REG - Lendinvest PLC LendInvest - LIV2 LendInvest - LIV3 LendInvest PLC-LINV - Interim Financial Results
30/11/2022 07:00
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RNS Number : 0523I Lendinvest PLC 30 November 2022
LEI: 213800NWMK3O4UWP9N91
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
30 November 2022
LendInvest plc
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2022
45% growth in H1 PBT, FY outlook maintained
LendInvest plc (LSE: LINV; the "LendInvest", "Company" or the "Group"), a leading technology driven asset manager for property finance in the UK, is pleased to announce its unaudited results for the six months ended 30 September 2022.
6 months ended 6 months ended
30 September 2022
30 September 2021
Change
(Restated)
Unaudited
Platform AuM (£m)(1) 2,431.1 1,825.9 33%
Funds under management (FuM) (£m)(1) 3,442.1 2,875.2 20%
Revenue (£m) 42.5 46.3 (8%)
Gross profit (£m) 31.1 26.5 17%
Adjusted EBITDA (£m)(1) 14.3 13.4 7%
Profit before tax (£m) 14.8 10.2 45%
Diluted earnings per share (p)(1 ) 10.4 6.4 63%
Dividend per share (p) 1.3 n/a n/a
(1) See Glossary for an explanation of these terms and their reconciliation,
where relevant, to IFRS measures
These results include the impact of a prior period restatement, further
details of which are set out in Note 1.4 below. All references to '2021',
being the 6 months ended 30 September 2021, are restated figures.
Financial Highlights:
· Platform AuM, which is the amount we have lent to our borrowers,
increased 33% to £2.4 billion (30 Sep 2021: £1.8 billion), driven by a 44%
increase in Buy-to-Let ("BTL") mortgages.
· FuM, which is the amount we have lent and the additional capital
we have available to lend, increased 20% to £3.4 billion (30 Sep 2021: £2.9
billion) partly driven by JP Morgan, which upsized its separate account, and
Lloyds Bank who will help fund our growth in our BTL business.
· Revenue decreased 8% to £42.5 million (30 Sep 2021: £46.3
million) primarily driven by lower average balance sheet loans on our
short-term lending products, and lower performance fees from our funds.
· Gross profit increased 17% to £31.1 million (30 Sep 2021: £26.5
million) primarily driven by a £9.2 million gain recognised when our Mortimer
2019-1 securitisation was called in September 2022.
· Profit before tax increased by 45% to £14.8 million (30 Sep
2021: £10.2 million). £3.6 million was due to mark-to-market gains on
interest rate swap pipeline hedges on the BTL portfolio.
· Diluted earnings per share increased 63% to 10.4 pence per share
(30 Sep 2021: 6.4 pence per share).
· The Board has declared an interim dividend of 1.3p per Ordinary
Share which will be paid on 23 January 2023. The interim dividend is
calculated on a set formula of 30 percent of last year's full year dividend.
The Company maintains its progressive dividend policy.
Strategic highlights:
Continued growth, optimisation and diversification of FuM
· In line with our strategy of growing FuM, we announced the upsize
of the J.P. Morgan Separate Account from £725 million to £1 billion. This is
consistent with our stated strategy of increasing the proportion of third
party managed assets, strengthening our "asset-lite" asset management business
model.
· Following our partnerships with Barclays and HSBC in FY2022, we
entered into a new £180 million financial agreement with Lloyds Bank to
participate in the growth of our BTL lending business.
· We completed our fourth securitisation, which comprised £270
million of prime Buy-to-Let mortgages in an oversubscribed Residential
Mortgage-Backed Security (RMBS) transaction, "Mortimer BTL 2022-1" with demand
from a broad range of institutional investors. The senior tranche was priced
at 1.05% over SONIA.
· In line with our strategy to optimise FuM, while at the same time
selectively moving assets off balance sheet, we completed the sale of our
residual economic interest in the "Mortimer BTL 2022-1" securitisation for a
cash consideration of £5.8 million. The transaction reduced our gross loans
and advances by more than £270 million and generated a net pre-tax gain of
£3.3 million.
· We issued our third listed bond from our second Euro Medium Term
Note programme, the LendInvest Secured Income II plc 6.50% bonds due 2027,
raising £38 million in the process with a further £22 million retained in
treasury for future sale.
Growth across our broker network and regional footprint
· We increased the number of active broker firms signed up to use
the platform to more than 2,100 (31 March 2022: 1,800).
· Our strong reputation for high quality products and excellent
customer service continued, as evidenced by our Trustpilot rating of 4.3.
· We launched an innovative tracker product range to support
borrowers in response to market volatility.
· Investment in technology continues to drive operating leverage;
operational expenditure as a proportion of Platform AuM has dropped
significantly from 3.4% to 1.27% over the past three-years (31 March 2022:
1.32%).
· We opened an office in Glasgow, Scotland, and joined industry
body Fintech Scotland as part of our commitment north of the border. Glasgow
provides a deep pool of talent. We expect to grow more efficiently versus
maintaining a sole office in Central London.
Current trading and outlook:
We are mindful of the headwinds facing the economy and the impact on activity
in the mortgage markets. Our full year guidance as per the last trading update
on 10 October 2022 remains unchanged. We expect profit before tax for the full
year to be in-line with that of the previous year. Our expectation is based
on the following:
· we have our lowered Platform AuM growth forecast as a result of
the government's mini budget announced on 23 September and the subsequent
increases, and volatility in interest rates;
· we expect some margin compression from higher input interest rate
costs in H1 FY23 as lending rates were slower to follow, although we expect
margins to normalise towards the end of H2 FY23;
· we grew operational expenditure as planned in FY22 and H1 FY23 on
the basis of our previously anticipated higher activity levels throughout FY23
and for the launch of our new specialist homeowner product. However, the
challenging market conditions has inevitably slowed activity in the mortgage
market in H2 and we now expect growth in Platform AuM to lag growth in the
cost base until FY24;
· a reduction of swap rates in H2 would result in a partial or full
reversal of the £3.6 million mark-to-market gain reported in H1. This gain
pertains to hedges used to mitigate the financial impact of swap rates
changing between the time we make a mortgage offer to a borrower and the
completion of the loan.
Given the transient nature of these factors and the upcoming launch of our
specialist homeowner product we have confidence in our ability to return to
growth in profitability in FY24.
Our proprietary technology platform and robust business model provide us with
flexibility and agility, while maintaining rigorous credit discipline,
especially under evolving market conditions. Most recently, this was evidenced
by our ability to reprice our mortgages overnight following the fallout from
the 'mini-budget', when more than a thousand products were pulled by other
lenders.
In the short to medium term, our borrowers, the vast majority of whom are
developers and professional landlords, are well-placed to withstand these
macroeconomic headwinds, given the proportion of borrowing on fixed rates.
Loan-to-value across our lending portfolio is, on average, below 70%. On the
funding side, we continue to see healthy investor appetite and we continue to
diversify our sources of FuM. In November we signed the first investment into
a new separate account with a leading US-based asset manager and annuity
provider to grow our nascent residential portfolio BTL business. This will
initially add £30 million to Platform AuM.
We remain confident in the medium-term ambitions that we set out at the time
of our IPO in July 2021. We are also confident about the long-term prospects
for the Group. Our confidence is underpinned by our technology platform, our
strong financial position, our talent and customer-centric approach, and the
clear scope to win an increasing share of the large and fragmented UK property
finance market.
Rod Lockhart, Chief Executive of LendInvest, commented:
"Our performance in the first half has been robust, and we continue to make
good progress on our strategic priorities. A 20% increase in FuM, driven by
commitments from both new and existing investors, including Lloyds Bank and JP
Morgan, is testament to the trust that leading financial institutions have in
our talent and our technology. There is considerable scope for further growth
in our existing markets. In a few weeks borrowers in the £100 billion
specialist homeowner market will have access to superior customer care and
technology driving a seamless, simpler and faster application process as we
launch our first product focused on this segment.
"We are well-positioned to weather the current difficult macroeconomic
backdrop, given our robust business model, diverse sources of capital and
ability to respond with new products in a fast-changing environment. We
recently launched a two-year tracker product to support landlords while they
navigate the changing economic environment, which is already proving popular.
Our ESG values are central to our success. We are now carbon neutral and have
published our first Green Bond Framework which is designed to accelerate the
allocation of capital to eligible green projects funded by refurbishment
loans.
"Underpinning our business, we have strong cash reserves with rigorous credit
discipline. In addition, we have more than £1 billion in lending headroom to
support our borrowers when market conditions improve. Given this confidence we
remain committed to our progressive dividend policy."
Analysts and investors presentation: 9.00am on Wednesday 30 November 2022
A webcast for analysts and investors will be hosted by Rod Lockhart, Chief
Executive Officer, and Michael Evans, Chief Financial Officer, at 9.00am
today, Wednesday 30 November 2022.
To access the webcast, please register here
(https://www.lsegissuerservices.com/spark/LENDINVEST/events/c8dc77ec-ebc9-4217-acbd-909418c1c6a2)
A playback facility will also be available in due course.
- Ends -
Enquiries:
LendInvest via Tulchan Communications +44 (0)20 7353 4200
Rod Lockhart, Chief Executive Officer
Michael Evans, Chief Financial Officer
Alex Dee, Head of Investor Relations
Leigh Rimmer, Head of External Communications
investorrelations@lendinvest.com
Panmure Gordon (NOMAD and Joint Broker) +44 (0)20 7886 2500
Atholl Tweedie / Charles Leigh-Pemberton
finnCap Limited (Joint Broker) +44 (0)20 7220 0500
Jonny Franklin-Adams / Tim Redfern
Tulchan Communications (Financial PR) +44 (0)20 7353 4200
Tom Murray / Ed Cropley/ Misha Bayliss / Olivia Lucas
About LendInvest
LendInvest is a technology-focused property finance asset manager in the
United Kingdom. Since inception we have developed proprietary technology and
digital solutions that have allowed us to capture market share from incumbents
and attract significant third-party capital.
We use our technology to disrupt the £1.6 trillion* property finance market
which is dominated by manual paper processes and poor customer care. Our
platform, unencumbered by legacy systems, offers attractive products and
pricing to borrowers and intermediaries through a seamless and
customer-focused process. In addition, it also provides us with a highly
scalable origination platform for future Platform AuM growth.
As an asset manager, we have designed a variety of investment solutions and
products for our investors. These range from funds and separate accounts to
financial partnerships and RMBS. These products are tailored to address their
specific risk return and investment criteria. Through the platform, investors
from around the world gain exposure to attractive UK property finance assets
without requiring them to establish direct lending operations or borrower
services.
Our innovative business model is underpinned by our proprietary end-to-end
technology infrastructure, which facilitates operating leverage and delivers
better pricing for our customers. This drives efficiency and underpins our
business' roadmap for growth.
*Source, FCA -The outstanding value of all residential mortgage loans was
£1.6 trillion at the end of Q2 2022.
