TIDMORCH
RNS Number : 5590V
Orchard Funding Group PLC
06 April 2023
Orchard Funding Group PLC
("Orchard Funding Group" or the "company" or the "group")
Half Year Results
For the six months ended 31 January 2023
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 2023.
Highlights - in the six months to 31 January 2023, compared to
the six months to 31 January 2022:
6 months 6 months % increase/
All amounts are GBPm unless otherwise to 31 January to 31 January (decrease)
stated 2023 2022
Lending volume 46.39 38.15 21.58%
Average interest earning assets 46.53 33.45 39.10%
Total revenue 3.76 2.90 29.66%
Net interest income 2.46 2.14 14.95%
Profit before tax 1.25 1.00 25.00%
Profit after tax 1.01 0.81 24.69%
EPS (pence) (1) 4.71 3.78 24.59%
Operating costs (including impairment
provisions) 1.66 1.33 24.81%
Average external funding 11.86 9.94 19.32%
Cost of external funds 0.53 0.16 231.25%
Cost of funds/funds ratio 5.58% 4.69% 19.04%
Own resources (net current financial
assets) 15.58 14.29 9.03%
In March 2022 the group issued a retail bond, raising GBP3.90m
less issue costs of GBP0.21m. In addition, the group has borrowing
facilities of GBP25.00m of which GBP16.42m was in use at the period
end.
The board is again recommending an interim dividend of 1 pence
per share (31 January 2022: 1 pence).
More detail on the financial highlights is given in the CFO's
summary.
Ravi Takhar, Chief Executive Officer of the company, stated:
"We have started the first half of the year positively and ahead
of our original projections. Whilst our income continues to grow as
a result of increased lending, our costs of borrowing are
increasing significantly as a result of bank base rate increases.
Our culture continues to be cautious, prudent and long term and
this enables us to manage the difficult economic and political
times we are facing. We continue to support all our stakeholders,
in particular our staff, bankers and shareholders by providing fair
and consistent returns for their investment. We look forward to the
next six months cautiously and with some optimism based on our good
start to the financial year."
For further information, please contact:
Orchard Funding Group PLC +44 (0)1582 346 248
Ravi Takhar, Chief Executive Officer
Liberum (Nomad and Broker) +44 (0)20 3100 3222
Investment banking
Lauren Kettle
For Investor Relations please go to:
www.orchardfundinggroupplc.com
Chairman's statement
I am very pleased to note that we have continued the positive
trend in financial performance with all the key metrics showing an
improvement on the equivalent period last year whilst we continue
to deliver for all of our stakeholders, in particular, our
customers, colleagues and shareholders. The drivers of this growth
continue to be our core insurance premium funding market.
The economic outlook is showing some signs of improvement. The
impact of the autumn 'mini budget' has softened and confidence has
improved following indications that the risk of a recession is
easing and inflation is expected to reduce over the year. Against
this backdrop, our margins will remain under pressure, however we
remain cautiously optimistic, and ready to support our customers
and partners through any difficulties as far as possible.
Steven Hicks
Chairman
Chief Financial Officer's summary
Since my report last year, markets appear to have accounted for
the pressures which arose from the invasion of Ukraine. We, have,
however seen 11 consecutive increases in interest rates from the
beginning of December 2021 up to the end of March 2023, arising
from the Bank of England's ("BOE") need to control inflation. We
are led to believe, from the BOE and the Government, that inflation
should fall to below 3.00% by the end of the year.
Our own results in the six months to 31 January 2023 reflect the
interest rate rise, with our gross and net interest margins
slightly lower compared to the equivalent six months in the
previous year. Both gross interest income and other income are
higher (27.54% and 38.89% respectively), than the six months to 31
January 2022. Coupled with close control of costs, this has led to
a profit before tax of GBP1.25m for the period compared with
GBP1.00m for the equivalent half-year in 2022.
Our lending in most of the markets in which we operate has grown
substantially this period, on average at 20.29% on a like-for-like
basis compared to the six months to 31 January 2022. Against this,
demand for professional fee funding continues to fall as has site
and school fees. This has not been unexpected as we are using
resources where they generate the best overall results.
