REG - Distribution Finance - Final Results
09/04/2024 07:00
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RNS Number : 7590J Distribution Finance Cap. Hldgs PLC 09 April 2024
9 April 2024
Distribution Finance Capital Holdings plc
("DF Capital" or the "Company" together with its subsidiaries the "Group")
Audited Results for the year ended 31 December 2023 and Q1 Trading Update
More than threefold increase in PBT and eleven consecutive quarters of loan
book growth.
Distribution Finance Capital Holdings plc, the specialist bank providing
working capital solutions to dealers and manufacturers across the UK, today
announces its audited results for the year ended 31 December 2023 as well as a
Q1 trading update.
Highlights
2023 2022 Change
Performance
Loan Book (£m) 581 439 +32%
New loans advanced to customers (£m) 1,200 1,001 +20%
No of dealer customers 1,182 998 +18%
Financial
Gross Revenue (£m) 60.4 26.8 +125%
Net Income (£m) 38.0 20.4 +86%
Cost of Risk (bps) 228 74 154bps
Excluding RoyaleLife (bps) 53 50
Profit before tax (£m) 4.6 1.3 251%
Net Assets (£m) 100.4 96.2 +4%
Adjusted earnings per share (pence)(1) 1.8 0.4 340%
Tangible net asset value per share (pence) 55.6 53.2 +5%
1. 2022 earnings per share is adjusted to remove the initial recognition of
deferred tax assets that occurred in 2022. Earnings per share without this
adjustment was 5.4p.
• Profit before tax increased more than threefold to £4.6m (2022:
£1.3m).
• New lending up 20% to a record £1.2bn (2022: £1.0bn), supporting a
year-end loan book of £581m (2022: £439m).
• Net interest margin (NIM) improved to 7.6% (2022: 6.5%), materially
ahead of 6% target.
• Cost-to-income ratio reduced to 58% (2022: 82%) demonstrating the
intrinsic operational leverage available at scale.
• Stock turn has continued to normalise to 148 days (2022: 102 days)
supporting loan book growth, whilst continuing to operate well within risk
tolerances.
• Continued low number of arrears cases: 30 dealers (2022: 24) or
c2.5% of total dealers more than one day past due or in legal recovery.
• Retail deposits increased during the year by £95m, with over 15.2k
savings accounts and £575m of deposits at 31 December 2023.
• Steady growth in new product adjacencies of receivables and
wholesale financing, delivering over £24m of new lending and £18m loan book
at year-end.
• Delivered non-dilutive capital capacity to support growth: upsizing
of British Business Bank ENABLE Guarantee to £250m with further £100m
extension potential; obtained £20m Tier 2 capital facility from British
Business Investments.
• Accredited by Best Companies as a 3-star company and a "World Class
Place to Work" (2022: 2-star).
Q1 Trading and Outlook
• Quarterly loan origination up c22% on prior year at c£330m (Q1
2023: £270m).
• Loan book increased to more than £610m, up over £100m on prior
year (Q1 2023: £505m) achieving eleven consecutive quarters of loan book
growth.
• Whilst focused on dealer credit quality, supported record
numbers:1,233 dealers (31 March 2023: 1,079) with over £1.1bn (31 March 2023:
£900m) of credit facilities being provided.
• NIM performance has continued to be strong and is expected to be in
excess of 6% target through the year, reverting to target with base rate
reductions over the medium-term.
• Exceptional arrears performance with 18 dealers with arrears greater
than 1 day past due or in legal recoveries; total arrears excluding RoyaleLife
credit loss equates to less than 0.3% of entire loan book; well below 1%
through the cycle.
• Stock turn operating at 150 days, well within blended risk
tolerance.
• Organic build of new hire purchase lending product underway, with
regulatory approval expected to be sought later in 2024 and ramp up of loan
origination in 2025.
• Capital capacity to grow loan book to approximately £800m, with
full extent of ENABLE Guarantee and Tier 2 capital, at which point financial
characteristics of the firm support further organic growth.
• Remain opportunistic when looking at alternative routes to unlock
faster growth including M&A.
• The Board expects financial performance for the full year to be in
line with expectations, targeting a year end loan book in the range of £650m
to 700m.
Carl D'Ammassa, Chief Executive, commented: "We are delighted to have
delivered another year of significant financial momentum and sustainable
profitable growth, culminating in more than a threefold increase in profit.
2023 has been a year of significant progress for us."
"We have started 2024 well and see opportunities for further growth in our
core lending product as well as new product adjacencies. Becoming a
multi-product lender underpins our strategy to scale the bank and achieve
mid-to-high teen returns over the medium term. Having engaged colleagues who
think we are a world class place to work is undoubtedly a key element of our
excellent financial performance."
The Group's full Annual Report and Financial Statements have today been
published and are available on its investor website at
www.dfcapital-investors.com (http://www.dfcapital-investors.com) .
Annual General Meeting
The Company will hold its Annual General Meeting on 5 June 2024 at the
Company's registered office in Manchester. The Notice of AGM and Form of
Proxy will be posted to shareholders in due course and a copy will be
available at www.dfcapital-investors.com
(https://gbr01.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.dfcapital-investors.com%2F&data=04%7C01%7C%7C13ba20c9cff94c47fec008da193d1ada%7C1309d8fb4b25412981032f000c609507%7C0%7C0%7C637850047474012036%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000&sdata=dV%2B3ztufomsUObMThIk4yvOEAJzZmVO9ZBEYKlYWY1Q%3D&reserved=0)
.
For further information contact:
Distribution Finance Capital Holdings plc
Carl D'Ammassa - Chief Executive Officer +44 (0) 161 413 3391
Kam Bansil - Head of Investor Relations +44 (0) 7779 229508
http://www.dfcapital-investors.com (http://www.dfcapital-investors.com/)
Investec Bank plc (Nomad and Broker) +44 (0) 207 597 5970
David Anderson
Bruce Garrow
Harry Hargreaves
Maria Gomez de Olea
Liberum Capital Limited (Joint Broker) +44 (0) 203 100 2000
Chris Clarke
William King
Anake Singh
Chair's Statement
Dear Shareholder
Since receiving full authorisation as a bank in September 2020, the
post-pandemic macro-economic headwinds have been significant. As a firm, one
of our key priorities has been ensuring we achieve sustainable profitable
growth to demonstrate the resilience of our business model. Following the
Group's maiden profit in 2022, I am delighted that this has more than tripled,
reaching £4.6m for the year.
Scaling the Group has been a key ingredient to defining our success. Having
now closed the first quarter of 2024, the Group has delivered eleven
consecutive quarters of loan book growth since authorisation. The bank
supports more dealers and manufacturers each year, has successfully developed
adjacent products and services to support its strategic growth ambitions,
managed costs effectively and worked hard to navigate the inevitable credit
risk challenges caused by higher interest rates and general inflationary
pressures. The Board is very pleased with the firm's successes and the strong
execution by the management team during the year.
Focus on culture key to a sustainable and successful business
Having the right culture is an important element of being a successful and
scalable financial services organisation. We have seen most recently the
adverse impact and regulatory intervention that inadequate customer outcomes,
deep rooted in a poor culture, can have on a firm. As a Board we spend a lot
of our time focusing on the firm's culture as we believe that sustainable and
successful businesses have a strong positive cultural DNA.
In the context of financial services, culture has a very broad definition,
stretching from how products and services are designed and manufactured -
particularly in the light of the new Consumer Duty; how firms go about meeting
their regulatory responsibilities; the quality of service offered to
customers; the support given to the communities in which firms operate; and
how employees feel about working in the firm. Looking through this cultural
lens, it is pleasing to see the extent of evolution across the various areas.
Assessed through the Board committee structure we believe the firm's approach
to risk management is robust. The firm's commitment to giving back to the
communities in which it operates is impressive. We continue to offer
exceptional levels of service and products that resonate with our customers
too. It is, therefore, unsurprising given the firm clearly has these cultural
elements right, that the Group improved its overall employee engagement
through the period. For the third consecutive year the firm has increased its
accreditation rating by Best Companies and I am very proud that it has been
recognised in the latest survey as a 3-star world class place to work.
It is important to note, largely because we are regularly asked, that DF
Capital has no exposure to any discretionary commission arrangements that has
prompted the Financial Conduct Authority's review into the motor finance and
the regulated consumer lending sector.
Committed to developing a multi-product lending franchise supporting dealers
and manufacturers
The firm's strategic plan remains unchanged in that we remain committed to
developing a multi-product lending franchise supporting the sales and
development of dealers and manufacturers. Having reached profitability, the
Board believes that retained earnings should be deployed to support medium
term growth and capital accretion. We do not believe at this stage of the
Group's evolution that distributing profits via dividends is the right course
of action. We will, however, keep this under regular review.
The Group believes it has capacity to grow its current loan book to
approximately £800m based on current capital, upsizing the ENABLE Guarantee
to £350m and a full drawdown of the £20m Tier 2 Capital Facility. Upon
reaching a loan book of c£800m, the profitability generated should support
good organic growth from that point onwards although at slower rates than we
have grown at since receiving the bank licence. We remain opportunistic when
looking at alternative routes to unlock faster growth, including M&A.
Another year of significant progress
As you read this year's annual report, I am confident you will share my view
that 2023 has been a year of exceptional achievements. Notwithstanding the
sizeable credit loss provision relating to RoyaleLife, which the Board has
closely monitored throughout, the underlying performance has been sufficiently
strong that this unique and complex credit loss could be absorbed entirely
whilst still delivering significant profitable growth.
2023 has been another year of significant progress for the Group as we
continue to scale the bank to achieve sustainable profitability and make
progress on our journey to achieve mid-to-high teen returns.
Mark Stephens
Independent Non-Executive Chair
Chief Executive Officer's Report
Dear Shareholder
2023 has been another strong year for the Group. We determined soon after
being authorised as a bank in September 2020 that scaling the firm would be
our primary route to profitability and it is, therefore, pleasing to announce
ten consecutive quarters of loan book growth over that period which has
unlocked our second full year of profit.
The pace of lending growth, supported by the operational leverage in our cost
base delivered a more than threefold increase in the Group's profit before
tax, which reached 4.6m during the period. Our tangible net asset value per
share has increased also to 55.6p (2022: 53.2p).
Strong execution delivers significant financial momentum
The Group's products and services continue to resonate with our customers. We
have delivered record levels of new loan origination in the period, reaching
£1.2bn, up almost 20% on the prior year (2022: £1bn), with the Group's loan
book growing by over 32% to £581m (2022: £439m).
We have continued to grow our reach across the sectors in which we operate,
supporting almost 1,200 dealers (2022: 998) with a record c£1bn (2022:
£817m) of credit lines available to support their inventory and working
capital needs.
The Group's net interest margin ("NIM") increased to 7.6% (2022:6.5%) having
successfully balanced our lending pricing, which is directly linked to the
Bank of England Base Rate, against the increasing retail deposit rates
expected by our depositors.
Costs have continued to be well-managed through the period, with a further
widening of the jaws between net income and the Group's operating cost,
delivering a sizeable reduction in the cost-to-income ratio to 58% (2022:
82%).
Portfolio quality has remained strong with 30 dealers (December 2022: 24) in
arrears one day past due, representing less than 3% of the Group's entire
dealer customer base.
The strength of underlying business performance during the period is such that
the Group has fully absorbed a unique and complex credit provision of c10m
relating to RoyaleLife, whilst still demonstrating this significant
year-on-year profit increase of 250%.
Holistically, we are very pleased with the Group's financial performance
through the period.
Growing our market share
Whilst the macro-economic environment has been fairly unpredictable and some
sectors have faced particular challenges, we have managed to navigate these
well and grow our market share.
Our portfolio of loans remains well diversified across the sectors in which we
operate, having seen double-digit growth in almost every sector. It is
pleasing to see the progress we are making in the specialist automotive market
where we have more than doubled our lending over the year.
As well as record levels of new loan origination, a continued move towards
normalised levels of stock across most sectors has supported some of our loan
book growth. After a few turbulent years during the pandemic where dealers
were arguably overstocked then severely understocked due to supply chain
challenges and high end-user demand shortly thereafter, it is pleasing to see
more natural levels of inventory unfold. Stock turn, which we feel is most
appropriately measured as the average age of loan outstanding, rather than our
historical measure of average loan duration, has extended to 148 days (31
December 2022: 102 days), which falls in line with seasonal expectations and
historical norms.
Slowing dealer sales has the potential to see our stock levels and loan book
increase, with portfolio oversight continuing to be an important lever to
control our credit risk.
It is fair to say that supply and demand dynamics across the sectors in which
we operate are varied, with some still adjusting to the post pandemic
environment and the macro-economic headwinds of elevated inflation and higher
interest rates. This is particularly noted in the residential and holiday
lodge markets, where manufacturers and park operators continue to navigate an
imbalance between supply and demand, holding decent levels of stock coupled
with slowing levels of manufacturer production. During this period of
transition, a number of park operators have innovatively turned unsold stock
into short-term holiday rental units, with our flexible lending approach ably
supporting this.
Conversely, as motorised chassis cab availability has improved, we have seen
an increase in stock levels across the motorhome sector. End-user demand
remains particularly strong in this market. Manufacturing across the caravan
market remains robust despite production marginally exceeding sales.
Across the motorcycle market registrations have been broadly flat on prior
year, however, we have been able to grow our market share of the available
inventory during the period in light of our strong service proposition. Larger
boats and yachts have remained in strong demand, with higher interest rates
adversely impacting consumer confidence to buy at the smaller end of the
marine market.
Whilst we have seen growth across the non-leisure and commercial sectors, the
market dynamic has been more challenging. Construction product demand has been
adversely impacted by a slow down in housebuilding and major
infrastructure projects such as the scaling back of HS2, meaning the market
has grown at a slower pace than expected. Additionally, extreme weather
conditions have caused challenges for the agricultural sector where demand for
products has been sluggish. Changes in Government policy on vehicle
electrification and negative sentiment around charging infrastructure has
dampened demand for electric commercial vehicles, but conversely has
encouraged sales of combustion engine panel vans and chassis, a trend we
expect to continue through 2024. We have made some progress in extending our
commercial vehicle reach into the HGV space of the market, where we see
significant opportunity for further loan book growth.
We have balanced the sector specific headwinds and opportunities exceptionally
well. We see further runway ahead whether scaling with our manufacturer
partners; onboarding more dealers; supporting further bounce-back as markets
stabilise and consumer confidence increases; growing our market share with
dealers; and pressing on with new asset classes such as specialist automotive,
materials handling (eg. forklifts) and heavy good vehicles.
We believe having diversified asset classes and operating across many sectors
provides resilience against specific industry headwinds. We continue to
operate in an environment that is uncertain and fraught with challenges,
particularly persistently elevated interest rates. Keeping close to our
manufacturer partners and maintaining intimate relationships with our dealer
customers helps us navigate these challenges but also frame appropriate
financing solutions that help our customers mitigate the risk and capitalise
on opportunities they see to grow.
Our service levels and extent of relationship management is highly regarded by
our customers, as demonstrated by our broadly stable net promoter score of +37
(2022: +41), which is well above our external benchmark of +30.
Entering new sectors and developing products and services
As an early stage bank, we are well versed in testing lending concepts in a
small-scale and controlled manner, to support opportunities presented to us by
our customers. We have successfully launched receivables financing solutions
and wholesale funding (i.e. lending to non-bank lenders) as routes to support
our existing customers and strategic partners. These opportunities present
excellent risk adjusted returns for the Group. At the end of 2023, we had over
£18m of our loan book (c3%) in these new products with loan origination
exceeding £24m through the year. We expect to grow these initiatives further
in 2024, but do not see them representing more than 10-15% of our entire
lending balance.
We are excited by recent developments that have seen us enter into an
agreement to provide both receivables financing and inventory finance to a
supplier in the renewable energy sector. We believe the nature of this lending
across serialised lower value faster moving goods has the potential to be an
area of further growth for the Group.
Additionally, we now have an established capability to provide working capital
to support selective dealers in the Euro-zone. Whilst our efforts in the space
are narrow and limited, focused on partnerships in both the Republic of
Ireland and the Netherlands, we believe they present excellent opportunities
for us to assess routes for longer term European expansion.
We have spoken for some time about natural extensions to our existing
manufacturer and dealer relationships by providing finance "beyond the
forecourt", to support retail sales. Hire purchase and leasing are common
lending
products required by end-users in order to purchase our dealers' products.
Dealers and manufacturer partners tell us that this is an area they feel DF
Capital can further assist them, as they feel poorly or under-served by
existing providers. We feel given the FCA's motor finance review, noting that
the Group has no exposure to discretionary commission arrangements, that
remediation efforts will distract many of the existing consumer hire purchase
lenders, thus intensifying the needs of our dealers for a reliable, attentive
and high quality provider to support product sales. We believe this represents
a substantial opportunity for the Group and we expect to be well placed to
fill this gap.
We have explored inorganic opportunities to bring hire purchase lending to
life, unfortunately with little success thus far. Whilst we continue to
actively consider inorganic routes to scale the bank further, we have started
the organic build of a hire purchase capability, which will be targeted at our
leisure assets on launch. The build is underway, and we expect to seek
regulatory approval later in 2024, enabling us to ramp up the loan origination
during 2025.
Highly regarded deposit raising capability
Our highly digitised retail deposit proposition continues to resonate with
customers. We offer market leading rates, using "Best Buy Tables" as a route
to attract new depositors. Our application journey is fast, allowing customers
to open an account within minutes. We have invested in confirmation of payee
capabilities through the year, which means customers not only receive a
dedicated sort code and account number in their own name on application but
also can confidently transfer funds from their nominated account having their
new account details confirmed by their clearing bank. We launched our first
easy access account this year too, opening up a further pool of depositors
whilst also retaining loyal customers.
We believe service is key in building confidence in our depositors. Retention
rates are high, typically c75% at product maturity. Our customers know that
they can use our online platform to manage their accounts, or if they need
assistance, they can call our Manchester based team to get the support they
need without the long waits associated with many financial services firms.
It is no surprise, certainly to us, that we receive such strong positive
customer satisfaction scores as measured by Feefo. We closed 2023 at a
consistent 4.7 stars (2022: 4.7) but have recently seen this increase further
to 4.8 stars rated across
almost 1,200 reviews over the last 12 months. We have also received Feefo's
Platinum Trusted Service Award at the start of this year.
We closed the year with £575m of deposits, (2022: £480m) with over 15,200
accounts up over 20% on the prior year. Through the year we have continued to
build a well-diversified range of product maturity profiles in the easy
access, notice and fixed rate markets, raising £446m of new deposit or
reinvestments at an average rate of 5.11%. We are currently building a
business savings proposition, which should unlock lower funding costs for us
over time, and expect to launch our maiden product during Q2 2024.
Our culture: Being a world-class place to work
We believe that sustainability in our business model is built by doing the
right things for our customers, communities, the environment and our
employees. We believe our focus on acting sustainably is deep rooted in the
attitude of our employees and how they feel about the firm. Having employees
that believe in what we are looking to achieve, support the ambitions of the
firm and get it right for our customers define the quality of shareholder
returns.
We have participated annually in the "Best Companies to Work for" survey over
the last couple of years. We have been pleased with the progress we have made
on the back of the employee feedback we receive through the survey. In 2023
97% (2022: 95%) of employees told us what they felt we were doing great and
gave us pointers on how we can continue to evolve the firm's culture, making
DF Capital an even better place to work.
I am delighted that we've built on our 2-star accreditation from Best
Companies in 2022, being seen as an outstanding place to work, to achieve a
3-star accreditation. This is the highest rating from Best Companies and
indicates that we are providing world-class levels of employee engagement.
Giving back to our local communities is something core to our DNA and I am
proud of what we have done to support local charities throughout the year,
culminating in our "Mega Give Back" day where the entire team supported a
dozen charities across Manchester for the day. Our colleagues are generous
with their time, giving over 1,700 hours through the year to support
initiatives close to their hearts. For a small bank of c130 employees I feel
we significantly punch above our weight in this regard.
We have a culture at DF Capital that I am very proud of. We are growing the
firm in a sustainable way by treating our employees fairly, delivering
exceptional levels of customer service and having a sound focus on risk
management right across the firm, critical for any financial services
organisation.
RoyaleLife credit loss
We are very disappointed with the outcome relating to RoyaleLife and
associated companies ("RoyaleLife"), a customer of the Group since June 2018.
Through the year, the business worked hard to navigate the challenges
unfolding in respect of this large single obligor arrears case. RoyaleLife had
been pursuing a major multi-billion pound refinance and restructure, and
whilst supportive of the refinancing and restructure of RoyaleLife, the Group
had not made any further loans to this customer beyond July 2022.
During the latter half of 2023, this refinancing process slowed significantly
in light of the complexity of RoyaleLife's financial situation, unique
characteristics of the business and its complex organisational and legal
structure. We had been in regular direct communication with the firm's
principal, its largest existing secured lenders, potential new investors and
new lender throughout, despite the Group not being a direct counterparty to
the refinance ourselves. We expected our facility to be repaid in full and all
arrears cleared on successful completion of the refinancing and based on
representations received from stakeholders to that effect.
For much of the year RoyaleLife's facility was not operating in the normal
course, with our audit process and portfolio
monitoring discovering a significant number of our funded assets being sold
out of trust or missing from confirmed locations. Following failure of the
refinancing process late in 2023, it became clear that RoyaleLife's financial
situation and operation was much opaquer and more complex than originally
determined, adversely impacting, to a greater degree than expected, a larger
number of secured lenders and other creditors. Significant parts of RoyaleLife
entered into administration and the principal has since faced bankruptcy
having pledged personal guarantees and accrued debts in excess of £700m.
Given the unique circumstances associated with this arrears case and the
extent of challenge across the entire and vast
cohort of lenders, we determined that it would be prudent to make a full
provision of c£10m, equivalent to the customer's entire outstanding balance
less a £0.4m negotiated settlement agreed with an individual park operator.
We continue to pursue recovery of the outstanding debt to the fullest extent
possible and where economically viable to progress.
Whilst identifying this case as unique in our portfolio of loans, we have
ensured that our credit policies and portfolio
management procedures are updated to reflect learnings from this case. We are
confident that we do not have loans with similar characteristics and complex
obligor structures in our portfolio.
Outlook
We have started the year with continued momentum, reporting our eleventh
consecutive quarter of loan book growth. The Group's loan book reached £610m
at the end of the first quarter, up 5% from year end and over £100m increase
on Q1 2023. Financial performance for the quarter is in line with
expectations.
Whilst new loan origination has been strong, reaching £330m, unsurprisingly,
given the macro-economic environment,
dealers are cautious about materially increasing their overall stock position.
Dealer sales to end-users have been strong in the quarter, particularly in
motorhomes, caravans and commercial vehicles sectors, which has seen our stock
turn remain relatively flat at 150 days and is in line with expectations as
well as seasonal and historical norms.
Dealer numbers continue to increase, with the addition of 90 through the
quarter, reaching 1,233 (December 2023: 1,182) on a net basis. Credit
facilities have also increased to £1.1bn (December 2023: £1.0bn).
The Group's overdue accounts continue to perform well, with 18 dealers having
arrears one day past due or in legal recovery (December 2023: 30). The Group's
total arrears balance excluding the c£10m provisioned balance relating to
RoyaleLife, equates to less than 0.3% of our entire loan book. Whilst we are
pleased with this exceptional performance, this is better than normal levels
and expectations.
Notwithstanding the continued challenging macroeconomic environment, we feel
positive about the year ahead. We have a number of business development
initiatives in play as well as the continued organic growth of our core
lending product. We expect our loan book to close the year in the range of
£650-£700m.
Having successfully secured the support of British Business Bank's ENABLE
Guarantee, a £20m Tier 2 capital facility from British Business Investments
and our Tier 1 capital base, that is now growing through sustainable
profitability, we see clear capital capacity to grow the bank to c£800m in
the near-term.
We remain ambitious for the Group's future growth trajectory, seeing many
opportunities in new lending product adjacencies that will allow us to further
scale the bank and achieve mid-teen returns over the medium term. We stand
firm in our ambitions to be a multi-product lender supporting the growth of
our dealer and manufacturer customers in a deeper way across well-diversified
end-user markets.
Carl D'Ammassa
Chief Executive Officer
Chief Financial Officer's Report
Dear Shareholder
We are pleased to report a year of demonstrable sustainability in
profitability; pre-tax profit has increased by 250% to £4.6m (2022: £1.3m)
and we continue to make progress in our journey to increase returns, reporting
earnings per share of 1.8p (2022: adjusted earnings per share of 0.4p).