Forward-looking statements
Certain statements in this announcement are forward-looking statements. In
some cases, these forward looking statements can be identified by the use of
forward looking terminology including the terms "anticipate", "believe",
"intend", "estimate", "expect", "may", "will", "seek", "continue", "aim",
"target", "projected", "plan", "goal", "achieve" and words of similar meaning
or in each case, their negative, or other variations or comparable
terminology. Forward-looking statements are based on current expectations and
assumptions and are subject to a number of known and unknown risks,
uncertainties and other important factors that could cause results or events
to differ material from what is expressed or implied by those statements. Many
factors may cause actual results, performance or achievements of LendInvest to
be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Important factors that
could cause actual results, performance or achievements of LendInvest to
differ materially from the expectations of LendInvest, include, among other
things, general business and economic conditions globally, industry trends,
competition, changes in government and changes in regulation and policy,
changes in its business strategy, political and economic uncertainty and other
factors. As such, undue reliance should not be placed on forward-looking
statements. Any forward-looking statement is based on information available to
LendInvest as of the date of the statement. All written or oral
forward-looking statements attributable to LendInvest are qualified by this
caution. Other than in accordance with legal and regulatory obligations,
LendInvest undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events or otherwise. Nothing in this announcement should be regarded as a
profit forecast.
.
Operating Review
LendInvest is a leading UK asset management platform focussed on property
finance. We originate and manage portfolios of property loans for investors by
providing borrowers and brokers with transparent, convenient and competitively
priced products. We benefit from a diversified revenue stream, with revenue
generated through annual management, performance and servicing fees on
Separate Accounts and Funds, and interest charged to borrowers on assets
funded through Financial Partnerships and Residential Mortgage-Backed
Securities (RMBS). Arrangement fees are earned on every loan originated. We
currently provide three types of secured property lending to borrowers in the
form of bridging loans, development loans, (collectively, "short term
lending"), and Professional Buy-to-Let ("BTL") loans. In a few weeks, we
expect to launch a fourth type of secured property lending, specialist
homeowner mortgages.
One of our key objectives is to have a diverse and highly scalable client
investor base that provides us with both flexibility and resilience. We
already benefit from a diverse pool of capital and have continued to add to
our investor base in line with this objective during the period.
Technology underpins every aspect of our business, it is a key driver of our
roadmap for growth, it provides a competitive advantage and is critical as we
grow our share in longer-term, higher-volume products. The investment made
into the technology platform enables us to scale efficiently and launch new
products.
We have made strong progress in our strategic goals over the past six months
which will facilitate further growth in future periods:
1. Technology investment
· Our technology has continued to generate operating leverage and
we expect this trend to continue over the medium term. A significant amount of
our technology capability has been focussed on the development of our new
Specialist Homeowner product, which we plan to launch in a few weeks and
expect to be a significant contributor to our platform AuM growth. In the
short term, costs associated with the launch will result in a small reversal
of this trend as we invest in our growth and reach critical mass.
· As stated at the time of the IPO, part of the £40 million raised
was to accelerate the delivery of our technology roadmap. As part of that
process, we have continued to build out our technology team. Since the start
of the financial year, we have increased the size of our technology team by
more than 28% to 90 full time employees. In particular, we have strengthened
our capabilities in product management, engineering and Salesforce.
· We increased the level of automation in our post-offer processes
through the launch of our panel of solicitors to digitise the conveyancing
process, improve the handling of inbound communications from brokers, and
delivered the capability to instruct physical valuations directly from our
Genesys platform. Our new BTL legal panel in partnership with Smoove, provides
borrowers and brokers access to a wider selection of legal firms across the
country.
2. Launch of new products
· Following the market turmoil after the mini budget, we launched a
new two-year tracker product range to support landlords while they navigate
the changing economic environment. The new two-year tracker range seeks to
provide borrowers with flexibility while offering competitive interest
coverage ratio stress tests to maximise borrowing. With no early repayment
charges, borrowers can secure a preferential rate with the knowledge they have
the flexibility to remortgage if market conditions change over the next couple
of years.
· We launched a new refurbishment product for our Bridging suite.
The new product is for residential properties, including houses of multiple
occupancy (HMOs), and is available through our new broker portal. We are now
seeing more than 95% of new enquiries and applications being submitted
directly through our portal which further streamlines the application and case
management process.
3. Broker market penetration
· Broker market penetration continued to improve with active
brokers completing applications, up 7% since the start of the financial year
to more than 2,100.
· Repeat business from our broker population was 69% in H1
reflecting the ease with which brokers can complete an application and the
friction removed from the process through our technology platform.
· The UK property market is highly intermediated and therefore
brokers are LendInvest's primary route to market and represent 100% of BTL
originations. We are focused on being the partner of choice to mortgage
brokers in the UK and an important part of our strategy is ensuring we are
providing high quality products characterised by excellent service, evidenced
by our Trustpilot rating of 4.3.
4. Increased investment in our platform
o A further endorsement of JP Morgan's trust in our capabilities was an
increase in the size of the separate account for BTL loans that we manage for
them from £725 million to £1,000 million. This also aligns with our strategy
of growing and optimising FuM, as through time it will increase the proportion
of third party managed assets and strengthen our asset management business
model.
o As we diversify our sources of FuM, we continue to grow our list of
financial partners or financial institutions who work closely with us. In
September, Lloyds Bank, part of the UK's third largest banking group, entered
into a £180 million financial agreement to participate in the growth of our
BTL lending business.
o In line with our strategy of diversifying sources of FuM, in August we
issued our third listed bond from our second Euro Medium Term Note programme,
the LendInvest Secured Income II plc 6.50% bonds due 2027, raising £38
million in the process with a further £22 million retained in treasury.
o During H1 FY2023, we announced the completion of our fourth
securitisation, which comprised £270 million of prime BTL mortgages in an
oversubscribed RMBS transaction, "Mortimer BTL 2022-1" with demand from a
broad range of institutional investors. The senior tranche was priced at 1.05%
over SONIA.
o The sale of our residual economic interest in the "Mortimer BTL 2022-1"
securitisation for a cash consideration of £5.8 million is in line with our
strategy to optimise our funds under management, while at the same time
selectively moving more assets off our balance sheet. As previously announced,
the transaction reduced our gross loans and advances by approximately £270
million, brought forward profit recognition and generated a net pre-tax gain
of £3.3 million, which has been recognised in H1 FY2023.
5. ESG
o Our ESG values and principles are central to the success of our platform.
The nature of our business means that for many of the loans we originate new
housing stock is put into the system, which helps to alleviate the housing
crisis, or older stock is improved to comply with higher energy efficiency
standards, which helps minimise the carbon impact of housing. We produced our
first green bond framework for refurbishing and retrofitting, a first in our
industry. The framework is aligned with the ICMA green bond principles.
o We are carbon neutral and have offset all of our Scope 1 & 2
emissions, plus a proportion of our Scope 3 emissions, by supporting a number
of high-impact emission reduction projects that deliver tangible results under
the United Nations Sustainable Developments Goals.
o We aim to achieve an average EPC rating of C (based on the UK government's
standard assessment procedure (SAP) score) across our Platform AuM by 2030.
o ARC Ratings, a regulated European credit rating agency, affirmed its
highest possible rating, SQ1 Servicer Quality for the eighth consecutive year.
Following a comprehensive review, they noted our strengthened financial
performance, and technology driven infrastructure which "create a seamless
application process facilitating increased broker conversion and higher repeat
rates."
Finance Review
The principal activity of the Group is to provide asset management services
for property finance in the United Kingdom.
Unaudited 6 months ended 6 months ended Change
30 September 2022
30 September 2021 (Restated)
£'m
£'m
Revenue 42.5 46.3 (8%)
Cost of sales (11.4) (19.8) (42%)
Gross profit 31.1 26.5 17%
Gross profit margin 73% 57% 16 percentage points
Administrative expenses (17.1) (15.3) 12%
Impairment provisions (1.9) (1.7) 12%
Finance income 2.7 1.1 145%
Finance expense - (0.4) (100%)
Profit before tax 14.8 10.2 45%
Adjusted EBITDA(1) 14.3 13.4 7%
Basic earnings per share (pence/share) 10.8 6.6 64%
Diluted earnings per share (pence/share) 10.4 6.4 63%
(1)Refer to the Glossary for an explanation of this term and reconciliation
back to relevant IFRS measures
The reported figures for the comparative period have been restated. This
change to the consolidated interim statement of profit and loss and a
reclassification between revenue and cost of sales and does not change the
overall profitability during the prior period. Further details of the prior
period restatement are disclosed in note 1.4 of these condensed consolidated
interim financial statements. The prior period restatement did not impact the
profit before tax.
Gross Profit & Revenue
6 months ended 6 months ended
30 September 2022
30 September 2021 (Restated)
Unaudited
£'m Change
£'m
Interest on loans and advances 31.2 29.8 5%
Origination and other loan fees recognised under IFRS15 1.7 3.8 (55%)
Asset management, fund and servicing fees 5.8 8.0 (28%)
Gain on derecognition of financial assets 3.8 4.7 (19%)
Total Revenue 42.5 46.3 (8%)
Revenue decreased by 8% to £42.5 million (30 Sep 2021: £46.3 million)
primarily driven by short term lending products. Of the £6.4 million
reduction in revenue, £3.5 million was a consequence of our average balances
for loans and advances being £42 million lower at £214 million. This
reflected a decrease in short term lending during the previous
financial year, as borrowers were able to quickly sell properties on
completed projects due to the strength of the UK property market. £1.3
million of the reduction in revenue is related to nil performance fees for
some of the short-term loans in our Luxembourg-based Real Estate Opportunity
fund as levels of impairment provisioning increased. A 44% increase in
Platform AuM from BTL increased BTL revenue by 11%. This was partly offset by
lower fees from reduced loan sales to J.P.Morgan as some loans originated did
not meet minimum income levels.
Cost of sales decreased by 42% to £11.4 million (30 Sep 2021: £19.8 million)
primarily as a result of a £9.2 million gain from the exercise of the call
option in our first securitisation, Mortimer 2019-1 BTL plc.
Gross profit increased by 17% to £31.1 million (30 Sep 2021: £26.5 million)
and our gross profit margin increased by 16 percentage points to 73%. This
elevated gross profit margin is not expected to be maintained in future
periods.
Operating Expenses
Unaudited 6 months ended 6 months ended Change
30 September 2022
30 September 2021 (Restated)
£'m
£'m
Wages and salaries 8.9 7.1 25%
Depreciation and amortisation 1.4 1.7 (18%)
Fees payable to the auditors 0.6 0.6 -
Share-based payments 0.7 0.4 75%
Lease finance expense 0.2 0.3 (33%)
Other operating expenses 5.3 5.2 2%
Total administrative expenses 17.1 15.3 12%
Administrative expenses increased by 12% to £17.1 million (30 Sep 2021:
£15.3 million). This was driven by our investment in key hires, and total
headcount increased by 80 to 277. A significant number of these hires have
been into the technology team to facilitate the development of our specialist
homeowner product. Share based payments increased by 75% to £0.7 million (30
Sep 2021: £0.4 million) due to new share schemes for staff introduced
following the admission to AIM. We expect to grow headcount more slowly in the
second half of the year, reflecting the slowdown in the wider economy.
In the prior period, we incurred total IPO listing costs of £3.9 million,
£1.6 million of which is expensed in the statement of profit and loss as
administrative expenses but considered to be a non-recurring item.
Impairment
Impairment provisions increased by 12% to £1.9 million (30 Sep 2021: £1.7
million) reflecting the weaker macroeconomic outlook. We have applied a £0.6
million model overlay to its expected credit loss model to adjust for the
sharp increase in interest rates over the 6 month period, which were further
exacerbated prior to 30 September following the UK's mini-budget. The overlay
accounts for any BTL Loans where the rental income is not expected to cover
the interest payments at any point in the next five years.
