REG - Lendinvest PLC LendInvest - LIV3 LendInvest - LIV4 LendInvest PLC-LINV - LendInvest plc Full Year Financial Results FY24
24/07/2024 07:15
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RNS Number : 6181X Lendinvest PLC 24 July 2024
LEI: 213800NWMK3O4UWP9N91
24 July 2024
LendInvest plc
FULL YEAR RESULTS FOR THE YEAR TO 31 MARCH 2024
Continued Innovation and Resilience Amid Market Challenges
LendInvest plc (AIM: LINV; the "Company" or the "Group"), the UK's leading
platform for mortgages, announces its audited results for the year ended 31
March 2024.
Rod Lockhart, Chief Executive of LendInvest, commented:
"Our strategic focus on technology, funding diversification and exceptional
customer service has bolstered our resilience during what has undoubtedly been
a challenging year, but also a year of important strategic transition. The
successful launch of our Mortgages Portal is a testament to our innovative
approach and commitment to delivering operational efficiency and growth. We
remain confident in and focused on our target of returning to profitability
during the current financial year.
"Our team's strategic initiatives have laid a strong foundation for future
success, and I am particularly thankful for their dedication over the last 12
months."
Summary Financials
Audited Year to Year to
31 March 2024
31 March 2023
Change
Platform Assets under Management (Platform AuM) (£m)(1) 2,783.3 2,587.0 8%
Funds under management (FuM) (£m)(1) 4,127.3 3,605.9 14%
New Lending (£m) 886.5 994.8 (11%)
Net Fee Income (£m) 15.9 11.2 42%
Net operating income (£m) 23.5 54.7 (57%)
Total operating expenses (£m) (50.8) (40.4) 26%
Adjusted EBITDA (£m)(1) (15.1) 14.3 (206%)
(Loss)/Profit before tax (£m) (27.3) 14.3 (291%)
(Loss)/Profit after tax (£m) (20.1) 11.4 (276%)
Diluted earnings per share(1) (14.5)p 8.0p (281%)
Full year dividend per share(1) - 4.5p -
(1) Unaudited
Financial Highlights
● Platform AuM increased by 8% to £2.8 billion, driven by a 13%
increase in Buy-to-Let (BTL) and short-term mortgages
● FuM grew by 14% to £4.1 billion, driven by £700 million in new
Separate Account mandates
● Debt reduced by £645 million (56%)
● Net Fee Income up 42%, primarily a result of a continued
strategic shift towards third-party managed assets
● Adjusted EBITDA decreased to £(15.1) million, reflecting lower
originations and higher administrative costs, but H2 EBITDA of £(4.3) million
represented a 60% improvement on H1
● Loss after Tax: £(20.1) million, driven by accelerated
recoveries of non-performing assets, disposal of low-margin assets, lower
lending volumes, and a higher degree of one-off costs
● Cash and Cash Equivalents increased by 19% to £55.7 million,
enhancing our liquidity position
Strategic Highlights
Products and Technology
● Launched LendInvest Mortgages Portal, a fully integrated
platform enhancing broker and customer experience and enhancing cross selling
opportunities
● Strengthened residential mortgages offering, targeting
underserved market segments with significant growth potential
● Implemented a seamless product switch process for brokers to
transition to a new loan at maturity, improving customer retention and cross
selling
● Applications can now be completed in under five minutes
Diversified funding
● Welcomed BNP Paribas to a £300 million funding syndicate with
HSBC, and Barclays
● Secured two new Separate Account mandates, providing £500
million to support the Mortgages division in Buy-to-Let and £200 million to
support short-term mortgages
● Extended and enhanced our funding partnership with National
Australia Bank
Strengthening the balance sheet and de-risking the business
● Reduced borrowing and extended maturity profile
o Repaid our second £55 million retail-eligible bond and launched a new
£39 million retail-eligible bond
o Strategic reduction in balance sheet loans leading to simplification of
funding model
o Completed our fifth and largest oversubscribed RMBS transaction to
securitisation to date at £410 million, reflecting strong market demand for
LendInvest assets
o New three-year strategic funding facility of £42.5 million, reducing
mezzanine borrowing by £30 million
o Total debt reduced by £645 million (56%) with the leverage ratio reducing
by 39%
● Accelerated recovery of non-performing assets
o Sold a £250 million low margin BTL portfolio at a loss of £10.6 million,
captured within net gains/(losses) on derecognition of financial assets
removing lower net interest margin assets that would dilute future earnings
o Accelerated recovery of non-performing assets to prioritise cash in our
Capital division
● Restructured the cost base
o Headcount restructured to c.200 employees with payroll costs reduced by
c.25% per annum
ESG and People
● Senior Management: In March 2024, Hugo Davies, our Chief Capital
Officer, took on the role of Interim CFO, ensuring business continuity
following the departure of predecessor David Broadbent. Stephen Shipley, with
over 30 years of financial sector experience, including roles at Barclays and
Foundation Home Loans, is now appointed as Chief Financial Officer. Hugo will
return to his role as well as now assuming responsibilities as Managing
Director of the Mortgages division.
● Maintained carbon neutrality and achieved a 61% reduction in
operating emissions
● Continued focus on sustainable projects, supporting retrofit and
energy-efficient property financing
● Launch of new Mortgages Academy in Glasgow to develop industry
talent and expertise
Outlook
● UK mortgage market showing signs of improvement, giving cause
for cautious optimism
● Leading technology and excellent market reputation providing
further support
● Return to profitability expected during FY2025, as previously
forecast
Presentation and webcast for analysts and investors
A conference call with management including an opportunity to ask questions
will commence at 9.00am (BST) on 24 July 2024. A copy of the presentation will
be available on the investor relations section of www.lendinvest.com from
8.55am.
To access the webcast, please register here
(https://www.lsegissuerservices.com/spark/LENDINVEST/events/be170ee7-42ff-4f83-99ca-c221ea4ebd52)
A playback facility will also be available in due course here
(https://corporate.lendinvest.com/reports-results/)
Change of name of nominated adviser and broker
The Company also announces that its Nominated Adviser and Broker has changed
its name to Panmure Liberum Limited
following completion of its own corporate merger.
- Ends -
Enquiries:
LendInvest via Teneo
+44 (0)20 7353 4200
Rod Lockhart, Chief Executive Officer
Hugo Davies, Interim CFO and Chief Capital Officer
Leigh Rimmer, Director of Communications
investorrelations@lendinvest.com
Panmure Liberum (NOMAD and Broker)
+44 (0)20 7886 2500
Atholl Tweedie / Stephen Jones / / David Watkins
Teneo (Financial PR)
+44 (0)20 7353 4200
Ed Cropley / Olivia Lucas / Oscar Burnett
About LendInvest
LendInvest is the UK's leading platform for mortgages, and is listed on the
London Stock Exchange (AIM: LINV). LendInvest offers short-term, buy-to-let
and homeowner mortgages. Its proprietary technology and user experience are
designed to make it simpler for both borrowers and investors to access
property finance. LendInvest has lent £7bn of short term, development,
buy-to-let and homeowner mortgages. Its funders and investors include global
institutions such as J.P. Morgan, HSBC, Citigroup and NAB, and, in 2019, it
was the first Fintech to securitise a portfolio of buy-to-let mortgages.
The company was named Digital Innovation Award Winner at the Sunday Times Tech
Track 100 Awards, Buy-to-Let Lender of the Year for 2020 at the NACFB awards,
and one of FT1000's Fastest Growing Companies in Europe for 2021.
Important Notices
The information contained within this announcement is deemed by LendInvest to
constitute inside information as stipulated under the UK Market Abuse
Regulation. By the publication of this announcement via a Regulatory
Information Service, this inside information is now considered to be in the
public domain. The person responsible for arranging for the release of this
announcement on behalf of LendInvest is Rod Lockhart.
The information contained in this announcement is for information purposes
only. This announcement has been prepared in accordance with English law, the
UK Market Abuse Regulation and the AIM Rules for Companies and information
disclosed may not be the same as that which would have been prepared in
accordance with the laws of jurisdictions outside England. Subject to the
requirements of the UK Market Abuse Regulation and the AIM Rules for
Companies, the delivery of this announcement shall not create any implication
that there has been no change in the affairs of LendInvest since the date of
this announcement or that the information in this announcement is correct as
at any time subsequent to its date.
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.
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
The past financial year has reflected both the complexities and opportunities
of our evolving market. In the first half of the year, we initiated an
internal restructuring, prioritising liquidity, enhancing the balance sheet by
reducing and extending our debt, and strategically reducing our cost base.
These were vital to navigate a turbulent period and lay a solid foundation for
future growth.
In the second half of the year, we saw encouraging improvement in the
operating environment, marked by an uptick in market activity, allowing us to
make significant strides in our product offerings, funding partnerships and
technology developments.
Market backdrop and financial performance
In 2023, rising interest rates in the UK increased the cost of mortgages for
borrowers and dampened house prices, resulting in lower levels of mortgage
approvals and property transactions. Interest rate swaps remained volatile due
to major domestic and international macroeconomic events, creating operational
friction and making it harder to maintain a consistent, competitively priced
product range. As a result, our growth and profitability were impacted.
Despite this, we continued to grow our Funds under Management (FuM) and make
strategic progress, a testament to our resilience and the fundamental
strengths of the business. This has been especially evident in our decision to
achieve a balanced and diversified range of funding sources.
2024, however, has brought renewed confidence to the UK property market,
underpinned by declining inflation and lower interest rate swaps. We have also
seen a year-on-year increase in mortgage approvals for house purchases and
remortgaging. The adjustment in five-year swap rates to 3.32% in late 2023
allowed us to reduce rates and test our capacity to originate while
demonstrating our ability to distribute effectively as we become more price
competitive. Utilising the superior product-management capabilities of our
Mortgages Portal, we introduced highly competitive Buy-to-Let products that
increased our application volumes. In early January 2024, applications tripled
compared to December 2023.
Strategic progress
FY23 marked a pivotal year for LendInvest with the smooth launch and steady
growth of our short-term mortgages product line. This launch signified a major
expansion of our services, tailored to meet the evolving needs of our diverse
customer base. Reflecting this expansion, we established LendInvest Mortgages
and LendInvest Capital, formalising our corporate structure to better serve
our different customers and enhance operational efficiency.
Further enhancing our technological edge, in early 2024 we launched the
proprietary next-gen Mortgages Portal. This platform revolutionises the
management of our Residential, Buy-to-Let (BTL), and short-term mortgages by
integrating these services into a single, user-friendly platform. This
consolidation has driven significant cost efficiencies while maintaining our
capacity for high-volume operations.
Operational excellence and innovation
The Mortgages Portal streamlines the entire mortgage management process, from
decisions in principle to final offers, significantly reducing friction for
brokers. This efficiency is evidenced by an 80% faster retrieval of case
information and the ability for brokers to submit a full application in under
five minutes.
The portal also introduces a new product transfer process, allowing brokers to
easily switch products at maturity with just a few clicks, enhancing customer
retention and satisfaction. Furthermore, the enhanced capability to deliver
pricing changes three times faster than before ensures that we remain
competitive, agile, and responsive to market dynamics.
Strengthened funding partnerships
We have also strengthened our financial foundations through strategic
partnerships and significant funding initiatives. We welcomed BNP Paribas into
a £300 million funding syndicate alongside HSBC and Barclays, bolstering our
short-term mortgages.
A landmark achievement was securing a new £500 million Separate Account
mandate which has substantially strengthened our Buy-to-Let product offering,
while providing the opportunity to increase our fee revenue. The mandate can
also support our growing residential homeowner product once scaled.
Additionally, we successfully issued our fourth listed bond under the
LendInvest Secured Income II plc, due 2027, raising £39 million. The
completion of our fifth and largest oversubscribed RMBS transaction and
subsequent sale of the residual economic interest further underscored the
strategic objective of reducing the proportion of assets on the balance sheet
and supported our strategy to reduce our debt.
Commitment to sustainability and good governance
In a year marked by global economic adjustments, our commitment to
sustainability has remained steadfast. Our ESG strategy is more than a
commitment - it is a core component of our long-term success. This year, we
have maintained our carbon neutrality, and furthered our sustainability
initiatives to not only align with, but exceed industry standards; reinforcing
our position as a leader in responsible business practices. Our efforts are
focused on continuous improvement in our governance practices, enhancing
transparency, and fostering an ethical culture that supports our business and
stakeholder interests.
People and culture
The dedication and hard work of our team has been central to navigating this
year's challenges. The strategic appointments across our departments have
injected fresh perspectives and expertise that are vital for our growth and
operational excellence. The success of our existing Apprenticeship scheme, and
the recent launch of our Mortgages Academy in Glasgow are highlights of the
year, reflecting our commitment to developing talent and ensuring that new
entrants into the mortgage industry are well-equipped with the necessary
skills and insights.
The ongoing expansion of our Glasgow office also underscores our determination
to grow our presence in Scotland.
Outlook
As we look to the future, we remain cautiously optimistic. Our investments in
technology and innovation are designed to ensure that we remain at the
forefront of the industry, adaptable to change, and competitive in our
offerings.
With a solid strategic plan and a clear focus on increasing operational
efficiency, we are well-positioned to get our growth trajectory and
profitability firmly back on track during FY25, increasing origination volumes
and delivering sustained value to our customers and shareholders.
CHIEF FINANCIAL OFFICER'S REVIEW
The first six to nine months of the 2024 financial year presented significant
challenges for our business. In response to soaring inflation, the Bank of
England Base Rate rapidly increased from 0.10% to 5.25% in less than two
years, reaching its highest level since the Financial Crisis. This increase
impacted key markets that drive our revenue growth, such as professional
Buy-to-Let and Specialist Residential mortgages, which saw volumes decrease by
50% and 30%, respectively, during 2023. These declines were primarily due to
stringent affordability conditions, a weaker housing market outlook, and a
reduction in investment confidence fuelled by political and economic
uncertainty. Consequently, the mortgage market, and our business, were
affected.
However, throughout the year, the business continued to focus on its strategy
to simplify operations and transition to a more predictable, fee revenue
model. This strategic momentum has been demonstrated through several
significant accomplishments:
1. Deployment of Proprietary Technology: We introduced new,
market-leading proprietary technology for mortgage origination and case
management, enhancing efficiency and customer experience.
2. Capital Markets Projects: We successfully completed multiple
capital markets projects, optimising our balance sheet and demonstrating the
strength of our investor relationships and the attractiveness of our credit
performance through the cycle.
3. Short-Term Mortgages Service Proposition: Despite numerous price
adjustments in response to market interest rates, our short-term mortgage
service proposition saw completions grow by 14% year-on-year, underscoring its
robustness and market relevance.
Our comprehensive suite of property finance solutions enables us to capitalise
on counter-cyclical dynamics, expanding our customer base and providing
substantial marketing potential for Buy-to-Let (BTL). In the BTL sector, we
were pleased to see a resurgence in demand in Q4, which lifted H2 originations
by 53% compared to H1. This resurgence was further supported by a 111%
increase in signed applications in H2 versus H1, bolstering our pipeline
through to the first quarter of FY25, even as markets slowed due to sustained
higher interest rates.
Overall, AuM has grown by 8% year-on-year, driven by a 13% increase in the
LendInvest Mortgages division, primarily fuelled by AuM growth in Buy-to-Let
and short-term mortgages. However, originations were down by 11% due to
broader economic factors as described above.
Balance sheet AuM saw a significant reduction of nearly 60% year-on-year,
primarily due to an 88% reduction in the size of the Buy-to-Let balance sheet.
Balance sheet short-term mortgage AuM grew by less than 1% year-on-year,
despite originations growth, highlighting the rapid deployment of new separate
account arrangements in this area.
Our Funds under Management (FuM) remained resilient, achieving 14% growth
year-on-year, driven by the successful closing of several key transactions:
1. Refinancing of Retail-Eligible Bonds: We successfully refinanced
our 2023 retail-eligible bonds with a new 2026 offer.
2. Largest Securitisation: We closed the Company's largest
securitisation to date at £410 million, which was the tightest-priced
Buy-to-Let RMBS in H2 of 2023.
3. New Separate Account Mandates: We secured two new Separate Account
mandates, providing £500 million to support the Mortgages division in
Buy-to-Let and £200 million to support short-term mortgages.
4. Revamped Financial Partnerships: We revamped our Financial
Partnership with National Australia Bank, delivering new criteria to support
growth and adapt to changing market dynamics in Specialist Residential and
Buy-to-Let.
5. New Partners: We welcomed BNP Paribas as a new partner in our
balance sheet-funded short-term mortgage business and post-year end welcomed a
further investor to support the growth trajectory in short-term mortgages.
Additionally, we closed several transactions that helped to reduce the
business' debt by £645 million over the course of the year, continuing our
strategy to a fee led revenue model.
As of the end of the financial year, we maintained significant headroom in our
Funds under Management (FuM) relative to our Assets under Management (AuM),
ensuring robust support for the business's continued growth and achievement of
its objectives. The proportion of AuM held on the balance sheet reduced
year-on-year from c.45% to c.17%, with £2.3 billion of our nearly £2.8
billion in assets managed on behalf of third parties.
To provide clarity for our investors on how structural changes in AuM impact
revenue generation, we outline our financial performance as follows. Net
interest income is recognised in accordance with IFRS 9, while net fee income
is recognised under IFRS 15.
Group £m Year to 31 March 2024 Year to 31 March 2023 Change (%)
Funds under management 4,127.3 3,605.9 14%
Platform assets under management 2,783.3 2,587.0 8%
On balance sheet 477.0 1,122.9 (58)%
Off balance sheet 2,306.3 1,464.1 58%
New Lending 886.5 994.8 (11)%
(Loss)/profit before tax (27.3) 14.3 (291)%
Basic earnings per share (14.5)p 8.3p (275)%
Diluted earnings per share (14.5)p 8.0p (281)%
Adjusted EBITDA (15.1) 14.3 (206)%
Group Financial Performance
Group £m Year to 31 March 2024 Year to 31 March 2023 Change (%)
Net interest income 8.5 38.4 (78)%
Net fee income 15.9 11.2 42%
Net gains on derecognition of financial assets (1.0) 4.9 (120)%
Net other operating income 0.1 0.2 (50)%
Net operating income 23.5 54.7 (57)%
Administrative expenses (42.4) (34.5) 23%
Impairment losses on financial assets (8.4) (5.9) 42%
Total operating expenses (50.8) (40.4) 26%
(Loss)/profit before tax (27.3) 14.3 (291)%
(Gains) from derecognised cash flow hedge - (9.2) -
Losses/(gains) from derivative hedge accounting 4.0 (5.1) (178)%
Restructuring costs 1.6 - -
Exceptional professional costs 1.1 - -
Underlying (loss)/profit before tax (20.6) 0.0 -
Net Interest Income (NII)
Net Interest Income decreased by 78% to £8.5 million (2023: £38.4 million),
primarily due to the strategic shift towards managing more assets on behalf of
third parties and higher debt costs. In 2023, NII benefited from a £9.2
million gain recognised on the exercise of a call option and the settlement of
a designated cash flow hedge. Net Interest Income is recognised on loans and
advances held on the balance sheet.
The business continued to transform the composition of its balance sheet, with
the Mortgages division now managing £1.5 billion worth of Separate Account
mandates in Buy-to-Let alone. Consequently, the proportion of Buy-to-Let AuM
held on the balance sheet reduced by 88% year-on-year, significantly impacting
Net Interest Income.
The proportion of AuM held on the balance sheet at any given time can
fluctuate as the business utilises three main funding tools to reduce the
amount of loans and advances held on the balance sheet:
1. Separate Account Mandates: These transactions affect front book
origination, taking a greater share of what would have ended up on the balance
sheet.
2. Private Portfolio Sales: Mostly used as a tool to seed Separate
Account mandates with a mature loan book. These transitions affect the back
book.
3. Transfer of Residual Interest in RMBS Transactions: The business
typically seeks to securitise its BTL loans and advances, and place residual
certificates once a year, allowing it to recycle lending capital, maintain
liquidity, and release impairment adjustments by removing exposure to credit
risk.
Net Fee Income (NFI)
Net Fee Income increased by 42% to £15.9 million (2023: £11.2 million). This
growth is attributed to our expanding third-party managed account business.
NFI is not expected to fully offset the reduction in Net Interest Income (NII)
as the NII is also impacted by credit provisioning in the impairment losses
on financial assets line. NII is primarily driven by our stock of loans, while
NFI is primarily driven by the flow of loans. Given the challenges faced in
2023, originations would have needed to be higher to compensate for the
foregone revenue in NII. Despite this, the business is pleased with the
current growth in this predictable and recurring income area.
The Capital division experienced a challenging year, with originations down by
38%, in line with a 36% reduction in enquiries. The difficulty in maintaining
a robust pipeline meant that redemptions outpaced originations, causing the
division's AuM to fall by approximately 11%, which exerted additional downward
pressure on NFI against our plan. Despite these challenges, the Capital
division generated £0.3m in net performance fees in FY24.
Impact of derecognition on Financial Performance
Throughout the year, the business closed several transactions that
transitioned assets to third-party investors. These transactions successfully
raised liquidity and allowed us to reduce our debt by £645 million, despite
being generally unfavourable to profitability at the point of derecognition.
Buy-to-Let Portfolio Sale: This project involved the sale of a prime portfolio
of Buy-to-Let (BTL) assets worth £250 million, which took place in the first
quarter of the financial year. The transaction was economically impacted by
wider market forces following the collapse of Credit Suisse. Initially, we had
received a bid that would have delivered a more neutral P&L result, but
the bidder had to withdraw due to substantial investments in Credit Suisse's
AT1 bonds that were written off overnight. As a result, the loss from the
transaction amounted to £10.6 million.This sale seeded a new Separate Account
funding partnership to fund future mortgage originations.
Mortimer BTL 2023-1 Securitisation: This transaction involved the
derecognition of £410 million in BTL assets, resulting in a loss. Despite the
loss, the transaction was cash generative and enabled the business to pay down
senior debt, repay mezzanine financing, and increase company cash reserves.
Mortimer BTL 2021-1 Securitisation: This transaction involved the
derecognition of £236 million in BTL assets, resulting in a net pre-tax
profit of £10.8 million.
All gains or losses from such transactions, alongside sales of individual
loans to off balance sheet entities, are recorded in the net gains on
derecognition of financial assets line above Net Operating Income.
Cost Management
During the first eight to 10 months of the year, administrative expenses grew
significantly, without the underlying market to support such levels of growth.
The business found it challenging to right-size operations given the ongoing
volatility of interest rates and inflation expectations, which are natural
leading indicators of mortgage market activity. We were concerned that
reducing our origination capability too soon or too materially could result in
the inability to capitalise on a market recovery, should it occur. This would
leave us with the tail risk of having to backfill origination capacity, which
is suboptimal as new hires learn new products and processes. However, the
anticipated recovery did not materialise in 2023, causing our cost base to
reach a peak and ultimately necessitating a material restructuring exercise in
November.
Administrative expenses increased by 23% to £42.4 million (2023: £34.5
million), significantly impacting profit. To manage this cost inflation, we
have implemented several measures:
1. People-Related Restructuring: In November, we completed a
substantial restructuring exercise, reducing run rate people-related costs by
over 25%.
2. Operational Shift to Glasgow: We pivoted and prioritised lending
operations and support functions to our Glasgow office.
3. Proprietary Technology Rollout: We rolled out new proprietary
origination and mortgage processing technology, driving operating leverage and
allowing for more careful cost management without compromising origination
capacity.
We expect these measures to positively influence long-run operational expense
dynamics and right-size the business in the context of smaller addressable
markets as soon as FY25, but with more benefits coming through in FY26. In
FY25, there will continue to be a slightly suboptimal cost as support and
operational roles are migrated. Furthermore, the lease on our London office
expires in 2025 providing the potential for cost savings through a smaller
presence, which will result in lower lease costs from FY26.
The restructuring cost was £1.6 million and is considered a one-off, booked
in the additional item line of the P&L statement.
More broadly, the business has significantly tightened its approach to cost
management, implementing new processes to govern contracts and discretionary
expenditure. Further cost optimisation has been targeted towards technology
and group central cost areas in order to maintain lending capacity. As market
activity picks up once interest rates fall, we will be able to capitalise on
opportunities afforded by our newly deployed proprietary technology from a
position of relative strength.
Impairments
Impairment losses grew 42% to £8.4 million (2023: £5.9 million ), but
improved in H2 vs H1. This primarily reflects accelerated management of
recoveries coupled with an increase in expected credit losses on a small
number of larger stage 3 Capital division loans in H1 (stage 3 grew by 140%,
whereas stage 2 grew by 6%). The majority (£7.6 million) of the charge in the
year, exacerbated by the market backdrop, can be attributed to loans from our
Capital division. The increase in impairment losses for our Capital division
was isolated, as loans to three borrowers made up 50% (£3.2 million) of the
total Capital impairment charge.
Profit
As per our RNS released on 17 June, we announced that the sale of residual
economic interest in the Mortimer BTL 2023-1 PLC securitisation was no longer
expected to generate a net pre-tax gain. Consequently, the Loss before Tax for
FY24 is £(27.3) million (FY23: £14.3 million). We had previously guided the
market to expect a Loss before Tax in line with average consensus expectations
of £(15.9) million including a net pre-tax gain of approximately £12 million
from the sale of residual economic interest in Mortimer BTL 2023-1 PLC
securitisation.
The negative adjustment stems from swap and hedge accounting assumptions based
on technical advice received concerning the derecognition calculation for the
Mortimer 2023-1 BTL PLC securitisation. The wider loss for the year can be
attributed to several factors:
● Materially lower lending volumes against a higher administrative
cost base.
● Transactional losses, including hedge accounting
ineffectiveness exacerbated by the challenging market backdrop.
● Increased impairment losses.
● Tighter lending margins impacting Net Fee Income (NFI) and Net
Interest Income (NII).
● Higher audit costs, that should reduce as the business model is
simplified
The underlying loss before tax for H2, before exceptional items, was £(6.7)
million, which represents a 52% improvement versus H1. Similarly, adjusted
EBITDA was £(4.3) million in H2, a 60% improvement on H1. Exceptional
professional costs contain £0.5m of technology-related research and
consultancy work and £0.6m of finance transformation support from
professional services firms.
Profit after Tax decreased by 276% to £(20.1) million (FY23: £11.4 million).
The effective tax rate in the year was 26%, a small variance to the corporate
tax rate of 25%.
Adjusted EBITDA decreased by 206% to £(15.1) million (FY23: £14.3 million),
basic earnings per share was (14.5)p per share (FY23: 8.3p per share) and
diluted earnings per share was (14.5)p per share pence (FY23: 8.0p per share).
