TIDMLINV
RNS Number : 2224X
Lendinvest PLC
19 December 2023
19 December 2023
LendInvest plc
HALF YEAR RESULTS FOR THE SIX MONTHSED 30 SEPTEMBER 2023
LendInvest plc (LSE: LINV; "LendInvest", the "Company" or the
"Group") is a leading platform for mortgages in the UK. The
LendInvest Mortgages Division provides mortgages to both
professional Buy-to-Let landlords and Homeowners as well as a range
of Bridging loans. The LendInvest Capital Division provides larger,
more structured finance primarily to property developers.
Today it announces its unaudited results for the six months
ended 30 September 2023.
Key features:
-- Net assets at 30 September were GBP67.5m (31 March 2023:
GBP76.5m). Due to actions taken to strengthen the balance sheet,
cash and cash equivalents has increased to GBP88.0m (31 March 2023:
GBP46.7m)
-- Funds under Management increased by 21% year on year to
GBP4,167.4m (2022: GBP3,442.1m) with new forward flow arrangements
in H1 FY24 of GBP0.7bn
-- Assets under management increased by 11% year on year to GBP2,695.1m (2022: GBP2,431.1m)
-- New lending was 28% lower than the prior year at GBP415.2m
(2022: GBP575.0m) due to market volatility and limited funding
available during the period for new lending in the Capital
Division
-- First half loss before tax of GBP15.1m (2022: profit before
tax of GBP14.8m) reflecting the following:
o Net interest income GBP17.7m lower due to reduction in income
generating assets on the balance sheet and a reduction in new
lending. Prior year comparative includes a GBP9.2 million gain from
the exercise of the call option in our first securitisation,
Mortimer 2019-1 BTL plc
o Net gains on derecognition of financial assets in the period
were GBP0.1m (2022: GBP3.8m). This includes a net loss of GBP10.7m
realised on the loan book sale to Chetwood Financial Limited. The
transaction was completed to strengthen the balance sheet and
de-risk the business by reducing dilution of future net interest
margin and by reducing group debt
o Impairment charge increased to GBP7.1m (2022: GBP1.9m). This
primarily reflects accelerated management of recoveries coupled
with an increase in expected credit losses on a small number of
larger stage 3 Capital Division loans
o Administrative expenses increased to GBP21.1m (2022:
GBP17.1m), driven by a cGBP0.9m increase in non-cash costs,
cGBP0.9m of non-trading professional advisory costs and an increase
in the average headcount compared to prior period.
o To address this, post period-end the business has restructured
its people-related costs, reducing headcount by over 27%. This will
reduce current payroll costs by cGBP5m per annum and, coupled with
other cost savings, is expected to reduce administrative expenses
to a level similar to those reported in FY23
-- The Board is not recommending the payment of an interim
dividend but this position will be reviewed at the year end
6 months ended 6 months ended
Unaudited 30 September 30 September Change
2023 2022
Funds under management
(FuM) (GBP'm) 4,167.4 3,442.1 21%
--------------- --------------- ---------
Assets under management
(AuM) (GBP'm) 2,695.1 2,431.1 11%
--------------- --------------- ---------
Proportion of AuM on
balance sheet 31% 50% -19pps
--------------- --------------- ---------
New lending (GBP'm) 415.2 575.0 -28%
--------------- --------------- ---------
Net operating income
(GBP'm) 13.1 33.8 -61%
--------------- --------------- ---------
(Loss) profit before
tax (GBP'm) (15.1) 14.8 -203%
--------------- --------------- ---------
Net assets (GBP'm) 67.5 60.2 12%
--------------- --------------- ---------
Strategy overview
The market backdrop has been challenging this year and, against
this backdrop, it was deemed appropriate to focus heavily on the
fundamentals of strengthening the balance sheet and financial
position of the business.
This has resulted in a substantial 88% increase in cash reserves
since the last year end; it has delivered a material reduction in
the balance sheet credit risk profile, with the proportion of loan
assets held on the balance sheet reducing by 19pps to 31%; and
funding facilities have also been increased and extended. This has
included GBP700m of new forward flow capacity and, post period end,
a refinance of the maturing retail bond, with a reduction in the
parent guarantee, coupled with the largest BTL securitisation in
the company's history.
However, this has required some difficult decisions that have
impacted the results. The disposal of a cGBP250m low margin loan
portfolio resulted in a substantial loss. And a robust approach to
debt recovery has boosted cash but has led to a much higher
impairment charge. Post period end, the business has also completed
a major restructuring exercise, which will contribute to a material
reduction in the cost base going forward.
Having strengthened the balance sheet and reduced the cost base,
the focus is now on growing new lending and returning the business
to profitability. We are confident that the business has strong
foundations on which to build, and there are signs that the market
backdrop will be more positive in the 2024 calendar year.
Performance in the second half of FY24 is also expected to benefit
from a sale of the residual interests in the most recent RMBS
securitisation, which is in progress, and is expected to generate a
pre-tax profit of at least GBP10m.
Rod Lockhart, Chief Executive of LendInvest, commented:
"After a challenging first half, management is focused on
accelerating new lending and returning the business to
profitability. The core strengths of our business remain strong and
we're beginning to see encouraging signs of improvement in the
broader market landscape. Combined with the tough but necessary
measures we've implemented to streamline costs; these factors are
positioning us well to return to profitability in the 2025
financial year."
Other strategic highlights
-- Successful launch of Residential Mortgages product, and
LendInvest Mortgages and LendInvest Capital divisions to better
align to our product suite and our customer base
-- Our strong reputation for quality products and excellent
customer service continued, reflected by our Trustpilot rating of
4.5
-- Welcomed BNP Paribas to a GBP300 million funding syndicate
with HSBC and Barclays to fund the business's short-term
mortgages
-- Wells Fargo joined a GBP200 million financing syndicate with
National Australia Bank (NAB) to support the continued growth of
our Buy-to-Let proposition
-- Secured GBP500 million in funding from Chetwood Finance
Limited to strengthen our Residential Mortgages and Buy-to-Let
product offering
-- Issued our fourth listed bond from our second Euro Medium
Term Note programme, the LendInvest Secured Income II plc bonds due
2027, raising GBP40 million
-- Completed fifth and largest oversubscribed RMBS transaction
of GBP410m prime Buy-to-Let mortgages ("Mortimer BTL 2023-1 plc")
in November, receiving the tightest pricing on a BTL RMBS
transaction in the last six months
Analysts and investors presentation: 9.00am on Tuesday 19
December 2023
A webcast for analysts and investors will be hosted by Rod
Lockhart, Chief Executive Officer, and David Broadbent, Chief
Financial Officer at 9.00am today, Tuesday 19 December 2023. A
playback facility will also be available in due course. To access
the webcast, please register here
Enquiries:
LendInvest via Teneo
Rod Lockhart, Chief Executive Officer
David Broadbent, Chief Financial
Officer
Leigh Rimmer, Head of Communications
investorrelations@lendinvest.com +44 (0)20 7353 4200
Panmure Gordon (NOMAD and Joint
Broker)
Atholl Tweedie / David Watkins +44 (0)20 7886 2500
-------------------------------
Cavendish (Joint Broker)
Jonny Franklin-Adams / Tim Redfern +44 (0)20 7220 0500
-------------------------------
Teneo (Financial PR)
Tom Murray / Ed Cropley / Olivia
Lucas +44 (0)20 7353 4200
-------------------------------
Important notices
The information contained within this announcement is deemed by
LendInvest to constitute inside
information as stipulated under the UK Market Abuse Regulation.
By the publication of this announcement via
a Regulatory Information Service, this inside information is now
considered to be in the public domain. The
person responsible for arranging for the release of this
announcement on behalf of LendInvest is Rod Lockhart.
Forward-looking statements
Certain statements in this announcement are forward-looking
statements. In some cases, these forward looking statements can be
identified by the use of forward looking terminology including the
terms "anticipate", "believe", "intend", "estimate", "expect",
"may", "will", "seek", "continue", "aim", "target", "projected",
"plan", "goal", "achieve" and words of similar meaning or in each
case, their negative, or other variations or comparable
terminology. Forward-looking statements are based on current
expectations and assumptions and are subject to a number of known
and unknown risks, uncertainties and other important factors that
could cause results or events to differ material from what is
expressed or implied by those statements. Many factors may cause
actual results, performance or achievements of LendInvest to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements. Important factors that could cause actual results,
performance or achievements of LendInvest to differ materially from
the expectations of LendInvest, include, among other things,
general business and economic conditions globally, industry trends,
competition, changes in government and changes in regulation and
policy, changes in its business strategy, political and economic
uncertainty and other factors. As such, undue reliance should not
be placed on forward-looking statements. Any forward-looking
statement is based on information available to LendInvest as of the
date of the statement. All written or oral forward-looking
statements attributable to LendInvest are qualified by this
caution. Other than in accordance with legal and regulatory
obligations, LendInvest undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Nothing in this
announcement should be regarded as a profit forecast.
Operating review
Market backdrop
Since our last results announcement we have seen further
increases in base rates and lower levels of mortgage approvals and
property market transactions. Swap rates, which are effectively
used to price fixed mortgages, continue to be volatile, with
markets reacting to major macro events including military conflict,
economic data, political uncertainty and bank failures.
When swap rates change, lenders need to change the pricing of
the product range that they offer to the market. This volatility
creates operational friction making it more challenging to maintain
a consistent competitively priced product range in the market.
Alongside this, the cost of mortgages for borrowers has
increased substantially over the last 2 years and house prices have
been falling. This has had an impact on the overall volume of
property transactions and it is estimated by UK Finance that BTL
market activity has contracted by approximately 50% over the last
12 months.
The construction sector also remains challenged, with an
increase in insolvencies and property developers suffering from
both increased borrowing costs and inflationary pressures on both
wages and materials. As a result, appetite for development finance
is reduced, live developments are taking longer to complete and
expected developers' returns are being impacted.
Despite these factors, expected credit losses on our BTL lending
remain consistently low. Also, notwithstanding the increase in
expected credit losses in the period, the lifetime credit losses on
the overall portfolio remain in line with expectations. Also, the
credit risk profile of the Group is improving as the proportion of
AuM held on the Group's balance sheet continues to reduce.
Since the period end, we have seen potential early signs of a
more positive outlook. Swap rates have fallen and improving capital
market sentiment has been reflected in both the pricing and
over-subscription of our recent RMBS securitisation. We are seeing
a pick-up in BTL mortgage loan applications and there is the
possibility that base rates may be approaching, or have potentially
reached, their peak; and it would appear that the fall in
residential house prices may not be as severe as originally
thought.
Strategy execution
The market backdrop negatively impacted the performance of the
business. However, the business has core fundamental strengths that
enables it to navigate the market backdrop, which will be key to
returning the business to profitability and sustainable profit
growth thereafter.
Continuing to grow and diversify FuM
The business has a strong track record of securing funding from
a diverse range of high-quality investors and institutions, which
has underpinned continued growth in FuM. The different types of
funding, including forward flow arrangements, allows the business
to be agile from a product and pricing perspective, enabling it to
remain in the market, whilst others with less flexible funding have
had to periodically withdraw.
During the first half, the strength of our capital markets
operations has been shown with total Funds under Management at 30
September 2023, including committed forward flow arrangements,
increasing by cGBP562m to GBP4.17bn, a 21% increase on H1 FY23.
Unaudited 30 September 31 March 30 September
2023 2022
GBP'm 2023 Growth (GBP'm) Growth
GBP'm (%) (%)
Funds under
Management
("FuM") 4,167.4 3,605.9 +16% 3,442.1 +21%
-------------- --------- --------- ------------- ---------
This increase primarily reflects the previously announced
GBP500m forward-flow agreement with Chetwood Financial Limited for
BTL lending, and a further GBP200m of forward-flow commitments in
respect of short-term mortgages.
FuM includes GBP55m of retail bonds, which matured on 6 October
2023 and carried a coupon of 5.375%. These bonds were refinanced by
a new issue of GBP60m retail bonds. Of the new issuance, c.GBP20m
are currently held in treasury and are included in FuM. The new
bonds carry a coupon of 11.5%.
Subsequent to the period end, the business successfully
completed its fifth public market securitisation transaction in
respect of a GBP410m BTL loan portfolio. This is the largest
securitisation completed by the business to date and received the
tightest pricing on a BTL RMBS transaction in the previous six
months. This transaction generated a cash inflow of cGBP34m. Due to
the size of the transaction, the business intends to reduce the
current surplus capacity in its warehouse facilities for BTL
lending by cGBP355m, thereby reducing ongoing commitment fees.
A potential sale of the residual interests in the securitisation
is in progress.
Strengthening the balance sheet
The business has well-embedded processes for product pricing to
ensure that our lending delivers an appropriate risk-adjusted
margin for each specific product line, which considers the cost of
the relevant funding line, interest rate swaps and expected credit
losses. Products that carry higher credit risk carry a consequently
higher risk-adjusted margin. This pricing strategy reflects our
service-led proposition, which is based on speed, agility and
flexibility, all supported by our market-leading technology
platform. The pricing is not set to achieve a certain market share;
nor does the business write unprofitable business as a loss-leader
in the expectation that those customers move onto a more profitable
product in the future or revert onto a more favourable variable
rate.
A core part of the strategy is to minimise the amount of credit
risk exposure by maximising the amount of lending originated on
behalf of and managed for third parties. We believe that this part
of the strategy is particularly important at a time when the market
conditions remain difficult. Significant progress has been made in
this respect, with balance sheet exposures reducing substantially
in the first half.
In this context, total Assets under Management at 30 September
2023 were GBP2.7bn, which represents a GBP108m increase since the
financial year ended 31 March 2023 ('FY23') and an 11% increase on
H1 FY23.
Unaudited 30 September 31 March Growth 30 September Growth
2023 2023 (%) 2022 (%)
Assets under
Management
("AuM") (GBP'm) 2,695.1 2,587.0 +4% 2,431.1 +11%
------------- --------- ------- ------------- -------
On balance sheet
(GBP'm) 822.4 1,168.5 -30% 1,213.2 -32%
------------- --------- ------- ------------- -------
Off balance
sheet (GBP'm) 1,872.7 1,418.5 +32% 1,217.9 +54%
------------- --------- ------- ------------- -------
Proportion of
assets on balance
sheet 31% 45% -14pps 50% -19pps
------------- --------- ------- ------------- -------
The forward-flow agreements noted above are a key part of the
Group's strategy of becoming more 'capital-lite'. As a result, the
proportion of AuM held on the balance sheet has fallen further from
45% at the end of FY23 to 31% at the end of September 2023 (H1
FY23: 50%). The main drivers of that reduction were:
-- The sale in April of the non-risk retention residual economic
interest in the Mortimer BTL 2021-1 plc securitisation for a cash
consideration of GBP8.6m. This transaction resulted in a reduction
in the Group's gross loans and advances of GBP236m and generated a
net pre-tax profit of GBP10.8m; and
-- The sale in May of a portfolio of BTL residential mortgages
to Chetwood Financial Limited for a cash consideration of GBP243m
inclusive of the proceeds from cancelled interest rate derivatives.
The book value of the portfolio was c.GBP250m and the net pre-tax
loss on the sale of the portfolio and the cancellation of the
related derivatives was GBP10.7m. The net interest margin on the
loan portfolio that was sold had been impacted by the sharp rise in
interest rates in 2022. The decision was therefore taken to sell
the portfolio at a loss to ensure that profitability in future
periods was not diluted and to use the proceeds from the
transaction to reduce debt and finance new lending at a better more
normalised risk-adjusted margin.
The business has also taken opportunities to accelerate
recoveries in respect of non-performing assets. This has
contributed to the increase in impairment in the period but has
also boosted cash reserves.
Building our product range: specialist residential mortgage
proposition
A core fundamental strength of the business is the breadth of
its product range and its ability to develop and bring to market
new products and new product lines to take advantage of market
opportunities. The most significant of these has been the
development and roll out of the new specialist residential mortgage
proposition.
LendInvest entered the UK residential mortgage market on a beta
launch basis at the end of 2022. A small group of mortgage brokers
were identified to help ensure that all aspects of the proposition
were robust and fit for purpose, both in terms of technical
capability, but also product and target market fit. After a
successful start, distribution was gradually rolled out to the
point where the proposition was technically the whole of the market
in April 2023. Since then, we have continued to grow broker
partners as demonstrated by the recent launch with the Legal &
General Mortgage Club, the largest mortgage club in the UK. We have
also commenced lending in Scotland.
In line with distribution build, LendInvest has also continued
to improve its product offering. Whilst the key target market are
those customers who have a more complex income make-up, including
the self-employed, other aspects of the proposition are designed to
help support Professionals and Key Workers. Additionally, we cater
for those consumers who may have had some level of historical
credit event but have been able to demonstrate recovery.
Since launch the business has received GBP128.2m of loan
applications; it has built a loan pipeline of GBP36.5m and has an
issued loan book of GBP40.9m (as at 30 November 2023).
In a highly intermediated market, LendInvest has a substantial
distribution network and is a reputable and trusted partner. During
the first half our distribution network continued to remain strong
with over 300 active broker firms. Importantly, our Trustpilot
rating remained high at 4.5, which demonstrates the continued
excellent quality of the service we provide.
Further enhancing our market-leading Technology
During the period to 30 September 2023, we continued to invest
in the development of our market-leading proprietary technology
platform. This is fundamental to both our service proposition and
our ability to build our product range.
During the period, additions to Intangible Assets held on the
balance sheet were GBP2.2m (2022: GBP2.8m) and comprised key
enhancements, which are expected to improve our operational
effectiveness and have a direct impact on loan origination
volumes.
