TIDMORCH
RNS Number : 7491T
Orchard Funding Group PLC
17 October 2017
17 October 2017
Orchard Funding Group PLC
('Orchard Funding Group' or the 'company' or the 'group')
Full Year Results
For the 12 months ended 31 July 2017
Orchard Funding Group PLC, the finance company which specialises
in insurance premium finance and the professions funding market,
announces its audited full year results for the year ended 31 July
2017.
Highlights
-- The group continues to be strongly cash generative, with
revenues in the period increasing by 31.4% to GBP4.56 million for
the 12 months to 31 July 2017 (31 July 2016: GBP3.47 million)
-- Profit after tax rose as the increased investment from last
year began to feed through onto the bottom line. The increase was
34.0% compared to a fall in 2016 of 2.9%.- GBP1.34 million compared
to GBP1.00 million in the previous year
-- Earnings Per Share ("EPS") rose in the period by 33.2% to 6.26p (31 July 2016 4.70p)
-- The group lent GBP63.35 million to clients in the 12 months
to 31 July 2017 an increase of 30.5% (31 July 2016 GBP48.56
million)
-- In August 2016, Barclays bank increased our facility from GBP10 million to GBP15 million
-- We have also further increased our access to liquidity in
July 2017 with a new bank funder providing us with a facility from
August 2017
-- The board remains committed to implementing its progressive dividend policy in 2018
Ravi Takhar, Chief Executive Officer of Orchard, said: ""I am
very pleased with Orchard's performance during the year. We are
passionate about our business and continue to grow in a prudent and
controlled manner. We will continue to focus on our core markets
and as we have already demonstrated this will result in an
increased share of those markets. Trading since the period end has
continued to be robust and in line with management expectations. We
have a number of strategic avenues available to us to support the
group's growth and we look forward to the year ahead with cautious
optimism."
The board is pleased to propose a final dividend of 2 pence per
share to be paid on 22 December 2017 to shareholders on the
register on 8 December 2017, with an ex-dividend date of 7 December
2017. The final dividend is subject to shareholder approval at the
company's upcoming annual general meeting ("AGM").
The AGM is to be held on 16 December 2017 at the company's
registered office. Notice of the AGM will be sent out in November
2017.
For further information please contact
Orchard Funding Group PLC +44 (0)1582 635 507
Ravi Takhar, Chief Executive Officer
finnCap Limited (Nomad and Broker) +44 (0)20 7220 0579
Jonny Franklin-Adams (Corporate Finance)
Emily Watts (Corporate Finance)
Jeremy Grime (Research Director)
For Investor Relations please go to:
www.orchardfundinggroupplc.com
Group financial highlights
2017 2016 2015
Lending volume GBP63.35m GBP48.56m GBP43.81m
Revenue GBP4.56m GBP3.47m GBP3.41m
Gross profit GBP4.15m GBP3.15m GBP2.46m
Profit before tax(1) GBP1.64m GBP1.27m GBP1.29m
Profit after tax(1) GBP1.34m GBP1.00m GBP1.03m
EPS (pence)(2) 6.26 4.70 8.77
DPS (pence)(3) 3.00 2.81 1.17
Return on capital employed(4) 6.73% 6.41% 8.24%
Return on equity 10.16% 8.14% 8.89%
------------------------------- ---------- ---------- ----------
1. Costs associated with the parent are included in the profit
before and after tax above. These are not reflected in the
information on subsidiaries shown below.
2. There are no factors which would dilute earnings therefore
fully diluted earnings per share are identical.
3. Dividends per share are based on interim dividends paid in
the year and proposed final dividend for the year.
4. See the Group strategic report for further information on key performance indicators ("KPIs").
Information on segments
2017 2016 2015
Insurance premium funding
Lending volume GBP43.04m GBP32.79m GBP28.28m
Revenue GBP3.06m GBP2.26m GBP2.13m
Gross profit GBP2.66m GBP1.94m GBP1.71m
Profit before tax GBP1.56m GBP1.06m GBP0.99m
Profit after tax GBP1.37m GBP0.94m GBP0.77m
Return on capital employed 9.15% 7.79% 9.04%
Professional fee funding
Lending volume GBP20.31m GBP15.77m GBP15.53m
Revenue GBP1.50m GBP1.21m GBP1.28m
Gross profit GBP1.49m GBP1.21m GBP0.75m
Profit before tax GBP0.68m GBP0.73m GBP0.36m
Profit after tax GBP0.57m GBP0.58m GBP0.29m
Return on capital employed 8.91% 11.55% 7.64%
The information given above relates to the main subsidiaries.
Orchard Finance is not included as its results in terms of income,
expenditure, assets and liabilities are negligible (gross assets
were GBP8.3k and total liabilities GBP7.5k, giving net assets of
GBP0.8k at 31 July 2017 (GBP0.07k at 31 July 2016).
In the six months to 31 January 2017, the board reported
segmental information by sub dividing insurance premium funding
between direct and broker finance companies. The risks, security
and average returns are not materially different between these
types of business therefore there is no meaningful information to
be gained by separating them. They have therefore been merged in
these accounts. The amounts originally formed part of the half year
accounts which were unaudited. These figures are therefore also
unaudited.