Our operating cost base continues to be controlled although we
have been affected by inflation. Operating costs are up from
GBP1.33m in the half-year to 31 January 2022 to GBP1.66m in the
period to 31 January 2023 - a rise of 24.81%. This figure does
include an expected credit loss provision and an impairment
provision for the investment in an associate. In the year to 31
January 2022, impairment provisions were not included in the
performance indicator of operating costs. It is felt that since
these form part of operating profit they should form part of
operating costs.
Although we are no longer subject to the restrictions imposed
during the pandemic, our staff have continued to operate from a
hybrid home working model which is working well for them and our
partners. Our systems have proved effective in managing this
home-working in a seamless manner without any loss in
efficiency.
We are in a strong financial position. At 31 January 2023 we had
net current financial assets of GBP15.58m (31 January 2022
GBP14.29m) and GBP8.58m of unused borrowing facility (31 January
2022 GBP8.58m). Net current financial assets consist of net current
assets excluding prepayments. Together, these show a strong
capital, funding and liquidity position.
Impairment reviews are carried out at each reporting period on
all financial assets. The method employed for assets arising from
lending is shown in the audited accounts to 31 July 2022 and is
based on expected credit losses (ECLs). As part of this exercise we
review debts to establish whether they have moved from one ECL
stage to another. There have been no material movements from one
stage to another in our interest earning assets during the period.
At 31 January 2023 the provision was GBP464k (31 January 2022
GBP493k). Other assets (fixed assets and investments) are also
subject to impairment reviews. As part of this process the
investment in Open B Gateway Limited has been appraised and has
been written down to GBPNil.
An investment was made in Open B Gateway Limited in 2019 when
300 GBP1 ordinary shares were acquired at par representing a 30%
holding in that company. In 2021 a further investment of GBP75k was
made to enable that company to develop its Open Banking WebApp. In
valuing these investments a valuation based on Level 3 inputs had
been applied. Level 3 inputs are defined as those which are
unobservable for an investment. In October 2022 the group's CEO,
Ravi Takhar, became a director of that company. The registered
office was also changed to that of Orchard Funding Group plc. As
the group now exercises significant influence, this investment has
been treated as an associate since October 2022. Ordinarily, the
group would take the associate's share of profits or losses from
October and consolidate this with its own, adjusting the cost of
the investment accordingly. However, the latest accounts available
from that company dated 31 March 2022 show net assets of GBP1.45k
and losses for the accounting period ending on that date. The board
is therefore of the opinion that the value of the investment should
be restated at GBPNil.
Our principal risks, as shown in the full year financial
statements to 31 July 2022, are credit risk, liquidity risk,
interest rate risk, IT disruption risk and conduct risk. Since the
issue of the retail bond in March 2022, risks associated with both
its non-use and failure to repay are also included. A full
explanation of each of them together with their impact and
mitigation are detailed in those financial statements.
Key Performance Indicators (KPIs)
Our KPIs are set so that fluctuations outside a certain
tolerance would trigger an examination of our operations to
establish why these fluctuations have occurred and, if necessary,
take any remedial action deemed necessary. This half-year our KPIs
have exceeded expectations.
Our KPIs are based on lending, the cost of lending and, to some
extent, operating costs. We try to ensure that risk is mitigated
when lending but no lending is risk free.
All our lending is managed on a similar basis, carry similar
risks and rewards and need to comply with similar regulations. They
are therefore combined for reporting purposes.
The table below gives a breakdown of group KPIs. There is also a
table showing those items not considered KPIs but which give a
better understanding of the figures.
Return on average equity is based on PAT divided by the average
of equity at the end of the previous reporting period and that of
the current period. We believe that this measure is seen as more
useful than simply looking at equity at the end of the period.
Average external funding is based on the amount borrowed for the
exact number of days for which the advance was made.