This has included the development of the specialist residential
proposition noted above and the launch of our new BTL Broker Portal
(Next Gen BTL). Feedback from brokers has been overwhelmingly
positive and we are now rolling this across the wider market. This
will remove our dependence on certain third-party technology, which
will have the twin benefit of reducing operating costs and will
also facilitate product switches between Bridging and BTL
loans.
Senior Management changes
David Broadbent has resigned as Chief Financial Officer and will
leave the business in March to take up a new role. Hugo Davies, our
Chief Capital Officer, will take on CFO responsibilities whilst the
business conducts a market search for a permanent replacement. He
will be supported by Stephen Shipley, who will join the business as
Finance Director in January. Stephen was formerly the CFO of
Foundation Home Loans and prior to that held various senior
positions at Barclays including CFO of Group Treasury. He brings a
wealth of market knowledge and experience to the team.
Review of the interim results
6 months 6 months
ended ended Change
Unaudited 30 September 30 September (%)
2023 2022
GBP'm GBP'm
Total Gross Assets under
Management 2,695 2,431 11%
-------------- -------------- ---------
On balance sheet 822 1,213 -32%
-------------- -------------- ---------
Off balance sheet 1,873 1,218 54%
-------------- -------------- ---------
New lending 415 575 -28%
-------------- -------------- ---------
Net interest income 6.3 24.0 -74%
-------------- -------------- ---------
Net fee income 6.6 5.9 12%
-------------- -------------- ---------
Net gains on derecognition
of
financial assets 0.1 3.8 -97%
-------------- -------------- ---------
Net other income 0.1 0.1 0%
-------------- -------------- ---------
Net operating income 13.1 33.8 -61%
-------------- -------------- ---------
Administrative expenses (21.1) (17.1) 23%
-------------- -------------- ---------
Impairment losses on financial
assets (7.1) (1.9) 274%
-------------- -------------- ---------
Total operating expenses (28.2) (19.0) 48%
-------------- -------------- ---------
(Loss) profit before
tax (15.1) 14.8 -202%
-------------- -------------- ---------
AuM at a group level increased by GBP264m at H1 FY24, an
increase of 4% since the end of the last financial year. This
reflects an increase in the BTL portfolio, the building of our new
residential mortgage book and a particularly strong performance in
respect of our short-term mortgages products which has grown by 44%
in the last 12 months. There has also been an increase in the AuM
for our more complex and larger structured bridging products,
whilst AuM for our Development Finance has reduced by 6% since the
year end.
As noted above, the market backdrop has had a negative impact on
performance in the first half. This is primarily reflected in new
lending volumes, which contracted by 28% when compared with the
same period last year. This was partly driven by BTL volumes, which
were impacted by swap volatility, resulting in significant friction
from repeated re-pricing. This was exacerbated by the dependence on
third-party technology which, as noted above, has now been removed.
In contrast, short-term mortgage lending in the Mortgages Division
was particularly strong, with professional landlords taking
advantage of the fall in property prices. As noted above, the new
specialist homeowner product is developing well.
Loan origination in the Capital Division in respect of
Development Finance and more complex and larger Bridging continues
to be impacted by a combination of macroeconomic factors, with
demand for development finance reduced as a result of some property
developers deferring new projects out of caution, and also the
limited capacity for new lending in existing managed funds. With
the launch of a new fund expected to take place around the end of
Q1 2024, we expect to have more capacity for new lending in respect
of these product lines in FY25.
Net interest income in the period has reduced by 74% to GBP6.3m
(2022: GBP24.0m). This partly reflects the fact that the value of
loans and advances held on the balance sheet has reduced by 33%,
primarily as a result of the transactions noted in the strategy
section above. Net interest income in the prior year also benefited
from a GBP9.2 million gain arising from the cancellation of
interest rate swaps on the call of the Mortimer BTL 2019-1
assets.
Net fee income in the period was 12% higher than the prior year
at GBP6.6m (2022: GBP5.9m). This primarily represents asset
management fees of GBP5.3m (2022: GBP4.6m). Fee income on
origination of loans to third parties reduced in the period to
GBP0.2m (2022: GBP2.3m) but this was largely offset by fee income
on loans and advances, which was GBP1.3m in the period (2022:
GBP0.7m), with the increase primarily related to extension
fees.
As noted above, the net profit from the sale of residual
interests in our third securitisation and the loan book sale to
Chetwood Financial Limited are included in the GBP0.1m gain on
derecognition of financial assets in the period. The prior year
gain on derecognition of financial assets was primarily related to
a GBP3.3 million gain recognised on the sale of the residual
economic interest in our fourth securitisation, Mortimer BTL 2022-1
plc.
Administrative expenses
6 months 6 months
ended ended Change
Unaudited 30 September 30 September (%)
2023 2022
GBP'm GBP'm
Wages and salaries 10.2 8.9 14%
-------------- -------------- -------
Share-based payments 1.0 0.7 43%
-------------- -------------- -------
Depreciation and amortisation 1.9 1.4 36%
-------------- -------------- -------
Fees payable to the auditors 0.8 0.6 14%
-------------- -------------- -------
Lease finance expense 0.1 0.2 -50%
-------------- -------------- -------
Other operating expenses 7.1 5.3 37%
-------------- -------------- -------
Total administrative expenses 21.1 17.1 23%
-------------- -------------- -------
Administrative expenses increased by 23% to GBP21.1 million
(2022: GBP17.1 million). This was partly driven by an increase in
wages and salaries with the average headcount in the period c4%
higher than the prior year. This also led to a related increase in
the cost of share-based payments.
During the six months between March and September 2023,
operational headcount has fallen from 275 to 247 employees. This
resulted in redundancy costs in respect of permanent employees of
cGBP0.3m, with the business also serving notice on a number of
contractors, who also left the business. We have completed further
headcount reduction since the period end.
Other operating expenses include cGBP0.9m of non-trading
professional advisory costs. Whilst these are non-recurring costs,
they relate to projects that will continue into the second half of
FY24, albeit at a lower level.
Impairment
The impairment charge increased in the period to GBP7.1m (2022:
GBP1.9m) reflecting two main factors. Firstly, the business has
been robust in its approach to recoveries, choosing to enforce
certain positions to realise cash sooner but with a consequential
acceleration in impairment. This accounted for GBP3.2m of the
impairment charge in the period. Secondly, the Capital Division
experienced an increase in provisions, with a small number of
larger and more complex Structured Bridging and Development Finance
loans being impacted by the more challenging macroeconomic
backdrop. Whilst the charge in the period is higher than expected,
the underlying expected credit losses on the vintages of these
products remain in line with expectations at around 1-1.5%.
Importantly, the historical portfolio of on-balance sheet lending
in this Division continues to mature and the overall exposure
continues to reduce.
Expected credit losses have continued to remain low in respect
of BTL lending.
Segmental analysis
The LendInvest Mortgages Division provides mortgages to both
professional BTL landlords and Residential homeowners as well as a
range of Bridging loans. The LendInvest Capital Division provides
larger, more structured finance primarily to property developers.
An analysis of the first half result based on these segments is
presented below.
In accordance with the provision of paragraphs 29 and 30 of IFRS
8 Operating Segments, the prior year segmental analysis has not
been re-stated for the new operating segments because the
information is not readily available and the cost to develop it
would be excessive.
6 months ended 30 September 2023 GBP'm
Mortgages Capital Central Group
Unaudited GBP'm GBP'm GBP'm GBP'm
---------- -------- -------- -------
Total AuM 2,076 619 - 2,695
---------- -------- -------- -------
On balance sheet 635 187 - 822
---------- -------- -------- -------
Off balance sheet 1,441 432 - 1,873
---------- -------- -------- -------
New lending 283 132 - 415
---------- -------- -------- -------
Net interest income 5.3 1.0 - 6.3
---------- -------- -------- -------
Net fee income 2.9 3.7 - 6.6
---------- -------- -------- -------
Net gains on derecognition
of
financial assets 0.1 - - 0.1
---------- -------- -------- -------
Net other income 0.1 - - 0.1
---------- -------- -------- -------
Net operating income 8.4 4.7 - 13.1
---------- -------- -------- -------
Administrative expenses (5.4) (2.5) (13.2) (21.1)
---------- -------- -------- -------
Impairment losses
on financial assets (0.7) (6.4) - (7.1)
---------- -------- -------- -------
Total operating expenses (6.1) (8.9) (13.2) (28.2)
---------- -------- -------- -------
(Loss) profit before
tax 2.3 (4.2) (13.2) (15.1)
---------- -------- -------- -------
Outlook
The prospect of a more stable and even falling interest rate
environment is expected to have a positive impact on performance.
However, the business is executing the following proactive
strategies to accelerate the return to profitability as soon as
possible:
1. Continued build out of the specialist residential proposition
As noted above, the early development of the specialist
residential mortgage proposition has gone to plan, and the business
is well placed to build on this through the remainder of FY24 and
into FY25. The product range is fully developed and, therefore, the
key to growing this product line will be to continue to build
awareness across the market, including brokers and mortgage
clubs.
2. Increase BTL loan origination
As noted above, the performance in respect of short-term
mortgage loans in the Mortgages Division in the first half was
strong and the business has benefitted from the development of its
new specialist residential mortgage division. This trend is
expected to continue.
However, loan origination in the Mortgages Division was 28%
lower in the first half when compared to last year because of a
subdued performance in respect of new BTL lending. This was largely
related to swap rate volatility impacting our ability to maintain a
competitively priced product set in the market. The aim is to
increase BTL lending volumes through the technology improvements we
have made, particularly the release of our new BTL broker portal,
and through building out new and existing relationships with
funding partners.
3. Secure new funding for the Capital Division
The primary source of funding for the Capital Division is the
Luxembourg fund, which is then supported by the additional leverage
provided by facilities from HSBC, the British Business Bank and
Shawbrook Bank. The Funds team is currently in the process of
raising a new fund ('Fund 3') that will support new development
finance and larger structured bridging lending. At this stage the
team is working with potential cornerstone investors with a view to
launching the new fund around the end of FY24.
The team is also in discussions with existing and potential new
partners with a view to syndicating existing and future loans,
thereby freeing up capacity for new lending and providing this
division with additional upfront origination and arrangement
fees.
4. Cost restructuring
As noted above, the business has started to reduce its headcount
in order to reduce overall administrative expenses. This is
illustrated by the following table:
31 March 30 September 31 March 30 September 30 November
2022 2022 2023 2023 2023
Headcount 227 277 275 247 199
--------- ------------- --------- ------------- ------------
Since the period end, the business has completed a restructuring
exercise that has reduced headcount to less than 200 employees.
Importantly, the restructuring has been designed so as not to
impact the business' capacity for lending, so that it is well
placed to take advantage when the market backdrop improves. The
majority of the reduction in headcount relates to technology
resources, recognising that the core build of our market leading
proprietary technology platform is complete and does not require
the same rate of investment going forward.
This restructuring will result in further redundancy costs of
GBP1.2m in the second half of FY24 (FY24: GBP1.5m) and will reduce
payroll costs from current levels by cGBP5m, or c25% per annum. The
benefit to the profit and loss account from these changes will be
lower, with the majority of costs related to staff working on
technology development having been previously capitalised as
additions to intangible assets. However, we expect the benefit of
this in FY25, coupled with further reductions in third party costs,
will return administrative expenses to a level similar to those
reported in FY23.
Outlook summary
In line with previous securitisations, the business is exploring
a potential sale of residual interests in the most recent Mortimer
23 transaction. This is likely to be completed in the second half
of FY24 and is expected to generate a pre-tax profit of at least
GBP10m.
We then expect to see the benefit of the growth and cost
reduction strategies noted above, hopefully coupled with a more
positive market backdrop, to have a positive impact on performance
with a view to the business returning to profitability by H2
FY25.
Finance Review
Summary of the Condensed consolidated interim statement of
profit and loss
The summary of the Condensed consolidated interim statement of
profit and loss account for the 6 months' period ended 30 September
2023 is shown below.
As noted at the time of the FY23 results announcement, in order
to assist our stakeholders in understanding our financial
statements and to be able to more easily compare them to our peer
group, we have updated the layout of our Condensed consolidated
interim statement of profit and loss. This separately shows net
interest income recognised under IFRS 9, net fee income recognised
under IFRS 15, net gains on derecognition of financial assets, and
net other income. This new presentation helps to split income
generated from assets held on our balance sheet from those managed
on behalf of third parties.
6 months 6 months
ended ended Change
Unaudited 30 September 30 September (%)
2023 2022
GBP'm GBP'm
Net interest income 6.3 24.0 -74%
-------------- -------------- ---------
Net fee income 6.6 5.9 12%
-------------- -------------- ---------
Net gains on derecognition
of financial assets 0.1 3.8 -97%
-------------- -------------- ---------
Net other income 0.1 0.1 0%
-------------- -------------- ---------
Net operating income 13.1 33.8 -61%
-------------- -------------- ---------
Administrative expenses (21.1) (17.1) 24%
-------------- -------------- ---------
Impairment losses on financial
assets (7.1) (1.9) 274%
-------------- -------------- ---------
Total operating expenses (28.2) (19.0) 48%
-------------- -------------- ---------
(Loss) profit before
tax (15.1) 14.8 -202%
-------------- -------------- ---------
Income tax credit (charge) 3.9 (2.4) -263%
-------------- -------------- ---------
(Loss) profit after taxation (11.2) 12.4 -190%
-------------- -------------- ---------
Earnings per share for
profit attributable to
the ordinary equity holders
of the Group:
-------------- -------------- ---------
Basic earnings per share
(pence/share) (8.18) 10.75 -176%
-------------- -------------- ---------
Diluted earnings per share
(pence/share) (8.18) 10.38 -176%
-------------- -------------- ---------
Further information on performance in the period relative to the
prior year is contained in the Operating Review and the Notes to
the unaudited financial statements included within this
announcement.
Basic and dilutive earnings per share are the same value as an
exercise of options would lead to a decrease in the loss per share
and would not be dilutive.
Cash, Cash Flow, and Free Cash Flow
Despite the first half loss, the business has increased its cash
resources from a combination of asset sales coupled with robust
management of working capital and debt recovery.
As at 30 September 2023, the business held cash and cash
equivalents of GBP88.0m, an 88% increase during the 6 month period.
Of this total, GBP54.7m is held for loan funding purposes and
GBP3.5m of restricted cash balances is held on behalf of investors
in the business's Self-Select Platform.
6 months ended 6 months ended
Unaudited 30 September 2023 30 September
GBP'm 2022
GBP'm (restated)
Net cash inflow from operations 116.8 10.1
------------------- ------------------
Net cash outflow from investing
activities (2.9) (21.0)
------------------- ------------------
Net cash (outflow) inflow from
financing activities (72.6) 6.0
------------------- ------------------
Net increase (decrease) in
cash and cash equivalents 41.3 (4.9)
------------------- ------------------
Cash and cash equivalents at
beginning of the period 46.7 118.2
------------------- ------------------
Cash and cash equivalents
at end of the period 88.0 113.3
------------------- ------------------
In the period there was a net cash inflow from operations of
GBP116.8m primarily as a result of a managed reduction in gross
loan and advances. There was a net cash outflow from investing
activities of GBP2.9m reflecting capitalised development costs.
Additionally, there was a net cash outflow from financing
activities of GBP72.6m, driven by a reduction in interest bearing
liabilities and derecognition of securitisation facilities.
Free cash for in the period was also strong, reflecting the
factors noted above.
Free cash flow is defined as the net cash outflow from operating
activities, less purchases of property, plant and equipment and
capitalisation of internally developed software. Additionally, an
adjustment has been made to reverse movements in loans and
advances. This reflects the operating model of the business to
finance increases in loan and advances through increases in
interest bearing liabilities, which are excluded from this
calculation. Further to this, there was a reduction in restricted
cash held on behalf of Platform investors of GBP2.8m which has been
reversed, and a net cash outflow of GBP0.9m from lease-related
financing activities.
6 months ended 6 months ended
Unaudited 30 September 30 September
2023 2022
GBP'm GBP'm (restated)
Net cash flow from operations 116.8 7.9
--------------- ------------------
Reverse movements in loans and
advances (81.5) 4.8
--------------- ------------------
Adjusted net cash flow from
operations 35.3 12.7
--------------- ------------------
Capitalisation of internally
developed software (2.2) (2.8)
--------------- ------------------
PPE additions - (0.2)
--------------- ------------------
Reverse movement in restricted
cash from Platform investors 2.8 12.1
--------------- ------------------
Cash outflows from lease related
financing activities (0.9) (0.7)
--------------- ------------------
Free cash flow 35.0 23.8
--------------- ------------------
The free cash flow in the six months to 30 September 2023 was
GBP35.0 million. A full year dividend of 4.5 pence per share
(approximately GBP4.5 million) was approved at the AGM on 18
September 2023, and paid on 13 October 2023 in respect of the
financial year ended 31 March 2023.
Net assets
30 September 30 September
Unaudited 2023 2022
GBP'm GBP'm
Net assets 67.5 60.2
------------- -------------
Net assets at 30 September were GBP67.5m (31 March 2023:
GBP76.5m; 30 September 2022: GBP60.2m) with the increase on prior
year primarily reflecting fair value gains on loans and advances
recognised in H2 FY23.
Going Concern
The interim results have been prepared on a going concern basis.
To assess the appropriateness of this basis, the Directors
considered a wide range of information relating to present and
future conditions, including the Group's current financial position
and future projections of profitability, cash flows and capital
resources.