Finance Income / Finance Expense
Finance income increased by £1.6 million to £2.7 million (30 Sep 2021: £1.1
million). The gain in the current year is largely due to interest rates hedges
we have in place on our pipeline of BTL assets. These are in place to mitigate
the risk from rising swap rates while the loans are in the pipeline before
completing. The mark-to-market gain on these hedges occurred as the interest
rate swap curve increased sharply prior to 30 September 2022. These gains
could reverse in the second half of the year if swap rates reduce.
Finance expense in the prior year of £0.4 million was related to fair value
of the undrawn portion of a loan commitment. This loan commitment was removed
from the Group prior to 1 April 2022. There is no finance expense in the
current period.
Adjusted EBITDA
Adjusted EBITDA has increased 7% to £14.3 million (30 Sep 2021: £13.4
million) due to the 17% increase in gross profit. The increase in Adjusted
EBITDA is lower than the 45% increase in gross profit due to the £2.7 million
in finance income in the current period.
Cash, Cash Flow, and Free Cash Flow
As at 30 September 2022, we held cash and cash equivalents of £113.3 million,
a 4% reduction during the 6 month period. Of this total, £82.1 million of
this balance is held for loan funding purposes. The remaining cash balance of
£31.3 million has reduced by £38.5 million since the prior year partially
due to £11 million used for the 5% equity funding in loans on the Group's
balance sheet, and £7 million used to originate loans, just prior to 30
September 2022, before sale to other group entities. The remaining £20
million movement is due to a part repayment of a financial partnership given
the high level of cash held by the Group.
Unaudited 6 months ended 6 months ended
30 September 2022
30 September 2021 (Restated)
£'m
£'m
Net cash outflow from operations 10.1 (10.7)
Net cash outflow from investing activities (21.0) (2.6)
Net cash inflow from financing activities 6.0 121.0
Net (decrease) / increase in cash and cash equivalents (4.9) 107.7
Cash and cash equivalents at beginning of the period 118.2 62.2
Cash and cash equivalents at end of the period 113.3 169.9
The table below shows the free cash flow of the business, defined as the net
cash outflow from operating activities, less purchases of property, plant and
equipment and capitalisation of internally developed software. Additionally,
an adjustment has been made to reverse movements in loans and advances. This
reflects the operating model of the business to finance increases in loan and
advances through increases in interest bearing liabilities, which are excluded
from this calculation. The free cash flow in the six months to 30 September
2022 is £9.2 million, with a free cash flow margin over Adjusted EBITDA of
80%. An interim dividend payment of 1.3 pence per share, approximately £1.8
million would be sufficiently covered by the free cash flow.
6 months ended 6 months ended
30 September 2022
30 September 2021
Unaudited
£'m
£'m
Net cash outflow from operations 10.1 (11.2)
PPE additions (0.2) (0.1)
Capitalisation of internally developed software (2.8) (1.7)
Lease payments (0.5) (0.4)
Reverse movements in loans and advances 4.8 47.6
Free cash flow 11.4 34.2
Adjusted EBITDA 14.3 13.4
Free cash flow margin over Adjusted EBITDA 80% 255%
Earnings per share and interim dividend
Earnings per share increased 64% to 10.8 pence per share (30 Sep 2021: 6.6
pence per share) and fully diluted earnings per share increased by 63% to 10.4
pence per share (30 Sep 2021: 6.4 pence per share). The Board is pleased to
announce an interim dividend of 1.3 pence per share.
Dates for the interim dividend
Ex-dividend date 5 January 2023
Record date 6 January 2023
Payment date 23 January 2023
Net Assets
6 months ended Year ended Change
30 September 2022
31 March 2022
£'m
£'m
Unaudited Audited
Loans and advances 1,123.2 1,209.1 (7%)
Net assets 60.2 97.5 (38%)
Our net assets decreased by 38% to £60.2 million (31 Mar 2022: £97.5
million). This reduction has largely been caused by an £81.5 million fall in
the fair value of the BTL loans since the year end. The portfolio is fair
valued using the expected cash flow of the loans, discounted using the
relevant securitisation rates. Securitisation rates have significantly
worsened in the six months to 30 September 2022. This has significantly
reduced the value of the portfolio, with UK BTL AAA bond rates increasing from
100 bps to 200bps over the 6 month period, and corresponding increases across
other bonds, with the AAA rate increasing from 150 bps on 23 September
immediately following the UK's mini budget. Since 30 September 2022, the UK
BTL AAA bond has reduced to 165bps, with reduction across other bonds too. If
these more recent rates were used, the BTL fair value, and net assets balance
would increase by £7 million. As market conditions improve and the
securitisation market continues to normalise, we would expect to see
additional improvements in the fair value of the portfolio. We do not intend
to securitise a portfolio of BTL assets until market conditions materially
improve.
Lending Product Highlights
6 months ended 30 September 2022 6 months ended 30 September 2021 (restated)
Short Term Lending BTL Total Short Term Lending BTL Total
Unaudited £'m £'m £'m £'m £'m £'m
Statement of Profit and Loss:
Interest on loans and advances 10.5 20.7 31.2 14.0 15.8 29.8
Fees and other income 4.7 2.8 7.5 7.1 4.7 11.8
Gain on derecognition of financial assets 0.5 3.3 3.8 1.0 3.7 4.7
Cost of Sales (7.5) (3.9) (11.4) (9.1) (10.7) (19.8)
Gross Profit 8.2 22.9 31.1 13.0 13.5 26.5
Gross Profit Margin 52% 85% 73% 59% 56% 57%
As at 30 September 2022 As at 30 September 2021
(Platform AuM Unaudited) (Platform AuM Unaudited)
Short Term Lending BTL Total Short Term Lending BTL Total
£'m £'m £'m £'m £'m £'m
Platform AuM* 681.9 1,749.2 2,431.1 608.0 1,217.9 1,825.9
Statement of Financial Position - Loans & Advances 243.5 879.7 1,123.2 228.8 880.8 1,109.6
*Refer to the Glossary for an explanation of this term and reconciliation to
Loans & Advances
Short Term Lending
Short term Platform AuM increased by 12% to £681.9 million (30 Sep 2021:
£608.0 million), with loans and advances on the statement of financial
position increasing by 30%, £57.5 million, to £243.5 million. The increase
has been largely driven by the new broker portal that we released in December
2021. This makes it easier for brokers to apply for new loans with us, and
better track the loan through to completion. It has been well received by the
broker population, leading to an increase in lending. The larger increase in
loans and advances reflects the success of the broker portal, as it is
targeted towards bridging loans less than £3 million in size, which are
financed through our retail bonds, and HSBC and Barclays facility, which are
all held on our balance sheet.
Short term lending gross profit has decreased by 37%, to £8.2 million (30 Sep
2021: £13.0 million), £1.6 million of this reduction is caused by the
reduction in average balances on the statement of financial position over the
two periods. The average loan book in the 6 months to 30 September 2022 was
£214 million, a £42 million reduction compared to the average loan book in
the 6 months period to 30 September 2021 of £256 million. An additional £0.5
million of the reduction was caused by fewer loans being sold to third
parties, resulting in a lower gain on derecognition of financial assets. The
remaining reduction in gross profit is largely due to not achieving
performance fees from the Luxembourg domiciled Real Estate Opportunity Fund
due to higher levels of impairment provisioning. This has led to £1.3 million
less in asset management and fund fees compared to the prior comparable
period. These factors caused the gross profit margin to reduce to 52% (30 Sep
2021: 59%) since the prior period.
Buy-to-Let Lending
BTL lending delivered strong growth in H1 was a 44% increase in Platform AuM
to £1,749 million (30 Sep 2021 £1,218 million). The sharp increase in the
interest rate swap curve in H1 led to a corresponding increase in our lending
rate. The fixed term lending rate on 5-yr fixed rate BTL loans in September
2021 was, on average, 3.5%, whilst the average rate for the same loans at 30
September 2022, following the UK's mini budget was 7.5%. We expect that this
sharp increase in interest rates will lead to a reduction in our pipeline for
new lending which will reduce Platform AuM growth in the second half of the
year.
BTL lending interest revenue increased by 31% to £20.7 million (30 Sep 2021:
£15.8 million) and is in line with the growth in the average gross loans and
advances balance. The gross loans and advances balance was significantly
higher during the period than at 30 September 2022 as £270 million of loans
in Mortimer BTL 2022-1 plc securitisation were consolidated into our results
up until the residual economic interest in the securitisation vehicle was sold
in August 2022.
The gain on derecognition of financial assets decreased by 10% to £3.3
million (30 Sep 2021: £3.7 million) and was in relation to the gain we
recognised from the sale of the residual economic interest in our fourth
securitisation, Mortimer BTL 2022-1 plc. In the prior period, the gain of
£3.7 million was recognised from the sale of a £100 million BTL portfolio to
J.P. Morgan. Fees and other income reduced by 40% to £2.8 million (30 Sep
2021: £4.7 million). This was largely driven by fewer loans sold to J.P.
Morgan as they didn't hit minimum income levels.
The gross profit in BTL increased by 76% to £23.1 million (30 Sep 2021:
£13.5 million). This increase was largely due to a reduction in cost of
sales, driven by a £9.2 million gain on the call of the Mortimer BTL 2019-1
assets. BTL delivered a gross profit margin of 85% (30 Sep 2021: 56%),
although this elevated gross profit margin is not expected to be maintained in
future periods.
The BTL loans and advances balance was stable at £879.7 million (30 Sep 2022
£880.8 million). This is partially due to the £270 million sale of the
Mortimer 2022-1 BTL plc residual economic interest and derecognition of the
loans from our balance sheet. There has also been a £79.0 million reduction
in the fair value of the BTL assets at 30 September 2022 (30 Sep 2021: £39.4
million increase). The portfolio is fair valued using the expected cash flow
of the loans, discounted using the relevant securitisation rates.
Securitisation rates have worsened in the twelve months to 30 September 2022,
reducing the value of the portfolio, with UK BTL AAA bond rates increasing
from 68bps to 200bps with corresponding increases across other bonds. As
market conditions improve and the securitisation market begins to normalise,
we expect to see an improvement in the fair value of the portfolio, and the UK
BTL AAA bond rate has improved to 150bps by the end of November 2022. We do
not intend to securitise a portfolio of BTL assets until market conditions
improve.
Going Concern
The Group's business activities together with the factors likely to affect its
future development are set out in this operating review. The directors have
considered these factors alongside the Group's financial plan and any
associated risks, and it is on this basis that the directors have continued to
prepare the financial statements on a going concern basis.
The impact of the tragic events in Ukraine, increasing interest rates, the
impact on the cost of living in the United Kingdom from the high levels of
inflation, and other factors have been assessed and several financial
forecasts have been prepared across a range of potential scenarios. Alongside
this, a comprehensive review of all material financial covenants and all
funding sources, has been conducted to ensure ongoing compliance both under
expected circumstances and potential stressed scenarios. The directors have
reviewed these plans and consider the Group to have sufficient resources to
continue its activities for 12 months from the date these financial statements
were authorised for issue, including against the most severe but plausible
outcome and do not consider there to be any material uncertainty.