Outlook and dividend
Guidance for FY25 remains unchanged, with respect to our expectation of
returning to profitability during the course of the financial year. We will
not be declaring a dividend given the scale of negative reserves, but remain
committed to pursuing a progressive dividend policy as soon as it is prudent
to do so.
Group Balance Sheet/Financial position/Net assets
31 March 2024 31 March 2023 Change (%)
Assets
Cash and cash equivalents 55.7 46.7 19%
Trade and other receivables 11.9 6.1 95%
Loans and advances 477.0 1,122.9 (58)%
Investment securities 41.1 23.9 72%
Derivative financial asset 0.0 46.0 (100)%
Other assets 15.9 17.2 (8)%
Total assets 601.6 1,262.8 (52)%
Liabilities
Trade and other payables (23.4) (23.7) (1)%
Other liabilities (2.3) (3.3) (30)%
Derivative financial liability (2.0) 0.0 -
Interest bearing liabilities (514.6) (1,159.3) (56)%
Total liabilities (542.3) (1,186.3) (54)%
Net Assets 59.3 76.5 (22)%
Equity
Other reserves 10.1 2.3 339%
Share capital 0.1 0.1 0%
Share premium 55.2 55.2 0%
Retained earnings/(losses) (6.1) 18.9 (132)%
Total Equity 59.3 76.5 (22)%
AUM held on balance sheet (represented as Loans and advances) equalled £477
million, down 58% from 2023 (£1.123 billion). The reduction was driven by a
£250 million portfolio sale and two RMBS derecognition transactions, which
were partially offset by balance sheet activity primarily in the Mortgages
division.
Cash and cash equivalents grew 19% to £55.7 million (FY23: 46.7 million).
The growth is attributed to a £6.5 million increase in cash restricted for
loan funding purposes. Trade and other receivables increased by 95% to
£11.9.million (2023: £6.1 million) due to corporation tax receivable from
carry back of losses. Investment securities increased by 72% to £41.1
million (2023: £23.9 million) due to risk retention in our fifth
Securitisation in November 2023. The derivative financial asset reduced to nil
in the period (2023: £46.0 million) as we recognised a £2 million derivative
financial liability (2023: £0 million) and other assets reduced by 8% to
£15.9 million (2023: £17.2 million).
Interest bearing liabilities reduced by 56% to £514.6 million (2023: £1.159
billion) as a result of various transactions to pay down debt and two
residual sales during the year.
Total equity reduced by 22% to £59.3 million (2023: £76.5 million),
primarily as a result of 132% reduction in retained earnings/(losses), from
£18.9 million in 2023 to £(6.1) million. Other reserves increased by 339% to
£10.1 million (2023: £2.3 million) largely due to positive movements in the
fair value reserve.
Cash and cash flow
Year to 31 March 2024 £'m Year to 31 March 2023 £'m (restated)
Net cash outflow from operations 28.6 (192.7)
Net cash outflow from investing activities (16.9) (24.9)
Net cash inflow from financing activities (2.7) 146.1
Net increase/(decrease) in cash and cash equivalents 9.0 (71.5)
Cash and cash equivalents at beginning of the period 46.7 118.2
Cash and cash equivalents at end of the period 55.7 46.7
Cash and cash equivalents grew 19% to £55.7 million (2023: £46.7 million).
£38.5 million of the total balance is restricted for loan funding purposes
(2023: £31.9 million).
The remaining cash balance increased by 17% to £17.2 million from £14.7
million in FY23. The growth is due to capital generated from residual sales,
portfolio sales and securitisations, which are then recycled at a slower pace
given the growth in Separate Accounts, further evidence that the business has
taken tough decisions to fortify its balance sheet, especially when coupled
with £645 million of debt reduction over the year.
▪
Segmental analysis - LendInvest Mortgages & LendInvest Capital
Year to 31 March 2024 Year to 31 March 2024 Year to 31 March 2024 Year to 31 March 2024
Mortgages (£'m) Capital (£'m) Central (£'m) Group (£'m)
Net interest income (1.7) 10.2 - 8.5
Net fee income 7.9 8.0 - 15.9
Net gains on derecognition of (1.6) 0.6 - (1.0)
financial assets
Net other income 0.1 - - 0.1
Net operating income 4.7 18.8 0.0 23.5
Administrative expenses (11.6) (5.1) (25.7) (42.4)
Impairment losses on financial assets (0.8) (7.6) - (8.4)
Total operating expenses (12.4) (12.7) (25.7) (50.8)
(Loss)/profit before tax (7.7) 6.1 (25.7) (27.3)
LendInvest Mortgages
The Mortgages division differentiates itself through a strategic combination
of competitive pricing and exceptional service. Given the high price
elasticity of the mortgage market segments we address, it is crucial to offer
pricing that keeps our products competitive, particularly under current
affordability constraints. In contrast, the short-term mortgages segment is
less price-sensitive, with borrowers prioritising speed and certainty over
price, making our performance more dependent on our capabilities than on
market dynamics.
With banks, especially challenger banks in specialist lending, needing to
reprice savings deposits in line with the base rate, non-bank lenders have
narrowed the pricing gap. This shift has been bolstered by favourable
conditions in securitisation markets. Securitisation pricing serves not only
as a reference for our balance sheet lending but also for our Separate Account
mandates, even when it is not the primary funding tool of our partners.
We continuously refine our funding base across the Mortgages division to
maximise margins against the risks we are exposed to, while ensuring our
products remain competitively positioned. Funding arrangements are reviewed at
least annually, and we nurture strong relationships with a broad network of
institutional investors. Our commitment to professional service, underpinned
by a 15-year legacy of finding ways to say yes, further distinguishes us in
the market. This strategic approach, supported by a diverse funding base and a
wide suite of products, is enhanced by our proprietary technology.
The Mortgages division is ideally suited for technological automation to
maximise operating leverage. Homogenous products are highly scalable, and our
proprietary technology can automate workflows and enable streamlined
processing across a range of specialist lending products. This eliminates the
need for extensive manual intervention, ensuring seamless product development
and iteration, in stark contrast to the restrictive scorecard approach often
seen in banks.
The past year for the Mortgages division was marked by significant challenges.
The first half of the year involved a high cost base, substantial
deleveraging, and a reduced addressable market due to record interest rates
and high inflation. Despite these challenges, we have fortified our balance
sheet by prioritising liquidity, reducing debt, reducing costs, and deploying
advanced technology. This positions us more resiliently for future growth.
The Mortgages division incurred a loss before tax of £7.7 million for the
year. This includes £4 million attributable to non-hedge accounted swap
movements and hedge accounting ineffectiveness which led to negative NII of
£1.7 million, a net loss of £1.7 million from three derecognition projects
and individual sale of loans off balance sheet, and challenges in aligning
origination capacity with origination potential. We look forward to leveraging
our strengthened position to drive future success and make up for this
disappointing year, given we started to see the greenshoots of our actions
emerge in Q4.
LendInvest Capital
The Capital division focuses on complex lending that benefits from an expert,
human-centric approach. While the average loan size is larger, which offsets
the fewer opportunities available, these loans often come with more favourable
risk-reward profiles. The division is active in Development Finance,
Structured Bridging, Lending Joint Ventures, and other forms of large
commercial property lending.
Due to the complexity of these products and the potential for larger
impairment provisions, they are primarily funded through third-party sources
of capital. This includes our funds platform, syndications, online investment
platform, private securitisation, separate accounts, and joint ventures with
our funds.
The Capital division has faced a challenging capital-raising environment for
some time, with core milestones being delayed due to sentiment in global
commercial real estate markets. The success of our capital-raising efforts is
influenced by global trends, as capital is sourced from around the world.
Looking ahead, the outlook is more positive. We expect capital-raising
activity to pick up, enabling us to be more active in these markets once again
and driving recurring fee revenue over time. Furthermore, from our vantage
point, there continues to be a healthy deal supply that we can capitalise on.
The Capital division posted a £6.1 million profit for FY24.
STRATEGY SUMMARY AND PROGRESS
LendInvest Mortgages Strategy
LendInvest Mortgages provides fast, flexible, and simple mortgages to
homeowners, experienced property investors, and portfolio landlords across the
UK. Our strategy is built on three pillars: Service, Technology, and People.
1. Service: We distinguish ourselves through the quality of our service. Our
commitment to professional service, underpinned by a 15-year legacy of finding
ways to say yes, sets us apart in the market. We focus on delivering
exceptional customer experiences, ensuring that our products and services meet
the needs of our borrowers and brokers.
2. Technology: Our proprietary technology platform powers our innovative
mortgage products. We have invested over £60 million in developing a
market-leading platform that enables seamless integration with third-party
data sources, automating underwriting processes, and ensuring reliability and
scalability. This year, we launched the latest iteration of our Mortgages
Portal, which centralises the mortgage process, offering brokers and their
clients real-time access to our entire product range.
3. People: Our talented team is at the core of our success. We invest in
continuous professional development, fostering a culture of innovation and
responsibility. This year, we launched the Mortgages Academy in Glasgow,
reflecting our commitment to developing talent and ensuring that new entrants
into the mortgage industry are well-equipped with the necessary skills and
insights.
Key Mortgage Products:
● Buy-to-Let Mortgages: Tailored for investors and landlords
seeking to expand their portfolios.
● Residential Mortgages: Designed for complex homeowner customers,
including the self-employed and those with diverse income sources.
● Short-term Mortgages: Flexible borrowing solutions with terms
ranging from 12 to 24 months.
Strategic Achievements:
1. Launch of the LendInvest Mortgages Portal: A significant
operational leap forward, providing seamless access to our entire product
range and facilitating easier transitions for brokers and clients.
2. New Product Transfer Process: Introduced a streamlined process
allowing brokers to easily switch products at maturity, enhancing customer
retention and satisfaction.
3. Expansion of Funding Partnerships: Welcomed BNP Paribas to our
financing syndicate, bolstering our financial foundations and supporting our
growth strategy.
LendInvest Capital Strategy
LendInvest Capital focuses on complex lending that benefits from an expert,
human-centric approach. Our strategy is to draw on our deep industry expertise
and in-house real estate finance knowledge to match institutional and
individual investors with secure, income-producing UK property finance assets.
1. Diverse Funding Lines: We utilise a range of funding sources, including
institutional investors, funds, syndications, and joint ventures. This
diversity ensures a resilient and sustainable lending ecosystem, enabling us
to provide bespoke solutions that meet the evolving needs of our clients.
2. Product Innovation: We continuously innovate to address market dynamics and
customer requirements. Our product offerings include Development Finance,
Structured Property Finance, and Residential Investment Portfolio Loans,
tailored to meet the needs of property developers, investors, and other
stakeholders.
3. Strategic Partnerships: Our strong relationships with global financial
institutions support our growth and expansion. This year, we secured a new
£500 million Separate Account mandate and revamped our partnership with
National Australia Bank, enhancing our ability to fund short-term mortgages
and adapt to market changes.
Key Funding Lines:
● Luxembourg Funds: Offering access to secured credit funds.
● Self-Select Platform: Providing flexible loan syndication and
co-investment opportunities through Alternative Investment Fund structures.
● Co-Investors: Collaborating with third-party lenders to expand
our lending footprint.
KEY PERFORMANCE INDICATORS
Platform Assets Under Management (AuM)
Definition:
Platform Assets Under Management (AuM) represents the total loan balance we
have provided to our customers, encompassing both the LendInvest Mortgages and
Capital divisions. This balance reflects the outstanding amount that has not
been repaid by a diverse clientele, including homeowners, property investors,
SME developers, and landlords.
Revenue from our AuM is generated through fee and interest income. Fees
associated with the origination process, such as product, application,
valuation, and legal fees, are charged to the customer. Additional fees,
including servicing, asset management, and performance fees, are charged to
our investors and funding partners. For intermediated loans, expenses such as
procuration fees are paid to brokers, and these costs can vary by product.
AuM can be held either on the Group's balance sheet or off balance sheet.
On-balance sheet AuM generates interest income, partially offset by funding
costs, including interest and hedging expenses. Strategically, we aim to grow
the proportion of off-balance sheet AuM, where assets are managed on behalf of
investors, generating recurring fee income without associated liquidity and
credit risk.
Platform Funds Under Management (FuM)
Definition:
Platform Funds Under Management (FuM) is the total funding available for
lending from our investors and funding partners. This includes both the funds
already utilised against our Platform AuM and the funding that is either drawn
but unutilised or committed but not yet drawn. FuM excludes any pipeline
capital or ongoing fundraising projects.
We raise funding from a diverse array of financial institutions, institutional
investors, and individuals. Our funding partners, including BNP Paribas, HSBC,
Barclays, National Australia Bank, and Lloyds, primarily support our
LendInvest Mortgages products via the Group's balance sheet. Additionally, we
manage third party accounts on behalf of JP Morgan, Chetwood Financial, and
other institutional investors, and serve as the servicer and mortgage
originator for various securitisation programmes. In the LendInvest Capital
division, we raise capital through funds, separate accounts, syndications, and
strategic partnerships.
The funding provided through these investment solutions is used to originate
larger and more complex property finance opportunities. The difference between
FuM and AuM indicates the remaining lending capacity before the need to raise
additional funds or capital for lending.
How we measure value for our shareholders
Net Operating Income (NOI)
Definition:
Net Operating Income (NOI) aggregates all revenue from fees and interest
income, subtracting the total interest and fee expenses associated with our
AuM and FuM.
While NOI typically grows in line with AuM, certain capital markets
transactions can impact this. For instance, disposing of residual economic
interests in a securitisation accelerates the recognition of revenue and
costs, which would otherwise be spread over several years. This approach
optimises our balance sheet, enabling the business to extract more value from
its capital and release further liquidity.
Adjusted EBITDA
Definition:
Earnings before Interest, Tax, Depreciation, and Amortisation (EBITDA) is a
key measure of underlying profitability. We use an Adjusted EBITDA figure to
exclude non-cash income or expenses. This KPI is important as it supports s
our cash flow, supporting reinvestment opportunities or potential
distributions. Our Earnings line, which includes Net Operating Income, already
accounts for directly attributable financing and funding costs against the AuM
and FuM.
Profit Before Tax (PBT)
Definition:
Profit Before Tax (PBT) represents the Group's profits before the deduction of
corporation tax, which is the net of NOI and total operating expenses. In a
loss-making year, we may benefit from tax relief.
Diluted Earnings Per Share (EPS)
Definition:
Diluted Earnings Per Share (EPS) measures our Profit After Tax (PAT) earnings
per share, considering all issued share capital plus outstanding options and
equity grants across the Group's share plans. This metric assumes the
conversion of all outstanding equity, providing a comprehensive view of
shareholder value.
Independent auditor's report to the members of LendInvest Plc
Opinion on the financial statements
In our opinion:
• the financial statements give a true and fair view of the state of
the Group's and of the Parent Company's affairs as at 31 March 2024 and of the
Group's loss for the year then ended;
• the Group financial statements have been properly prepared in
accordance with UK adopted international accounting standards;
• the Parent Company financial statements have been properly
prepared in accordance with UK adopted international accounting standards and
as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
We have audited the financial statements of LendInvest Plc (the 'Parent
Company') and its subsidiaries (the 'Group') for the year ended 31 March 2024
which comprise the Consolidated statement of profit and loss, the Consolidated
statement of other comprehensive income, the Consolidated and Company
statements of financial position, the Consolidated and Company statements of
cash flows, the Consolidated and Company statements of changes in equity and
notes to the financial statements, including a summary of material accounting
policies. The financial reporting framework that has been applied in their
preparation is applicable law and UK adopted international accounting
standards and, as regards the Parent Company financial statements, as applied
in accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs
(UK)) and applicable law. Our responsibilities under those standards are
further described in the Auditor's responsibilities for the audit of the
financial statements section of our report. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We remain independent of the Group and the Parent Company in accordance with
the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC's Ethical Standard as applied to
listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the Directors'
assessment of the Group and the Parent Company's ability to continue to adopt
the going concern basis of accounting included:
• reviewing minutes of meetings of those charged with governance and
correspondence with regulators, such as the Financial Conduct Authority, for
any factors which could be of higher risk in relation to going concern;
• challenging the appropriateness of the Directors' assumptions and
judgements made in their base forecast and stress-tested forecast. In doing so
we agreed key assumptions such as forecast growth to historic actuals and
relevant data and considered the historical accuracy of the Directors'
forecasts by comparing them to actual results;
• enquiring with the Directors to determine whether there were any
breaches of borrowing covenants within the year or subsequent to year end and
the ability for the Group to manage any potential breaches;
• performing a review of compliance with borrowing covenants which
comprised obtaining and reviewing covenant compliance statements to verify
that no covenant breaches have occurred which may trigger penalties or
repayment of borrowings ahead of the maturity dates;
• obtaining and assessing the Directors plans in respect of funding
lines which are approaching maturity within the next 12 months by considering
the Group's past experience of extending the maturity of facilities, their
discussions with new providers of funding and experience of portfolio sales;
and
• inspecting the latest post year end management accounts and
reviewing minutes of Board meetings to determine if there were any significant
matters which could affect the going concern of the Group and Parent Company.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group and the Parent Company's
ability to continue as a going concern for a period of at least twelve months
from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Overview
100% (2023: 100%) of Group profit before tax
Coverage 100% (2023: 100%) of Group revenue
100% (2023: 100%) of Group total assets
2024 2023
Revenue recognition - Behavioural life within the Effective Interest Rate P P
Model*
Loss/gain on derecognition of financial assets* P P
Determination of expected credit loss (ECL) P P
Valuation techniques of loans and advances P P
Key audit matters (KAM)
*In the current year, we have split the Fraud in Revenue recognition Key
Audit Matter to disclose the Interest Income under the effective interest rate
method and loss/gains on derecognition of financial assets as two Key Audit
Matters.
Group financial statements as a whole
Materiality
£836,000 (2023: £715,000) based on 1% of Revenue (2023: 5% Profit Before
Tax).
Materiality
Group financial statements as a whole
£836,000 (2023: £715,000) based on 1% of Revenue (2023: 5% Profit Before
Tax).
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its
environment, including the Group's system of internal control, and assessing
the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
The Group is made up of the Parent Company, its wholly owned subsidiaries and
entities it consolidates due to its assessed control. We identified twenty-two
components (2023 : twenty-three components) ,including the parent company and
all entities requiring a stand-alone statutory audit, which we considered to
be significant components, and which were subject to full scope audits
performed by the Group audit team. The location of the significant components
are all in the United Kingdom.
In addition, there were six Group components (2023 : nine group components)
which were deemed to be insignificant components, but which individually or
collectively contained balances material to the Group. The material balances
of the insignificant components were audited to component materiality.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key audit matter How the scope of our audit addressed the key audit matter
Revenue recognition - Behavioural lives within the Effective Interest Rate The amounts reported in relation to revenue represent information of
Model significant interest to many users of the financial statements. This puts
revenue at a greater risk of manipulation, bias and misstatement. We tested the operating effectiveness of management's control over the
estimates and assumptions including behavioural lives of loan customers, that
are used to calculate the EIR adjustments.
The Group's accounting policies are disclosed in Note 1.6, and critical
accounting estimates and judgements are disclosed in Note 1.22. The behavioural life of loan customers is necessary to accurately recognise
interest income but highly subjective and involves the use of management's
judgement and estimation. We assessed and challenged the appropriateness of key assumptions around the
behavioural lives within the EIR model used by management by considering the
The interest income calculated using the effective interest rate method is historical experience of loan behavioural lives based on customer behaviour ,
included in Total interest and similar income as disclosed in note 6.
and also performed the following sensitivity analysis:
For these reasons, we determined Revenue recognition - Behavioural lives
within the Effective Interest Rate (EIR) Model to be a Key Audit Matter to be
communicated in our report.
1. Re-assessed the EIR adjustment of prior year portfolio using the new
EIR Model developed during the year.
2. Flexed the behavioural life of the loan to the weighted average post
reversion period.
We assessed whether management has appropriately segmented the loan book. On a
sample basis, we reviewed the product types included within each loan segment
and checked if these are within the respective behavioural life based on our
knowledge of the business, and we challenged any exception noted by assessing
the vintage and fixed rate term of the loan.
Using data analytics we have recalculated the behavioural life curve based on
the historic performance of the loan book and approved assumption by
management.
Key Observations:
We determine the judgement applied by management to be reasonable.
Loss/gain on de-recognition of financial assets Loans are de-recognised by the Group or Company, by way of 'one-off For the one-off transactions, we have reviewed the Regulatory News Service
transactions' whereby a loan portfolio is sold to a third party, or a 'normal' ('RNS') announcements and the minutes of meetings held by the ALCO ("Asset and
transfer off-balance sheet, which constitutes of individual loans, in the Liability Committee") to identify any additional transactions which relate to
course of standard business operations. de-recognition of financial assets in order to assess completeness of
The Group's accounting policies are disclosed in Note 1.6
transactions.
These transactions have led to gains or losses either through settlement of
The net loss on de-recognition of financial assets is £0.9m (2023: gain of the transaction (outright sale of the loan) or through triggering a loss of We have obtained and reviewed the schedule of recognised fees and performed a
£4.9m) as disclosed in Note 9. control of an entity that holds the loans which results in the crystallisation recalculation of the amount for mathematical accuracy.
of fee income and expense in respect of the de-recognised securitised loan
portfolios.
We have obtained a list of all financial assets derecognised during the year
and assessed the validity of the de-recognition of these assets, in line with
These transactions are complex and have individually resulted in material the supporting contract. We have assessed the application of loss of control
gains and/or losses which is subject to a risk of material misstatement due to in accordance with IFRS 10, and the assessment of de-recognition of loans
error. under IFRS 9.
For these reasons, we determined derecognition of financial assets to be a Key For the portfolios de-recognised and the corresponding fees crystallised
Audit Matter to be communicated in our report. during the year, we have obtained a breakdown of the fees recognised from
deferred income and checked that these were crystallised in full, to the
income statement.
For the samples selected, we have assessed all key inputs and journal entries,
which support the calculation of the loss/gain on de-recognition of financial
assets, with reference to relevant supporting documentation.
For all portfolios derecognised, we assessed the deferred income and
expenses schedule, and checked that no transaction post crystallisation was
recorded.
We have assessed managements technical paper on the accounting for the
de-recognition of financial assets and checked if this is in accordance with
the requirements of the applicable standard.
Key Observations:
Based on our audit work performed and the evidence obtained, we have not
identified any indicators that suggests that the derecognition of financial
assets were not calculated and accounted for appropriately.
Determination of expected credit loss (ECL) Commensurate with the activities of the Group, the total expected credit loss Accuracy of forward-looking information
provision is a material balance subject to management judgement and
estimation. We have engaged internal credit and econometric experts to assist in
assessing the appropriateness of the regression models and the source and type
The Group's accounting policies are disclosed in note 1 with detail about of macro-economic variables used such as GDP and unemployment data.
judgements in applying
We have assessed the elements of the ECL calculation which will significantly
accounting policies and critical accounting estimates in note 1.22. impact the determination of the ECL as follows:
We have challenged management on the rationalisation of any changes made to
information obtained from external sources and have considered its
appropriateness to the current lending portfolio.
As disclosed in Note 18 the ECL Provision at year-end is £8.6m (2023: Accuracy of forward-looking information
£9.1m).
IFRS 9 requires the Group to measure the expected credit loss (ECL) on a
forward-looking basis, incorporating future macro- economic variables We have assessed the reasonability of the economic scenarios used and the
reflecting a range of future conditions. The incorporation of such weighting applied by considering the number of scenarios selected based on
forward-looking macroeconomic inputs and weighting of the scenarios is management's support.
considered a significant risk across all three portfolios, especially in the
continued downturn of the current economic environment.
We have tested the completeness of the data used for management overlays and
assessed if other overlays are required, based on our experience. We have
tested the arithmetical accuracy of the overlays.
We have performed sensitivity analysis on the macro-economic variables and
assessed the severity of changes in the macro-economic variables to the
overall Expected Credit Loss. We also benchmarked the Macro-economic variables
applied in the models to independent third party industry data
Carrying value (loss given default) of individually assessed Stage 3 (credit
impaired) loans.
We have selected a sample of individual assessment cases as at 31 March 2024.
We have challenged management on the key inputs into these scenarios by
obtaining supporting evidence for recovery strategies, collateral values, exit
strategies, scenario weighting, expected timing of cash flows and engaging
Carrying value (loss given default) of individually assessed Stage 3 (credit internal experts as required in support of our assessment.
impaired) loans
The carrying value of loans and advances to customers may be materially
misstated if individual impairments are not appropriately identified and We have assessed the accuracy and validity of data that feeds into the
estimated. These estimates involve complex recoverability scenarios which individual assessment cases as well as the progress on the preferred recovery
involve multiple differing recovery options where the timing and quantum of scenario being pursued to supporting documentation. Based on supporting
recovery's are subject to significant management judgments and estimates and evidence assessed and discussions with the credit team, we evaluated and
the probability of scenarios weighting as recovery cashflows can differ challenged the judgements applied in the individually assessed Stage 3 loan
materially between individual scenarios. assessments. This included assessment of the recovery strategies, recovery
timelines, and the scenario weighting applied in the individual assessments.
Key observations:
Based on our audit work performed, we consider the estimates and judgements
made by management in the calculation of the impairment provision for loans
and advances to be reasonable, and in line with the requirements of IFRS 9.
Valuation techniques of loans and advances The Group's business model requires the Group to measure the majority of the We have undertaken sensitivity analysis on the discount rates and ascertained
loan book at Fair value through Other Comprehensive Income which requires how susceptible the fair valuation of the model is to manipulation and
modelling to determine the fair value adjustment to be applied to Loans and material misstatement.
Advances.
The Group's accounting policies are disclosed in note 1 with detail about
judgements in applying accounting policies and critical accounting estimates
on note 1.22.
With the use of our internal valuation experts we:
The measurement of the loan book at fair value requires modelling which is
subject to material management judgments and estimates in the determination of · evaluated how the models calculated the fair value of the loan
the discount rate used to discount future cashflows. portfolios.
As disclosed in Note 19 the Fair Value Adjustment at year-end is £0.3m (2023:
-£3.6m). · evaluated the selection of key estimates and judgments that feed into
the models, in particular the discount rates applied in the models,
The Group's models are materially sensitive to small changes in the discount contractual cashflows and capital repayments. We also reviewed the
rate assumption, particularly in the 'Buy-to-let' portfolio and therefore this calculations of the models to ensure that these are in line with IFRS 9.
area is considered a significant risk.
· assessed the models to verify whether the fair values determined by
management sit within our assessed acceptable reasonable range.
We recalculated the computations of the discount rates independently verifying
rates offered by competitors used in benchmarking calculation.
We have reviewed and benchmarked the discount rates to external data sources
where appropriate.