Net Interest Margin ahead of 6% target
Gross yield increased by 35% to 11.1% (2022: 8.2%), reflecting our ability to
pass on base rate rises through newly originated loans. This, coupled with the
continued significant year-on-year growth in the loan book, saw gross
revenues, which are predominantly comprised of interest and similar income,
increase by 125% to £60.4m (2022: £26.8m).
Net Interest Margin ("NIM"), which is gross yield less interest expense,
increased by 17% during the period to 7.6% (2022: 6.5%), being well ahead of
our NIM target of 6%, largely influenced by movements in UK base rates.
As expected, given the rising base rate, the average cost of retail deposits
increased during the period to 4.27% (2022: 1.90%). As the Group's deposit
book is predominantly an array of fixed rate tenors, it takes time for
increasing deposit
rates to fully flow through to the deposit book as a whole, as older maturing
deposits are replaced by newer deposits at higher rates. Accordingly, the loan
book has repriced more quickly than the deposit book given its shorter average
tenor, which has driven much of the favourable NIM expansion in the year. This
positive mis-match has been more pronounced in 2023 given the speed of base
rate increases and whilst we expect some favourability in the near-term it is
less likely to remain over the medium term; unwinding over time as the base
rate reduces. Our longer-term target NIM remains unchanged at 6%.
Net income, which is gross revenues less interest expense, increased by 86% to
£38.0m (2022: £20.4m), given the above factors.
Summarised Statement of Comprehensive Income 2023 2022
£'000
£'000
Gross revenues 60,350 26,842
Interest expense (22,336) (6,411)
Net income 38,014 20,431
Operating expenses (21,843) (16,831)
Impairment charges (11,598) (2,296)
Profit before taxation 4,573 1,304
Taxation (1,418) 8,457
Profit after taxation 3,155 9,761
Other comprehensive (loss)/income 183 (79)
Total comprehensive profit 3,338 9,682
Adjusted earnings per share 1.8p 0.4p
2022 earnings per share is adjusted to remove the initial recognition of
deferred tax assets that occurred in 2022. Earnings per share without this
adjustment was 5.4p.
Continuing to unlock our operational leverage
We have continued to invest in areas to support growth and scaling of the
business, such as robotic process automation ("RPA"), API-connections with
dealers, and character-recognition technologies. This builds further
scalability into our operational capabilities. We have invested c£1m in
systems and technology through the year to enhance our service further and
unlock additional routes to release further operational leverage.
During 2022 the Group upgraded and grew its commercial and relationship
management teams, feeling the full year benefit and cost of this during 2023.
As a result, operating expenses increased by 30% to £21.8m (2022: £16.8m)
and the Group's headcount reached 133 at the end of the year (31 December
2022: 117) with the majority of this further investment in customer facing
roles. The increase in operating expenses of £5.0m is less than 30% of the
£17.6m increase delivered in net income, meaning our cost to income ratio has
reduced significantly to 58% (2022: 82%). We expect to see further reductions
in this ratio as we scale the business, underpinning the delivery of our
return ambitions.
Strong portfolio and credit risk management
Despite the macro-economic challenges and higher interest rate environment,
the actions we have taken to manage our portfolio have delivered a
consistently low number of arrears cases, with just 30 dealers having arrears
at least one day past due at year end (31 December 2022: 24) representing less
than 3% of the Group's dealers base, which includes 20 cases in legal
recovery. Our period end reporting of dealers in arrears and legal recovery
consistently demonstrates the high quality of our obligor base and our
successful intra-period actions to remediate dealer defaults by product
redistribution through our customer network or sale of our secured assets to
other parties, effecting recovery in whole or part. The Group's total arrears
balance represents 2.5% of its entire loan book (31 December 2022: 1.6%).
Excluding RoyaleLife, the Group's arrears balance at 31 December 2023 equates
to 0.7% of its entire loan book. During Q1 2024, the number of dealers in
arrears has reduced further.
Cost of risk, which includes provisions for credit losses and write-offs, was
2.28% (2022: 0.74%). Excluding the provision on RoyaleLife, cost of risk was
0.53% being significantly below the through the cycle estimate of 1% of
average gross
receivables.
The combined stage 1 and 2 impairment allowance at 31 December 2023 as a
percentage of gross receivables was 0.47% (December 2022: 0.46%) which
incorporates an IFRS9 overlay for the general uncertain macro-economic
environment and outlook. The total impairment allowance (comprising stages 1,
2 and 3) at 31 December 2023 as a percentage of gross receivables was 2.50%
(2022: 0.84%), and excluding the impact of RoyaleLife was 0.85%.
Arrears (£'000)
31-Dec-23 31-Dec-22 31-Dec-21 31-Dec-20
Arrears - principal repayment, fees and interest
1-30 days past due 696 136 105 27
31-60 days past due 265 1,084 834 22
61-90 days past due 946 25 0 39
91 days + past due 12,102 5,885 164 132
14,009 7,130 1,103 220
% Loan book 2.4% 1.6% 0.4% 0.2%
Excluding RoyaleLife 0.7% 0.6% 0.4% 0.2%
Associated principal balance
1-30 days past due 1,253 2,016 951 96
31-60 days past due 717 1,512 834 7
61-90 days past due 1900 214 0 14
91 days + past due 12,821 16,317 184 259
16,691 20,058 1,970 376
% Loan book 2.9% 4.6% 0.8% 0.3%
Excluding RoyaleLife 1.1% 1.4% 0.8% 0.3%
Providing richer insight on the Group's stock turn
We committed earlier in the year to provide richer analysis and management
information in relation to the Group's stock turn, recognising that our stated
historical annual average of 150 days may not accurately reflect current
market dynamics, the sectors in which we now operate and the current sector
mix given our rate of growth and diversification. Having historically focused
our attention on our average loan duration (ie. when loans are repaid) as a
proxy for the speed
of dealer sales, we believe that the average outstanding loan tenor is now a
more appropriate measure to determine whether our portfolio is ageing against
historical experience and our risk tolerances.
The average outstanding loan tenor can be significantly influenced by the
quantum of new loan origination in the period relative to the portfolio, as
well as the speed of loan repayment. Our historical data, which covers the
period 2018 to 2023, is significantly influenced by both pandemic and
post-pandemic market dynamics. During the lockdown periods, loan duration
extended given dealers were closed for business and no new loans were
originated as manufacturing ceased. Conversely, sales of products increased
materially as did manufacturing capacity during post-pandemic periods,
which saw both strong new loan origination and high loan repayments as assets
sold.
Expected seasonal trends evidenced pre-pandemic have not been seen in our
portfolio performance since 2020. Whilst helpful to monitor our loan ageing
generally, measuring stock turn solely against our historical levels is not a
reliable risk management performance indicator. Accordingly, we have provided
in the table opposite the sector tolerance levels we apply in our portfolio
oversight, alongside the annual average tenor of outstanding loans and our
most recent experience.
Whilst average age of loans outstanding at 31 March 2024 has extended slightly
beyond year-end to 150 days (31 December 2023: 148 days), it continues to
operate well within our tolerances. The extended duration of loans in the
lodge sector is in line with expectations particularly given the significant
impact the aftermath of RoyaleLife's failure has had on new loan origination
and orders with manufacturers, thus extending the average duration.
Recent trend vs expected norms(1) Actual Actual
New Loans Repayments Historical Annual Average Tolerance Level 31-Mar-24 31-Dec-23
Agriculture In line In line 119 240 135 141
Automotive Higher Faster 73 200 64 83
Industrial In line Slower 120 250 160 167
Lodges Lower In line 154 300 260 239
Marine In line In line 132 250 153 147
Motorcycle In line Slower 107 200 88 113
Motorhome & Caravan Higher Faster 105 200 110 98
Transport Higher Faster 86 200 109 122
Loan book average 128 240 150 148
Pay as sold inventory only - excludes rental lending, equivalent to 6% as at
31 December 2023.
(1) Qualitative assessment relative to 2023 experience quarter on quarter
Strong security position
In our core inventory finance lending product, we take legal title against
individual assets to provide working capital to fund dealers' inventory or
stock. Loans are advanced against the wholesale value of an asset. The value
of dealer loans outstanding compared to wholesale value (loan to value or
"LTV") at 31 December 2023 was 85% (31 December 2022: 91%). This reduction in
LTV is predominantly due to a slowdown in stock turn, which has in turn led to
an increase in the associated monthly capital repayments. We do not advance
funds measured against retail prices, which typically represent a mark-up of
approximately 20% on the wholesale invoice price. Accordingly, for our funding
to be at risk, and for the Group to incur losses on recovery of an asset in
the event of default there would need to be an average reduction of
approximately 30% in retail prices across the sectors and products we lend
against.
We often hold additional security, which can mitigate credit losses further,
in the form of personal and/or cross company
guarantees as well as having manufacturer repurchase or redistribution
agreements in place across c60% of our inventory
finance loan book (2022: c.65%).
Well capitalised balance sheet supports growth ambitions
The Group is well-capitalised. At 31 December 2023 the Group's equity stood at
100.4m (31 December 2022: £96.2m).
During the year the Group entered into an ENABLE Guarantee with the British
Business Bank for an initial £175m, which was subsequently increased to
£250m and may be extended up to £350m in the future. In addition, the Group
obtained a £20m Tier 2 Capital Facility from British Business Investments in
September 2023 with £10m being drawn by year end. Gaining access to the
ENABLE Guarantee and Tier 2 capital are key components of our strategic
capital plan.
The Group believes it has capacity to grow its current loan book to
approximately £800m based on current capital, upsizing the ENABLE Guarantee
to £350m and a full drawdown of the £20m Tier 2 Capital Facility. At a
c£800m loan book the financial characteristics of the Group would allow it to
achieve further organic growth at a healthy rate without the need to raise
additional Tier 1 capital.
Despite the 32% loan book growth during the year, the utilisation of the
ENABLE Guarantee together with the £10m Tier 2 Capital drawn meant our CET1
ratio increased to 22.8% at 31 December 2023 (31 December 2022 c.22.1%); well
above our regulatory capital minimum requirements.
Gavin Morris
Chief Financial Officer
Report of the Directors
The Directors present their Annual Report on the affairs of the Group,
together with the consolidated financial statements, company financial
statements and auditor's report, for the year ended 31 December 2023.
Details of significant subsequent events are contained in note 45 to these
consolidated financial statements. An indication of likely future developments
in the business of the Group are included in the Strategic Report section.
Information about the use of financial instruments by the Group is detailed
within note 39 to the consolidated financial statements.
Principal activity
The principal activity of the Group is as a specialist personal savings and
commercial lending bank group. The Group provides niche working capital
funding solutions to dealers and manufacturers across the UK, enabled by
competitively priced personal savings products.
Results and dividends
The total comprehensive profit for the year, after taxation, amounted to
£3,338,000 (2022: £9,682,000). The Directors do not recommend the payment of
a dividend (2022: £nil).
In the year ended 31 December 2023, the Group recognised a significant
increase in expected credit loss provision to a total of £9.8m (2022: £0.7m)
in respect of RoyaleLife as detailed in note 3.2. In the year ended 31
December 2022, the Group recognised a significant deferred taxation asset of
£9m as detailed in note 16. The effect of these significant movements has
been removed in the below table to present total comprehensive income for the
periods on a more consistent basis:
2023 2022
£'000 £'000
Total comprehensive profit after taxation 3,338 9,682
of which, includes:
Deferred taxation asset recognition - 9,043
RoyaleLife provision movement (9,092) (611)
(9,092) 8,432
Comparative total comprehensive profit after taxation 12,430 1,250
Directors'
The Directors who held office during the year and up to the date of the
Directors' report were as follows:
Mark Stephens
Sheryl
Lawrence
Nicole
Coll
Thomas Grathwohl
Haakon Stenrød
Carl D'Ammassa
Gavin Morris
Directors' shareholdings
As at 31 December 2023, the Directors held the following ordinary shares in
the Company:
Director Position No. of ordinary shares Voting rights (%)
Mark Stephens Independent Board Chair 62,500 0.03%
Thomas Grathwohl Independent Non-Executive Director 533,312 0.30%
Carl D'Ammassa Chief Executive Officer 509,591 0.28%
Gavin Morris Chief Financial Officer 384,026 0.21%
Significant shareholders
As at 31 December 2023, the following parties held greater than 3% of issued
share capital in the Company in accordance with the requirements of Rule 5 of
the Disclosure Guidance and Transparency Rules:
No. of ordinary shares Voting rights (%)
Watrium AS 14.86%
26,646,093
Davidson Kempner Capital Management 9.81%
17,599,990
Liontrust Asset Management 9.60%
17,210,479
Lombard Odier Asset Management 16,606,408 9.26%
River Global 7.25%
13,000,000
Janus Henderson Investors 5.95%
10,667,749
Premier Miton Investors 4.45%
7,974,000
UBS Securities 4.20%
7,535,704
BlackRock Investment Management 4.16%
7,460,000
CRUX Asset Management 3.31%
5,941,454
M&G Investments 3.07%
5,500,000
Allianz Global Investors 5,400,000 3.01%
Political and charitable donations
The Group made charitable donations of £11,703 (2022: £3,569) and no
political donations during the year ended 31 December 2023 (2022: £nil).
Annual General Meeting
The Company anticipates holding its Annual General Meeting in June 2024. The
Notice of AGM and Form of Proxy will be posted to shareholders in due course
and a copy will be available at www.dfcapital-investors.com. The AGM will be
held at the Company's registered office in Manchester.
Directors' insurance and indemnities
The Group has maintained Directors and Officers liability insurance for the
benefit of the Group, the Directors, and its officers. The Directors consider
the level of cover appropriate for the business and will remain in place for
the foreseeable future.
Statement of Going Concern
The Directors have completed a formal assessment of the Group's financial
resources. In making this assessment the Directors have considered the Group's
current available capital and liquidity resources, the business financial
projections and the outcome of stress testing. Based on this review, the
Directors believe that the Group is well placed to manage its business risks
successfully within the expected economic outlook. See note 1.6 for further
details.
Accordingly, the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for a period of at
least 12 months from the date of approval of the financial statements.
Accordingly, they continue to adopt the going concern basis in preparing the
Annual Report and Financial Statements.
Corporate Governance
The Corporate Governance Report on pages 61 to 95 contains information about
the Group's corporate governance arrangements.
Subsequent events
Details relating to significant events occurring between 31 December 2023 and
the date of approval of the financial statements are detailed further within
Note 45 of the consolidated financial statements.
Disclosure of information to the auditor
Each of the persons who is a Director at the date of approval of this annual
report confirms that:
§ so far as the Director is aware, there is no relevant audit information of
which the Company's auditors are unaware; and
§ the Director has taken all the steps that they ought to have taken as a
Director in order to make themself aware of any relevant audit information and
to establish that the Company's auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the
provisions of s418 of the Companies Act 2006.
Reappointment of auditor
Deloitte LLP have expressed their willingness to continue in office as
auditors and a resolution to reappoint them will be proposed at the
forthcoming Annual General Meeting.
Approved by the Board on 8 April 2024 and signed on its behalf by:
Carl D'Ammassa
Director
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the Group
and parent Company financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare Group and parent Company
financial statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with United
Kingdom adopted International Accounting Standards. The financial statements
also comply with International Financial Reporting Standards (IFRSs) as issued
by the International Accounting Standards Board (IASB). The Directors have
chosen to prepare the parent Company financial statements on the same basis.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and parent Company and of their profit or loss of the
Group for the year.
In preparing these consolidated financial statements and Company financial
statements, the Directors are required to:
§ properly select and apply accounting policies;
§ present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
§ provide additional disclosures when compliance with the specific
requirements of the financial reporting framework are insufficient to enable
users to understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial performance; and
§ make an assessment of the company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's transactions and disclose with
reasonable accuracy at any time the financial position of the Group and enable
them to ensure that the financial statements comply with the Companies Act
2006. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, and Corporate Governance
Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial
report
Each of the persons who is a Director at the date of approval of this report
confirms, to the best of their knowledge, that:
§ the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole;
§ the Strategic Report/Directors' Report includes a fair review of the
development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face;
and
§ the annual report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
Consolidated Statement of Comprehensive Income
2023 2022
Note £'000 £'000
Interest and similar income 4 59,970 25,407
Interest and similar expenses 6 (22,336) (6,411)
Net interest income 37,634 18,996
Fee income 7 1,393 1,348
Fee expenses 8 (719) -
Net losses on disposal of financial assets at fair value through other 21 - (17)
comprehensive income
Net (losses)/gains from derivatives and other financial instruments at fair 22 (303) 99
value through profit or loss
Other operating income 9 5
Total operating income 38,014 20,431
Staff costs 9 (13,431) (10,848)
Other operating expenses 11 (8,412) (5,983)
Net impairment loss on financial assets 14 (11,598) (2,296)
Total operating profit 4,573 1,304
Profit before taxation 4,573 1,304
Taxation (charge)/credit 16 (1,418) 8,457
Profit after taxation 3,155 9,761
Other comprehensive income/(loss):
Items that may subsequently be transferred to the income statement:
FVOCI debt securities:
Amounts transferred to the income statement - 17
Fair value movements 183 (96)
Total other comprehensive income/(loss) for the year, net of tax 183 (79)
Total comprehensive income for the year 3,338 9,682
Earnings per share: pence pence
Basic EPS 40 1.8 5.4
Diluted EPS 40 1.7 5.4
The notes on pages 116 to 179 are an integral part of these financial
statements.
The financial results for all periods are derived entirely from continuing
operations.
Consolidated Statement of Financial Position
2023 2022
Note £'000 £'000
Assets
Cash and balances at central banks 89,552 107,353
Loans and advances to banks 28 3,475 3,848
Debt securities 21 14,839 22,964
Derivatives held for risk management 22 537 57
Loans and advances to customers 20 568,044 435,883
Trade and other receivables 24 5,335 1,524
Current taxation asset 25 55 55
Deferred taxation asset 27 7,111 8,457
Property, plant and equipment 17 1,145 1,045
Right-of-use assets 18 1,227 433
Intangible assets 19 618 877
Total assets 691,938 582,496
Liabilities
Customer deposits 35 574,622 479,736
Derivatives held for risk management 22 565 42
Fair value adjustments on hedged liabilities 23 424 (84)
Financial liabilities 36 1,255 445
Trade and other payables 38 4,297 6,041
Provisions 13 67 77
Current taxation liability 26 73 -
Subordinated liabilities 37 10,221 -
Total liabilities 591,524 486,257
Equity
Issued share capital 31 1,793 1,793
Share premium 31 - 39,273
Merger relief 31 94,911 94,911
Merger reserve 33 (20,609) (20,609)
Own shares 32 (401) (364)
Retained earnings/(loss) 24,720 (18,765)
Total equity 100,414 96,239
Total equity and liabilities 691,938 582,496
The notes on pages 116 to 179 are an integral part of these consolidated
financial statements.
These financial statements were approved by the Board of Directors and
authorised for issue on 8(th) April 2024. They were signed on its behalf by:
Carl D'Ammassa
Director
8(th) April 2024
Registered number: 11911574
Consolidated Statement of Changes in Equity
Issued share capital Share premium(3) Merger relief Merger reserve Own shares(2) Retained earnings/(loss) Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2022 1,793 39,273 94,911 (20,609) (364) (28,946) 86,058
Profit after taxation - - - - - 9,761 9,761
Other comprehensive loss - - - - - (79) (79)
Total comprehensive income - - - - - 9,682 9,682
Share-based payments - - - - - 499 499
Balance at 31 December 2022 1,793 39,273 94,911 (20,609) (364) (18,765) 96,239
Profit after taxation - - - - - 3,155 3,155
Other comprehensive income - - - - - 183 183
Total comprehensive income - - - - - 3,338 3,338
Share-based payments(1) - - - - 905 905
Employee Benefit Trust(2) - - - - (37) (31) (68)
Share premium account cancellation(3) - (39,273) - - - 39,273 -
Balance at 31 December 2023 1,793 - 94,911 (20,609) (401) 24,720 100,414
(1) Refer to note 10 for details on share-based payments during the year.
(2) The Group has adopted look-through accounting (see note 1.3) and
recognised the Employee Benefit Trust as Own Shares. Refer to note 32 for
further details of the movements in the year.
(3) In the year ended 31 December 2023, the Company cancelled its share
premium account - refer to note 31 for details.
The notes on pages 116 to 179 are an integral part of these consolidated
financial statements.
Consolidated Cash Flow Statement
2023 2022
Note £'000 £'000
Cash flows from operating activities:
Profit before taxation 4,573 1,304
Adjustments for non-cash items and other adjustments Included in the income 29 13,000 4,664
statement
Increase in operating assets 29 (149,456) (193,189)
Increase in operating liabilities 29 94,171 183,809
Taxation received 25 - 4
Net cash used in operating activities (37,712) (3,408)
Cash flows from investing activities:
Purchase of debt securities 21 (14,554) -
Proceeds from sale and maturity of debt securities 21 23,000 85,070
Interest received on debt securities 21 383 746
Purchase of own shares 32 (67) -
Purchase of property, plant and equipment 17 (418) (1,041)
Purchase of intangible assets 19 (117) (193)
Net cash generated from investing activities 8,227 84,582
Cash flows from financing activities:
Repayment of lease liabilities 34 (227) (141)
Issuance of subordinated liabilities 37 10,000 -
Acquisition of subordinated liabilities 29 (51) -
Net cash from/(used in) financing activities 9,722 (141)
Net (decrease)/increase in cash and cash equivalents (19,763) 81,033
Cash and cash equivalents at start of the year 29 110,630 29,597
Cash and cash equivalents at end of the year 29 90,867 110,630
Notes to the Financial Statements
1. Basis of preparation
1.1 General information
The consolidated financial statements of Distribution Finance Capital Holdings
plc (the "Company" or "DFCH plc") include the assets, liabilities, and results
of its wholly owned subsidiaries, DF Capital Bank Limited (the "Bank") and DF
Capital Financial Solutions Limited, which together form the "Group".
DFCH plc is registered and incorporated in England and Wales whose company
registration number is 11911574. The registered office is St James' Building,
61-95 Oxford Street, Manchester, England, M1 6EJ. The Company's ordinary
shares are listed on the Alternative Investment Market ("AIM") of the London
Stock Exchange.
The principal activity of the Company is that of an investment holding
company. The principal activity of the Group is as a specialist personal
savings and commercial lending banking group. The Group provides niche working
capital funding solutions to dealers and manufacturers, enabled by
competitively priced personal savings products.
These financial statements are presented in pounds sterling, which is the
currency of the primary economic environment in which the Group operates, and
are rounded to the nearest thousand pounds, unless stated otherwise.
1.2 Basis of preparation
The Group consolidated financial statements and the Company financial
statements have been prepared and approved by the Directors in accordance with
International Financial Reporting Standards ("IFRSs") as adopted by the United
Kingdom (UK) and interpretations issued by the IFRS Interpretations Committee
(IFRS IC).
The consolidated and Company financial statements are prepared on a going
concern basis and under the historical cost convention except for the
treatment of certain financial instruments, including the revaluation of debt
securities held at fair value through other comprehensive income (FVTOCI), and
derivative contracts and other financial assets or liabilities held at fair
value through profit or loss (FVTPL).
By including the Company financial statements, here together with the Group
consolidated financial statements, the Company is taking advantage of the
exemption in Section 408 of the Companies Act 2006 not to present its
individual income statement and related notes that form a part of these
approved financial statements.
For the year ended 31 December 2023, DF Capital Financial Solutions Limited
(Company number: 14891201) was exempt from the requirements of the Companies
Act 2006 relating to the audit of individual accounts by virtue of section
479A of the Companies Act 2006. The Company, as the ultimate parent company,
is providing a guarantee for DF Capital Financial Solutions Limited in
accordance with section 479C of the Companies Act 2006 as at 31 December 2023.
1.3 Basis of consolidation
The Group financial statements include the results of the Company and its
subsidiary undertakings. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group and are deconsolidated from the date
that control ceases. Accounting policies of the Company and its subsidiaries
are consistent. The Group 'controls' an entity if it is exposed to, or has
rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
Upon consolidation, all intra-group transactions, balances, income, and
expenses are eliminated within the consolidated financial statements within
this Annual Report and Financial Statements. The consolidated financial
statements contained in this Annual Report consolidate the statements of total
comprehensive income, statements of financial position, cash flow statements,
statements of changes in equity and related notes for Distribution Finance
Capital Holdings plc, DF Capital Bank Limited and DF Capital Financial
Solutions Limited, which together form the "Group", which have been prepared
in accordance with applicable IFRS accounting standards. Accounting policies
have been applied consistently throughout the Group and its subsidiaries.