Events after the period end date
There were no events to report after the period end date.
Responsibility statement of the directors in respect of the interim
consolidated financial statements for the 6 month period ended 30 September
2022
We confirm that to the best of our knowledge:
● the condensed set of financial statements has been prepared in
accordance the UK-adopted International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority
Approved on behalf of the board:
Michael Evans
Director
30 November 2022
INDEPENDENT REVIEW REPORT TO LENDINVEST PLC
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the Interim
consolidated financial statements for the six months ended 30 September 2022
is not prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34 and the London Stock Exchange AIM Rules
for Companies.
We have been engaged by the company to review the condensed set of financial
statements in the Interim consolidated financial statements for the six months
ended 30 September 2022 which comprises of the directors' report, Condensed
consolidated interim statement of profit or loss, Condensed consolidated
interim statement of comprehensive income, Condensed consolidated interim
statement of financial position, Condensed consolidated interim statement of
changes in equity, condensed interim statements of cash flows and notes to the
condensed interim financial statements.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in the Interim consolidated
financial statements has been prepared in accordance with UK adopted
International Accounting Standard 34, "Interim Financial Reporting.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the Interim consolidated financial
statements in accordance with the London Stock Exchange AIM Rules for
Companies which require that the Interim consolidated financial statements be
presented and prepared in a form consistent with that which will be adopted in
the Company's annual accounts having regard to the accounting standards
applicable to such annual accounts.
In preparing the Interim consolidated financial statements, the directors are
responsible for assessing the company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the Interim consolidated financial statements, we are responsible
for expressing to the Company a conclusion on the condensed set of financial
statement in the Interim consolidated financial statements. Our conclusion,
including our Conclusions Relating to Going Concern, are based on procedures
that are less extensive than audit procedures, as described in the Basis for
Conclusion paragraph of this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the rules of the London
Stock Exchange AIM Rules for Companies for no other purpose. No person is
entitled to rely on this report unless such a person is a person entitled to
rely upon this report by virtue of and for the purpose of our terms of
engagement or has been expressly authorised to do so by our prior written
consent. Save as above, we do not accept responsibility for this report to
any other person or for any other purpose and we hereby expressly disclaim any
and all such liability.
BDO LLP
Chartered Accountants
London, UK
29 November 2022
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT AND LOSS
Note 6 month period ended 6 month period ended 30 September 2021
30 September 2022 (restated)
£'m £'m
(Unaudited) (Unaudited)
Interest revenue 4 31.2 29.8
Fees and other income 4 7.5 11.8
Gain on derecognition of financial asset 4 3.8 4.7
Cost of sales (11.4) (19.8)
Gross profit 31.1 26.5
Administrative expenses 8 (17.1) (15.3)
Impairment provisions 13 (1.9) (1.7)
Finance income 5 2.7 1.1
Finance expense 6 - (0.4)
Profit before tax 7 14.8 10.2
Tax charge 10 (2.4) (1.9)
Profit for the period 12.4 8.3
Earnings per share for profit attributable to the ordinary equity holders of
the Group:
Basic earnings per share (pence/share) 24 10.75 6.60
Diluted earnings per share (pence/share) 24 10.38 6.35
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME
Note 6 month period ended 30 September 2022 6 month period ended 30 September 2021
£'m (restated)
£'m
(Unaudited) (Unaudited)
Profit for the period 12.4 8.3
Other comprehensive income:
Items that will or may be reclassified to profit or loss:
Cash flow hedge adjustment 26.5 6.9
Fair value (loss)/gain on loans and advances measured at fair value through 21 (81.5) 7.0
other comprehensive income
Deferred tax charge on gross movements through OCI 21 13.7 (2.7)
Other comprehensive (loss)/income for the period (41.3) 11.2
Total comprehensive (loss)/income for the period (28.9) 19.5
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
Note As at 30 September 2022 As at 31 March 2022
£'m £'m
Assets (Unaudited) (Audited)
Cash and cash equivalents 12 113.3 118.2
Trade and other receivables 11 6.7 6.3
Loans and advances 13 1,123.2 1,209.1
Fair value adjustment for portfolio hedged risk (35.1) 1.7
Investment securities 14 13.5 -
Property, plant and equipment 15/16 2.5 2.8
Intangible assets 17 8.0 6.1
Derivative financial assets 21 97.1 32.5
Net investment in sublease 1.2 1.2
Deferred taxation 10 6.7 -
Total assets 1,337.1 1,377.9
Liabilities
Trade and other payables 18 (49.9) (48.6)
Corporation tax payable (0.1) (0.4)
Interest bearing liabilities 19 (1,223.1) (1,211.3)
Lease liabilities 16 (3.8) (4.1)
Fair value adjustment for portfolio hedged risk (9.4)
Deferred taxation 10 - (6.6)
Total liabilities (1,276.9) (1,280.4)
Net assets 60.2 97.5
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION (continued)
Equity
Own share reserve 25 (1.2) -
Share capital 23 0.1 0.1
Share premium 23 55.2 55.2
Employee share reserve 25 2.2 2.7
Fair value reserve 25 (57.4) 3.8
Cash flow hedge reserve 39.8 19.8
Retained earnings 25 21.5 15.9
Total equity 60.2 97.5
These condensed consolidated interim financial statements of LendInvest plc,
with registered number 08146929, were approved by the Board of Directors and
authorised for issue on 30 November 2022. Signed on behalf of the Board of
Directors by:
M Evans
Director
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
Own share reserve £'m Share capital Share premium Employee Share Reserve Fair value reserve Cash flow hedge reserve Retained earnings Total
£'m £'m £'m net of deferred tax net of deferred tax £'m £'m
£'m £'m
(Unaudited)
Balance as at 1 April 2021 - - 17.5 1.6 27.1 (2.4) 4.4 48.2
Profit after taxation - - - - - - 8.3 8.3
Recognition of employee - - - 0.4 - - - 0.4
share options schemes
Bonus issue of free shares funded by share premium - - - - - - - -
Issue of new shares on IPO - - 40.0 - - - - 40.0
Cost incurred in issuing new shares - (2.2) (2.2)
Issue of free shares to employees through a share incentive plan - - 0.6 - - - - 0.6
Fair value adjustments on - - - - 5.7 - - 5.7
loan & advances through OCI
Cash flow hedge adjustments through OCI - - - - - 5.6 - 5.6
Balance as at 30 September 2021 - - 55.9 2.0 32.8 3.2 12.7 106.6
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY (continued)
Own share reserve £'m Share capital Share premium Employee Share Reserve Fair value reserve Cash flow hedge reserve Retained earnings Total
£'m £'m £'m net of deferred tax net of deferred tax £'m £'m
£'m £'m
(Unaudited)
Balance as at 1 April 2022 - 0.1 55.2 2.7 3.8 19.8 15.9 97.5
Profit after taxation - - - - - - 12.4 12.4
Recognition of employee - - - 0.7 - - - 0.7
share options schemes
Transfer from share reserve to retained earnings - - - (1.2) - - 1.2 -
Dividends paid - - - - - - (6.2) (6.2)
Shares purchased by EBT (3.0) - - - - - - (3.0)
Shares issued from own share reserve 1.8 - - - - - (1.8) -
Fair value adjustments on - - - - (61.2) - - (61.2)
loan & advances through OCI
Cash flow hedge adjustments through OCI - - - - - 20.0 - 20.0
Balance as at 30 September 2022 (1.2) 0.1 55.2 2.2 (57.4) 39.8 21.5 60.2
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
Note 6 month period ended 30 September 2022 6 month period ended 30 September
£'m 2021
(restated)
£'m
(Unaudited) (Unaudited)
Cash flows from operating activities
Profit for the period 14.8 8.3
Adjusted for:
Depreciation of property, plant and equipment 15 0.2 -
Amortisation of intangible fixed assets 17 0.8 1.2
Share-based payment expenses to reserves 9 0.7 0.4
Finance income (0.2) -
Income tax expense - 1.9
Derivative unrealised gain and hedge accounting 5 (2.5) (1.1)
Derivative fair value gains reclassified to profit and loss (21.2) -
Derivative settlements 22 19.3 0.5
Impairment provision(1) 13 2.0 1.8
Fair value movements - committed undrawn facility - 0.2
Depreciation of right of use asset 16 0.3 0.5
Interest expense of right of use asset 16 0.2 0.2
Bonus share issue - non-executive directors - 0.1
Non - capitalised financing cost 6 - 0.2
Cost of share listing expensed in income statement 8 - 1.6
Gain on disposal of residual interest (3.8) -
Change in working capital
Increase in loans and advances (4.8) (47.6)
(Increase)/decrease in trade and other receivables (6.4) 2.3
Increase in trade and other payables 7.1 18.7
Proceeds from sale of residual notes 5.7 -
Income tax (paid)/refunded received (2.1) 0.1
Net cash outflow from operations 10.1 (10.7)
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS (continued)
Cash flow from investing activities
Purchase of property, plant and equipment 15 (0.2) -
Capitalisation of internally developed software 17 (2.8) (1.7)
Interest received 0.2 -
Swap initial exchange costs (18.2) -
Net cash outflow from investing activities (21.0) (1.7)
Cash flow from financing activities
Increase in interest bearing liabilities 38.7 85.4
Proceeds to fund securitisation repayments 437.3 -
Redemption of securitisation facilities (444.4) -
Swap initial exchange costs - (0.9)
Repayment of retail bonds (57.7) -
Proceeds from issuance of retail bonds 38.9 -
Principal elements of finance lease payments 16 (0.5) (0.4)
Interest expense of right of use asset 16 (0.2) (0.2)
Proceeds from an equity share issue - 40.0
Equity raising costs 8 - (3.6)
Dividends paid (6.1) -
Non - capitalised financing cost 6 - (0.2)
Net cash inflow from financing activities 6.0 120.1
Net (decrease)/increase in cash and cash equivalents (4.9) 107.7
Cash and cash equivalents at beginning of the period 118.2 62.2
Cash and cash equivalents at end of the period(2) 113.3 169.9
(1)The non-cash movement in the impairment provision differs from the charge
to the statement of profit and loss in respect to the impairment provision for
the 6 month period ended 30 September 2022. This is due to the charge to the
statement of profit and loss including a credit of £0.1m (2021: £0.1m) in
respect of cash amounts recovered in the period on loans that have previously
been written off.
(2)Cash and cash equivalents include restricted cash of £6.8m received from
Platform Investors.
Interest received was £28.5m during the six months ended 30 September 2022
(the six months ended September 2021: £28.3m) and interest paid was £18.1m
during the six months ended 30 September 2022 (the six months ended September
2021: £13.6m).
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
1.1 General information
LendInvest plc is a public company incorporated on 17 July 2012 in the United
Kingdom under the Companies Act. The company listed on AIM on 14 July 2021.
The address of its registered office is given on page 3.
These condensed interim consolidated financial statements of LendInvest plc,
for the six month period ended 30 September 2022, comprise the results of the
Company and its subsidiaries (together referred to as "the Group")
(collectively "these financial statements").
1.2 Basis of accounting
These condensed consolidated interim financial statements have been prepared
in accordance with IAS 34 "Interim Financial Reporting" and have been prepared
on historical cost basis, except as required in the valuation of certain
financial instruments which are carried at fair value. These condensed
consolidated interim financial statements have been prepared applying the
accounting policies and presentation that were applied in the preparation of
the Group's published financial statements for the year ended 31 March 2022.