Below are revised tables showing the combined situation for the
six months to 31 January 2017 and the six months to 31 January
2016. These figures are unaudited.
6 months 6 months
to 31 to 31
January January
2017 2016
Insurance premium funding
Lending volume GBP20.6m GBP16.46m
Revenue GBP1.44m GBP1.06m
Gross profit GBP1.25m GBP0.68m
Profit before tax GBP0.71m GBP0.57m
Profit after tax GBP0.62m GBP0.51m
Return on capital employed 3.87% 3.86%
Professional fee funding
Lending volume GBP10.52m GBP7.17m
Revenue GBP0.68m GBP0.58m
Gross profit GBP0.68m GBP0.58m
Profit before tax GBP0.36m GBP0.38m
Profit after tax GBP0.29m GBP0.30m
Return on capital employed 3.85% 5.54%
At the end of the six months to 31 January 2016, Orchard Funding
(professional fee funding) had a substantial amount of cash in the
bank, post the IPO a few months earlier. The return on capital
employed (ROCE) percentage takes account of bank balances and
therefore the ROCE is disproportionately high for that period.
Chairman's statement
Orchard Funding Group plc has had a very satisfactory year. I am
pleased to report that this success has been driven by a
significant increase in overall lending volumes, which grew by
30.5% to GBP63.35m. This in turn fed through to an increase in
group revenues of 31.4% to GBP4.56m, a record for the group. The
position at the year end showed a 6.7% increase in shareholders'
equity from GBP12.34m to GBP13.17m.
Investment in staff and systems meant that administrative costs
in the business grew by 33.3% to GBP2.51m. This was a little ahead
of the growth rates seen in both lending and revenue but your board
considers these investments to be important and necessary to ensure
that the business continues to support and delight our customers
and continue to provide them with the levels of service that they
have, rightly, come to expect of us.
The group's profit before tax rose by 29.1% to GBP1.64m, ahead
of market commentators' expectations. Group earnings per share rose
by 33.2% to 6.26p, a more than respectable outcome for the
year.
The level and growth of dividends announced by any company is
often seen as a mark of the confidence that the directors have in
the future of the business in question. It is no different for
Orchard Funding Group and we are happy to propose a 6.76% increase
in the annual dividend (including the interim dividend) to
3.00p.
The group's main focus of operations is the insurance premium
finance market, currently an area growing well and showing every
sign of continuing to so do. The best of that growth for the
Orchard Group, we believe, will come from the direct insurance side
of the business. Although the professional fee funding market is an
important part of the group's profit stream, the rates of growth
expected from this area by your board are likely to be more modest
by comparison.
The macro background remains generally favourable for the group.
Interest rates in the UK remain low but should they rise in the
future the group is well placed to react quickly. Loans are
generally for a 10 month period and none are longer than 12 months
in duration.
However, if conditions are of benefit to the group then they are
inevitably also helpful to our competitors. We have seen strong
competition in some areas of our focus with pressure being put upon
rates. The largest players in the insurance premium finance market
continue to aggressively protect their market positions. We are
seeing increasing examples of insurance brokers entering into 2-3
year exclusivity agreements and receiving substantial advance
commission payments in return for introducing their business to
certain insurance premium finance providers. That said, we believe
that we are in a strong position to continue to grow our lending
volumes at acceptable rates without needing to resort to such
tactics.
Your board remains focussed on the cost of our own borrowing and
continually looks to seek out new ways in which to keep this as low
as possible. Potential sources of liquidity for the group are
always examined and we continue to keep all our options under
review.
During the year we acquired Orchard Finance which operated
Orchard Lending Club, a peer-to-peer initiative. It is still early
days but we believe that this is the first product in the insurance
premium/professional fee funding space to be introduced in the UK
market, and has attracted considerable interest in the financial
press.
As we reported at the interim stage the new consumer credit
application regime has led to delays in applications as the FCA is
inundated. To try and avoid these delays, we have created
structures to enable brokers to rely on our regulatory permissions
whilst still obtaining the benefits of lending without the
regulatory burden. Interest in this approach remains considerable
and we believe we are the only providers of such a service in the
UK at present.
As shareholders would expect, the board continues to assess
markets adjacent to our current areas of business where we are able
to bring our expertise, products and solutions to bear for the
benefit of these markets. We will, of course, report on any
developments as and when the occasion arises.
I am also very pleased to report that the board of Orchard
Funding Group has been strengthened with the appointment of Mr.
Iacovos Koumi as a non-executive director. Iac brings many years of
experience in matters of finance and banking and we have already
benefitted from his wisdom in our deliberations. We welcome him
warmly.
The board is very satisfied with the progress of the group to
date. We will continue to examine all appropriate strategic avenues
for the group and will also continue to make the appropriate
investments necessary to ensure continuing success while, at the
same time, remaining focussed on the cost of our borrowing, the
rates returned and the size and quality of the loans we
provide.
We look to the future with confidence.
David A Clark
Chairman
16 October 2017
Chief executive's review
We are pleased to report that we continue to build on the
progress we made last year.
Our lending and our pipeline of new clients continue to grow in
all the markets in which we operate.
Our two key competitors are still the largest suppliers of
premium funding and professions finance in the UK market. Both
companies continue aggressively to protect their multi-billion
pound patch, but our focused sales effort continues to win us new
business.
We have also significantly improved the liquidity available to
the group, by renewing our GBP15m facility with our existing
bankers for a further 12 months and obtaining a new banking
facility from another banking institution.
Our investors are aware that we have been working on obtaining a
bank licence. I am pleased to report that this process is moving
forward in a positive direction and gaining momentum. We will
continue to update investors with our progress on this exciting
development to the business.
We remain a small, lean, hardworking and profitable finance
company in a huge financial services market. We are passionate
about our business and have now operated in our market for nearly
17 years. We will continue to work as hard as we can and to the
best of our abilities. We are confident that this will result in an
increased share of our market.