The Group's Employee Benefit Trust (EBT) is controlled and recognised by the
Company using the look-through approach, i.e. as if the EBT is included within
the accounts of the Company.
1.4 Adoption of new and revised standards and interpretations
International financial reporting standards issued and adopted for the first
time in the year ended 31 December 2023
Improvements to the Conceptual Framework, as well as amendments to IAS 16
Property, Plant and Equipment, IAS 37 Provisions, Contingent Liabilities and
Contingent Assets and IFRS 9 Financial Instruments become effective in the
current year. None of these amendments to IFRS impacted the Group's reported
earnings, financial position or reserves, or the accounting policies.
IAS 16 was amended to prohibit entities from deducting from the cost of an
item of property, plant and equipment, any proceeds of the sale of items
produced while bringing that asset to the location and condition necessary for
it to be capable of operating in the manner intended by management. The Group
has not sold any fixed assets of a material amount in the past, so this
amendment has no material impact on the Group' financial statements.
The annual improvements to IFRS clarifies fees that an entity includes when
assessing whether the terms of a new or modified financial liability are
substantially different from the terms of the original financial liability for
derecognition of financial liabilities in terms of IFRS 9 Financial
Instruments. These fees include only those paid or received between the
borrower and the lender. For lease incentives, the annual improvement removes
the illustration of payments from the lessor relating to leasehold
improvements in Illustrative Example 13 accompanying IFRS 16. This removes
potential confusion regarding the treatment of lease incentives when applying
IFRS 16. The amendments are not expected to have a significant impact on the
annual financial statements.
International financial reporting standards issued but not yet effective which
are applicable to the Group
New Accounting Standard Description of change Effective Date Expected Impact on the Group
Amendments to The IAS 1 amendments clarify the requirements for classifying liabilities as Annual periods commencing on or after 1 January 2024. The Group presents its assets and liabilities in order of liquidity in its
current or non-current. More specifically: statement of financial position. This impact of this amendment would impact
classification
the disclosure of current versus non-current liabilities in the notes to the
financial statements.
of liabilities as
The amendments specify that the conditions which exist at the end of the
current or noncurrent reporting period are those which will be used to determine if a right to defer
settlement of a liability exists. The Group does not expect this amendment to have a significant impact on the
(IAS 1)
annual financial statements.
Management expectations about events after the balance sheet date, for example
on whether a covenant will be breached, or whether early settlement will take
place, are not relevant.
The amendments clarify the situations that are considered settlement of a
liability.
Amendments to The amendment to IFRS 16 specifies the requirements that a seller-lessee uses Annual periods commencing on or after 1 January 2024. The amendments are not expected to have a significant impact on the annual
in measuring the lease liability arising in a sale and lease back transaction, financial statements.
IFRS 16 - Lease to ensure the seller-lessee does not recognise any amount of the gain or loss
that relates to the right of use it retains.
liability in a sale
and lease back
Applying these requirements does
not prevent the seller-lessee from recognising, in profit or loss, any gain or
loss relating to the partial or full termination of a lease, as required by
paragraph 46(a) of IFRS 16.
1.5 Principal accounting policies
The principal accounting policies adopted in the preparation of this financial
information are set out below. These policies have been applied consistently
to all the financial periods presented.
1.6 Going concern
The financial statements are prepared on a going concern basis as the
Directors are satisfied that the Group has adequate resources to continue
operating for a period of at least 12 months from the date of approval of the
financial statements. In making this assessment the Directors have
considered:
· The Group's financial projections;
· The Group's current available capital and liquidity
resources and surplus over regulatory and risk
appetite requirements;
·
The stress testing and capital and liquidity planning performed as a part
of the ICAAP and ILAAP
indicate adequate capital and liquidity buffers and the
ability to effectively manage stresses and
resources. A number of severe and plausible scenarios were considered as part
of the stress testing process including
a combination of severe idiosyncratic and macroeconomic scenarios
which included the potential impact of the cost of living crisis on our
dealers;
· Recent failures in the banking sector and any implications for
the Group. This included consideration of our deposit base which is made up
entirely of retail customers of which 96% are fully covered by the Financial
Services Compensation Scheme ('FSCS'). The liquid assets of the Group being
predominantly either cash held at the Bank of England or in UK government
gilts. The Group's asset and liability maturity profile;
· In respect of climate change, the Board recognises the long-term
risks and these are considered as part of the annual ICAAP.
Based on this review, the Directors believe that the Group is well placed to
manage its business risks successfully within the expected economic outlook.
Accordingly, the Directors have adopted the going concern basis in preparing
the financial statements.
Information on the Group's business strategy, performance and outlook are
detailed in the Chair's Statement, Chief Executive Officer's review and Chief
Financial Officer's review. The Risk Overview sections further detail the key
risks faced by the Group and mitigants and provides an overview of the Group's
Risk Management Framework.
1.7 Critical accounting estimates and judgements
In accordance with IFRS, the Directors of the Group are required to make
judgements, estimates and assumptions in certain subjective areas whilst
preparing these financial statements. The application of these accounting
policies may impact the reported amounts of assets, liabilities, income and
expenses and actual results may differ from these estimates.
Any estimates and underlying assumptions used within the statutory financial
statements are reviewed on an ongoing basis, with revisions recognised in the
period in which they are adjusted, and any future periods affected.
Further details can be found in note 3 on the critical accounting estimates
and judgements used within these financial statements.
1.8 Foreign currency translation
The financial statements are expressed in Pound Sterling, which is the
functional and presentational currency of the Group.
Transactions in foreign currencies are translated to the Group's functional
currency at the foreign exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the
reporting date are retranslated to the functional currency at the foreign
exchange rate ruling at that date. Non-monetary assets and liabilities that
are measured in terms of historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction. Foreign exchange
differences arising on translation are recognised in the statement of income.
2. Summary of significant accounting policies
2.1 Revenue recognition
Net interest income
Interest income and expense for all financial instruments except for those
classified as held for trading or measured or designated as at fair value
through profit and loss ("FVTPL") are recognised in "Net interest income" as
"Interest income" and "Interest expenses" in the income statement using the
effective interest method.
The effective interest rate ("EIR") is the rate that exactly discounts
estimated future cash flows of the financial instrument through the expected
life of the financial instrument or, where appropriate, a shorter period, to
the net carrying amount of the financial asset or financial liability. The
future cash flows are estimated taking into account all the contractual terms
of the instrument.
The calculation of the EIR includes all fees and points paid or received
between parties to the contract that are incremental and directly attributable
to the specific lending arrangement, transaction costs, and all other premiums
or discounts.
In calculating the EIR, management have taken into consideration the
behavioural characteristics of the underlying loans in the lending portfolio
which includes evaluating the expected duration of loans and any additional
behavioural fees.
The EIR is adjusted where there is a movement in the reference interest rate
(SONIA, or base rate) affecting portfolios with a variable interest rate which
will impact future cash flows.
The interest income/expense is calculated by applying the EIR to the gross
carrying amount of non-credit impaired financial assets (that is, to the
amortised cost of the financial asset before adjusting for any expected credit
loss allowance), or to the amortised cost of financial liabilities.
For credit-impaired financial assets, as defined in the financial instruments
accounting policy, the interest income is calculated by applying the EIR to
the amortised cost of the credit-impaired financial assets (that is, to the
gross carrying amount less the allowance for expected credit losses ("ECLs").
Interest income on debt securities is included in interest and similar income.
Interest on derivatives is included in interest and similar income or interest
and similar expenses charges following the underlying instrument it is
hedging.
Fee income
All fee income relates to fees charged directly to customers based on their
credit facility. These fees do not meet the criteria for inclusion within
interest income. The Group satisfies its performance obligations as the
services are rendered. These fees are billed in arrears of the period they
relate to.
Fee income is recognised in accordance with IFRS 15 which sets out the
principles to follow for revenue recognition which takes into consideration
the nature, amount, timing and uncertainty of revenue and cash flows resulting
from a contract with a customer. The accounting standard presents a five-step
approach to income recognition to enable the Group to recognise the correct
amount of income in the corresponding period(s):
· the contract has been approved by the parties to the
contract;
· each party's rights in relation to the goods or services to be
transferred can be identified;
· the payment terms for the goods or services to be transferred can
be identified;
· the contract has commercial substance; and
· it is probable that the consideration to which the entity is
entitled to in exchange for the goods or services will be collected.
All other income is currently recognised under IFRS 9 under the effective
interest rate methodology, however, when new fees are implemented, they will
be assessed as to whether they fall under IFRS 9 (EIR) or IFRS 15. IFRS 9 and
IFRS 15 have been applied consistently to all the financial periods presented.
Fee expense
Fee and commission expense predominantly consists of non-incremental fees in
relation to financial guarantee schemes, undrawn facility commitment facility
fees, introducer commissions, and other non-incremental direct costs. Where
these fees and commissions are incremental costs that are directly
attributable to the issue of a financial instrument, they are included in
interest income as part of the EIR calculation. Where they are not incremental
costs that are directly attributable, they are recognised within fee and
commission expense as the services are received.
Net gains / (losses) from derivatives and other financial instruments at fair
value through profit or loss
Net gains/(losses) from derivatives and other financial instruments at fair
value through profit or loss relate to non-trading derivatives held for risk
management purposes. It includes all realised and unrealised fair value
movements, interest and foreign exchange differences.
Other income from financial instruments
Debt securities are measured at fair value through other comprehensive income.
The securities are measured at their closing bid prices at the reporting date
with any unrealised gain or loss recognised through other comprehensive
income. Once the assets have been disposed, the corresponding realised gain or
loss is transferred from other comprehensive income into the income statement.
Other operating income
Other operating income predominantly consists of payroll subsidies,
specifically in relation to Statutory Maternity/Paternity Pay (SMP/SPP) as
levied by HM Revenue & Customs.
2.2 Property, plant and equipment
All property, plant and equipment is stated at historical cost (or deemed
historical cost) less accumulated depreciation, and less any identified
impairment. Cost includes the original purchase price of the asset and the
costs attributable to bringing the asset to its working condition for its
intended use.
Depreciation is provided on all property, plant and equipment at rates
calculated to write each asset down to its estimated residual value on a
straight-line basis at the following annual rates:
Fixtures & fittings
3 years
Computer
equipment
3 years
Telephony &
communications 3 years
Leasehold improvements
1 - 10 years
Motor
vehicles
3 years
Right-of-use assets are depreciated over the shorter period of the lease term
and the useful life of the underlying asset. All current lease agreements have
a maximum lease term of 7 years. If a lease transfers ownership of the
underlying asset or the cost of the right-of-use asset reflects that the Group
expects to exercise a purchase option, the related right-of-use asset is
depreciated over the useful life of the underlying asset.
Useful economic lives and estimated residual values are reviewed annually and
adjusted as appropriate.
The gain or loss arising on the disposal of an asset is determined as the
difference between the sales proceeds less any costs of disposal and the
carrying amount of the asset, which is recognised in the Income Statement.
2.3 Intangible assets
Computer software
Computer software which has been purchased by the Group from third party
vendors is measured at initial cost less accumulated amortisation and less any
accumulated impairments.
Computer software is estimated to have a useful life of 3 years with no
residual value after the period. These assets are amortised on a straight-line
basis with the useful economic lives and estimated residual values being
reviewed annually and adjusted as appropriate.
Internally generated intangible assets
Internally generated intangible assets are only recognised by the Group when
the recognition criteria have been met in accordance with IAS 38: Intangible
Assets as follows:
· expenditure can be reliably measured;
· the product or process is technically and
commercially feasible;
· future economic benefits are likely to be
received;
· intention and ability to complete the
development; and
· view to either use or sell the asset in the
future.
The Group will only recognise an internally generated asset should it meet all
the above criteria. In the event of a development not meeting the criteria it
will be recognised within the consolidated income statement in the period
incurred.
Capitalised costs include all directly attributable costs to the development
of the asset. Internally generated assets are measured at capitalised cost
less accumulated amortisation less accumulated impairment losses.
The internally generated asset is amortised at the point the asset is
available for use or sale. The asset is amortised on a straight-line basis
over the useful economic life with the remaining useful economic life and
residual value being assessed annually. The estimated useful economic life of
internally generated assets is 3-5 years with no expected residual balance.
Any subsequent expenditure on the internally generated asset is only
capitalised if the cost increases the future economic benefits of the related
asset. Otherwise, all additional expenditure should be recognised through the
income statement in the period it occurs.
2.4 Financial instruments
Initial recognition
Financial assets and financial liabilities are recognised in the statement of
financial position when the Group becomes a party to the contractual
provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the acquisition
or issue of the financial assets and financial liabilities (other than
financial assets and financial liabilities at FVTPL) are respectively added to
or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs that
are not directly attributable to the acquisition of financial assets and
financial liabilities at FVTPL are recognised immediately in the consolidated
income statement.
Classification
The Group classifies financial instruments based on the business model and the
contractual cash flow characteristics of the financial instruments. Under IFRS
9, the Group classifies financial assets into one of three measurement
categories:
§ Amortised cost - assets in a business model whose objective is to hold
financial assets to collect contractual cash flows, where the contractual
terms of the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest (SPPI) on the principal amount
outstanding. The Group classifies non-derivative financial liabilities as
measured at amortised cost.
§ Fair value through other comprehensive income (FVOCI) - assets held in a
business model whose objective is to collect contractual cash flows and sell
financial assets where the contractual terms of the financial assets give rise
on specified dates to cash flows that are SPPI on the principal amount
outstanding. The Group measures debt securities under this category.
§ Fair value through profit or loss (FVTPL) - assets not measured at
amortised cost or FVOCI. The Group measures derivatives under this category.
The Group has no non-derivative financial assets or liabilities classified as
held for trading.
The Group reassesses its business models each reporting period.
The Group classifies certain financial instruments as equity where they meet
the following conditions:
§ the financial instrument includes no contractual obligation to deliver cash
or another financial asset on potentially unfavourable conditions;
§ the financial instrument is a non-derivative that includes no contractual
obligation for the issuer to deliver a variable number of its own equity
instruments; or
§ the financial instrument is a derivative that will be settled only by the
issuer exchanging a fixed amount of cash or another financial asset for a
fixed number of its own equity instruments.
Financial assets - measurement
I. Financial assets measured at amortised cost
These are initially measured at fair value plus transaction costs that are
directly attributable to the financial asset. Subsequently, these are measured
at amortised cost using the EIR method. The amortised cost is the amount
advanced less principal repayments, plus or minus the cumulative amortisation
using the EIR method of any difference between the amount advanced and the
maturity amount, less impairment provisions for expected losses. The losses
arising from impairment are recognised in the income statement and disclosed
with any other similar losses within the line item "Net impairment loss on
financial assets".
Financial assets measured at amortised cost mainly comprise loans and advances
to customers, loans and advances to banks, and other receivables.
II. Fair value through other comprehensive income
(FVTOCI)
These are initially measured at fair value plus transaction costs that are
directly attributable to the financial asset.
Subsequently, they are measured at fair value based on current, quoted bid
prices in active markets for identical assets that the Group can access at the
reporting date. Where there is no active market, or the debt securities are
unlisted, the fair values are based on valuation techniques including
discounted cash flow analysis, with reference to relevant market rates and
other commonly used valuation techniques. Interest income is recognised in the
income statement using the EIR method. Impairment provisions for expected
losses are recognised in the income statement which does not reduce the
carrying amount of the investment security but is transferred from the FVOCI
reserve in equity. Other fair value movements are recognised in other
comprehensive income and presented in the FVOCI reserve in equity. On
disposal, the gain or loss accumulated in equity is reclassified to the income
statement.
FVTOCI financial assets includes debt securities in the form of UK Treasury
Bills and UK Gilts. These assets are not classified as: loans and receivables;
held-to-maturity investments; or financial assets at fair value through profit
or loss.
Regular purchases and sales of debt securities are recognised on the trade
date at which the Group commits to purchase or sell the asset.
III. Financial assets at fair value through profit or loss (FVTPL)
These are measured both initially and subsequently at fair value with
movements in fair value recorded in the income statement. Any costs that are
directly attributable to their acquisition are recognised in profit or loss
when incurred. The Group only measures derivative financial assets under this
classification.
Financial assets - impairment
The Group recognises loss allowances for expected credit losses ("ECLs") on
the following financial instruments that are not measured at FVTPL:
· Financial assets measured at amortised cost;
· Debt securities measured at fair value through other
comprehensive income; and
· Loan commitments
IFRS 9 permits entities to apply a 'simplified approach' for trade
receivables, contract assets and lease receivables. The simplified approach
permits entities to recognise lifetime expected losses on all these assets
without the need to identify significant increases in credit risk. The Group
has adopted this simplified approach for assessing trade and other receivables
balances. The Group confirms these trade and other receivable balances do not
contain a significant financing component.
With the exception of purchased or originated credit impaired ("POCI")
financial assets (which are considered separately below), ECLs are measured
through loss allowances calculated on the following bases.
ECLs are a probability-weighted estimate of the present value of credit
losses. The Group measures ECL on an individual basis, or on a collective
basis for portfolios of loans that share similar economic risk
characteristics. The loss allowance is measured as the difference between the
contractual cash flows and the present value of the asset's expected cash
flows using the asset's original EIR, regardless of whether it is measured on
an individual basis or a collective basis.
A financial asset that gives rise to credit risk, is referred to (and analysed
in the notes to this financial information) as being in "Stage 1" provided
that since initial recognition (or since the previous reporting date) there
has not been a significant increase in credit risk, nor has it has become
credit impaired.
For a Stage 1 asset, the loss allowance is the "12-month ECL", that is, the
ECL that results from those default events on the financial instrument that
are possible within 12 months from the reporting date.
A financial asset that gives rise to credit risk is referred to (and analysed
in the notes to this financial information) as being in "Stage 2" if since
initial recognition there has been a significant increase in credit risk
(SICR) but it is not credit impaired.
For a Stage 2 asset, the loss allowance is the "lifetime ECL", that is, the
ECL that results from all possible default events over the life of the
financial instrument.
A financial asset that gives rise to credit risk is referred to (and analysed
in the notes to this financial information) as being in "Stage 3" if since
initial recognition it has become credit impaired.
For a Stage 3 asset, the loss allowance is the difference between the asset's
projected exposure at default (EAD) and the present value of estimated future
cash flows discounted at an applicable EIR. Further, the recognition of
interest income is constrained relative to the amounts that are recognised on
Stage 1 and Stage 2 assets, as described in the revenue recognition policy set
out above.
If circumstances change sufficiently at subsequent reporting dates, an asset
is referred to by its newly appropriate Stage and is re-analysed in the notes
to the financial information.
Where an asset is expected to mature in 12 months or less, the "12-month ECL"
and the "lifetime ECL" have the same effective meaning and accordingly for
such assets the calculated loss allowance will be the same whether such an
asset is at Stage 1 or Stage 2. In order to determine the loss allowance for
assets with a maturity of 12 months or more, and disclose significant
increases in credit risk, the Group nonetheless determines which of its
financial assets are in Stages 1 and 2 at each reporting date.
Significant increase in credit risk - policies and procedures for identifying
Stage 2 assets
Whenever any contractual payment is past due, the Group compares the risk of a
default occurring on the financial instrument as at the reporting date with
the risk of a default occurring on the financial instrument as at the date of
initial recognition in order to determine whether credit risk has increased
significantly.
See note 39 for further details about how the Group assesses increases in
significant credit risk.
Definition of a default
Critical to the determination of significant increases in credit risk (and to
the determination of ECLs) is the definition of default. Default is a
component of the probability of default (PD), changes in which lead to the
identification of a significant increase in credit risk, and PD is then a
factor in the measurement of ECLs.
The Group's definition of default for this purpose is:
· A counterparty defaults on a payment due under a loan agreement
and that payment is more than 90 days overdue;
· The collateral that secures, all or in part, the loan agreement
has been sold or is otherwise not available for sale and the proceeds have not
been paid to the Group; or
· A counterparty commits an event of default under the terms and
conditions of the loan agreement which leads the lending company to believe
that the borrower's ability to meet its credit obligations to the Group is in
doubt.
The definition of default is similarly critical in the determination of
whether an asset is credit-impaired (as explained below).
Credit-impaired financial assets - policies and procedures for identifying
Stage 3 assets
A financial asset is credit-impaired when one or more events that have a
detrimental impact on the estimated future cash flows of the financial asset
have occurred. IFRS 9 states that evidence of credit-impairment includes
observable data about the following events:
· A counterparty is 90 days past due for one or more of its loan
receivables;
· Significant financial difficulty of the borrower or issuer;
· A breach of contract such as a default (as defined above) or past
due event, or
· The Group, for economic or contractual reasons relating to the
borrower's financial difficulty, having granted to the borrower a concession
that the Group would not otherwise consider.
The Group assesses whether debt instruments that are financial assets measured
at amortised cost or at FVTOCI are credit-impaired at each reporting date.
When assessing whether there is evidence of credit-impairment, the Group takes
into account both qualitative and quantitative indicators relating to both the
borrower and to the asset. The information assessed depends on the borrower
and the type of the asset. It may not be possible to identify a single
discrete event - instead, the combined effect of several events may have
caused financial assets to become credit-impaired.
See note 39 for further details about how the Group identifies credit impaired
assets.
Purchased or originated credit-impaired ("POCI") financial assets
POCI financial assets are treated differently because they are in Stage 3 from
the point of original recognition. It is not in the nature of the Group's
business to purchase financial assets originated by other lenders, nor has the
Group to date originated any loans or advances to borrowers that it would
define as credit impaired.
Movements back to stages 1 and 2
Exposures will move out of stage 3 to stage 2 when they no longer meet the
criteria for inclusion and have completed a minimum 3-month probation period
as set according to the type of lending and default event circumstances.
Movement into stage 1 will only occur when the SICR criteria are no longer
met.
Presentation of allowance for ECL in the statement of financial position
Loss allowances for ECL are presented in the statement of financial position
as follows:
· For financial assets measured at amortised cost: as a deduction
from the gross carrying amount of the assets; and
· For loan commitments: as a provision.
Revisions to estimated cash flows
Where cash flows are significantly different from the original expectations
used to determine EIR, but where this difference does not arise from a
modification of the terms of the financial instrument, the Group revises its
estimates of receipts and adjusts the gross carrying amount of the financial
asset to reflect actual and revised estimated contractual cash flows. The
Group recalculates the gross carrying amount of the financial asset as the
present value of the estimated future contractual cash flows discounted at the
financial instrument's original EIR.
The adjustment is recognised in the consolidated income statement as income or
expense.
Modification of financial assets
A modification of a financial asset occurs when the contractual terms
governing a financial asset are renegotiated without the original contract
being replaced and derecognised. A modification is accounted for in the same
way as a revision to estimated cash flows, and in addition;
· Any fees charged are added to the asset and amortised over the
new expected life of the asset, and
· The asset is individually assessed to determine whether there has
been a significant increase in credit risk.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to
the cash flows from the asset expire, or when it transfers the financial asset
and substantially all the risks and rewards of ownership of the asset to
another entity. If the Group neither transfers nor retains substantially all
the risks and rewards of ownership and continues to control the transferred
asset, the Group recognises its retained interest in the asset and an
associated liability for amounts it may have to pay. If the Group retains
substantially all the risks and rewards of ownership of a transferred
financial asset, the Group continues to recognise the financial asset and also
recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between
the asset's carrying amount and the sum of the consideration received and
receivable and the cumulative gain or loss that had been recognised in other
comprehensive income and accumulated in equity is recognised in the income
statement.
On derecognition of a financial asset other than in its entirety (e.g. when
the Group retains an option to repurchase part of a transferred asset), the
Group allocates the previous carrying amount of the financial asset between
the part it continues to recognise under continuing involvement, and the part
it no longer recognises on the basis of the relative fair values of those
parts on the date of the transfer. The difference between the carrying amount
allocated to the part that is no longer recognised and the sum of the
consideration received for the part no longer recognised and any cumulative
gain or loss allocated to it that had been recognised in other comprehensive
income is recognised in the consolidated statement of comprehensive income. A
cumulative gain or loss that had been recognised in other comprehensive income
is allocated between the part that continues to be recognised and the part
that is no longer recognised on the basis of the relative fair values of those
parts.