The information included financial forecasts that have been
prepared across a range of potential scenarios as well as detailed
consideration of potential risks, including the impact of funding
lines maturing in the next 12 months from the date of approval of
these financial statements. The Directors believe that the Group
will be able to refinance facilities falling due within the next 12
months either with the existing funding provider or with new third
parties to continue its growth trajectory. If these facilities were
not to be refinanced, the Group would be able to sell individual
loans or portfolio of loans to facilitate the repayment of the
outstanding amounts. This strategy is in line with the existing
approach of the Group to both hold assets on its balance sheet and
sell to third parties. The Directors do not consider that this
creates a material uncertainty in the going concern assessment of
the Group.
The Directors have also considered the factors likely to affect
its future development, as set out in the Operating Review, and any
associated risks alongside the Group's financial plan. Having
reviewed these plans and other relevant information, the Directors
consider the Group to have sufficient resources to continue to
operate for a period of at least 12 months from the signing of
these accounts and it is on this basis that the Directors have
continued to prepare the accounts on a going concern basis.
Responsibility statement of the directors in respect of the
interim consolidated financial statements for the six-month period
ended 30 September 2023
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance the UK-adopted International Accounting Standard 34,
'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority
Approved on behalf of the board:
Roderick Lockhart
Director
18 December 2023
INDEPENT REVIEW REPORT TO LendInvest PLC
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 half-yearly financial report for the six months ended 30
September 2023 is not prepared, in all material respects, in
accordance with UK adopted International Accounting Standard 34 and
the London Stock Exchange AIM Rules for Companies.
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2023 which comprises the Condensed
consolidated interim statement of profit or loss, Condensed
consolidated interim statement of other comprehensive income,
Condensed consolidated interim statement of financial position,
Condensed consolidated interim statement of changes in equity,
condensed interim statements of cash flows and notes to the
condensed interim financial statements.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" ("ISRE (UK) 2410"). A review of interim financial
information consists of making enquiries, 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.
As disclosed in note 1.2, the annual financial statements of the
group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410, however future events or conditions
may cause the group to cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly
financial report in accordance with
the London Stock Exchange AIM Rules for Companies which require
that the half-yearly report be presented and prepared in a form
consistent with that which will be adopted in the Company's annual
accounts having regard to the accounting standards applicable to
such annual accounts.
In preparing the half-yearly financial report, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statement in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the
rules of the London Stock Exchange AIM Rules for Companies for no
other purpose. No person is entitled to rely on this report unless
such a person is a person entitled to rely upon this report by
virtue of and for the purpose of our terms of engagement or has
been expressly authorised to do so by our prior written consent.
Save as above, we do not accept responsibility for this report to
any other person or for any other purpose and we hereby expressly
disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
18 December 2023
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT AND LOSS
Note 6 months ended 6 months ended
30 September 30 September
2023 2022
GBP'm GBP'm (restated)
(Unaudited) (Unaudited)
----- --------------- ------------------
Interest income calculated
using the effective interest
rate 4 34.1 31.6
----- --------------- ------------------
Other interest and similar
income 4 (0.3) 2.5
----- --------------- ------------------
Interest expense and similar
charges 5 (27.5) (10.1)
----- --------------- ------------------
Net interest income 6.3 24.0
----- --------------- ------------------
Fee income 6 7.7 7.6
----- --------------- ------------------
Fee expenses 6 (1.1) (1.7)
----- --------------- ------------------
Net fee income 6 6.6 5.9
----- --------------- ------------------
Net gains on derecognition
of financial assets 7 10.8 3.8
----- --------------- ------------------
Loss on sale of loan portfolio 7 (10.7) -
----- --------------- ------------------
Net other operating income 0.1 0.1
----- --------------- ------------------
Net operating income 13.1 33.8
----- --------------- ------------------
Administrative expenses (21.1) (17.1)
----- --------------- ------------------
Impairment losses on financial
assets 13 (7.1) (1.9)
----- --------------- ------------------
Total operating expenses (28.2) (19.0)
----- --------------- ------------------
Profit (loss) before
tax (15.1) 14.8
----- --------------- ------------------
Income tax (charge) credit 3.9 (2.4)
----- --------------- ------------------
Profit (loss) after taxation (11.2) 12.4
----- --------------- ------------------
Earnings per share for
profit attributable to
the ordinary equity holders
of the Group:
----- --------------- ------------------
Basic earnings per share
(pence/share) 24 (8.18) 10.75
----- --------------- ------------------
Diluted earnings per
share (pence/share) 24 (8.18) 10.38
----- --------------- ------------------
CONDENSED CONSOLIDATED INTERIM STATEMENT OF OTHER COMPREHENSIVE
INCOME
Note 6 months ended 6 months ended
30 September 30 September
2023 2022
GBP'm GBP'm (restated)
(Unaudited) (Unaudited)
----- --------------- ------------------
(Loss) Profit for the
period (11.2) 12.4
----- --------------- ------------------
Other comprehensive income:
----- --------------- ------------------
Items that will or may
be reclassified to profit
or loss:
----- --------------- ------------------
Cash flow hedge adjustment
recycled to profit or
loss 25 (21.5) -
----- --------------- ------------------
Cash flow hedge adjustment
recorded in OCI 25 - 26.5
----- --------------- ------------------
Fair value gain (loss)
on loans and advances
and hedge items measured
at fair value through
OCI 25 37.2 (81.5)
----- --------------- ------------------
Cumulative gain (loss)
on financial assets reclassified
to profit or loss upon
disposal and reclassification
from FVTOCI to FVTPL 25 (7.2) 27.4
----- --------------- ------------------
Deferred tax charge on
gross movements through
OCI 25 (2.1) 6.9
----- --------------- ------------------
Other comprehensive income
(loss) for the period 6.4 (20.7)
----- --------------- ------------------
Total comprehensive (loss)
for the period (4.8) (8.3)
----- --------------- ------------------
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL
POSITION
Note As at 30 September As at 31 March
2023 2023
GBP'm GBP'm
Assets (Unaudited) (Audited)
----- ------------------- ---------------
Cash and cash equivalents 12 88.0 46.7
----- ------------------- ---------------
Trade and other receivables 11 4.5 6.1
----- ------------------- ---------------
Loans and advances 13 807.5 1,122.9
----- ------------------- ---------------
Fair value adjustment
for portfolio hedged risk 0.2 0.1
----- ------------------- ---------------
Investment securities 14 23.5 23.9
----- ------------------- ---------------
Property, plant and equipment 15 1.8 2.2
----- ------------------- ---------------
Intangible assets 17 11.3 10.5
----- ------------------- ---------------
Derivative financial assets 22 12.0 46.0
----- ------------------- ---------------
Net investment in sublease 0.8 1.0
----- ------------------- ---------------
Investment in joint venture 0.2 0.2
----- ------------------- ---------------
Investment in third parties 2.0 2.0
----- ------------------- ---------------
Corporate tax receivable 10 2.7 -
----- ------------------- ---------------
Deferred taxation asset 10 - 1.2
----- ------------------- ---------------
Total assets 954.5 1,262.8
----- ------------------- ---------------
Liabilities
----- ------------------- ---------------
Trade and other payables 18 (30.3) (23.7)
----- ------------------- ---------------
Interest bearing liabilities 19 (853.3) (1,159.3)
----- ------------------- ---------------
Lease liabilities 16 (2.8) (3.3)
----- ------------------- ---------------
Deferred taxation liability 10 (0.6) -
----- ------------------- ---------------
Total liabilities (887.0) (1,186.3)
----- ------------------- ---------------
Net assets 67.5 76.5
----- ------------------- ---------------
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
(continued)
As at 30 September As at 31 March
Equity 2023 2023
GBP'm GBP'm
Share capital 23 0.1 0.1
--- ------------------- ---------------
Share premium 23 55.2 55.2
--- ------------------- ---------------
Employee share reserve 25 4.3 3.3
--- ------------------- ---------------
Own Share Reserve 25 (0.6) (0.6)
--- ------------------- ---------------
Fair value reserve 25 6.0 (16.5)
--- ------------------- ---------------
Cash flow hedge reserve - 16.1
--- ------------------- ---------------
Retained earnings 25 2.5 18.9
--- ------------------- ---------------
Total equity 67.5 76.5
--- ------------------- ---------------
These condensed consolidated interim financial statements of
LendInvest plc, with registered number 08146929, were approved by
the Board of Directors and authorised for issue on 19 December
2023. Signed on behalf of the Board of Directors by:
Roderick Lockhart
Director
18 December 2023
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN
EQUITY
Own Share Share Employee Fair Cash Retained Total
share capital premium Share value flow earnings GBP'm
reserve GBP'm GBP'm Reserve reserve hedge GBP'm
GBP'm GBP'm net reserve
of deferred net
tax of deferred
GBP'm tax
GBP'm
(Unaudited)
---------------------------------------------------------------------------------------------
Balance
as at 1 April
2023 (0.6) 0.1 55.2 3.3 (16.5) 16.1 18.9 76.5
--------- --------- --------- --------- ------------- ------------- ---------- -------
Profit (loss)
after taxation - - - - - - (11.2) (11.2)
--------- --------- --------- --------- ------------- ------------- ---------- -------
Recognition
of employee
share options
schemes - - - 1.0 - - - 1.0
--------- --------- --------- --------- ------------- ------------- ---------- -------
Deferred
tax on employee
share option
scheme deduction - - - - - - (0.7) (0.7)
--------- --------- --------- --------- ------------- ------------- ---------- -------
FY23 final
dividend
declared - - - - - - (4.5) (4.5)
--------- --------- --------- --------- ------------- ------------- ---------- -------
Fair value
adjustments
on
loan & advances
through OCI - - - - 22.5 - - 22.5
--------- --------- --------- --------- ------------- ------------- ---------- -------
Cash flow
hedge adjustments
through OCI - - - - - (16.1) - (16.1)
--------- --------- --------- --------- ------------- ------------- ---------- -------
Balance
as at 30
September
2023 (0.6) 0.1 55.2 4.3 6.0 - 2.5 67.5
--------- --------- --------- --------- ------------- ------------- ---------- -------
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
(continued)
Own Share Share Employee Fair Cash Retained Total
share capital premium Share value flow earnings GBP'm
reserve GBP'm GBP'm Reserve reserve hedge GBP'm (re-stated)
GBP'm GBP'm net of reserve
deferred net
tax of deferred
GBP'm tax
(re-stated) GBP'm
(Unaudited)
---------------------------------------------------------------------------------------------------
Balance
as at 1
April 2022 - 0.1 55.2 2.7 3.8 19.8 15.9 97.5
--------- --------- --------- --------- ------------- ------------- ---------- -------------
Profit after
taxation - - - - - - 12.4 12.4
--------- --------- --------- --------- ------------- ------------- ---------- -------------
Recognition
of employee
share options
schemes - - - 0.7 - - - 0.7
--------- --------- --------- --------- ------------- ------------- ---------- -------------
Transfer
from share
reserve
to retained
earnings - - - (1.2) - - 1.2 -
--------- --------- --------- --------- ------------- ------------- ---------- -------------
Dividends
paid - - - - - - (6.2) (6.2)
--------- --------- --------- --------- ------------- ------------- ---------- -------------
Shares purchased
by EBT (3.0) - - - - - - (3.0)
--------- --------- --------- --------- ------------- ------------- ---------- -------------
Shares issued
from own
share reserve 1.8 - - - - - (1.8) -
--------- --------- --------- --------- ------------- ------------- ---------- -------------
Fair value
adjustments
on
loan & advances
through
OCI - - - - (40.6) - - (40.6)
--------- --------- --------- --------- ------------- ------------- ---------- -------------
Cash flow
hedge
adjustments
through
OCI - - - - - 20.0 - 20.0
--------- --------- --------- --------- ------------- ------------- ---------- -------------
Balance
as at 30
September
2022 (1.2) 0.1 55.2 2.2 (36.8) 39.8 21.5 80.8
--------- --------- --------- --------- ------------- ------------- ---------- -------------
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
Note 6 months ended 6 months ended
30 September 2023 30 September 2022
GBP'm GBP'm (restated)
(Unaudited) (Unaudited)
----- ------------------- -------------------
Cash flows from operating
activities
----- ------------------- -------------------
(Loss) profit for the
period (11.2) 14.8
----- ------------------- -------------------
Adjusted for:
----- ------------------- -------------------
Depreciation of property,
plant and equipment 15 0.1 0.2
----- ------------------- -------------------
Amortisation of intangible
fixed assets 17 1.4 0.8
----- ------------------- -------------------
Share-based payment expenses
to reserves 9 1.0 0.7
----- ------------------- -------------------
Finance income - (0.2)
----- ------------------- -------------------
Income tax expense (3.9) -
----- ------------------- -------------------
Derivative unrealised
(loss)/gain and hedge
accounting 0.3 (2.5)
----- ------------------- -------------------
Derivative fair value
gains reclassified to
profit and loss - (21.2)
----- ------------------- -------------------
Fair value re-cycled to
line item 'loss on sale
of loan portfolio' in
profit or loss (20.0) -
----- ------------------- -------------------
Derivative settlements - 19.3
----- ------------------- -------------------
Impairment provision(1) 13 7.1 2.0
----- ------------------- -------------------
Income from sublease (0.1) -
----- ------------------- -------------------
Depreciation of right
of use asset 15 0.3 0.3
----- ------------------- -------------------
Interest expense of right
of use asset 0.2 0.2
----- ------------------- -------------------
Loss/(gain) on disposal
of portfolios 30.6 (3.8)
----- ------------------- -------------------
Gain on disposal of residual
interest (10.8) -
----- ------------------- -------------------
Proceeds from sale of
residual notes 8.6 5.7
----- ------------------- -------------------
Income tax (paid) - (2.1)
----- ------------------- -------------------
Change in working capital
----- ------------------- -------------------
Decrease/(increase) in
loans and advances 13 81.5 (4.8)
----- ------------------- -------------------
Decrease/(increase) in
trade and other receivables 11 1.7 (6.4)
----- ------------------- -------------------
Increase in trade and
other payables 18 2.4 7.1
----- ------------------- -------------------
Derivative settlements 27.6 -
----- ------------------- -------------------
Net cash inflow from
operations 116.8 10.1
----- ------------------- -------------------
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
(continued)
Cash flow from investing
activities
Purchase of property,
plant and equipment 15 - (0.2)
--- -------- --------
Capitalisation of internally
developed software 17 (2.2) (2.8)
--- -------- --------
Interest received - 0.2
--- -------- --------
Swap initial exchange
costs (0.8) (18.2)
--- -------- --------
Income from sublease 0.1 -
--- -------- --------
Net cash outflow from
investing activities (2.9) (21.0)
--- -------- --------
Cash flow from financing
activities
--- -------- --------
Cash receipt from interest
bearing liabilities 19 164.9 38.7
--- -------- --------
Proceeds to fund securitisation
repayments - 437.3
--- -------- --------
Redemption of securitisation
facilities 19 - (444.4)
--- -------- --------
Repayment of funding line
post sale of loan portfolio 19 (236.8) -
--- -------- --------
Repayment of retail bonds - (28.1)
--- -------- --------
Proceeds from issuance
of retail bonds - 9.3
--- -------- --------
Principal elements of
finance lease payments 16 (0.5) (0.5)
--- -------- --------
Interest expense of right
of use asset 16 (0.2) (0.2)
--- -------- --------
Dividends paid 26 - (6.1)
--- -------- --------
Net cash (outflow) from
financing activities (72.6) 6.0
--- -------- --------
Net (decrease)/increase
in cash and cash equivalents 41.3 (4.9)
--- -------- --------
Cash and cash equivalents
at beginning of the period 12 46.7 118.2
--- -------- --------
Cash and cash equivalents
at end of the period (2) 12 88.0 113.3
--- -------- --------
(1) The non-cash movement in the impairment provision differs
from the charge to the statement of profit and loss in respect to
the impairment provision for the six-month period ended 30
September 2022. This is due to the charge to the statement of
profit and loss including a credit of 0.1m in respect of cash
amounts recovered in the period on loans that have previously been
written off.
(2) Cash and cash equivalents include restricted cash of GBP3.5m
received from Platform Investors.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
1. Basis of preparation
1.1 General information
LendInvest plc is a public company incorporated on 17 July 2012
in the United Kingdom under the Companies Act. The company listed
on AIM on 14 July 2021. The address of its registered office is Two
Fitzroy Place, 8 Mortimer Street, London W1T 3JJ.
These Condensed consolidated interim financial statements of
LendInvest plc, for the six-month period ended 30 September 2023,
comprise the results of the Company and its subsidiaries (together
referred to as "the Group") (collectively "these financial
statements").
1.2 Basis of accounting
These condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 "Interim Financial
Reporting" and have been prepared on a historical cost basis,
except as required in the valuation of certain financial
instruments which are carried at fair value. These condensed
consolidated interim financial statements have been prepared
applying the accounting policies and presentation that were applied
in the preparation of the Group's published financial statements
for the year ended 31 March 2023.
These condensed consolidated interim financial statements are
not statutory accounts. The Group statutory accounts for the year
ended 31 March 2023 have been reported on by its auditor and
delivered to the Registrar of Companies. The report of the auditor
on those statutory accounts was unqualified, did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report, and did not contain a
statement under Section 498(2) or (3) of the Companies Act
2006.
All amounts are presented in pounds sterling, which is the
functional currency of the Company and all its subsidiaries.
Amounts are rounded to the nearest million, except where otherwise
indicated.
1.2.1 Going Concern
The Group's business activities together with the factors likely
to affect its future development and position are set out in the
Operating Review. The Directors have a reasonable expectation that
the Group will have adequate resources to continue to operate for a
period of at least 12 months from the signing of these accounts and
therefore it is on this basis that the Directors have continued to
prepare the accounts on a going concern basis.