Insurance premium finance and professional fee finance is a
multi-billion pound market, which is dominated by two large and
well managed companies. We will continue to work hard to take a
very small portion of the market for the group. We have the
capital, liquidity and a great team to achieve our conservative
plans and projections for the business and are looking forward to
our continued growth over the coming years.
We paid a dividend of 1.405p per share in December and an
interim of 1p per share in April. I am happy to announce that the
board will propose a final dividend of 2p per share to be paid in
December 2017, subject to shareholder approval.
Ravi Takhar
Chief executive officer
16 October 2017
Group strategic report
Strategy and objectives
The group's principal objective is to increase our profitability
in a prudent, sustainable manner. The reason for this is that our
stakeholders (employees, shareholders, partners, other customers,
creditors and government) will all benefit from profit growth in
the group.
We have two main financial strategies for doing this:
-- to grow our lending book profitably. In the short to medium
term, the directors believe that the group's aims will be achieved
first by increasing the number of our insurance broker and
professional firm clients and secondly, by increasing the volume of
business from our insurance broker and professional firm partners.
This will come from a dedicated sales team who have achievable
targets and by additional funding. Growth in our book also requires
further increasing our capital base which will enable us to support
higher levels of borrowing, leading to better liquidity and
economies of scale;
-- to obtain a bank licence. This will enable us to increase our
liquidity further and reduce our reliance on commercial
lenders.
Our financial strategy is bolstered by our non-financial
strategies. First, we consider those brokers and professional firms
with whom we work as our partners. We provide them with the tools
they require to run their own finance businesses or we directly
provide their customers with finance. We have found that in this
way these businesses become supportive participants in our
objectives because they see how this will assist them in achieving
theirs. Our sales team are given support in meeting the targets set
for them by finding these target partners, arranging prospect
meetings and, where required, making use of senior personnel to
help them close the deal. Care of our partners is of paramount
importance in our business culture and this aspect is a constant
part of training for all staff. Feedback from our partners in this
area has been positive. Performance targets set for our staff (for
example, answering partner enquiries promptly) have all been
met.
The aim going forward is to build strongly on our core markets.
The board does consider complementary markets to augment the
group's core businesses but will only enter these if, after
detailed analysis, it will assist in achieving the overall
objectives.
Our business model
The group has two main businesses:
-- Providing credit to limited companies, partnerships and
consumers to enable them to spread the cost of their insurance
premiums, both through premium funding companies, owned by
independent insurance intermediaries, and directly on behalf of
other independent insurance intermediaries; (mainly conducted by
Bexhill) and
-- Providing credit to entities similar to those dealt with by
Bexhill to enable them to spread the cost of their professional
fees (conducted by Orchard).
Bexhill
Bexhill borrows up to 75% of the amount advanced to each of its
clients from its bankers. The balance is provided by Bexhill from
its own resources. Its capital and reserves were GBP2.94m as at 31
July 2017. Barclays has renewed Bexhill's facility each year since
2002. Bexhill's current facility is GBP15.0 million. Barclays
performs regular reviews and supplements these with an audit every
six months by external independent auditors. Bexhill has operated
within a disciplined lending environment since its inception.
Insurance broker borrowing limits are set based on financial
information, credit reports, regulatory requirements and other
qualitative factors obtained from the broker. In addition, an
annual review process, including regulatory permissions and credit
checks, is conducted and each broker is monitored monthly for the
company's financial exposure to that broker.
Bexhill's external cost of finance was approximately 3.4% in the
financial year to 31 July 2017.
Orchard
Orchard borrows through Orchard Finance (badged under Orchard
Lending Club), the peer to peer lender which was set up last year.
At 31 July 2017 Orchard's capital and reserves were GBP0.68m. In
the past Orchard's business was subject to regular audits by its
finance supplier. That led to Orchard developing a highly
disciplined approach. The directors also set credit limits on
professional firms and obtain credit reports as part of the
underwriting process. In addition, Orchard performs an annual
review process and monitors exposure to each accountancy and
professional firm monthly.
Orchard's external cost of finance was, on average, 4.06% in the
financial year to 31 July 2017.
As stated in the second paragraph above, a bank licence will
increase our liquidity and reduce reliance on third party
financing.
With both companies it is the simplicity of the premise which is
the greatest strength - borrow money at one rate and lend it at a
higher rate. Cash flow is good and overhead is well controlled.
The business environment
The insurance premium finance market in which the group operates
is still expected by the board to grow over the next five years in
line with the general insurance market. We believe that most of our
premium finance growth will come from the direct insurance side
rather than from broker premium funding companies, although the
premium funding company activities will remain the largest part of
the business for the foreseeable future (see our business model
above). The market for professional fee finance is also expected to
grow, although growth in this area is not expected to match the
insurance premium funding side.
In June 2016 the UK voted to leave the European Union. This has
created a situation of uncertainty for business generally. Given
our market, the board believes that the direct effect of Brexit on
Orchard will be minimal in the short term. Conditions arising from
this process (e.g. a fall in sterling) appear to have had little
impact on us so far.
In August 2016 the Bank of England cut its base rate to 0.25%.
Recent statistics regarding the rate of inflation indicate that
rates will remain low in the very short term but are likely to rise
as inflation and debt rises. Even if rates do increase, the nature
of the business will allow fairly quick reaction to this (our
business is short term loans - ten months on average and none over
twelve months). The board believes that further opportunities will
present themselves as liquidity becomes more important to
businesses and individuals (for borrowers our service is an
additional line of liquidity).
The business environment has certainly provided some challenges
this year (e.g. the uncertainty over Brexit and increased
competition) but it still affords a real opportunity for the group,
with a growing market for its products and, currently, relatively
stable interest rates.