Key observations:
Based on our audit work performed, we consider the valuation of loans and
advances is a reasonable estimate in consideration of the key assumptions and
judgements made.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when
evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole and performance materiality as follows:
Group financial statements Parent company financial statements
2024 2023 2024 2023
£ £ £ £
Materiality 836,000 715,000 545,000 419,000
Basis for determining materiality 1% of Revenue 5% of profit before tax 1.5% of Revenue 6.5% of profit before tax
Rationale for the benchmark applied Profit before tax is no longer considered an appropriate benchmark as the As this is a listed entity, profit before tax was a significant metric and Profit before tax is no longer considered an appropriate benchmark as the As this is a listed entity, profit before tax was a significant metric and
Group reported a loss in the period. influential to the investor group. Therefore, profit before tax was considered Group reported a loss in the period. influential to the investor group. Therefore, profit before tax was considered
to be the most appropriate benchmark.
to be the most appropriate benchmark.
Revenue is therefore deemed the next best appropriate benchmark as it is a Revenue is therefore deemed the next best appropriate benchmark as it is a
relevant measure of performance for the key stakeholders. relevant measure of performance for the key stakeholders.
Performance materiality 627,000 536,000 408,000 314,000
Basis for determining performance materiality 75% of Materiality
Rationale for the benchmark applied Determined on the basis of our risk assessment together with our assessment of
the overall control environment.
Component materiality
We set materiality for each component dependent on the size and our assessment
of the risk of material misstatement of that component. Component materiality
ranged from £1 to £545,000 (2023: £2 to £564,000) based on allocating
materiality using relevant benchmarks . In the audit of each component, we
further applied performance materiality levels of 75% (2023: 75%) of the
component materiality to our testing to ensure that the risk of errors
exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of £41,000 (2023:£21,000) according to the Group
Materiality. We also agreed to report differences below this threshold that,
in our view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the annual report and accounts other
than the financial statements and our auditor's report thereon. Our opinion on
the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon. Our responsibility is to read the other
information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during
the course of the audit, we are required by the Companies Act 2006 and ISAs
(UK) to report on certain opinions and matters as described below.
Strategic report and Directors' report In our opinion, based on the work undertaken in the course of the audit:
· the information given in the Strategic report and the Directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the Strategic report and the Directors' report have been prepared in
accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and Parent
Company and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the Directors'
report.
Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the Parent Company,
or returns adequate for our audit have not been received from branches not
visited by us; or
· the Parent Company financial statements are not in agreement with the
accounting records and returns; or
· certain disclosures of Directors' remuneration specified by law are
not made; or
· we have not received all the information and explanations we require
for our audit.
Responsibilities of Directors
As explained more fully in the Statement of Directors' Responsibilities, the
Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Group's and the Parent 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 Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
Non-compliance with laws and regulations
Based on:
· Our understanding of the Group and the industry in which it operates;
· Discussion with management and those charged with governance; and
· Obtaining and understanding of the Group's policies and procedures
regarding compliance with laws and regulations.
We considered the significant laws and regulations to be:
· Companies Act 2006;
· AIM Listing Rules
· UK tax legislation
· UK-adopted International Accounting Standards
The Group is also subject to laws and regulations where the consequence of
non-compliance could have a material effect on the amount or disclosures in
the financial statements, for example through the imposition of fines or
litigations. We identified such laws and regulations to be Financial Conduct
Authority rules and The General Data Protection Regulation (GDPR).
Our procedures in respect of the above included:
· obtaining an understanding of the control environment in monitoring
compliance with laws and regulations;
· reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with the relevant laws and
regulations discussed above;
· enquiring of management and those charged with governance about their
own identification and assessment of the risks of irregularities, including
fraud;
· reviewing of legal expenditure accounts to understand the nature of
expenditure incurred; and
· reviewing of minutes of meetings of those charged with governance and
correspondence with the Financial Conduct Authority;
Fraud
We assessed the susceptibility of the financial statements to material
misstatement, including fraud. Our risk assessment procedures included:
· enquiring with management and those charged with governance,
including the Audit and Risk Committee, regarding any known or suspected
instances of fraud;
· obtaining an understanding of the Group's policies and procedures
relating to:
o Detecting and responding to the risks of fraud; and
o Internal controls established to mitigate risks related to fraud.
· reviewing of minutes of meeting of those charged with governance for
any known or suspected instances of fraud;
· discussion amongst the engagement team as to how and where fraud
might occur in the financial statements;
· performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material misstatement due
to fraud; and
· considering remuneration incentive schemes and performance targets
and the related financial statement areas impacted by these.
Based on our risk assessment, we considered the areas most susceptible to
fraud to be revenue recognition, management override of controls and in
relation to accounting estimates within the expected credit loss fair value of
loans.
Our procedures in respect of the above included:
· testing the appropriateness of a sample of journal entries and other
adjustments by agreeing to supporting documentation;
· involvement of internal credit, econometric experts and internal
valuation experts in the areas of high estimation by management such as ECL
and loans and advances valuation which is covered in the KAM under
'Determination of ECL' and 'Valuation techniques of loans and advances';
· evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business; and
· assessing whether the judgements made in accounting estimates are
indicative of a potential bias which is covered in the KAM under 'Fraud in
revenue recognition' and 'Determination of ECL' and 'Valuation techniques of
loans and advances'.
We also communicated relevant identified laws and regulations and potential
fraud risks to all engagement team who were all deemed to have appropriate
competence and capabilities and remained alert to any indications of fraud or
non-compliance with laws and regulations throughout the audit.
Our audit procedures were designed to respond to risks of material
misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less likely we are
to become aware of it.
A further description of our responsibilities is available on the Financial
Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities
(http://insite.bdo.co.uk/sites/audit/Documents/www.frc.org.uk/auditorsresponsibilities)
. This description forms part of our auditor's report.
Use of our report
This report is made solely to the Parent Company's members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Parent Company's
members those matters we are required to state to them in an auditor's report
and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Parent Company and
the Parent Company's members as a body, for our audit work, for this report,
or for the opinions we have formed.
Stefan Beyers (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, United Kingdom
22 July 2024
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Consolidated statement of profit and loss
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Note
Interest income calculated using the effective interest rate 6 66.5 68.1
Other interest and similar income 6 (4.0) 5.1
Interest expense and similar charges 7 (54.0) (34.8)
Net interest income 8.5 38.4
Fee income 8 19.5 13.5
Fee expenses 8 (3.6) (2.3)
Net fee income 15.9 11.2
Net gains on derecognition of financial assets 9 (1.0) 4.9
Net other operating income 0.1 0.2
Net operating income 23.5 54.7
Administrative expenses 10 (42.4) (34.5)
Impairment losses on financial assets 18 (8.4) (5.9)
Total operating expenses (50.8) (40.4)
(Loss)/profit before tax (27.3) 14.3
Income tax credit/(charge) 13 7.2 (2.9)
(Loss)/profit after taxation (20.1) 11.4
Earnings per share for profit attributable to the ordinary equity holders of
the Group:
Basic earnings/loss per share (pence/share) 34 (14.5) 8.3
Diluted earnings per share (pence/share) 34 (14.5) 8.0
All amounts relate to continuing activities and to owners of the Group.
Consolidated statement of other comprehensive income
For the year ended 31 March 2024
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Note
(Loss)/profit after taxation (20.1) 11.4
Other comprehensive income/(loss):
Items reclassified to profit or loss at residual sale due to de-recognition
Cash flow hedge adjustment through other comprehensive income 23 (21.4) (4.8)
Items that will or may be reclassified to profit or loss
Fair value gain/(loss) on loans and advances measured at fair value through
other comprehensive income
23 30.5 (35.0)
Deferred tax (charge)/credit on Fair Value movement 13 (7.6) 8.8
Deferred tax credit on Cash Flow Hedge movement 13 5.4 1.2
Other comprehensive income/(loss) for the year 6.9 (29.8)
Total comprehensive (loss) for the year (13.2) (18.4)
Consolidated statement of financial position
As at 31 March 2024 As at 31 March 2023
£'m £'m
Note
Equity
Share capital 22 0.1 0.1
Share premium 22 55.2 55.2
Own share reserve (0.1) (0.6)
Employee share reserve 3.8 3.3
Fair value reserve 23 6.4 (16.5)
Cash flow hedge reserve 23 - 16.1
Retained earnings/(losses) (6.1) 18.9
Total equity 59.3 76.5
As at 31 March 2024 As at 31 March 2023
£'m £'m
Note
Assets
Cash and cash equivalents 17 55.7 46.7
Other receivables 16 8.7 6.1
Corporation tax receivable 16 3.2 -
Loans and advances 18 477.0 1,122.9
Fair value adjustment for portfolio hedged risk asset
25 - 0.1
Investment securities 19 41.1 23.9
Property, plant and equipment 14 1.3 2.2
Net investment in sublease 2 0.6 1.0
Intangible fixed assets 15 10.7 10.5
Investment in joint venture 28 - 0.2
Investment in third parties 29 - 2.0
Deferred taxation 13 3.3 1.2
Derivative financial asset 26 - 46.0
Total assets 601.6 1,262.8
Liabilities
Other payables 20 (23.4) (23.7)
Interest bearing liabilities 21 (514.6) (1,159.3)
Lease liabilities 2 (2.3) (3.3)
Derivative financial liability 26 (2.0) -
Total liabilities (542.3) (1,186.3)
Net assets 59.3 76.5
The financial statements of LendInvest plc (registration number 08146929) on pages 65 to 128 were approved and authorised for issue by the Board of Directors on 23 July 2024 and were signed on its behalf by:
Rod Lockhart Director
Consolidated statement of cash flows
Interest received was £60.8 million (2023: £58.5 million) and interest paid
was
£53.4 million (2023: £47.4 million).
Consolidated statement of changes in equity
Share capital Share premium Own share reserve Employee Fair value reserve net of deferred tax Cash flow hedge reserve net of deferred tax Retained Earnings/ (losses)
£'m £'m £'m share reserve £'m £'m £'m Total
Note £'m £'m
Balance as at 31 March 2022 0.1 55.2 0.1 2.7 9.5 19.8 15.9 103.3
Profit after taxation - - - - - - 11.4 11.4
Fair value adjustments on loan and advances through OCI - - - - (26) - - (26.0)
Employee share scheme tax - - - - - - 0.2 0.2
Current tax movement through equity - - - - - - 0.4 0.4
Cash flow hedge adjustment through OCI - - - - - (3.7) - (3.7)
Shares issued from own share reserve - - 2.4 - - - (2.4) -
Shares purchased by EBT - - (3.1) - - - - (3.1)
Reinstatement of dilapidations provision - - - - - - (0.1) (0.1)
Transfer of share option costs - - - (1.4) - - 1.4 -
Dividends paid - - - - - - (7.9) (7.9)
Employee share options schemes 25 - - - 2.0 - - - 2.0
Balance as at 31 March 2023 0.1 55.2 (0.6) 3.3 (16.5) 16.1 18.9 76.5
Profit after taxation - - - - - - (20.1) (20.1)
Fair value adjustments on loan and advances through OCI - - - - 22.9 - - 22.9
Employee share scheme tax - - - - - - (0.8) (0.8)
Cash flow hedge recycled to the P&L - - - - - (16.1) - (16.1)
Shares issued from own share reserve - - 0.5 - - - (0.5) -
Transfer of share option costs - - - (0.8) - - 0.8 -
Dividends paid - - - - - - (4.4) (4.4)
Employee share options schemes 25 - - - 1.3 - - - 1.3
Balance as at 31 March 2024 0.1 55.2 (0.1) 3.8 6.4 - (6.1) 59.3
Notes to the financial statements
1. Basis of preparation and material accounting policies
1.1 Going concern
The Group's business activities together with the factors likely to affect its
future development and position are set out in the Strategic report. The
Directors also considered the impact of the funding lines maturing in the next
12 months from the date of approval of the financial statements. In line with
the normal operations of the Group, there are a number of facilities which
mature during this period.
The Directors believe that the Group will be able to refinance these
facilities either with the existing funding provider or with new third parties
to continue its growth trajectory. If these facilities were not to be
refinanced, the Group would be able to sell individual loans or portfolio of
loans to facilitate the repayment of the outstanding amounts. This strategy is
in line with the existing approach of the Group to both hold assets on its
balance sheet and sell to the third parties.
The Directors do not consider that this creates a material uncertainty in the
going concern assessment of the Group. Directors have a reasonable expectation
that the Group will have adequate resources to continue to operate for a
period of at least 12 months from the signing of these accounts and therefore
it is on this basis that the Directors have continued to prepare the accounts
on a going concern basis. More information on the Directors' assessment of
going concern is set out in the Directors' report.
A future securitisation of £300m is planned for Nov/Dec 24 when the book
reaches an optimal level to release the mezzanine and equity positions held by
Retail Bonds (c.£17m) and another third party financing provider (c.£7m).
1.2 General information
LendInvest plc (previously LendInvest Limited) is a public company
incorporated and domiciled in the United Kingdom under the Companies Act 2006.
The Group listed on the Alternative Investment Market (AIM), a market operated
by the London Stock Exchange on 14 July 2021. The address of its registered
office is given on page
53. The Company's registered number is 08146929. The principal place of
business of the Group is the United Kingdom.
1.3
Basis of preparation
The financial statements have been prepared in accordance with the Companies
Act 2006 and the UK-adopted International accounting standards.
The financial statements have been prepared on a historical cost basis, except
as required in the valuation of certain financial instruments which are
carried at fair value. The preparation of financial statements, in conformity
with IFRS, requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the
Group's accounting policies. The areas involving a higher degree of judgement
or complexity, or areas where assumptions and estimates are significant to the
financial statements, are disclosed in this note
1.20. The financial statements have been prepared on a going concern basis,
see note 1.1 for further details.
Items included in the financial statements are measured using the currency of
the primary economic environment in which the Group operates (functional
currency). The Group maintains its books and records in pounds sterling ('£')
and its financial statements are presented in pounds sterling, which is the
Company's functional currency. All amounts have been rounded to the nearest
million, unless otherwise indicated.
Changes in accounting standards and policies since the last published Annual
Report
New standards, interpretations and amendments adopted from 1 January 2023
The following amendments are effective for the period beginning 1 January
2023:
• IFRS 17 Insurance Contracts;
• Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of
Financial Statements and IFRS Practice Statement 2 Making Materiality
Judgements);
• Definition of Accounting Estimates (Amendments to IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors);
• Deferred Tax related to Assets and Liabilities arising from a Single
Transaction(Amendments to IAS 12 Income Taxes);
• International Tax Reform - Pillar Two Model Rules (Amendment to IAS 12
Income Taxes) (effective immediately upon the issue of the amendments and
retrospectively);
1. Basis of preparation and material accounting policies continued
1.3 Basis of preparation continued
Changes in accounting standards and policies since the last published Annual
Report continued
Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of
Financial Statements and IFRS Practice Statement 2 Making Materiality
Judgements);
The IASB issued Disclosure of Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2) in February 2021, which are mandatorily effective
from annual reporting periods beginning on or after 1 January 2023. The
amendments
now require entities to disclose 'material accounting policy information'
rather than 'significant accounting policies'.
The Group has carefully assessed the impact which accounting policy
information is material and requires disclosure. The material accounting
policies in Section 1 are updated to consider the above amendment.
The Group have carefully assessed each of the new pronouncement above. Except
as stated above, these amendments had no effect on the consolidated financial
statements of the Group.
New standards and amendments not yet effective
The IASB has issued a number of amendments to reporting standards which the
Group has determined as being applicable to its financial reporting. These
amendments are effective in future accounting periods and the Group has not
opted for any early adoption. The following amendments are effective for the
period beginning on or after 1 January 2024 and are not expected to have a
material impact on the Group:
• Liability in a Sale and Leaseback (Amendments to IFRS 16 Leases);
• Classification of Liabilities as Current or Non-Current (Amendments to
IAS 1 Presentation of Financial Statements);
• Non-Current Liabilities with Covenants (Amendments to IAS 1
Presentation of Financial Statements);
• Supplier Finance Arrangements (Amendments to IAS 7 Statement of Cash
Flows and IFRS 7 Financial Instruments: Disclosures); and
• Lack of Exchangeability (Amendments to IAS 21 The Effects of Changes
in Foreign Exchange Rates).
1.4
Cash and cash equivalents
Cash and cash equivalents comprise of cash balances and short-term balances
that are highly liquid and are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value.
1.5 Basis of consolidation
Subsidiary companies and other controlled entities
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company as if they were a single
entity.
Intra-Group transactions, balances and unrealised gains or losses are
eliminated on consolidation.
The Group operates a share incentive plan (SIP) trust and an employee benefit
trust (EBT). These trusts are accounted for under IFRS 10 and the assets and
liabilities are consolidated into the Group's balance sheet and shares held by
the trusts in the Group are presented as a deduction from equity.
1.6 Revenue recognition
Revenue represents interest and other income from borrowers and for the
provision of finance. Revenue recognised on loans held by related and third
parties is recognised as follows:
Recognised under IFRS 9:
Interest income calculated using the effective interest rate Interest on loans
and advances made by the Group is recognised in the Consolidated statement of
profit and loss using the effective interest rate method. Under the effective
interest rate method fees earned from borrowers and transaction costs incurred
which are integral to the creation of a loan such as arrangement, valuation
and broker fees are amortised over the expected life of the loan.
Net gains on derecognition of financial assets are recognised immediately upon
a transfer resulting in derecognition of the loan and fees earned from
borrowers and transaction costs incurred which were previously deferred under
the effective interest rate method are crystallised.
Other interest and similar income represents income related to derivative
gains and bank interest income earned on cash deposits.
1. Basis of preparation and material accounting policies continued
1.6 Revenue recognition continued
Recognised under IFRS 15:
Revenue description within scope of IFRS 15 Performance obligation Timing and satisfaction of performance obligation Allocation of transaction price
Separate account partnership fees Originate and transfer BTL loans to customer Transfer of loans to customer Allocated to each loan transferred (and of loan principal)
Servicing fees Provide Series of distinct Allocated to distinct
administrative services with a similar services transferred
loan servicing to pattern of transfer over forming one performance
customers time obligation (accrued
monthly in arrears)
Share creation fees To source and Introduction of new Allocated according
introduce new funds to customer to value of new capital
investment capital (% of new capital)
to customer
Management fees To provide Series of distinct Variable consideration
management and services with a similar on % of NAV (under
administration pattern of transfer over management) and accrued
of loans held by time in arrears monthly
customers
Performance fees To provide Performance Variable consideration
investment obligations satisfied accrued when hurdle rate
advisory services when increase in NAV is exceeded
in the interest (under management)
of achieving exceeds hurdle rate
investment
objectives
Fee income recognised in the Consolidated statement of profit and loss represents the fees and performance obligations shown in the table below.
Revenue comprises the fair value of the consideration received or receivable
in the ordinary course of the Group's activities.
All revenue recorded in the financial statements is sourced from transactions
relating to property loans. Fees on these transactions are calculated based on
the above revenue recognition policy.
1.7
Interest expense and similar charges
Interest expense and similar charges are comprising and recognised as follows:
• Interest expenses incurred on interest bearing liabilities. These are
recognised on an accrual's basis.
• Non-utilisation fees are incurred on any interest-bearing liabilities
that are unutilised. These are recognised on an accrual's basis.
• Funding line amortisation of initial funding line set up costs. These
are recognised evenly over the life of the facility.
• Realised effective fair value changes of hedging instruments
designated in qualifying hedging accounting relationships.
1.8 Fee expenses
Fee expenses are recognised as follows:
• Origination costs incurred on loans originated and immediately
transferred to third parties under the Separate account partnership are
recognised in full at the point origination and transfer in the Consolidated
statement of profit and loss.
• Asset management, fund and servicing fees, representing introducer
fees, and trail commission derived from off-balance sheet funds, these costs
are recognised as they occur.
1.9 Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As
well as the purchase price, the cost includes directly attributable costs and
the estimated present value of any future unavoidable costs of dismantling and
removing items. The corresponding liability is recognised within provisions.
Depreciation is provided on all items of property, plant and equipment, so as
to write off their carrying value over their expected useful economic life. It
is provided at the following rates and is recognised under administration
expenses in the Consolidated statement of profit and loss:
Computer equipment
33-50% per annum straight line
Furniture and
fittings 20-50%
per annum straight line
Leasehold improvements lesser
of lease period or useful life
1. Basis of preparation and material accounting policies continued
1.10 Intangible fixed assets
Where it meets the criteria of IAS 38, internally developed software
expenditure is capitalised as an intangible fixed asset and is amortised on a
straight-line basis
over its useful economic life once the asset is available for use. The useful
economic life of the assets is identified as part of the project planning
stage in line with wider business objectives. The assets are amortised over
their expected useful life at 20% per annum through administration expenses in
the Consolidated statement of profit and loss.
Software licences that meet the definition of an intangible asset, i.e.
identifiable, controlled by the Group and from which future economic benefits
will flow, are initially recognised at cost. Depreciation is provided, so as
to write off their carrying value over their expected useful economic life at
the following rates:
Computer and telephony software 20-50% per annum
straight line
1.11 Deposit interest receivable
Interest receivable on bank deposits is recognised on an accruals basis within
Other interest and similar income in the Consolidated statement of profit and
loss.
1.12 Administrative expenses
Expenses are recognised as an expense in the Consolidated statement of profit
and loss on the accruals basis.
1.13 Provisions, contingent liabilities and contingent assets
Provisions are liabilities of uncertain timing or amount and contingent
liabilities and contingent assets are dependent on one or more uncertain
future events. Provisions are recognised when the Group has a present legal or
constructive obligation as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to settle
the obligation and a reliable estimate can be made of the amount of the
obligation. The amount recognised as provisions is the best estimate of the
consideration required to settle the present obligation at the end of the
reporting period, taking into account the risks and uncertainties surrounding
the obligation.
1.14 Financial instruments
Recognition
Financial instruments are recognised in the Consolidated statement of
financial position when the Group attains the right/obligation to
receive/deliver cash flows from the instrument and when the risks and rights
associated with ownership are transferred to the Group.
Classification and measurement
As per IFRS 9, the Group classifies its financial instruments with reference
to both the Group's business model for managing the assets and the contractual
cash flow characteristics of the instrument.
Financial assets
The Group's financial assets have been classified into the following
categories:
(i) At amortised cost
These are assets for which the business model is to hold the asset and collect
the contractual cash flows. The cash flows are solely payments of principal
and interest and are on specified dates.
The Group measures drawn loans and advances held under this business model,
cash and cash equivalents and trade and other receivables at amortised cost.
On initial recognition the asset is held at its fair value minus any
transaction costs. Subsequent measurement is calculated on the effective
interest rate method and is subject to impairment where the recoverable value
falls below the carrying value. This assessment is performed quarterly.
(ii) At fair value through other comprehensive income
These are assets for which the business model is to collect the contractual
cash flows and to sell the assets. The contractual cash flows are solely
payments of principal and interest and are on specified dates.
The Group measures drawn loans and advances held under this business model at
fair value through other comprehensive income.
These assets are initially recognised at fair value, plus any attributable
costs. Subsequent changes in fair value are recognised in equity, except for
impairment losses which are recognised in the Consolidated statement of profit
and loss.
For further information on the measurement of impairment losses, please see
note 18.
Upon derecognition, any accumulated movements in fair value previously
recognised in equity (fair value reserve) are reclassified to profit or loss
in the Consolidated statement of profit and loss.
(iii) At fair value through profit or loss
These are assets for which the business model is neither to hold nor to hold
or sell, or where contractual cash flows are not solely payments of principal
and interest.
The assets that result on origination of the loans are initially recognised at
fair value, adjusting for the recorded fair value to date.
1. Basis of preparation and material accounting policies continued
1.14 Financial instruments continued
Financial liabilities
(i) At amortised cost
All financial liabilities are measured at amortised cost, unless IFRS 9
specifically determines they should be valued at fair value through profit or
loss.
The Group holds trade and other payables and interest-bearing liabilities at
amortised cost.
On initial recognition the liability is held at its fair value plus any
transaction costs. Subsequent measurement is based on the effective interest
rate method.
(ii) At fair value through profit or loss
Financial liabilities are measured at fair value through profit or loss when
they meet the definition of held for trading, or when they are designated as
such to eliminate or significantly reduce an accounting mismatch that would
otherwise arise.
The carrying value of each of the categories described is disclosed in note
25.
Derivatives
The Group holds a portfolio of derivatives for risk management purposes. The
Group's accounting treatment for derivatives that qualify for hedge accounting
is discussed in note 3.
Derivatives that do not qualify for hedge accounting are held at fair value
through profit or loss.
Forbearance
The Group maintains a forbearance policy for the servicing and management of
customers who are in financial difficulty and require some form of concession
to be granted, even if this concession entails a loss for the Group. A
concession may be either of the following:
• a modification of the previous terms and conditions of an agreement,
which the borrower is considered unable to comply with due to its financial
difficulties, to allow for sufficient debt service ability, that would not
have been granted had the borrower not been in financial difficulties; or
• a total or partial refinancing of an agreement that would not have
been granted had the borrower not been in financial difficulties.
Forbearance in relation to an exposure can be temporary or permanent depending
on the circumstances, progress on financial rehabilitation and the detail of
the concession(s) agreed. The Group excludes short-term repayment plans that
are up to three months in duration from its definition of forborne loans.
Modification of financial assets and financial liabilities
When a financial asset or financial liability is modified, a quantitative and
qualitative evaluation is performed to assess whether or not the new terms are
substantially different to the original terms. For financial assets, the Group
considers the specific circumstances including:
• if the borrower is in financial difficulty, whether the modification
merely reduces the contractual cash flows to amounts the borrower is expected
to be able to pay;
• whether any substantial new terms are introduced that substantially
affects the risk profile of the loan;
• significant extension of the loan term when the borrower is not in
financial difficulty;
• significant change in the interest rate; and
• insertion of collateral, other security or credit enhancements that
significantly affect the credit risk associated with the loan.
The Group specifically, but not exclusively, considers the outcome of the '10%
test'. This involves a comparison of the cash flows before and after the
modification, discounted at the original EIR, whereby a difference of more
than 10% indicates the modification is substantial.
If the terms and cash flows of the modified financial instrument are deemed to
be substantially different, the derecognition criteria are met and the
original financial instrument is derecognised and a 'new' financial instrument
is recognised at fair value. The difference between the carrying amount of the
derecognised financial instrument and the new financial instrument with
modified terms is recognised in the statement of profit and loss.
If the terms and cash flows of the modified financial instrument are not
deemed to be substantially different, the financial instrument is not
derecognised and the Group recalculates the 'new' gross carrying amount of the
financial instrument based on the revised cash flows of the modified financial
instrument discounted at the original EIR and recognises any associated gain
or loss in the statement of profit and loss.