The Directors believe that the Group will be able to refinance
facilities falling due within the next 12 months either with the
existing funding provider or with new third parties to continue its
growth trajectory. If these facilities were not to be refinanced,
the Group would be able to sell individual loans or portfolio of
loans to facilitate the repayment of the outstanding amounts. This
strategy is in line with the existing approach of the Group to both
hold assets on its balance sheet and sell to the third parties. The
Directors do not consider that this creates a material uncertainty
in the going concern assessment of the Group. More information on
the Directors' assessment of going concern is set out in the
Finance Review.
1.3 Accounting policies
The accounting policies and methods of computation are
consistent with those set out in the Annual Report 2023.
1.4 Changes in the presentation of the Consolidated interim
statement of profit and loss
The purpose of IAS 1 - Presentation of Financial Statements - is
to prescribe the basis of general-purpose financial statements, to
ensure comparability both within the entity's financial statements
of previous periods and the financial statements of other entities.
During the year, the composition of the Consolidated interim
statement of profit and loss has been amended to more clearly
reflect the nature of the profits from operations and to align the
Consolidated interim statement of profit and loss to wider industry
standards to enable comparability.
The cost of sales and gross profit lines items as reported in
the Consolidated interim statement of profit and loss in prior
periods are not terms generally associated with financial services
entities and the components of this line item has been reclassified
to enhance comparability to our peers.
The interest expense and funding line costs line items are
directly related to the derivation of interest on loans and
advances under IFRS 9 - Financial Instruments and are reported as
an element of net interest income. Origination fees, and asset
management and fund fees, relate to fee income under IFRS 15 -
Revenue recognition, and are reported as a component of net fee
income. Please refer to notes 4-7 for enhanced disclosure of the
composition of the amended line items.
The revised layout is a truer reflection of these two main
categories of profit drivers:
-- Net interest income: reflective of profits/losses from
interest and similar charges accounted for under the effective
interest rate basis as prescribed by IFRS 9 - Financial
Instruments.
-- Net fee income: reflective of profits from fees and similar
income accounted for under IFRS 15 - Revenue from Contracts with
Customers.
The table below shows the comparative position for those items
which have been reclassified and where those amounts have been
reclassified to in the Consolidated interim statement of profit and
loss.
6 months ended 30 September
Consolidated interim statement of profit 2022
and loss extract GBP'm
Gain on derecognition of financial assets 3.8
------------------------------
* Report as gain on derecognition of financial assets 3.8
------------------------------
Cost of sales (11.4)
------------------------------
* Amounts reclassified to interest expense and similar
charges (9.7)
------------------------------
* Amounts reclassified to fee expenses (1.7)
------------------------------
Finance income 2.7
------------------------------
* Amounts reclassified to interest and similar income 2.7
------------------------------
This change has no effect on the Group's profits or net
assets.
1.5 Prior period adjustments
i) For the prior period adjustment noted during FY23 in relation
to fair value hedge accounting, the Group restated its FY22
Condensed consolidated interim statement of financial position,
Condensed consolidated interim statement of other comprehensive
income, and Condensed consolidated interim statement of changes in
equity, in accordance with IFRS 9. Please refer to Note 1.26 in
FY23 Annual Report. The Group considered the prior period
adjustment for interim reporting at 30th September 2023 as per IAS
34 disclosure requirements. For the period ending H1 FY24, the
Group has correctly reclassified amounts relating to changes in the
hedged risk from OCI to profit or loss over the hedged period for
macro portfolio hedging. This is in line with the hedge accounting
policy referred to in the FY23 Annual Report. In line with the
above, the Group restated its September 2022 Condensed consolidated
interim statement of other comprehensive income and Condensed
consolidated interim statement of changes in equity in accordance
with IAS 8 and IFRS 9. This change does not impact the Condensed
consolidated interim statement of profit and loss or Condensed
consolidated interim statement of financial position for the
reporting period. There is no change to the earnings per share of
the Group.
ii) During a review of the H1 FY23 interim financial statements,
it was identified that non-cash transactions related to the
issuance and redemption of bonds were included in the Condensed
consolidated statement of cashflows. There is no change to the
Condensed consolidated interim statement of profit and loss and
Consolidated statement of financial position. However, a change in
the Consolidated statement of cash flows statement is included in
respect of the six months to 30 September 2022. The audited
financial statements at 31 March 2023 takes into account the
non-cash transaction treatment related to financing activities.
Restated Condensed consolidated As at 30 September Adjustment As at 30 September
interim statement of other 2022 (i) GBP'm 2022
comprehensive income GBP'm (reported) GBP'm (restated)
Profit after taxation 12.4 - 12.4
--------------------- ------------- ---------------------
Other comprehensive (loss)/income:
--------------------- ------------- ---------------------
Fair value loss on loans
and advances measured at
fair value through other
comprehensive income (81.5) (81.5)
--------------------- ------------- ---------------------
Cumulative gain (loss)
on financial
assets reclassified to
profit or loss
upon disposal and reclassification
from FVTOCI to FVTPL - 27.4 27.4
--------------------- ------------- ---------------------
Cash flow hedge adjustment 26.5 - 26.5
--------------------- ------------- ---------------------
Deferred tax credit on
gross movements through
OCI 13.7 (6.9) 6.8
--------------------- ------------- ---------------------
Other comprehensive (loss)/income
for the year (41.3) 20.5 (20.8)
--------------------- ------------- ---------------------
Total comprehensive income
for the year (28.9) 20.5 (8.4)
--------------------- ------------- ---------------------
Restated Share Share Own Employee Fair Cash Retained Total
Condensed capital premium share share value flow earnings GBP'm
consolidated GBP'm GBP'm reserve reserve reserve hedge GBP'm
interim GBP'm GBP'm net of reserve
statement deferred net of
of changes tax deferred
in equity GBP'm tax
GBP'm
Balance
as at 30
September
2022 (reported) 0.1 55.2 (1.2) 2.2 (57.4) 39.8 21.5 60.2
--------- --------- --------- --------- ---------- ---------- ---------- -------
Adjustment
(i) - - - - 20.6 - - 20.6
--------- --------- --------- --------- ---------- ---------- ---------- -------
Balance
as at 30
September
2022 (restated) 0.1 55.2 (1.2) 2.2 (36.8) 39.8 21.5 80.8
--------- --------- --------- --------- ---------- ---------- ---------- -------
Restated Consolidated As at 30 September Adjustment Adjustment As at 30 September
statement of cash 2022 (i) GBP'm (ii) 2022
flows (extract) GBP'm (reported) GBP'm GBP'm (restated)
Cash generated
from financing
activities
--------------------- ------------- ------------- ---------------------
Repayment of retail
bonds (57.7) - 29.6 (28.1)
--------------------- ------------- ------------- ---------------------
Proceeds from issuance
of retail bonds 38.9 - (29.6) 9.3
--------------------- ------------- ------------- ---------------------
Cash generated
from financing
activities 6.0 - - 6.0
--------------------- ------------- ------------- ---------------------
2. Financial risk management
General objectives, policies and processes
The Board has the overall responsibility for the establishment
and oversight of the Group's risk management framework. The Group's
risk management activities and exposure to credit, liquidity and
market risk are consistent with those set out in the Annual Report
2023. The tables below analyse the Group's contractual undiscounted
cash flows of its financial assets and liabilities:
Carrying Gross nominal Amounts Amounts Amounts Amounts
As at amount inflow/ due in due in due between due in
30 September GBP'm (outflow) less than 6 - 12 one and more than
2023 GBP'm 6 months months five years 5 years
GBP'm GBP'm GBP'm GBP'm
(Unaudited)
-------------------------------------------------------------------------------------
Financial
assets
----------- ---------------- ------------ ---------- -------------- ------------
Cash and
cash equivalents 88.0 88.0 88.0 - - -
----------- ---------------- ------------ ---------- -------------- ------------
Trade and
other receivables 1.9 1.9 1.9 - - -
----------- ---------------- ------------ ---------- -------------- ------------
Derivative
financial
asset 12.0 12.0 0.1 2.4 4.5 5.0
----------- ---------------- ------------ ---------- -------------- ------------
Loans and
advances 807.5 1,099.2 219.8 161.2 186.0 532.3
----------- ---------------- ------------ ---------- -------------- ------------
Investment
securities 23.5 27.0 0.8 0.8 25.4 -
----------- ---------------- ------------ ---------- -------------- ------------
932.9 1,228.9 310.6 164.4 215.9 537.3
----------- ---------------- ------------ ---------- -------------- ------------
Financial
liabilities
----------- ---------------- ------------ ---------- -------------- ------------
Trade and
other payables 29.1 29.1 29.1 - - -
----------- ---------------- ------------ ---------- -------------- ------------
Interest
bearing
liabilities(1) 853.3 921.4 214.6 21.2 653.2 32.4
----------- ---------------- ------------ ---------- -------------- ------------
Lease liability 2.8 3.0 0.7 0.7 1.6 -
----------- ---------------- ------------ ---------- -------------- ------------
885.2 953.5 244.4 21.9 654.8 32.4
----------- ---------------- ------------ ---------- -------------- ------------
(1) The maturity profile of the loan note liability is based on
the asset recall option exercise date, as the asset recall triggers
the repayment of the outstanding loan notes. The maturity profile
of the loan notes does not match the maturity profile of the loans
and advances which is based on the expected redemptions of the
underlying mortgages which will be transferred on to another entity
when the asset recall option is exercised.
Carrying Gross nominal Amounts Amounts Amounts Amounts
amount inflow/ due in less due in due between due in
As at (outflow) than 6 months 6 - 12 one and more than
31 March GBP'm GBP'm GBP'm months five years 5 years
2023 GBP'm GBP'm GBP'm
(Audited)
---------------------------------------------------------------------------------
Financial
assets
---------- -------------- --------------- -------- ------------- -----------
Cash and
cash equivalents 46.7 46.7 46.7 - - -
---------- -------------- --------------- -------- ------------- -----------
Trade and
other receivables 4.2 4.2 3.0 - 1.2 -
---------- -------------- --------------- -------- ------------- -----------
Loans and
advances 1,122.9 1,927.1 205.3 164.6 203.9 1,353.3
---------- -------------- --------------- -------- ------------- -----------
Derivative
financial
asset 46.0 46.0 9.1 7.9 26.4 2.6
---------- -------------- --------------- -------- ------------- -----------
Investment
securities 23.9 25.6 11.1 0.4 14.1 -
---------- -------------- --------------- -------- ------------- -----------
1,243.7 2,049.6 275.2 172.9 245.6 1,355.9
---------- -------------- --------------- -------- ------------- -----------
Financial
liabilities
---------- -------------- --------------- -------- ------------- -----------
Trade and
other payables (22.3) (22.3) (22.3) - - -
---------- -------------- --------------- -------- ------------- -----------
Interest
bearing
liabilities (1,159.3) (1,371.6) (257.8) (305.9) (415.9) (392.0)
---------- -------------- --------------- -------- ------------- -----------
Lease liability (3.3) (3.8) (0.7) (0.7) (2.4) -
---------- -------------- --------------- -------- ------------- -----------
(1,184.9) (1,397.7) (280.8) (306.6) (418.3) (392.0)
---------- -------------- --------------- -------- ------------- -----------
Lease liability 2.8 3.0 0.7 0.7 1.6 -
885.2 953.5 244.4 21.9 654.8 32.4
------ ------ ------ ----- ------ -----
3. Segmental analysis
In prior periods the business has been managed on the basis of
two core segments, namely short-term lending and BTL lending. From
the beginning of this financial period, the management structure of
the business has changed to better reflect the service and
operating model of the Group's different product propositions:
-- Mortgages Division: provides mortgages to both professional
BTL landlords and Homeowners as well as a range of Bridging loans.
These are typically higher volume, lower value transactions that
rely on technology supporting a highly efficient underwriting and
onboarding process.
-- Capital Division: provides larger, more structured finance
primarily to property developers. These are typically higher value,
lower volume transactions that require more bespoke management and
a more in-depth underwriting analysis.
In accordance with the provision of paragraphs 29 and 30 of IFRS
8 Operating Segments, due to the information to restate prior
periods not being available, and because the costs to develop would
be excessive, the prior year segmental analysis has not been
re-stated.
Current year
The Group's lending operations are carried out solely in the UK,
and effective from 1(st) April 2023, were carried out solely from
the Group's LendInvest Mortgages and Capital Divisions, reflective
of the product offerings. The results and net assets of the Group
are derived from the provision of property related loans only. The
following describes the operations of the two reportable segments
for the 6 months ended 30 September 2023:
LendInvest Mortgages
LendInvest Mortgages provides mortgages to both professional BTL
landlords and Homeowners as well as a range of short-term Bridging
loans.
LendInvest Capital
The LendInvest Capital division provides larger, more structured
finance primarily to property developers and larger Bridging loans
& houses the Fund and Self-Select Platform.
In prior periods the Group's lending operations were previously
carried out alongside the two main lending products: short-term
lending and BTL mortgages. Due the costs associated with restating
the prior period, management have made the decision to not restate
prior period results in the new reportable segments.
The segmental analysis of the condensed consolidated interim
statement of profit and loss is as follows:
6 months ended 30 Mortgages Capital Central Total
September 2023 GBP'm GBP'm GBP'm GBP'm
Statement of Profit
and Loss Information (Unaudited)
----------------------------------------------
Interest income calculated
using the effective
interest rate 26.3 7.8 - 34.1
------------ ---------- ---------- --------
Other interest and
similar income (0.3) - - (0.3)
------------ ---------- ---------- --------
Interest charges and
similar charges (20.7) (6.8) - (27.5)
------------ ---------- ---------- --------
Net interest income 5.3 1.0 - 6.3
------------ ---------- ---------- --------
Fee income 3.4 4.3 - 7.7
------------ ---------- ---------- --------
Fees expenses (0.5) (0.6) (1.1)
------------ ---------- ---------- --------
Net fee income 2.9 3.7 - 6.6
------------ ---------- ---------- --------
Gain on derecognition
of financial assets 10.8 - - 10.8
------------ ---------- ---------- --------
Loss on sale of loan
portfolio (10.7) - - (10.7)
------------ ---------- ---------- --------
Net other income 0.1 - - 0.1
------------ ---------- ---------- --------
Net segment operating
income 8.4 4.7 - 13.1
------------ ---------- ---------- --------
Administrative expenses (5.4) (2.5) (13.2) (21.1)
------------ ---------- ---------- --------
Impairment losses
on financial assets (0.7) (6.4) - (7.1)
------------ ---------- ---------- --------
Total segment operating
expenses (6.1) (8.9) (13.2) (28.2)
------------ ---------- ---------- --------
Segment profit/ (loss)
before tax 2.3 (4.2) (13.2) (15.1)
------------ ---------- ---------- --------
Central administrative expenses represent the cost of providing
central services that are not directly attributable to the
operating segments.
The segmental analysis of the condensed consolidated interim
statement of financial position is as follows:
Mortgages Capital Central Total
As at 30 September GBP'm GBP'm GBP'm GBP'm
2023
Statement of Financial
Position Information (Unaudited)
----------------------------------------------
Loans and advances 635.8 171.7 - 807.5
------------ ---------- ---------- --------
Derivative financial
asset 12.0 - - 12.0
------------ ---------- ---------- --------
Fair value adjustment
for portfolio hedged
risk asset 0.2 - - 0.2
------------ ---------- ---------- --------
Investment in securities 23.5 - - 23.5
------------ ---------- ---------- --------
Total segment assets 671.5 171.7 - 843.2
------------ ---------- ---------- --------
Cash and cash equivalents - - 88.0 88.0
------------ ---------- ---------- --------
Trade and other receivables - - 4.5 4.5
------------ ---------- ---------- --------
Property, plant and
equipment - - 1.8 1.8
------------ ---------- ---------- --------
Net investment in
sublease - - 0.8 0.8
------------ ---------- ---------- --------
Intangible fixed assets - - 11.3 11.3
------------ ---------- ---------- --------
Investment in joint
venture - - 0.2 0.2
------------ ---------- ---------- --------
Investment in third
parties - - 2.0 2.0
------------ ---------- ---------- --------
Corporate tax receivable - - 2.7 2.7
------------ ---------- ---------- --------
Total Assets 671.5 171.7 111.3 954.5
------------ ---------- ---------- --------
Liabilities
------------ ---------- ---------- --------
Interest bearing liabilities (675.8) (177.5) - (853.3)
------------ ---------- ---------- --------
Total segment liabilities (675.8) (177.5) - (853.3)
------------ ---------- ---------- --------
Trade and other payables - - (30.3) (30.3)
------------ ---------- ---------- --------
Lease liabilities - - (2.8) (2.8)
------------ ---------- ---------- --------
Deferred taxation - - (0.6) (0.6)
------------ ---------- ---------- --------
Total liabilities (675.8) (177.5) (33.7) (887.0)
------------ ---------- ---------- --------
For comparative purposes the current year results have been
included in the reportable segments which were used in the prior
year.