Principal risks and uncertainties
The group's activities expose it to a variety of financial
risks;
-- credit risk;
-- liquidity risk; and
-- cash flow interest rate risk.
The group's overall risk management programme focuses on
reducing the effect of these risks on the group's financial
performance. A regular assessment of the principal risks affecting
the group is carried out by the board of directors. It identifies,
evaluates and mitigates financial risks and has written policies
for credit risk and liquidity risk.
The principal risks, an explanation of what they are, their
impact on the group and how they are mitigated, are shown in Table
1. Our sole business is lending money and therefore the risks apply
to this area (although we have segmented these for reporting
purposes).
There are other risks associated with general financial
uncertainty in this business (or in any other business), e.g. loss
of staff and insurance risk. These have been reviewed but are not
key or principal risks.
Table 1 principal risks
Assessment
Explanation Impact on of change
Risk of risk the group in risk Mitigation
year-on-year of risk
----------- ------------------ --------------------- -------------- ---------------------
Credit The risk A major loss This is Money is only
risk that debtors could have an ongoing lent for periods
will default. a serious situation. up to one
effect on There has year through
group profit. been no regulated
Although loans change introducers
to insurance in this who guarantee
broking finance risk. the loans.
companies Borrowing
can be substantial, limits are
we have a set based
claim on the on prudent
underlying underwriting
agreements principles.
which are Impairment
considerably reviews are
smaller. For regularly
this reason conducted
any losses to identify
are likely potential
to come from problems early.
relatively
small debts,
therefore
these would
have little
impact on
liquidity
or solvency.
----------- ------------------ --------------------- -------------- ---------------------
Liquidity A lack of If our funding This is Our bankers
risk funding had been halved an ongoing have supported
to finance for the whole situation. us since 2002
our business. of the 2017 There has and last year
year, and been no increased
there had change our funding
been no changes in this by 50%. They
in overheads, risk. have renewed
there would our facility
still have for another
been a pre-tax year and have
profit of indicated,
approximately so far as
GBP0.7m. There they are able,
is no threat that they
to solvency have no wish
or own liquidity to withdraw
through a that support.
reduction Other lines
in funding. of credit
have since
been opened
to us and
we have our
own resources
to draw on
which were
GBP13.2m at
31 July 2017.
----------- ------------------ --------------------- -------------- ---------------------
Cash flow An increase Loans already This is Management
interest in bank made will an ongoing is in regular
rate risk rate means be effectively situation. contact with
that loans charged at There has its bankers
already a lower margin been no and routinely
made need for part of change reviews the
to be covered the borrowing in this financial
by new borrowing term. risk. situation
at a higher In any realistic in the economy.
rate. scenario, Loans made
liquidity are relatively
and solvency short term
would not (no more than
be significantly twelve months
affected. with the average
at ten) so
any increase
is likely
to have a
fairly short
term impact.
----------- ------------------ --------------------- -------------- ---------------------
IT risk Disruption Persistent This is There are
to or failure failures would an ongoing in place business
of our IT have an enormous situation. continuity
systems. impact on There has procedures
our business been no and security
and could change measures in
lead to its in this the event
collapse. risk. of IT failures
Clearly, this or disruption,
would affect including
solvency. backup IT
However, our systems for
controls are business critical
such that systems. These
even a minor are reviewed
disruption with our providers
is very quickly at least annually
picked up but more frequently
and action if work is
taken. We being carried
have never out on the
had this type system.
of failure.
----------- ------------------ --------------------- -------------- ---------------------
In summary:
-- credit risk is reduced by a robust system of checks on
borrowers and by third party guarantees;
-- liquidity risk has been alleviated by a new source of funding
from another bank and should be further eased by obtaining a bank
licence;
-- cash flow interest rate risk is mitigated by the fact that
loans are short term and by regular interaction with our bankers;
and
-- risk from disruption of the IT system is avoided by thorough
business continuity procedures.
Our internal control systems ensure that the incidence of fraud
or error is kept to a minimum. Much of the process is automated and
provided and maintained by a third party.
The nature of the business is that loans are made either to
introducer finance companies or to clients of our introducing
partners. Although there is high concentration when lending to
finance companies (at 5 October 2017 the largest nominal exposure
was 21.93% of our loans), the individual debts making up these
loans are assigned to us in the event of default. The reality,
therefore, is that our exposure is low. At 5 October 2017, (the
latest date of review), total outstanding loans were GBP27.95m, of
which the highest was GBP0.49m, representing 1.75% of the
outstanding amounts. This was the level of our highest exposure at
that date. The situation was similar throughout the year and is
expected to remain so for the foreseeable future.
We have experienced late payments in the past. The majority of
these are through clients of our introducers (or the introducers
themselves) changing banking details. Where there are other issues
which cause late payment we investigate these. During the year to
31 July 2017 there was one situation which arose causing a loss of
GBP52,681 (see note 10). Because of the size of the individual
repayments. any impact on our business through late payments would
be negligible.
Development and performance of the business
The fundamental function of the business (whether the insurance
side or fee funding side) is to lend money safely. To do this the
group has relied on obtaining funding to provide loans to clients
of its partners (insurance intermediaries and professional firms).
The ability to provide this money is crucial to the business and
availability of funds is a key area to enable future growth. For
this reason the bank licence is being applied for.
The ability to find borrowers is also key to the business. This
has been discussed at the beginning of the Group strategic report.
The more formal and extensive marketing plan, launched in the
previous year, has now reaped benefits. Our recruits to the sales
team are contributing substantially to the growth of the group.