Write-offs
Loans and advances are written off when the Group has no reasonable
expectation of recovering the financial asset; either in its entirety or a
portion of it. This is the case when the Group determines that the borrower
does not have assets or sources of income that could generate sufficient cash
flows to repay the amounts subject to the write-off. A write-off constitutes a
derecognition event. The Group may apply enforcement activities to financial
assets written off. Recoveries resulting from enforcement activities will
result in impairment gains.
Financial guarantees, letters of credit and undrawn loan commitments
Undrawn loan commitments and letters of credit are commitments under which,
over the duration of the commitment, the Bank is required to provide a loan
with pre-specified terms to the customer. These contracts are in the scope of
the ECL requirements. The nominal contractual value of financial guarantees,
letters of credit and undrawn loan commitments, where the loan agreed to be
provided is on market terms, are not recorded in the statement of financial
position. The nominal values of these instruments together with the
corresponding ECLs are disclosed in note 39.
Forward-looking macroeconomic scenarios
ECLs and SICR take into account forecasts of future economic conditions in
addition to current conditions. The Group has developed a macroeconomic model
which adjusts the ECLs calculated by the credit models to provide probability
weighted numbers based on a number of forward-looking macroeconomic scenarios.
Due to the assumptions and estimates within these forward-looking
macroeconomic scenarios, refer to note 3 for further details of the Group's
approach.
Financial liabilities
A financial liability is a contractual obligation to deliver cash or another
financial asset or to exchange financial assets or financial liabilities with
another entity under conditions that are potentially unfavourable to the Group
or a contract that will or may be settled in the Group's own equity
instruments, or a derivative contract over own equity that will or may be
settled other than by the exchange of a fixed amount of cash (or another
financial asset) for a fixed number of the Group's own equity instruments.
Gains or losses on financial liabilities are recognised in the consolidated
statement of comprehensive income.
Subordinated liabilities
Subordinated notes issued by the Group are assessed as to whether they should
be treated as equity or financial liabilities. Where there is a contractual
obligation to deliver cash or other financial assets, they are treated as a
financial liability and measured at amortised cost using the EIR method after
taking account of any discount or premium on the issue and directly
attributable costs that are an integral part of the EIR. The amount of any
discount or premium is amortised over the period to the expected call date of
the instrument.
All subordinated notes issued by the Group are classified as financial
liabilities.
Financial liabilities and equity
Debt and equity instruments that are issued are classified as either financial
liabilities or as equity in accordance with the substance of the contractual
arrangement.
Equity instruments
The Group classifies capital instruments as financial liabilities or equity
instruments in accordance with the substance of the contractual terms of the
instruments. Where an instrument contains no obligation on the Group to
deliver cash or other financial assets, or to exchange financial assets or
financial liabilities with another party under conditions that are potentially
unfavourable to the Group, or where the instrument will or may be settled in
the Group's own equity instruments but includes no obligation to deliver a
variable number of the Group's own equity instruments, then it is treated as
an equity instrument. Accordingly, the Group's share capital are presented as
components of equity and any dividends, interest or other distributions on
capital instruments are also recognised in equity. Any related tax is
accounted for in accordance with IAS 12.
Financial liabilities - measurement
Financial liabilities are classified as either financial liabilities measured
at amortised cost or financial liabilities at FVTPL.
I. Financial liabilities measured at amortised cost
Financial liabilities at amortised cost are recognised initially at fair value
net of transaction costs incurred. They are subsequently measured at amortised
cost. Any difference between the fair value and the redemption value is
recognised in the income statement over the period of the borrowings using the
EIR method.
Interest bearing loans and borrowings are measured at amortised cost using the
effective interest rate method. Gains and losses are recognised in the income
statement when the liabilities are derecognised as well as through the
effective interest rate method (EIR) amortisation process. Amortised cost is
calculated by taking into account any discount or premium on acquisition and
fees or costs that are an integral part of the EIR. The EIR amortisation is
included in "Interest and similar expenses" in the Income Statement.
II. Financial liabilities at fair value through profit
or loss
Financial liabilities at fair value through profit or loss may include
financial liabilities held for trading. Financial liabilities are classified
as held for trading if they are acquired for the purpose of selling in the
near term.
During the periods presented the Group has held no financial liabilities for
trading, nor designated any financial liabilities upon initial recognition as
at fair value through profit or loss.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group's
obligations are discharged, cancelled or they expire.
Impairment of non-financial assets
The carrying amounts of the Group's non-financial assets, other than deferred
tax assets, are reviewed at each reporting date to determine whether there is
any indication of impairment. If any such indication exists, then the asset's
recoverable amount is estimated. The recoverable amount of an asset or
cash-generating unit is the greater of its value in use and its fair value
less costs to sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset. For the purposes of impairment testing, assets that
cannot be tested individually are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets ('the
cash-generating unit').
An impairment loss is recognised if the carrying amount of an asset or its
cash-generating unit ("CGU") exceeds its estimated recoverable amount.
Impairment losses are recognised in the income statement. Impairment losses
recognised in respect of CGUs are allocated to reduce the carrying amounts of
assets in the unit (or group of units) on a pro rata basis.
An impairment loss is reversed if and only if the reasons for the impairment
have ceased to apply.
Impairment losses recognised in prior periods are assessed at each reporting
date for any indication that the loss has decreased or no longer exists. An
impairment loss is reversed only to the extent that the asset's carrying
amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had been
recognised.
2.5 Derivative financial instruments
The Group uses derivative financial instruments (interest rate swaps) to
manage its exposure to interest rate risk. In accordance with the Group
Treasury Policy, the Group does not hold or issue derivative financial
instruments for proprietary trading.
Derivative financial instruments are recognised at their fair value with
changes in their fair value taken to profit or loss. Fair values are
calculated by discounting cash flows at the prevailing interest rates. All
derivatives are classified as assets when their fair value is positive and as
liabilities when their fair value is negative. If a derivative is cancelled,
it is derecognised from the Consolidated Statement of Financial Position. A
derivative is presented as a non-current asset or a non-current liability if
the remaining maturity of the instrument is more than 12 months and it is not
due to be realised or settled within 12 months. Other derivatives are
presented as current assets or current liabilities.
2.6 Hedge accounting
Due to the simplistic nature of the Group's hedging activities, the Group has
adopted to apply IFRS 9 for portfolio assets and liabilities being hedged by
applying fair value hedge accounting.
The Group designates certain derivatives held for risk management as hedging
instruments in qualifying hedging relationships. On initial designation of the
hedge, the Group formally documents the relationship between the hedging
instruments and hedged items, including the risk management objective, the
strategy in undertaking the hedge and the method that will be used to assess
the effectiveness of the hedging relationship.
The Group makes an assessment, both at the inception of the hedge
relationship, as well as on an ongoing basis, as to whether the hedging
instruments are expected to be highly effective in offsetting the movements in
the fair value of the respective hedged items during the period for which the
hedge is designated.
The Group considers the following as key sources of hedge ineffectiveness:
· the mismatch in maturity date of the swap and hedged item, as
swaps with a given maturity date cover a portfolio of hedged items which may
mature throughout the month;
· the actual behaviour of the hedged item differing from
expectations, such as early repayments or withdrawals and arrears; and
· minimal movements in the yield curve leading to ineffectiveness
where hedge relationships are sensitive to small value changes.
Where there is an effective hedge relationship for fair value hedges, the
Group recognises the change in fair value of each hedged item in profit or
loss with the cumulative movement in their value being shown separately in the
Consolidated Statement of Financial Position as fair value adjustments on
hedged assets and liabilities. The fair value changes of both the derivative
and the hedge substantially offset each other to reduce profit volatility.
The Group discontinues hedge accounting when the derivative ceases through
expiry, when the derivative is cancelled or the underlying hedged item
matures, is sold or is repaid.
If a derivative no longer meets the criteria for hedge accounting or is
cancelled whilst still effective, the fair value adjustment relating to the
hedged assets or liabilities within the hedge relationship prior to the
derivative becoming ineffective or being cancelled remains on the Consolidated
Statement of Financial Position and is amortised over the remaining life of
the hedged assets or liabilities. The rate of amortisation over the remaining
life is in line with expected income or cost generated from the hedged assets
or liabilities. Each reporting period, the expectation is compared to actual
with an accelerated run-off applied where the two diverge by more than set
parameters.
Fair value hedge accounting for portfolio hedges of interest rate risk
The Group applies fair value hedge accounting for portfolio hedges of interest
rate risk. As part of its risk management process, the Group identifies
portfolios whose interest rate risk it wishes to hedge. The portfolios
comprise of only liabilities. The Group analyses each portfolio into repricing
time periods based on expected repricing dates, by scheduling cash flows into
the periods in which they are expected to occur. Using this analysis, the
Group designates as the hedged item an amount of the liabilities from each
portfolio that it wishes to hedge.
The amount to hedge is determined based on a movement in the present value of
the Group's balance sheet under a 200-basis point shift in the yield curve
being used to value the instruments to ensure the mismatches in expected
repricing buckets are within the limits set by the Board on the sensitivity
analysis approach using a hypothetical shift in interest rates.
The Group measures monthly the movements in fair value of the portfolio
relating to the interest rate risk that is being hedged. Provided that the
hedge has been highly effective, the Group recognises the change in fair value
of each hedged item in the income statement with the cumulative movement in
their value being shown on the statement of financial position as a separate
item, 'Fair value adjustment for portfolio hedged risk', either within assets
or liabilities as appropriate.
The Group measures the fair value of each hedging instrument monthly. The
value is included in derivatives held for risk management in either assets or
liabilities as appropriate, with the change in value recorded in net gains
from derivatives and other financial instruments at fair value through profit
or loss in the income statement. Any hedge ineffectiveness is recognised in
net gains/(losses) from derivatives and other financial instruments at fair
value through profit or loss in the income statement as the difference between
the change in fair value of the hedged item and the change in fair value of
the hedging instrument.
2.7 Current and deferred income tax
Income tax on the result for the period comprises current and deferred income
tax. Income tax is recognised in the statement of comprehensive income except
to the extent that it relates to items recognised directly in equity, in which
case it is recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income
for the period, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of previous
periods.
Deferred tax is provided using the balance sheet liability method, providing
for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation
purposes. The amount of deferred tax provided is based on the expected manner
of realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the reporting date.
Deferred tax assets are recognised to the extent it is probable that taxable
profits will be available against which the deductible temporary differences
can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered. Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
Deferred tax liabilities are recognised for all taxable temporary differences.
The Company and its UK subsidiaries are in the same VAT group.
2.8 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents
comprise cash and non-mandatory deposits held with central banks, mandatory
deposits held with central banks in demand accounts and amounts due from banks
with an original maturity of less than three months that are available to
finance the Group's day-to-day operations.
2.9 Employee benefits - pension costs
A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and will have a legal or constructive obligation to pay further amounts. Contributions to defined contribution schemes are charged to the statement of comprehensive income as they become payable in accordance with the rules of the scheme. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the statement of financial position.
2.10 Share-based payments
The Group has a number of long-term incentive share schemes for all employees,
including some Directors, whereby they have been granted equity-settled
share-based payments in the Group. The share schemes all have vesting
conditions with some schemes for senior management being subject to specific
performance conditions. All share schemes are equity settled share-based
payments.
The fair value of equity settled share-based payment awards are calculated at
grant date and recognised over the period in which the employees become
unconditionally entitled to the awards (the vesting period). Fair value is
measured by use of the Black-Scholes option pricing model. The variables used
in the model are adjusted, based on management's best estimate, for the
effects of non-transferability, exercise restrictions and behavioural
considerations.
The share-based payments are recognised as staff costs in the income statement
and expensed on a straight-line basis over the vesting period, based on
estimates of the number of shares which may eventually vest. The amount
recognised as an expense is adjusted to reflect differences between expected
and actual outcomes, such that the amount ultimately recognised as an expense
is based on the number of awards that meet the related service and specific
performance conditions at the vesting date. The change in estimations, if any,
is recognised in the income statement at the time of the change with a
corresponding adjustment in equity through the retained earnings account.
It is assumed where the Company grants awards to employees of the Company and
its subsidiaries, the employee offers services to the respective employing
entity only. Where the Company satisfies awards granted to an employee of its
subsidiary, there is no obligation for the subsidiary to reimburse the
Company. Consequently, all share-based payments are considered equity-settled
with any awards to an employee of its subsidiary being deemed a capital
contribution with a corresponding debit to investment in subsidiaries. As the
Company is settling these awards through its own equity instruments, there is
a corresponding credit to the retained earnings account. The Company
recognises the expense of share-based payments in the respective entity of the
employee.
See note 10 for further details on the share schemes.
2.11 Leasing
The Group presently is only a lessee with lease agreements with third-party
suppliers. It does not hold any lessor contracts with customers.
IFRS 16 distinguishes leases and service contracts on the basis of whether an
identified asset is controlled by a customer for which these are deemed as
right-of-use assets. The lessee is required to recognise a right-of-use asset
representing the Group right of use and control over the leased asset.
Furthermore, the Group is required to recognise a lease liability representing
its obligation to make lease payments over the relevant term of the lease. The
Group will recognise both interest expense and depreciation charges, which
equate to the finance costs of the leases.
Furthermore, the classification of cash flows will also be affected because
operating lease payments under IAS 17 are presented as operating cash flows;
whereas under the IFRS 16 model, the lease payments will be split into a
principal and an interest portion which will be presented as financing and
operating cash flows respectively.
Lease liability
The lease liability is initially measured at the present value of the lease
payments that are not paid at that date. The Group assesses on a
lease-by-lease payments the contractual terms of the lease and likelihood of
the Group enacting on available extension and break clauses within the lease
in order to determine the expected applicable term of the lease. Once
determined, the Group analyses the expected future payments of the lease over
this applicable term, which are discounted. The interest rate used to discount
the cashflows is the interest rate implicit to the lease agreement. Where this
is not available, the Group has applied their incremental borrowing rate. The
incremental borrowing rate is the rate of interest that the Group would have
to pay to borrow, over a similar term and with a similar security, the funds
necessary to obtain an asset of a similar value to the right-of-use asset in a
similar economic environment.
Subsequently, the lease liability is adjusted for interest and lease payments,
as well as the impact of lease modifications, amongst other variables. The
interest expense of the lease liability is calculated under the effective
interest rate where the interest expense equates to the lease payments over
the remaining term.
Right-of-use asset
The right-of-use asset is initially measured at cost and subsequently measured
at cost (subject to certain exceptions) less accumulated depreciation and
impairment losses, adjusted for any remeasurement of the lease liability.
The cost at initial recognition is calculated as the initial lease liability
plus initial direct costs, expected restoration costs and remaining prepayment
balances at the commencement date.
The right-of-use asset is subsequently measured at cost, less accumulated
depreciation, and any accumulated impairment losses. Any remeasurement of the
lease liability results in a corresponding adjustment to the right-of-use
asset.
The Company calculates depreciation of the right-of-use asset in accordance
with IAS 16 'Property, Plant and Equipment' and is consistent with the
depreciation methodology applied to other similar assets. All leases are
depreciated on a straight-line basis over the shorter of the lease term and
the useful life of the right-of-use asset.
Restoration costs will be estimated at initial application and added to the
right-of-use asset and a corresponding provision raised in accordance with IAS
37 'Provisions, contingent liabilities, and contingent assets. Any subsequent
change in the measurement of the restoration provision, due to a revised
estimation of expected restoration costs, is accounted for as an adjustment of
the right-of-use asset.
Short-term leases and leases of low value assets
The Group leases some smaller asset classes, such as computer hardware, which
either has a value under £5,000 per annum or has a lease period of 12 months
or shorter. For such leases, the Group has elected under IFRS 16 rules to
treat these as operating leases and hold off-balance sheet. These leases are
charged to the income statement on a straight-line basis over the lease term.
2.12 Provisions for commitments and other liabilities
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will
be required to settle that obligation and a reliable estimate can be made of
the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration
required to settle the present obligation at the reporting date, taking into
account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows
(discounted at the Company's weighted average cost of capital when the effect
of the time value of money is material).
When some or all of the economic benefits required to settle a provision are
expected to be recovered from a third party, a receivable is recognised as an
asset only if it is virtually certain that reimbursement will be received, and
the amount of the receivable can be measured reliably.
2.13 Operating segments
IFRS 8 Operating segments requires particular classes of entities (essentially
those with publicly traded securities) to disclose information about their
operating segments, products and services, the geographical areas in which
they operate, and their major customers. Information is based on the Group's
internal management reports, both in the identification of operating segments
and measurement of disclosed segment information.
The Group's products and the markets to which they are offered are so similar
in nature that they are reported as one class of business. As a result, the
chief operating decision maker uses only one segment to control resources and
assess the performance of the entity, while deciding the strategic direction
of the Group.
2.14 Earnings per share
In accordance with IAS 33, the Group will present on the face of the statement
of comprehensive income basic and diluted EPS for:
- Profit or loss from continuing operations attributable to the ordinary
equity holders of the Company; and
- Profit or loss attributable to the ordinary equity holders of the
Company for the period for each class of ordinary shares that has a different
right to share in profit for the period.
Basic EPS is calculated by dividing profit or loss attributable to ordinary
equity holders of the Company by the weighted average number of ordinary
shares outstanding during the period.
Diluted EPS is calculated by adjusting the earnings and number of shares for
the effects of dilutive options and other dilutive potential ordinary shares.
2.15 Merger relief
Merger relief is relief granted under the Companies Act 2006 section 612 which
removes the requirement for the Company to recognise the premium on issued
shares to acquire another company within the share premium account. Merger
relief is recognised where all the following criteria are satisfied:
§ The Company secures at least a 90% equity holding of all share classes in
another company as part of the arrangement; and
§ The Company provides either of the following as consideration for the
allotment of shares in the acquired company:
o Issue or transfer of equity shares in the Company in exchange for equity
shares in the acquired company; or
o The cancellation of any such shares in the acquired company that the
Company does not already hold.
2.16 Merger accounting
Business combination and merger accounting
IFRS 3 Business Combinations prescribes the accounting treatment for business
combinations, however, the change in control and ownership of a company under
common control is outside the scope of IFRS 3 Business Combinations. In the
absence of appropriate IFRS, the Directors sought other applicable accounting
standards, and elected to apply FRS 102 in the form of Merger Accounting which
provides accounting guidance for transactions of this nature.
The principles of merger accounting are as follows:
§ Assets and liabilities of the acquired entity are stated at predecessor
carrying values. Fair value measurement is not required;
§ No new goodwill arises in merger accounting; and
§ Any difference between the consideration given and the aggregate book value
of the assets and liabilities of the acquired entity at the date of
transaction is included in equity in retained earnings or in a separate
"Merger Reserve" account.
By way of using the merger accounting methodology for preparing these
consolidated financial statements, comparative information will be prepared as
if the Group had existed and been formed in prior periods. The Directors agree
this will enable informative comparatives to users given the underlying
activities and management structure of the Group remain largely unchanged
following the formation of the Group.
Merger reserve
Where merger accounting has been applied this prescribes that any difference
between the consideration given and the aggregate book value of the assets and
liabilities of the acquired entity at the date of transaction is included in
equity in retained earnings or in a separate reserve account. Therefore, on
consolidation of the Group financial statements, the difference between the
consideration paid and the book value of the acquired entity is recognised as
a Merger Reserve, in accordance with relevant accounting standards relating to
businesses under common control.
2.17 Own Shares
Own equity instruments of the Group which are acquired by it or by any of its
subsidiaries (treasury shares) are deducted from equity. Consideration paid or
received on the purchase, sale, issue, or cancellation of the Group's own
equity instruments is recognised directly in equity. No gain or loss is
recognised in profit or loss on the purchase, sale, issue, or cancellation of
own equity instruments.
Own shares represents shares of the Company that are held by the Employee
Benefit Trust.
3. Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial information in accordance with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and reported amounts of assets and
liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
Judgements
The Group has made the following key judgements in applying the accounting
policies:
3.1. Expected credit losses loan impairment
Significant increase in credit risk for classification in stage 2
Counterparties are classified into stage 2 where the risk profile of the
borrower profile has significantly increased from inception of the exposure.
This increase in credit risk is signified by either increases in internal or
external credit ratings, the counterparty becoming over 30 days past due, or
forbearance measures being applied.
The Group has aligned its assessment of significant increases in credit risk
to its internal threshold criteria for prompting customer pricing reviews for
consistency.
Due to the short-term behavioural term of the current lending portfolio, the
Group has not applied a probationary ("cooling off") period to exposures which
are no longer triggering the stage 2 threshold criteria so these will move
back to stage 1 once the classification criteria is no longer met.
Definition of default
The Group aligns its definition of default to the regulatory definition for
default in all periods presented. The Group applies the regulatory guideline
of 90+ days in arrears and also uses internal and external information, along
with financial and non-financial information, available to the Group to
determine whether a default event has either occurred or is perceived to have
occurred.
Should a default event occur the Group applies a probationary ("cooling off")
period to Stage 3 counterparties before being transferred back to either stage
1 or 2. The probationary period is typically 3 months but is extended up to 12
months for more severe scenarios. During the probationary period the
counterparty must no longer meet the criteria for Stage 3 inclusion for the
entire applicable period.
Estimates
The Group has made the following estimates in the application of the
accounting policies that have a significant risk of material adjustment to the
carrying amount of assets and liabilities within the next financial year:
3.2. Expected credit losses loan impairment
Probability of default ("PD")
In the absence of sufficient internal historical default data, the Group uses
an external credit rating agency to provide credit ratings and corresponding
probability of defaults ("PDs") for the vast majority of the Group's
counterparties. These are "Through-the-Cycle" PDs which represents a long-run
average probability of default, opposed to Point-in-Time PDs which are shorter
term and partially reflect the current economic outlook. Further, the primary
data points which impact credit ratings and PDs are derived from past events,
therefore, PDs are inherently a lagging indicator of expected default activity
over the following 12 month period and longer.
Consequently, the Group utilises external macro-economic forecast data sourced
from an external economics research company to adjust PDs from
Through-the-Cycle to Point-in-Time, and further consider how default activity
may evolve in the future. Following this exercise, as at 31 December 2023 the
Group has applied a c.34% scalar increase to its PDs as opposed to a c.40%
scalar increase as at 31 December 2022.
A 100% deterioration in PDs (excluding stage 3 exposures, which are already in
default) would result in an additional impairment charge of £1,901,000 at 31
December 2023 (31 December 2022: £1,130,000).
Loss given default ("LGD")
The Group reviewed its LGD modelling assumptions as at 31 December 2023 by
comparing observed loss given default rates against modelled LGD. The Group
analyses historical default events by different sectors, products, and
counterparty activity to validate whether its current LGD methodology is
reasonable. The Group may apply managerial overlays to its LGD assumptions to
accommodate for deviations in expected LGD rates over the following 12 month
period and longer from historical observed LGD rates.
Although the Group has observed strong performance in default recoveries
within the year ended 31 December 2023, the Group has elected to review its
LGD modelling assumptions to reflect an uncertain economic outlook,
specifically within industries identified as having higher potential loss
rates. Collateral haircuts have been reviewed at industry-level, along with an
adjustment of "sold-out-trust" (SOTs) probabilities, which weaken the Group's
recovery position due to becoming uncollateralised.
A 10% reduction in the expected discounted cashflows from the collateral held
by the Group would result in an additional impairment charge of £967,000 at
31 December 2023 (31 December 2022: £2,389,000).
The Group's arrears balance includes c£10m in respect of RoyaleLife. As set
out in the Chief Executive Officer's Report, given the unique circumstances
associated with this arrears case, including the challenges involved in
repayment recoveries across the entire cohort of lenders, and significant
parts of RoyaleLife entering into administration, it was determined prudent to
materially provide against the outstanding balance after consideration of cash
collateral.
Forward looking macroeconomic scenarios
The Group considers four economic stress scenarios within its impairment
modelling whereby the Group stresses PD and LGD inputs in accordance with
expected macro-economic outlooks. This provides an ECL impairment allowance
for each scenario which is multiplied by the likelihood of occurrence over the
next 12-month period from the balance sheet date to give a probability
weighted ECL.