6 months ended 30 Short Term Lending Buy-to-Let Total
September 2023 GBP'm GBP'm GBP'm
Statement of Profit
and Loss Information (Unaudited)
----------------------------------------------
Interest revenue 19.1 12.6 31.7
--------------------- ------------- --------
Fee and other income 8.8 4.6 13.4
--------------------- ------------- --------
Gain on derecognition
of financial asset - 0.1 0.1
--------------------- ------------- --------
Segment Revenue 27.9 17.3 45.2
--------------------- ------------- --------
Interest expense (13.1) (13.1) (26.2)
--------------------- ------------- --------
Cost of sales (other) (4.4) (1.7) (6.1)
--------------------- ------------- --------
Impairment provision (6.9) (0.2) (7.1)
--------------------- ------------- --------
Finance income 0.4 - 0.4
--------------------- ------------- --------
Finance expense - (0.2) (0.2)
--------------------- ------------- --------
Segment Profit 3.9 2.1 6.0
--------------------- ------------- --------
Operating expenses - - (21.1)
--------------------- ------------- --------
Profit before tax 3.9 2.1 (15.1)
--------------------- ------------- --------
Central administrative expenses represent the cost of providing
central services that are not directly attributable to the
operating segments.
The segmental analysis of the condensed consolidated interim
statement of financial position is as follows:
As at 30 September Short Term Buy-to-Let Central Total
2023 Lending GBP'm GBP'm GBP'm
GBP'm
Statement of Financial
Position Information (Unaudited)
--------------------------------------------------
Loans and advances 359.5 448.0 - 807.5
------------- ------------- ---------- --------
Derivative financial
asset - 12.0 - 12.0
------------- ------------- ---------- --------
Fair value adjustment
for portfolio hedged
risk asset - 0.2 - 0.2
------------- ------------- ---------- --------
Total segment assets 359.5 460.2 - 819.7
------------- ------------- ---------- --------
Cash and cash equivalents - - 88.0 88.0
------------- ------------- ---------- --------
Trade and other receivables - - 4.5 4.5
------------- ------------- ---------- --------
Property, plant and
equipment - - 1.8 1.8
------------- ------------- ---------- --------
Investment in securities - - 23.5 23.5
------------- ------------- ---------- --------
Net investment in
sublease - - 0.8 0.8
------------- ------------- ---------- --------
Intangible fixed assets - - 11.3 11.3
------------- ------------- ---------- --------
Investment in joint
venture - - 0.2 0.2
------------- ------------- ---------- --------
Corporation Tax Receivable - - 2.7 2.7
------------- ------------- ---------- --------
Investment in third
parties - - 2.0 2.0
------------- ------------- ---------- --------
Total Assets 359.5 460.2 134.8 954.5
------------- ------------- ---------- --------
Liabilities
------------- ------------- ---------- --------
Interest bearing liabilities (374.5) (478.8) - (853.3)
------------- ------------- ---------- --------
Total segment liabilities (374.5) (478.8) - (853.3)
------------- ------------- ---------- --------
Trade and other payables - - (30.3) (30.3)
------------- ------------- ---------- --------
Lease liabilities - - (2.8) (2.8)
------------- ------------- ---------- --------
Deferred Taxation - - (0.6) (0.6)
------------- ------------- ---------- --------
Total liabilities (374.5) (478.8) (33.7) (887.0)
------------- ------------- ---------- --------
Prior year
The Group's lending operations were carried out solely in the UK
with two main lending products: short-term lending and Buy-to-Let
mortgages. The results and net assets of the Group are derived from
the provision of property related loans only. The following summary
describes the operations of the two reportable segments:
Short term lending
Provides finance for borrowers who need to quickly secure
property, generate cash flow or fund works through the Group's
bridging products, and provides property developers with funding to
start or exit a project through development products. The term of
these loans is up to 24 months.
Buy-to-let lending
Provides finance for professional portfolio landlords looking to
purchase or remortgage BTL investment properties in England, Wales
and Scotland. The mortgages are available to both individual and
corporate borrowers, and funds are lent against standard properties
as well as houses in multiple occupation and multi-unit freehold
blocks. The term of these loans is up to 30 years.
The segmental analysis of the condensed consolidated interim
statement of profit and loss is as follows:
6 months ended 30 Short Term Lending Buy-to-Let Total
September 2022 GBP'm GBP'm GBP'm
Statement of Profit
and Loss Information (Unaudited)
----------------------------------------------
Interest revenue 10.5 20.7 31.2
--------------------- ------------- --------
Fee and other income 4.7 2.8 7.5
--------------------- ------------- --------
Gain on derecognition
of financial asset 0.5 3.3 3.8
--------------------- ------------- --------
Segment Revenue 15.7 26.8 42.5
--------------------- ------------- --------
Interest expense (6.4) (2.1) (8.5)
--------------------- ------------- --------
Cost of sales (other) (1.1) (1.8) (2.9)
--------------------- ------------- --------
Impairment Provision (1.4) (0.5) (1.9)
--------------------- ------------- --------
Finance income - 2.7 2.7
--------------------- ------------- --------
Finance expense - - -
--------------------- ------------- --------
Segment Profit 6.8 25.1 31.9
--------------------- ------------- --------
Operating expenses - - (17.1)
--------------------- ------------- --------
Profit before tax - - 14.8
--------------------- ------------- --------
All other cost lines in the condensed consolidated interim
statement of profit and loss were centrally incurred and were not
allocated to either operating segment. These centrally incurred
costs were not included in the measure of segment profit and loss
reviewed management.
The segmental analysis of the condensed consolidated interim
statement of financial position is as follows:
Short Term Buy-to-Let Central Total
As at 31 March 2023 Lending GBP'm GBP'm GBP'm
GBP'm
Statement of Financial (Audited)
Position Information
----------------------------------------------------
Loans and advances 329.9 793.0 - 1,122.9
------------- ------------- ---------- ----------
Derivative financial
asset - 46.0 - 46.0
------------- ------------- ---------- ----------
Fair value adjustment
for portfolio hedged
risk asset - 0.1 - 0.1
------------- ------------- ---------- ----------
Total segment assets 329.9 839.1 - 1,169.0
------------- ------------- ---------- ----------
Cash and cash equivalents - - 46.7 46.7
------------- ------------- ---------- ----------
Trade and other receivables - - 6.1 6.1
------------- ------------- ---------- ----------
Property, plant and
equipment - - 2.2 2.2
------------- ------------- ---------- ----------
Investment in securities - - 23.9 23.9
------------- ------------- ---------- ----------
Net investment in
sublease - - 1.0 1.0
------------- ------------- ---------- ----------
Intangible fixed assets - - 10.5 10.5
------------- ------------- ---------- ----------
Investment in joint
venture - - 0.2 0.2
------------- ------------- ---------- ----------
Investment in third
parties - - 2.0 2.0
------------- ------------- ---------- ----------
Deferred taxation - - 1.2 1.2
------------- ------------- ---------- ----------
Total Assets 329.9 839.1 93.8 1,262.8
------------- ------------- ---------- ----------
Liabilities
------------- ------------- ---------- ----------
Interest bearing liabilities (331.5) (827.8) - (1,159.3)
------------- ------------- ---------- ----------
Total segment liabilities (331.5) (827.8) - (1,159.3)
------------- ------------- ---------- ----------
Trade and other payables - - (23.7) (23.7)
------------- ------------- ---------- ----------
Lease liabilities - - (3.3) (3.3)
------------- ------------- ---------- ----------
Total liabilities (331.5) (827.8) (27.0) (1,186.3)
------------- ------------- ---------- ----------
All other lines in the condensed consolidated interim statement
of financial position are centrally allocated and are not allocated
to either operating segment.
4. Interest and similar income
6 months ended 6 months ended
30 September 2023 30 September
GBP'm 2022
GBP'm
(Unaudited) (Unaudited)
------------------- ---------------
Interest income calculated
using the effective interest
rate method
------------------- ---------------
On loans and advances to customers 32.7 31.3
------------------- ---------------
On investment securities 0.9 0.1
------------------- ---------------
On cash deposits 0.5 0.2
------------------- ---------------
Total interest income calculated
using the effective interest
rate method 34.1 31.6
------------------- ---------------
Other interest and similar
income
------------------- ---------------
On derivative financial instruments
and hedge accounting (0.3) 2.5
------------------- ---------------
Total other interest and similar
income (0.3) 2.5
------------------- ---------------
Total interest and similar
income 33.8 34.1
------------------- ---------------
5. Interest expense and similar expense
6 months ended 6 months ended
30 September 2023 30 September
GBP'm 2022
GBP'm
(Unaudited) (Unaudited)
------------------- ---------------
On amounts due to funding partners (22.6) (7.0)
------------------- ---------------
On debt securities in issue (3.6) (1.3)
------------------- ---------------
Funding line cost amortisation (1.3) (1.8)
------------------- ---------------
Total interest expense and
similar charges (27.5) (10.1)
------------------- ---------------
6. Net fee income
6 months ended 6 months ended
30 September 2023 30 September
GBP'm 2022
GBP'm
(Unaudited) (Unaudited)
------------------- ---------------
Fee income on loans and advances 1.7 0.7
------------------- ---------------
Fee income on asset management 5.9 4.6
------------------- ---------------
Fee income on origination of
loans to third parties 0.2 2.3
------------------- ---------------
Fee income 7.7 7.6
------------------- ---------------
Fee expense on origination of
loans to third parties (0.5) (1.3)
------------------- ---------------
Fee expense on asset management (0.6) (0.4)
------------------- ---------------
Fee expense (1.1) (1.7)
------------------- ---------------
Net fee and commission income 6.6 5.9
------------------- ---------------
7. Derecognition of financial assets
6 months ended 6 months ended
30 September 2023 30 September
GBP'm 2022
GBP'm
(Unaudited) (Unaudited)
------------------- ---------------
Net gains on sale of loans and
loan portfolios - 0.5
------------------- ---------------
(Loss) on sale of loan portfolio (10.7) -
------------------- ---------------
Profit on derecognition of securitised
loan portfolios 10.8 3.3
------------------- ---------------
Net gains on derecognition of
financial assets 0.1 3.8
------------------- ---------------
On 14 April 2023, the Group sold its non-risk retention residual
economic interest in the Mortimer BTL 2021-1 plc securitisation for
a cash consideration of GBP8.6m. This transaction resulted in a
reduction in the Group's gross loans and advances of GBP236m, a
reduction in interest-bearing liabilities of GBP228m and generated
a net pre-tax profit of GBP10.8m. Please refer to note 25 reserves
for the related cash flow hedge reserve movement due to sale of
residual notes.
On 26 May 2023, the Group sold a portfolio of BTL residential
mortgages to Chetwood Financial Limited for a cash consideration of
GBP243m inclusive of the proceeds from cancelled interest rate
derivatives. The book value of the portfolio was c.GBP250m and the
net pre-tax loss on the sale of the portfolio and the cancellation
of the related derivatives was GBP10.7m. GBP234m of
interest-bearing liabilities were re-paid on completion of the
transaction. Please refer to note 25 reserves for the related fair
value reserve movement due to sale of BTL mortgage portfolio.
8 . (Loss) / profit before taxation
(Loss) / profit before taxation has been stated after
charging:
6 months ended 6 months ended
30 September 2023 30 September
GBP'm 2022
GBP'm
(Unaudited) (Unaudited)
------------------- ---------------
Wages and salaries 10.3 8.9
------------------- ---------------
Depreciation and amortisation 1.9 1.4
------------------- ---------------
Audit related assurance services 0.7 0.6
------------------- ---------------
Fees payable to the auditors
for other assurance services 0.1 0.1
------------------- ---------------
Share-based payments 1.0 0.7
------------------- ---------------
Lease finance expense 0.1 0.2
------------------- ---------------
9. Share-based payments
Company Share Option Plans
During the six months ended 30 September 2023, the Group issued
awards under the Long-Term Incentive Plan (LTIP), the Deferred
Bonus Plan (DBP, which forms part of the LTIP) and the Share
Incentive Plan (SIP), to certain employees.
The number of options/awards made under the plans are as
follows:
LTIP: 2,719,000
DBP: 1,358,755
SIP: 1,020,559
There were no options or awards which vested in the LTIP or SIP
share-based plan respectively in the period. Under the DBP, a total
of 161,001 options vested in the period.
The grant of shares or options under these schemes may be made
on an annual or on an ad hoc basis. The DBP and LTIP options awards
aforementioned are pro-rated due to leavers during the period.
Share Option expense recognised
During the six months ended 30 September 2023, the Group
recognised a GBP1.0 million expense as a result of issued share
options vesting.
6 months ended 6 months ended
30 September 2023 30 September
GBP'm 2022
GBP'm
(Unaudited) (Unaudited)
------------------- ---------------
The expense is included in administrative
expenses 1.0 0.7
------------------- ---------------
10. Taxation on profit on ordinary activities
The Group is subject to all taxes applicable to a commercial
company in the United Kingdom. The UK business profits of the Group
are subject to UK income tax at the prevailing basic rate of 25%
(2022: 19%).
As of 30 September 2023, the Group had a deferred tax liability
of GBP(0.6)m (31 March 2023: net deferred tax asset of GBP1.2m).
The deferred tax (liability) / asset include:
-- Asset of GBP0.8m (31 March 2023: Asset of GBP1.4m) related to
temporary differences arising between the tax base of share-based
payments and the carrying amount;
-- Liability of GBP(0.1)m (31 March 2023: Liability of
GBP(0.1)m) related to temporary differences arising between the tax
base of property, plant and equipment and the carrying amount;
-- Liability of GBP(2.0)m (31 March 2023: Asset of GBP0.2m)
related to the fair value reserve on loans and advances and cash
flow hedge reserve;
-- Asset of GBP0.1m (31 March 2023: Asset of GBP0.1m) related to
the ECL provision on transition to IFRS 9;
-- Asset of GBP0.1m (31 March 2023: Asset of GBP0.1m) related to transition to IFRS 16;
-- Asset of GBP0.7m (31 March 2023: nil) related to recognised
tax losses available for offset against future taxable profits ;
and
-- Liability of GBP0.2m (31 March 2023: Liability of GBP(0.5)m)
related to accelerated deductions from research and development
activity.
11. Trade and other receivables
As at 30 September As at 31 March
2023 2023
GBP'm GBP'm
(Unaudited) (Audited)
------------------- ---------------
Due within one year
------------------- ---------------
Trade receivables 1.7 0.5
------------------- ---------------
Other receivables:
------------------- ---------------
Prepayments and accrued income 2.6 1.9
------------------- ---------------
Other receivables 0.2 2.5
------------------- ---------------
Due after one year
------------------- ---------------
Rent deposit - 1.2
------------------- ---------------
4.5 6.1
------------------- ---------------
12. Cash and cash equivalents
As at 30 September As at 31 March
2023 2023
GBP'm GBP'm
(Unaudited) (Audited)
------------------- ---------------
Cash 84.5 40.4
------------------- ---------------
Cash equivalents - -
------------------- ---------------
Trustee's account 3.5 6.3
------------------- ---------------
88.0 46.7
------------------- ---------------
Trustees' accounts relate to monies held on account for the
benefit of our investors in the Self-select Platform, prior to them
either investing in loans or withdrawing their capital.
Operationally, the Company does not treat the Trustees' balances as
available funds. An equal and opposite payable amount is included
within the trade payables balance (see note 18).
13. Loans and advances
On 14 April 2023, the Group sold its non-risk retention residual
economic interest in the Mortimer BTL 2021-1 plc securitisation.
This transaction resulted in a reduction in the Group's gross loans
and advances of GBP236m.
On 26 May 2023, the Group sold a portfolio of BTL residential
mortgages to Chetwood Financial Limited. The book value of the
portfolio was c.GBP250m.
As at 30 September As at 31 March
2023 2023
GBP'm GBP'm
(Unaudited) (Audited)
------------------- ---------------
Gross loans and advances 822.4 1,168.5
------------------- ---------------
ECL provision (15.5) (9.1)
------------------- ---------------
Fair value adjustment (*) 0.6 (36.5)
------------------- ---------------
Loans and advances 807.5 1,122.9
------------------- ---------------
(*) Fair value adjustment to gross loans and advances due to
classification as FVTOCI. Fair value adjustments are a function of
changes in discount rates on the Group's loan assets. The changes
in the underlying variables during the period and effect on fair
value is discussed in Note 25.
ECL provision
Movement in the period GBP'm
Under IFRS 9 at 1 April 2023 (Audited) (9.1)
-------
Additional provisions made during the
period(1) (8.1)
-------
Utilised in the period(2) 1.2
-------
Recoveries of amounts previously written
off 0.5
-------
Under IFRS 9 at 30 September 2023 (Unaudited) (15.5)
-------
Movement in the period GBP'm
Under IFRS 9 at 1 April 2022 (Audited) (11.0)
-------
Additional provisions made during the
period(1) (2.8)
-------
Utilised in the period(2) -
-------
Recoveries of amounts previously written
off 0.1
-------
Under IFRS 9 at 30 September 2022 (Unaudited) (13.7)
-------
(1) The increase in provision during the period primarily
related to individual assessments in respect of a small number of
larger and more complex structured bridging and development finance
loans. The increased provision therefore reflects idiosyncratic
factors on particular loans, rather than a systemic increase in the
risk profile of the overall loan portfolio. Additional provisions
made during the period include GBP0.5m (2022: GBP0.7m) of expected
credit losses incurred on the interest income recognised on stage 3
loans and advances.
(2) The provision utilised in the period includes GBP0.5m in
respect of loans that have been written off. Loans that are written
off can still be subject to enforcement activities in order to
comply with the Group's procedures for recovery of amounts due. The
contractual amount outstanding on loans and advances that have
previously been written off and are still subject to enforcement
activity is GBP4.8m (2022: GBP9.0m). The remaining balance of the
provision utilised in the period of GBP0.7m represents the ECL
provision that was being carried in respect of the loan portfolio
that was sold to Chetwood Financial Limited. This has been recycled
to the related loss on derecognition of financial assets.
