,188,785) (6,541,863)
(Decrease)/increase in
trade and other payables (553,584) 846,595 1,524,908
----------------------------------
98,989 (2,509,028) (3,325,669)
Income tax received/(paid) 4,831 (64,553) (315,256)
----------------------------------
Net cash generated/(absorbed)
by operating activities 103,820 (2,573,581) (3,640,925)
----------------------------------
Cash flows from investing
activities
Purchases of property,
plant and equipment (1,069) (510) (1,706)
Expenditure on software
development (4,882) (4,077) (58,757)
----------------------------------
Net cash absorbed by investing
activities (5,951) (4,587) (60,463)
----------------------------------
Cash flows from financing
activities
Dividends paid (427,083) (300,026) (513,568)
Net proceeds from borrowings 1,087,575 2,934,134 4,564,919
Borrowings repaid (5,517) (6,057) (11,577)
----------------------------------
Net cash generated by financing
activities 654,975 2,628,051 4,039,774
----------------------------------
Net increase in cash and cash
equivalents 752,844 49,883 338,386
Cash and cash equivalents at
the beginning of the period 1,728,484 1,390,098 1,390,098
-----------------------------------
Cash and cash equivalents at
the end of period 2,481,328 1,439,981 1,728,484
-----------------------------------
Notes to the financial statements
1. General information
Orchard Funding Group PLC ("the company") and its subsidiaries
(together "the group") provide funding and funding support systems
to insurance brokers and professional firms. The group operates in
the United Kingdom.
The company is a public company listed on AIM, a market operated
by the London Stock Exchange, incorporated and domiciled in the
United Kingdom. The address of its registered office is 721
Capability Green, Luton, Bedfordshire LU1 3LU.
The condensed consolidated interim financial information for the
six months ended 31 January 2018 has been prepared in accordance
with the presentation, recognition and measurement requirements of
applicable International Financial Reporting Standards adopted by
the European Union ('IFRS') except that the group has not applied
IAS 34, Interim Financial Reporting, which is not mandatory for UK
groups listed on AIM, in the preparation of the condensed
consolidated interim financial information.
The financial information does not include all of the
information required for full annual financial statements and
should be read in conjunction with the financial statements of the
group for the year ended 31 July 2017 which are prepared in
accordance with IFRS.
The accounting policies used in the preparation of condensed
consolidated interim financial information for the six months ended
31 January 2018 are in accordance with the presentation,
recognition and measurement criteria of IFRS and are consistent
with those which are expected to be adopted in the annual statutory
financial statements for the year ending 31 July 2018. A number of
IFRSs and Interpretations have been endorsed by the EU that will
apply for the first time in the period to 31 July 2018 and,
although they have been adopted by the group, only IFRS 9 has had a
material impact on the group's financial statements. Under the
expected credit loss (ECL) model required in the standard,
provision has been made in these financial statements for debts
amounting to approximately 0.7% of trade receivables. In assessing
this, the group has adopted the simplified approach which requires
the entity to recognise a loss allowance based on lifetime ECLs at
each reporting date, right from origination. This is appropriate as
all receivables are within the scope of IFRS15.
The group's 2017 annual report provides full details of
significant judgements and estimates used in the application of the
group's accounting policies. There have been no significant changes
to these judgements and estimates during the period.
The financial information included in this document is unaudited
and does not comprise statutory accounts within the meaning of
section 434 of the Companies Act 2006. The comparative figures for
the financial year ended 31 July 2017 are the group's statutory
accounts for that financial year. Those accounts have been reported
on by the company's auditor and delivered to the registrar of
companies. The report of the auditor was (i) unqualified, (ii) did
not include a reference to matters to which the auditor drew
attention by way of emphasis without qualifying their report, and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
2. Segmental reporting
The group operates wholly within the United Kingdom, therefore
there is no meaningful information that could be given on a
geographical basis.
In the past, the group has reported in terms of there being two
core areas - insurance premium funding and funding for
professionals. The board has decided there is very little to be
gained in separating these for reporting purposes. They meet the
criteria for aggregation - the underwriting process, management of
the loans, customer base, distribution channels, risks and rewards
are similar for both areas.
6 months ended 31 January 2018
Total Central Funding
GBP GBP GBP
------------------------- ------------ ---------- ------------
Revenue 2,670,528 - 2,670,528
--------------------------
Interest payable (241,220) - (241,220)
Other operational costs (38,363) (38,363)
Administrative expenses (1,395,677) (304,451) (1,091,226)
Operating profit/(loss)
before tax 995,268 (304,451) 1,299,719
--------------------------
6 months ended 31 January 2017
Total Central Funding
GBP GBP GBP
------------------------- ------------ ---------- ----------
Revenue 2,119,449 - 2,119,449
-------------------------- ------------ ---------- ----------
Interest payable (146,990) - (146,990)
Other operational costs (38,775) (38,775)
Administrative expenses (1,121,100) (262,712) (858,388)
Operating profit/(loss)
before tax 812,584 (262,712) 1,075,296
--------------------------
Year ended 31 July 2017
Total Central Funding
GBP GBP GBP
------------------------- ------------ ---------- ------------
Revenue 4,559,966 - 4,559,966
--------------------------
Interest payable (329,478) - (329,478)
Other operational costs (77,550) (77,550)
Administrative expenses (2,511,931) (598,172) (1,913,759)
Operating profit/(loss)
before tax 1,641,007 (598,172) 2,239,179
--------------------------
3. Taxation
The tax assessed for the period differs from the main
corporation tax rates in the UK (19% for the half year to 31
January 2018, 20% for the half year to 31 January 2017 and 19.67%
for the full year to 31 July 2017) because of the effect of items
disallowed for tax and accelerated capital allowances.
4. Earnings per share
Earnings per share are based on the total comprehensive income
shown above, for each relevant period, and the weighted average
number of ordinary shares in issue during each period. For all
three periods, this was 21,354,167. There are no options or other
factors which would dilute these, therefore the fully diluted
earnings per share is identical.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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