Any costs and fees incurred are recognised as an adjustment to the carrying
amount of the financial instrument and are amortised over the remaining term
of the modified financial instrument by recalculating the EIR on the financial
instrument.
1. Basis of preparation and material accounting policies continued
1.14 Financial instruments continued
De-recognition
Financial instruments are only derecognised when the contractual
rights/obligations to receive/deliver cash flows from them have expired or
when the Group has transferred substantially all risks and rewards of
ownership.
1.15 Share capital
Financial instruments issued by the Group are classified as equity only to the
extent that they do not meet the definition of a financial liability or
financial asset.
The costs of equity transactions are accounted for as a deduction from equity
to the extent they are incremental costs directly attributable to the equity
transactions that otherwise would have been avoided. Transaction costs that
relate jointly to an equity transaction and other transactions are allocated
using a basis of allocation that is rational and consistent with similar
transactions, with the costs allocated to other transactions reported through
the Consolidated statement of profit and loss.
1.16 Share-based payments
Where the issuance of shares or rights to shares are awarded to employees, the
fair value of the options at the date of grant is charged to the Consolidated
statement of profit and loss over the vesting period. Non-market vesting
conditions are considered by adjusting the number of equity instruments
expected to vest at each reporting date so that, ultimately, the cumulative
amount recognised over
the vesting period is based on the number of options that eventually vest.
Non- vesting conditions and market vesting conditions are factored into the
fair value of the options granted. If all other vesting conditions are
satisfied, a charge is made irrespective of whether the market vesting
conditions are satisfied. The cumulative expense is not adjusted for failure
to achieve a market vesting condition or where a non-vesting condition is not
satisfied.
Where the terms and conditions of options are modified before they vest, the
increase in the fair value of the options, measured immediately before and
after the modification, is also charged to the Consolidated statement of
profit and loss over the remaining vesting period.
1.17
Current and deferred taxation
The tax expense for the period comprises current and deferred tax. Current tax
is provided at amounts expected to be paid (or recovered) using the tax rates
and laws that have been enacted or substantively enacted by the year end date.
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the financial statements. However, deferred tax
is not accounted for if it arises from the initial recognition of an asset or
liability in a transaction other than a business combination that, at the time
of the transaction, affects neither accounting nor taxable profit and loss.
Deferred tax is determined using tax rates and laws that have been enacted or
substantially enacted at the year-end date and are expected to apply when the
related deferred tax asset is realised or the deferred tax liability
is settled. Deferred tax balances are not discounted. Deferred tax assets are
recognised to the extent that it is probable that future taxable profit will
be available against which the temporary differences can be utilised.
1.18 Dividends
Dividends are recognised when they become legally payable. In the case of
interim dividends to ordinary and preferred share shareholders, this is when
paid by the Group. In the case of final dividends to ordinary and preferred
share shareholders, this is when declared by Directors and approved by the
shareholders at the relevant Board meeting.
1.19 Write-offs
Loans and advances are written off (either partially or in full) when there is
no reasonable prospect of recovery. This is generally the case when the
primary security has been realised and the Group is unable to reach an
agreement with the borrower for immediate or short-term repayment of the
amounts subject to the write- off. Financial assets that are written off can
still be subject to enforcement activities in order to recover amounts due.
Amounts subsequently recovered on assets previously written off are recognised
in impairment losses on financial assets in the statement of profit and loss.
1. Basis of preparation and material accounting policies continued
1.20 Critical accounting estimates and judgements
The preparation of these financial statements in accordance with IFRS requires
the use of estimates. It also requires management to exercise judgement in
applying the accounting policies.
Judgements
Consolidated Financial Statements
Subsidiary undertakings are all entities (including special purpose entities)
over which the Group has control, exposure or rights to variable returns, and
the ability to affect those returns through its control over the undertaking.
The Group has a number of associated entities that it considers for
consolidation under IFRS 10. Control is reassessed and judgement is used
whenever facts and circumstances indicate that there may be a change in these
elements of control.
Significant increase in credit risk
The determination of how significant an increase in lifetime PD should be to
trigger a move between credit risk stages for impairment requires significant
judgement. Management have adopted a test-based approach to derive objective
thresholds such that credit deterioration is recognised at the appropriate
point. See note 18 for further details.
Similarly significant judgement is also applied when assessing the risk of a
default occurring following the modification of a financial asset that does
not result
in derecognition.
Fair value measurement
Judgements were applied to determine the unobservable inputs to the fair value
models used to calculate the fair values of loans and advances. These include
the discount rate, prepayment rates, PDs, LGDs, recovery costs and cure
probabilities driven from the ECL models.
Estimates and assumptions
Fair value measurement
Estimating the fair value for share-based payment transactions requires
determination of the most appropriate valuation method, which depends on the
terms and conditions of the award. This estimate also requires determination
of the most appropriate inputs to the valuation model, including the expected
life of the share option, volatility and the dividend yield and making
assumptions about them. The Group uses a Black-Scholes option pricing model
for the employee share schemes. The Group estimates the forfeiture rate of
schemes based on the historic evidence of schemes that have been awarded in
previous years. The assumptions for estimating the fair value for share- based
payment transactions are disclosed in note 25.
Level 1: Quoted prices in active markets for identical items.
Level 2: Observable direct or indirect inputs other than Level 1 inputs.
Level 3: Unobservable inputs (i.e. not derived from market data and require a
level of estimates and judgements within the model). See note 26 for more
detailed information related to fair value measurement.
Expected Credit Loss Calculation
The accounting estimates with the most significant impact on the calculation
of impairment loss provisions under IFRS 9 are 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.
For the period ended 31 March 2024 management considered the third party
weightings to adequately represent the macroeconomic environment across all
products and have therefore applied 40%/40%/20% to the central, downside and
upside scenarios respectively.
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.
1. Basis of preparation and material accounting policies continued
1.20 Critical accounting estimates and judgements continued
Sensitivity analysis on ECL models
Sensitivity analysis has been completed on a number of different scenarios to
better assess the impact of changing variables on the ECL calculation in the
current environment:
• A 100% downside was applied to the models. This would increase the ECL
by £1.7 million.
• A 100% upside was applied to all the models. This would decrease the
ECL by £2.2 million.
• A 10% increase in the forced sale discount. This would increase the
ECL by £1.2 million.
• A 20% increase in the unemployment rate (peak of 5.6%). This would
increase the ECL by £0.1 million.
• A 20% decrease in UK house price inflation would increase the ECL by
£1.0 million.
Valuation of share-based payments
Estimating the fair value for share-based payment transactions requires
determination of the most appropriate valuation method, which depends on the
terms and conditions of the award. This estimate also requires determination
of the most appropriate inputs to the valuation model including the expected
life of the share option, volatility and the dividend yield and making
assumptions about
them. The Group uses a Black-Scholes option pricing model for the employee
share schemes. The assumptions for estimating the fair value for share-based
payment transactions are disclosed in note 25.
Effective interest rate revenue recognition
Interest income calculated using the effective interest rate shown in the
Consolidated statement of profit and loss. The effective interest rate is the
rate that exactly discounts estimated future cash receipts through the
expected life of the financial asset.
The expected life of the financial asset is a significant area of judgement
which is estimated using the observed behavioural performance of the assets
over time and the business model under which they are managed by the Group.
Using these metrics a repayment profile is derived and applied in determining
the performing capital balance used to calculate expected future interest
receipts.
1.21
Non-controlling interests
The group recognises non-controlling interests in an acquired entity either at
fair value or at the noncontrolling interest's proportionate share of the
acquired entity's net identifiable assets. This decision is made on an
acquisition-by-acquisition basis. For the non-controlling interests in Group,
the group elected to recognise the non- controlling interests at fair value.
The subsequent accounting will be done based on principles of IFRS 10
1.22 Impairment of financial assets
Impairment of financial assets is calculated using a forward-looking expected
credit loss (ECL) model. ECLs are an unbiased probability weighted estimate of
credit losses determined by evaluating a range of scenarios and possible
outcomes.
Further detail regarding the impairment of financial assets can be found in
note 19.
1.23 Fair value of financial assets
Fair value is defined as the price expected to be received on sale of an asset
in an orderly transaction between market participants at the measurement date.
Where possible, fair value is determined with reference to quoted prices in an
active market. A market is regarded as active if transactions for the asset
take place with sufficient frequency and volume to provide pricing information
on an ongoing basis. Where quoted prices are not available, generally accepted
valuation techniques such as discounted cash flow models are used. Where
possible these valuation techniques use independently sourced market
parameters such as asset backed security spreads. Further detail regarding the
fair value of financial assets can be found in note 26.
1.24 Prior period adjustments
The Group has restated its Consolidated statement of cash flow due to the
following prior period adjustments:
i) To reflect the correct movement in Trade and Other payables and Interest
bearing liabilities. In the year ended 31 March 2023, the Group noted and
corrected the historical error by reclassifying accrued interest expense on
interest-bearing liabilities previously recognised as part of trade and other
payables to interest- bearing liabilities. This was updated in the
Consolidated Statement of Financial position however, the movement in the
affected accounts in Consolidated statement of cash flows was incorrectly
stated. In the current year, the Group has restated its March 2023
Consolidated Cash Flow Statement to update the correct movement of £2.8m.
1. Basis of preparation and material accounting policies continued
Restated Consolidated statement of cash flows (Extract)
1.24 Prior period adjustments continued
Restated Consolidated statement of cash flows (Extract)
Movement in
Cash consideration
for sold residuals
(£m)
Proceeds from disposal of subsidiaries (sale of cash residuals) less cash and
cash equivalents disposed of
(£m)
Movement in loans and advances (New originations net of redemptions)*
(£m)
(Decrease)/ increase in trade Decrease in interest bearing accrued interest in interest bearing
and other payables liabilities liabilities
(£m) (£m) (£m)
FY2023 (reported) (24.9) (20.3) -
Impact of FY2022 accrued interest reclassification
2.8 (2.8) -
Deconsolidated balance 2.1 214.7 -
Net impact of gross financing receipts and payments*
- (366.2) -
Reclassification of redemption in securitisation facilities
- 176.1 -
Reclassification of movement in accrued interest
- (1.5) 1.5
FY2023 (restated) (20.0) - 1.5
FY2023 (Reported) 12.7 - 20.2
Reclassification of cash
consideration for sold
residuals
(12.7)
12.7
-
Investments in securitisation
vehicles (Mortimer
2022)
-
13.2
Deconsolidated
balance
-
(212.6) Reclassification of cash held in
Mortimer 2022 and Mortimer
2020
-
(15.9)
15.9
FY2023
(Restated)
-
(3.2)
(163.3)
* This is the net impact of prior period adjustments relating to gross
financing receipts and payments which is discussed below.
ii) To reflect the correct balance for "Proceeds received on disposal of
subsidiaries". During the year, the Group noted that as per requirements of
Section 42 of IAS 7, the proceeds received from disposal of a subsidiary need
to be presented net of the cash and cash equivalents disposed as part of the
transaction. Historically, this has been disclosed on a Gross basis. The error
has been corrected by netting the cash and cash equivalents in Mortimer 2022
and 2020 entities from residual sale consideration on the date of sale. The
Group has restated its March 2023 Consolidated Cash Flow Statement to update
the correct balance £(3.2)m.
* As the cash held in Mortimer 2022 and Mortimer 2020 were shown in error in
the movement in loans and advances, the adjustment is recorded in that line
item in the cash flow statement.
iii) To reflect the funding movement in
financing activities on gross basis. During the year, the Group noted that as
per requirements of Section 21 of IAS7, major financing activities have been
disclosed on a net basis and presented as "Increase/Decrease" in interest
bearing liabilities. The error has been corrected by reflecting cash movements
for funding received and repaid to our funding partners on a gross basis. It
was noted from this error that deconsolidated balances from the disposal of
Mortimer 2020-1 plc had been erroneously included in the movement analysis of
their respective lines presented in the statement of cash flows. To correctly
reflect the gross payments and receipts, deconsolidated balances have now been
adjusted from the movement analysis of respective balances.
1. Basis of preparation and material accounting policies continued
1.24 Prior period adjustments continued
Restated Consolidated statement of cash flows (Extract)
Funding received from institutional Proceeds from external
Repayment of
(Decrease)/ increase in funder liabilities lenders (excluding risk Repayments of funding obtained investors for securitisation of
(excluding Funding received Proceeds to fund
interest bearing risk retention retention notes) for risk retention for risk retention securitisation portfolio of loans
liabilities (£m) funding) (£m) (£m) notes (£m) notes (£m) payments (£m) (£m)
FY2023 - - - - 176.1 -
(reported)
(20.3)
Impact of gross financing receipts and (335.0) 691.7 (3.5) 13.0 - -
payments
(366.2)
Impact of FY2022 accrued interest - - - - - -
reclassification
(2.8)
Deconsolidation - - - - - -
balance
214.7
Reclassification of redemption in securitisation - - - - (176.1) -
facilities
176.1
Reclassification of movement in accrued - - - - - -
interest
(1.5)
Reclassification of redemption in securitisation (176.1) 176.1 - - - -
vehicles
-
Proceeds from external investors for securitisation of portfolio of - (261.2) - - - 261.2
loans -
FY2023 (511.1) 606.6 (3.5) 13.0 - 261.2
(restated)
-
Investments in securitisation vehicles which was erroneously presented as part
of movement in loans and advances, under operating activities has also now
been presented separately in line with Section 21 of IAS7.
Movement in loans and advances (New
Investment in securitisation vehicles (£m) originations net of redemptions)
(£m)
FY2023 (Reported) - 20.2
Investments in securitisation vehicles (Mortimer 2022) (13.2) 13.2
Deconsolidated balance - (212.6)
Reclassification of cash held in Mortimer 2022 and Mortimer 2020 - 15.9
FY2023 (Restated) (13.2) (163.3)
(a) Total cashflows on operating activities has decreased from net
inflow of £1.3m to net outflows of £192.7 m because of the three PPAs.
(b) Total cashflows on investing activities has moved from net
outflows of £8.5m to net outflows of £24.9m because of PPAs (ii) and (iii).
(c) Total cashflows on financing activities has increased from net
outflows of £64.3m to net inflows of £146.1m because of PPAs (i) and (iii).
These changes do not impact the Consolidated statement of profit and loss,
Consolidated statement of financial position, Consolidated statement of other
comprehensive income or Consolidated statement of other changes in equity.
There is no change to the earnings per share of the Group resulting from this
change.
2. Leases
The Group reports its leases as prescribed by IFRS 16. The Group is a lessee
in a property lease arrangement in which treatment of the lease components are
as follows:
Right-of-use assets
The Group recognises a right-of-use asset at the lease commencement date. The
right-of-use asset is measured at cost, less any accumulated depreciation and
impairment losses, and is adjusted for any remeasurement of the lease
liability. The cost of the right-of-use asset includes the amount of the lease
liability recognised, initial direct costs incurred, costs of removal and
restoration, and lease payments made at or before the commencement date less
any lease incentives received.
The Group presents right-of-use assets under property, plant and equipment in
the statement of financial position.
Right-of-use assets are depreciated on a straight-line basis over the shorter
of
2. Leases continued
Lease term
The Group determines the lease term as the non-cancellable term of the lease,
together with any periods covered by an option to extend the lease if it is
reasonably certain to be exercised, or any periods covered by an option to
terminate the lease if it is reasonably certain not to be exercised.
Sublease
In December 2021 the Group entered into an arrangement to sublease a
proportion of its property lease.
The sublease is classified as a finance lease with reference to the
right-of-use asset from the head lease.
The lease liability relating to the head lease is unchanged by the new
sublease arrangement. The Group's net investment in the sublease is included
in the Consolidated statement of financial position as a separate line item.
in sublease leasehold property liabilities
£'m £'m £'m
As at 1 April 2022 1.2 2.4 4.1
Depreciation expense - (0.6) -
Interest expense 0.1 - 0.5
Payments - Interest - - (0.5)
Payments - Principal (0.3) - (0.9)
Dilapidations provision - - 0.1
As at 1 April 2023 1.0 1.8 3.3
the estimated useful life and the lease term. Right-of-use assets are subject to impairment. Depreciation and impairment losses are charged to administrative expenses in the Consolidated statement of profit and loss.
Lease liabilities
Depreciation expense - (0.7) -
Interest expense - - 0.3
Payments - Interest - - (0.3)
Payments - Principal (0.4) - (1.1)
Dilapidations provision - - 0.1
As at 31 March 2024 0.6 1.1 2.3
At the lease commencement date, the Group recognises a lease liability measured at the present value of the lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an administrative expense in the Consolidated statement of profit and loss in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the
incremental borrowing rate at the lease commencement date, unless the interest
rate implicit in the lease is readily determinable. After the commencement
date, the lease liability is increased to reflect the accretion of interest
and reduced for the lease payments made. In addition, the carrying amount of
lease liabilities is remeasured if there is a modification, a change in the
lease term, a change in the in-substance fixed-lease payments, or a change in
the assessment to purchase the underlying asset.
Net investment
Right-of-use
Lease
2. Leases continued
The below table sets out the amounts recognised in the Consolidated statement
of profit and loss:
At the inception of each hedge relationship, a formal hedge documentation is
prepared, describing:
• the hedged item, a financial asset or liability which is being
economically hedged;
•
Administrative Interest expense
expenses £'m Total
Year ended 31 March 2024 £'m £'m
Depreciation expense of right-of-use asset 0.7 - 0.7
Interest expense on lease liabilities - 0.3 0.3
Increase in dilapidations provision 0.1 - 0.1
Total recognised in the Consolidated statement of profit and loss
0.8 0.3 1.1
the hedging instrument, a derivative financial instrument with economic characteristics that appropriately mitigate the risk being hedged; and
• the methods that will be used to determine the effectiveness of the
designated hedge relationship.
IAS 39 and IFRS 9 both require that an effectiveness criterion be met for an
entity to qualify for hedge accounting. Both accounting standards also require
that hedge effectiveness be assessed prospectively at inception and
retrospectively at each reporting date. Hedge effectiveness is the degree to
which changes in the fair value of the hedged item and hedging instrument
offset. IAS 39 specifies that the
Year ended 31 March 2023
Administrative
expenses
£'m
Interest expense
£'m
Total
£'m
offset ratio be within the range 80%-125% for its highly effective requirement
to be met. IFRS 9 does not require a specific offset ratio to meet hedge
accounting requirements, but instead requires that there is an economic
relationship between the hedged item and hedging instrument.
Depreciation expense of right-of-use asset 0.7 - 0.7
Interest expense on lease liabilities - 0.5 0.5
Total recognised in the Consolidated statement of profit and loss
0.7 0.5 1.2
Fair value and cash flow hedges may have residual ineffectiveness. Ineffectiveness is the extent to which changes in the fair value of the hedging instrument fail to offset changes in the fair value of the hedged item. Ineffectiveness is recognised
in the Consolidated statement of profit and loss as it occurs. Sources of
3. Derivatives and hedge accounting
3.1 Hedge accounting
The Group uses interest rate swaps to manage its exposure to fluctuations in
interest rates and not for speculative purposes.
When transactions meet the criteria of the applicable standard:
The Group applies the requirements of IFRS 9 when hedge accounting for
variability in cash flows of a financial asset or liability (cash flow hedge
accounting).
The Group applies the requirements of IAS 39 for its fair value hedge of
interest rate risk of a portfolio of financial assets or liabilities (macro
fair value hedge accounting).
The financial statement note for derivative financial instruments details the
derivative portfolio of the hedge in place at the balance sheet date.
ineffectiveness include:
• differences in the size and timing of future expected cash flow of the
hedged instruments and hedged item due to unexpected changes in hedged item;
• differences in the curves used to value the hedging instrument and
hedged item; and
• the designation of off-market derivatives.
The Group discontinues hedge accounting when:
• the hedge relationship matures;
• effectiveness testing indicates that a designated hedge relationship
ceases to meet the effectiveness requirements;
• the hedging instrument is derecognised upon a sale, transfer or
termination; or
• the hedged item is derecognised upon sale or transfer.
3. Derivatives and hedge accounting continued
3.1 Hedge accounting continued
3.1.1 Fair value hedge accounting
Fair value hedge accounting results in the carrying value of the hedged item
being adjusted to reflect changes in fair value attributable to the risk being
hedged, creating an offset to the change in the fair value of the hedging
instrument. The fair value movement of both the hedged item and hedging
instruments are reported in the Consolidated statement of profit and loss
through the other interest and similar income line item.
The Group designates a portfolio of financial assets with similar interest
rate risk exposure in a portfolio (macro) hedge. The risk item is sorted into
repricing time buckets based on expected repricing periods and hedged
accordingly using interest rate swaps with matching tenors. The fair value
movements are measured using a SONIA benchmark. For portfolio hedges that are
highly effective, the Group records fair value adjustment movements through
other comprehensive income if the hedged item is measured at fair value
through other comprehensive income and then recycles immediately the amount of
fair value movements due to the hedge risk into the statement of profit or
loss. If the hedged item is measured at amortised cost the carrying amount
will be adjusted for fair value movements due to the hedged risks and recorded
through the statement of profit or loss. The portfolio hedges are rebalanced
regularly to include newly originated financial assets.
If portfolio hedge accounting no longer meets the criteria for hedge
accounting, the cumulative fair value hedge adjustment is amortised over the
period to maturity of the previously designated hedge relationship. If the
hedged item is sold or repaid, the unamortised fair value adjustment is
immediately recognised in the income statement.
3.1.2
Cash flow hedge accounting
Cash flow hedge accounting allows for the portion of the change in the fair
value of the hedging instrument that is deemed to be effective to be deferred
to the cash flow hedge reserve instead of being immediately recognised in the
Consolidated statement of profit and loss. The ineffective portion of the
hedging instrument fair value movement is immediately recognised in the
Consolidated statement of profit and loss.
The fair value movement deferred in the cash flow hedge reserve is
subsequently 'recycled' to the Consolidated statement of profit and loss in
the period when the underlying hedged risk item impacts the Consolidated
statement of profit and loss. If the cash flow hedge relationship ceases to
meet the effectiveness criterion required for hedge accounting and the hedged
cash flows are still expected to occur, the deferred derivative fair value
movement is held in other comprehensive income until the underlying hedged
item is recognised in the Consolidated statement of profit and loss through
the interest expense and similar charges line item. If the hedged item is
derecognised, the cumulative gain or loss in other comprehensive income is
immediately recognised in the Consolidated statement of profit and loss
through the interest expense and similar charges line item.
3.2 Gains or Losses from derivatives and hedge accounting
As part of its risk management strategy, the Group uses derivatives to
economically hedge the interest rate exposure of financial assets and
liabilities. The Group applies hedge accounting to minimise the income
statement volatility resulting from changes in the fair value of derivative
financial instruments that will ordinarily be measured at fair value through
profit or loss. Such volatility does not reflect the economic reality of the
Group's hedging activities; however, volatility can arise from hedge
accounting ineffectiveness, hedge accounting not being applied or not being
achievable at the present time.
3. Derivatives and hedge accounting continued
3.2 Gains or Losses from derivatives and hedge accounting continued
Note 3.1 discusses the effect of fair value and cash flow hedge accounting on
the Group's financial statements, including accounting treatment of hedge
accounting ineffectiveness.
3.4
Cash flow hedge accounting
The Group manages interest rate risk associated with cash flows using interest
rate swaps with floating legs benchmarked to SONIA. The cash flows hedged are
fully indexed SONIA interest payments due on issued debt securities. The
hedging instrument effectively fixes the interest payments on the issued debt
securities.
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Gains/(losses) from derivatives hedge accounting
(Losses)/Gains from fair value hedge accounting1 (2.4) (0.7)
Fair value gains from other derivatives2 (1.6) 5.8
Total Gains included in other interest and similar income (4.0) 5.1
Hedge ineffectiveness recognised Net amounts
in income statement deferred to other comprehensive
£'m income
Hedged item balance sheet classification Hedged Item1 £'m
Hedging Instrument Risk Category £'m Instrument1
£'m
Interest bearing liabilities Interest rate swaps Interest rate: SONIA - - - -
Year ended 31 March 2024
1 All fair value hedges in place are portfolio hedges of interest rate
risk exposure on originated financial assets.
2 This category includes the fair value losses of hedging instruments
prior to designation to a hedge accounting relationship.
3.3 Fair value hedge accounting
The Group manages interest rate risk using interest rate swaps that exchange
fixed cash flows for floating cash flows indexed to market SONIA rates. These
derivative instruments are designated in a fair value hedge of the interest
rate exposure of a portfolio of financial assets. The table below provides
information on the Group's fair value hedges.
Year ended 31 March 2023
balance sheet classification Hedging Instrument Risk Item1 Instrument1 statement income
Category £'m £'m £'m £'m
Interest bearing liabilities Interest rate swaps Interest (12.9) 12.9 - 12.9
rate: SONIA
Hedged item
Hedged
Hedge ineffectiveness recognised
in income
Net amounts
deferred to other comprehensive
Hedged item balance sheet Hedging Instrument Hedged Item1 Instrument1 Ineffectiveness
Risk Category £'m £'m £'m
Loans to customers Interest rate swaps Interest rate: SONIA
0.4 (0.3) 0.1
Year ended 31 March 2024
The fair value hedge ineffectiveness is reported through the interest and
similar income line item of the consolidated statement of profit and loss.
Year ended 31 March 2023
1 Change in fair value used in determining hedge ineffectiveness.
On 14 April 2023, the Group sold its non-risk retention residual economic
interest in the Mortimer BTL 2021-1 PLC securitisation for a cash
consideration of £8.66m. The sale of the certificate (residual notes)
resulted in a derecognition event as substantially all the risks, rewards, and
control of the vehicle passed to the investor.
As the control of the vehicle (Mortimer BTL 2021-1) had been transferred, the
vehicle has been deconsolidated from the Group's results. This also resulted
in the recycling of a loss of £21.5m from the cash flow hedge reserves to the
line item 'Net gain on derecognition of financial assets' in the profit and
loss.
Hedged item
Hedging
Hedged Item1
Instrument1
Ineffectiveness
balance sheet Instrument Risk Category £'m £'m £'m
Loans to customers Interest rate swaps Interest rate: SONIA
(14.6) 13.9 (0.7)
1 Change in fair value used in determining hedge ineffectiveness.
3. Derivatives and hedge accounting continued
3.5 Derivatives by instrument and hedge type
All the Group's derivative financial instruments are used to manage economic
risk, although not all the derivatives are subject to hedge accounting. The
table below provides an analysis of the notional amount and fair value of
derivatives by both hedge accounting type and instrument type. Notional amount
is the amount on which payment flows are derived and does not represent
amounts at risk.