The net movement on the ECL provision for the period to 30
September 2023 that has impacted the condensed consolidated interim
statement of profit and loss is GBP6.4m (2022: GBP2.7m). The
impairment charge for the period is GBP7.1m (2022: GBP1.9m), the
difference being the GBP0.7m of provision related to the loan
portfolio sale referenced above.
Analysis of loans and advances by stage
Stage 1 Stage 2 Stage 3 Total
As at 30 September GBP'm GBP'm GBP'm GBP'm
2023
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
Gross loans and
advances 614.3 150.8 57.3 822.4
------------ ------------ ------------ ------------
ECL provision (0.3) (1.7) (13.5) (15.5)
------------ ------------ ------------ ------------
Fair value adjustment - 0.6 - 0.6
------------ ------------ ------------ ------------
Loans and advances 614.0 149.7 43.8 807.5
------------ ------------ ------------ ------------
The maximum LTV on stage 1 loans is 90%. The maximum LTV on
stage 2 loans is 92%. The maximum LTV on Stage 3 loans is 103% and
the total value of collateral (capped at the gross loan value) held
on stage 3 loans is GBP54.9m.
Stage 1 Stage 2 Stage 3 Total
As at 31 March GBP'm GBP'm GBP'm GBP'm
2023
(Audited) (Audited) (Audited) (Audited)
---------- ---------- ---------- ----------
Gross loans and
advances 935.7 196.7 36.1 1,168.5
---------- ---------- ---------- ----------
ECL provision (0.5) (1.3) (7.3) (9.1)
---------- ---------- ---------- ----------
Fair value adjustment (32.9) (3.6) - (36.5)
---------- ---------- ---------- ----------
Loans and advances 902.3 191.8 28.8 1,122.9
---------- ---------- ---------- ----------
The maximum LTV on stage 1 loans is 82%. The maximum LTV on
stage 2 loans is 87%. The maximum LTV on Stage 3 loans is 247% and
the total value of collateral (capped at the gross loan value) held
on stage 3 loans is GBP34.3m.
The fair value adjustments on Stage 3 loans are not applied.
Loans and Advances recognised as Stage 3 are credit impaired and
their carrying value represents the discounted cashflows which
could be recovered after assessing the likelihood of the borrower
rehabilitating or the alternative outcome which involves reliance
on the proceeds from the sale of security The discounted cash flows
are arrived based on a proprietary model which considers
macroeconomic as well as behavioural factors.
Credit risk on gross loans and advances
The table below provides information on the Group's loans and
advances by stage and risk grade.
Risk grades detailed in the table range from 1 to 10 with a risk
grade of 1 being assigned to cases with the lowest credit risk and
10 representing cases in default. Equifax Risk Navigator (RN)
scores are used to assign the initial Risk Grade score with
additional SICR rules used to generate the final Risk Grade.
Stage 1 Stage 2 Stage 3 Total
As at 30 September GBP'm GBP'm GBP'm GBP'm
2023
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
Risk Grades 1
- 5 612.9 120.5 - 733.4
------------ ------------ ------------ ------------
Risk Grades 6
- 9 1.4 30.3 - 31.7
------------ ------------ ------------ ------------
Default - - 57.3 57.3
------------ ------------ ------------ ------------
Total 614.3 150.8 57.3 822.4
------------ ------------ ------------ ------------
Stage 1 Stage 2 Stage 3 Total
As at 31 March GBP'm GBP'm GBP'm GBP'm
2023
(Audited) (Audited) (Audited) (Audited)
---------- ---------- ---------- ----------
Risk Grades 1
- 5 934.2 170.2 - 1,104.4
---------- ---------- ---------- ----------
Risk Grades 6
- 9 1.5 26.5 - 28.0
---------- ---------- ---------- ----------
Default - - 36.1 36.1
---------- ---------- ---------- ----------
Total 935.7 196.7 36.1 1,168.5
---------- ---------- ---------- ----------
Impairment provisions are calculated on an expected credit loss
('ECL') basis. Financial assets are classified individually into
one of the categories below:
Stage 1 - assets are allocated to this stage on initial
recognition and remain in this stage if there is no significant
increase in credit risk since initial recognition. Impairment
provisions are recognised to cover 12-month ECL, being the
proportion of lifetime ECL arising from default events expected
within 12 months of the reporting date.
Stage 2 - assets where it is determined that there has been a
significant increase in credit risk since initial recognition, but
where there is no objective evidence of impairment. Impairment
provisions are recognised to cover lifetime probability of
default.
Stage 3 - assets where there is objective evidence of
impairment, i.e. they are considered to be in default. Impairment
provisions are recognised against lifetime ECL. For assets
allocated to stage 3, interest income is recognised on the balance
net of impairment provision.
Purchased or originated credit impaired ('POCI') - POCI assets
are financial assets that are credit impaired on initial
recognition. On initial recognition, they are recorded at fair
value. ECLs are only recognised or released to the extent that
there is a subsequent change in the ECLs. Their ECLs are always
measured on a lifetime basis.
Where there is objective evidence that asset quality has
improved, assets will be allocated to a lower risk category. For
example, loans no longer in default (stage 3) will be allocated to
either stage 2 or stage 1. Evidence that asset quality has improved
will include:
-- repayment of arrears;
-- improved credit worthiness; and
-- term extensions and the ability to service outstanding debt.
If a loss is ultimately realised, it is written off against the
provision previously provided for with any excess charged to the
impairment provision in the statement of profit and loss.
Movement analysis of net loans by stage
Stage Stage Stage Total
1 2 3 GBP'm
GBP'm GBP'm GBP'm
As at 1 April 2023 (1) 902.2 191.8 28.9 1,122.9
------- ------ ------ -------
Transfer to stage 1 21.6 (21.6) - -
------- ------ ------ -------
Transfer to stage 2 (75.7) 75.9 (0.2) -
------- ------ ------ -------
Transfer to stage 3 (10.7) (21.6) 32.3 -
------- ------ ------ -------
New financial assets originated 300.7 - - 300.7
------- ------ ------ -------
New financial assets originated and
transferred to stage 2 or 3 (23.5) 23.0 0.5 -
------- ------ ------ -------
Financial assets which have repaid (109.0) (48.8) (2.5) (160.3)
------- ------ ------ -------
Balance movement in loans (391.6) (49.0) (15.2) (455.8)
------- ------ ------ -------
Total movement in loans and advances (288.2) (42.1) 14.9 (315.4)
------- ------ ------ -------
As at 30 September 2023 614.0 149.7 43.8 807.5
------- ------ ------ -------
Movement analysis of gross loans by stage
Stage Stage Stage Total
1 2 3 GBP'm
GBP'm GBP'm GBP'm
As at 1 April 2023 (1) 935.7 196.7 36.1 1,168.5
------- ------ ------ -------
Transfer to stage 1 22.5 (22.5) - -
------- ------ ------ -------
Transfer to stage 2 (77.2) 77.4 (0.3) (0.1)
------- ------ ------ -------
Transfer to stage 3 (10.6) (21.5) 32.2 0.1
------- ------ ------ -------
New financial assets originated 296.6 - - 296.6
------- ------ ------ -------
New financial assets originated and
transferred to stage 2 or 3 (23.1) 22.6 0.5 -
------- ------ ------ -------
Financial assets which have repaid (109.2) (49.2) (2.8) (161.2)
------- ------ ------ -------
Balance movement in loans (420.4) (52.7) (7.9) (481.0)
------- ------ ------ -------
Write offs - - (0.5) (0.5)
------- ------ ------ -------
Total movement in loans and advances (321.4) (45.9) 21.2 (346.1)
------- ------ ------ -------
As at 30 September 2023 614.3 150.8 57.3 822.4
------- ------ ------ -------
Movement analysis of ECL by stage
Stage Stage Stage Total
1 2 3 GBP'm
GBP'm GBP'm GBP'm
As at 1 April 2023 (1) 0.5 1.2 7.4 9.1
------ ------ ------ ------
Transfer to stage 1 0.2 (0.2) - -
------ ------ ------ ------
Transfer to stage 2 - 0.1 (0.1) -
------ ------ ------ ------
Transfer to stage 3 - - - -
------ ------ ------ ------
New financial assets originated 0.5 - - 0.5
------ ------ ------ ------
New financial assets originated and
transferred to stage 2 or 3 (0.4) 0.3 0.1 -
------ ------ ------ ------
Financial assets which have repaid (0.1) (0.2) (0.4) (0.7)
------ ------ ------ ------
Changes in models/risk parameters (0.4) 0.5 6.5 6.6
------ ------ ------ ------
Adjustments for interest on impaired
loans - - 0.5 0.5
------ ------ ------ ------
Write offs - - (0.5) (0.5)
------ ------ ------ ------
Total movement in impairment provision (0.2) 0.5 6.1 6.4
------ ------ ------ ------
As at 30 September 2023 0.3 1.7 13.5 15.5
------ ------ ------ ------
Critical accounting estimates relating to the impairment of
financial assets:
The calculation of ECLs requires the Company to make a number of
assumptions and estimates. The accuracy of the ECL calculation
would be impacted by movements in the forward-looking economic
scenarios used, or the probability weightings applied to these
scenarios and by unanticipated changes to model assumptions that
differ from actual outcomes.
The key assumptions and estimates that, depending on a range of
factors, could result in a material adjustment in the next
financial year relate to the use of forward-looking information in
the calculation of ECLs and the inputs and assumptions used in the
ECL models.
Forward-looking information
The Company incorporates forward-looking information into the
calculation of ECLs and the assessment of whether there has been a
significant increase in credit risk ('SICR'). The use of
forward-looking information represents a key source of estimation
uncertainty. The Company uses three forward-looking economic
scenarios:
1. a central scenario aligned to the Company's business plan;
2. a downside scenario as modelled in the Company's risk management process; and
3. an upside scenario representing the impact of modest
improvements to assumptions used in the central scenario.
The probability weightings applied to the above scenarios are
another area of estimation uncertainty. They are generally set to
ensure that there is an asymmetry in the ECL. The probability
weightings applied to the three economic scenarios used are as
follows:
As at 30 September As at 31 March
2023 2023
Base 40% 40%
------------------- ---------------
Upside 40% 40%
------------------- ---------------
Downside 20% 20%
------------------- ---------------
The macroeconomic data inputs applied in determining the Group's
expected credit losses are sourced from Oxford Economics (a
third-party provider of global economic forecasting and analysis).
Oxford Economics combines two decades of forecast errors with its
quantitative assessment of the current risks facing the global and
domestic economy to produce robust forward-looking distributions
for the economy.
Using specific percentile points in the distribution of several
key metrics such as GDP, unemployment, house prices and commercial
real estate prices, three alternative scenarios are derived,
relating to a base case (most likely), downside (broadly equivalent
to a one-in-ten years event) and a moderate upside scenario.
Assumptions on the likely out-turn represent a weighted average of
these three scenarios provided by Oxford Economics, and are
detailed below:
As at 30 September 2023
Macro Assumptions 2024 2025 2026 2027 2028 2029 2030 2031 2032
Real GDP growth (% growth YoY)
Base 0.38% 1.47% 2.26% 1.54% 1.65% 1.53% 1.40% 1.36% 1.36%
------- ------ ----- ----- ----- ----- ----- ----- -----
Upside 4.89% 3.07% 3.25% 1.62% 1.51% 1.38% 1.26% 1.21% 1.21%
------- ------ ----- ----- ----- ----- ----- ----- -----
Downside -3.23% 0.62% 1.87% 1.56% 1.76% 1.64% 1.52% 1.47% 1.47%
------- ------ ----- ----- ----- ----- ----- ----- -----
Unemployment %
Base 4.60% 4.40% 3.90% 3.90% 3.80% 3.80% 3.80% 3.70% 3.70%
------- ------ ----- ----- ----- ----- ----- ----- -----
Upside 3.55% 2.74% 2.23% 2.26% 2.30% 2.37% 2.49% 2.60% 2.71%
------- ------ ----- ----- ----- ----- ----- ----- -----
Downside 5.80% 6.80% 7.00% 6.80% 6.60% 6.30% 6.10% 5.90% 5.70%
------- ------ ----- ----- ----- ----- ----- ----- -----
House price inflation %
Base -7.10% -2.84% 4.62% 7.06% 5.98% 4.51% 3.65% 2.90% 2.97%
------- ------ ----- ----- ----- ----- ----- ----- -----
Upside -2.84% 0.70% 7.74% 6.79% 5.71% 4.24% 3.38% 2.64% 2.71%
------- ------ ----- ----- ----- ----- ----- ----- -----
Downside -12.60% -7.52% 1.01% 7.43% 6.34% 4.86% 3.99% 3.26% 3.32%
------- ------ ----- ----- ----- ----- ----- ----- -----
Commercial real estate (% growth YoY)
Base 2.04% 3.73% 3.21% 2.86% 2.18% 1.66% 1.28% 1.15% 0.91%
------- ------ ----- ----- ----- ----- ----- ----- -----
Upside 9.94% 4.95% 2.80% 1.01% 0.52% 0.26% 0.17% 0.16% 0.25%
------- ------ ----- ----- ----- ----- ----- ----- -----
Downside -3.41% 3.53% 3.84% 4.52% 3.67% 2.65% 2.22% 1.69% 1.54%
------- ------ ----- ----- ----- ----- ----- ----- -----
As at 31 March 2023
Macro Assumptions 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Real GDP growth (% growth YoY)
Base 0.01% 0.60% 2.40% 2.62% 1.43% 1.44% 1.33% 1.36% 1.37% 1.38%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Upside 0.00% 5.90% 3.80% 3.80% 1.30% 1.30% 1.20% 1.20% 1.20% 1.20%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Downside 0.01% -3.84% 1.70% 2.25% 1.54% 1.56% 1.44% 1.47% 1.49% 1.49%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Unemployment %
Base 3.87% 4.26% 4.04% 3.76% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Upside 3.87% 3.22% 2.40% 2.12% 2.16% 2.27% 2.39% 2.50% 2.61% 2.73%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Downside 3.87% 5.58% 6.60% 6.93% 6.71% 6.50% 6.29% 6.08% 5.88% 5.67%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
House price inflation %
Base 1.16% -7.15% -2.06% 2.68% 5.93% 5.07% 3.70% 3.39% 3.37% 3.40%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Upside 1.16% -1.45% 1.59% 6.38% 5.68% 4.82% 3.45% 3.14% 3.11% 3.15%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Downside 1.16% -13.37% -6.72% -2.58% 6.32% 5.45% 4.07% 3.77% 3.74% 3.77%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Commercial real estate (% growth YoY)
Base -10.08% 3.34% 2.16% 3.11% 1.80% 1.68% 1.29% 1.22% 1.11% 1.02%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Upside -10.08% 15.5% 4.08% 3.83% -0.48% -0.15% -0.17% 0.04% 0.16% 0.25%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Downside -10.08% -6.39% 1.63% 3.44% 3.56% 3.09% 2.42% 2.12% 1.83% 1.60%
------- ------- ------ ------ ------ ------ ------ ----- ----- -----
GDP, unemployment rates and HPI are key metrics that indicate
the appetite for credit within the economy, the ability of
borrowers to service debt and the value of underlying securities
that underpin credit risk management; all of which directly impact
the Group's operational activities and success.
The Company undertakes a review of its economic scenarios and
the probability weightings applied at least quarterly, and more
frequently if required.
As at 30 September 2023
ECL provision
Scenario GBP'm
Expected credit losses - 100% upside scenario 13.5
-------------
Expected credit losses - 100% downside scenario 16.9
-------------
As at 31 March 2023
ECL provision
Scenario GBP'm
Expected credit losses - 100% upside scenario 7.9
-------------
Expected credit losses - 100% downside scenario 10.0
-------------
The results of this review are recommended to the Audit &
Risk Committee and the Group's Board. Given the steep rise in the
Bank of England Base Rate, the impairment charge for Buy-to-Let
loans includes a post model adjustment to account for an increased
risk of default as borrowers' revert to materially higher variable
rates, from low fixed rates, over the next 12 months resulting in
an additional impairment charge of GBP0.2m (2022: GBP0.6m). This is
the only post model adjustment.
Model estimations
ECL calculations are outputs of complex models with a number of
underlying assumptions regarding the choice of variable inputs and
their interdependencies. The Group considers the key assumptions
impacting the ECL calculation to be the Probability of Default
('PD') and Loss Given Default ('LGD'). Sensitivity analysis is
performed by the Group to assess the impact of changes in these key
assumptions on the expected credit loss provision recognised on
loans and advances. A summary of the key assumptions and
sensitivity analysis as at 30 September 2023 is provided in the
following table:
Impact
Assumption Sensitivity analysis on ECL
GBP'm
Unemployment 20% increase in the unemployment rate 0.0
----------------------------------------- -------
10% absolute increase in the forced sale
Forced sale discount discount 0.7
----------------------------------------- -------
As at 31 March 2023
Impact
Assumption Sensitivity analysis on ECL
GBP'm
Unemployment 20% increase in the unemployment rate 0.1
----------------------------------------- -------
10% absolute increase in the forced sale
Forced sale discount discount 0.2
----------------------------------------- -------
Critical judgements relating to the impairment of financial
assets
The Company reviews and updates the key judgements relating to
impairment of financial assets bi-annually, in advance of the
Interim Financial Report and the Annual Report and Accounts. All
key judgements are reviewed and recommended to the Audit & Risk
Committee for approval prior to implementation.