These condensed consolidated interim financial statements are not statutory
accounts. The Group statutory accounts for the year ended 31 March 2022 have
been reported on by its auditor and delivered to the Registrar of Companies.
The report of the auditor on those statutory accounts was unqualified, did not
include a reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report, and did not contain a statement
under Section 498(2) or (3) of the Companies Act 2006.
All amounts are presented in pounds sterling, which is the functional currency
of the Company and all its subsidiaries. Amounts are rounded to the nearest
million, except where otherwise indicated.
1.2.1 Going Concern
The condensed interim financial statements are prepared on a going concern
basis. To assess the appropriateness of this basis the Directors have
considered a wide range of information relating to present and future
conditions, including the Group's current financial position and future
projections of profitability and cash flows. The Group continues to have a
proven business model, as demonstrated by its continued levels of
profitability, and remains well positioned in its core markets. The Directors
believe that the Group is well funded with sufficient levels of liquidity.
Based on the above, the Directors believe that the Group has sufficient
resources to continue its activities for a period of at least 12 months from
the date of approval of these condensed interim financial statements.
Accordingly, the Directors concluded that it is appropriate to adopt the going
concern basis in preparing the Interim Financial Statements.
1.3 Accounting policies
The accounting policies and methods of computation are consistent with those
set out in the Annual Report 2022, with the exception of the below
1.3.1 Intangible Fixed Assets
A change has been made to the accounting estimate for the useful economic life
of intangible fixed assets relating to the capitalisation of internally
developed software expenditure. These assets have previously been amortised
over a three-year period. This amortisation period has been increased to five
years following a review of the useful economic life of intangible fixed
assets completed previously created by the Group. This change has been applied
on a prospective basis in the profit and loss. The change in accounting
estimate has reduced the amortisation charge in the six-month period to 30
September 2022 from £1.5m to £0.8m. The impact on future periods is not
disclosed due to the difficulty in estimating the charge.
1.4 Changes in prior year figures
(i) The Group has restated its 30 September 2021
consolidated statement of profit and loss. This is in accordance with IFRS9
which requires all fees and transaction costs, which are integral to the
creation of a loan, to be included in the effective interest rate calculation.
The Group had previously incorrectly amortised any relevant transactions costs
through cost of sales and these have been reclassified to interest revenue in
the consolidated statement of profit and loss.
(ii) The Group has restated its 30 September 2021
consolidated statement of profit and loss. Previously revenue earned on the
investor self-select platform was incorrectly shown within the Interest
revenue line item in the consolidated statement of profit and loss. The nature
of this revenue is aligned with fee income as the assets on which income is
earned do not sit on the Group's consolidated statement of financial position.
The revenue has been reclassified from Interest revenue to Fees and other
Income in the consolidated statement of profit and loss. The restatement is a
reclassification within revenue and has no impact on the consolidated
statement of financial position, consolidated statement of other comprehensive
income, consolidated statement of changes in equity or consolidated statement
of cash flows.
(iii) The Group has restated its 30 September 2021
consolidated statement of profit and loss in accordance with IAS 1, which
requires gains from the derecognition of financial assets to be shown
separately in the statement of profit and loss. These amounts were previously
incorrectly shown within fee income and cost of sales. This change has no
effect on the Group's profits or net assets.
The change to the consolidated statement of profit and loss is a
reclassification between revenue and cost of sales and does not change the
overall profitability of the Group in the prior period.
Restated comparative condensed consolidated interim statement of profit and
loss
6 month period ended 30 September 2021 6 month period ended 30 September 2021
£'m £'m
(Reported) Adjustment (Restated)
£'m
Interest revenue 33.4 (3.6) 29.8
Fees and other income 17.4 (5.6) 11.8
Gain on derecognition of financial asset - 4.7 4.7
Cost of sales (24.3) 4.5 (19.8)
Gross profit 26.5 - 26.5
Administrative expenses (15.3) - (15.3)
Impairment provisions (1.7) - (1.7)
Finance income 1.1 - 1.1
Finance expense (0.4) - (0.4)
Profit before tax 10.2 - 10.2
Tax charge (1.9) - (1.9)
Profit for the period 8.3 - 8.3
2. Financial risk management
General objectives, policies and processes
The Board has the overall responsibility for the establishment and oversight
of the Group's risk management framework. The Group's risk management
activities and exposure to credit, liquidity and market risk are consistent
with those set out in the Annual Report 2022. The tables below analyse the
Group's contractual undiscounted cash flows of its financial assets and
liabilities:
Carrying amount Gross nominal inflow/ (outflow) Amount due in less than 6 months Amount due 6 - 12 months Amount due between one and five years Amount due in more than 5 years
£'m £'m £'m £'m £'m
£'m
As at 30 September 2022
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Financial assets
Cash and cash equivalents 113.3 113.3 113.3 - - -
Trade and other receivables 4.1 4.1 2.9 - 1.2 -
Derivative financial asset 97.1 97.1 10.5 14.7 47.5 24.4
Loans and advances 1,123.2 1,971.6 125.6 160.1 214.6 1,471.3
Investment securities 13.5 14.7 0.3 0.2 14.2 -
1,351.2 2,200.8 252.6 175.0 277.5 1,495.7
Financial liabilities
Trade and other payables (49.1) (49.1) (49.1) - - -
Interest bearing liabilities(1) (1,223.1) (1,286.7) (17.3) (494.8) (774.6) -
Lease liability (3.8) (3.8) (0.5) (0.5) (2.8) -
(1,276.0) (1,339.6) (66.9) (495.3) (777.4) -
1. The maturity profile of the loan note liability is based on the asset
recall option exercise date, as the asset recall triggers the repayment of the
outstanding loan notes. The maturity profile of the loan notes does not match
the maturity profile of the loans and advances which is based on the expected
redemptions of the underlying mortgages which will be transferred on to
another entity when the asset recall option is exercised.
Carrying amount Gross nominal inflow/ (outflow) Amount due in less than 6 months Amount due 6 - 12 months Amount due between one and five years Amount due in more than 5 years
£'m £'m £'m £'m £'m
£'m
As at 31 March 2022
(Audited) (Audited) (Audited) (Audited) (Audited) (Audited)
Financial assets
Cash and cash equivalents 118.2 118.2 118.2 - - -
Trade and other receivables 3.6 3.6 2.4 - 1.2 -
Loans and advances 1,209.1 1,892.0 96.0 99.4 188.3 1,508.3
Derivative financial asset 32.5 32.5 1.6 4.5 26.4 -
1,363.4 2,046.3 218.2 103.9 215.9 1,508.3
Financial liabilities
Trade and other payables (48.1) (48.1) (48.1) - - -
Interest bearing liabilities (1,211.3) (1,257.2) (258.6) (12.8) (985.8) -
Lease liability (4.1) (4.1) (0.5) (0.5) (3.1) -
(1,263.5) (1,309.4) (307.2) (13.3) (988.9) -
3. Segmental analysis
The Group's lending operations are carried out solely in the UK with two main
lending products: short-term lending and BTL mortgages. The results and net
assets of the Group are derived from the provision of property related loans
only.
The following summary describes the operations of the two reportable segments:
Short term lending
Provides finance for borrowers who need to quickly secure property, generate
cash flow or fund works through the Group's bridging products, and provides
property developers with funding to start or exit a project through
development products. The term of these loans is up to 24 months.
Buy-to-let lending
Provides finance for professional portfolio landlords looking to purchase or
remortgage buy-to-let ("BTL") investment properties in England, Wales and
Scotland. The mortgages are available to both individual and corporate
borrowers, and funds are lent against standard properties as well as houses in
multiple occupation and multi-unit freehold blocks. The term of these loans is
up to 30 years.
Please see below for a segmental analysis of the profit and loss and statement
of financial position balances:
6 month period to Short Term Lending BTL Total
30 September 2022 £'m £'m £'m
Statement of Profit and Loss Information (Unaudited)
Interest revenue 10.5 20.7 31.2
Fee and other income 4.7 2.8 7.5
Gain on derecognition of financial asset 0.5 3.3 3.8
Segment Revenue 15.7 26.8 42.5
Interest expense (6.4) (2.1) (8.5)
Cost of sales (other) (1.1) (1.8) (2.9)
Impairment Provision (1.4) (0.5) (1.9)
Finance income - 2.7 2.7
Finance expense - - -
Segment Profit 6.8 25.1 31.9
Operating expenses - - (17.1)
Profit before tax - - 14.8
6 month period to Short Term Lending BTL Total
30 September 2021 £'m £'m £'m
Statement of Profit and Loss Information (Unaudited)
Interest revenue 14.0 15.8 29.8
Fee and other income 7.1 4.7 11.8
Gain on derecognition of financial asset 1.0 3.7 4.7
Segment Revenue 22.1 24.2 46.3
Interest expense (7.5) (7.9) (15.4)
Cost of sales (other) (1.6) (2.8) (4.4)
Impairment (Release)/Provision (2.0) 0.3 (1.7)
Finance income - 1.1 1.1
Finance expense (0.4) - (0.4)
Segment Profit 10.6 14.9 25.5
Operating expenses - - (15.3)
Profit before tax - - 10.2
All other cost lines in the condensed statement of profit and loss are
centrally incurred and are not allocated to either operating segment. These
centrally incurred costs are not included in the measure of segment profit and
loss reviewed management.
As at 30 September 2022 Short Term Lending BTL Total
£'m £'m £'m
Statement of Financial Position Information (Unaudited)
Loans and advances 243.5 879.7 1,123.2
Fair value adjustment for portfolio hedged risk (35.1) (35.1)
Investment securities 13.5 13.5
Derivative financial asset 97.1 97.1
Total segment assets 243.5 955.2 1,198.7
Cash and cash equivalents 113.3
Trade and other receivables 6.7
Property, plant and equipment 2.5
Net investment in sublease 1.2
Intangible fixed assets 8.0
Deferred taxation 6.7
Total Assets 1,337.1
Liabilities
Interest bearing liabilities (260.7) (962.4) (1,223.1)
Total segment liabilities (260.7) (962.4) (1,223.1)
Trade and other payables (49.9)
Corporation tax payable (0.1)
Lease liabilities (3.8)
Deferred taxation -
Total liabilities (1,276.9)
As at 31 March 2022 Short Term Lending BTL Total
£'m £'m £'m
Statement of Financial Position Information (Audited)
Loans and advances 186.5 1,022.6 1,209.1
Derivative financial asset 32.5 32.5
Fair value adjustment for portfolio hedged risk asset 1.7 1.7
Total segment assets 186.5 1,056.8 1,243.3
Cash and cash equivalents 118.2
Trade and other receivables 6.3
Property, plant and equipment 2.8
Net investment in sublease 1.2
Intangible fixed assets 6.1
Deferred taxation -
Total Assets 1,377.9
Liabilities
Interest bearing liabilities (193.3) (1,018.0) (1,211.3)
Fair value adjustment for portfolio hedged risk liability* (9.4) (9.4)
Total segment liabilities (193.3) (1,027.4) (1,220.7)
Trade and other payables (48.7)
Corporation tax payable (0.4)
Lease liabilities (4.1)
Deferred taxation (6.6)
Total liabilities (1,280.5)
* Fair value hedge adjustments have been included within the segment profit
within the current and comparative period as these costs can be wholly
attributed to the relevant segment and are used by the chief operating
decision maker to assess the profitability of the BTL segment. Allocation to
the BTL operating segment was not possible prior to this period,
All other lines in the condensed statement of financial position are centrally
allocated and are not allocated to either operating segment.