The following forward-looking macroeconomic scenarios, together with their
probability weighting and key economic variables, were used in calculating the
ECLs used for determining impairment provisions:
Scenario Probability Weighting ECL Impairment ECL Coverage(1)
(%)
(£'000)
(%)
31 December 2023
Upside 20% 13,181 2.22%
Base 50% 13,816 2.33%
Downside 20% 15,243 2.57%
Severe downside 10% 20,037 3.38%
Weighted Total 100% 14,596 2.46%
31 December 2022
Upside 15% 2,427 0.55%
Base 55% 2,823 0.64%
Downside 25% 5,343 1.20%
Severe downside 5% 9,362 2.11%
Weighted Total 100% 3,720 0.84%
(1) ECL Coverage is calculated by dividing the ECL impairment by the Exposure
at Default (EAD). EAD is typically higher than the gross loan receivable
balance.
The following table details the additional impairment allowance
charge/(credit) should one of the macroeconomic scenarios be assigned a 100%
probability weighting:
2023 2022
Scenario £'000 £'000
Upside (1,415) (1,293)
Base (780) (897)
Downside 647 1,623
Severe downside 5,441 5,642
3.3. Deferred taxation asset
In the year ended 31 December 2022, the Group recognised a deferred taxation
asset, which was based on the latest recently approved financial forecasts
through to December 2026 with the deferred taxation asset being fully utilised
during this period.
The forecast is inherently sensitive to the assumptions and estimates which
underpin it, including macroeconomic conditions (such as interest rates,
inflation and future tax rates), and is dependent on the Group's ability to
successfully execute its strategy. As such, the expected utilisation of the
deferred tax asset may vary significantly.
The following sensitivities have been modelled to demonstrate the impact of
changes in assumptions on the recoverability of deferred tax assets within the
Bank:
§ A reduction in the base forecast loan book by 20% each year.
§ A reduction in the net interest margin in the base forecast by a factor of
10% each year.
§ An increase in forecast costs of risk by a factor of 50% each year.
§ A 20% increase above forecast of staff costs and other operating expenses
each year.
In each of the individual sensitivities performed above, the reduction in
profitability means the timing of full recovery of the deferred tax asset is
delayed, but in all cases it is expected to be fully utilised within 5 years
and, therefore, the Board is satisfied that these sensitivities do not impact
the level of deferred tax asset to be recognised at 31 December 2023.
In the year ended 31 December 2023 the Group has performed favourably in
accordance with the forecasts used to estimate the deferred taxation asset.
The Group has updated its forecasts for actual performance in the elapsed
period to ensure the deferred taxation asset recognition is still valid.
The Group has an unrecognised deferred tax asset of £0.7m (2022: £0.7m).
This unrecognised deferred tax asset as at December 2023 relates entirely to
the prior taxable losses in Distribution Finance Capital Holdings plc entity.
4. Interest and similar income
2023 2022
£'000 £'000
At amortised cost (using effective interest rate method):
On loans and advances to customers 55,203 24,333
On loans and advances to banks 4,246 1,065
59,449 25,398
At FVOCI:
On debt securities 521 9
Total interest and similar income 59,970 25,407
5. Operating segments
It is the Director's view that the Group's products and the markets to which
they are offered are so similar in nature that they are reported as one class
of business. As a result, it is considered that the chief operating decision
maker uses only one segment to control resources and assess the performance of
the entity, while deciding the strategic direction of the Group. For this
purpose, the chief operating decision maker of the Group is the Board of
Directors.
6. Interest and similar expenses
The Group is solely funded by customer deposits and Group reserves. See note
35 and 36 for further detail of the movements in customer deposits and
financial liabilities during the year.
2023 2022
£'000 £'000
At amortised cost (using effective interest rate method):
On customer deposits 21,799 6,373
On subordinated liabilities 269 -
22,068 6,373
At FVTPL:
Net interest expense on financial instruments hedging liabilities 268 38
Total interest and similar expense 22,336 6,411
7. Fee income
2023 2022
£'000 £'000
Facility-related fees 1,393 1,348
Total fee income 1,393 1,348
8. Fee expense
2023 2022
£'000 £'000
Enable guarantee charges 648 -
Financial guarantee charges 19 -
Undrawn commitment facility fees 8 -
Non-incremental direct costs 44 -
Total fee expense 719 -
In the year ended 31 December 2023, the Group entered into a number of
financial guarantee schemes which allows the Group to reduce its regulatory
capital requirements. The Group is charged facility and commitment fees for
these schemes which are not considered as integral to the effective interest
rate of loans and advances to customers.
The Group recognised £44,000 in the year ended 31 December 2023 in relation
to directly attributable non-incremental costs for the issuance of financial
instruments.
9. Staff costs
Analysis of staff costs:
2023 2022
£'000 £'000
Wages and salaries 10,437 8,651
Share-based payments 905 499
Contractor costs 22 75
Social security costs 1,314 1,099
Pension costs arising on defined contribution schemes 753 524
Total staff costs 13,431 10,848
Contractor costs are recognised within personnel costs where the work
performed would otherwise have been performed by employees. Contractor costs
arising from the performance of other services is included within other
operating expenses.
Average number of persons employed by the Group (including Directors):
2023 2022
No. No.
Management 13 12
Finance 8 7
Credit & Risk 26 19
Sales & Marketing 35 29
Operations 28 23
Technology 16 13
Total average headcount 126 103
Directors' emoluments:
Fees/basic salary Bonuses Employer pension contributions Benefits in kind Long term incentive schemes(2) 2023 total 2022 total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Executive Directors:
Carl D'Ammassa 444 311 44 9 - 808 831
Gavin Morris 286 102 29 10 - 427 419
730 413 73 19 - 1,235 1,250
Non-executive Directors:
Mark Stephens 150 - - - - 150 150
Thomas Grathwohl 75 - - - - 75 75
Nicole Coll 85 - - - - 85 54
Sheryl Lawrence 95 - - - - 95 60
Haakon Stenrød(1) - - - - - - -
405 - - - - 405 339
Total Director remuneration 1,135 413 73 19 - 1,640 1,589
( )
(1) Haakon Stenrød holds his position as Non-Executive Director by virtue of
major shareholding by Watrium AS exercising their right to appoint a Director
under their Relationship Agreement. He is compensated by Watrium AS.
(2) Taxable gain on share awards exercised during the year.
The pension for the year ended 31 December 2023 to Carl D'Ammassa and Gavin
Morris of £44,000 (2022:£43,000) and £29,000 (2022:£26,000) respectively
is the sum of payments made to these individuals in lieu of Group pension
contributions.
Carl D'Ammassa and Gavin Morris have received share options as part of
long-term incentive schemes - further details of these share option schemes
can be found in note 10.
Carl D'Ammassa is the highest paid Director with total remuneration of
£808,000 (2022: £831,000) in the year ended 31 December 2023. Carl D'Ammassa
has been awarded share options of which none have been exercised yet as at 31
December 2023 (2022: nil). Refer to note 10 for further details of these
awards.
10. Share-based payments
The share-based payment expense during the year comprised the following:
2023 2022
£'000 £'000
Performance Share Plan (PSP) 860 489
Sharesave Scheme (SAYE) 45 10
Total share-based payments expense 905 499
The Group has the following share options scheme for employees which have been
granted and remain outstanding at 31 December 2023:
Plan No. of options outstanding Options outstanding value Grant dates Vesting dates Exercise price Performance conditions attached Settlement method Charge for year ended 31 December 2023
31 December 2023
31 December 2023
£'000
£'000
General Award 2020 143,350 54 Jun-20 Jun-23 Nil No Equity 6
General Award 2021 134,130 69 Jun-21 Jun-24 Nil No Equity 21
General Award 2022 337,422 60 May-22 May-25 Nil No Equity 37
General Award 2023 325,739 23 Apr-23 Apr-26 Nil No Equity 23
Manager CSOP Award 384,298 31 Aug-20 Jun-21 40.5p No Equity 2
Aug-20
Jun-22
Aug-20
Jun-23
Manager PSP Award 821,668 333 Aug-20 Aug-20 Nil No Equity -
Aug-20
Jun-21
Aug-20
Jun-22
CEO Recruitment Award 900,000 338 Jun-20 Jun-23 Nil Yes Equity 55
Senior Manager Award 2020 581,080 211 Jun-20 Jun-23 Nil Yes Equity 62
Senior Manager Award 2021 113,394 61 Jun-21 Sep-22 Nil No Equity 18
Jun-21
Jun-24
Nov-21
Nov-24
Senior Manager Award 2022 1,314,170 255 May-22 May-25 Nil Yes Equity 151
Sep-22
Sep-25
Senior Manager Award 2023 5,592,609 427 Apr-23 Apr-26 Nil Yes Equity 420
Jul-23
Feb-24
Jul-23
Feb-25
Jul-23
Feb-26
Jul-23
Jul-26
Jul-23 Feb-27
Aug-23
Aug-26
Oct-23
Aug-26
Leader & High Performer Award 2022 200,876 36 May-22 May-25 Nil No Equity 24
Feb-23
May-25
Leader & High Performer Award 2023 586,820 40 Apr-23 Apr-26 Nil No Equity 41
Sharesave Scheme 1,418,952 55 Nov-21 Jan-25 46.3p No Equity 45
Jun-22
Aug-25
30p
May-23
Aug-26
30.72p
TOTAL 12,854,508 1,993 905
All awards are equity-settled, and the shares awarded for all schemes are
Distribution Finance Capital Holdings plc ordinary shares of £0.01 each of
the current share capital of the Company which are listed on the Alternative
Investment Market (AIM). The awards were granted to employees and Directors
within the Group with the majority of the employees being employed by DF
Capital Bank Limited.
During the year ended 31 December 2023, the movements in share options
granted, forfeited, and exercised were as follows:
Options outstanding at start of year Options granted during the year Options forfeited during the year Options exercised during the year Options outstanding at end of the year Options exercisable at end of the year
Plan No. No. No. No. No. No.
Year ended 31 December 2023
General Award 2020 222,500 - (26,151) (52,999) 143,350 143,350
General Award 2021 160,248 - (26,118) - 134,130 -
General Award 2022 385,511 - (48,089) - 337,422 -
General Award 2023 - 365,000 (39,261) - 325,739 -
Manager CSOP Award 384,298 - - - 384,298 384,298
Manager PSP Award 853,334 - - (31,666) 821,668 821,668
CEO Recruitment Award 900,000 - - - 900,000 900,000
Senior Manager Award 2020 885,000 - (173,200) (130,720) 581,080 581,080
Senior Manager Award 2021 144,370 - (11,291) (19,685) 113,394 19,685
Senior Manager Award 2022 1,765,000 - (450,830) - 1,314,170 -
Senior Manager Award 2023 - 5,673,292 (80,683) - 5,592,609 -
Leader & High Performer Award 2022 201,022 5,000 (5,146) - 200,876 -
Leader & High Performer Award 2023 - 615,000 (28,180) - 586,820 -
Sharesave Scheme 1,068,212 717,166 (366,426) - 1,418,952 -
Total 6,969,495 7,375,458 (1,255,375) (235,070) 12,854,508 2,850,081
Year ended 31 December 2022
General Award 2020 287,500 - (65,000) - 222,500 -
General Award 2021 216,000 3,000 (58,752) - 160,248 -
General Award 2022 - 450,000 (64,489) - 385,511 -
Manager CSOP Award 385,298 - (1,000) - 384,298 -
Manager PSP Award 853,334 - - - 853,334 853,334
CEO Recruitment Award 900,000 - - - 900,000 -
Senior Manager Award 2020 885,000 - - - 885,000 -
Senior Manager Award 2021 114,370 30,000 - - 144,370 39,370
Senior Manager Award 2022 - 1,765,000 - - 1,765,000 -
Leader & High Performer Award 2022 - 220,000 (18,978) - 201,022 -
Sharesave scheme - 1,693,596 (625,384) - 1,068,212 -
Total 3,641,502 4,161,596 (833,603) - 6,969,495 892,704
The fair value at grant date is calculated by taking into consideration any
restrictive vesting criteria, including any market and/or non-market
performance conditions. The below table summarises the share schemes including
the weighted average remaining contractual years and the weighted average fair
value at grant date:
2023 2022
Plan Options outstanding at end of the year Weighted average remaining contractual life (years) Weighted average fair value at grant date Options outstanding at end of the year Weighted average remaining contractual life (years) Weighted average fair value at grant date
General Award 2020 143,350 - 37.50 222,500 0.5 37.50
General Award 2021 134,130 0.4 61.00 160,248 1.4 61.00
General Award 2022 337,422 1.4 37.00 385,511 2.4 37.00
General Award 2023 325,739 2.3 38.50 - - -
Manager CSOP Award 384,298 - 8.00 384,298 0.4 8.00
Manager PSP Award 821,668 - 40.50 853,334 - 40.50
CEO Recruitment Award 900,000 - 37.50 900,000 0.5 37.50
Senior Manager Award 2020 581,080 - 37.50 885,000 0.5 37.50
Senior Manager Award 2021 113,394 0.5 60.27 144,370 1.1 60.27
Senior Manager Award 2022 1,314,170 1.4 34.85 1,765,000 2.4 36.12
Senior Manager Award 2023 5,592,609 2.4 36.75 - - -
Leader & High Performer Award 2022 200,876 1.4 37.03 201,022 2.4 37.00
Leader & High Performer Award 2023 586,820 2.3 38.50 - - -
Sharesave Scheme 1,418,952 2.0 13.98 1,068,212 2.5 44.35
12,854,508 6,969,495 1.4 38.63
Where a share award scheme has an exercise price that is equal to £nil,
valuation models such as the Black Scholes valuation model cannot be used to
determine the fair value of the award at the grant date, therefore, it is
assumed the market price of the share is assumed to be the fair value. For
schemes which have an exercise price greater than £nil, the Group has used
the following variables for the respective schemes:
Manager CSOP Award Sharesave Scheme Sharesave Scheme Sharesave Scheme
Grant date Aug-20 Nov-21 Jun-22 May-23
Contractual life (years) 3 3 3 3
Share price at issue (pence) 40.50 57.50 37.50 38.40
Exercise price (pence) 40.50 46.30 30.00 30.72
Expected volatility (%) 30.00% 30.00% 30.00% 30.00%
Risk-free rate (%) 0.20% 0.55% 2.08% 3.91%
Dividend yield (%) 0.00% 0.00% 0.00% 0.00%
The terms of the individual schemes are as follows:
General Award
In the year ended 31 December 2023, nil cost options over ordinary shares
of £0.01 each of the current share capital of the Company were granted to
all employees (excluding Directors). These options vest over a 3-year period
and are not subject to specific performance conditions.
Manager PSP and CSOP Award
As part of a Group reorganisation of its existing share capital and employee
loan agreements in the year ended 31 December 2020, managers and former
managers were awarded share options so that they were not disadvantaged by
this exercise. PSP scheme nil cost options and Company Share Option Scheme
shares ("CSOP") were issued over ordinary shares of £0.01 each of the share
capital of the Company. The CSOP Options have an exercise price per share of
40.5p equal to the market value of Ordinary Shares as at the time of grant and
the PSP Options are nil cost options. The PSP and CSOP Options became
exercisable on the same timeline, and in the same proportions, that the
corresponding original Ordinary Shares would have become freely transferable
on the terms on which they were held. The Options are not subject to the
satisfaction of performance conditions.
The fair value of the CSOP was measured at the grant date using the
Black-Scholes model - see table above for further details of the inputs into
this valuation model.
No further awards under this scheme were granted in the years ended 31
December 2023 and 31 December 2022.
CEO Recruitment Award
On his appointment on 9 March 2020, Carl D'Ammassa was granted 900,000 nil
cost options by way of a Recruitment Award. In the year ended 31 December
2023, the Group's Remuneration Committee agreed that the performance
conditions and service conditions relating to all 900,000 shares had been
fully satisfied and the award should vest in full.
Senior Manager Award
Nil cost options over ordinary shares of £0.01 each of the current share
capital of the Company were granted to certain senior managers. All of these
share awards have been granted in line with our PSP rules and have performance
conditions aligned to financial performance, risk management and cultural
objectives.
In the year ended 31 December 2023, Senior Managers were granted additional
awards based on either promotion, recruitment incentives, or performance.
Performance conditions are included for 4,889,000 options of the 5,673,292
awards granted in the year ended 31 December 2023, and all awards vest over a
period of up to 1 to 4 years subject to service conditions being met.
Leader & High Performer Award
In the year ended 31 December 2023, the Group awarded nil cost options over
ordinary shares of £0.01 each of the current share capital of the Company
to non-senior managers of the Group. This scheme does not include performance
conditions and vest over a period of 3 years subject to service conditions
being met.
Sharesave Scheme
The Group has operated a 'Save As You Earn' scheme ('SAYE' or 'Sharesave
Scheme') for several years which is available to all UK-based employees. This
is a HMRC-approved share scheme, whereby the scheme allows employees to
purchase options by saving a fixed amount of between £10 and £500 per month
over a period of three years at the end of which the options, subject to
leaver provisions, are usually exercisable. If not exercised, the amount saved
is returned to the employee. During the year ended 31 December 2023, the Group
has offered a scheme with a grant date of May 2023 and a vesting date of
August 2027. The option price is calculated using the closing bid-market price
of a Distribution Finance Capital Holdings plc ordinary share over the five
dealing days prior to the Invitation Date and applying a discount of 20%.
The fair value at grant date for the schemes is calculated by using the
Black-Scholes Model - see table above for further details of the inputs into
this valuation model.
Director share awards:
The below table summarises share options which have been awarded to Directors
as part of long-term incentive schemes:
Options outstanding at start of year Options granted during the year Options forfeited during the year Options exercised during the year Options outstanding at end of the year Options exercisable at end of the year
Plan No. No. No. No. No. No.
Year ended 31 December 2023
Carl D'Ammassa:
General Award 2020 5,000 - - - 5,000 5,000
CEO Recruitment Award 900,000 - - - 900,000 900,000
Senior Manager Award 2022 400,000 - - - 400,000 -
Senior Manager Award 2023 - 1,168,000 - - 1,168,000 -
Sharesave Scheme 60,000 - - - 60,000 -
1,365,000 1,168,000 - - 2,533,000 905,000
Gavin Morris:
General Award 2020 5,000 - - - 5,000 5,000
Manager CSOP Award 74,074 - - - 74,074 74,074
Manager PSP Award 19,733 - - - 19,733 19,733
Senior Manager Award 2020 200,000 - (69,280) - 130,720 130,720
Senior Manager Award 2022 200,000 - - - 200,000 -
Senior Manager Award 2023 - 753,000 - - 753,000 -
Sharesave Scheme 60,000 - - - 60,000 -
558,807 753,000 (69,280) - 1,242,527 229,527
Total Director Awards 1,923,807 1,921,000 (69,280) - 3,775,527 1,134,527
Year ended 31 December 2022
Carl D'Ammassa:
General Award 2020 5,000 - - - 5,000 -
CEO Recruitment Award 900,000 - - - 900,000 -
Senior Manager Award 2022 - 400,000 - - 400,000 -
Sharesave Scheme - 60,000 - - 60,000 -
905,000 460,000 - - 1,365,000 -
Gavin Morris:
General Award 2020 5,000 - - - 5,000 -
Manager CSOP Award 74,074 - - - 74,074 -
Manager PSP Award 19,733 - - - 19,733 19,733
Senior Manager Award 2020 200,000 - - - 200,000 -
Senior Manager Award 2022 - 200,000 - - 200,000 -
Sharesave Scheme - 60,000 - - 60,000 -
298,807 260,000 - - 558,807 19,733
Total Director Awards 1,203,807 720,000 - - 1,923,807 19,733
See above section within this note for further details of the schemes,
including the fair value (market price) at grant date. Performance conditions
are attached to the Senior Manager Award 2023 for both Carl D'Ammassa and
Gavin Morris. All awards are subject to service conditions being met over the
vesting period.
11. Other operating expenses
2023 2022
Note £'000 £'000
Finance costs 12 76 21
Depreciation 17,18 498 318
Amortisation of intangible assets 19 376 382
Professional services expenses 2,189 1,541
Audit and accountancy fees 418 290
IT-related expenses 2,506 1,862
Other operating expenses 2,349 1,569
Total other operating expenses 8,412 5,983
12. Finance costs
2023 2022
£'000 £'000
Interest on lease liabilities 76 21
Total finance costs 76 21
13. Provisions
Analysis for movements in other provisions:
Leasehold dilapidations
£'000
Year ended 31 December 2023
At start of year 77
Additions 25
Utilisation of provision -
Unused amounts reversed (10)
Unwinding of discount 5
Lease modification (30)
At end of year 67
Year ended 31 December 2022
At start of year 73
Additions -
Utilisation of provision -
Unused amounts reversed -
Unwinding of discount 4
At end of year 77
As detailed in note 18, the Group currently leases office premises at its
Manchester headquarters. At the end of the contractual lease term in August
2030, the Group is required to return the leased premises in their original
state. The Group has estimated total restoration costs of £125,000 by
assessing the expected costs and through management judgement. These amounts
have been discounted to present value by using an applicable discount
factor.
Given the prolonged period until these costs are incurred, the current
provision is using a best estimate which will be reviewed at least annually.
Any potential revision in the future, including impact from continued
inflationary pressures, is not considered to be material.
14. Net impairment loss on financial assets
2023 2022
£'000 £'000
Movement in impairment allowance in the year 11,034 2,028
Write-offs 564 268
Total net impairment losses on financial assets 11,598 2,296
See note 20 on further analysis of the movement in impairment allowances on
loans and advances to customers.
Analysis of write-offs:
2023 2022
Note £'000 £'000
Realised losses on loan receivables 20 355 186
Realised losses on trade receivables 24 8 19
Recovery transaction costs 251 63
Bad debt VAT relief (50) -
Total write-offs 564 268
15. Profit before taxation
Profit before taxation is stated after charging:
2023 2022
£'000 £'000
Depreciation of property, plant and equipment 318 95
Depreciation of right-of-use assets 180 223
Amortisation of intangible assets 376 382
Allowance for credit impaired assets 11,034 2,028
Staff costs 13,431 10,848
Auditor's remuneration 418 290
25,757 13,866
Analysis of auditor's remuneration:
2023 2022
£'000 £'000
Audit services:
Fees payable to the Company's auditor for the audit of the Company's annual 72 58
accounts
Fees payable to the Company's auditor for the audit of its subsidiaries 215 177
Fees paid to the Company's auditors relating to prior periods 39 1
Total audit services fees 326 236
Assurance services:
Interim review 92 54
Total assurance services fees 92 54
Total auditor's remuneration 418 290
16. Taxation
Analysis of tax charge recognised in the year:
2023 2022
£'000 £'000
Current taxation charge:
UK corporation tax on profit for the current year 73 586
Adjustments in respect of prior years - -
Total current taxation charge 73 586
Deferred taxation charge/(credit):
Current year 1,345 (9,043)
Adjustments in respect of prior years - -
Total deferred taxation charge/(credit) 1,345 (9,043)
Total taxation charge/(credit) 1,418 (8,457)
Reconciliation of profit before taxation to total tax credit recognised:
2023 2022
£'000 £'000
Profit on ordinary activities before taxation 4,573 1,304
Taxation on Profit on ordinary activities at standard corporation tax rate of 1,076 248
23.5% (2022:19%)
Effects of:
Fixed asset differences 3 -
Disallowable expenses 275 118
Other permanent differences (18) -
Other short-term timing differences for which no deferred tax asset has been - 1
recognised
Current year losses for which no deferred tax asset has been recognised 3 219
Recognition of deferred taxation asset - (9,043)
Remeasurement of deferred tax for changes in tax rates 79 -
Total tax charge/(credit) 1,418 (8,457)
Current tax on profits reflects UK corporation tax levied at a rate of 23.5%
for the year ended 31 December 2023 (31 December 2022: 19%). The Company is
not subject to the banking surcharge levied at a rate of 3% (31 December 2022:
8%) on the profits of banking companies chargeable to corporation tax after an
allowance of £100 million (31 December 2022: £25m) per annum.
Expenses that are not deductible in determining taxable profits/losses include
impairment losses, amortisation of intangible assets, depreciation of fixed
assets, client and staff entertainment costs, and professional fees which are
capital in nature.
On 1 April 2023 the UK corporation tax rate increased from 19% to 25%. The
23.5% is based on a pro-rated tax charge of 19% to 31 March 2023 and 25% to 31
December 2023. At the same date, the Banking Surcharge was reduced from 8% to
3%, whilst the allowance increased from £25m to £100m.
A deferred tax asset is only recognised to the extent the Group finds it
probable that the prior taxable losses can be utilised against future taxable
profits. As at 31 December 2023, the Group has an estimated unrecognised
deferred tax asset of £0.7m (31 December 2022: £0.7m) from prior taxable
losses.