Our margin is another key area. Upward changes in base rate
could erode our margins (but only in the short term). Should rates
increase, our rates would also increase to reflect this. Our own
analysis indicates that the influence on our business would be
negligible. Indeed, there was a reduction in bank rate during the
year which has had very little impact.
Overheads in this business are relatively stable. We have
increases resulting from an increased sales function, increasing
our bank borrowings and enhancements to our IT systems. Other
overheads have not altered significantly.
The board has identified the following financial KPIs:
-- Lending.
-- Gross rate on loans made.
-- Borrowing and other capital resources.
-- Cost of borrowing.
The tables below give a breakdown of our KPIs on a group basis
and by segment.
2017 2016 2015
Group
Loans made in the GBP63.35m GBP48.56m GBP43.81m
year
Average gross rate
on loans made 6.06% 6.22% 7.41%
Level of borrowing GBP13.79m GBP9.24m GBP7.06m
Own capital resources GBP13.17m GBP12.34m GBP11.64m
Cost of borrowing GBP0.33m GBP0.24m GBP0.85m
----------------------- ---------- ---------- ----------
Insurance premium
funding
Loans made in the GBP43.04m GBP32.79m GBP28.28m
year
Average gross rate
on loans made 5.49% 5.64% 6.05%
Level of borrowing GBP13.54m GBP9.2m GBP7.06m
Own capital resources GBP2.94m GBP2.42m GBP2.28m
Cost of borrowing GBP0.32m GBP0.24m GBP0.33m
Revenue GBP3.06m GBP2.26m GBP2.13m
PBT GBP1.56m GBP1.06m GBP0.99m
Professional fee funding
Loans made in the GBP20.31m GBP15.77m GBP15.53m
year
Average gross rate
on loans made 7.27% 7.44% 8.11%
Level of borrowing GBP0.25m GBP0.04m GBP0.00m
Own capital resources GBP0.68m GBP0.52m GBP0.54m
Cost of borrowing GBP0.01m GBP0.00m GBP0.52m
Revenue GBP1.50m GBP1.21m GBP1.28m
PBT GBP0.68m GBP0.73m GBP0.36m
---------- ---------- ----------
NB. In the audited accounts loans made, revenue and PBT are
shown in graphical form. We are unable to do this in the
preliminary announcement so these are shown as part of the
tables.
In 2015 Orchard was funding its business through Bracken
Holdings Limited at an average cost of 12%. Profit was therefore
disproportionately low in 2015.
In terms of non-financial indicators, the most important of
these is quality of management and staff.
Our senior members of staff have a substantial number of years
of experience between them working in the business. Because, over
the years, they have taken on additional responsibilities, they
know each area of the business well.
All our staff are fully trained for the role which they take.
Customer care is of paramount importance in our business culture
and this aspect is a constant part of training for all staff
members. Feedback from our partners in this area has been very
positive. Performance targets set for our staff have all been
met.
People are happy to contribute towards our success and their
views are always listened to by senior management. In many cases
ideas which come forward are put into action and in all cases
explanations are given when this does not happen.
Going concern
The financial statements have been prepared on a going concern
basis which assumes that the group will be able to continue its
operations for the foreseeable future.
The directors continually assess the prospects of the group.
Forecasts are prepared for a three year period, on a rolling basis.
These are also subject to sensitivity analysis, the main aspect of
which is the value of loans made. In all scenarios, there is no
indication that there will be a problem in continuing as a going
concern. However, it is important to appreciate that the further
away in time the estimate, the less reliable it is. The forecasts
are prepared on the basis that bank base rate will remain where it
is. This is clearly highly unlikely in the longer term. However,
should rates from the bank rise we are in a position to react (as
mentioned in the section on cash flow interest rate risk above),
within a short period of time, with relatively little impact on our
margins.
The key assumptions and bases used in the forecasts are:
-- Loans through our partners will grow from circa GBP64m in 2017 to circa GBP120m in 2020;
-- Liquidity will be available to fund those loans;
-- Margins will remain stable on both corporate and direct business;
-- Overhead will increase at the rate of inflation with stepped
increases at certain points (when capacity constraints are
hit);
-- The funding system will be able to accommodate the increased business.
The consolidated statement of financial position shows the
situation at the year end in detail.
The two subsidiaries have traded for a number of years and have
grown at a rate commensurate with finance available at a given
point in time.
The directors have prepared and reviewed financial projections
for the 12 month period from the date of signing of these financial
statements. Based on the level of existing cash and the projected
income and expenditure, the directors have a reasonable expectation
that the company and group have adequate resources to continue in
business for the foreseeable future. Accordingly the going concern
basis has been used in preparing the financial statements.
Environmental, social responsibility, community, human rights
issues and gender diversity
The group is a small group. The impact of the group on the
environment consists of power used in an office environment and
fuel used for getting to and from work. Environmental issues are
therefore negligible.
The group operates out of an office in Luton. Most of our
employees are based in the local area. We therefore contribute to
the economy of the local community. None of our employees earn less
than GBP10 per hour (before any bonuses). We provide health club
membership and childcare for any staff who wish it. We review the
background of our suppliers and will not use any supplier which, as
far as we are aware, breaches our own high standards as regards
human rights.
The main board of directors is currently all male. The main
reason for this situation is that the group took in outside board
members who were best suited to the positions. The board of the two
subsidiaries consist of one male and two females each. Males make
up 41.67% of the employees in total (36.00% in 2016).