4. Revenue
6 month period to 6 month period to
30 September 2022 30 September 2021
£'m (restated)
£'m
(Unaudited) (Unaudited)
Interest on loans and advances(1) 31.2 29.8
Origination and other loan fees recognised under IFRS15 1.7 3.8
Asset management, fund and servicing fees 5.8 8.0
Gain on derecognition of financial asset 3.8 4.7
42.5 46.3
(1)Includes origination fees recognised under the effective interest method
5. Finance Income
6 month period to 6 month period to
30 September 2022 30 September 2021
£'m £'m
(Unaudited) (Unaudited)
Realised derivative fair value gains - 0.3
Unrealised derivative fair value gains and hedge accounting 2.5 0.8
Bank interest income 0.2 -
2.7 1.1
6. Finance Expense
6 month period to 6 month period to
30 September 2022 30 September 2021
£'m £'m
(Unaudited) (Unaudited)
FV movement on undrawn committed facility * - (0.2)
Funding line exit fee - (0.2)
- (0.4)
*Fair value movement through profit and loss is associated with one loan
formerly within the lending portfolio being subject to a committed facility.
The undrawn committed facility has been transferred and the Group no longer
holds the obligation, resulting in the reversal of fair value gains recognised
at 31 March 2022.
7. Profit before taxation
Profit before taxation has been stated after charging:
6 month period to 6 month period to
30 September 2022 30 September 2021
£'m £'m
(Unaudited) (Unaudited)
Wages and salaries 8.9 7.1
Depreciation and amortisation 1.4 1.7
Audit related assurance services 0.6 0.6
Fees payable to the auditors for other assurance services 0.1 0.2
Share-based payments 0.7 0.4
Lease finance expense 0.2 0.3
8. Non-recurring costs
Administrative expense reported for the comparative period (£15.3m) include
the cost of non-recurring costs. Non-recurring costs for the prior period
relate to significant one-off costs associated with Group's admission onto AIM
in June 2021. Of the £3.8m cost incurred in the listing process £2.2m was
deemed as meeting IAS 32 definition of equity transaction costs and therefore
deducted from equity, and £1.6m was determined as not directly attributable
to an equity transaction and therefore expensed through the statement of
profit and loss.
9. Share-based payments
Company Share Option Plans
During the period ended 30 September 2022, the Group issued a Long Term
Incentive Plan (LTIP) to certain employees and issued a free share award under
a share incentive plan (SIP). During the 6 months to 30 September 2021, the
Group also issued an LTIP and a free share award under a SIP plan.
The grant of shares or options under these schemes may be made on an annual or
on an ad hoc basis.
Share Option expense recognised
During the six months ended 30 September 2022, the Group recognised a £0.7
million expense as a result of issued share options vesting.
6 month period ended 30 September 2022 6 month period ended 30 September 2021
£'m £'m
(Unaudited) (Unaudited)
The expense is included in administrative expenses, as part of employee 0.7 0.4
expenses
10. Taxation on profit on ordinary activities
The Group is subject to all taxes applicable to a commercial company in the
United Kingdom. The UK business profits of the Group are subject to UK income
tax at the prevailing basic rate of 19% (2021:19%). In March 2021, it was
announced in Budget 2021 that the main rate of UK corporation tax will rise to
25% from 1 April 2023. This rise was substantively enacted in May 2021.
As of 30 September 2022, the Group had £6.7m in net deferred tax assets
(DTAs) (31 March 2022: net deferred tax liability of £6.6m). These DTAs/DTLs
include:
● Assets of £0.7m (31 March 2022: Assets of £1.1m) related to
temporary differences arising between the tax base of share based payments and
the carrying amount;
● Liabilities of £0.1m (31 March 2022: Liabilities of £0.1m)
related to temporary differences arising between the tax base of property,
plant and equipment and the carrying amount;
● Assets of £5.9m (31 March 2022: Liabilities of £7.9m) related
to the fair value reserve on loans and advances and cash flow hedge reserve;
● Assets of £0.1m (31 March 2022: Assets of £0.1m) related to
the ECL provision on transition to IFRS 9;
● Assets of £0.1m (31 March 2022: Assets of £0.1m) related to
transition to IFRS 16;
11. Trade and other receivables
As at 30 September 2022 As at 31 March 2022
£'m £'m
(Unaudited) (Audited)
Due within one year
Trade receivables 1.0 1.3
Other receivables:
Prepayments and accrued income 2.5 2.7
Other receivables 2.0 1.1
Due after one year
Rent deposit 1.2 1.2
6.7 6.3
12. Cash and cash equivalents
As at 30 September 2022 As at 31 March 2022
£'m £'m
(Unaudited) (Audited)
Cash and cash equivalents 106.5 99.3
Trustee's account 6.8 18.9
113.3 118.2
Trustees' accounts relate to monies held on account for the benefit of our
investors in the Self-select Platform, prior to them either investing in loans
or withdrawing their capital. Operationally, the Company does not treat the
Trustees' balances as available funds. An equal and opposite payable amount is
included within the trade payables balance (see note 18).
13. Loans and advances
As at 30 September As at 31 March
2022 2022
£'m £'m
(Unaudited) (Audited)
Gross loans and advances 1,213.2 1,214.9
ECL provision (13.7) (11.0)
Fair value adjustment (*) (76.3) 5.2
Loans and advances 1,123.2 1,209.1
(*) Fair value adjustment to gross loans and advances due to classification
as FVTOCI. Fair value adjustments are a function of changes in discount rates
on the Group's loan assets. The changes in the underlying variables during the
period and effect on fair value is discussed in Note 20.
ECL provision
Movement in the period £'m
Under IFRS 9 at 1 April 2022 (Audited) (11.0)
Additional provisions made during the period(1) (2.8)
Utilised in the period(2) 0.1
Under IFRS 9 at 30 September 2022 (Unaudited) (13.7)
Movement in the period £'m
Under IFRS 9 at 1 April 2021 (Audited) (8.5)
Additional provisions made during the period(1) (2.2)
Utilised in the period(2) 1.5
Under IFRS 9 at 30 September 2021 (Unaudited) (9.2)
(1) The ECL provision of £13.7m (2021: £9.2m) is stated including the
expected credit losses incurred on the interest income recognised on stage 3
loans and advances. The net ECL impact on the income statement for the period
to 30 September 2022 is £2.7m (2021: £2.2m). This includes the £1.9m (2021:
£1.7m) of impairment provisions shown in the income statement which is shown
net of £0.1m (2021: £nil) in respect of amounts recovered in the period on
loans that have previously been written off. This and the total impact of
expected credit losses on income recognised on stage 3 loans and advances
using the effective interest rate is £0.7m (2021: £0.5m). The charge in the
period also includes a £0.6m overlay on BTL loans to account for any loans
where the rental income is not expected to cover the interest payments at any
point over the next five years.
(2)Loans that are written off can still be subject to enforcement activities
in order to comply with the Group's procedures for recovery of amounts due.
The contractual amount outstanding on loans and advances that have previously
been written off and are still subject to enforcement activity is £9.0m
(2021: £8.5m).
Analysis of loans and advances by stage
As at 30 September 2022 Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Gross loans and advances 1,034.6 140.9 37.7 1,213.2
ECL provision (0.4) (1.2) (12.1) (13.7)
Fair value adjustment (71.6) (5.2) 0.5 (76.3)
Loans and advances 962.6 134.5 26.1 1,123.2
The maximum LTV on stage 1 loans is 84%. The maximum LTV on stage 2 loans is
88%. The maximum LTV on Stage 3 loans is 189% and the total value of
collateral (capped at the gross loan value) held on stage 3 loans is £31.9m.
As at 31 March 2022 Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
(Audited) (Audited) (Audited) (Audited)
Gross loans and advances 1,025.7 153.4 35.8 1,214.9
ECL provision (0.2) (0.9) (9.9) (11.0)
Fair value adjustment 3.6 1.0 0.6 5.2
Loans and advances 1,029.1 153.5 26.5 1,209.1
The maximum LTV on stage 1 loans is 82%. The maximum LTV on stage 2 loans is
101%. The maximum LTV on Stage 3 loans is 132% and the total value of
collateral (capped at the gross loan value) held on stage 3 loans is £30.7m.
Impairment provisions are calculated on an expected credit loss (ECL) basis.
Financial assets are classified individually into one of the categories below:
● Stage 1 - assets are allocated to this stage on initial
recognition and remain in this stage if there is no significant increase in
credit risk since initial recognition. Impairment provisions are recognised to
cover 12 month ECL, being the proportion of lifetime ECL arising from default
events expected within 12 months of the reporting date;
● Stage 2 - assets where it is determined that there has been a
significant increase in credit risk since initial recognition, but where there
is no objective evidence of impairment. Impairment provisions are recognised
to cover lifetime;
● Stage 3 - assets where there is objective evidence of
impairment, i.e. they are considered to be in default. Impairment provisions
are recognised against lifetime ECL. For assets allocated to Stage 3, interest
income is recognised on the balance net of impairment provision;
● Purchased or originated credit impaired ("POCI") - POCI assets
are financial assets that are credit impaired on initial recognition. On
initial recognition they are recorded at fair value. ECLs are only recognised
or released to the extent that there is a subsequent change in the ECLs. Their
ECL is always measured on a lifetime basis.
If a loss is ultimately realised, it is written off against the provision
previously provided for with any excess charged to the impairment provision in
the statement of profit and loss.
The impairment loss provision under IFRS 9 is calculated using macroeconomic
variables, in particular UK house price inflation and unemployment, and the
probability weightings of the macroeconomic scenarios used. The Group has used
three macroeconomic scenarios, which are considered to represent a range of
possible outcomes over a normal economic cycle, in determining impairment loss
provisions:
● a central scenario aligned to the Group's business plan;
● a downside scenario as modelled in the Group's risk management
process; and
● an upside scenario representing the impact of modest
improvements to assumptions used in the central scenario.
The central scenario represents management's current view of the most likely
economic outturn. However, significant uncertainty around the level and
trajectory of UK inflation and the subsequent impacts on the wider economy led
management to increase the downside weighting for the year end 31 March 2022
and management consider these weightings to remain appropriate as at 30
September 2022. The following weightings of the different scenarios were used
across both Buy-to-Let and short term ECL models for the period ended 30
September 2022:
● 45%/50%/5% to the central, downside and upside scenarios.
Changes to macroeconomic assumptions, as expectations change over time, are
expected to lead to volatility in impairment loss provisions and may lead to
pro-cyclicality in the recognition of impairment provisions.
The Group has applied a £0.6m model overlay to its expected credit loss model
to adjust for the sharp increase in interest rates over the 6 month period,
which were further exacerbated prior to 30 September following the UK's mini
budget. The overlay accounts for an increase in the probability of default due
to rising interest rates and has increased the average probability of default
on the portfolio from 0.64% to 1.11%. The macroeconomic data inputs have also
been updated as at 30 September 2022.