3.6
Contractual maturity of hedging instruments notional amounts
As at 31 March 2024 As at 31 March 2023
Notional Amount Fair value - Assets Fair value - Liabilities Notional Amount Fair value - Assets Fair value - Liabilities
£'m £'m £'m £'m £'m £'m
Macro fair value hedge:
SONIA indexed interest rate swaps
39.9 - (0.9) 527.8 13.9 -
Cash flow hedge:
SONIA indexed interest rate swaps
- - - 236.3 21.8 -
Not subject to hedge accounting:
SONIA indexed interest rate swaps1
108.4 - (1.1) 15.0 10.3 -
Total 148.3 (2.0) 779.1 46.0 -
As at 31 March 2023
Macro fair value hedge:
Less than one year
Less than one year Between one and five years Over five
£'m £'m years Total
As at 31 March 2024 £m £'m
Macro fair value hedge:
SONIA indexed interest rate swaps 8.7 31.0 0.2 39.9
Cash flow hedge:
SONIA indexed interest rate swaps - - - -
Other:
SONIA indexed interest rate swaps 47.2 58.9 2.4 108.5
Total 55.9 89.9 2.6 148.4
£'m
Between one and five years
£'m
Over five
years
£m
Total
£'m
1 Includes FV gains on forward starting swaps now designated in FVH.
SONIA indexed interest rate
swaps
138.9
241.7
147.2 527.8
Cash flow hedge:
SONIA indexed interest rate
swaps
25.1
211.2
- 236.3
Other:
SONIA indexed interest rate
swaps
12.5
2.5 15.0
Total
164 465.4 149.7 779.1
3. Derivatives and hedge accounting continued
3.7 Carrying amount of hedged items
As at 31 March 2024 As at 31 March 2023
Fair value change of hedged risk Fair value change of hedged risk
Hedged £'m Hedged £'m
item item
£'m £'m
Macro fair value hedge:
BTL Mortgage Loans 39.9 0.3 501.3 14.6
Cash flow hedge:
Interest bearing securities (loan notes) - - 236.3 21.8
Total 39.9 0.3 737.6 36.4
For the fair value hedges £0.1m has been recorded as a fair value hedge
adjustment to the carrying amount in the statement of financial position for
hedged items carried at amortised costs. For all other fair value hedges the
fair value movements due to the hedged risk has been recycled from other
comprehensive income to profit or loss.
4. Financial risk management
General objectives, policies and processes
The Board of Directors has overall responsibility for the establishment and
oversight of the Group's risk management framework. The risk management
policies are established to identify and analyse the risks faced by the Group,
to set appropriate risk limits and controls, and to monitor risks and ensure
any limits are adhered to.
The Group's activities are reviewed regularly, and potential risks are
considered. The overall objective of the Board is to set policies that seek to
reduce risk as far as possible without unduly affecting the business's
competitiveness and flexibility.
Risk factors
The Group has exposure to the following risks from its use of financial
instruments: credit risk, liquidity risk, interest rate risk. Further details
regarding these policies are set out below:
(i) Credit risk management
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group's loans and advances and
cash and cash equivalents held at banks.
The Group's maximum exposure to credit risk by class of financial asset is as
follows:
31 March 2024 31 March 2023
Assets £'m £'m
Loans and advances 477.0 1,122.9
Investment securities 41.1 23.9
Derivative financial asset - 46.0
Other receivables 6.4 4.2
Cash and cash equivalents 55.7 46.7
580.2 1,243.7
The Group manages its exposure to credit losses on loans and advances by
assessing borrowers' affordability of loan repayments, risk profile, and
stability during the underwriting process. Impairments are monitored and
provided for under IFRS 9. The credit policy is designed to ensure that the
credit process is efficient
for the applicant while providing the Group with the necessary details to make
an informed credit decision.
Investment securities held by the Group relate to a 5% retained position in
structured securitisation entities that are no longer consolidated.
Recoverability of these amounts is linked to the underlying loan portfolios
within the structured securitisation entities. Additionally, credit
enhancement measures within the securitisation structure reduce the Group's
exposure to credit losses.
4. Financial risk management continued
Risk factors continued
(i) Credit risk management continued
Trade and other receivables principally comprise of amounts due from third
parties. The recoverability of these amounts is reviewed on an ongoing basis,
at least annually.
The fair value of cash and cash equivalents at 31 March 2024 and 31 March 2023
approximates the carrying value. Further details regarding cash and cash
equivalents can be found in note 17. Credit risk relating to cash and cash
equivalents is mitigated as cash and cash equivalents are held with reputable
institutions. These institutions have a Moody's credit rating of Prime-1
(superior ability to repay short- term debt obligations).
The risk of movements in the price of the underlying collateral secured by the
Group against loans to borrowers is actively managed by the Group. Security
over loan collateral is registered with the Land Registry, and only properties
within England, Wales and Scotland are suitable for security. Loans are capped
at 80% of the open market value of the property against which security is
held, and minimum loan period interest is retained on completion for some
short-term loans.
(ii) Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Group's approach to managing
liquidity is to ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring
unacceptable losses or risking damage to the Group's position. The Group's
liquidity position is monitored and reviewed on an ongoing basis by the Board
and the Assets and Liabilities Committee. A key component of liquidity risk is
the Group's funding for the purpose of its long-term Buy-to-Let lending. Once
the facility is utilised or the term is reached, the Buy-to-Let portfolio will
be refinanced via securitisation or sale to third-party purchasers.
The tables overleaf analyse the Group's contractual undiscounted cash flows of
its financial assets and liabilities:
Gross nominal inflow/ (outflow) Amount due in less than 6 months Amount due between one and five years
£'m £'m Amount due 6-12 months £'m Amount due after five years
Carrying amount £'m £'m
£'m
As at 31 March 2024
Financial assets
Cash and cash equivalents 55.7 55.7 55.7 - - -
Other receivables 6.4 6.4 6.4 - - -
Loans and advances 477.0 739.3 218.5 97.8 48.7 374.3
Investment Securities 41.1 46.8 1.3 1.3 44.2 -
580.2 848.2 281.9 99.1 92.9 374.3
Financial liabilities
Other payables (23.4) (23.4) (23.4) - - -
Interest bearing liabilities (514.6) (586.6) (63.4) (357.5) (96.6) (69.1)
Derivative financial liability (2.0) (2.0) (0.3) (0.3) (1.4) -
Lease liability (2.3) (2.6) (0.7) (0.7) (1.2) -
(542.3) (614.6) (87.8) (358.5) (99.2) (69.1)
Gross Amount Amount due
nominal due in Amount between Amount
Carrying inflow/ less than due 6-12 one and due after
amount (outflow) 6 months months five years five years
As at 31 March 2023 £'m £'m £'m £'m £'m £'m
Financial assets
Cash and cash equivalents 46.7 46.7 46.7 - - -
Trade and other receivables 4.2 4.2 3.0 - 1.2 -
Loans and advances 1,122.9 1,927.1 205.3 164.6 203.9 1,353.3
Derivative financial asset 46.0 46.0 9.1 7.9 26.4 2.6
Investment Securities 23.9 25.6 11.1 0.4 14.1 -
1,243.7 2,049.6 275.2 172.9 245.6 1,355.9
Financial liabilities
Trade and other payables (22.3) (22.3) (22.3) - - -
Interest bearing liabilities (1,159.3) (1,369.2) (219.2) (347.7) (409.1) (393.2)
Lease liability (3.3) (3.8) (0.7) (0.7) (2.4) -
(1,184.9) (1,395.3) (242.2) (348.4) (411.5) (393.2)
During the current financial year the Group sold its residual interest in both
Mortimer 2021-1 BTL PLC (April 2023) and Mortimer 2023-1 BTL PLC (January
2024).
4. Financial risk management continued
Risk factors continued
(iii) Interest rate risk management
The risk is managed on a continuous basis through the use of interest rate
swaps.
The Group monitors exposure to repricing risk through an interest rate gap
report and matches the repricing characteristics of its assets with its
liabilities naturally where it can. The Group uses derivatives to manage any
risk above tolerable levels. Derivatives are only used for economic hedging
purposes and not as speculative investments.
See note 3 and 26 for further details on the derivatives held by the Group.
(iv) Interest rate sensitivity
Profit and Loss (Restated*) Equity (net of tax)
31 March 2024
100 bp increase 100 bp decrease 100 bp increase 100 bp decrease
£'m £'m £'m £'m
Interest rate swaps 1.5 (1.5) - -
Cash and cash equivalents 0.2 (0.2) - -
Loans and advances 0.3 (0.3) (5.5) 5.8
Investment securities 0.4 (0.4) - -
Interest bearing liabilities (4.3) 4.3 - -
The sensitivity analysis below has been determined based on the exposure to interest rates as at the reporting date. This analysis assumes a 100 basis point change which represents the Board's assessment of a reasonable change in interest rates. All other variables are held constant.
31 March 2023
Interest rate swaps 7.8 (7.8) 4.7 (4.9)
Cash and cash equivalents 0.5 (0.5) - -
Loans and advances 0.8 (0.8) (19.0) 20.0
Investment securities 0.3 (0.3) - -
Interest bearing liabilities (10.1) 10.1 - -
* Prior Year interest rate swap sensitivity numbers have been amended to reflect an updated methodology used in the current year.
(iv)
Interest rate sensitivity continued
The profit and loss figures for cash and cash equivalents, loan and advances,
investment securities and interest-bearing liabilities represent the effect on
interest receipts and payments recorded through profit and loss resulting from
changes in interest rates.
The figures shown under the equity columns for loans and advances reflect the
expected change to fair value measured through other comprehensive income.
The Group designates its portfolio of interest rate swaps in a fair value or
cash flow hedge. The indicative figures in the above profit and loss columns
represent a fair value change in interest rate swaps designated in a fair
value hedge, these changes are mostly offset in the Consolidated statement of
profit or loss by an equivalent change in fair value of the hedged items.
Figures in the equity columns represent fair value changes in interest rate
swaps designated in a cash flow hedge relationship,
in the event of such a change the Group will benefit from offsetting lower
interest payments on the indexed liabilities hedged by the swaps.
The sensitivity analysis of the Group's loan assets with interest rate
exposure is disclosed in note 25 (d).
(v) Capital management
The Group considers its capital to comprise of its share capital, share
premium, retained earnings and the employee share reserve. The Group's
objectives when maintaining capital are:
• to safeguard the Group's ability to continue as a going concern, so
that it can continue to provide returns for shareholders and benefits for
other stakeholders, and;
• to provide an adequate return to shareholders by pricing products and
services commensurately with the level of risk.
The Group sets the amount of capital it requires in proportion to risk. The
Group manages its capital structure and makes adjustments to it in light of
changes in economic conditions and the risk characteristics of the underlying
assets. The Group uses external debt to fund its principal activity and sets
the amount of debt that it requires in proportion to risk and lending
requirements. It should also be noted the Group does not have to comply with
any specific regulatory Capital requirements.
5. Segmental analysis
The Group's lending operations are carried out solely in the UK, and effective
from 1 April 2023, were carried out solely from the Group's LendInvest
Mortgages and Capital Divisions, reflective of the product offerings. The
results and net assets
of the Group are derived from the provision of property related loans only.
The following describes the operations of the two reportable segments for the
year ended 31 March 2024:
LendInvest Mortgages
LendInvest Mortgages provides mortgages to both professional BTL landlords and
homeowners as well as a range of short-term mortgages.
LendInvest Capital
The LendInvest Capital division provides larger, more structured finance
primarily to property developers and larger Bridging loans and houses the Fund
and Self-Select Platform.
In prior periods the Group's lending operations were previously carried out
alongside the two main lending products: short-term lending and BTL mortgages.
Due to the information to restate prior periods not being available and the
costs to develop would be excessive, management have made the decision to not
restate prior period results in the new reportable segments.
In accordance with the provision of paragraphs 29 and 30 of IFRS 8 Operating
Segments, the prior year segmental analysis has not been restated for the new
operating segments because the information is not readily available and the
cost to develop it would be excessive. The current year has not been presented
in the previous segmental format because the information is not readily
available and the cost to develop it would be excessive.
5.
Segmental analysis continued
Please see below for a segmental analysis of the profit and loss and statement
of financial position balances:
Year ended 31 March 2024 Consolidated statement of profit and loss information
Mortgages Capital Central Total
£'m £'m £'m £'m
Interest income calculated using the effective interest rate
45.9 20.6 - 66.5
Other interest and similar income (4.0) - - (4.0)
Interest expense and similar charges (43.6) (10.4) - (54.0)
Net interest income (1.7) 10.2 - 8.5
Fee income 10.5 9.0 - 19.5
Fee expenses (2.6) (1.0) - (3.6)
Net fee income 7.9 8.0 - 15.9
Net gains on derecognition of financial assets
(1.6) 0.6 - (1.0)
Net other operating income 0.1 - - 0.1
Net operating income 4.7 18.8 - 23.5
Administrative expenses (11.6) (5.1) (25.7) (42.4)
Impairment losses on financial assets (0.8) (7.6) - (8.4)
Total operating expenses (12.4) (12.7) (25.7) (50.8)
Profit/(loss) before tax (7.7) 6.1 (25.7) (27.3)
As at 31 March 2024 Mortgages Capital Total
Consolidated statement of financial position information £'m £'m £'m
Assets
Loans and advances 346.6 130.4 477.0
Total segment assets 346.6 130.4 477.0
Cash and cash equivalents 55.7
Trade and other receivables 8.7
Corporate tax Receivable 3.2
Property, plant and equipment 1.3
Investment securities 41.1
Net investment in sublease 0.6
Intangible fixed assets 10.7
Deferred taxation 3.3
Total assets 601.6
Liabilities
Interest bearing liabilities (201.8) (312.8) (514.6)
Total segment liabilities (201.8) (312.8) (514.6)
Derivative financial liabilities (2.0)
Trade and other payables (23.4)
Lease liabilities (2.3)
Total liabilities (542.3)
5. Segmental analysis continued
Year ended 31 March 2023 Consolidated statement of profit and loss information Short-term Buy-to-Let Central Total
lending lending £'m £'m
£'m £'m
Interest income calculated using the effective interest rate
25.2 42.9 - 68.1
Other interest and similar income - 5.1 - 5.1
Interest expense and similar charges (16.5) (18.3) - (34.8)
Net interest income 8.7 29.7 - 38.4
Fee income 9.1 4.4 - 13.5
Fee expenses (1.0) (1.3) - (2.3)
Net fee income 8.1 3.1 - 11.2
Net gains on derecognition of financial assets
1.1 3.8 - 4.9
Net other operating income - - 0.2 0.2
Net operating income 17.9 36.6 0.2 54.7
Administrative expenses - - (34.5) (34.5)
Impairment losses on financial assets (5.5) (0.4) - (5.9)
Total operating expenses (5.5) (0.4) (34.5) (40.4)
Profit/(loss) before tax 12.4 36.2 (34.3) 14.3
5. Segmental analysis continued
As at 31 March 2023
Consolidated statement of financial position information
Assets
Short-term
lending
£'m
Buy-to-Let
lending
£'m
Total
£'m
6.
Interest and similar income
Loans and
advances
329.9
793.0 1,122.9 Fair value adjustment for
portfolio hedged risk
asset
0.1 0.1
Derivative financial
asset
46.0 46.0
Total segment
assets
329.9 839.1 1,169.0
Cash and cash
equivalents
46.7
Trade and other
receivables
6.1
Property, plant and
equipment
2.2
Investment
securities
23.9
Net investment in
sublease
1.0
Intangible fixed
assets
10.5
Investment in joint
venture
0.2
Investment in third
parties
2.0
Deferred
taxation
1.2
Total
assets
1,262.8
Liabilities
Interest bearing
liabilities
(331.5) (827.8)
(1,159.3)
Total segment
liabilities
(331.5) (827.8) (1,159.3)
Trade and other
payables
(23.7)
Lease
liabilities
(3.3)
Total
liabilities
(1,186.3)
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Interest income calculated using the effective interest rate method
On loans and advances to customers 62.8 66.5
On investment securities 2.1 0.6
On cash deposits 1.6 1.0
Total interest income calculated using the effective interest rate method
66.5 68.1
Other interest and similar income
Gain/(loss) on derivative financial instruments and hedge accounting
(4.0) 5.1
Total other interest and similar income (4.0) 5.1
Total interest and similar income 62.5 73.2
Revenue is recognised with reference to the accounting policy detailed in note 1.6.
7. Interest expense and similar expense
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
On amounts due to funding partners (40.1) (21.6)
On debt securities in issue (10.2) (10.0)
Funding line cost amortisation (3.7) (3.2)
Total interest expense and similar charges (54.0) (34.8)
Interest expense is recognised with reference to the accounting policy
detailed in note 1.9.
8. Net fee income
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Fee income on loans and advances 3.6 1.9
Fee income on asset management 12.2 8.8
Fee income on origination of loans to third parties 3.7 2.8
Fee income 19.5 13.5
Fee expense on origination of loans to third parties (2.5) (1.5)
Fee expense on asset management (1.1) (0.8)
Fee expense (3.6) (2.3)
Net fee and commission income 15.9 11.2
Fee income and expense are recognised with reference to the accounting policy
detailed in notes 1.8 and 1.10.
9.
Derecognition of financial assets
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Net (losses)/gains on sale of loans and loan portfolios (9.2) 1.1
Net gains on derecognition of securitised loan portfolios 8.2 3.8
Net gains on derecognition of financial assets (1.0) 4.9
During the year, Mortimer 2021-1 Limited and Mortimer 2023-1 Limited were
deconsolidated when the residual notes were sold and the impact of the
deconsolidation is as follows:
a) total consideration received - £13.5m
b) the portion of the cash consideration consisting of cash and cash
equivalents -
£13.5m
c) the amount of cash and cash equivalents in the subsidiaries which control
is lost -
£22.4m
d) the amount of the asset and liabilities other than the cash or cash
equivalents in the subsidiaries which control is lost:
Loans and Advances - (£639.6m) Interest Bearing Liabilities - £662.5m
Derivative financial asset - (£25.9m) Other assets and liabilities - £0.9m
10. Profit from operations
Profit from operations has been stated after charging:
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Wages and salaries 20.1 18.0
Depreciation and amortisation 3.2 2.1
Depreciation of right-of-use asset 0.7 0.7
Interest expense - lease liabilities 0.3 0.5
Fees payable to the auditors for the audit of the financial statements
1.4 1.0
Fees payable to the auditors for the audit of the prior year financial
statements
0.3 -
Audit-related assurance services 0.1 0.1
Share-based payment charge 1.3 1.9
Rent 0.2 -
Other administrative expenses are incurred in the ordinary course of the
business and do not require further disclosure under IAS 1.
11. Employee benefit expense
Employee benefit expense (including Directors) comprises:
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Wages and salaries 20.1 18.0
Defined contribution pension cost 0.7 0.6
Share-based payment charge 1.3 1.9
Social security contributions and similar taxes 2.4 2.2
24.5 22.7
During the year, share options and ordinary shares were issued to employees of
the Company, see note 24 for further details.
12.
Number of employees and key management compensation
The average monthly number of employees during the year was:
Year ended 31 March 2024 Year ended 31 March 2023
Number Number
Technology and product 37 60
Operations and administration 129 134
Sales and marketing 32 35
198 229
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 the Company listed on page 53.
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Salary, short-term benefits and pension 1.2 1.5
Equity-based compensation - 0.1
1.2 1.6
The highest paid Director in the year was paid £418,395 (2023: £437,424).
Further details on Directors' remuneration are disclosed in the Remuneration
Report in the Corporate Governance section of the Annual Report and Accounts
on pages 48 to 52.
13.
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Tax expense
Current tax:
Current tax on (loss)/profit for the year - 2.5
Adjustments in respect of prior periods (2.1) (0.3)
Foreign taxes - 0.1
Total current tax (credit)/charge (2.1) 2.3
Deferred tax:
Origination and reversal of temporary differences (4.9) 0.2
Adjustments in respect of prior periods (0.2) 0.4
Total deferred tax (credit)/charge (5.1) 0.6
Total tax (credit)/charge (7.2) 2.9
The tax (credit)/charge on the profit for the year is different to the
notional tax charge calculated at the UK corporation tax rate of 25%. The
differences are explained below:
(Loss)/profit before tax (27.3) 14.2
(Loss)/profit before tax multiplied by the standard rate of corporation tax of
25%
(6.8) 2.7
Tax effects of:
(Losses)/profits not subject to taxation under securitisation regime
(1.7) -
Consolidation adjustments not brought into tax 1.0 -
Tax losses not recognised 0.8 -
Tax losses not carried back 1.1 -
Difference in tax rate on carried back losses 0.4 -
Tax difference on employee share schemes exercised 0.3 -
Foreign taxes charged 0.1 0.1
(Over) provision of current tax (2.1) (0.3)
(Over)/under provision of deferred tax (0.3) 0.4
Total tax (credit)/charge (7.2) 2.9
Taxation on (loss)/profit on ordinary activities
13.
Taxation on (loss)/profit on ordinary activities continued
Deferred taxation
Deferred tax is presented in the statement of financial position as follows:
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Deferred tax assets 5.6 10.8
Deferred tax liabilities (2.3) (9.6)
Net deferred tax assets/(liabilities) 3.3 1.2
The movements during the year are analysed as follows:
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Net deferred tax assets/(liabilities) at the beginning of the year
1.2 (8.5)
Credit/(charge) to the statement of profit and loss for the year
4.9 (0.2)
(Charge)/credit to other comprehensive income (2.3) 10.0
Rate change through equity - 0.2
(Charge)/credit to equity (0.8) 0.1
Under/(over) provision of deferred tax 0.3 (0.4)
Net deferred tax assets at the end of the year 3.3 1.2
13. Taxation on (loss)/profit on ordinary activities continued
Category of deferred tax
Credit to the statement of profit and loss Current
year (Charge)/ Credit to the statement of profit and loss Prior year
£'m credit through £'m Rate change through profit and loss
OCI £'m Rate change through equity
Current £'m
Opening balance Credit to equity year Closing balance
£'m £'m £'m £'m
2024
Share and share option schemes
1.4 (0.9) (0.2) - - - - 0.3
IFRS 16
transitional adjustment
0.1 - - - - - - 0.1
Fair value reserve
5.5 - (7.6) (2.1)
Cash flow hedge adjustment
(5.4) - - 5.4 - - - -
IFRS 9 ECL
Provision 0.1 - - - - - - 0.1
Research & Development
(0.6) - 0.1 - 0.3 - - (0.2)
Losses - 0.1 5.0 - - - - 5.1
Total 1.1 (0.8) 4.9 (2.2) 0.3 - - 3.3
2023
Share and share
Opening balance
£'m
Credit to equity
£'m
Credit to the statement of profit and loss
- CY
£'m
(Charge)/
credit through
OCI - CY
£'m
Credit to the statement of profit and loss
- PY
£'m
Rate change through profit and loss
£'m
Rate change through equity
£'m
Closing balance
£'m
option schemes
1.1
0.1
-
-
(0.1)
0.1
0.2 1.4
IFRS 16
transitional
adjustment
0.1
-
-
-
-
-
- 0.1
Fair value on loans and
advances
(3.2)
-
-
8.8
-
-
- 5.6
Cash flow hedge
adjustment
(6.6)
-
-
1.2
-
-
- (5.4)
IFRS 9 ECL
provision
0.1
-
-
-
-
-
- 0.1
Research and
development
-
-
(0.2)
-
(0.3) (0.1)
-
(0.6)
Total (8.5)
0.1 (0.2)
10 (0.4)
- 0.2 1.2
The Group has gross unrecognised tax losses of £3.3m available for offset
against future taxable profits. The total amount of unused losses is £23.6m.
Deferred tax Assets recognition is based on management forecasts accounting
for the unwinding of deferred tax assets and liabilities.
14. Property, plant and equipment
The Group and Company
Cost Computer equipment Furniture and fittings Leasehold improvements Right-of- use asset
£'m £'m £'m £'m
Total
Balance as at 31 March 2022 0.3 0.1 0.4 5.2 6.0
Additions 0.2 - - - 0.2
Disposals (0.1) - - - (0.1)
Balance as at 31 March 2023 0.4 0.1 0.4 5.2 6.1
Additions - - - - -
Disposals - - - - -
Balance as at 31 March 2024 0.4 0.1 0.4 5.2 6.1
14. Property, plant and equipment continued
The Group and Company continued
15. Intangibles
Internally developed
Software
licences Software Total
Cost £'m £'m £'m
Balance as at 31 March 2022 0.7 12.0 12.7
Additions - 6.3 6.3
Balance as at 31 March 2023 0.7 18.3 19.0
Accumulated depreciation and impairment Computer equipment Furniture and fittings Leasehold improvements Right-of-
£'m £'m £'m
£'m Total
Balance as at 31 March 2022 0.2 0.1 0.1 2.8 3.2
Charge for the year 0.1 - 0.1 0.6 0.8
Disposals (0.1) - - - (0.1)
Balance as at 31 March 2023 0.2 0.1 0.2 3.4 3.9
use asset
Additions
-
3.2
3.2
Balance as at 31 March
2024
0.7
21.5
22.2
Net carrying value
as at 31 March
2023
0.2
-
0.2
1.8 2.2
Lease commitment
Future minimum payments under non-cancellable leases
Year Ended 31 March 2024 Year Ended 31 March 2023
£'m £'m
Premises
Due within a year 1.4 1.1
Due between one and five years 0.7 2.2
Due later than five years - -
2.1 3.3
The Group has a dilapidation requirement to return the leased office to the
specification as per the lease agreement. The total dilapidation is expected
to be
£204k (2023: £138k). The Group and the Company have no significant
contingent liabilities at year end.
Charge for the
year
0.1
1.8
1.9
Charge for the year - 3.0 3.0
Balance as at 31 March 2024 0.7 10.8 11.5
Net carrying value as at 31 March 2024 - 10.7 10.7
Charge for the year 0.1 - 0.1 0.7 0.9
Disposals - - - - -
Balance as at 31 March 2024 0.3 0.1 0.3 4.1 4.8 Software Internally
developed
Accumulated amortisation and impairment licences Software Total
£'m £'m £'m
Net carrying value 0.1 - 0.1 1.1 1.3 Balance as at 31 March 2022 0.6 6.0 6.6
as at 31 March 2024
Balance as at 31 March 2023 0.7 7.8 8.5
Net carrying value as at 31 March
2023
-
10.5 10.5
Internally developed software development has been capitalised as an
intangible asset and is being amortised over 5 years.
16. Other receivables
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Due within one year
Trade receivables 5.2 0.5
Other receivables:
- Prepayments and accrued income 2.3 1.9
- Corporate tax receivable 3.2 -
- Other receivables 1.2 2.5
Due after one year
Rent deposit - 1.2
11.9 6.1
The carrying value of trade and other receivables approximates fair value and
represents the maximum exposure to credit losses. Expected credit losses on
trade receivables are immaterial.