Approved by the directors and signed by order of the board
Liam McShane,
Company secretary
16 October 2017
Consolidated income statement
2017 2016
Notes GBP GBP
--------------------------------- ------ ------------ ------------
Continuing operations
Revenue 4 4,559,966 3,468,864
Finance costs 4 (329,478) (238,079)
Other operational costs 4 (77,550) (76,025)
Gross profit 4,152,938 3,154,760
Administrative expenses 4 (2,511,941) (1,884,030)
Operating profit and profit
before tax 1,640,997 1,270,730
Tax 7 (303,214) (266,653)
Profit for the year from
continuing operations 1,337,783 1,004,077
Other comprehensive income - -
Total comprehensive income
for the year attributable
to the owners of the parent 1,337,783 1,004,077
Earnings per share attributable
to the owners of the parent
during the year (pence)
Basic and diluted 8 6.26 4.70
--------------------------------- ------ ------------ ------------
Consolidated statement of financial position
2017 2016
Notes GBP GBP
------------------------------ ------ ----------- -----------
Assets
Non-current assets
Property, plant and
equipment 76,567 95,058
Intangible assets 74,914 43,873
Trade and other receivables 10 22,720 -
174,201 138,931
------------------------------ ------ ----------- -----------
Current assets
Trade and other receivables 10 28,523,011 22,003,868
Cash and cash equivalents:
Bank balances and
cash in hand 1,728,484 1,390,098
30,251,495 23,393,966
------------------------------ ------ ----------- -----------
Total assets 30,425,696 23,532,897
Equity and liabilities
Equity attributable to the
owners of the parent
Called up share capital 213,542 213,542
Share premium 8,691,910 8,691,910
Merger reserve 890,725 890,725
Retained earnings 3,369,664 2,545,449
Total equity 13,165,841 12,341,626
------------------------------- ------ ----------- -----------
Liabilities
Non-current liabilities
Borrowings 11 57,458 27,318
Deferred tax 7,482 10,078
64,940 37,396
------------------------------ ------ ----------- -----------
Current liabilities
Trade and other payables 12 3,181,938 1,657,030
Borrowings 11 13,733,504 9,207,927
Tax payable 279,473 288,918
17,194,915 11,153,875
------------------------------ ------ ----------- -----------
Total liabilities 17,259,855 11,191,271
------------------------------- ------ ----------- -----------
Total equity and liabilities 30,425,696 23,532,897
Consolidated statement of changes in equity
Called
up
share Retained Share Merger Total
capital earnings Premium reserve equity
GBP GBP GBP GBP GBP
Balance at 1 August
2015 213,542 1,841,398 8,691,910 890,725 11,637,575
Changes in equity
Total comprehensive
income - 1,004,077 - - 1,004,077
Transactions with
owners:
Dividends paid - (300,026) - - (300,026)
Balance at 31 July
2016 213,542 2,545,449 8,691,910 890,725 12,341,626
--------------------- -------- ---------- ---------- -------- -----------
Changes in equity
Total comprehensive
income - 1,337,783 - - 1,337,783
Transactions with
owners:
Dividends paid - (513,568) - - (513,568)
Balance at 31 July
2017 213,542 3,369,664 8,691,910 890,725 13,165,841
--------------------- -------- ---------- ---------- -------- -----------
Retained earnings consist of accumulated profits and losses of
the group. They represent the amounts available for further
investment in group activities. Only the element which constitutes
profits of the parent company are available for distribution.
The share premium account arose on the IPO on 1 July 2015 at a
premium of 95p per share. Costs of the IPO have been deducted from
the account as permitted by IFRS.
The merger reserve arose through the formation of the group on
23 June 2015 using the capital reorganisation method as shown in
note 2.3 on page 28 of the statutory accounts.
Consolidated statement of cash flows
2017 2016
GBP GBP
Cash flows from operating
activities:
Profit before tax 1,640,997 1,270,730
Adjustment for depreciation
and amortisation 47,913 20,521
Hire purchase interest 2,376 1,466
1,691,286 1,292,717
Increase in trade
and other receivables (6,541,863) (4,088,870)
Increase/(decrease) in trade
and other payables 1,524,908 (178,878)
(3,325,669) (2,975,031)
Tax paid (315,256) (253,245)
Net cash absorbed
by operating activities (3,640,925) (3,228,276)
Cash flows from investing
activities
Purchases of property,
plant and equipment (1,706) (61,924)
Purchase of intangible
fixed assets (58,757) (50,949)
Net cash absorbed
by investing activities (60,463) (112,873)
Cash flows from financing
activities
Dividends paid (513,568) (300,026)
Net proceeds from
borrowings 4,564,919 2,185,099
Borrowings repaid (11,577) (8,627)
Net cash generated
by financing activities 4,039,774 1,876,446
Net increase/(decrease)
in cash and cash equivalents 338,386 (1,464,703)
Cash and cash equivalents
at the beginning of the
year 1,390,098 2,854,801
Cash and cash equivalents
at the end of year 1,728,484 1,390,098
Notes to the consolidated financial statements
1. Preliminary announcement
Orchard Funding Group plc ("Orchard") is a public limited
company incorporated and domiciled in England and Wales, whose
shares are publicly traded on the AIM market of the London Stock
Exchange. The registered office is 721 Capability Green, Luton,
Bedfordshire LU1 3LU and the principal place of business is the
United Kingdom.
The preliminary announcement set out above does not constitute
Orchard's statutory financial statements for the years ended 31
July 2017 or 2016 within the meaning of section 434 of the
Companies Act 2006 but is derived from those audited financial
statements. The auditor's report on the consolidated financial
statements for the years ended 31 July 2017 and 2016 is unqualified
and does not contain statements under s498(2) or (3) of the
Companies Act 2006.