Key performance indicators
6 months 6 months Year
All amounts are GBPm unless otherwise to 31 January to 31 January to 31
stated 2023 2022 July 2022
Lending volume 46.39 38.15 79.96
Average interest earning assets
(1) 46.53 33.45 36.81
Total revenue 3.76 2.90 6.19
Average external funding 11.86 9.94 15.77
Cost of external funds 0.53 0.16 0.55
Cost of funds/funds ratio 5.58% 4.69% 3.57%
Own resources (net current financial
assets) 15.58 14.29 15.96
Operating costs (including impairment
provisions) (2) 1.66 1.33 2.97
Return on average equity 11.64% 9.94% 9.36%
Financial summary - other performance indicators
6 months 6 months Year
All amounts are GBPm unless otherwise to 31 January to 31 January to 31
stated 2023 2022 July 2022
Net interest income 2.46 2.14 4.41
Net interest margin (%) 10.57% 12.80% 11.98%
Profit before tax 1.25 1.00 1.88
Profit after tax 1.01 0.81 1.52
EPS (pence)(3) 4.71 3.78 7.11
DPS (pence) 2.00 2.00 3.00
Return on capital employed 5.85% 7.16% 5.19%
1. Average interest earning assets consist of the average of the
opening and closing loan book after taking account of the
impairment provision.
2. In the equivalent period of the previous year operating costs
were shown net of impairment provisions. These are now included as
they form part of costs to arrive at operating profit.
3. There are no factors which would dilute earnings therefore
fully diluted earnings per share are identical.
Lending volume, average interest earning assets and total
revenue are all up by between 20% and 40%. PBT, PAT and EPS are all
up by in excess of 24%. The increases in these areas were to be
expected although the upturn in PBT has been a mix of increased
income and operating costs increasing at a lower rate..
Operating costs have increased by 24.81% in total. Within these
costs, however, there are some increases in excess of that figure.
Commission is a function of turnover and marketing and commission
costs have increased by 18.73% from GBP251k in the six months to 31
January 2022 to GBP298k in the six months to 31 January 2023.
Likewise, the provision for audit fees has increased by 52.38%.
Against this, depreciation and impairment losses on financial
assets have fallen by 43.75% and 81.40% respectively, the former
because many of the assets have been fully depreciated and the
latter because provision for older debts has already been made in
the past and arrears are under control. Impairment provisions are
kept under regular review.
Cost of external funding has risen substantially when compared
to the equivalent six months in 2022. First, in the year to 31 July
2022 the group made a retail bond issue. The price for this money
was 6.25% plus expenses. Secondly, there have been 11 base rate
rises since the beginning of December 2021 with rates rising from
0.10% to 3.50% as at 31(st) January 2023 and further increases to
the current 4.25%.
The board is pleased to maintain the dividend at the same rates
as this time last year. Therefore it is declaring an interim
dividend of 1 pence per share to be paid on 23 June 2023 to
shareholders on the register at 9 June 2023, with an associated
ex-dividend date of 8 June 2023.
In summary, the next six months will remain a challenge mainly
because the ongoing international issues, but the board feels that
no further provisions or estimates (based on our forecasts) are
needed at this time.