In the year ended 31 December 2023, the Group has recognised a deferred tax
asset in respect of future taxable profits. Further detail on the deferred
taxation asset is provided in note 27.
17. Property, plant and equipment
Leasehold Improvements Furniture, Fixtures & Fittings Computer Hardware Telephony & Communications Motor Vehicles Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost:
As at 1 January 2022 33 152 276 6 - 467
Additions - - 87 - 954 1,041
Disposals and write offs (23) (128) (204) (6) - (361)
As at 31 December 2022 10 24 159 - 954 1,147
Additions 13 129 121 - 155 418
Disposals and write offs - (1) (16) - - (17)
As at 31 December 2023 23 152 264 - 1,109 1,548
Accumulated depreciation:
As at 1 January 2022 24 124 214 6 - 368
Charge for the year 4 16 59 - 16 95
Disposals and write offs (23) (128) (204) (6) - (361)
As at 31 December 2022 5 12 69 - 16 102
Charge for the year 4 32 65 - 217 318
Disposals and write offs - (1) (16) - - (17)
As at 31 December 2023 9 43 118 - 233 403
Carrying amount:
At 31 December 2022 5 12 90 - 938 1,045
At 31 December 2023 14 109 146 - 876 1,145
In the year ended 31 December 2023, the Group wrote off fully depreciated
assets of £17,000. During the year ended 31 December 2022, the Group wrote
off fully depreciated assets of £361,000.
18. Right-of-use assets
Buildings
£'000
Cost:
As at 1 January 2022 1,138
Additions 4
Disposals and write offs -
Lease modifications 11
As at 31 December 2022 1,153
Additions 407
Disposals and write offs -
Lease modifications 567
As at 31 December 2023 2,127
Accumulated depreciation:
At 1 January 2022 497
Charge for the year 223
Disposals and write offs -
At 31 December 2022 720
Charge for the year 180
Disposals and write offs -
At 31 December 2023 900
Carrying amount:
At 31 December 2022 433
At 31 December 2023 1,227
During the year ended 31 December 2023, the Group entered into a new lease
agreement for additional office space at its existing Manchester headquarters.
The Group expects to utilise the right-of-use asset to the contractual
maturity date in August 2030. The Group recognised additions of £394,000 in
respect of the new lease agreement.
For an existing lease agreement, the Group expected to enact a contractual
break clause in 2025 for its lease agreement of the Manchester headquarters
office, however, following the signing of the agreement for additional space,
the Group now expects for the original lease agreement to also elapse at the
contractual end date in August 2030. Consequently, the Group has recognised
£567,000 in lease modifications to reflect the increased expected term of the
lease agreement.
Further, during the year ended 31 December 2023, the Group reversed £10,000
for an unused dilapidations provision for a prior period terminated office
lease agreement.
The Group is also engaged in leasing agreements for office premises, motor
vehicles and IT equipment. IT equipment leases are low in value and the Motor
Vehicles are leased for a term of less than 12 months, resultantly, the Group
have opted not to classify these leases as right-of-use assets.
The maturity analysis of lease liabilities is presented in note 34.
Amounts recognised in the income statement:
2023 2022
£'000 £'000
Depreciation expense on right-of-use assets 180 223
Interest expense on lease liabilities 76 21
Expense relating to short-term leases 3 44
Expense relating to leases of low value assets 9 6
Expenses relating to variable lease payments not included in measurement of 112 90
lease liability
Total amounts recognised in the income statement 380 384
Some of the property leases in which the Group is the lessee contain variable
lease payment terms relating to service charges and insurance costs which are
included within the contractual terms of the lease agreement. The breakdown of
the lease payments for these property leases are as follows:
2023 2022
£'000 £'000
Buildings:
Fixed payments 227 141
Variable payments 118 98
Total lease payments 345 239
19. Intangible assets
Computer
Software
£'000
Cost:
At 1 January 2022 1,775
Additions from internal development 193
Additions from separate acquisitions -
Disposals and write offs (27)
At 31 December 2022 1,941
Additions from internal development 117
Additions from separate acquisitions -
Disposals and write offs (538)
At 31 December 2023 1,520
Accumulated amortisation:
At 1 January 2022 709
Charge for the year 382
Disposals and write offs (27)
At 31 December 2022 1,064
Charge for the year 376
Disposals and write offs (538)
At 31 December 2023 902
Carrying amount:
At 31 December 2022 877
At 31 December 2023 618
In the year ended 31 December 2023, the Group capitalised £117,000 (2022:
£172,000) of consultancy costs and £nil (2022: £21,000) of employee costs
in relation to the development of software platforms aimed at improving the
commercial lending processes, customer journey for commercial clients and
development of retail customer deposits platform. The amortisation period for
these software costs is within a range of 3-5 years following an individual
assessment of the asset's expected life. The Group performed an impairment
review at 31 December 2023 and concluded an impairment of £nil (2022: £nil).
In the year ended 31 December 2023, the Group wrote off fully depreciated
intangible assets of £538,000 (2022: £27,000).
20. Loans and advances to customers
2023 2022
£'000 £'000
Loan book principal 580,525 439,282
Accrued interest and fees 3,602 2,002
Gross carrying amount 584,127 441,284
less: impairment allowance (14,596) (3,720)
less: effective interest rate adjustment (1,487) (1,681)
Total loans and advances to customers 568,044 435,883
Refer to note 39 for details on the expected maturity analysis of the gross
loans receivable balance.
Refer to note 14 and 39 for further details on the impairment losses
recognised in the periods.
Ageing analysis of gross loan receivables:
2023 2022
£'000 £'000
Not in default:
Not yet past due 566,503 422,845
Past due: 1 - 30 days 467 136
Past due: 31 - 60 days 35 1,074
Past due: 61 - 90 days - 25
Past due: 90+ days - -
567,005 424,080
Defaulted:
Not yet past due and past due 1 - 90 days 5,020 11,319
Past due 90+ days 12,102 5,885
17,122 17,204
Total gross carrying amount 584,127 441,284
Analysis of gross loans and advances to customers:
Stage 1 Stage 2 Stage 3 Total
£'000 £'000 £'000 £'000
As at 1 January 2023 410,756 13,323 17,205 441,284
Transfer to Stage 1 42,913 (42,913) - -
Transfer to Stage 2 (88,983) 89,328 (345) -
Transfer to Stage 3 (2,617) (3,728) 6,345 -
Net lending/(repayment) 183,883 (34,958) (5,727) 143,198
Write-offs - - (355) (355)
Total movement in gross loan receivables 135,196 7,729 (82) 142,843
As at 31 December 2023 545,952 21,052 17,123 584,127
Loss allowance coverage at 31 December 2023 0.46% 0.76% 69.58% 2.50%
Stage 1 Stage 2 Stage 3 Total
£'000 £'000 £'000 £'000
As at 1 January 2022 239,327 9,585 542 249,454
Transfer to Stage 1 6,920 (6,597) (323) -
Transfer to Stage 2 (29,077) 29,081 (4) -
Transfer to Stage 3 (1,731) (16,739) 18,470 -
Net lending/(repayment) 195,333 (2,007) (1,310) 192,016
Write-offs (16) - (170) (186)
Total movement in gross loan receivables 171,429 3,738 16,663 191,830
As at 31 December 2022 410,756 13,323 17,205 441,284
Loss allowance coverage at 31 December 2022 0.47% 0.63% 9.84% 0.84%
Analysis of impairment losses on loans and advances to customers:
Stage 1 Stage 2 Stage 3 Total
£'000 £'000 £'000 £'000
As at 1 January 2023 1,943 84 1,693 3,720
Transfer to Stage 1 365 (365) - -
Transfer to Stage 2 (464) 606 (142) -
Transfer to Stage 3 (16) (174) 190 -
Remeasurement of impairment allowance (1,668) 266 10,870 9,468
Net lending/(repayment) 2,362 (257) (342) 1,763
Write-offs - - (355) (355)
Total movement in loss allowance 579 76 10,221 10,876
As at 31 December 2023 2,522 160 11,914 14,596
Stage 1 Stage 2 Stage 3 Total
£'000 £'000 £'000 £'000
As at 1 January 2022 1,142 155 421 1,718
Transfer to Stage 1 76 (73) (3) -
Transfer to Stage 2 (146) 146 - -
Transfer to Stage 3 (13) (421) 434 -
Remeasurement of impairment allowance (24) 143 1,028 1,147
Net lending/(repayment) 908 134 (17) 1,025
Write-offs - - (170) (170)
Total movement in loss allowance 801 (71) 1,272 2,002
As at 31 December 2022 1,943 84 1,693 3,720
21. Debt securities
2023 2022
£'000 £'000
FVOCI debt securities:
Treasury bills - -
UK government gilts 14,839 22,964
Total FVOCI debt securities 14,839 22,964
Analysis of movements during the year:
At 1 January 22,964 108,867
Purchased debt securities 14,554 -
Proceeds from sold or maturing securities (23,000) (85,070)
Coupons received (383) (746)
Interest income 521 9
Realised gains/(losses) - (17)
Unrealised gains/(losses) 183 (96)
Amounts transferred to the income statement - 17
At 31 December 14,839 22,964
Maturity profile of debt securities:
Within 12 months 14,839 22,964
Over 12 months - -
The securities are valued at fair value through other comprehensive income
("FVTOCI") using closing bid prices at the reporting date.
In accordance with IFRS 9, all debt securities were assessed for impairment
and treated as Stage 1 assets in both reporting periods.
Refer to note 39 for details of the maturity profile of these securities.
22. Derivatives
The table below reconciles the gross amount of derivative contracts to the
carrying balance shown in the consolidated statement of financial position:
Gross amount of recognised financial assets/(liabilities) Net amount of financial assets/(liabilities) presented in the Statement of Cash collateral paid/(received) not offset in the Statement of Financial Net amount
Financial Position Position
£'000 £'000 £'000 £'000
31 December 2023
Derivative assets:
Interest rate risk hedging 537 537 (372) 165
Derivative liabilities:
Interest rate risk hedging (565) (565) 222 (343)
31 December 2022
Derivative assets:
Interest rate risk hedging 57 57 (28) 29
Derivative liabilities:
Interest rate risk hedging (42) (42) 98 56
All derivative instruments which have been entered into are transacted against
SONIA.
Margin call collateral is either paid or received with the swap counterparties
on all active swap contracts - this has been included in the above table. As
at 31 December 2023, the Group has a variation margin receivable of £150,000
(2022: £70,000) with swap counterparties. Further, the Group holds
£2,000,000 (2022: £500,000) of independent collateral with banks for the
swap facility, which is not included within the above table. See note 28 for
the balance of cash collateral held with banks.
The table below profiles the maturity of nominal amounts for interest rate
risk hedging derivatives based on contractual maturity:
Total nominal amount Less than 3 months 3 - 12 months 1 - 5 years More than 5 years
£'000 £'000 £'000 £'000 £'000
31 December 2023
Derivative assets 45,000 - 30,000 15,000 -
Derivative liabilities 100,000 45,000 55,000 - -
145,000 45,000 85,000 15,000 -
31 December 2022
Derivative assets 70,000 - 30,000 40,000 -
Derivative liabilities 20,000 5,000 - 15,000 -
90,000 5,000 30,000 55,000 -
The Group has 10 (2022: 6) derivative contracts with an average fixed rate of
4.65% (2022: 4.21%).
23. Hedge Accounting
2023 2022
£'000 £'000
Hedged liabilities:
Current hedge relationships 407 (77)
Swap inception adjustment 17 (7)
Fair value adjustments on hedged liabilities 424 (84)
As at the year ended 31 December 2023, the Group only hedges liabilities in
the form of its customer deposits and subordinated liabilities. The Group does
not hedge its loans and advances to customers given these assets are expected
to reprice within a short time frame.
Refer to note 39 for further details on the Group's interest rate risk
management.
The swap inception adjustment relates to hedge accounting adjustments arising
when hedge accounting commences, primarily on derivative instruments
previously taken out against new hedged liabilities.
At present, the Group expects its hedging relationships to be highly effective
as the Group hedges only fixed term deposit accounts and subordinated
liabilities for which the fair value movements between the hedged item and
hedging instrument are expected to be highly correlated. Further, the Group
does not anticipate having to rebalance the relationship once entered into due
to the contractual terms of these financial liabilities. In the year ended 31
December 2023, there has been no cancelled or de-designated hedge
relationships due to failed hedge accounting relationships.
The tables below analyse the Group's portfolio hedge accounting for fixed rate
amounts owed to retail depositors:
2023 2022
Hedged item Hedging instrument Hedged item Hedging instrument
£'000 £'000 £'000 £'000
Customer deposits:
Carrying amount of hedged item/nominal value of hedging instrument 150,639 145,000 90,505 90,000
Cumulative fair value adjustments of hedged item/fair value of hedging (424) (28) (84) -
instrument
Changes in the fair value adjustment of hedged item/hedging instrument used (542) 133 (84) -
for recognising the hedge ineffectiveness for the period
In the Consolidated Statement of Financial Position, £537,000 (2022:
£57,000) of hedging instruments were recognised within derivative assets; and
£565,000 (2022: £42,000) within derivative liabilities.
24. Trade and other receivables
2023 2022
£'000 £'000
Trade receivables 3,965 850
Impairment allowance (259) (101)
3,706 749
Other debtors 452 273
Accrued income - 94
Prepayments 1,177 408
1,629 775
Total trade and other receivables 5,335 1,524
All trade receivables are due within one year, refer to note 39 for the
expected maturity profile.
The trade receivable balances are assessed for expected credit losses (ECL)
under the 'simplified approach', which requires the Group to assess all
balances for lifetime ECLs and is not required to assess significant increases
in credit risk.
Ageing analysis of trade receivables:
2023 2022
£'000 £'000
Not in default:
Not yet past due 3,513 563
Past due: 1 - 30 days 21 27
Past due: 31 - 60 days 176 2
Past due: 61 - 90 days 12 -
Past due: 90+ days 1 -
3,723 592
Defaulted:
Not yet past due and past due 1 - 90 days 65 194
Past due 90+ days 177 64
242 258
Total trade receivables 3,965 850
Analysis of movement of impairment losses on trade receivables:
2023 2022
£'000 £'000
At 1 January 101 75
Amounts written off (8) (19)
Amounts recovered - -
Change in loss allowance due to new trade and other receivables originated net 166 45
of those derecognised due to settlement
At 31 December 259 101
25. Current taxation asset
2023 2022
£'000 £'000
At 1 January 55 59
Repayments - (4)
At 31 December 55 55
26. Current taxation liability
2023 2022
£'000 £'000
At 1 January - -
Charge to profit and loss account (73) -
Payments - -
At 31 December (73) -
Refer to note 27 for further details of the deferred taxation asset.
27. Deferred taxation asset
Deferred tax assets and liabilities are recognised on temporary differences
between the carrying amounts of assets and liabilities in the balance sheet
and the amounts attributed to such assets and liabilities for tax purposes.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent it is
probable that future taxable profits will be available against which
deductible temporary differences can be utilised. Deferred tax is determined
using tax rates and legislation in force at the balance sheet date and is
expected to apply when the deferred tax asset is realised, or the deferred tax
liability is settled.
Refer to note 3 of these consolidated financial statements for critical
accounting judgements in regards to the recognition of a deferred taxation
asset.
The table below shows the movement in net deferred tax assets:
2023 2022
£'000 £'000
At 1 January 8,457 -
(Charge)/credit to profit and loss account (1,346) 8,457
At 31 December 7,111 8,457
See below for an analysis of the deferred taxation asset balance:
2023 2022
£'000 £'000
Losses 7,402 8,730
Short term timing differences 8 8
Fixed assets (299) (281)
Deferred taxation asset 7,111 8,457
The Group has recognised a deferred tax asset in relation to tax losses
carried forward of £35m, short term timing difference of £30,000, and a
deferred tax liability in relation to tangible fixed assets of £1.1m.
The Group has an unrecognised deferred tax asset value of £0.7m (2022:£0.7m)
which is not expected to be utilised for the foreseeable future.
On 1 April 2023 the UK corporation tax rate increased from 19% to 25%. At the
same date, the Banking Surcharge was reduced from 8% to 3%, whilst the
allowance increased from £25m to £100m. As at 31 December 2023, the deferred
tax asset is based on these revised rates.
28. Loans and advances to banks
2023 2022
£'000 £'000
Unencumbered:
Included in cash and cash equivalents: balances with less than three months to 1,315 3,277
maturity at inception
Encumbered:
Cash collateral on derivatives placed with banks 2,160 571
Total loans and advances to banks 3,475 3,848
29. Notes to the cash flow statement
See below for reconciliation of balances classified as cash and cash
equivalents, which are recognised within the consolidated cash flow statement:
2023 2022
£'000 £'000
Cash and balances at central banks 89,552 107,353
Loans and advances to banks 1,315 3,277
Total cash and cash equivalents 90,867 110,630
Adjustments for non-cash items and other adjustments included in the income
statement:
2023 2022
Note £'000 £'000
Depreciation of property, plant and equipment 17 318 95
Depreciation of right-of-use assets 18 180 223
Amortisation of intangible assets 19 376 382
Share-based payments 10 905 499
Impairment allowances on receivables 14 11,598 2,296
Movement in other provisions 13 (15) 4
Interest income on debt securities 21 (521) (9)
Finance costs 12 76 21
Unwind of discount 13 5 4
Interest on subordinated liabilities 6 269 -
Amortisation of subordinated liabilities acquisition costs 29 3
Interest in suspense (194) 1,149
Total non-cash items and other adjustments 13,000 4,664
Net change in operating assets:
2023 2022
£'000 £'000
Increase in loans and advances to customers (141,768) (190,709)
Derivative financial instruments (480) (57)
Increase in other assets (7,328) (2,423)
Increase in operating assets (149,456) (193,189)
Net change in operating liabilities:
2023 2022
£'000 £'000
Increase in customer deposits 94,886 182,879
Derivative financial instruments 522 42
Fair value adjustments for portfolio hedged risk 508 (84)
(Decrease)/increase in other liabilities (1,745) 972
Increase in operating liabilities 94,171 183,809
Changes in liabilities arising from financing activities:
The table below details changes in the Group's liabilities arising from
financing activities, including both cash and non-cash changes. Liabilities
arising from financing activities are those for which cash flows were, or
future cash flows will be, classified in the Group's consolidated cash flow
statement as cash flows from financing activities.
2023 2022
Lease liabilities Subordinated liabilities Total Lease liabilities Subordinated liabilities Total
(see note 34) (see note 37) (see note 34) (see note 37)
£'000 £'000 £'000 £'000 £'000 £'000
At 1 January 395 - 395 504 - 504
Financing cash flows:
Recognition of subordinated liabilities - 10,000 10,000 - - -
Subordinated liabilities acquisition costs - (51) (51) - - -
Interest payments (227) - (227) (141) - (141)
Non-cash movements:
Interest expense on subordinated liabilities - 269 269 - - -
Amortisation of subordinated liabilities acquisition costs - 3 3 - - -
Recognition of lease liabilities 365 - 365 - - -
Interest expense on lease liabilities 76 - 76 21 - 21
Lease modification 596 - 596 11 - 11
At 31 December 1,205 10,221 11,426 395 - 395
30. Investment in subsidiaries
Subsidiary Principal activity Shareholding % Class of shareholding Country of incorporation Registered address
DF Capital Bank Limited Financial Services 100% Ordinary UK St James' Building, 61-95 Oxford St, Manchester, M1 6EJ
DF Capital Financial Solutions Limited Financial Services 100% Ordinary UK St James' Building, 61-95 Oxford St, Manchester, M1 6EJ
31. Equity
2023 2022 2023 2022
No. No. £'000 £'000
Authorised:
Ordinary shares of 1p each 179,369,199 179,369,199 1,793 1,793
Allotted, issued and fully paid: Ordinary shares of 1p each 179,369,199 179,369,199 1,793 1,793
Analysis of the movements in equity:
At the Company's annual general meeting on 24 May 2023 (the "AGM"), a
resolution was passed to cancel the Company's share premium account. The
purpose of the proposed cancellation was to create additional distributable
reserves and to provide the Company with greater flexibility and headroom in
the future to: pay ordinary course dividends; undertake a share buyback;
redeem preference shares; or to fund purchases by its Employee Benefit Trust
of shares in the capital of the Company. As set out in the notice of the AGM,
the Directors intend to apply £50,000 of the distributable reserves which the
capital reduction has created to fund the redemption by the Company of the
50,000 non-voting redeemable preference shares of £1.00 each in the capital
of the Company.
To be effective, the cancellation required Court approval which the Group has
obtained and thus making the cancellation effective. This follows the Court
order approving the reduction of capital which was registered with Companies
House on 29 June 2023.
The below table detailed equity movements within the share capital, share
premium and merger relief accounts during the years ended 31 December 2023 and
31 December 2022:
Date No. of shares Issue Price Share Capital Share Premium Merger Relief Total
# £ £'000 £'000 £'000 £'000
Balance at 1 January 2022 179,369,199 1,793 39,273 94,911 135,977
No movements in the year - - - - - -
Balance at 31 December 2022 179,369,199 - 1,793 39,273 94,911 135,977
Share premium account cancellation 29-Jun-23 - - - (39,273) - (39,273)
Balance at 31 December 2023 179,369,199 1,793 - 94,911 96,704
32. Own shares
At 31 December 2023 the Group's Employee Benefit Trust held 2,926,617 (2022:
2,963,283) ordinary shares in Distribution Finance Capital Holdings plc to
meet obligations under the Company's share and share option plans. The shares
are stated at cost and their market value at 31 December 2023 was £658,489
(2022: £992,700).
2023 2022
£'000 £'000
At 1 January (364) (364)
Acquisition of shares (67) -
Settlement of employee share awards 30 -
At 31 December (401) (364)
33. Merger reserve
There were no movements relating to the merger reserve account during years
ended 31 December 2023 and 31 December 2022.
34. Lease liabilities
2023 2022
£'000 £'000
At 1 January 395 504
Initial recognition 365 -
Interest expense 76 21
Lease payments (227) (141)
Lease modification 596 11
At 31 December 1,205 395
During the year ended 31 December 2023, the Group entered into a new lease
agreement for additional office space at its Manchester headquarters. The
Group has recognised £365,000 of additional lease payment obligations in
respect to this new agreement.
In conjunction to the above new lease, the Group reviewed the expected term of
the existing lease agreement of the Manchester headquarters office, which
resulted in a lease modification of £596,218 - refer to note 18 for further
details.
The fair value of the Group's lease obligations as at 31 December 2023 is estimated to be £1,205,000 (2022: £395,000) using a discount rate between 5% to 10%. The discount rate is equivalent to the Group's incremental borrowing rate which would be incurred for the financing of a similar asset under similar terms as the lease arrangement.
The Group does not face a significant liquidity risk with regard to its lease
liabilities. Lease liabilities are monitored within the Group's treasury
function.
All lease obligations are denominated in currency units.
The maturity analysis of lease liabilities is as follows:
2023 2022
£'000 £'000
Analysed as:
Non-current 148 109
Current 1,057 395
Total lease liabilities 1,205 504
Maturity analysis of expected lease payments:
Year 1 253 162
Year 2 252 184
Year 3 252 79
Year 4 253 -
Year 5 252 -
Onwards 360 -
Total expected lease payments 1,622 425
Less: unearned interest (417) (30)
Total lease liabilities 1,205 395
35. Customer deposits
2023 2022
£'000 £'000
Retail deposits 574,622 479,736
Total customer deposits 574,622 479,736
Amounts repayable within one year 512,168 364,674
Amounts repayable after one year 62,454 115,062
574,622 479,736
Refer to note 39 for the maturity profile of the customer deposit balances.
36. Financial liabilities
2023 2022
£'000 £'000
Lease liabilities 1,205 395
Preference shares 50 50
Total financial liabilities 1,255 445
Lease liabilities:
See note 34 for further details on the lease liabilities of the Group.
Preference shares:
In April 2019, a sole member decision was granted the allocation of 50,000
non-voting paid up redeemable preference shares of £1.00 each. The preference
shares have no attached interest rate, dividends or return on capital. These
preference shares are deemed as paid in full with the Director undertaking to
pay the consideration of the preference shares by 1 April 2024. The preference
shares have no contractual maturity date but will be redeemed in the future
out of the proceeds of any issue of new ordinary shares by the Company or when
it has available distributable profits. Given these characteristics the
preference shares are recognised as a non-current liability with no equity
component.