The accounting policies used for the year ended 31 July 2017 are
unchanged from those used for the statutory financial statements
for the year ended 31 July 2016. The 2017 statutory accounts will
be delivered to the Registrar of Companies following the Company's
Annual General Meeting.
2. Compliance with accounting standards
While the financial information included in this preliminary
announcement has been computed in accordance with IFRS, this
announcement does not itself contain sufficient information to
comply with IFRS.
Accounting standards adopted in the year
No new accounting standards that have become effective and
adopted in the year have had a significant effect on the Group's
Financial Statements.
Accounting standards issued but not yet effective
At the date of authorisation of the Financial Statements, there
were a number of other Standards and Interpretations (International
Financial Reporting Interpretation Committee - IFRIC) which were in
issue but not yet effective, and therefore have not been applied in
these Financial Statements. The Directors have not yet assessed the
impact of the adoption of these standards and interpretations for
future periods, but do not expect them to have any significant
impact on the Group's financial statements.
3. Going concern
The financial statements have been prepared on a going concern
basis which assumes that the Group will be able to continue its
operations for the foreseeable future. The Directors have prepared
and reviewed financial projections for the 12 month period from the
date of signing of these financial statements. Based on the level
of existing cash and the projected income and expenditure, the
Directors have a reasonable expectation that the Company and Group
have adequate resources to continue in business for the foreseeable
future. Accordingly the going concern basis has been used in
preparing the financial statements. This is discussed more fully in
the Group strategic report.
4. Segment information
The group operates wholly within the United Kingdom therefore
there is no meaningful information that could be given on a
geographical basis. It does have, however, two discrete operating
segments - insurance premium funding and professional fee
funding.
The board assesses the performance of each sector based on
operating profit (before tax and exceptional items, but after
interest which is a cost of sale). The relative revenues, operating
costs and operating profit are shown below. Segmental assets and
liabilities are provided to the board and the CEO (the chief
operating decision maker) and are not therefore disclosed
further.
Insurance
premium Professional
2017 Total Central funding fee funding
GBP GBP GBP GBP
Revenue 4,559,966 - 3,058,044 1,501,922
--------------------------- ------------ ---------- ------------ -------------
Interest payable (329,478) - (321,117) (8,361)
Operational costs
and administrative
expenses (2,583,564) (592,245) (1,176,579) (814,740)
Goodwill on consolidation
written off (5,927) - - -
Operating profit/(loss)
before tax 1,640,997 (592,245) 1,560,348 678,821
Current tax expense (303,214) - (189,971) (113,243)
Profit/(loss) for
the year after tax 1,337,783 (592,245) 1,370,377 565,578
--------------------------- ------------ ---------- ------------ -------------
Insurance
premium Professional
2016 Total Central funding fee funding
GBP GBP GBP GBP
Revenue 3,468,864 - 2,259,577 1,209,287
--------------------------- ------------ ---------- ------------ -------------
Interest payable (238,079) - (238,079) -
Operational costs
and administrative
expenses (1,960,055) (514,161) (961,771) (484,123)
Operating profit/(loss)
before tax 1,270,730 (514,161) 1,059,727 725,164
Current tax expense (266,653) - (121,831) (144,822)
Profit/(loss) for
the period after tax 1,004,077 (514,161) 937,896 580,342
--------------------------- ------------ ---------- ------------ -------------
5. Expenses by nature
2017 2016
GBP GBP
Interest payable in
cost of sales 329,478 238,079
Employee costs (including
directors) 1,072,259 838,544
Advertising and selling
costs 218,855 151,791
Bank fees 437,566 353,577
Other expenses 860,811 616,143
------------------------------ ---------- ----------
Total cost of sales, other
operational costs and
administrative expenses 2,918,969 2,198,134
----------------------------- ---------- ----------
6. Finance income and costs
The group's income comes from making loans.
Interest payable on borrowings to finance these loans is
therefore included as a cost of sale. The amount included was
GBP329,478 (2016 GBP238,079).
7. Income tax expense
7.1 Current period tax charge:
2017 2016
GBP GBP
---------------------------------- --------- --------
Current tax expense 331,050 250,616
Adjustment re previous year
tax expense (25,240) 6,549
Deferred tax expense relating
to the origination and reversal
of temporary differences (2,596) 9,488
303,214 266,653
---------------------------------- --------- --------
7.2 Tax reconciliation
The tax assessed for the year differs from the main corporation
tax rates in the UK (19% and 20%, 2016 - 20%).
The differences are explained below.
2017 2016
GBP GBP
--------------------------------- ---------- ----------
Profit for the financial period 1,640,997 1,270,730
--------------------------------- ---------- ----------
Applicable rate - 19.67% (2016
20%) 19.67% 20.00%
--------------------------------- ---------- ----------
Tax at the applicable rate 322,784 254,146
Effects of:
Expenses not deductible for
tax 5,263 7,737
Adjustment re previous year
tax expense (25,240) 6,549
Reduced rate of tax (17%) on
reversing timing differences 407 (1,779)
--------------------------------- ---------- ----------
Tax charge for the period 303,214 266,653
--------------------------------- ---------- ----------
8. Earnings per share
Earnings per share is based on the profit for the year of
GBP1,337,783 (2016 GBP1,004,077) and the weighted average number of
ordinary shares in issue during the year of 21,354,167 (2016
21,354,167). There are no options or other factors which would
dilute these therefore the fully diluted earnings per share is
identical.