Credit risk on gross loans and advances
The table below provides information on the Group's loans and advances by
stage and risk grade.
Risk grades detailed in the table range from 1 to 10 with a risk grade of 1
being assigned to cases with the lowest credit risk and 10 representing cases
in default. Equifax Risk Navigator (RN) scores are used to assign the initial
Risk Grade score with additional SICR rules used to generate the final Risk
Grade.
As at 30 September 2022 Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Risk Grades 1 - 5 1,033.8 130.1 - 1,163.9
Risk Grades 6 - 9 0.8 10.8 - 11.6
Default - - 37.7 37.7
Total 1,034.6 140.9 37.7 1,213.2
As at 31 March 2022 Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
(Audited) (Audited) (Audited) (Audited)
Risk Grades 1 - 5 1,024.2 147.5 - 1,171.7
Risk Grades 6 - 9 1.5 5.9 3.3 10.7
Default - - 32.5 32.5
Total 1,025.7 153.4 35.8 1,214.9
14. Investment securities
As at 30 September 2022 As at 31 March 2022
£'m £'m
(Unaudited) (Audited)
Investment securities 13.5 -
Total 13.5 -
The Group securitised a portfolio of mortgage loans on 12 May 2022. On 14
August 2022, the Group sold its holdings of residual notes in the
securitisation vehicle, Mortimer BTL 2022-1 plc. The sale of the residual
notes represented the excess spreads in the securitisation vehicle as well as
an option to repurchase the assets from the vehicle on the 23 June 2025. The
sale of the residual notes and call options resulted in a derecognition event
as substantially all of the risks, rewards, and control of the vehicle passed
to the purchaser. As the variable returns, and control of the vehicle had been
transferred, the Mortimer BTL 2022-1 plc entity has also been deconsolidated
from the Group's results. The investment securities of £13.5m represent the
retained risk retention in the form of debt securities issued by
unconsolidated structured entities as part of the securitisation transactions
that are retained by the group.
15. Property, plant and equipment
Acquisitions and disposals: During the six months ended 30 September 2022, the
Group purchased additional assets of £0.2m (the six months ended 30 September
2021: £0.1m). Depreciation: During the six months ended 30 September 2022,
the Group depreciated £0.2m against property, plant and equipment (the six
months ended 30 September 2021: £0.1m).
16. Lease arrangements
The Group is the lessee to a property lease arrangement.
Depreciation: In the six months ended 30 September 2022 the Group depreciated
£0.3m against the right of use asset (the six months ended 30 September 2021:
£0.5m).
Amortisation: During the six months ended 30 September 2022 the Group expensed
lease finance charges of £0.2m (the six months ended 30 September 2021:
£0.3m).
17. Intangible fixed assets
During this period, the Group also capitalised intangible assets with a cost
of £2.8m (the six months ended 30 September 2021: £1.7m). Amortisation:
During the six months ended 30 September 2022, the Group amortised £0.8m
against intangible fixed assets (the six months ended 30 September 2021:
£1.2m).
18. Trade and other payables
As at 30 September 2022 As at 31 March 2022
£'m £'m
(Unaudited) (Audited)
Trade payables (38.4) (26.4)
Other payables:
Taxation and social security costs (0.8) (0.7)
Accruals and deferred income (10.5) (21.3)
Sub - lease deposit rent payable (0.2) (0.2)
(49.9) (48.6)
The trade payables balance includes Trustees' balances of £6.8m in respect of
uninvested cash held on the self-select platform, which may be withdrawn by
investors at any time. The Company has no non-current trade and other
payables. The carrying value of trade and other payables approximates fair
value.
19. Interest bearing liabilities
As at 30 September 2022 As at 31 March 2022
£'m £'m
(Unaudited) (Audited)
Funds from investors and partners 1,227.7 1,215.6
Funding line costs (4.6) (4.3)
1,223.1 1,211.3
The Group's interest on funding has ranged between 2% to 8% in the 6 month
period ended 30 September 2022.
Funding line costs are amortised on an effective interest rate basis. Interest
bearing liabilities are secured by charges over the assets and operations of
the Group.
20. Reconciliation of liabilities arising from financing activities
Interest bearing liabilities Leases Derivatives
£'m £'m £'m
31 March 2021 (Audited) (1,040.2) (5.0) (6.8)
Cash flows (171.1) 1.4 2.9
Fair value changes - - 36.4
Lease finance expense - (0.5) -
Other - - -
31 March 2022 (Audited) (1,211.3) (4.1) 32.5
Cash flows (11.8) 0.5 (1.1)
Fair value changes - 65.7
Leases finance expense - (0.2) -
Other - - -
30 September 2022 (Unaudited) (1,223.1) (3.8) 97.1
21. Financial instruments
Principal financial instruments
The principal financial instruments used by the Group, from which financial
instrument risk arises, are: loans and advances, trade and other receivables,
cash and cash equivalents, loans and borrowings, derivatives, and trade and
other payables.
Categorisation of financial assets and financial liabilities
With the exception of loan commitments classified as fair value through profit
or loss, all financial assets of the Group are carried at amortised cost or
fair value through other comprehensive income as at 30 September 2022 and 31
March 2022 depending on the business model under which the Group manages the
financial assets. All financial liabilities of the Group are carried at
amortised cost as at 30 September 2022 and 31 March 2022 due to the nature of
the liability, with the exception of derivatives that are measured at fair
value.
Financial instruments measured at amortised cost, rather than fair value,
include cash and cash equivalents, trade and other receivables, trade and
other payables, rent deposit and interest-bearing liabilities. Due to their
short-term nature, the carrying value of cash and cash equivalents, trade and
other receivables, and trade and other payables approximates their fair value.
(a) Carrying amount of financial instruments
A summary of the financial instruments held by category is provided below:
As at 30 September 2022 As at 31 March 2022
£'m £'m
(Unaudited) (Audited)
Financial assets at amortised cost
Cash and cash equivalents 113.3 118.2
Trade and other receivables 4.2 3.6
Loans and advances(1) 191.3 16.1
Investment securities 13.5 -
Financial assets at fair value through other comprehensive income
Loans and advances 931.9 1,193.0
Derivative financial asset 52.0
Financial assets at fair value through profit and loss
Loans and advances - -
Derivative financial asset 45.1 32.5
Fair value adjustment for portfolio hedged risk (35.1) 1.7
Total financial assets 1,316.2 1,365.1
Financial liabilities at amortised cost
Trade and other payables (49.1) (48.1)
Interest bearing liabilities (1,223.1) (1,211.3)
Lease liability (3.8) (4.1)
Financial liabilities at fair value through other comprehensive income
Fair value adjustment for portfolio hedged risk liability - (9.4)
Total financial liabilities (1,276.0) (1,272.9)
(1) The group held a number of loans originated under the governments CBILs
scheme. These loans are valued at amortised cost within the accounts. The
balance in the current year also includes a £187 million portfolio of BTL
loans which were repurchased from the Mortimer 2019-1 BTL plc securitisation
vehicle. This portfolio of BTL loans has changed to managed under a hold to
collect business model and therefore measured at amortised cost.
(b) Carrying amount versus fair value
The following table compares the carrying amounts and fair values of the
Group's financial assets and financial liabilities as at 30 September 2021.
As at 30 September 2022 As at 30 September 2022 As at 31 March 2022 As at 31 March 2022
£'m £'m £'m £'m
Carrying Amount Fair Value Carrying Amount Fair Value
(Unaudited) (Unaudited) (Audited) (Audited)
Financial assets
Cash and cash equivalents 113.3 113.3 118.2 118.2
Trade and other receivables 4.2 4.2 3.6 3.6
Loans and advances 1,123.2 1,123.2 1,209.1 1,209.1
Investment securities 13.5 13.5 - -
Derivative financial asset 97.1 97.1 32.5 32.5
Fair value adjustment for portfolio hedged risk - asset 1.3 1.3 1.7 1.7
Fair value adjustment for portfolio hedged risk - liability (36.4) (36.4) - -
Total financial assets 1,316.2 1,316.2 1,365.1 1,365.1
As at 30 September 2022 As at 30 September 2022 As at 31 March 2022 As at 31 March 2022
£'000 £'000 £'000 £'000
Carrying Amount Fair Value Carrying Amount Fair Value
(Unaudited) (Unaudited) (Audited) (Audited)
Financial liabilities
Trade and other payables (49.1) (49.1) (48.1) (48.1)
Interest bearing liabilities (1,223.1) (1,221.5) (1,211.3) (1,212.2)
Derivative financial liability - - - -
Fair value adjustment for portfolio hedged risk - liability - - (9.4) (9.4)
Lease liability (3.8) (3.8) (4.3) (4.3)
Total financial liabilities (1,276.0) (1,274.4) (1,273.1) (1,274.0)
The fair value of the Retail Bond 2 interest bearing liability is calculated
based on the mid-market price of £98.55 (2021: £102.88) on 30 September
2022.
The fair value of the Retail Bond 3 interest bearing liability is calculated
based on the mid-market price of £98.00 on 30 September 2022.
Loans and advances are classified as fair value through other comprehensive
income and any changes to fair value are calculated based on a fair value
model using level 3 inputs and recognised through the Statement of Other
Comprehensive Income. Interest bearing liabilities are classified at amortised
cost and the fair value measured using level 1 inputs in the table above is
for disclosure purposes only.
(c) Fair value hierarchy
The level in the fair value hierarchy within which the financial asset or
financial liability is categorised is determined on the basis of the lowest
level input that is significant to the fair value measurement. Financial
assets and liabilities are classified in their entirety into only one of the
three levels. The fair value hierarchy has the following levels:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 - inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. prices) or
indirectly (i.e. derived from prices);
Level 3 - inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The objective of valuation techniques is to arrive at a fair value measurement
that reflects the price that would be received to sell the asset or paid to
transfer the liability in an orderly transaction between market participants
at the measurement date.
As at 30 September 2022 Level 1 Level 2 Level 3
Financial instruments £'m £'m £'m
£'m
Interest rate swap * (Unaudited) 97.1 - 97.1 -
Loans and advances* (Unaudited) 931.9 - - 931.9
*Measured at fair value
For all other financial instruments, the fair value is equal to the carrying
value and has not been included in the
table above.
As at 31 March 2022
Level 1 Level 2 Level 3
£'m
Financial instruments £'m £'m £'m
Interest rate swap* (Audited) 32.5 - 32.5 -
Loans and advances* (Audited) 1,193.0 - - 1,193.0
*Measured at fair value
Level 2 instruments include interest rate swaps which are either 2 or 5 years
in length. These lengths are aligned with the fixed interest period of the
loan book. Interest rate swaps are measured against the underlying benchmark
index (SONIA)
Level 3 instruments include loans and advances. The valuation of the asset is
not based on observable market data (unobservable inputs). Valuation
techniques include net present value and discounted cash flow methods. The
assumptions used in such models include benchmark interest rates and borrower
risk profile. The objective of the valuation techniques is to determine a fair
value that reflects the price of the financial instrument that would have been
used by two counterparties in an arm's length transaction.