The maximum exposure to credit risk at the reporting date is the carrying
value of each class of receivables mentioned above. During the current year
(and prior period) the Group had no trade receivables that are past due, but
not impaired.
17. Cash and cash equivalents
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Cash at bank 53.2 40.4
Trustees' account 2.5 6.3
55.7 46.7
Trustees' account relates 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 20).
18.
Loans and advances
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Gross loans and advances 477.0 1,168.5
ECL provision (8.5) (9.1)
Fair value adjustment1 8.5 (36.5)
Loans and advances2 477.0 1,122.9
1 Fair value adjustment to gross loans and advances due to classification
as FVOCI, based on the Group's business model for managing these financial
assets. The significant year-on-year decrease is due to an increase between
reporting dates in market discount rates used in calculating the fair value of
the Group's Buy-to-Let loans. Key inputs into the market discount rates used
in the Group's Buy-to-Let fair value calculation are forward-looking SONIA
rates and market Buy-to-Let asset backed security spreads which both increased
steeply in the latter
part of the financial year causing the increased discount rates and a lower
fair value adjustment. This has been offset by mark-to-market increases in the
Group's interest rate swaps.
2 Loans and advances are held at FVOCI and amortised cost as per IFRS 9.
ECL provision
Movement in the period £'m
Under IFRS 9 at 1 April 2023 (9.1)
Additional provisions made during the period1 (8.7)
Utilised in the period2 9.3
Under IFRS 9 at 31 March 2024 (8.5)
1 The ECL provision of £8.5 million 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 year is
£8.4 million (2023: £7.7 million). This includes the £7.0 million (2023:
£6 million) of impairment provisions shown in the income statement and the
total impact of expected credit losses on income recognised on stage 3 loans
and advances using the effective interest rate of £1.4 million (2023: £1.7
million).
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 £7.4 million (2023: £4.4 million).
18. Loans and advances continued
ECL provision continued
Movement in the
period
£'m
Under IFRS 9 at 1 April
2022
(11.0)
Additional provisions made during the
period1
(7.7)
Utilised in the
period2
9.6
Under IFRS 9 at 31 March
2023
(9.1)
1 The ECL provision of £9.1 million 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 year is £7.7
million (2022: £5.5 million). This includes the £6.0 million (2022:
£4.4million) of impairment provisions
shown in the income statement and the total impact of expected credit losses
on income recognised on stage 3 loans and advances using the effective
interest rate of £1.7 million (2022: £1.1 million).
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 £8.4 million (2022: £9.0 million).
Analysis of loans and advances by stage
Stage 1 Stage 2 Stage 3 Total
Year ended 31 March 2024 £'m £'m £'m £'m
Gross loans and advances 305.2 89.1 82.7 477.0
ECL provision (0.1) (0.5) (7.9) (8.5)
Fair value adjustment 6.9 1.5 0.1 8.5
Loans and advances 312.0 90.1 74.9 477.0
The maximum LTV on stage 1 loans is 86%. The maximum LTV on stage 2 loans is
242%. The maximum LTV on stage 3 loans is 195%. The average LTV on stage 1
loans is 67%. The average LTV on stage 2 loans is 70%. The average LTV on
stage 3 loans is 67% and the total value of collateral (capped at the gross
loan value) held on stage 3 loans is £76.8 million.
Year ended 31 March 2023 Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
Gross loans and advances 935.7 196.7 36.1 1,168.5
ECL provision (0.5) (1.3) (7.3) (9.1)
Fair value adjustment (32.9) (3.6) - (36.5)
Loans and advances 902.3 191.8 28.8 1,122.9
The maximum LTV on stage 1 loans is 82%. The maximum LTV on stage 2 loans is
87%. The maximum LTV on stage 3 loans is 247% and the total value of
collateral (capped at the gross loan value) held on stage 3 loans is £34.3
million.
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. An asset is deemed to have increase a significant increase
in credit risk where:
- The creditworthiness of the borrower deteriorates such that their risk
grade increases by at least one grade compared with that at origination.
- The borrower falls more than one month in arrears.
- LTV exceeds 85% for Buy-to-Let, Bridging and Residential.
- LTGDV exceeds 75% for development loans.
- For Development assets, where a development will not meet practical
completion by the date anticipated at origination.
- 30 days prior to maturity for bridging loans.
• 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.
Where there is objective evidence that asset quality has improved, assets will
be allocated to a lower risk category; for example loans no longer in default
(stage 3) will be allocated to either stage 2 or stage 1.
18. Loans and advances continued
Analysis of loans and advances by stage continued
Evidence that asset quality has improved will include:
• Repayment of arrears
• Improved credit worthiness
• Term extensions and the ability to service outstanding debt
If a loss is ultimately realised, it is written off against the provision
previously provided for with any excess charged to the impairment provision in
the statement of profit and loss.
Critical accounting estimates relating to the impairment of financial assets:
The calculation of ECLs requires the Group to make a number of assumptions and
estimates. The accuracy of the ECL calculation would be impacted by movements
in the forward-looking economic scenarios used, or the probability weightings
applied to these scenarios and by unanticipated changes to model assumptions
that differ from actual outcomes.
The key assumptions and estimates that, depending on a range of factors, could
result in a material adjustment in the next financial year relate to the use
of forward- looking information in the calculation of ECLs and the inputs and
assumptions used in the ECL models.
Additional information about both of these areas is set out below.
Forward-looking information
The Group incorporates forward-looking information into the calculation of
ECLs and the assessment of whether there has been a SICR. The use of
forward-looking information represents a key source of estimation uncertainty.
The Group uses three forward-looking economic scenarios:
• a central scenario aligned to the Group's business plan;
• the downside economic assumption scenario is given a 100% weighting in
the model; and
•
Macro Assumptions 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Base 3.25% 4.35% 4.02% 3.03% 2.07% 1.60% 1.30% 1.10% 0.95% 0.78%
Upside 14.19% 7.27% 4.99% 1.24% 0.12% 0.04% 0.05% 0.09% 0.13% 0.12%
Downside -5.69% 3.17% 4.17% 4.34% 3.57% 2.79% 2.26% 1.87% 1.57% 1.29%
an upside scenario representing the impact of modest improvements to assumptions used in the central scenario.
The macroeconomic data inputs applied in determining the Group's expected
credit losses are sourced from Oxford Economics (a third-party provider of
global economic forecasting and analysis).
Oxford Economics combines two decades of forecast errors with its quantitative
assessment of the current risks facing the global and domestic economy to
produce robust forward-looking distributions for the economy.
Using specific percentile points in the distribution of several key metrics
such as GDP, unemployment, house prices and commercial real estate prices, we
receive three alternative scenarios relating to a base case (most likely),
downside (broadly equivalent to a 1-in-10 year event) and a moderate upside
scenario. Our assumptions on the likely out turn represents a weighted average
of these three scenarios provided by Oxford Economics, and are detailed below:
Macro Assumptions 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Base 0.52% 2.02% 1.96% 1.64% 1.61% 1.55% 1.54% 1.53% 1.51% 1.46%
Upside 3.39% 5.17% 3.10% 2.35% 1.46% 1.40% 1.39% 1.38% 1.37% 1.31%
Downside -1.96% -0.31% 1.41% 1.50% 1.72% 1.66% 1.65% 1.64% 1.63% 1.57%
Macro Assumptions 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Base 4.00% 3.90% 3.80% 3.80% 3.80% 3.80% 3.80% 3.80% 3.80% 3.80%
Upside 3.50% 2.40% 2.10% 2.10% 2.20% 2.30% 2.40% 2.50% 2.70% 2.80%
Downside 4.60% 5.70% 6.63% 6.84% 6.63% 6.42% 6.21% 6.01% 5.80% 5.59%
Macro Assumptions 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Base 1.77% 2.22% 5.47% 5.12% 3.50% 2.82% 2.53% 2.74% 3.16% 3.44%
Upside 5.10% 6.27% 9.41% 6.19% 3.27% 2.59% 2.30% 2.52% 2.93% 3.21%
Downside -4.80% -3.26% 0.28% 4.19% 3.91% 3.22% 2.93% 3.14% 3.56% 3.84%
18. Loans and advances continued
Analysis of loans and advances by stage continued
GDP, unemployment rates and HPI are key metrics that indicate the appetite for
credit within the economy, the ability of borrowers to service debt and value
of underlying securities that underpin credit risk management; all of which
directly impact the Group's operational activities and success.
The probability weightings applied to the above scenarios are another area of
estimation uncertainty. They are generally set to ensure that there is an
asymmetry in the ECL. The probability weightings applied to the three economic
scenarios used are as follows:
Model estimations
ECL calculations are outputs of complex models with a number of underlying
assumptions regarding the choice of variable inputs and their
interdependencies. The Group considers the key assumptions impacting the ECL
calculation to be within the PD and LGD. Sensitivity analysis is performed by
the Group to assess the impact of changes in these key assumptions on the loss
allowance recognised on loans and advances.
A summary of the key assumptions and sensitivity analysis as at 31 March 2024
is provided in the following table:
Assumption Sensitivity analysis
2024 2023
Base 40% 40%
Upside 20% 20%
Downside 40% 40%
Unemployment A 20% increase in the unemployment rate would increase the total loss allowance by £0.1m
Forced sale discount
A 10% absolute increase in the forced sale discount would increase the loss
allowance cost on loans and advances to customer by £1.0m
The Group undertakes a review of its economic scenarios and the probability
weightings applied at least quarterly and more frequently if required. The
results of this review are recommended to the Audit Committee and the Board
prior to any changes being implemented.
Movement analysis of net loans by stage
Single Factor Sensitivities
ECL Impact
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2023 902.2 191.8 28.9 1,122.9
Transfer to stage 1 35.5 (35.5) - -
Transfer to stage 2 (64.5) 64.5 - -
Transfer to stage 3 (36.8) (33.9) 70.7 -
New financial assets originated 349.7 - - 349.7
New financial assets originated and transferred to stage 2 or stage 3
(68.0) 63.5 4.5 -
Financial assets which have repaid (223.2) (71.4) (12.0) (306.6)
Balance movements in loans (582.9) (88.9) (17.2) (689.0)
Total movement in loans and advances (590.2) (101.7) 46.0 (645.9)
As at 31 March 2024 312.0 90.1 74.9 477.0
(£m)
A 20% increase in
unemployment
0.1
10% increase in Forced Sale Discount 1.0
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2022 1,025.7 153.4 35.8 1,214.9
Transfer to stage 1 40.3 (40.3) - -
18. Loans and advances continued
Movement analysis of gross loans by stage continued
£'m £'m £'m £'m Transfer to stage 2 (103.6) 104.5 (0.9) -
As at 1 April 2022 1,029.1 153.5 26.5 1,209.1 Transfer to stage 3 (10.5) (5.4) 15.9 -
Transfer to stage 1 40.5 (40.5) - - New financial assets originated 645.2 - - 645.2
Transfer to stage 2 (103.8) 104.7 (0.9) -
Transfer to stage 3 (10.5) (5.3) 15.8 -
New financial assets originated 621.6 - - 621.6
New financial assets originated and transferred to stage 2 or stage 3
(102.7) 99.1 3.6 -
Financial assets which have repaid (149.4) (58.7) (12.6) (220.7)
Balance movements in loans (422.6) (61.0) (3.5) (487.1)
Stage 1
Stage 2
Stage 3
Total
New financial assets originated and
transferred to stage 2 or stage 3 (106.1) 102.4 3.7 -
Financial assets which have repaid (147.7) (59.1) (13.4) (220.2)
Balance movements in loans (407.6) (58.8) (2.0) (468.4)
Write-offs - - (3.0) (3.0)
Total movement in loans and advances (90.0) 43.3 0.3 (46.4)
As at 31 March
2023
935.7
196.7
36.1
1,168.5
Total movement in loans and advances (126.9) 38.3 2.4 (86.2)
Movement analysis of ECL by stage
As at 31 March 2023 902.2 191.8 28.9 1,122.9
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2023 0.5 1.2 7.4 9.1
Transfer to stage 1 0.4 (0.4) - -
Transfer to stage 2 (0.1) 0.1 - -
Transfer to stage 3 - - - -
New financial assets originated 0.5 - - 0.5
New financial assets originated and transferred to stage 2 or stage 3
(0.4) 0.4 - -
Financial assets which have repaid (0.2) (0.3) (2.5) (3.0)
Changes in models/risk parameters (0.6) (0.5) 10.9 9.8
Adjustments for interest on impaired loans - - 1.4 1.4
Write-offs - - (9.3) (9.3)
Total movement in impairment provision (0.4) (0.7) 0.5 (0.6)
As at 31 March 2024 0.1 0.5 7.9 8.5
Movement analysis of gross loans by stage
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2023 935.7 196.7 36.1 1,168.5
Transfer to stage 1 37.7 (37.7) - -
Transfer to stage 2 (66.1) 66.1 - -
Transfer to stage 3 (36.6) (34.0) 70.6 -
New financial assets originated 341.7 - - 341.7
New financial assets originated and transferred to stage 2 or stage 3
(66.7) 62.2 4.5 -
Financial assets which have repaid (223.5) (71.7) (14.5) (309.7)
Balance movements in loans (617.0) (92.5) (4.9) (714.4)
Write-offs - - (9.1) (9.1)
Total movement in loans and advances (630.5) (107.6) 46.6 (691.5)
As at 31 March 2024 305.2 89.1 82.7 477.0
18. Loans and advances continued
Movement analysis of ECL by stage continued
Stage 1
As at 1 April 2022 0.2 0.9 9.9 11.0
Transfer to stage 1 0.3 (0.3) - -
Transfer to stage 2 - 0.1 (0.1) -
Transfer to stage 3 - (0.1) 0.1 -
New financial assets originated 1.2 - - 1.2
New financial assets originated and transferred to stage 2 or stage 3
(0.9) 0.7 0.2 -
Financial assets which have repaid - (0.3) (1.0) (1.3)
Changes in models/risk parameters (0.3) 0.2 6.1 6.0
Adjustments for interest on impaired loans - - 1.8 1.8
Write-offs - - (9.6) (9.6)
Total movement in impairment provision 0.3 0.2 (2.5) (1.9)
As at 31 March 2023 0.5 1.2 7.4 9.1
£'m
Stage 2
£'m
Stage 3
£'m
Total
Year ended 31 March 2023 Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
Risk grades 1-5 934.2 170.2 - 1,104.4
Risk grades 6-9 1.5 26.5 - 28.0
Default - - 36.1 36.1
Total 935.7 196.7 36.1 1,168.5
£'m
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 as well as internal data is
used to assign the initial risk grade score with additional SICR rules used to
generate the final risk grade.
Stage 1 Stage 2 Stage 3 Total
Year ended 31 March 2024 £'m £'m £'m £'m
Risk grades 1-5 305.2 81.0 - 386.2
Risk grades 6-9 - 8.1 - 8.1
Default - - 82.7 82.7
Total 305.2 89.1 82.7 477.0
Critical judgements relating to the impairment of financial assets
The Group reviews and updates the key judgements relating to impairment of
financial assets bi-annually, in advance of the Interim Financial Report and
the Annual Report and Accounts. All key judgements are reviewed and
recommended to the Audit Committee for approval prior to implementation.
Assessing whether there has been a significant increase in credit risk (SICR)
If a financial asset shows a SICR, it is transferred to Stage 2 and the ECL
recognised changes from a 12-month ECL to a lifetime ECL. The assessment of
whether there has been a SICR requires a high level of judgement as detailed
below. The assessment of whether there has been a SICR also incorporates
forward-looking information.
The Group considers that a SICR has occurred when any of the following have
occurred:
1. The overall credit worthiness of the borrower has materially worsened to
a level that the probability of default has at least doubled. This is
indicated by a migration to a higher risk grade (see below for risk grades and
probability of default (PDs)
by product).
2. Where a borrower is currently a month or more in arrears.
3. Where a borrower has sought some form of forbearance.
4. Where the overall leverage of the account has surpassed a predetermined
level. 75% Loan to Gross Development Value for Development loans and 85% for
all other products.
5. Where a short-term bridging loan has less than one month before maturity.
6. Where there is a material risk that a development loan will not reach
practical completion on time.
These factors reflect the credit lifecycle for each product and are based on
prior experience as well as insight gained from the development of risk
ratings models (probability of default).
18. Loans and advances continued
Assessing whether there has been a significant increase in credit risk
("SICR") continued
Stage 2 criteria are designed to be effective indicators of a SICR. As part of
the bi-annual review of key impairment judgements, the Group undertakes
detailed
analysis to confirm that the stage 2 criteria remain effective. This includes
(but is not limited to):
• Criteria effectiveness: this includes the emergence to default for
each stage 2 criterion when compared to stage 1, stage 2 outflow as a
percentage of stage 2, percentage of new defaults that were in stage 2 in the
months prior to default, time in stage 2 prior to default and percentage of
the book in stage 2 that are not progressing to default or curing.
• Stage 2 stability: this includes stability of inflows and outflows
from stage 2 and 3.
• Portfolio analysis: this includes the percentage of the portfolio that
is in stage 2 and not defaulted, the percentage of the stage 2 transfer driven
by stage 2 criterion other than the backstops and back-testing of the
defaulted accounts.
For low credit risk exposures, the Group is permitted to assume, without
further analysis, that the credit risk on a financial asset has not increased
significantly since initial recognition if the financial asset is determined
to have low credit risk at the reporting date. The Group has opted not to
apply this low credit risk exemption.
A summary of the risk grade distribution is provided in the table below. As
the Group utilises three different risk rating models, three separate PDs have
been provided for each portfolio.
Risk grades 1 to 9 are for non-defaulted accounts with 10 indicating default.
Therefore, all stage 3 loans are assigned to this grade.
As stated previously, degradation in a borrower's creditworthiness is an
indication of SICR. Therefore, as shown in the table below, stage 2 loan
distributions are in the main assigned to risk grades higher than risk grade
1.
Gross loans and advances (£'m)
Risk Grade ECL (£'m) Probability of default
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Bridging Buy-to-let Development
RG1 267.6 4.1 0.0 (0.1) (0.0) 0.0 6.6% 0.4% 0.1%
RG2 28.8 21.9 0.0 (0.0) (0.1) 0.0 11.6% 1.5% 0.4%
RG3 4.3 20.0 0.0 (0.0) (0.1) 0.0 18.9% 2.1% 0.6%
RG4 2.7 14.8 0.0 (0.0) (0.1) 0.0 30.0% 3.4% 1.2%
RG5 1.8 20.2 0.0 (0.0) (0.1) 0.0 44.6% 4.2% 2.3%
RG6 0.0 3.4 0.0 (0.0) (0.1) 0.0 68.9% 6.2% 4.1%
RG7 0.0 2.5 0.0 0.0 (0.0) 0.0 79.0% 8.1% 7.2%
RG8 0.0 0.5 0.0 0.0 (0.0) 0.0 87.5% 10.6% 11.6%
RG9 0.0 1.7 0.0 0.0 (0.0) 0.0 93.2% 15.5% 18.9%
RG10 0.0 0.0 82.7 0.0 0.0 (7.9) 100% 100% 100%
Total 305.2 89.1 82.7 (0.1) (0.5) (7.9)
Determining whether a financial asset is in default or credit impaired
When there is objective evidence of impairment and the financial asset is
considered to be in default, or otherwise credit-impaired, it is transferred
to stage 3. The Group's definition of default follows product specific
characteristics allowing for the provision to reflect operational management
of the portfolio. Below we set out a short description of each product type
and the Group's definition of default as specific to each product.
Bridging Loans - Bridging loans are short-term loans designed for customers
requiring timely access to funds to facilitate property purchases. Typically,
loans involve residential securities, however Commercial, semi-commercial and
Land is also taken as security.
A bridging loan is considered to be in default if:
a) a borrower fails to repay their loan after 30 days and does not seek an
authorised extension; and
b) the loan is two months in arrears either in term or after expiry.
18. Loans and advances continued
Determining whether a financial asset is in default or credit impaired
continued
Buy-to-Let and Residential Loans - Buy-to-let loans constitute LendInvest's
long- term lending proposition. Loans are extended to borrowers looking to
purchase
a new rental property or refinance an existing rental property. All loans
carry structured repayments of interest, with the principal paid at the end of
the term.
The default definition for Buy-to-Let loans is:
a) an account that reaches an arrears balance equivalent to, or greater than,
three Contractual Monthly Subscription payments; and
b) the property is taken into receivership, or the borrower has been declared
bankrupt.
Development Loan - Development Loans support borrowers looking to undertake a
significant property or site development. The resulting site should be for
residential purposes only. Loan terms are typically for short-term (less than
three years) with no structured repayments.
A development loan is defined as being in default if it has not been redeemed
60 days after the maturity of the loan.
The Group does not apply the rebuttable presumption that default does not
occur later when a financial asset is 90 days past due.
Improvement in credit risk or cure - There is no cure period assumed for loans
showing improvement in credit risk. This means that any loan that does not
meet the SICR criteria is assigned to stage 1.
19. Investment securities
As at year end the Group investment securities were £41.1 million (2023:
£23.9 million). The investment securities relate to a 5% retained position in
structured securitisation entities that are no longer consolidated.
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Retained interest in:
Mortimer BTL 2020-1 PLC - 10.7
Mortimer BTL 2021-1 PLC 10.1 -
Mortimer BTL 2022-1 PLC 12.0 13.2
Mortimer BTL 2023-1 PLC 19.0 -
41.1 23.9
The Group sold its residual interest it held in Mortimer BTL 2020-1 PLC on 1
March 2023. The sale of the certificate and Mortimer 2020 asset being called
on March 1, 2023, resulted in a derecognition event, as substantially all of
the risk, rewards and control of the vehicle passed to the Purchaser. As the
variable returns, and control of the vehicle had been transferred, the
Mortimer BTL 2020-1 PLC entity has also been deconsolidated from the Group's
results. Subsequent to this, Mortimer BTL 2020-1 PLC was called by the
certificate holder in June 2023, redeeming all notes at par value. Therefore,
the retained interest was repaid at par value such that there is no longer any
retained interest in Mortimer BTL 2020-1 PLC held by the Group.
The Group sold its holding of the certificate for Mortimer BTL 2021-1 PLC on
19 April 2023. The sale of the certificate represents the excess spreads in
the securitisation vehicle as well as an option to repurchase the asset from
the vehicle on 25 June 2026. The sale of the certificate and call options
resulted in a derecognition event as substantially all the risks, rewards, and
control of the vehicle passed to the purchaser. As the variable returns, and
control of the vehicle had been transferred, the Mortimer BTL 2021-1 PLC
entity has also been deconsolidated from the Group's results. This has
resulted in a gain on sale of £10.7m pre-tax. The investment securities of
£10.1m represents 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.
19. Investment securities continued
The Group securitised a portfolio of mortgage loans into a securitisation
vehicle, Mortimer BTL 2023-1 PLC, on 29 November 2023. On 4 January 2024, the
Group sold its holdings of residual notes in the securitisation vehicle,
Mortimer BTL 2023-1 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 26 December 2026. The sale of the residual notes and call options
resulted in a derecognition event as substantially all the risks, rewards, and
control of the vehicle passed to the purchaser. As the variable returns, and
control of the vehicle had been transferred, the Mortimer BTL 2023-1 PLC
entity has also been deconsolidated from the Group's results. This has
resulted in a loss on sale of £2.5m pre-tax. The investment securities of
£19m represent the retained risk retention in the form
of debt securities issued by unconsolidated structured entities as part of the
securitisation transactions that are retained by the Group.
The investment securities are carried at amortised cost.
20.
Other payables
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Trade payables 14.1 15.1
Other payables:
- Taxes and social security costs 1.2 1.4
- Accruals and deferred income 7.9 7.0
- Sub-lease deposit rent payable 0.2 0.2
23.4 23.7
The trade payables balance includes Trustees' balances of £2.5 million (2023:
£6.3 million) 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.
21. Interest bearing liabilities
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Funds from investors and partners 514.0 1,159.6
Accrued interest 3.9 4.3
Unamortised funding line costs (3.3) (4.6)
514.6 1,159.3
For an analysis of contractual maturity and liquidity risk, refer to note 4.
The Group is not in breach or default of any provisions of the terms or
conditions of the agreements governing borrowings. Interest bearing
liabilities of the Group are a combination of both fixed and floating rate
liabilities and the Group's annualised
interest cost on funding has ranged between 1% to 12% in the current financial
year. Interest bearing liabilities have decreased in line with the decrease in
loans and advances at the financial year end.
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.
21. Interest bearing liabilities continued
Net debt represents interest bearing liabilities (as above), less cash at bank
and in hand (excluding cash held for clients) and excluding unamortised
funding line costs but including accrued interest relating to the Group's
third-party indebtedness.
A reconciliation of net debt is:
As at 31 March 2024 As at 31 March 2023
£'m £'m
Interest bearing liabilities 514.6 1,159.3
Deduct: cash as reported in financial statements (55.7) (46.7)
Net debt: borrowings less cash as reported in the financial statements
458.9 1,112.6
Add back: unamortised funding line costs 3.3 4.6
Add back: trustees' account balances 2.5 6.3
Add back: accrued interest 3.9 4.3
Deduct: retained interest (4.1) (5.9)
Net debt 464.5 1,121.9
Interest-bearing
liabilities Leases
£'m £'m
31 March 2023 (1,159.3) (3.3)
Cash flows (2.5) 1.4
Deconsolidation of subsidiaries 662.5 -
Movement in accrued interest on interest bearing liabilities
0.4 -
Amortisation of Funding line costs (3.7) -
Investment securities (12.0) -
Lease liability interest - (0.3)
Dilapidations provision - (0.1)
31 March 2024 (514.6) (2.3)
Interest-bearing Leases
liabilities £'m
£'m
31 March 2022 (1,214.1) (4.1)
Cash flows (155.8) 1.4
Movement in accrued interest on interest bearing liabilities
(1.5) -
Amortisation of Funding line costs (3.2) -
Derivative, hedge accounting and committed facility fair value
(profits)/losses
215.3 -
Reinstatement of dilapidations provision - (0.1)
Lease liability interest - (0.5)
31 March 2023 (1,159.3) (3.3)
22. Share capital
Year ended 31 March 2024 Year ended 31 March 2023
Issued and fully paid up
Number £ Number £
Ordinary shares 141,032,025 70,516 139,631,046 69,816
Total number of shares issued 141,032,025 70,516 139,631,046 69,816
Ordinary shares held in EBT Trust (1,641,645) (821) (1,640,205) (820)
Forfeited ordinary shares held in SIP Trust (154,966) (77) (48,056) (24)
Total number of shares in circulation 139,235,414 69,618 137,942,785 68,972
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Share premium
1 April 55.2 55.2
Issue of new equity - -
Costs incurred in issuing new equity - -
31 March 55.2 55.2
The balance on the share capital account represents the aggregate nominal
value of all ordinary shares in issue. There is no maximum number of shares
authorised by the articles of association.