9. Dividends
2017 2016
GBP GBP
------------------------------------- ---------- ----------
Amounts recognised as distributions
to equity holders in the period:
Final dividend for the year
ended 31 July 2016 of 1.405p 300,026 -
(2015 Nil) per share
Interim dividend for the year
ended 31 July 2017 of 1p (2016
1.405p) per share 213,542 300,026
513,568 300,026
------------------------------------- ---------- ----------
Proposed final dividend for
the year ended 2017 of 2p (2016
1.405p) per share 427,083 300,026
------------------------------------- ---------- ----------
10. Trade and other receivables
2017 2016
Group Group
GBP GBP
Non-current
Other receivables 22,720 -
-------------------- ----------- -----------
22,720 -
-------------------- ----------- -----------
Current
Trade receivables 28,412,738 21,799,397
Other receivables 86,321 170,947
Prepayments 23,952 33,524
--------------------
28,523,011 22,003,868
-------------------- ----------- -----------
Standard credit terms for trade receivables are based on the
length of the loan but payments are due on a monthly basis. The
directors consider that the carrying amount of trade and other
receivables approximates their fair value. There are impaired debts
at the year end amounting to GBP52,681 (2016 GBPNil). Provision has
been made in full for these. The value of debts which were past due
but not impaired at the year end was GBPNil (2016 GBPNil).
11. Borrowings
2017 2016
Group Group
GBP GBP
------------------------- ----------- ----------
Non-current:
Other loans 41,170 1,100
Hire purchase contracts 16,288 26,218
57,458 27,318
Current:
Bank loan 13,519,513 9,174,044
Other loans 204,490 25,110
Hire purchase contracts 9,501 8,773
13,733,504 9,207,927
11.1 Terms and repayment of debt schedule
The bank loan is due within one year.
The other loans fall due as follows:
2017 2016
Group Group
GBP GBP
------------------------ -------- -------
Within 1 year 204,490 25,110
Later than 1 year but
no later than 3 40,170 100
Later than 3 years but
no later than 5 1,000 1,000
------------------------ -------- -------
245,660 26,210
------------------------ -------- -------
The minimum payments under hire purchase contracts are as
follows:
2017 2016
Group Group
GBP GBP
------------------------ -------- --------
Within 1 year 11,036 11,036
Later than 1 year but
no later than 5 17,568 29,144
------------------------ -------- --------
28,604 40,180
Future finance charges (2,815) (5,189)
------------------------ -------- --------
25,789 34,991
------------------------ -------- --------
The present value of hire purchase liabilities are as
follows:
Within 1 year 9,501 8,773
Later than 1 year but
no later than 5 16,288 26,218
------------------------ ------- -------
Future finance charges 25,789 34,991
Bank borrowings are secured by a fixed and floating charge over
all the assets of Bexhill UK Limited, bear interest at rates of
2.90% above LIBOR plus any associated costs, and are repayable
within one year of the advances. The maximum drawdown facility is
currently GBP15m therefore at 31 July 2017 GBP1,480,487 was
undrawn.
Other borrowings are unsecured and bear interest at varying
rates between 4.00% and 6.25%.
Hire purchase liabilities are secured on the assets that they
finance and bear interest at varying rates.
12. Trade and other payables
2017 2016
Group Group
GBP GBP
Trade payables 2,832,827 1,469,707
Other payables 40,028 33,584
Other tax and social security
costs 42,623 34,187
Accrued expenses 266,460 119,552
-------------------------------
3,181,938 1,657,030
------------------------------- ---------- ----------
The directors consider that the carrying value of trade and
other payables approximates their fair value.
13. Financial instruments
The company is exposed to the risks that arise from its use of
financial instruments. The objectives, policies and processes of
the company for managing those risks and the methods used to
measure them are detailed in note 3 to the statutory accounts.
13.1 Principal financial instruments
The principal financial instruments used by the company, from
which financial instrument risk arises, are as follows:
-- Cash and cash equivalents
-- Trade and other receivables
-- Trade and other payables
-- Borrowings
13.2 Financial instruments by category
The group held the following financial assets at the reporting
date:
2017 2016
Group Group
GBP GBP
------------------------------ ----------- -----------
Loans and receivables:
Trade and other receivables:
non-current 22,720 -
Trade and other receivables:
current 28,499,059 21,970,344
Cash and cash equivalents:
Bank balances and cash
in hand 1,728,484 1,390,098
------------------------------ -----------
30,250,263 23,360,442
------------------------------ ----------- -----------
The group held the following financial liabilities at the
reporting date:
2017 2016
Group Group
GBP GBP
----------------------------------- ----------- -----------
Other financial liabilities
at amortised cost:
Interest bearing loans
and borrowings:
Borrowings payable: non-current 57,458 27,318
Borrowings payable: current 13,733,504 9,207,927
Trade and other payables 3,139,315 1,622,843
----------------------------------- ----------- -----------
16,930,277 10,858,088
----------------------------------- ----------- -----------
13.3 Fair value of financial instruments
The fair values of the financial assets and liabilities are not
materially different to their carrying values due to the short term
nature of the current assets and liabilities.
13.4 A Financial risk management
The company's policies for financial risk management are
outlined in note 3 on page 32 of the statutory accounts.
14. Treatment of borrowings
The group borrows money from its bankers and lends this on,
together with its own funds, to its customers.
Any increase in activity leads to an increase in debtors and an
associated increase in borrowings. If the company was one which
bought and sold goods or services the money borrowed would be
similar to the company's stock in trade and the change in creditors
would be shown as part of operating cash flows. However, accounting
standards require cash flows from financing to be shown separately
and this means that there appears to be a large outflow of cash
from the company's operations which is then covered by borrowings.
For reasons stated above this is not the case.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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