Financial instrument Valuation techniques used Significant unobservable inputs Range
Loans and advances Discounted cash flow valuation Prepayment Rate 2% - 14%
Probability of default Discount Rate 16% - 84%
3.1% - 10.9%
Financial assets and liabilities at fair value: Level 3 analysis:
The following section provides additional analysis of the Group's financial
instruments measured at fair value that are categorised as Level 3:
Loans and advances to customers at FVOCI:
Six months ended 30 September 2022 (Unaudited)
As at 1 April 2022 1,193.0
Additions(1) 408.1
Movement in expected credit losses (2.5)
Net fair value gains/(losses) recognised in other comprehensive income (81.6)
Loans and advances reclassified and held at amortised cost (185.2)
Settlements/repayments (399.9)
As at 30 September 2022 931.9
1 - Additions include new financial assets originated, additional drawdowns
and accrued interest.
(d) Fair value reserve and cashflow hedge reserve
Six months to 30 September 2022 Financial assets Deferred tax Fair value reserve
£'m £'m £'m
Balance as at 1 April 2022 (Audited) 31.5 (7.9) 23.6
Movement in fair value of loans and advances at fair value through other (81.4) 20.4 (61.0)
comprehensive income
Cash flow hedge adjustment through other comprehensive income 26.5 (6.7) 19.8
Fair value and cash flow hedge reserve at 30 September 2022 (Unaudited) (23.4) 5.8 (17.6)
Information about sensitivity to change in significant unobservable inputs
The significant unobservable inputs used in the fair value measurement of the
reporting entity's loans and advances are prepayment rates, probability of
default and discount rates. Significant increase / (decrease) in any of those
inputs in isolation would result in a lower / (higher) fair value measurement.
A change in the assumption of these inputs will not correlate to a change in
the other inputs.
Sensitivity Analysis
Impact of changes in unobservable inputs Gain or (loss) at 30 September 2022 +100bps -100bps
£'m £'m £'m
Prepayment rates (Unaudited) (76.3) (75.0) (77.7)
Discount rate (Unaudited) (76.3) (97.1) (54.5)
22. Derivatives held for risk management and hedge accounting
As at 30 September 2022 As at 31 March 2022
Unaudited Audited
Instrument type Asset Liability Asset Liability
£'m £'m £'m £'m
Interest rate swap 97.1 - 32.5 -
All derivatives are held at fair value for the purpose of managing risk
exposures associated with the BTL mortgage portfolio. The net notional
principal amount of the outstanding interest rate swap contracts at 30
September 2022 was £981.3m (31 March 2022: £1,003.9m).
The Group reported a net gain of £64.6m on its derivatives positions during
the period (6 months ended 30 September 2021: £7.2m).
£37.5m of fair value gains are deferred in the cash flow hedge reserve (6
months ended 30 September 2021: £5.7m gain) and £11.1m of deferred fair
value gains was recycled from the hedge reserve to profit and loss during the
period (6 months ended 30 September 2021: £1.2m loss). And £32.7m of
derivative fair value gains are deferred in a fair value hedge relationship (6
months ended 30 September 2021: £1.2m gain).
23. Share capital
As at 30 September 2022 As at 31 March 2022
number number
(Unaudited) (Audited)
Issued and fully paid up
Ordinary shares of £0.0005 each 138,381,046 137,698,910
138,381,046 137,698,910
As at 30 September 2022 As at 31 March 2022
£'m £'m
Issued and fully paid up (Unaudited) (Audited)
Ordinary Shares of £0.0005 each 0.1 0.1
0.1 0.1
Share premium As at 30 September 2022 As at 31 March 2022
£'m £'m
(Unaudited) (Audited)
Closing balance 55.2 55.2
On 14 July 2021, the Group completed a listing onto the London Stock Exchange
and all existing share classes were converted to ordinary shares.
The balance on the share capital account represents the aggregate nominal
value of all ordinary and preferred shares in issue. There is no maximum
number of shares authorised by the articles of association.
The balance on the share premium account represents the amounts received in
excess of the nominal value of the ordinary and preferred shares. All ordinary
and preferred shares have a nominal value of £0.0005.
Reconciliation of movements during the period
Ord Shares
As at 1 April 2022 137,698,910
Shares issued on exercise of company share option scheme options 682,136
As at 30 September 2022 138,381,046
On 11 July 2022, the company enabled employees to options held in the company
share option scheme. A total of 1,446,334 options were exercised. 764,198 of
these were provided from shares already held in the Employee Benefit Trust,
and the remaining balance of 682,136 shares were newly issued. The shares sold
by staff were purchased by the Group's Employee Benefit Trust. 1,950,492
shares were bought by the company at a price of £1.535.
Any shares held by the Group at 30 September 2022 and held as a reduction to
equity in the Group's Own Share Reserve. As at 30 September 2022, 779,355
shares were held in the Employee Benefit Trust, with a balance of £1.2
million.
24. Earnings per share
(a)
Basic earnings per share As at 30 September 2022 As at 30 September 2021
(Unaudited) (Unaudited)
Pence/share Pence/share
Total basic earnings per share attributable to the ordinary equity holders of 10.75 6.60
the Group
(b)
Diluted earnings per share As at 30 September 2022 As at 30 September 2021
(Unaudited) (Unaudited)
Pence/share Pence/share
Total diluted earnings per share attributable to the ordinary equity holders 10.38 6.35
of the Group
(c) Number of shares used as denominator
As at 30 September 2022 As at 30 September 2021
(Unaudited) (Unaudited)
Number of ordinary shares used as the denominator in calculating basic 137,500,867 125,182,487
earnings per share
Adjustments for calculations of diluted earnings per share: Options 4,895,852 4,883,113
Number of ordinary shares and potential ordinary shares used as denominator in 142,396,719 130,065,600
calculating diluted earnings per share
The profit after tax reported in the consolidated statement of profit and
loss, £14.78m (30 September 2021: £8.26m), is the numerator (earnings) used
in calculating earnings per share.
25. Reserves
Reserves are comprised of retained earnings, own share reserve, the employee
share reserve, fair value reserves and cashflow hedge reserves.
Retained earnings represent all net gains and losses of the Group less
directly attributable costs associated with the issue of new equity and
dividends paid out to shareholders.
The employee share reserve represents the fair value of share options issued
to employees but not exercised.
The fair value reserve represents movements in the fair value of the financial
assets classified as FVTOCI. The movements in fair value are a function of
changes in credit spreads, interest rate curves and size of the loan
portfolio. A significant change in any of these variables will have a
consequential effect on fair value movements and therefore the Group's
reported reserves.
The cash flow hedge reserve is the deferred portion of the change in the fair
value of the hedging instrument that is deemed to be effective.
The own share reserve represents treasury shares held in the Group's Employee
Benefit Trust which are held to be provided to staff on the exercising of
options, or to be granted as part of the Group's bonus scheme.
26. Dividends
Dividends of 4.4 pence per share, £6.2m, (2021: £nil) were paid during the
period. The Board is pleased to announce an interim dividend of 1.3 pence per
share.
27. Related party transactions
Key management personnel compensation
Key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the Group. Key
management is defined as the directors of LendInvest plc.
6 month period ended 30 September 2022 6 month period ended 30 September 2021
£m £m
(Unaudited) (Unaudited)
Salary & bonus 0.7 0.6
Short-term non-monetary benefits - -
Defined contribution pension cost - -
Share based payments 0.1 -
Total 0.8 0.6
There were no other related party transactions during the period to 30
September 2022 that would materially affect the position or performance of the
Group. Details of the transactions for the year ended 31 March 2022 can be
found in the 2022 Annual Report.
28. Events after reporting date
There have been no significant events between 30 September 2022 and the date
of the approval of the Interim Financial Report that require a change or
additional disclosure in the condensed interim financial statements.
Glossary
Alternative Performance Measures
In the reporting of financial information, the Directors have adopted various
alternative performance measures (APMs). APMs should be considered in addition
to IFRS measurements. The Directors believe that these APMs assist in
providing useful information on the underlying performance of the Group,
enhance the comparability of information between reporting periods, and are
used internally by the Directors to measure the Group's performance, not
necessarily comparable to other entities' APMs.
Platform AuM
The Group defines Platform AuM as the sum of (i) the total amount of
outstanding loans and advances (including accrued interest, and gross of
impairment provisions and fair value adjustments), as reported on an IFRS
basis in the notes to the accounts in the Group's Financial Statements, and
(ii) off-balance sheet assets, which represents the total amount of
outstanding loans and advances (including accrued interest) that the Group
originates but does not hold on its balance sheet, comprising those loans that
are held by its off-balance sheet entities. Off-Balance Sheet Assets are not
presented net of any impairment provisions relating thereto.
The Directors view Platform AuM as a useful measure because it is used to
analyse and evaluate the volume of revenue-generating assets of the platform
on an aggregate basis and is therefore helpful for understanding the
performance of the business.
The following table provides a reconciliation from the Group's reported gross
loans and advances.
6 month period ended 30 September 2022 (£m) 6 month period ended 30 September 2021
(£m)
Unaudited
Gross Loans and advances 1,213.2 1,078.3
Off-Balance Sheet Assets 1,217.9 747.6
Platform AuM 2,431.1 1,825.9
FuM
The Group defines FuM as the aggregate sum available to the Group under each
of its funding lines. The Group's FuM are used to originate revenue generating
AuM. The Directors view the difference between the Group's FuM and Platform
AuM as the headroom for future growth.
Adjusted EBITDA
The Group defines Adjusted EBITDA as Group profit or loss before finance
income, finance expenses, income tax, depreciation and amortisation, and
exceptional items. The Directors view Adjusted EBITDA as a useful measure
because it is used to analyse the Group's operating profitability, and shows
the results of normal core operations exclusive of non-cash changes that the
Group considers to be non-recurring and not part of the Group's core
day-to-day business. The following table provides a reconciliation from the
Group's reported profit for the period to Adjusted EBITDA.
6 month period ended 30 September 2022 6 month period ended 30 September 2021
(£m) (£m)
Unaudited
Profit after taxation 12.4 8.3
Finance expense - 0.3
Finance income (2.7) (1.1)
Income Tax 2.4 1.9
Depreciation and amortisation 1.0 1.2
Depreciation of right of use asset 0.3 0.5
Interest expense - lease liabilities 0.2 0.3
Share based payment charge 0.7 0.4
Exceptional items - 1.6
Adjusted EBITDA 14.3 13.4
Diluted earnings per share
The Group defines diluted earnings per share as earnings per share adjusted to
take into account the after income tax effect of interest and financing costs
associated with dilutive potential ordinary shares and by the weighted average
number of additional ordinary shares that would have been outstanding assuming
the conversion of all dilutive potential ordinary shares.
Free Cash Flow
Free cash flow is defined as the net cash outflow from operating activities,
less purchases of property, plant and equipment, capitalisation of internally
developed software, and lease payments. Additionally, an adjustment has been
made to reverse movements in loans and advances. This reflects the operating
model of the business to finance increases in loan and advances through
increases in interest bearing liabilities, which are also excluded from this
calculation. The table below shows the reconciliation of net cash outflow from
operations to free cash flow.
6 months ended 6 months ended
30 September 2022
30 September 2021
Unaudited
£'m
£'m
Net cash outflow from operations 10.1 (11.2)
PPE additions (0.2) (0.1)
Capitalisation of internally developed software (2.8) (1.7)
Lease payments (0.5) (0.4)
Reverse movements in loans and advances 4.8 47.6
Free cash flow 11.4 34.2
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