Assessing whether there has been a significant increase in
credit risk ('SICR')
If a financial asset shows a SICR, it is transferred to Stage 2
and the ECL recognised changes from a 12-month ECL to a lifetime
ECL. The assessment of whether there has been a SICR requires a
high level of judgement. The assessment of whether there has been a
SICR also incorporates forward-looking information. The Company
considers that a SICR has occurred when any of the following have
occurred:
1. The overall creditworthiness of the borrower has materially
worsened, indicated by a migration to a higher risk grade (see
below for risk grades and probability of default ("PDs") by
product);
2. Where a borrower is currently one month or more in
arrears;
3. Where a borrower has sought some form of forbearance;
4. Where the overall leverage of the account has surpassed a
predetermined level. 75% Loan to Gross Development Value for
bridging loans and 85% for all other products;
5. Where a short-term bridging loan has less than one month
before maturity; and
6. Where there is a material risk that a development loan will
not reach practical completion on time.
These factors reflect the credit lifecycle for each product and
are based on prior experience as well as insight gained from the
development of risk ratings models (probability of default).
Stage 2 criteria are designed to be effective indicators of a
SICR. As part of the bi-annual review of key impairment judgements,
the Company undertakes detailed analysis to confirm that the Stage
2 criteria remain effective. This includes (but is not limited
to):
-- Criteria effectiveness: this includes the emergence to
default for each Stage 2 criterion when compared to Stage 1; Stage
2 outflow as a percentage of Stage 2; percentage of new defaults
that were in Stage 2 in the months prior to default; time in Stage
2 prior to default; and percentage of the book in Stage 2 that are
not progressing to default or curing.
-- Stage 2 stability: this includes stability of inflows and outflows from Stage 2 and 3.
-- Portfolio analysis: this includes the percentage of the
portfolio that is in Stage 2 and not defaulted; the percentage of
the Stage 2 transfer driven by Stage 2 criterion other than the
backstops; and back-testing of the defaulted accounts.
For low credit risk exposures, it is permitted to assume,
without further analysis, that the credit risk on a financial asset
has not increased significantly since initial recognition if the
financial asset is determined to have low credit risk at the
reporting date. The Group has opted not to apply this low credit
risk exemption.
A summary of the Risk grade distribution is provided in the
table below. As the Company utilises three different risk rating
models, three separate PDs have been provided for each portfolio.
Risk Grades 1-9 are for non-defaulted accounts with 10 indicating
default. Therefore, all Stage 3 loans are assigned to this grade.
As stated above, degradation in a borrower's creditworthiness is an
indication of SICR. Therefore, as shown in the table below, Stage 2
loan distributions are in the main assigned to risk grades higher
than Risk Grade 1.
As at 30 September 2023
Balances (GBP'm) ECL (GBP'm) Probability of default
Risk Stage Stage Stage Stage Stage Stage Bridging Development BTL Residential
Grade 1 2 3 1 2 3
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
RG1 560.0 0.9 - (0.3) - - 7% 0% 0% 0%
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
RG2 30.0 56.0 - - (0.8) - 12% 1% 0% 0%
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
RG3 13.7 23.6 - - (0.3) - 19% 2% 1% 1%
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
RG4 3.9 12.9 - - (0.2) - 30% 3% 1% 1%
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
RG5 5.4 27.1 - - (0.1) - 45% 4% 2% 2%
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
RG6 1.3 23.1 - - (0.2) - 69% 6% 4% 4%
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
RG7 - 2.0 - - - - 79% 8% 7% 7%
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
RG8 - 0.4 - - - - 88% 11% 12% 12%
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
RG9 - 4.8 - - (0.1) - 93% 15% 19% 19%
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
RG10 - - 57.3 - - (13.5) 100% 100% 100% 100%
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
Total 614.3 150.8 57.3 (0.3) (1.7) (13.5) - - - -
------ ------ ------ ------ ------ ------- --------- ------------ ----- ------------
As at 31 March 2023
Balances (GBP'm) ECL (GBP'm) Probability of default
Risk Stage Stage Stage Stage Stage Stage Bridging Development BTL
Grade 1 2 3 1 2 3
------ ------ ------ ------ ------ ------ --------- ------------ -----
RG1 882.1 0.9 - (0.4) - - 7% 0% 0%
------ ------ ------ ------ ------ ------ --------- ------------ -----
RG2 34.1 93.9 - (0.1) (0.4) - 12% 1% 0%
------ ------ ------ ------ ------ ------ --------- ------------ -----
RG3 7.3 37.7 - - (0.3) - 19% 2% 1%
------ ------ ------ ------ ------ ------ --------- ------------ -----
RG4 4.3 24.7 - - (0.2) - 30% 3% 1%
------ ------ ------ ------ ------ ------ --------- ------------ -----
RG5 6.4 13.0 - - (0.1) - 45% 4% 2%
------ ------ ------ ------ ------ ------ --------- ------------ -----
RG6 1.2 21.1 - - (0.1) - 69% 6% 4%
------ ------ ------ ------ ------ ------ --------- ------------ -----
RG7 0.3 1.5 - - (0.1) - 79% 8% 7%
------ ------ ------ ------ ------ ------ --------- ------------ -----
RG8 - 0.5 - - - - 88% 11% 12%
------ ------ ------ ------ ------ ------ --------- ------------ -----
RG9 - 3.4 - - (0.1) - 93% 15% 19%
------ ------ ------ ------ ------ ------ --------- ------------ -----
RG10 - - 36.1 - - (7.3) 100% 100% 100%
------ ------ ------ ------ ------ ------ --------- ------------ -----
Total 935.7 196.7 36.1 (0.5) (1.3) (7.3) - - -
------ ------ ------ ------ ------ ------ --------- ------------ -----
Determining whether a financial asset is in default or credit
impaired
When there is objective evidence of impairment and the financial
asset is considered to be in default, or otherwise credit-impaired,
it is transferred to Stage 3. The Company's definition of default
follows product-specific characteristics allowing for the provision
to reflect operational management of the portfolio. Below is a
short description of each product type and the Company's definition
of default as specific to each product.
Bridging Loans - Bridging loans are short-term loans designed
for customers requiring timely access to funds to facilitate
property purchases. Typically, loans involve residential
securities, however, commercial, semi-commercial and land is also
taken as security. A bridging loan is considered to be in default
if a borrower fails to repay their loan after 30 days and does not
seek an authorised extension; or it is structured and the loan is
two months in arrears.
Development Loan - Development loans support borrowers looking
to undertake a significant property or site development. The
resulting site should be for residential purposes only. Loan terms
are typically for the short term (less than three years) with no
structured repayments. A development loan is defined as being in
default if it has not been redeemed 60 days after the maturity of
the loan.
Buy-to-let (BTL) Loans - BTL loans are extended to borrowers
looking to purchase a new rental property or refinance an existing
rental property. A BTL loan is considered to be in default if the
loan is three months in arrears.
Specialist Residential - Residential loans support borrowers
looking to purchase or refinance their primary residence. A
residential loan defined as in default if the loan is three months
in arrears; or if the borrower has been declared bankrupt.
The Company does not apply the rebuttable presumption that
default does not occur later when a financial asset is 90 days past
due.
Improvement in credit risk or cure
There is no cure period assumed for loans showing improvement in
credit risk. This means that any loan that does not meet the SICR
criteria is assigned to Stage 1.
14. Investment securities
As at 30 September As at 31 March
2023 2023
GBP'm GBP'm
(Unaudited) (Audited)
------------------- ---------------
Retained interest in
------------------- ---------------
Mortimer BTL 2020-1 PLC - 10.7
------------------- ---------------
Mortimer BTL 2021-1 PLC 10.7 -
------------------- ---------------
Mortimer BTL 2022-1 PLC 12.8 13.2
------------------- ---------------
Total 23.5 23.9
------------------- ---------------
The Group sold its residual interest it held in Mortimer BTL
2020 - PLC on 1 March 2023. The sale of the certificate and
Mortimer 2020 asset being called on March 1 2023 resulted in a
derecognition event, as substantially all of the risk, rewards and
control of the vehicle passed to the Purchaser. As the variable
returns, and control of the vehicle had been transferred, the
Mortimer BTL 2020-1 plc entity has also been deconsolidated from
the Group's results. Subsequent to this, Mortimer BTL 2020-1 plc
was called by the certificate holder in June 2023, redeeming all
notes at par value. Therefore, the retained interest was repaid at
par value such that there is no longer any retained interest in
Mortimer BTL 202-1 Plc held by the Group.
The Group sold its holding of the certificate for Mortimer BTL
2021 - PLC on the 19 April 2023. The sale of the certificate
represents the excess spreads in the securitisation vehicle as well
as an option to repurchase the asset from the vehicle on June 25
2026. The sale of the certificate and call options resulted in a
derecognition event as substantially all the risks, rewards, and
control of the vehicle passed to the purchaser. As the variable
returns and control of the vehicle had been transferred, the
Mortimer BTL 2021-1 plc entity has also been deconsolidated from
the Group's results. The investment securities of GBP10.7m
represent the retained risk retention in the form of debt
securities issued by unconsolidated structured entities as part of
the securitisation transactions that are retained by the Group.
The Group securitised a portfolio of mortgage loans on 12 May
2022. On 14 August 2022, the Group sold its holdings of residual
notes in the securitisation vehicle, Mortimer BTL 2022-1 plc. The
sale of the residual notes represented the excess spreads in the
securitisation vehicle as well as an option to repurchase the
assets from the vehicle on 23 June 2025. The sale of the residual
notes and call options resulted in a derecognition event as
substantially all of the risks, rewards and control of the vehicle
passed to the purchaser. As the variable returns and control of the
vehicle had been transferred, the Mortimer BTL 2022-1 plc entity
has also been deconsolidated from the Group's results. The
investment securities of GBP12.8m represent the retained risk
retention in the form of debt securities issued by unconsolidated
structured entities as part of the securitisation transactions that
are retained by the group.
15. Property, plant and equipment
Computer Furniture Leasehold Right Total
equipment and fittings improvements of use GBP'm
Cost GBP'm GBP'm GBP'm asset
GBP'm
Balance as at
31 March 2023 0.4 0.1 0.4 5.2 6.1
----------- -------------- -------------- -------- -------
Additions - - - - -
----------- -------------- -------------- -------- -------
Balance as at
30 September 2023 0.4 0.1 0.4 5.2 6.1
----------- -------------- -------------- -------- -------
Right
Accumulated depreciation Computer Furniture Leasehold of use
and impairment equipment and fittings improvements asset Total
GBP'm GBP'm GBP'm GBP'm GBP'm
----------- -------------- -------------- -------- -------
Balance as at
31 March 2023 0.2 0.1 0.2 3.4 3.9
----------- -------------- -------------- -------- -------
Charge for the
period 0.1 - - 0.3 0.4
----------- -------------- -------------- -------- -------
Balance as at
30 September 2023 0.3 0.1 0.2 3.7 4.3
----------- -------------- -------------- -------- -------
Net carrying
value as at 30
September 2023 0.1 - 0.2 1.5 1.8
----------- -------------- -------------- -------- -------
Net carrying value
as at 31 March
2023 0.2 - 0.2 1.8 2.2
----------- -------------- -------------- -------- -------
16. Lease arrangements
Future minimum payments under non-cancellable leases:
As at 30 September As at 31 March
Premises 2023 2023
GBP'm GBP'm
Due within a year 0.6 1.1
------------------- ---------------
Due between 1-5 years 2.2 2.2
------------------- ---------------
Due later than 5 years - -
------------------- ---------------
2.8 3.3
------------------- ---------------
The Group has a dilapidation requirement to return the leased
office to the specification as per the lease agreement. The total
dilapidation is expected to be GBP9.54 per square foot. The Group
and the Company have no significant contingent liabilities at the
period end.
17. Intangible fixed assets
Internally developed software has been capitalised as an
intangible fixed asset and is being amortised over a useful
economic life of five years. During this period, the Group
capitalised internal costs of GBP2.2m (the six months ended 30
September 2022: GBP2.8m). Amortisation: During the six months ended
30 September 2023, the Group amortised GBP1.4m against intangible
fixed assets (the six months ended 30 September 2022: GBP0.8m).
Software Internally developed
licences software Total
Cost GBP'm GBP'm GBP'm
Balance as at 31 March
2023 0.7 18.3 19.0
----------- ----------------------- --------
Additions - 2.2 2.2
----------- ----------------------- --------
Balance as at 30 September
2023 0.7 20.5 21.2
----------- ----------------------- --------
Software Internally developed
Accumulated amortisation licences software Total
and impairment GBP'm GBP'm GBP'm
----------- ----------------------- --------
Balance as at 31 March
2023 0.7 7.8 8.5
----------- ----------------------- --------
Charge for the period - 1.4 1.4
----------- ----------------------- --------
Balance as at 30 September
2023 0.7 9.2 9.9
----------- ----------------------- --------
Net carrying value as
at 30 September 2023 - 11.3 11.3
----------- ----------------------- --------
Net carrying value as
at 31 March 2023 - 10.5 10.5
----------- ----------------------- --------
18. Trade and other payables
As at 30 September As at 31 March
2023 2023
GBP'm GBP'm
(Unaudited) (Audited)
-------------------------------------------- ---------------
Trade payables 14.5 15.1
-------------------------------------------- ---------------
Other payables:
-------------------------------------------- ---------------
Taxation and social security
costs 1.4 1.4
-------------------------------------------- ---------------
Accruals and deferred income 9.7 7.0
-------------------------------------------- ---------------
Sub - lease deposit rent payable 0.2 0.2
-------------------------------------------- ---------------
FY23 Final Dividend placeholder 4.5 -
-------------------------------------------- ---------------
30.3 23.7
-------------------------------------------- ---------------
The trade payables balance includes Trustees' balances of
GBP3.5m in respect of uninvested cash held on the self-select
platform, which may be withdrawn by investors at any time. The
Company has no non-current trade and other payables. The carrying
value of trade and other payables approximates fair value.
The accruals and deferred income balance includes a GBP4.5m
accrual for the FY23 dividend declared on 18 September 2023 but
paid on 13 October 2023.
19. Interest bearing liabilities
As at 30 September As at 31 March
2023 2023
GBP'm GBP'm
(Unaudited) (Audited)
------------------- ---------------
Funds from investors and partners 853.4 1,159.6
------------------- ---------------
Accrued Interest 3.4 4.3
------------------- ---------------
Funding line costs (3.5) (4.6)
------------------- ---------------
853.3 1,159.3
------------------- ---------------
On 14 April 2023, the Group sold its non-risk retention residual
economic interest in the Mortimer BTL 2021-1 plc securitisation for
a cash consideration of GBP8.6m. This transaction resulted in a
reduction in the Group's interest-bearing liabilities of
GBP234m.
On 26 May 2023, the Group sold a portfolio of BTL residential
mortgages to Chetwood Financial Limited for a cash consideration of
GBP243m inclusive of the proceeds from cancelled interest rate
derivatives. GBP237m of interest-bearing liabilities were re-paid
on completion of the transaction.
During the six-month period, the Group drew down GBP165m from
funding lines to finance new originations.
The Group's interest on funding has ranged between 1% to 8% in
the 6 months period ended 30 September 2023.
Funding line costs are amortised on an effective interest rate
basis. Interest bearing liabilities are secured by charges over the
assets and operations of the Group.
20. Reconciliation of liabilities arising from financing
activities
Interest bearing Leases Derivatives
liabilities GBP'm GBP'm
GBP'm
31 March 2022 (Audited) (1,214.1) (4.1) 32.5
----------------- ------- ------------
Cash flows 54.8 1.4 (8.4)
----------------- ------- ------------
Fair value changes - - 21.9
----------------- ------- ------------
Reinstatement of dilapidations
provision - (0.1) -
----------------- ------- ------------
Lease liability interest - (0.5) -
----------------- ------- ------------
31 March 2023 (Audited) (1,159.3) (3.3) 46.0
----------------- ------- ------------
Cash flows 71.8 0.7 26.6
----------------- ------- ------------
Fair value changes - - (60.6)
----------------- ------- ------------
Leases finance expense - (0.2) -
----------------- ------- ------------
De-consolidation 234.2 - -
----------------- ------- ------------
30 September 2023
( Unaudited) (853.3) (2.8) 12.0
----------------- ------- ------------
21. Financial instruments
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are loans and advances,
trade and other receivables, cash and cash equivalents, loans and
borrowings, derivatives, and trade and other payables.
Categorisation of financial assets and financial liabilities
With the exception of loan commitments classified as fair value
through profit or loss, all financial assets of the Group are
carried at amortised cost or fair value through other comprehensive
income as at 30 September 2023 and 31 March 2023 depending on the
business model under which the Group manages the financial assets.
All financial liabilities of the Group are carried at amortised
cost as at 30 September 2023 and 31 March 2023 due to the nature of
the liability.
Financial instruments measured at amortised cost, rather than
fair value, include cash and cash equivalents, trade and other
receivables, trade and other payables, rent deposit and
interest-bearing liabilities. Due to their short-term nature, the
carrying value of cash and cash equivalents, trade and other
receivables, and trade and other payables approximates their fair
value.
(a) Carrying amount of financial instruments
A summary of the financial instruments held by category is
provided below:
As at 30 September As at 31 March
2023 2023
GBP'm GBP'm
(Unaudited) (Audited)
------------------- ---------------
Financial assets at amortised
cost
------------------- ---------------
Cash and cash equivalents 88.0 46.7
------------------- ---------------
Trade and other receivables 4.5 4.2
------------------- ---------------
Loans and advances(1) 148.2 174.2
------------------- ---------------
Investment securities 23.5 23.9
------------------- ---------------
Financial assets at fair value
through other comprehensive
income
------------------- ---------------
Loans and advances 659.3 948.7
------------------- ---------------
Fair value adjustment for portfolio
hedged risk 0.2 0.1
------------------- ---------------
Financial assets at fair value
through profit and loss
------------------- ---------------
Derivative financial asset 12.0 46.0
------------------- ---------------
Total financial assets 935.7 1,243.8
------------------- ---------------
Financial liabilities at amortised
cost
------------------- ---------------
Trade and other payables (30.3) (22.3)
------------------- ---------------
Interest bearing liabilities (853.3) (1,159.3)
------------------- ---------------
Lease liabilities (2.8) (3.3)
------------------- ---------------
Total financial liabilities (886.4) (1,184.9)
------------------- ---------------
(1) The balance relates to a portfolio of loans which was
repurchased from the Mortimer 2019-1 BTL plc securitisation
vehicle. This portfolio is managed under a hold to collect business
model and therefore measured at amortised cost.