22. Share capital continued
LendInvest plc has one class of ordinary share, the shares have attached to
them full voting, dividend and capital distribution rights.
They do not confer any rights of redemption.
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
shares have a nominal value of £0.0005.
Reconciliation of movements during the period
Ordinary shares
As at 1 April
2023
139,631,046
Issue of shares into the Employment Benefit
Trust
1,400,979
As at 31 March
2024
141,032,025
On 5 September 2023, the company issued and allotted the remaining 67,592
ordinary shares from its existing block admission (completed in August 2021)
for the purposes of granting share awards under the company's SIP. The
remainder of the shares granted under the SIP were sourced from the EBT.
On 25 September 2023, the company issued a further 1,333,387 ordinary shares
into the EBT to satisfy the expected exercise of vested share options held by
employees under the Company's share plans.
23. Reserves
Reserves comprise retained earnings, own share reserve, the employee share
reserve, fair value reserves, and cash flow 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 the employee share reserve
represents the fair value of share options issued to employees but not
exercised. Own share reserve represents the weighted average cost of shares of
Lendinvest plc that are held by the employee benefit trust for the purpose of
fulfilling obligations in respect of various employee share plans.
Cash flow hedge reserve movement
Cash flow
Financial liabilities Deferred hedge reserve
£'m tax £'m
£'m
Balance as at 1 April 2023 21.5 (5.4) 16.1
Movement in fair value of loans and advances at fair value through other
comprehensive income
- - -
Cash flow hedge reserve recycled to profit and loss on derecognition of
interest bearing obligations
(21.5) 5.4 (16.1)
Cash flow hedge reserve at 31 March 2024 - - -
On 14 April 2023, the Group sold its non-risk retention residual economic
interest in the Mortimer BTL 2021-1 PLC securitisation for a cash
consideration of £8.66m. The sale of the certificate (residual notes)
resulted in a derecognition event as substantially all the risks, rewards, and
control of the vehicle passed to the investor.
As the control of the vehicle (Mortimer BTL 2021-1) had been transferred, the
vehicle has been deconsolidated from the Group's results. This also resulted
in the re- cycling of a loss of £21.5m from the cash flow hedge reserves to
the line item 'Net gain on derecognition of financial assets' in the profit
and loss.
Fair value reserve movement
Deferred
Gross tax Net
£'m £'m £'m
Fair value reserve balance as at 1 April 2023 (22.0) 5.5 (16.5)
Fair value movement on loans during the period 56.2 (14.0) 42.2
Less: Recycles to profit and loss as part of sale and maturity of portfolio
(36.0) 9.0 (27.0)
Less: Release of fair value on hedged items to profit and loss
10.3 (2.6) 7.7
Fair value reserve at 31 March 2024 8.5 (2.1) 6.4
In the prior year, the Cash Flow Hedge Reserve and Fair Value Reserve were
presented cumulatively in note 26(d).
24. Share-based payments
Company Share Option Plan
During the prior financial years, the Company issued share options to
employees under a Company Share Option Plan (CSOP). The following information
is relevant in the determination of the fair value of options granted during
the year under the equity-settled share based remuneration schemes operated by
the Group. These
Year ended Year ended Year ended
31 March 2019 31 March 2020 31 March 2021
Option pricing model used Black-Scholes Black-Scholes Black-Scholes
model model model
Valuation of share options at grant date
£0.6 per share £0.6 per share £0.9 per share
Amortisation period 4 years 4 years 4 years
Strike price £0.0005 £0.0005 £0.0005
Expiry date September 2028 August 2029 January 2031
Grant date September 2018 August 2019 January 2021
options vest annually on a straight-line basis according to the amortisation period of each award.
The movement in options is as follows:
Awards granted in the year to 31 March 2024
During the period ended 31 March 2024, the Company operated the following
share- based payment plans, all of which are equity settled.
a) Executive share option plans -
Under the LendInvest plc 2021 Long-Term Incentive Plan (LTIP):
During the year ending 31 March 2024, conditional nil-cost option awards were
granted, consisting of deferred bonus shares and LTIP share awards made to the
Directors and a limited number of the Senior Management team. These awards
vest over a three-year period and are subject to performance conditions. For
the LTIPs awarded in 2021, the performance conditions are based solely on
total shareholder return over the three-year period. The LTIPs awarded in 2022
are based solely on a measure of cumulative earnings per share over the
three-year period.
b) Deferred Bonus Plan (DBP)
The DBP is awarded as part of the Company bonus scheme which is eligible to
all employees not part of a separate commission scheme. The DBP vests 12
months after the award date and is forfeited by employees if they leave the
business during this period.
Under the LendInvest plc 2021 Long-Term Incentive Plan (LTIP):
Movements in the number of LTIP shares outstanding and their exercise prices
are set out below:
Year ended 31 March 2019
Year ended 31 March 2020
Year ended 31 March 2021
Balance at 1 April 2022 912,200 687,000 1,957,000
Granted during the
year
-
-
- Options exercised during the
year
(838,800)
(508,250)
(202,169)
Cancelled during the year (8,750) (22,000) (91,000)
Balance at 31 March 2023
64,650 156,750 1,663,831
Granted during the year - - -
Options exercised during the year (17,000) (43,000) (284,500)
Cancelled during the year (8,000) (171,250)
Balance at 31 March 2024 47,650 105,750 1,208,081
Number of shares for which awards outstanding Number of shares for which awards outstanding
at March 2023 at March 2024
Share price per award Exercise Awards granted during period Awards vested during period Awards lapsed during period
price per award
Year of introduction Date of vesting
2021.1 2.185 Nil Aug 2024 1,901,850 - - (364,872) 1,536,978
2021.2 2.010 Nil Dec 2024 161,615 - - (22,727) 138,888
2022 1.535 Nil July 2025 2,645,899 - - (725,181) 1,920,718
2022 1.535 Nil July 2023 188,680 - - (26,461) 162,219
2023 0.45 Nil July 2026 - 2,719,000 - (577,167) 2,141,833
2023 0.47 Nil July 2024 - 1,358,765 - (231,922) 1,126,843
The weighted average share price at the time of exercise for all of the options exercised in the year was £0.58.
The weighted average fair value of these awards granted during the period was
£0.46 per award.
24. Share-based payments continued
Awards granted in the year to 31 March 2024
c) Other Share Plans
Share Incentive Plan
An award of shares was made to employees in September 2023. The shares awarded
are held in trust for three years on the employee's behalf, during which
period the employee is entitled to any dividends paid on such shares. The
award is subject to a non-market based condition. If an employee leaves the
Group within this three-year period for other than a 'good' reason, all of the
shares awarded will be forfeited.
On 5 September 2023, an award of free shares was made to all eligible
employees. The number of shares awarded was, with a fair value of 0.51p based
on the market price at the date of award.
Movements in the number of SIP shares outstanding are set out below:
Share-based payment charge recognised
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Executive Share Option Plans:
Long-Term Incentive Plan:
Options granted in the year 0.2 0.4
Options granted in prior years (0.1) 0.4
Other Share Plans:
Deferred Bonus plan
Options granted in the year 0.0 0.1
Options to be granted as part of Company bonus scheme 0.5 0.4
Share Incentive Plan
Shares granted in the year 0.1 0.1
Options granted in prior years 0.2 0.2
Company Share Options Plan 0.2 0.3
Total all plans 1.1 1.9
Social security expense 0.1 0.1
Total charge to the income statement (note 10) 1.2 2.0
Year ended 31 March 2023 Number of shares
Outstanding at March 2023 477,902
Granted 1,020,662
Forfeited (477,140)
Outstanding at March 2024 1,021,424
Weighted average exercise price
£
At 1 April
2023
0.01
At 31 March
2024
0.01
a)
24. Share-based payments continued
Weighted average remaining contractual life
Number of Options
Years
2018 CSOP 4.4 47,650
2019 CSOP 5.3 105,750
2020 CSOP 6.8 1,210,081
2021.1 LTIPs 0.4 1,536,978
2021.2 LTIPs 0.7 138,888
2022 DBP 0.0 162,219
2022 LTIPs 1.3 1,920,718
2023 DBP 0.3 1,126,843
2023 LTIPs 2.3 2,141,833
All schemes 1.6 8,390,960
Carrying amount of financial instruments
A summary of the financial instruments held by category is provided below:
25. Financial instruments
Principal financial instruments
The principal financial instruments used by the Group, from which financial
instrument risk arises, are: loans and advances, interest bearing liabilities,
trade
and other receivables, cash and cash equivalents, loans and borrowings,
derivatives, and trade and other payables.
Categorisation of financial assets and financial liabilities
The financial assets of the Group are carried at amortised cost, fair value
through other comprehensive income or fair value through profit and loss as at
31 March 2024 and 31 March 2023 according to the nature of the asset. All
financial liabilities of the Group are carried at amortised cost as at 31
March 2024 and 31 March 2023 due to the nature of the liability, with the
exception of derivatives which are measured at
fair value.
Financial instruments measured at amortised cost
Financial instruments measured at amortised cost, rather than fair value,
include cash and cash equivalents, trade and other receivables, trade and
other payables 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.
As at 31 March 2024 As at 31 March 2023
£'m £'m
Financial assets at amortised cost
Cash and cash equivalents 55.7 46.7
Trade and other receivables 6.4 4.2
Loans and advances1 10.2 174.2
Investment securities 41.1 23.9
Financial assets at fair value through other comprehensive income
Loans and advances 466.8 948.7
Financial assets at fair value through profit and loss
Derivative financial asset - 46.0
Fair value adjustment for portfolio hedged risk asset - 0.1
Total financial assets 580.2 1,243.8
1 As at 31 March 2024 the Group hold these loans valued at amortised cost within the accounts. The portfolio of BTL loans that had previously been held at fair value through other comprehensive income as at 31 March 2023 are now being held under amortised costs as at 31 March 2024 as a result of a change in classification to 'hold to collect'.
As at 31 March 2024 As at 31 March 2023
£'m £'m
Financial liabilities at amortised cost
Trade and other payables (23.4) (22.3)
Interest bearing liabilities (514.6) (1,159.3)
Lease liability (2.3) (3.3)
Financial liabilities at fair value through profit and loss
Derivative financial liability (2.0) -
Total financial liabilities (542.3) (1,184.9)
25. Financial instruments continued
Financial instruments measured at amortised costs continued
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 31 March 2024 and the
comparative figures:
As at 31 March 2024 As at 31 March 2023
Carrying Amount Carrying Amount
£'m Fair Value £'m Fair Value
£'m £'m
Financial assets
Cash and cash equivalents 55.7 55.7 46.7 46.7
Trade and other receivables 6.4 6.4 4.2 4.2
Loans and advances 477.0 477.0 1,122.9 1,122.9
Derivative financial asset - - 46.0 46.0
Investment securities 41.1 41.1 23.9 23.9
Fair value adjustment for portfolio hedged risk asset
- - 0.1 0.1
Total financial assets 580.2 580.2 1,243.8 1,243.8
Financial liabilities
Trade and other payables (23.4) (23.4) (22.3) (22.3)
Interest bearing liabilities (514.6) (508.1) (1,159.3) (1,157.9)
Derivative financial liability (2.0) (2.0) - -
Lease liability (2.3) (2.3) (3.3) (3.3)
Total financial liabilities (542.3) (535.8) (1,184.9) (1,183.5)
The fair value of Retail Bond 3 interest bearing liabilities is calculated
based on the mid-market price of 86.3 on 31 March 2024 (price of 98.7 on 31
March 2023).
The fair value of Retail Bond 4 interest bearing liabilities is calculated
based on the mid-market price of 100.1 on 31 March 2024.
As per IFRS 9, loans and advances are classified as fair value through other
comprehensive income and any changes to fair value are calculated based on the
fair value model and are recognised through the statement of other
comprehensive income.
Interest bearing liabilities continue to be classified at amortised cost and
the fair value 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 relevant 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. as prices) or
indirectly (i.e. derived from prices); and
• 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 31 March 2024
£'m Level 1 Level 2 Level 3
£'m £'m £'m
Financial instruments measured or disclosed at fair value
Interest rate swap (2.0) - (2.0) -
Loans and advances 466.8 - - 466.8
Financial instruments measured or disclosed at amortised cost
Loans and advances 10.2 - - 10.2
Interest bearing liabilities1 (508.1) (74.9) - (433.2)
For all other financial instruments, the fair value is equal to the carrying
value and has not been included in the table above.
Year ended 31 March 2024
£'m
Level 3 Financial Instruments
Level 3 assets at beginning of the period 948.7
Additional impairment provisions made during the period1 (8.7)
Impairment provision utilised in the period 9.3
Fair value adjustments on loan & advances through OCI 8.5
New level 3 assets originated 349.7
Level 3 assets that have repaid (242.3)
Balance movements in level 3 assets (598.4)
Level 3 assets at the end of the period 466.8
25. Financial instruments continued
Financial instruments measured at amortised costs continued
31 March 2023 Level 1 Level 2 Level 3
£'m £'m £'m £'m
Financial instruments measured
Interest rate swap 46.0 - 46.0 -
Loans and advances 948.7 - - 948.7
Financial instruments measured or disclosed at amortised cost
Loans and advances 174.2 - - 174.2
Interest bearing liabilities1 (1,157.9) (94.6) - (1,063.3)
As at
or disclosed at fair value
1 Interest bearing liabilities are held at amortised cost on the statement of
financial position. Level 1 financial instruments include the Group's listed
retail bond notes. Level 3 interest bearing liabilities are short term in
nature and their carrying value approximates their fair value.
1 ECL provision of £8.7 million 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 year is £8.5
million (2023: £7.7 million). This includes the £7.1 million (2023: £6
million) of impairment provisions shown in the income statement and the total
impact of expected credit losses on income recognised on stage 3 loans and
advances using the effective interest rate of £1.4 million (2023: £1.7
million).
Significant
Level 2 instruments include interest rate swaps which are either two, three or
five
Financial instrument Valuation technique used
unobservable inputs Range
years in length. These lengths are aligned with the fixed interest periods of
the underlying loan book.
Level 3 instruments include loans and advances. The valuation of the asset is
not based on observable market data (unobservable inputs). Valuation
techniques include net present value and discounted cash flow methods. The
assumptions used in such models include benchmark interest rates and borrower
risk profile. The objective of the valuation technique is to determine a fair
value that reflects the price of the financial instrument that would have been
used by two counterparties in an arm's length transaction.
For the year ended 31 March 2024 the Group opted to engage a third-party
expert to perform the valuation of Buy-to-Let assets held at fair value. The
discount rate used in this valuation consists of three components:
• A risk-free rate implied from the 1-month SONIA forward curve
• Credit spread based on a comparable market deal which is adjusted for
movements in UK BTL indices
• Illiquidity premium
Loan and advances Discounted cash flow
valuation Prepayment
rate 0%-10%
Probability of default 7%-100% Discount
rate 4%-12%
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 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. The impact
of changes in
observable inputs shown in sensitivity analysis below will be reported through
other comprehensive income.
25. Financial instruments continued
+100bps -100bps
Impact of changes in unobservable inputs at 31 March 2024 £'m £'m
Prepayment rates (0.2) 0.2
Discount rate (7.4) 7.7
Probability of default - -
Sensitivity Analysis
Impact of changes in unobservable inputs at 31 March 2023
+100bps
£'m
-100bps
£'m
The Group received £35.1 million in cash on termination of in-the-money
derivatives and a further £5.2 million in quarterly interest receipts during
the year. The Group paid an initial amount on Wells Fargo swap of £9.9
million to set the fixed leg of below market as part of the capital structure
of two special purpose vehicles formed during the year.
The net notional principal amount of the outstanding interest rate swap
contracts at 31 March 2024 was £148.3 million (2023: £779.1 million).
27.
Year ended 31 March 2024 Year ended 31 March 2023
Pence per Pence per
£'m share £'m share
Final dividend for the prior year - - 6.1 4.4
Interim dividend for the current year - - 1.8 1.3
Total - 7.9
Dividends
Prepayment
rates
0.6
(0.6)
Discount
rate
(25.3) 26.6
Probability of
default
-
-
The fair value of the Buy-to-Let portfolio significantly decreased during the
financial year under review and is largely driven by a rise in market SONIA
rates and inflated securitisation rates compared to prior year end.
The fair value movement of loan and advances primarily consist of movements in
the fair value of the Buy-to-Let portfolio. The Buy-to-Let fair value is most
sensitive to discount rate movements. The movements in the Buy-to-Let discount
rate are directly linked to changes in interest rates which the Group hedges
through interest rate swaps. Any increase or decrease in the fair value of
Buy-to-Let loans and advances will be offset by a corresponding decrease or
increase in the fair value of the derivative on the Group's balance sheet.
Year ended 31 March 2024 Year ended 31 March 2023
Instrument Type
Asset Liability Asset Liability
£'m £'m £'m £'m
SONIA indexed interest rate swaps - 2.0 46.0 -
Total - 2.0 46.0 -
26. Derivatives held for risk management
All derivatives are held at fair value for the purpose of managing risk
exposures arising on the Group's business activities, assets and liabilities,
although not all the derivatives are subject to hedge accounting.
There was a net decrease of £48 million on the derivative asset position
during the year (2023: increase of £13.5 million).
28. Investment in joint ventures
During FY23 LendInvest Loan Holdings Limited entered into an agreement to
establish a private company limited by shares, Tradelend Limited. Under
the agreement, Tradelend Limited is a private company limited by shares and
incorporated in England under the Companies Act 2006. LendInvest Loan Holdings
Limited beneficially owns 51% of the paid up capital of the company.
In FY23, Tradelend Limited was disclosed as a joint venture under IFRS 11 -
Joint Arrangements and accounted using the equity method under IAS 28 -
Investments in Associates and Joint Ventures. Tradelend Limited did not trade
during the year.
During FY24 the Group subsequently evaluated that under IFRS 10 Para 6 Control
criteria, Tradelend is an indirect subsidiary of LI Plc and should not be
accounted as Joint Venture. Given Tradelend did not trade during FY23, the
Group determines the size and nature of error to be immaterial and therefore
prior period restatement is not required.
The Group also assessed the accounting implications of recognising Tradelend
NCI portion in line with accounting policy 1.21. The NCI of Tradelend is
considered to be immaterial and hence the financial information is not
disclosed.
29. Investment in third parties
No new investments in third parties during the year but a return on investment
of
£0.05m was realised during the year.
In December 2022 LendInvest Capital GP II Sarl invested in LendInvest Capital
GP II, subsequently a redemption was placed and with effect from 3rd July
2023,
LendInvest Capital GP II Sarl was no longer recognised as an investor, but a
creditor. At this point the receivable value of £2,052k was crystalised and
reclassified from an investment to a receivable.
30. Disclosure of interest in unconsolidated structures
During the year, the Group sold its holding of the residual certificate in
Mortimer BTL 2021 -1 PLC securitisation on 19 of April 2023. The
securitisation entity was sponsored by LI BTL Limited by funding X notes and
setup costs. The sale of the certificate and call options resulted in a
derecognition event as substantially all the
Summarised financial information of interests:
Summarised below is the table providing carrying amounts of all assets at the
time of transfer in relation to Mortimer 2023-1 Plc and Mortimer 2021-1 PLC as
below:
£m
Mortimer 23 Mortimer 21
Cash and cash
equivalents
16.0
6.3
Other current
assets
-
7.8
Deemed
loans
401.0 238.1
Derivatives
4.1 21.8
Other
Liabilities
7.6
-
Summarised statement of comprehensive income:
Summarised below is the table which sets out the income from structured
entities during the reporting period:
£m £m
Interest income 4.1 0.5
Other interest and similar income 0.1 -
Interest expense (2.0) (0.6)
Net interest income 2.2 (0.1)
Admin Expenses - 0.1
Total operating expenses - -
Profit for the period 2.2 -
risks, rewards, and control of the vehicle passed to the purchaser and therefore the entity was deconsolidated.
Additionally, the Group securitised a portfolio of mortgage loans into a
securitisation vehicle, Mortimer BTL 2023-1 PLC, on 29 November 2023. The
securitisation entity was sponsored by LI BTL Limited by funding X notes and
setup costs. On 4 January 2024, the Group sold its holdings of residual notes
in the securitisation vehicle,
Mortimer BTL 2023-1 PLC. The sale of the residual notes and call options
resulted in a derecognition event as substantially all the risks, rewards, and
control of the vehicle passed to the purchaser.
The following notes disclose interest in these entities as per the
requirements of para B25 IFRS 12:
Mortimer 23
Mortimer 21
31. Related-party transactions
See note 12 for analysis of Director compensation. There were no other related
party transactions during the period to 31 March 2024 that would materially
affect the position or performance of the Group.
32. Controlling party
In the opinion of the Directors, the Group does not have a single controlling
party.
33. Events after the reporting date
On 4th January 2024, the Group sold its residual economic interest in the
Mortimer 2023 securitisation and announced a gain of £12.1m. Subsequently,
the company identified an accounting issue concerning the sale of residual
interest. The issue related to swap and hedge accounting assumptions as part
of the derecognition calculation. As a result of the issue identified, the
Group released an announcement on 17th June 2024 and advised the market to
reduce expectations of net operating income and profit before tax for
Financial year 2024 by disregarding the previously expected net gain of
£12.1m from the sale.
On 1st June 2024, the Group entered into a three-year strategic funding
facility with a third party financing provider. On the same date, the Group
repaid its funding facility with GCP Asset Backed Income Fund Ltd. The
proceeds from the arrangement were used to provide term loans to Group
subsidiaries for the
purposes of funding mezzanine positions under the BTL and/or bridging
facilities, to warehouse whole loans or to provide intercompany loans to
Lendinvest PLC.
34.
Earnings per share
Year ended 31 March 2024 Pence/share Year ended 31 March 2023 Pence/share
Basic earnings per share
Total basic earnings per share attributable to the ordinary equity holders of
the Group
(14.5) 8.3
Year ended 31 March 2024 Pence/share Year ended 31 March 2023 Pence/share
Diluted earnings per share
Total basic earnings per share attributable to the ordinary equity holders of
the Group
(14.5) 8.0
Year ended 31 March 2024 Year ended 31 March 2023
Number of shares used as denominator
Number of ordinary shares used as the denominator in calculating basic
earnings per share
138,439,688 137,437,395
Adjustment for calculations of diluted earnings per share: Options
- 4,602,267
Number of ordinary shares and potential ordinary shares used as denominator in
calculating diluted earnings per share
138,439,688 142,039,662
The loss after tax reported in the consolidated statement of profit and loss,
£20.1 million (31 March 2023: £11.4 million profit), is the numerator
(earnings) used in calculating earnings per share.
Company statement of financial position
As at 31 March 2024 As at 31 March 2023
£'m £'m
Note
Equity
Employee share reserve 3.8 3.3
Share 0.1 0.1
capital
13
Share 55.2 55.2
premium
13
Own Share Reserve (0.1) (0.6)
Accumulated losses/(Retained earnings) 14 (3.0) 10.3
Total equity 56.0 68.3
As at 31 March 2024 As at 31 March 2023
£'m £'m
Note
Assets
Cash and cash 19.8 19.6
equivalents
9
Trade and other 32.9 28.2
receivables
8
Corporate tax 1.7 3.2
receivable
8
Loans and 62.0 63.8
advances
10
Property, plant and 1.3 2.2
equipment
5
Net investment in 0.6 1.0
sublease
2
Intangible 10.7 10.5
assets
6
Deferred 0.8 0.8
taxation
4
Total assets 129.8 129.3
Liabilities
Trade and other (59.0) (22.8)
payables
11
Interest bearing (12.5) (34.9)
liabilities
12
Lease (2.3) (3.3)
liabilities
2
Total liabilities (73.8) (61.0)
Net assets 56.0 68.3
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present its statement of profit and loss and other comprehensive income.
The (loss)/profit after tax of the parent company for the year was £(8.3)
million (2023: £4.9 million).
The financial statements on pages 115 to 128 were approved and authorised for
issue by the Board of Directors on 23 July 2024 and were signed on its behalf
by:
Rod Lockhart Director
Company statement of cash flows
Year ended 31 March 2023 (restated)
Year ended 31 March 2024 £'m
£'m
Cash flow from operating activities Note
Cash flow from financing activities
Repayment of funder liabilities 12 (22.3) (2.6)
Funding received from Institutional lenders 12 (0.2) 15.2
Principal elements of finance lease payments (0.7) (0.9)
Interest expense - lease liabilities (0.3) (0.5)
Dividends paid (4.4) (7.8)
Net cash generated/(used in) from financing activities (27.9) 3.4
Net increase/(decrease) in cash and cash equivalents 0.2 (32.8)
Cash and cash equivalents at beginning of the period 9 19.6 52.4
Cash and cash equivalents at end of the period 9 19.8 19.6
Year ended 31 March 2023 (restated)
Year ended 31 March 2024 £'m
£'m
Cash flow from operating activities Note
(Loss)/profit after taxation (8.3) 4.9
Adjusted for:
Depreciation of property, plant and equipment 5 0.2 0.2
Amortisation of intangible assets 6 3.0 1.9
Company share and share option schemes 1.3 (1.0)
Income tax (credit)/expense (1.3) 3.0
Impairment provision 10 6.6 7.6
Depreciation of right-of-use asset 2 0.7 0.6
Dilapidations provision 2 0.1 -
Interest expense - lease liabilities 2 0.3 0.5
Income from sublease (0.1) (0.2)
Change in working capital
Increase in gross loans and advances 10 (4.8) (26.8)
Increase in trade and other receivables 8 (1.6) (14.8)
Increase/(decrease) in trade and other payables 11 36.2 (5.8)
Income taxes paid 4 (1.1) -
Cash generated/(used in) from operations 31.2 (29.9)
Purchase of property, plant and equipment 5 - (0.2)
Capitalised development costs 6 (3.2) (6.3)
Income from sublease 0.1 0.2
Net cash used in investing activities (3.1) (6.3)
Interest received was £0.3 million (2023: £0.2 million) and interest paid was £0.0 million (2023: £3.0 million).