Liam McShane
Chief Financial Officer
Consolidated statement of comprehensive income
6 Months 6 Months
to to Year to
31 January 31 January 31 July
2023 2022 2022
Notes GBP000 GBP000 GBP000
Continuing operations
Interest receivable and similar
income 2 3,011 2,355 5,003
Interest payable and similar
charges (546) (219) (587)
------------------------------------- -------- -------- --------
Net interest income 2,465 2,136 4,416
------------------------------------- -------- -------- --------
Other trading income 2 752 536 1,187
Other direct costs (311) (343) (756)
------------------------------------- -------- -------- --------
Net other income 441 193 431
------------------------------------- -------- -------- --------
Net total income 2,906 2,329 4,847
------------------------------------- -------- -------- --------
Other operating costs (1,572) (1,245) (2,905)
Net impairment (losses)/gains
on financial assets (16) (86) (63)
Impairment loss on investment
in associate (75) - -
Operating profit 1,243 998 1,879
Interest receivable 4 - 1
Interest payable (1) (1) (2)
------------------------------------- -------- -------- --------
Profit before tax 1,246 997 1,878
Tax 4 (240) (190) (360)
------------------------------------- -------- -------- --------
Profit and total comprehensive
income for the period from
continuing operations attributable
to the owners of the parent 1,006 807 1,518
------------------------------------- -------- -------- --------
Earnings per share attributable to the owners of the parent
during the period (pence)
Basic and diluted 5 4.71 3.78 7.11
------------------------------------- -------- -------- --------
Consolidated statement of financial position
At 31 January At 31 January At 31 July
2023 2022 2022
GBP000 GBP000 GBP000
----------------------------------- -------------- -------------- -----------
Assets
Non-current assets
Property, plant and equipment 16 15 13
Right of use assets 5 36 16
Intangible assets 12 - 7
Investment at fair value through
profit and loss 6 81 81
Loans to customers 6,650 3,124 6,594
6,689 3,256 6,711
----------------------------------- -------------- -------------- -----------
Current assets
Loans to customers 42,669 33,896 37,143
Other receivables and prepayments 199 268 189
Cash and cash equivalents:
Bank balances and cash in hand 1,997 3,188 4,796
------------------------------------ -------------- -------------- -----------
44,865 37,352 42,128
----------------------------------- -------------- -------------- -----------
Total assets 51,554 40,608 48,839
------------------------------------
Liabilities and equity
Current liabilities
Trade and other payables 6,648 8,893 6,337
Borrowings 22,000 13,822 19,468
Tax payable 573 329 299
------------------------------------ -------------- -------------- -----------
29,221 23,044 26,104
----------------------------------- -------------- -------------- -----------
Non-current liabilities
Borrowings 5,076 1,382 6,057
Deferred tax 1 2 1
------------------------------------ -------------- -------------- -----------
5,077 1,384 6,058
----------------------------------- -------------- -------------- -----------
Total liabilities 34,298 24,428 32,162
------------------------------------ -------------- -------------- -----------
Equity attributable to the
owners of the parent
Called up share capital 214 214 214
Share premium 8,692 8,692 8,692
Merger reserve 891 891 891
Retained earnings 7,459 6,383 6,880
------------------------------------ -------------- -------------- -----------
Total equity 17,256 16,180 16,677
------------------------------------ -------------- -------------- -----------
Total equity and liabilities 51,554 40,608 48,839
------------------------------------ -------------- -------------- -----------
Consolidated statement of changes in equity
Called
up
Share Retained Share Merger Total
Capital earnings premium reserve Equity
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- -------- --------- -------- -------- -------
Balance at 1 August
2021 214 6,003 8,692 891 15,800
-------------------------------- -------- --------- -------- -------- -------
Changes in equity
Profit and total comprehensive
income - 807 - - 807
Transactions with
owners:
Dividends paid - (427) - - (427)
--------------------------------
Balance at 31 January
2022 214 6,383 8,692 891 16,180
-------------------------------- -------- --------- -------- -------- -------
Changes in equity
Profit and total comprehensive
income - 711 - - 711
Transactions with
owners:
Dividends paid - (214) - - (214)
--------------------------------
Balance at 31 July
2022 214 6,880 8,692 891 16,677
-------------------------------- -------- --------- -------- -------- -------
Changes in equity
Profit and total comprehensive
income - 1,006 - - 1,006
Transactions with
owners:
Dividends paid - (427) - - (427)
--------------------------------
Balance at 31 January
2023 214 7,459 8,692 891 17,256
-------------------------------- -------- --------- -------- -------- -------
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
to to Year to
31 January 31 January 31 July
2023 2022 2022
GBP000 GBP000 GBP000
----------------------------------------- ------------ ----------
Cash flows from operating activities:
Operating profit 1,243 998 1,879
