REG - Distribution Finance - Trading Statement

Distribution Finance Capital HoldingsAnnouncement

29/11/2023 07:00

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RNS Number : 9709U  Distribution Finance Cap. Hldgs PLC  29 November 2023

This announcement contains inside information as stipulated under the UK
version of the Market Abuse Regulation (EU no. 596/2014) as it forms part of
UK law by virtue of the European Union (Withdrawal) Act 2018 (as amended from
time to time).

 

29 November 2023

 

Distribution Finance Capital Holdings plc

("DF Capital" or the "Company" together with its subsidiaries the "Group")

 

 

Trading and Capital Strategy Update

 

Distribution Finance Capital Holdings plc, a specialist bank providing working
capital solutions to dealers and manufacturers across the UK, provides an
update in relation to its single large obligor arrears balance, a trading
update and a change to its medium-term capital strategy.

Update relating to large single obligor's arrears balance

The Group previously reported that as at 30 June 2023 the Group's arrears
included £10.4m of balance outstanding in respect of a large single obligor;
RoyaleLife and associated companies ("RoyaleLife"), a customer of the Company
since June 2018, representing c.2 per cent of the Group's loan book as at 30
September 2023. Whilst the refinancing and restructuring of RoyaleLife was in
progress, it had been delayed, and at that time the Group's assessment,
following engagement with key stakeholders, was that the Group would be repaid
should the proposed refinance complete as planned.

The Group is aware of a significant number of assets which have been sold out
of trust or are missing from confirmed locations and following continued work
with various stakeholders, it is now clear that RoyaleLife's financial
situation and operation is 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.

Whilst the Group understands that action to refinance RoyaleLife remains in
progress, there is no certainty at this stage given the elapsed time and new
information that this will lead to a satisfactory outcome and successful
refinance, which will see the Group being substantively repaid.

Whilst the Group will continue to work with stakeholders to effect a good
outcome, pursuing recovery of the outstanding debt to the fullest extent
possible, the Group intends to make an appropriate credit loss provision in
its full year accounts for the year ending 31 December 2023. Due to the unique
circumstances associated with RoyaleLife and the one-off nature of any
provision, the Group does not anticipate any further impact to its results for
the next financial year ending 31 December 2024.

The Group maintains a highly cautious and vigilant approach to credit risk
management and the circumstances surrounding RoyaleLife facility are unique in
the context of the Group's loan book.

Trading update and capital strategy

As reported in the results for six months ended 30 June 2023 the Group
delivered pre-tax profit, including impairment provisions, of £3.2m in the
first half, more than the entire previous financial year. Additionally, new
loan origination remained strong, stock turn extended further and the Group
continued to generate elevated net interest margin. However, in light of any
expected credit loss provision in relation to RoyaleLife, the Group now
expects to deliver a pre-tax profit of no less than £2.0m for the year ending
31 December 2023.

Given the strong underlying momentum combined with the Group's expectations of
further loan book growth, the Company has determined that, in the medium term,
it will remain flexible and pragmatic in the pursuit of its growth strategy,
balancing this against its ability to generate retained earnings as a route to
organic capital accretion.

As previously announced the Group believes it has capacity to grow its current
loan book to the envisaged level of approximately £800m based on current
capital, a full drawdown of the £20m Tier 2 Capital Facility as announced on
8 September 2023 and upsizing of the previously announced ENABLE Guarantee
from £250m to £350m. At a c£800m loan book the financial characteristics of
the Group would allow it to achieve further organic growth at a slower, but
healthy rate without the need to raise additional Tier 1 capital.  The Group
remains committed to becoming a multi-product lender in the near-term,
considering organic and inorganic product development strategies which
underpin the Group's longer-term earnings potential.

 

Carl D'Ammassa, Chief Executive, commented: "Despite our best efforts, it is
very disappointing that we have not been able to resolve the RoyaleLife
situation. This is a complex, demanding and unique exposure that we have been
working through over many months alongside other lenders and creditors.
Despite the material changes to the landscape most recently, we continue to
seek recovery, but feel prudency and transparency of approach is critical at
this time and central to our model".

 

"Notwithstanding this situation, the Group is seeing strong underlying
financial momentum and we remain well placed to build a diverse multi-product
lending proposition, without the pressing need to raise Tier 1 capital through
an equity raise."

 

The person responsible for arranging the release of this announcement on
behalf of the Company is Karen D'Souza (Company Secretary).

 

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 Joint 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

 Lauren Kettle

 

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