The maturity profile of the financial liabilities are as follows:
2023 2022
£'000 £'000
Current liabilities 148 145
Non-current liabilities 1,107 300
Total financial liabilities 1,255 445
Refer to note 39 for changes in financial liabilities balances during the
year, including both cash and non-cash changes, as classified within the
Group's consolidated cash flow statement under cash flows from financing
activities.
37. Subordinated liabilities
2023 2022
£'000 £'000
Tier 2 notes 10,000 -
Accrued interest 269 -
Deferred acquisition costs (48) -
Total subordinated liabilities 10,221 -
In September 2023 the Group entered into a non-dilutive Tier 2 capital
facility from British Business Investments, with an initial £5m drawdown on
inception and a further £5m drawdown in October 2023. The contractual term
dates for the notes are 5 years from the respective drawdown date. The Group
is required to pay bi-annual coupons with a full principal repayment due on
the maturity date.
Refer to note 39 for changes in subordinated liabilities balances during the
year, including both cash and non-cash changes, as classified within the
Group's consolidated cash flow statement under cash flows from financing
activities.
Refer to note 39 for the maturity profile of the subordinated liabilities.
38. Trade and other payables
2023 2022
£'000 £'000
Current liabilities
Trade payables 528 218
Social security and other taxes 132 360
Other creditors 875 2,993
Pension contributions 71 -
Accruals 2,621 2,446
Total current liabilities 4,227 6,017
Non-current liabilities
Social security and other taxes 70 24
Total non-current liabilities 70 24
Total trade and other payables 4,297 6,041
39. Financial instruments
The Directors have performed an assessment of the risks affecting the Group
through its use of financial instruments and believe the principal risks to
be: Treasury (covering capital management, liquidity and interest rate risk);
and Credit risk.
This note describes the Group's objectives, policies and processes for
managing the material risks and the methods used to measure them. The
significant accounting policies regarding financial instruments are disclosed
in note 2.
Capital management
The Group manages its capital to ensure that it will be able to continue as a
going concern while providing an adequate return to shareholders.
The capital structure of the Group consists of financial liabilities (see note
36), subordinated liabilities (see note 37) and equity (comprising issued
capital, merger relief, reserves, own shares and retained earnings - see notes
31 to 33).
As a regulated banking Group, the Group is required by the Prudential
Regulation Authority (PRA) to hold sufficient regulatory capital. The Group is
required by the PRA to conduct an Internal Capital Adequacy Assessment Process
("ICAAP") to assess the appropriate amount of regulatory capital to be held by
the Group as a measure of its risk weighted assets ("RWAs"), in accordance
with the Group's risk management framework. The ICAAP identifies all key risks
to the Bank and how the Group manages these risks. The document outlines the
capital resources of the Group, its perceived capital requirements, and
capital adequacy over a 3-year period. Within this process the Group conducts
a stress testing process to identify key risks, the potential capital
requirements and whether the Group has sufficient capital buffers to sustain
such events. The Group uses the Standardised Approach (SA) for calculating the
capital requirements for credit risk, and Counterparty Credit Risk (SA-CCR)
and the Basic Indicator Approach (BIA) for operational risk. The ICAAP is
approved by the Group Board at least annually.
The regulatory capital resources of the Group were as follows:
2023 2022
£'000 £'000
CET1 capital: instruments and reserves
Called up share capital 1,793 1,793
Share premium accounts - 39,273
Retained earnings account 24,537 (28,447)
Accumulated other comprehensive income & other reserves 74,084 83,620
CET1 capital before regulatory adjustments 100,414 96,239
CET1 capital: regulatory adjustments
Intangible assets (618) (877)
Investment in own shares (2,120) (2,303)
Prudent valuation adjustment (15) (23)
Deferred tax asset (7,111) (8,457)
Exposure amount qualifying for a RW of 1250% (11,281) -
CET1 capital 79,269 84,579
Tier 1 capital 79,269 84,579
Tier 2 capital 10,269 -
Total regulatory capital 89,538 84,579
This table is not subject to audit.
The return on assets of the Group (calculated as profit/(loss) after taxation
divided by average total assets) was 0.49% (2022: 2.2%).
Information disclosure under Pillar 3 of the Capital Requirements Directive is
published on the Group's website at www.dfcapital-investors.com
(http://www.dfcapital-investors.com)
Principal financial instruments
The principal financial instruments to which the Group is party, and from
which financial instrument risk arises, are as follows:
· Cash and balances at central banks, which are considered risk
free;
· Loans and advances to banks, which can be a source of credit risk
but are primarily liquid assets available to further business objectives or to
settle liabilities as necessary;
· Loans and advances to customers, primarily credit risk, interest
rate risk, and liquidity risk;
· Debt securities, source of interest rate risk;
· Derivative instruments, credit and liquidity risk;
· Customer deposits, primarily interest rate risk and liquidity
risk;
· Subordinated liabilities, primarily interest rate risk and
liquidity risk;
· Trade receivables, primarily credit risk and liquidity risk;
· Trade and other payables, primarily credit risk and liquidity
risk;
Summary of financial assets and liabilities:
Below is a summary of the financial assets and liabilities held on the Group's
statement of financial position at the reporting dates. These values are
reflected at their carrying amounts at the respective reporting date:
Amortised cost Fair value through other comprehensive income Fair value through profit or loss Total
31 December 2023 £'000 £'000 £'000 £'000
Financial assets:
Cash and balances at central banks 89,552 - - 89,552
Loans and advances to banks 3,475 - - 3,475
Debt securities - 14,839 - 14,839
Derivative assets - - 537 537
Loans and advances to customers 568,044 - - 568,044
Trade receivables 3,706 - - 3,706
Other receivables 452 - - 452
Total financial assets 665,229 14,839 537 680,605
31 December 2023
Financial liabilities:
Customer deposits 574,622 - - 574,622
Derivative liabilities - - 565 565
Other financial liabilities 1,205 - - 1,205
Subordinated liabilities 10,221 - - 10,221
Trade payables 528 - - 528
Other payables 1,148 - - 1,148
Preference shares 50 - - 50
Total financial liabilities 587,774 - 565 588,339
Amortised cost Fair value through other comprehensive income Fair value through profit or loss Total
31 December 2022 £'000 £'000 £'000 £'000
Financial assets:
Cash and balances at central banks 107,353 - - 107,353
Loans and advances to banks 3,848 - - 3,848
Debt securities - 22,964 - 22,964
Derivative assets - - 57 57
Loans and advances to customers 435,883 - - 435,883
Trade receivables 749 - - 749
Other receivables 273 - - 273
Total financial assets 548,106 22,964 57 571,127
31 December 2022
Financial liabilities:
Customer deposits 479,736 - - 479,736
Derivative liabilities - - 42 42
Other financial liabilities 395 - - 395
Trade payables 218 - - 218
Other payables 3,377 - - 3,377
Preference shares 50 - - 50
Total financial liabilities 483,776 - 42 483,818
Analysis of financial instruments by valuation model
The Group measures fair values using the following hierarchy of methods:
· Level 1 - Quoted market price in an active market for an
identical instrument
· Level 2 - Valuation techniques based on observable inputs. This
category includes instruments valued using quoted market prices in active
markets for similar instruments, quoted prices for similar instruments that
are considered less than active, or other valuation techniques where all
significant inputs are directly or indirectly observable from market data
· Level 3 - Inputs for the assets or liabilities that are not based
on observable market data (unobservable inputs).
Financial assets and liabilities that are not measured at fair value:
Carrying amount Fair value Level 1 Level 2 Level 3
31 December 2023 £'000 £'000 £'000 £'000 £'000
Financial assets not measured at fair value:
Cash and balances at central banks 89,552 89,552 89,552 - -
Loans and advances to banks 3,475 3,475 3,475 - -
Loans and advances to customers 568,044 568,044 - - 568,044
Trade receivables 3,706 3,706 - - 3,706
Other receivables 452 452 - - 452
665,229 665,229 93,027 - 572,202
Financial liabilities not measured at fair value:
Customer deposits 574,622 574,177 - - 574,177
Other financial liabilities 1,205 1,205 - - 1,205
Subordinated liabilities 10,221 10,742 - 10,742 -
Trade payables 528 528 - - 528
Other payables 1,148 1,148 - - 1,148
Preference shares 50 50 - - 50
587,774 587,850 - 10,742 577,108
Carrying amount Fair value Level 1 Level 2 Level 3
31 December 2022 £'000 £'000 £'000 £'000 £'000
Financial assets not
measured at fair value:
Cash and balances at central banks 107,353 107,353 107,353 - -
Loans and advances to banks 3,848 3,848 3,848 - -
Loans and advances to customers 435,883 435,883 - - 435,883
Trade receivables 749 749 - - 749
Other receivables 273 273 - - 273
548,106 548,106 111,201 - 436,905
31 December 2022
Financial liabilities not
measured at fair value:
Customer deposits 479,736 478,800 - - 478,800
Other financial liabilities 395 395 - - 395
Trade payables 218 218 - - 218
Other payables 3,377 3,377 - - 3,377
Preference shares 50 50 - - 50
483,776 482,840 - - 482,840
Where assets and liabilities are not measured at fair value, the Group has
calculated their fair values at the reporting date as follows:
Cash and balances at central banks
This represents cash held at central banks where fair value is considered to
be equal to carrying value.
Loans and advances to banks
This mainly represents the Group's working capital current accounts with other
banks with an original maturity of less than three months. Fair value is not
considered to be materially different to carrying value.
Loans and advances to customers
Due to the short-term nature of loans and advances to customers, their
carrying value is considered to be approximately equal to their fair value.
These items are short term in nature such that the impact of the choice of
discount rate would not make a material difference to the calculations.
Customer deposits
The fair value of fixed rate retail deposits has been estimated by discounting
future cash flows at current market rates of interest. Retail deposits at
variable rates and deposits payable on demand are considered to be at current
market rates and as such fair value is estimated to be equal to carrying
value.
Subordinated liabilities
The fair value of the subordinated liabilities is estimated by discounting the
expected cashflows using an interest rate for similar liabilities with the
same remaining maturity rate and credit profile.
Trade and other receivables, other borrowings and other liabilities
These represent short-term receivables and payables and as such their carrying
value is considered to be equal to their fair value.
Financial assets and liabilities included in the statement of financial
position that are measured at fair value:
Carrying amount Principal amount Level 1 Level 2 Level 3
31 December 2023 £'000 £'000 £'000 £'000 £'000
Financial assets measured at fair value:
Debt securities 14,839 15,000 14,839 - -
Derivative assets 537 45,000 - 537 -
15,376 60,000 14,839 537 -
Financial liabilities measured at fair value:
Derivative liabilities 565 100,000 - 565 -
565 100,000 - 565 -
Carrying amount Principal amount Level 1 Level 2 Level 3
31 December 2022 £'000 £'000 £'000 £'000 £'000
Financial assets
measured at fair value:
Debt securities 22,964 23,000 22,964 - -
Derivative assets 57 70,000 - 57 -
23,021 93,000 22,964 57 -
Financial liabilities
measured at fair value:
Derivative liabilities 42 20,000 - 42 -
42 20,000 - 42 -
Debt securities
The debt securities carried at fair value by the Company are treasury bills
and government gilts. Treasury bills and government gilts are traded in active
markets and fair values are based on quoted market prices.
There were no transfers between levels during the periods, all debt securities
have been measured at level 1 from acquisition.
Derivatives
Derivative instruments fair values are provided by a third party and are based
on the market values of similar financial instruments. The fair value of
investment securities held at FVTPL is measured using a discounted cash flow
model.
Financial risk management
The Group's activities and the existence of the above financial instruments
expose it to a variety of financial risks.
The Board has overall responsibility for the determination of the Group's risk
management objectives and policies. The overall objective of the Board is to
set policies that seek to reduce ongoing risk as far as possible without
unduly affecting the Group's competitiveness and flexibility.
The Group is exposed to the following financial risks:
· Credit risk
· Liquidity risk
· Interest rate risk
Further details regarding these policies are set out below.
Credit risk
Credit risk is the risk that a customer or counterparty will default on its
contractual obligations resulting in financial loss to the Group. One of the
Group's main income generating activities is lending to customers and
therefore credit risk is a principal risk. Credit risk mainly arises from
loans and advances to customers. The Group considers all elements of credit
risk exposure such as counterparty default risk, geographical risk and sector
risk for risk management purposes.
Credit risk management
The Group has a dedicated credit risk function, which is responsible for
individual credit assessment, portfolio management, asset monitoring,
collections and recoveries. Furthermore, it manages the Group's credit risk
by:
· Ensuring that the Group has appropriate credit risk practices,
including an effective system of internal control;
· Identifying, assessing and measuring credit risks across the
Group from an individual instrument to a portfolio level;
· Creating relevant policies to protect the Group against the
identified risks including the requirements to obtain collateral from
borrowers, to perform robust ongoing credit assessment of borrowers and to
continually monitor exposures against internal risk limits;
· Limiting concentrations of exposure by type of asset,
counterparty, industry, credit rating, geographic location;
· Establishing a robust control framework regarding the
authorisation structure for the approval and renewal of credit facilities;
· Established practises to identify and manage risks within the
portfolio;
· Developing and maintaining the Group's risk grading to categorise
exposures according to the degree of risk default. Risk grades are subject to
regular reviews; and
· Developing and maintaining the Group's processes for measuring
Expected Credit Loss (ECL) including monitoring of credit risk, incorporation
of forward-looking information and the method used to measure ECL.
Significant increase in credit risk
The Group continuously monitors all assets subject to Expected Credit Loss as
to whether there has been a significant increase in credit risk since initial
recognition, either through a significant increase in Probability of Default
("PD") or in Loss Given Default ("LGD").
The following is based on the procedures adopted by the Group for the year
ended 31 December 2023:
Granting of credit
The commercial team prepare a Credit Application which sets out the rationale
and the pricing for the proposed loan facility, and confirms that it meets the
Group's product, manufacturer programme and pricing policies. The Application
will include the proposed counterparty's latest financial information and any
other relevant information but as a minimum:
· Details of the limit requirement e.g. product, amount, tenor,
repayment plan etc,
· Facility purpose or reason for increase,
· Counterparty details, background, management, financials and
ratios (actuals and forecast),
· Key risks and mitigants for the application,
· Conditions, covenants & information (and monitoring
proposals) and security (including comments on valuation),
· Pricing,
· Confirmation that the proposed exposure falls within risk
appetite,
· Clear indication where the application falls outside of risk
appetite.
Other information which can be considered includes (where necessary and
available):
· Existing counterparty which has met all obligations in time and
in accordance with loan agreements,
· Counterparty known to credit personnel who can confirm positive
experience,
· Additional security, either tangible or personal guarantees where
there is verifiable evidence of personal net worth,
· A commercial rationale for approving the application, although
this mitigant will generally be in addition to at least one of the other
mitigants.
The credit risk function will analyse the financial information, obtain
reports from a credit reference agency, allocate a risk rating, and make a
decision on the application. The process may require further dialogue with the
Business Development Team to ascertain additional information or
clarification.
Each mandate holder is authorised to approve loans up to agreed financial
limits and provided that the risk rating of the counterparty is within agreed
parameters. If the financial limit requested is higher than the credit
authority of the first reviewer of the loan facility request, the application
is sent to the next credit authority level with a recommendation.
Transactional Credit Committee considers all applications that are outside the
credit approval mandate of the Director - Credit due to the financial limit
requested. There is an agreed further escalation to the Board Risk Committee
for the largest transactions which fall outside of the Transactional Credit
Committee.
Identifying significant increases in credit risk
The short tenor of the current loan facilities reduces the possible adverse
effect of changes in economic conditions and/or the credit risk profile of the
counterparty.
The Group nonetheless measures a change in a counterparty's credit risk mainly
on payment performance and end of contract repayment behaviour. The regular
collateral audit process and interim reviews may highlight other changes in a
counterparty's risk profile, such as the security asset no longer being under
the control of the borrower. The Group views a significant increase in
credit risk as:
· A two-notch reduction in the Company's counterparty's risk
rating, as notified through the credit rating agency alert system.
· a presumption that an account which is more than 30 days past due
has suffered a significant increase in credit risk. IFRS 9 allows this
presumption to be rebutted, but the Group believes that more than 30 days past
due to be an appropriate back stop measure and therefore has not rebutted the
presumption.
· A counterparty defaults on a payment due under a loan agreement.
· Late contractual payments which although cured, re-occur on a
regular basis.
· Counterparty confirmation that it has sold Group financed assets
but delays in processing payments.
· Evidence of a reduction in a counterparty's working capital
facilities which has had an adverse effect on its liquidity.
· Evidence of actual or attempted sales out of trust or of double
financing, of assets funded by the Group.
An increase in significant credit risk is identified when any of the above
events happen after the date of initial recognition.
Identifying loans and advances in default and credit impaired
The Group's definition of default for this purpose is:
· A counterparty defaults on a payment due under a loan agreement
and that payment is more than 90 days overdue;
· A counterparty commits an event of default under the terms and
conditions of the loan agreement which leads the lending company to believe
that the borrower's ability to meet its credit obligations to the lending
company is in doubt; or
· The Group is made aware of a severe deterioration of the credit
profile of the customer which is likely to impede the customers' ability to
satisfy future payment obligations.
In the normal course of economic cyclicality, the short tenor of the loans
extended by the Group means that significant economic events are unlikely to
influence counterparties' ability to meet their obligations to the Group.
Exposure at default (EAD)
Exposure at default ("EAD") is the expected loan balance at the point of
default. Where a receivable is not classified as being in default at the
reporting date, the Group have included reasonable assumptions to add
unaccrued interest and fees up to the receivable becoming 91 days past due,
which is considered to be the point of default.
Expected credit losses (ECL)
The ECL on an individual loan is based on the credit losses expected to arise
over the life of the loan, being defined as the difference between all the
contractual cash flows that are due to the Group and the cash flows that it
expects to receive. This difference is then discounted at the original
effective interest rate on the loan to reflect the disposal period of such
assets underlying the original contract.
Regardless of the loan status stage, the aggregated ECL is the value that the
Group expects to lose on its current loan book having assessed each loan
individually.
To calculate the ECL on a loan, the Group considers:
1. Counterparty PD; and
2. LGD on the asset
whereby: ECL = EAD x PD x LGD
Forward looking information
In its ECL models, the Group applies sensitivity analysis of forward-looking
economic inputs. When formulating the economic scenarios, the Group considers
both macro-economic factors and other specific drivers which may trigger a
certain stress scenario. The impact of movements in these macro-economic
factors are assessed on a 12-month basis from the reporting date (31
December).
Maximum exposure to credit risk:
2023 2022
£'000 £'000
Loans and advances to banks 3,475 3,848
Derivative assets 537 57
Loans and advances to customers 568,044 435,883
Trade and other receivables 4,158 1,022
576,214 440,810
Collateral held as security:
2023 2022
£'000 £'000
Fully collateralised:
Loan-to-value* ratio:
Less than 50% 14,261 2,798
51% to 70% 56,482 36,764
71% to 80% 93,582 63,239
81% to 90% 108,833 69,499
91% to 100% 291,266 264,118
Total collateralised lending 564,424 436,418
Partially collateralised lending - -
Unsecured lending 19,703 4,866
* Calculated using wholesale collateral values. Wholesale collateral values
represent the invoice total (including applicable VAT) from the invoice
received from the supplier of the product. The wholesale amount is less than
the recommended retail price (RRP) of the product.
The Group's lending activities are asset based so it expects that the majority
of its exposure is secured by the collateral value of the asset that has been
funded under the loan agreement. The Group has title to the collateral which
is funded under loan agreements. The collateral includes boats, motorcycles,
recreational vehicles, caravans, light commercial vehicles, industrial and
agricultural equipment. The collateral has low depreciation and is not subject
to rapid technological changes or redundancy. There has been no change in the
Group's assessment of collateral and its underlying value in the reporting
period.
The assets are generally in the counterparty's possession, but this is
controlled and managed by the asset audit process. The audit process checks
on a periodic basis that the asset is in the counterparty's possession and has
not been sold out of trust or is otherwise not in the counterparty's
control. The frequency of the audits is initially determined by the risk
rating assessed at the time that the borrowing facility is first approved and
is assessed on an ongoing basis.
Additional security may also be taken to further secure the counterparty's
obligations and further mitigate risk. Further to this, in many cases, the
Group is often granted, by the counterparty, an option to sell-back the
underlying collateral.
Based on the Group's current principal products, the counterparty repays its
obligation under a loan agreement with the Group at or before the point that
it sells the asset. If the asset is not sold and the loan agreement reaches
maturity, the counterparty is required to pay the amount due under the loan
agreement plus any other amounts due. In the event that the counterparty does
not pay on the due date, the Group's customer management process will maintain
frequent contact with the counterparty to establish the reason for the delay
and agree a timescale for payment. Senior Management will review actions on a
regular basis to ensure that the Group's position is not being prejudiced by
delays.
In the event the Group determines that payment will not be made voluntarily,
it will enforce the terms of its loan agreement and recover the asset,
initiating legal proceedings for delivery, if necessary. If there is a
shortfall between the net sales proceeds from the sale of the asset and the
counterparty's obligations under the loan agreement, the shortfall is payable
by the counterparty on demand.
As at 31 December 2023, 96.6% of the loan portfolio was fully collateralised
(2022: 99.4%).
Concentration of credit risk
The Group maintains policies and procedures to manage concentrations of credit
at the counterparty level and industry level to achieve a diversified loan
portfolio.
The below table analyses gross carrying amount and impairment allowance by
counterparty industry sector:
31 December 2023 31 December 2022
£'000 Portfolio % £'000 Portfolio %
Gross carrying amount:
Lodges and holiday homes 148,441 25.4% 118,156 26.8%
Motorhomes and caravans 131,478 22.5% 83,420 18.9%
Transport 130,982 22.4% 113,595 25.7%
Marine 55,981 9.6% 47,713 10.8%
Industrial equipment 35,926 6.2% 30,159 6.8%
Motor vehicles 27,458 4.7% 20,767 4.7%
Agricultural equipment 26,995 4.6% 24,555 5.6%
Wholesale 18,500 3.2% - 0.0%
Automotive 8,366 1.4% 2,919 0.7%
Total gross carrying amount 584,127 100% 441,284 100%
£'000 ECL coverage % £'000 ECL coverage %
Impairment allowance:
Lodges and holiday homes (11,428) 7.7% (1,704) 1.4%
Motorhomes and caravans (454) 0.3% (227) 0.3%
Transport (563) 0.4% (445) 0.4%
Marine (773) 1.4% (304) 0.6%
Industrial equipment (87) 0.2% (74) 0.2%
Motor vehicles (312) 1.1% (277) 1.3%
Agricultural equipment (688) 2.5% (662) 2.7%
Wholesale (251) 1.4% - 0.0%
Automotive (40) 0.5% (27) 0.9%
Total impairment allowance (14,596) 2.5% (3,720) 0.8%
Credit quality
The Risk Rating is an internal rating system of counterparty credit risk
whereby the Group will allocate a rating from 1 to 9, 1 being the highest
level of credit quality and 9 being the lowest level of credit quality. The
Group uses Experian Delphi scores to set Risk Ratings which in turn determine
the probability of default for each Counterparty. In the majority of cases,
the Experian Delphi score will be used without management override
adjustments. However, where the Delphi score differs from the Group's
assessment of credit risk and/or where a Delphi score cannot be derived such
as in the case of sole traders or unincorporated partnerships, either a Delphi
score uplift or a Delphi score equivalent is utilised to calculate DFC's
internal risk rating. The Risk Rating for each counterparty is reviewed on an
ongoing basis and recorded as at the reporting date.
An analysis of the Group's credit risk exposure for loan and advances to
customers, internal rating and "stage" is provided in the following tables.