Adjustment for depreciation and
amortisation 18 32 63
Impairment loss on investment
in associate 75
1,336 1,030 1,942
Increase in trade and other receivables (5,592) (7,182) (13,820)
Increase in trade and other payables 310 4,711 2,155
-----------------------------------------
(3,946) (1,441) (9,723)
Income tax paid 34 - (201)
-----------------------------------------
Net cash absorbed by operating
activities (3,912) (1,441) (9,924)
-----------------------------------------
Cash flows from investing activities
Interest received 4 - 1
Purchases of property, plant
and equipment (7) - (4)
Purchase of right of use assets (7) - (12)
Net cash absorbed by investing
activities (10) - (15)
-----------------------------------------
Cash flows from financing activities
Dividends paid (427) (427) (641)
Net proceeds from borrowings 1,565 2,901 13,236
Borrowings repaid - - -
Lease repayments (15) (15) (30)
-----------------------------------------
Net cash generated/(absorbed)
by financing activities 1,123 2,459 12,565
-----------------------------------------
Net increase/(decrease) in cash
and cash equivalents (2,799) 1,018 2,626
Cash and cash equivalents at
the beginning of the period 4,796 2,170 2,170
-----------------------------------------
Cash and cash equivalents at
the end of period 1,997 3,188 4,796
-----------------------------------------
Cash and cash equivalents consists of bank balances.
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
for insurance premiums, professional and equivalent fees and other
leisure activities. 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 2023 has been prepared in accordance
with the presentation, recognition and measurement requirements of
applicable International Accounting Standards in conformity with
the requirements of the Companies Act 2006 ('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 2022 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 2023 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 2023. There are a
number of new standards, amendments and interpretations that have
been issued but are not effective for these financial statements.
They are not expected to impact the financial statements as either
they are not relevant to the group's activities or are consistent
with accounting policies already followed by the group.
Under the expected credit loss (ECL) model required in IFRS 9,
there has been a further GBP16k charged to consolidated income (31
January 2022 GBP86k). The main focus of the assessment is debt
arrears as, although based on past performance, they are the best
indicator of potential default. The increase is not a large as
would be commensurate with the increase in the loan book but a lot
of the potential bad debt had already been provided for, arrears
are under control and there are no other factors which would
indicate potential credit losses. In assessing potential
provisions, 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. Part of this
process has been to examine the impact of ongoing international
situation.
The group's 2022 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 2022 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's activities are providing funding for insurance
premiums, professional fees, school fees, leisure activities and
asset financing wholly within the UK.
Our lending meets the criteria for aggregation as the
underwriting process, management of the loans, distribution
channels, risks and rewards are all similar. The customer base does
differ (insurance brokers, professional firms, schools and leisure)
but our lending is still subject to strict underwriting processes.
Therefore, there is no meaningful information that could be given
on a geographical or segmental basis. Revenue by type is shown
below.
Notes to the financial statements
Revenue
6 Months 6 Months
to to Year to
31 January 31 January 31 July
2023 2022 2022
-------------------------------------- ------------- ------------ ----------
GBP000 GBP000 GBP000
-------------------------------------- ------------- ------------ ----------
Revenue
-------------------------------------- ------------- ------------ ----------
Interest revenue using the effective
interest rate method 3,011 2,355 5,003
Other revenue 752 536 1,187
--------------------------------------
3,763 2,891 6,190
-------------------------------------- ------------- ------------ ----------
Timing of revenue recognition:
At a point in time - direct debit
charges 387 323 672
At a point in time - non utilisation
fees 412 399 794
Over time - loan administrative fees 294 143 374
At a point in time - default and
settlement fees 46 32 46
Over time - licence fees 71 70 141
Over time - interest revenue outside
the scope of IFRS 15 2,553 1,924 4,163
--------------------------------------
3,763 2,891 6,190
-------------------------------------- ------------- ------------ ----------
4. Taxation
The tax assessed for the period differs from the main
corporation tax rates in the UK (19% for the half years to 31
January 2023 and 2022 and for the full year to 31 July 2022)
because of the effect of items disallowed for tax and accelerated
capital allowances.
5. 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.
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