(b) Carrying amount versus fair value
The following table compares the carrying amounts and fair
values of the Group's financial assets and financial
liabilities.
As at 30 As at 30 As at 31 As at 31
September September March 2023 March 2023
2023 2023 GBP'm GBP'm
GBP'm GBP'm
Carrying Amount Fair Value Carrying Amount Fair Value
---------------- ----------- ---------------- ------------
(Unaudited) (Audited)
----------------------------- ------------------------------
Financial assets
---------------- ----------- ---------------- ------------
Cash and cash
equivalents 88.0 88.0 46.7 46.7
---------------- ----------- ---------------- ------------
Trade and other
receivables 4.5 4.5 4.2 4.2
---------------- ----------- ---------------- ------------
Loans and advances 807.5 812.4 1,122.9 1,122.9
---------------- ----------- ---------------- ------------
Investment securities 23.5 22.6 23.9 23.9
---------------- ----------- ---------------- ------------
Derivative financial
asset 12.0 12.0 46.0 46.0
---------------- ----------- ---------------- ------------
Fair value adjustment
for portfolio
hedged risk asset 0.2 0.2 0.1 0.1
---------------- ----------- ---------------- ------------
Total financial
assets 935.7 939.7 1,243.8 1,243.8
---------------- ----------- ---------------- ------------
Financial liabilities
---------------- ----------- ---------------- ------------
Trade and other
payables (30.3) (30.3) (22.3) (22.3)
---------------- ----------- ---------------- ------------
Interest bearing
liabilities (853.3) (847.0) (1,159.3) (1,157.9)
---------------- ----------- ---------------- ------------
Lease liabilities (2.8) (2.8) (3.3) (3.3)
---------------- ----------- ---------------- ------------
Total financial
liabilities (886.4) (880.1) (1,184.9) (1,183.5)
---------------- ----------- ---------------- ------------
The fair value of the Retail Bond 2 interest bearing liability
is calculated based on the mid-market price of GBP99.50 on 30
September 2023 (31 March 2023: GBP98.1).
The fair value of the Retail Bond 3 interest bearing liability
is calculated based on the mid-market price of GBP85.50 on 30
September 2023 (31 March 2023: GBP98.7).
Loans and advances are classified as fair value through other
comprehensive income and any changes to fair value are calculated
based on a fair value model using level 3 inputs and recognised
through the Statement of Other Comprehensive Income. Interest
bearing liabilities are classified at amortised cost and the fair
value measured using level 1 inputs in the table above is for
disclosure purposes only.
22. Derivatives held for risk management and hedge
accounting
As at 30 September 2023 As at 31 March 2023
(Unaudited) (Audited)
-------------------------- ----------------------
Asset Liability Asset Liability
Instrument type GBP'm GBP'm GBP'm GBP'm
---------- -------------- --------- -----------
Interest rate
swap 12.0 - 46.0 -
---------- -------------- --------- -----------
The Condensed consolidated interim statement of financial
position as at 30 September 2023 includes a balance for derivative
financial assets of GBP12.0m. This includes the GBP12.0m fair value
of interest rate swap derivatives held for risk management.
All derivatives are accounted for at fair value for the purpose
of hedging fair value risk exposures associated with the BTL and
Homeowner mortgage portfolios. The net notional principal amount of
the outstanding interest rate swap contracts at 30 September 2023
was GBP358.3m (31 March 2023: GBP779.1m).
During the period, the fair value of the derivatives positions
decreased by GBP34m (six months ended 30 September 2022: GBP64.6m
increase).
23. Share capital
As at 30 September As at 31 March
2023 2023
number number
(Unaudited) (Audited)
------------------- ---------------
Issued and fully paid up
------------------- ---------------
Ordinary shares of GBP0.0005
each 141,032,025 139,631,046
------------------- ---------------
141,032,025 139,631,046
------------------- ---------------
As at 30 September As at 31 March
2023 2023
GBP'm GBP'm
Issued and fully paid up (Unaudited) (Audited)
------------------- ---------------
Ordinary Shares of GBP0.0005
each 0.1 0.1
------------------- ---------------
0.1 0.1
------------------- ---------------
As at 30 September As at 31 March
Share premium 2023 2023
GBP'm GBP'm
(Unaudited) (Audited)
------------------- ---------------
Closing balance 55.2 55.2
------------------- ---------------
The balance on the share capital account represents the
aggregate nominal value of all ordinary and preferred shares in
issue. There is no maximum number of shares authorised by the
articles of association.
The balance on the share premium account represents the amounts
received in excess of the nominal value of the ordinary and
preferred shares. All ordinary and preferred shares have a nominal
value of GBP0.0005.
Reconciliation of movements during the period
Ordinary Shares
As at 1 April 2023 139,631,046
----------------
Shares issued on exercise of company share
option scheme options 1,400,979
----------------
As at 30 September 2023 141,032,025
----------------
On 5 September 2023, the company issued and allotted the
remaining 67,592 ordinary shares from its existing block admission
(completed in August 2021) for the purposes of granting share
awards under the company's SIP. The remainder of the shares granted
under the SIP were sourced from the EBT.
On 25 September 2023, the company issued a further 1,333,387
ordinary shares into the EBT to satisfy the expected exercise of
vested share options held by employees under the Company's share
plans.
24. Earnings per share
(a)
6 months ended 6 months ended
Basic earnings per share 30 September 2023 30 September
2022
(Unaudited) (Unaudited)
Pence/share Pence/share
-------------------- ----------------
Total basic earnings per share
attributable to the ordinary
equity holders of the Group (8.18) 10.75
-------------------- ----------------
(b)
6 months ended 6 months ended
Diluted earnings per share 30 September 2023 30 September
2022
(Unaudited) (Unaudited)
Pence/share Pence/share
-------------------- ----------------
Total diluted earnings per share
attributable to the ordinary
equity holders of the Group (8.18) 10.38
-------------------- ----------------
(c)
6 months ended 6 months ended
Number of shares used as denominator 30 September 2023 30 September
2022
(Unaudited) (Unaudited)
Number of ordinary shares used
as the denominator in calculating
basic earnings per share 137,965,198 137,500,867
-------------------- ----------------
Adjustments for calculations
of diluted earnings per share:
Options - 4,895,852
-------------------- ----------------
Number of ordinary shares and
potential ordinary shares used
as denominator in calculating
diluted earnings per share 137,965,198 142,396,719
-------------------- ----------------
The loss after tax reported in the Condensed consolidated
interim statement of profit and loss, GBP11.2m (30 September 2022:
profit after tax GBP12.4m), is the numerator (earnings) used in
calculating earnings per share.
25. Reserves
Fair value hierarchy
The level in the fair value hierarchy within which the financial
asset or financial liability is categorised is determined on the
basis of the lowest level input that is significant to the fair
value measurement. Financial assets and liabilities are classified
in their entirety into only one of the three levels. The fair value
hierarchy has the following levels:
1. Quoted prices (unadjusted) in active markets for identical assets or liabilities;
2. Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e.
prices) or indirectly (i.e. derived from prices); and
3. Inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The objective of valuation techniques is to arrive at a fair
value measurement that reflects the price that would be received to
sell the asset or paid to transfer the liability in an orderly
transaction between market participants at the measurement
date.
As at 30 September Level Level Level
Financial instruments 2023 1 2 3
GBP'm GBP'm GBP'm GBP'm
Interest rate swap* (Unaudited) 12.0 - 12.0 -
--------------------- -------- -------- --------
Loans and advances* (Unaudited) 659.3 - - 659.3
--------------------- -------- -------- --------
*Measured at fair value
For all other financial instruments, the fair value is equal to
the carrying value and has not been included in the table
above.
As at 31 March Level Level Level
Financial instruments 2023 1 2 3
GBP'm GBP'm GBP'm GBP'm
Interest rate swap* (Audited) 46.0 - 46.0 -
----------------- -------- -------- --------
Loans and advances* (Audited) 948.7 - - 948.7
----------------- -------- -------- --------
*Measured at fair value
Level 2 instruments include interest rate swaps which are either
two, three or five years in length. These lengths are aligned with
the fixed interest periods of the underlying loan book. These
interest rate swaps are valued using models used to calculate the
present value of expected future cash flows and may be employed
when there are no quoted prices available for similar instruments
in active markets.
Level 3 instruments include loans and advances. The valuation of
the asset is not based on observable market data (unobservable
inputs). Valuation techniques include net present value and
discounted cash flow methods. The assumptions used in such models
include benchmark interest rates and borrower risk profile. The
objective of the valuation technique is to determine a fair value
that reflects the price of the financial instrument that would have
been used by two counterparties in an arm's length transaction.
Financial Valuation Significant Range at Range at
instrument techniques unobservable 30 September 31 March
used inputs 2023 2023
Loans and Discounted Prepayment Rate 2% - 14% 2% - 12.4%
advances cash flow valuation
Probability of 16% - 84% 16% - 84%
default Discount
Rate
2.5% - 10% 2.5% - 10%
--------------------- ------------------- -------------- ------------
Financial assets and liabilities at fair value: Level 3
analysis:
The following section provides additional analysis of the
Group's financial instruments measured at fair value that are
categorised as Level 3:
Loans and advances
Six months ended 30 September 2023 (Unaudited) to customers at FVOCI:
As at 1 April 2023 948.7
------------------------
Additions(1) 300.6
------------------------
Movement in expected credit losses (6.4)
------------------------
Net fair value gains/(losses) recognised
in other comprehensive income 0.6
------------------------
Balance movements (448.0)
------------------------
Settlements/repayments (136.2)
------------------------
As at 30 September 2023 659.3
------------------------
(1) Additions include new financial assets originated,
additional drawdowns and accrued interest.
Information about sensitivity to change in significant
unobservable inputs
The significant unobservable inputs used in the fair value
measurement of the reporting entity's loans and advances are
prepayment rates, probability of default and discount rates.
Significant increase / (decrease) in any of those inputs in
isolation would result in a lower / (higher) fair value
measurement. A change in the assumption of these inputs will not
correlate to a change in the other inputs.
Sensitivity Analysis
Gain or (loss) +100bps -100bps
Impact of changes in unobservable at GBP'm GBP'm
inputs 30 September
2023
GBP'm
Prepayment rates (Unaudited) 0.6 0.4 0.8
---------------- -------- --------
Discount rate (Unaudited) 0.6 (12.0) 13.9
---------------- -------- --------
Reserves are comprised of retained earnings, own share reserve,
the employee share reserve, fair value reserve and cashflow hedge
reserve.
Retained earnings represent all net gains and losses of the
Group less directly attributable costs associated with the issue of
new equity and dividends paid out to shareholders.
The employee share reserve represents the fair value of share
options issued to employees but not exercised.
The own share reserve represents treasury shares held in the
Group's Employee Benefit Trust which are held to be provided to
staff on the exercising of options, or to be granted as part of the
Group's bonus scheme.
Cash flow hedge reserve
The cash flow hedge reserve is the deferred portion of the
change in the fair value of the hedging instrument that is deemed
to be effective.
Financial Deferred Cash Flow
Six months ended 30 September Liabilities tax Hedge Reserve
2023 GBP'm GBP'm GBP'm
Balance as at 1 April 2023
(Audited) 21.5 (5.4) 16.1
------------- --------- ---------------
Cash flow hedge adjustment
through other comprehensive
income (21.5) 5.4 (16.1)
------------- --------- ---------------
Cash flow hedge reserve at
30 September 2023 (Unaudited) - - -
------------- --------- ---------------
On 14 April 2023, the Group sold its non-risk retention residual
economic interest in the Mortimer BTL 2021-1 plc securitisation for
a cash consideration of GBP8.66m. The sale of the certificate
(residual notes) resulted in a derecognition event as substantially
all the risks, rewards, and control of the vehicle passed to the
investor. As the control of the vehicle (Mortimer BTL 2021-1) had
been transferred, the vehicle has been deconsolidated from the
Group's results. This also resulted in the re-cycling of a loss of
GBP21.5m from the cash flow hedge reserves to the line item 'Net
gain on derecognition of financial assets' in the profit and
loss.
Fair value reserve
The fair value reserve represents movements in the fair value of
the financial assets classified as FVTOCI. The movements in fair
value are a function of changes in credit spreads, interest rate
curves and size of the loan portfolio. A significant change in any
of these variables will have a consequential effect on fair value
movements and therefore the Group's reported reserves.
Gross Deferred Net
Six months ended 30 September GBP'm tax GBP'm
2023 GBP'm
Balance as at 1 April 2023
(Audited) (22.0) 5.5 (16.5)
------- --------- -------
Fair value movement on loans
and advances during the period 37.2 (9.3) 27.9
------- --------- -------
Fair value on hedged items 12.8 (3.2) 9.6
------- --------- -------
Fair value re-cycled to line
item 'loss on sale of loan
portfolio' in profit or loss (20.0) 5.0 (15.0)
------- --------- -------
Fair value reserve at 30
September 2023 (Unaudited) 8.0 (2.0) 6.0
------- --------- -------
On 26 May 2023, the Group sold a portfolio of BTL residential
mortgages to Chetwood Financial Limited. On completion of the sale,
the associated fair value adjustment amounting to GBP20m was
recycled to the line item 'loss on sale of loan portfolio' in the
profit and loss.
26. Dividends
No dividends (2022: GBP6.2mil) were paid during the period. The
final dividend in respect of the year ended 31 March 2023 of 4.5
pence per share (amounting to GBP4.5m) was approved on 18 September
2023, and paid on 13 October 2023.
The Board is not recommending the payment of an interim dividend
in respect of the 6 months ended 30 September 2023.
27. Related party transactions
Key management personnel compensation
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Group. Key management is defined as the directors
of LendInvest plc.
6 months ended 6 months ended
30 September 2023 30 September
GBP'm 2022
GBP'm
(Unaudited) (Unaudited)
------------------- ---------------
Salary & bonus 0.5 0.7
------------------- ---------------
Defined contribution pension - -
cost
------------------- ---------------
Share based payments - 0.1
------------------- ---------------
Total 0.5 0.8
------------------- ---------------
28. Events after reporting date
On 6 October 2023 GBP55m of retail bonds matured, which carried
a coupon of 5.375%. These bonds were refinanced by a new issue of
GBP60m retail bonds. Of the new issuance, c.GBP20m are currently
held in treasury and are included in FuM. The new bonds carry a
coupon of 11.5%.
On 29 November 2023, the business successfully completed its
fifth public market securitisation transaction in respect of a
GBP410m BTL loan portfolio. This transaction generated a cash
inflow of cGBP34m which was used to repay cGBP17m of third-party
mezzanine debt, with the remainder available for new lending and
general business purposes. Due to the size of the transaction, the
business intends to reduce the current surplus capacity in its
warehouse facilities for BTL lending by cGBP355m, thereby reducing
ongoing commitment fees. This will have a corresponding impact on
FuM.
Glossary
Alternative Performance Measures
In the reporting of financial information, the Directors have
adopted various alternative performance measures (APMs). APMs
should be considered in addition to IFRS measurements. The
Directors believe that these APMs assist in providing useful
information on the underlying performance of the Group, enhance the
comparability of information between reporting periods, and are
used internally by the Directors to measure the Group's
performance. They are not necessarily comparable to other entities'
APMs.
Assets under Management ('AuM')
The Group defines AuM as the sum of (i) the total amount of
outstanding loans and advances (including accrued interest, before
impairment provisions and fair value adjustments), as reported on
an IFRS basis in the notes to the accounts in the Group's Financial
Statements, and (ii) off-balance sheet assets, which represents the
total amount of outstanding loans and advances (including accrued
interest) that the Group originates but does not hold on its
balance sheet, comprising those loans that are held by its
off-balance sheet entities. Off-Balance Sheet Assets are not
presented net of any impairment provisions relating thereto.
The Directors view AuM as a useful measure because it is used to
analyse and evaluate the volume of revenue-generating assets of the
platform on an aggregate basis and is therefore helpful for
understanding the performance of the business.
The following table provides a reconciliation from the Group's
reported gross loans and advances.
6 months ended 6 months ended
30 September 2023 30 September
GBP'm 2022
GBP'm
(Unaudited) (Unaudited)
------------------- ---------------
Gross Loans and advances 822.4 1,213.2
------------------- ---------------
Off-Balance sheet Assets 1,872.7 1,217.9
------------------- ---------------
Total 2,695.1 2,431.1
------------------- ---------------
Funds under Management ('FuM')
The Group defines FuM as the aggregate sum available to the
Group under each of its funding lines. The Group's FuM are used to
originate revenue generating AuM. The Directors view the difference
between the Group's FuM and Platform AuM as the headroom for future
growth.
New lending/loan origination
The Group defines new lending as the total new money lent on
loans which have originated in the period, or when an existing
product has been refinanced with a new loan.
Diluted earnings per share
The Group defines diluted earnings per share as earnings per
share divided by the weighted average number of dilutive shares
including adjustments for share options.
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END
IR EADAPFFKDFAA
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