A description of the meanings of Stages 1, 2 and 3 was given in the
accounting policies set out above. See below table of gross loan receivables
by Risk Rating and IFRS 9 stage allocation:
31 December 2023 Stage 1 Stage 2 Stage 3 Total
£'000 Portfolio % £'000 Portfolio % £'000 Portfolio % £'000 Portfolio %
Gross carrying amount:
Above average (Risk rating 1-2) 432,493 74% - 0% 763 0% 433,256 74%
Average (Risk rating 3-5) 93,568 16% 17,729 3% 1,850 0% 113,147 19%
Below average (Risk rating 6+) 19,891 3% 3,323 1% 14,510 3% 37,724 7%
Total gross carrying amount 545,952 93% 21,052 4% 17,123 3% 584,127 100%
£'000 ECL coverage % £'000 ECL coverage % £'000 ECL coverage % £'000 ECL coverage %
Impairment allowance:
Above average (Risk rating 1-2) (1,483) 0.3% - 0.0% (526) 68.9% (2,009) 0.5%
Average (Risk rating 3-5) (860) 0.9% (150) 0.8% (315) 17.0% (1,325) 1.2%
Below average (Risk rating 6+) (179) 0.9% (10) 0.3% (11,073) 76.3% (11,262) 29.9%
Total impairment allowance (2,522) 0.5% (160) 0.8% (11,914) 69.6% (14,596) 2.5%
31 December 2022 Stage 1 Stage 2 Stage 3 Total
£'000 Portfolio % £'000 Portfolio % £'000 Portfolio % £'000 Portfolio %
Gross carrying amount:
Above average (Risk rating 1-2) 267,000 61% 6,629 2% - 0% 273,629 62%
Average (Risk rating 3-5) 110,818 25% 5,433 1% 14,757 3% 131,008 30%
Below average (Risk rating 6+) 32,938 7% 1,261 0% 2,448 1% 36,647 8%
Total gross carrying amount 410,756 93% 13,323 3% 17,205 4% 441,284 100%
£'000 ECL coverage % £'000 ECL coverage % £'000 ECL coverage % £'000 ECL coverage %
Impairment allowance:
Above average (Risk rating 1-2) (475) 0.2% (17) 0.3% - 0.0% (492) 0.2%
Average (Risk rating 3-5) (981) 0.9% (46) 0.8% (1,292) 8.8% (2,319) 1.8%
Below average (Risk rating 6+) (487) 1.5% (21) 1.7% (401) 16.4% (909) 2.5%
Total impairment allowance (1,943) 0.5% (84) 0.6% (1,693) 9.8% (3,720) 0.8%
See note 20 for analysis of the movements in gross loan receivables and
impairment allowances in terms of IFRS 9 staging.
Analysis of credit quality of trade receivables:
2023 2022
£'000 £'000
Status at balance sheet date:
Not past due, nor defaulted 3,513 563
Past due but not in default 210 29
Defaulted 242 258
Total gross carrying amount 3,965 850
Impairment allowance (259) (101)
Carrying amount 3,706 749
See note 24 for analysis of the movements in gross trade receivables and
impairment allowances in terms of IFRS 9 staging.
Financial guarantee schemes
In the year ended 31 December 2023, the Group entered into financial guarantee
schemes which allow the Group to reduce its regulatory capital requirements.
In January 2023 the Group entered into the ENABLE guarantee scheme with the
British Business Bank for an initial facility of £175m which provided the
Group with incremental capacity to scale its loan book without the need for
additional Tier 1 equity capital by up to £75m. In August 2023, the facility
size was increased to £250m which increased this incremental capacity to
£105m. The Group has considered the impact of the ENABLE guarantee scheme
on its expected credit losses which has been deemed to have an immaterial net
impact on the Group's impairment allowances given the recourse criteria
thresholds on the scheme. The guarantees is a mitigant against significant
systemic, portfolio-level loss events but is very unlikely to be drawn upon in
the natural course of business.
In December 2023, the Group entered into a trade credit insurance policy
covering a portion of the Group's loan book exposure in the case of default to
a maximum limit of £10m. Given the scheme size at the year-end it is deemed
to have an immaterial net impact on the Group's impairment allowances.
Amounts written off
The contractual amount outstanding on financial assets that were written off
during the reporting period and are still subject to enforcement activity is
£208,000 at 31 December 2023 (31 December 2022: £nil).
Liquidity risk
Liquidity risk is the risk that the Group does not have sufficient financial
resources to meet its obligations as they fall due or will have to do so at an
excessive cost. This risk arises from mismatches in the timing of cash flows
which is inherent in all finance operations and can be affected by a range of
Group-specific and market-wide events.
Liquidity risk management
The Group has in place a policy and control framework for managing liquidity
risk. The Group's Asset and Liability Management Committee (ALCO) is
responsible for managing the liquidity risk via a combination of policy
formation, review and governance, analysis, stress testing, limit setting and
monitoring. The ALCO meets on a monthly basis to review the liquidity position
and risks.
The Bank has a comprehensive suite of liquidity management processes in place,
which allow the Bank to monitor liquidity risk on a daily basis. Daily
liquidity reporting is supplemented by Early Warning Indicators and a
Liquidity Contingency Plan.
Liquidity stress testing
Stress Testing is a key risk management tool for the Bank and is used to
inform the setting of risk appetite limits and required buffers.
A range of liquidity stress scenarios has been conducted (as detailed in the
Internal Liquidity Adequacy Assessment Process "ILAAP" document), which
demonstrates that the Group's liquidity profile is sufficient to withstand a
severe stress.
Maturity analysis for financial assets:
The following maturity analysis is based on expected gross cash flows:
Carrying amount Gross nominal inflow Less than 1 month 1 - 3 months 3 months to 1 year 1 - 5 years >5 years
31 December 2023 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Cash and balances at central banks 89,552 89,552 89,552 - - - -
Loans and advances to banks 3,475 3,475 1,325 (49) (173) 2,372
Debt securities 14,839 15,075 - - 15,075 - -
Derivative assets 537 537 - - 7 530 -
Loans and advances to customers 568,044 573,485 77,060 174,366 280,617 41,442 -
Trade receivables 3,706 3,965 3,965 - - - -
Other receivables 452 452 145 1 51 4 251
680,605 686,541 172,047 174,318 295,577 44,348 251
Carrying amount Gross nominal inflow Less than 1 month 1 - 3 months 3 months to 1 year 1 - 5 years >5 years
31 December 2022 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Cash and balances at central banks 107,353 107,353 107,353 - - - -
Loans and advances to banks 3,848 3,848 3,277 75 (58) 554 -
Debt securities 22,964 23,233 13,008 113 10,112 - -
Derivative assets 57 20 - - 39 (19) -
Loans and advances to customers 435,883 439,282 58,593 138,833 219,829 22,027 -
Trade receivables 749 850 850 - - - -
Other receivables 273 273 1 - 8 154 110
571,127 574,859 183,082 139,021 229,930 22,716 110
Maturity analysis for financial liabilities:
The following maturity analysis is based on contractual gross cash flows:
Carrying amount Gross nominal outflow Less than 1 month 1 - 3 months 3 months to 1 year 1 - 5 years >5 years
31 December 2023 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Customer deposits 574,622 588,866 82,022 83,486 355,709 67,649 -
Derivative liabilities 565 565 - 220 345 - -
Other financial liabilities 1,205 1,622 - 64 189 1,008 361
Subordinated liabilities 10,221 16,350 - 318 953 15,079 -
Trade payables 528 528 528 - - - -
Other payables 1,148 1,337 1,045 27 7 258 -
Preference shares 50 50 - - 50 - -
588,339 609,318 83,595 84,115 357,253 83,994 361
Loan commitments - 7,833 7,833 - - - -
Carrying amount Gross nominal outflow Less than 1 month 1 - 3 months 3 months to 1 year 1 - 5 years >5 years
31 December 2022 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Customer deposits 479,736 491,911 47,861 43,564 278,483 122,003 -
Derivative liabilities 42 68 51 - - 17 -
Other financial liabilities 395 425 - 23 139 263 -
Trade payables 218 218 218 - - - -
Other payables 3,377 3,249 3,212 - (33) 70 -
Preference shares 50 50 - - - 50 -
483,818 495,921 51,342 43,587 278,589 122,403 -
Loan commitments - 10,663 10,663 - - - -
Market risk
Market risk is the risk that movements in market factors, such as foreign
exchange rates, interest rates, credit spreads, equity prices and commodity
prices will reduce the Group's income or the value of its assets.
The principal market risk to which the Group is exposed is interest rate risk.
Interest rate risk management
The Group is exposed to the risk of loss from fluctuations in the future cash
flows or fair values of financial instruments because of the change in market
interest rates.
The Group's borrowings are either fixed rate, or administered, (being products
where the rate is set at the DFC's discretion). The Group has no exposure to
LIBOR. These borrowings fund loans and advances to customers at fixed
rate.
The limited average duration of the loan and deposit book provide a natural
mitigant against interest rate risk. The Bank aims to naturally hedge interest
rate risk through raising funding of a similar profile of the loans being
funded. Where this is not possible, interest rate swaps are used to manage
repricing mismatches.
The Bank evaluates changes in the economic value of equity calculated under
the following six supervisory shock scenarios referred to in Rule 9.7 of the
ICAA Part of the PRA Rulebook as issued by the Prudential Regulation Authority
(PRA).
The impact of changes in interest rates has been assessed in terms of economic
value of equity (EVE) and profit or loss. Economic value of equity (EVE) is
a cash flow calculation that takes the present value of all asset cash flows
and subtracts the present value of all liability cash flows. This is a
long-term economic measure used to assess the degree of interest rate risk
exposure.
The estimate that a 200bps upward and downward movement in interest rates
would have impacted the economic value of equity (EVE) is as follows:
2023 2022
£'000 £'000
Change in interest rate (basis points):
Sensitivity of EVE +200bps (268) 658
Sensitivity of EVE -200bps 273 (681)
The estimate of the effect on the next 12 months net interest income using a
200bps upward and 200bps downward movement in interest rates is as follows:
2023 2022
£'000 £'000
Change in interest rate (basis points):
Sensitivity of profit +200bps 911 1,868
Sensitivity of profit -200bps (1,755) (2,522)
In preparing the sensitivity analyses above, the Group makes certain
assumptions consistent with the expected and contractual re-pricing behaviour
as well as behavioural repayment profiles under the two interest rate
scenarios.
40. Earnings per share
2023 2022
£'000 £'000
Earnings attributable to ordinary shareholders:
Profit after tax attributable to the shareholders 3,155 9,761
Weighted average number of shares, thousands:
Basic 179,369 179,369
Dilutive impact of share-based payment schemes 8,125 -
Diluted 187,494 179,369
Earnings per share, pence per share:
Basic 1.8 5.4
Diluted 1.7 5.4
41. Controlling party
As at 31 December 2023 there was no controlling party of the ultimate parent
company of the Group, Distribution Finance Capital Holdings plc.
42. Country by country reporting (CBCR)
CBCR was introduced through Article 89 of CRD IV, aimed at the banking and
capital markets industry. The name, nature of activities and geographic
location of the Group's companies are presented below:
Jurisdiction Country Name Activities
UK England Distribution Finance Capital Holdings plc Holding company
DF Capital Bank Limited Commercial lending and specialist personal savings
DF Capital Financial Solutions Limited Commercial lending
Other disclosures required by the CBCR directive are provided below:
UK totals 2023 2022
Average number of employees 126 103
Turnover, £'000 60,350 26,842
Profit before taxation, £'000 4,573 1,304
Taxation charge/(credit), £'000 1,418 (8,457)
The tables below reconcile tax charged and tax paid during the year.
2023 2022
UK totals £'000s £'000s
Taxation charge/(credit) 1,418 (8,457)
Effects of:
Deferred taxation asset recognition 9,043
-
Deferred taxation asset utilisation (1,345) (586)
Other timing differences (73) -
Taxation paid -
-
All activities relating to the Group are conducted within the United Kingdom
and the Group is not subject to non-domestic taxation.
43. Related party disclosures
In the year ended 31 December 2023, Directors were awarded share-based
payments, refer to note 10 for further details.
Directors' emoluments are disclosed in note 9 of these consolidated financial
statements.
In the year ended 31 December 2023, there were no other related party
transactions.
44. Transactions with key management personnel
All related party transactions were made on terms equivalent to those that
prevail in arm's length transactions. During the year, there were no related
party transactions between the key management personnel and the Group other
than as described below.
The Directors and Senior Leadership team are considered to be key management
personnel. Directors' remuneration is disclosed in note 9 and in the
Directors' Remuneration Report on page 80. The Senior Leadership team are all
employees of the Group. The aggregate remuneration of the key management
personnel (including Directors) is shown in the table below:
2023 2022
£'000 £'000
Short-term employment benefits 3,808 3,014
Share-based payments 54 -
Total key management personnel remuneration 3,862 3,014
Key management personnel held deposits with the Group of £117,000 (2022:
nil).
45. Subsequent events
There have been no subsequent events between 31 December 2023 and the date of
this report which would have a material impact on the financial position of
the Group.
The Company Statement of Financial Position
2023 2022
Note £'000 £'000
Assets
Loans and advances to banks 5 81 146
Trade and other receivables 7 157 155
Amounts receivable from Group Undertakings 86 -
Investment in subsidiaries 8 135,604 134,213
Total assets 135,928 134,514
Liabilities
Trade and other payables 10 836 700
Financial liabilities 11 50 50
Amounts payable to Group Undertakings 9 6,742 5,522
Total liabilities 7,628 6,272
Equity
Issued share capital 12 1,793 1,793
Share premium 12 - 39,273
Merger relief 12 94,911 94,911
Retained earnings/(loss) 31,997 (7,371)
Own shares 13 (401) (364)
Total equity 128,300 128,242
Total equity and liabilities 135,928 134,514
The notes on pages 183 to 188 are an integral part of these financial
statements.
Distribution Finance Capital Holdings plc recorded loss after taxation for the
year ended 31 December 2023 of £779,000 (2022: loss of £1,414,000). These
financial results are derived entirely from continuing operations.
These financial statements were approved by the Board of Directors and
authorised for issue on 8(th) April 2024. They were signed on its behalf
by:
Carl D'Ammassa
Director
8 April 2024
Registered number: 11911574
The Company Cash Flow Statement
2023 2022
Note £'000 £'000
Cash flows from operating activities:
Loss before taxation 4 (779) (1,414)
Adjustments for non-cash items and other adjustments included in the income 6 (1,970) (1,029)
statement
Increase in operating assets 6 (2) (34)
Increase in operating liabilities 6 137 155
Taxation paid - -
Net cash used in operating activities (2,614) (2,322)
Cash flows from investing activities:
Purchase of own shares 13 (67) -
Net cash used in investing activities (67) -
Cash flows from financing activities:
Proceeds from intercompany loan 2,616 1,938
Net cash from financing activities 2,616 1,938
Net decrease in cash and cash equivalents (65) (384)
Cash and cash equivalents at start of the year 5 146 530
Cash and cash equivalents at end of the year 5 81 146
The Company Statement of Changes in Equity
Issued share capital Share premium(3) Merger relief Own shares(2) Retained earnings/(loss) Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2022 1,793 39,273 94,911 (364) (6,456) 129,157
(Loss) after taxation - - - - (1,414) (1,414)
Share-based payments - - - - 499 499
Balance at 31 December 2022 1,793 39,273 94,911 (364) (7,371) 128,242
(Loss) after taxation - - - - (779) (779)
Share-based payments(1) - - - - 905 905
Employee Benefit Trust(2) - - - (37) (31) (68)
Share premium account cancellation(3) - (39,273) - - 39,273 -
Balance at 31 December 2023 1,793 - 94,911 (401) 31,997 128,300
(1)Refer to note 10 of the consolidated financial statements for further
details of movements in the year.
(2)The Company has adopted look-through accounting (see note 1.3 to the
Group's consolidated financial statements) and recognised the Employee Benefit
Trusts within the Company. Refer to note 13 for further details on movements
in the year.
(3) In the year ended 31 December 2023, the Company cancelled its share
premium account - refer to note 31 of the consolidated financial statements
for details.
Notes to the Company Financial Statements
1. Basis of preparation
1.1 Accounting basis
These standalone financial statements for Distribution Finance Capital
Holdings plc (the "Company") have been prepared and approved by the Directors
in accordance with International Financial Reporting Standards ("IFRSs") as
adopted by the United Kingdom (UK) and interpretations issued by the IFRS
Interpretations Committee (IFRS IC).
1.2 Going concern
As detailed in note 1 to the consolidated financial statements, the Directors
have performed an assessment of the appropriateness of the going concern
basis. The Directors consider that it is appropriate to continue to adopt the
going concern basis in preparing the financial statements.
1.3 Income statement
Under Section 408 of the Companies Act 2006 the Company is exempt from the
requirement to present its own income statement.
2. Summary of significant accounting policies
These financial statements have been prepared using the significant accounting
policies as set out in note 2 to the consolidated financial statements. Any
further accounting policies provided below are solely applicable to the
Company financial statements.
2.1 Investment in subsidiaries
In accordance with IAS 27 Separate Financial Statements the Company has
elected to account for an investment in subsidiary at cost. The Company
performs an impairment assessment on the investment in subsidiary at each
reporting date to assess whether the cost basis reflects an accurate value of
the investment at the reporting date.
3. Critical accounting judgements and key sources of estimation uncertainty
In the financial statements for the year ended 31 December 2023, the Company
has not made any critical accounting judgements and key sources of estimation
which are considered to be material in value or significance to the
performance of the Company.
4. Net loss attributable to equity shareholders of the Company
2023 2022
£'000 £'000
Net loss attributable to equity shareholder of the Company (779) (1,414)
5. Loans and advances to banks
2023 2022
£'000 £'000
Included in cash and cash equivalents: balances with 81 146
less than three months to maturity at inception
Total loans and advances to banks 81 146
6. Notes to the cash flow statement
See below for reconciliation of balances classified as cash and cash
equivalents, which are recognised within the cash flow statement:
2023 2022
£'000 £'000
Loans and advances to banks 81 146
Total cash and cash equivalents 81 146
Adjustments for non-cash items and other adjustments included in the income
statement:
2023 2022
£'000 £'000
Management fee recharge (2,287) (1,205)
Share-based payments 317 176
Total non-cash items and other adjustments (1,970) (1,029)
Changes in liabilities arising from financing activities:
The Company had no changes in the Company's liabilities arising from financing
activities, including both cash and non-cash changes, for the years ended 31
December 2023 and 31 December 2022.
7. Trade and other receivables
2023 2022
£'000 £'000
Other debtors 50 50
Indirect taxes 11 4
Prepayments 96 101
Total trade and other receivables 157 155
8. Investment in subsidiaries
£'000
Balance at 1 January 2022 134,213
No transactions in the year -
Balance at 31 December 2022 134,213
Capital contribution - parent equity-settled share-based payments 1,391
Balance at 31 December 2023 135,604
In years prior to the year ended 31 December 2023, the Company treated
share-based payments awarded to employees of subsidiaries as cash settled, for
which there was a debit against the intercompany loan. In the year ended 31
December 2023, this arrangement was reviewed, and concluded that there is no
obligation for the subsidiaries to reimburse the Company for the settlement of
share awards. In the year ended 31 December 2023, the total figure of
£1,391,000 includes a figure in respect of prior years of £803,000.
In the years ended 31 December 2022, there was no changes to investment in
subsidiaries.
For the year ended 31 December 2023, the Company conducted an impairment
assessment of the investment in subsidiaries and concluded that there is no
impairment required (2022: £nil).
9. Amounts payable to Group undertakings
2023 2022
£'000 £'000
Amounts payable to DF Capital Bank Limited 6,742 5,522
Total amounts payable to Group undertakings 6,742 5,522
All amounts drawn and outstanding under the intercompany loan facility,
including all accrued interest and costs, are payable on demand by the lender
DF Capital Bank Limited. Interest on the loan shall accrue daily and is
charged at 4% over the Sterling Overnight Indexed Average (SONIA) rate at the
end of each calendar month. This contractual agreement has an expiry date of
31 December 2024.
10. Trade and other payables
2023 2022
£'000 £'000
Trade payables 187 -
Accruals 593 654
Social security taxes 56 46
Total trade and other payables 836 700
11. Financial liabilities
2023 2022
£'000 £'000
Preference shares 50 50
Total financial liabilities 50 50
Reconciliation of movements in financial liabilities:
Preference Shares
£'000
Balance at 1 January 2022 50
No transactions in the year
-
Balance at 31 December 2022 50
No transactions in the year
-
Balance at 31 December 2023 50
12. Share capital
2023 2022 2023 2022
No. No. £'000 £'000
Authorised:
Ordinary shares of 1p each 179,369,199 179,369,199 1,793 1,793
Allotted, issued and fully paid: Ordinary shares of 1p each 179,369,199 179,369,199 1,793 1,793
Date No. of shares Issue Price Share Capital Share Premium Merger Relief Total
# £ £'000 £'000 £'000 £'000
Balance at 1 January 2022 179,369,199 1,793 39,273 94,911 135,977
No movements in the year - - - - - -
Balance at 31 December 2022 179,369,199 - 1,793 39,273 94,911 135,977
Share premium account cancellation 29-Jun-23 - - - (39,273) - (39,273)
Balance at 31 December 2023 179,369,199 1,793 - 94,911 96,704
13. Own shares
£'000
Balance at 1 January 2022 (364)
No transactions in the year -
Balance at 31 December 2022 (364)
Acquisition of shares (67)
Settlement of employee share awards 30
Balance at 31 December 2023 (401)
14. Financial instruments
The Group monitors and manages risk management at a group-level and,
therefore, the Risk Management Framework stipulated in note 39 of the
consolidated financial statements encompasses the Company risk management
environment.
The Company and Directors believe the principal risks of the Company to be
credit risk, liquidity risk and capital risk. The Directors have evaluated the
following risks to either not be relevant to the Company or of immaterial
significance: market risk, interest rate risk and exchange rate risk.
The regulatory capital requirements in respect of capital risk are assessed at
both a consolidated group level and for DF Capital Bank Limited at an entity
level.
See note 39 of the consolidated financial statements for further details on
how the Company defines and manages credit risk, liquidity risk and capital
risk.
Financial assets and financial liabilities included in the statement of
financial position that are not measured at fair value:
Carrying amount Fair value Level 1 Level 2 Level 3
31 December 2023 £'000 £'000 £'000 £'000 £'000
Financial assets not
measured at fair value
Loans and advances to banks 81 81 81 -
Other receivables 61 61 - - 61
Amounts receivable from Group Undertakings 86 86 - - 86
228 228 81 - 147
31 December 2023
Financial liabilities not
measured at fair value
Trade payables 187 187 - - 187
Other payables 56 56 - - 56
Preference shares 50 50 - - 50
Amounts payable to Group Undertakings 6,742 6,742 - - 6,742
7,035 7,035 - - 7,035
Carrying amount Fair value Level 1 Level 2 Level 3
31 December 2022 £'000 £'000 £'000 £'000 £'000
Financial assets not
measured at fair value:
Loans and advances to banks 146 146 146 - -
Other receivables 54 54 - - 54
200 200 146 - 54
31 December 2022
Financial liabilities not
measured at fair value:
Other payables 46 46 - - 46
Preference shares 50 50 - - 50
Amounts payable to Group Undertakings 5,522 5,522 - - 5,522
5,618 5,618 - - 5,618
Maximum exposure to credit risk:
2023 2022
£'000 £'000
Loans and advances to banks 81 146
Trade and other receivables 61 54
Amounts receivable from Group Undertakings 86 -
228 200
Maturity analysis for financial assets
The following maturity analysis is based on expected gross cash flows:
Carrying amount Gross nominal inflow Less than 1 months 1 - 3 months 3 months to 1 year 1 - 5 years >5 years
31 December 2023 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Loans and advances to banks 81 81 81 - - - -
Other receivables 61 61 11 - 50 - -
Amounts receivable from Group Undertakings 86 86 - - 86 - -
228 228 92 - 136 - -
Carrying amount Gross nominal inflow Less than 1 months 1 - 3 months 3 months to 1 year 1 - 5 years >5 years
31 December 2022 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Loans and advances to banks 146 146 146 - - - -
Other receivables 54 54 4 - - 50 -
200 200 150 - - 50 -
Maturity analysis for financial liabilities
The following maturity analysis is based on contractual gross cash flows:
Carrying amount Gross nominal outflow Less than 1 months 1 - 3 months 3 months to 1 year 1 - 5 years >5 years
31 December 2023 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Trade payables 187 187 187 - - - -
Other payables 56 111 33 - - 78 -
Preference shares 50 50 - - 50 - -
Amounts payable to Group Undertakings 6,742 6,742 - - 6,742 - -
7,035 7,090 220 - 6,792 78 -
Carrying amount Gross nominal outflow Less than 1 months 1 - 3 months 3 months to 1 year 1 - 5 years >5 years
31 December 2022 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Other payables 46 80 1 - 51 28 -
Preference shares 50 50 - - - 50 -
Amounts payable to Group Undertakings 5,522 5,522 - - 5,522 - -
5,618 5,652 1 - 5,573 78 -
15. Subsequent events
There have been no subsequent events between 31 December 2023 and the date of
this report which would have a material impact on the financial position of
the Company.
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