Company statement of changes in equity
Retained
Employee Earnings /
Share Share Own Share share (accumulated
capital premium Reserve reserve deficit) Total
£'m £'m £'m £'m £'m £'m
Balance as at 31 March 2022 0.1 55.2 - 2.6 13.8 71.7
Profit after taxation - - - - 4.9 4.9
Employee share scheme tax - - - - 0.3 0.3
Current tax movement through equity - - - - 0.4 0.4
Shares purchased by EBT - - (3.0) - - (3.0)
Shares issued from own share reserve - - 2.4 - (2.4) -
Reinstatement of Dilapidations provision - - - - (0.1) (0.1)
Transfer of share option costs - - - (1.3) 1.3 -
Dividends paid - - - - (7.9) (7.9)
Employee share option schemes - - - 2.0 - 2.0
Balance as at 31 March 2023 0.1 55.2 (0.6) 3.3 10.3 68.3
Loss after taxation - - - - (8.3) (8.3)
Employee share scheme tax - - - - (0.8) (0.8)
Share issued from own share reserve - - 0.5 - (0.5) -
Transfer of share option costs - - - (0.8) 0.8 -
Dividends paid - - - - (4.5) (4.5)
Employee share option schemes - - - 1.3 - 1.3
Balance as at 31 March 2024 0.1 55.2 (0.1) 3.8 (3.0) 56.0
Notes forming part of the Company financial statements
1. Basis of preparation and material accounting policies
1.1 Basis of preparation and going concern
The separate financial statements of the Company are presented as required by
the Companies Act 2006. As permitted by that Act, the separate financial
statements have been prepared in accordance with UK-adopted International
Accounting Standards and with the requirements of the Companies Act 2006 as
applicable to companies reporting under those standards. LendInvest plc
(previously LendInvest Limited) is a public company incorporated and domiciled
in the United Kingdom under the Companies Act 2006. The Group listed on AIM, a
market operated by the London Stock Exchange on 14 July 2021. The address of
its registered office is given on page 53. The Company's registered number is
08146929. The principal place of business of the subsidiaries is the UK.
The financial statements have been prepared on the historical cost basis
except as required in the valuation of certain financial instruments which are
carried at fair value. The principal accounting policies adopted are the same
as those set out in note 1 to the consolidated financial statements except as
noted below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
The principal activities of the Company and the nature of the Company's
operations are as a holding company for a global SME loan platform.
The financial statements are prepared on a going concern basis as the
Directors are satisfied that the Company has the resources to continue in
business for the foreseeable future (which has been taken as 12 months from
the date of approval of the financial statements). The Group's business
activities, including those of the Company, together with the factors likely
to affect its future development and position are set out in the strategic
report.
Investments in subsidiaries are stated at cost less impairment. Investments in
subsidiaries, the majority of which are engaged in providing secured lending
to third-party borrowers, are recorded on the balance sheet at historical cost
less any impairment. At the end of each reporting period investment balances
are assessed for objective evidence of impairment. Impairment is indicated
where the investment
exceeds the recoverable amount. The recoverable amount is higher of value in
use or net realisable value of the Company. If objective evidence of
impairment is found, an impairment is recognised in the statement of profit or
loss.
Estimates and assumptions
Fair value measurement
A number of assets and liabilities included in the Group's financial
statements require disclosure of fair value. The fair value measurement of the
Group's financial and non-financial assets and liabilities utilises market
observable inputs and data as far as possible. Inputs used in determining fair
value measurements are categorised into different levels based on how
observable the inputs used in the valuation technique utilised are (the fair
value hierarchy).
Level 1: Quoted prices in active markets for identical items.
Level 2: Observable direct or indirect inputs other than Level 1 inputs.
Level 3: Unobservable inputs (i.e. not derived from market data and require a
level of estimates and judgements within the model).
See Group note 25 for more detailed information related to fair value
measurement.
Expected Credit Loss Calculation
The accounting estimates with the most significant impact on the calculation
of impairment loss provisions under IFRS 9 are macroeconomic variables, in
particular UK house price inflation and unemployment, and the probability
weightings of the macroeconomic scenarios used. The Company 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.
For the period ended 31 March 2024 management considered the third-party
weightings to adequately represent the macroeconomic environment across all
products and have therefore applied 40%/40%/20% to the central, downside and
upside scenarios respectively.
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.
1. Basis of preparation and material accounting policies
1.1 Basis of preparation and going concern
Intermediary Fees
The intermediary fee is charged by the company, to its subsidiaries. This
charge relates to the service provided by the group, in terms of management
oversight, use of intellectual property and an allocation of costs incurred by
the group, among various subsidiaries. This fee is based on a discretionary
basis after due consideration on tax and regulatory requirements. This
includes consideration made to pre-tax positions on the profit and loss of the
individual entities and minimum cash balances to be maintained as a result of
regulatory requirements.
1.2 Prior period adjustments
Restated statement of cash flows (Extract)
To reflect the funding movements in Financing activities on Gross basis.
During the year, the Company noted that as per requirements of Section 21 of
IAS7, major investing and financing activities should be on gross basis unless
exempt.
Historically, some major financing activities has been disclosed on a net
basis and presented as "Increase/Decrease in Interest Bearing Liabilities".
The error has been corrected by reflecting cash movements for funding received
and repaid to our funding partners on gross basis as below.
FY2023 Changes FY2023
(Now restated)
Increase in interest bearing liabilities 12.6 (12.6) 0.0
Repayment of funder liabilities - (2.6) (2.6)
Funding received from institutional lenders
- 15.2 15.2
2. Leases
Please refer to Group financial statements, note 2.
3.
Financial risk Management
Liquidity risk management
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Company's approach to managing
liquidity is to ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage
to the Company's position. The Company's liquidity position is monitored and
reviewed on an ongoing basis by the Board and the Assets and Liabilities
Committee.
The table below analyses the Company's contractual undiscounted cash flows of
its financial assets and liabilities:
Gross nominal inflow/ (outflow)
£'m Amount due in less than 6 months Amount due 6-12 months Amount due between one and five years Amount due after five years
Carrying amount £'m £'m £'m £'m
As at 31 March 2024 Financial assets £'m
Cash and cash equivalents
19.8 19.8 19.8 - - -
Other receivables 30.7 30.7 30.7 - - -
Loans and advances 62.0 62.4 2.8 23.9 35.1 0.6
112.5 112.9 53.3 23.9 35.1 0.6
Financial liabilities
Other payables (57.8) (57.8) (57.8) - - -
Interest bearing liabilities
(12.5) (12.9) (12.9) - - -
Lease liability (2.3) (2.6) (0.7) (0.7) (1.2) -
(72.6) (73.3) (71.4) (0.7) (1.2) -
3. Financial risk Management continued
Liquidity risk management continued
Gross
Carrying amount nominal inflow/ (outflow) Amount due in less than 6 months Amount due 6-12 months Amount due between one and five years Amount due after five years
£'m £'m £'m £'m £'m £'m
As at 31 March 2023 Financial assets
Cash and cash equivalents
19.6 19.6 19.6 - - -
Other receivables 23.9 23.9 23.9 - - -
Loans and advances 63.8 64.0 1.8 35.0 26.8 0.4
107.3 107.5 45.3 35.0 26.8 0.4
Financial liabilities
Other payables (22.8) (22.8) (22.8) - - -
Interest bearing liabilities
(34.9) (40.6) (2.3) (2.3) (36.0) -
Lease liability (3.3) (3.8) (0.7) (0.7) (2.4) -
(61.0) (67.2) (25.8) (3.0) (38.4) -
4. Taxation on (loss)/profit on ordinary activities
Deferred taxation
Deferred tax is presented in the statement of financial position as follows:
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Deferred tax assets 0.9 1.5
Deferred tax liabilities (0.1) (0.7)
Net deferred tax assets 0.8 0.8
The movements during the year are analysed as follows:
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Net deferred tax assets at the beginning of the year 0.9 1.2
Credit to the statement of profit and loss for the year 0.4 (0.7)
Credit/(charge) to equity (0.8) 0.3
Over provision of deferred tax 0.3 -
Net deferred tax assets at the end of the year 0.8 0.8
Category of deferred tax
Charge/ (Credit) to the statement Charge/ (Credit) to the statement of profit and loss - PY
of profit and loss - CY Charge/ (Credit) through equity - CY £'m
£'m £'m
Opening Balance Opening Balance Adjustment Closing Balance
£'m £'m
2024
Share and share option schemes
1.3 - (0.1) (0.9) - 0.3
IFRS 16 transitional adjustment
0.1 - - - - 0.1
Research and development
(0.6) - 0.1 - 0.3 (0.2)
Losses - - 0.4 0.1 - 0.5
0.8 - 0.4 (0.8) 0.3 0.7
2023
Share and share
option schemes
1.1
-
-
0.3
(0.1) 1.3
IFRS 16 transitional
adjustment
0.1
-
-
-
- 0.1
Research and
development
-
-
(0.3)
(0.3) (0.6) Losses
-
-
-
-
- -
1.2
-
(0.3)
0.3
(0.4) 0.8
At 31 March 2023, the Company had no unrecognised deferred taxation assets
(2022: £nil).
5. Property, plant and equipment
Refer to consolidated financial statements, note 14.
6. Intangibles
Internally
7. Investment in subsidiaries
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
As at 1 April - -
As at 31 March - -
Additions
-
3.2 3.2
Balance as at 31 March
2024
0.4 21.5 21.9
LendInvest Loan Holdings Limited Intermediary
holding company Company
LendInvest Capital Advisors Limited Intermediary
holding company LendInvest Capital
Management Limited
Software developed Total
licences Software
Costs £'m £'m £'m
Balance as at 31 March 2022 0.4 12.0 12.4
The Company owned either directly or indirectly, 100% of the share capital of the following subsidiaries during the year. All entities, other than those marked with an asterisk (*), were also in place during the prior year:
Additions - 6.3 6.3
Balance as at 31 March 2023 0.4 18.3 18.7 Entity Direct Holding
name
Principal activities
LendInvest Capital Management Limited Intermediary holding company Company
Internally developed
Software LendInvest Finance No. 2 Limited Provides LendInvest Capital
secured lending
licences Software Total to third-party borrowers Management Limited
Accumulated amortisation and impairment £'m £'m £'m
Balance as at 31 March 2022 0.3 6.0 6.3
Charge for the year 0.1 1.8 1.9 LendInvest Funds Management Limited Fund management company Company
Balance as at 31 March 2023 0.4 7.8 8.2
to third-party borrowers Holdings Limited
LendInvest Finance No. 4
Limited
Provides secured
lending
LendInvest Loan
to third-party
borrowers
Holdings Limid
LendInvest Private Finance
General
Dormant
Company Partners Limited
Charge for the year 0.0 3.0 3.0
Balance as at 31 March 2024 0.4 10.8 11.2
Net carrying value as at 31 March 2024 - 10.7 10.7
LendInvest Development Limited Provides secured lending LendInvest Loan
LendInvest Warehouse
Limited
Intermediate holding company
and Company
secured lending to third-party borrowers
Net carrying value as at 31 March
2023
-
10.5 10.5
Internally developed software development has been capitalised as an
intangible
LendInvest Finance No. 3
Limited
Dormant
LendInvest Loan Holding Limited
LendInvest Security Trustees Limited Holds
securities
Company
asset and is being amortised over five years.
LendInvest Finance No. 5
Limited Provides
secured lending
to third-party borrowers
LendInvest Loan Holdings Limited
LendInvest Finance No. 6
Limited
Provides secured
lending
LendInvest Loan
to third-party
borrowers
Holdings Limited
LendInvest Finance No. 7
Limited* Provides
secured lending
to third-party borrowers
LendInvest Loan Holdings Limited
LendInvest Secured Income
Plc
Provides secured
lending
LendInvest Loan
to third-party
borrowers
Holdings Limited
LendInvest Limited Provides secured lending to third-party borrowers
LendInvest Loan Holdings Limited
7. Investment in subsidiaries continued
Entity
name
Principal
activities
Direct Holding
As at 31/3/2024 Lendinvest PLC no longer held control of Mortimer BTL 2021-1
Limited, Mortimer BTL 2022-1 Limited and Mortimer BTL 2023-1 Limited.
LendInvest Platform Limited
Provides secured lending
LendInvest Loan
to third-party
borrowers Holdings
Limited
The registered address of all subsidiaries is Two Fitzroy Place, 8 Mortimer Street, London W1T 3JJ, with the exception of those noted below -
LendInvest Loans Limited
Provides secured lending
LendInvest Loan
to third-party
borrowers Holdings
Limited
LendInvest Bridge Limited Provides secured lending to third-party borrowers
LendInvest Capital GP
Sarl
Managing partner of an alternative investment fund
LendInvest Loan Holdings Limited
LendInvest Funds Management Limited
The registered address of BTL No. 1 Limited, BTL No. 2 Limited, BTL No. 3
Limited, Titan No.1 Limited, Puma BTL Limited, Mortimer BTL 2021-1 PLC,
Mortimer BTL 2022- 1 PLC, Mortimer BTL 2023-1 PLC is 8th floor 100
Bishopsgate, London, EC2N 4AG.
LendInvest Capital GP II Sarl
Provides secured lending
LendInvest Loan
to third-party
borrowers Holdings
Limited
The registered address of Tradelend Limited is 13 David Mews, London, W1U 6EQ.
8. Other receivables
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Due within one year
Trade receivables 30.5 22.0
Other receivables:
-Prepayments and accrued income 2.2 3.1
-Other receivables 0.2 1.9
-Corporate tax receivable 1.7 3.2
Due after one year
Rent deposit - 1.2
34.6 31.4
Management has also assessed the Company as being in control of the investee's listed below, based on judgements with regard to the control criteria prescribed in paragraph 7 of IFRS 10.
Entity
name
Principal
activities
Direct Holding
BTL No. 1
Limited
Warehousing vehicle
for NA Buy-to-Let
mortgages
BTL No. 2 Limited Warehousing vehicle for NA Buy-to-Let mortgages
BTL No. 3
Limited
Warehousing vehicle
for NA Buy-to-Let
mortgages
Puma BTL
Limited
Securitisation loan
note NA
repurchasing vehicle
Titan No.1 Limited Warehousing vehicle for NA Buy-to-Let & Bridging loans
Mortimer BTL 2021-1
Limited
Securitisation vehicle
for
NA
Mortimer BTL 2022-1 Limited*
Securitisation vehicle
for NA
Buy-to-Let mortgages
Buy-to-Let mortgages
Mortimer BTL 2023-1
Limited*
Securitisation vehicle
for
NA
Buy-to-Let mortgages
The carrying value of trade and other receivables approximates fair value and
represents the maximum exposure to credit losses. Expected credit losses on
trade receivables are immaterial.
The maximum exposure to credit risk at the reporting date is the carrying
value of each class of receivables mentioned above. During the current year
(and prior
period) the Company had no trade receivables that are past due, but not
impaired.
LendInvest Employee Benefit Trust Issues shares
to staff under the NA
Group's CSOP and LTIPs schemes
LendInvest Share Incentive
Plan Issues
shares to staff
under
NA
the Group's SIP scheme
Tradelend
Limited
Provides development finance, bridging LendInvest Loan loans, and any other
finance loans Holdings Limited
9. Cash and cash equivalents
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Cash at bank 17.3 16.0
Trustees' account 2.5 3.6
19.8 19.6
Trustees' account relates 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. This amount excludes £2.6 million due to timing
differences, which sit as a receivable. 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 11).
10. Loans and advances
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Gross loans and advances1 77.6 72.8
ECL provision (15.6) (9.0)
Fair value adjustment2 - -
Loans and advances 62.0 63.8
1 Included in gross loans and advances is £73.8 million (2023: £70.3
million) of loans made to Group entities. The ECL provision has been
calculated on these loans.
2 Fair value adjustment to gross loans and advances due to classification
as FVOCI.
ECL provision
Movement in the period £'m
Under IFRS 9 at 1 April 2023 (9.0)
Additional provisions made during the period (6.8)
Utilised in the period 0.2
Under IFRS 9 at 31 March 2024 (15.6)
Movement in the
period
£'m
Under IFRS 9 at 1 April
2022
(1.4)
Additional provisions made during the
period
(7.6)
Utilised in the
period
-
Under IFRS 9 at 31 March
2023
(9.0)
Analysis of loans and advances by stage
Stage 1 Stage 2 Stage 3 Total
Year ended 31 March 2024 £'m £'m £'m £'m
Gross loans and advances 74.5 0.5 2.6 77.6
ECL provision (15.3) - (0.3) (15.6)
Fair value adjustment - - - -
Loans and advances 59.2 0.5 2.3 62.0
Year ended 31 March 2023 Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
Gross loans and advances 70.9 0.6 1.3 72.8
ECL provision (8.6) - (0.4) (9.0)
Fair value adjustment - - - -
Loans and advances 62.3 0.6 0.9 63.8
The maximum LTV on stage 2 loans is 75%. The maximum LTV on stage 3 loans is
195%. The average LTV of stage 1 loans is 78%. The average LTV of stage 2
loans is 62%. The average LTV of stage 3 loans is 72% and the total value of
collateral held on stage 3 loans is £0.8 million.
10. Loans and advances continued
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2023 62.3 0.6 0.9 63.8
Transfer to stage 3 (0.3) (0.1) 0.4 -
Financial assets which have repaid (0.1) (0.4) (0.2) (0.7)
Balance movements in loans (2.7) 0.4 1.2 (1.1)
Total movement in loans and advances (3.1) (0.1) 1.4 (1.8)
As at 31 March 2024 59.2 0.5 2.3 62.0
Movement analysis of net loans by stage
Movement analysis of gross loans by stage
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2023 70.9 0.6 1.3 72.8
Transfer to stage 3 (0.3) (0.1) 0.4 -
Financial assets which have repaid (0.1) (0.4) (0.4) (0.9)
Balance movements in loans 4.0 0.4 1.3 5.7
Total movement in loans and advances 3.6 (0.1) 1.3 4.8
As at 31 March 2024 74.5 0.5 2.6 77.6
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2022 43.3 1.3 1.4 46.0
Transfer to stage 1 0.2 (0.2) - -
Transfer to stage 3 - (0.2) 0.2 -
New financial assets originated 0.1 - - 0.1
New financial assets originated and transferred to stage 2 or stage 3
(0.1) - - (0.1)
Financial assets which have repaid 0.2 (0.5) (0.3) (0.6)
Balance movements in loans 27.2 0.2 (0.1) 27.3
Write-offs - - 0.1 0.1
Total movement in loans and advances 27.6 (0.7) (0.1) 26.8
As at 31 March 2023 70.9 0.6 1.3 72.8
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2022 42.2 1.3 1.1 44.6
Transfer to stage 1 0.2 (0.2) - -
Transfer to stage 3 - (0.2) 0.2 -
New financial assets originated 0.1 - - 0.1
Financial assets which have repaid - (0.5) (0.3) (0.8)
Balance movements in loans 19.8 0.2 (0.1) 19.9
Total movement in loans and advances 20.1 (0.7) (0.2) 19.2
As at 31 March 2023 62.3 0.6 0.9 63.8
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2022 43.3 1.3 1.4 46.0
Transfer to stage 1 0.2 (0.2) - -
Transfer to stage 3 - (0.2) 0.2 -
New financial assets originated 0.1 - - 0.1
New financial assets originated and transferred to stage 2 or stage 3
(0.1) - - (0.1)
Financial assets which have repaid 0.2 (0.5) (0.3) (0.6)
Balance movements in loans 27.2 0.2 (0.1) 27.3
Write-offs - - 0.1 0.1
Total movement in loans and advances 27.6 (0.7) (0.1) 26.8
As at 31 March 2023 70.9 0.6 1.3 72.8
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2022 42.2 1.3 1.1 44.6
Transfer to stage 1 0.2 (0.2) - -
Transfer to stage 3 - (0.2) 0.2 -
New financial assets originated 0.1 - - 0.1
Financial assets which have repaid - (0.5) (0.3) (0.8)
Balance movements in loans 19.8 0.2 (0.1) 19.9
Total movement in loans and advances 20.1 (0.7) (0.2) 19.2
As at 31 March 2023 62.3 0.6 0.9 63.8
10. Loans and advances continued
Movement analysis of ECL by stage
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2023 8.6 - 0.4 9.0
Financial assets which have repaid - - (0.2) (0.2)
Changes in models/risk parameters 6.7 - 0.2 6.9
Adjustments for interest on impaired loans - - 0.1 0.1
Write-offs - - (0.2) (0.2)
Total movement in impairment provision 6.7 - (0.1) 6.6
As at 31 March 2024 15.3 - 0.3 15.6
The Company held no POCI loans during the year to 31 March 2024.
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2022 1.1 - 0.3 1.4
Changes in models/risk parameters 7.5 - - 7.5
Adjustments for interest on impaired loans - - 0.1 0.1
Total movement in impairment provision 7.5 - 0.1 7.6
As at 31 March 2023 8.6 - 0.4 9.0
Credit risk on gross loans and advances
The table below provides information on the Company's loans and advances by
stage and risk grade. See note 18 of the Group's accounts for details of the
change of the calculation of risk grades during the current year. A table has
been included to show the 31 March 2023 position had the new scores been
retrospectively applied.
Stage 1 Stage 2 Stage 3 Total
Year ended 31 March 2024 £'m £'m £'m £'m
Risk grades 1-5 74.5 0.4 - 74.9
Risk grades 6-9 - 0.1 - 0.1
Default - - 2.6 2.6
Total 74.5 0.5 2.6 77.6
Year ended 31 March 2023 Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
Risk grades 1-5 70.9 0.2 - 71.1
Risk grades 6-9 - 0.4 - 0.4
Default - - 1.3 1.3
Total 70.9 0.6 1.3 72.8
11. Other payables
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Trade payables 53.0 14.9
Other payables:
- Taxes and social security costs 1.2 1.3
- Accruals and deferred income 4.5 6.3
- Sublease deposit repayable 0.2 0.2
- Employee free share award 0.1 0.1
59.0 22.8
The trade payables balance includes Trustees' balances of £2.5 million (2023:
£3.6 million) 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.
12.
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
Funds from investors and partners 12.5 34.9
12.5 34.9
Interest bearing liabilities
The Company is not in breach or default of any provisions of the terms or
conditions of the agreements governing borrowings. The Company's annualised
interest cost on funding was 8% in the current financial year.
13. Share Capital
Refer to Group financial statements, note 22.
14. Reserves
Reserves are comprised of retained earnings and the employee share reserve,
and fair value reserves. Retained earnings represent all net gains and losses
of the Group less directly attributable costs associated with the issue of new
equity and 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 FVOCI.
15. Share-based payments
Refer to Group financial statements, note 24.
16. Financial instruments
Principal financial instruments
The principal financial instruments used by the Company, from which financial
instrument risk arises, are loans and advances, trade and other receivables,
cash and cash equivalents, loans and borrowings, and trade and other payables.
Categorisation of financial assets and financial liabilities
The financial assets of the Company are carried at amortised cost or fair
value through other comprehensive as at 31 March 2024 and 31 March 2023
according to the nature of the asset. All financial liabilities of the Company
are carried at amortised cost as at 31 March 2024 and 31 March 2023 due to the
nature of
the liability.
Financial instruments measured at amortised costs
Financial instruments measured at amortised cost, rather than fair value,
include cash and cash equivalents, trade and other receivables, trade and
other payables and interest-bearing liabilities. Due to their short-term
nature, the carrying value of cash and cash equivalents, trade and other
receivables, lease liabilities and trade and other payables approximates their
fair value.
Carrying amount of financial instruments
A summary of the financial instruments held by category is provided below:
Year ended 31 March 2023 (restated)
Year ended 31 March 2024 £'m
£'m
Financial assets at amortised cost
Cash and cash equivalents 19.8 19.6
Trade and other receivables 30.7 30.7
Financial assets at fair value through other comprehensive income
Loans and advances 62.0 63.9
Total financial assets 112.5 114.2
Financial liabilities at amortised cost
Trade and other payables (57.8) (21.5)
Interest bearing liabilities (12.5) (34.9)
Lease liability (2.3) (3.3)
Total financial liabilities (72.6) (59.7)
Prior year has been restated to remove taxes and social security costs from
Trade Payables.
16. Financial instruments continued
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 relevant 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. as prices) or
indirectly (i.e. derived from prices); and
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 31 March 2024
£'m Level 1 Level 2 Level 3
£'m £'m £'m
Financial instruments measured or disclosed at fair value
Loans and advances 62.0 62.0
Financial instruments measured or disclosed at amortised cost
Interest bearing liabilities1 (12.5) (12.5)
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 2023 Level 1 Level 2 Level 3
£'m £'m £'m £'m
Financial instruments measured or disclosed at fair value
Loans and advances 63.9 - - 63.9
Financial instruments measured or disclosed at amortised cost
- - - -
Interest bearing liabilities1 (34.9) (34.9) - -
1 Interest bearing liabilities are held at amortised cost on the statement
of financial position.
For all other financial instruments, the fair value is equal to the carrying
value and has not been included in the table above.
Level 3 instruments include loans and advances. The valuation of the asset is
not based on observable market data (unobservable inputs). Valuation
techniques include net present value and discounted cash flow methods. The
assumptions used in such models include benchmark interest rates and borrower
risk profile. The objective of the valuation technique is to determine a fair
value that reflects the price of the financial instrument that would have been
used by two counterparties in an arm's length transaction.
Year ended 31 March 2024
£'m
Level 3 Financial Instruments
Level 3 assets at beginning of the period 63.8
Additional impairment provisions made during the period (6.8)
Impairment provision utilised in the period 0.2
Level 3 assets that have repaid (0.7)
Balance movements in level 3 assets 5.5
Level 3 assets at the end of the period 62.0
17. Reconciliation of liabilities arising from financing activities
Interest bearing
liabilities Leases
£'m £'m
31 March 2023 (34.9) (3.3)
Cash flows 22.3 1.4
Lease liability interest - (0.3)
31 March 2024 (12.6) (2.2)
31 March 2022 (22.3) (4.1)
Cash flows (12.6) 1.4
Lease liability interest - (0.6)
31 March 2023 (34.9) (3.3)
18. Related Party Transactions
The Company has made loans to LendInvest Warehouse Limited to fund a portfolio
of loans. During the year to 31 March 2024, the Company made loans of £12.9
million (2023: £4.0 million) and received repayments in respect of loans of
£0.2 million (2023: £0.1 million). The balance as at 31 March 2024 was
£24.0 million (2023:
£11.1 million). These loans are interest-bearing at 8% per annum.
£14.1 million (2023: £21.8 million) of the Company's trade receivables (see
note 8) are unsecured intercompany receivables owed by Company's subsidiaries.
The Company also received the following fees from related party subsidiaries;
Year ended 31 March 2024 Year ended 31 March 2023
£'m £'m
LendInvest Funds Management Limited 2.4 2.8
LendInvest Capital Management Limited - -
19. Controlling party
In the opinion of the Directors, the Company does not have a single
controlling party.
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.
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
Platform AuM. The Directors view the difference between the Group's FuM and
Platform AuM as the headroom for future growth. A reconciliation from Platform
AuM, which has been reconciled to IFRS measures above, to FuM is shown below.
Year ended 31 March 2024 Year ended 31 March 2023
(£'m) (£'m)
Unaudited
Platform AuM 2,783.3 2,587.0
Committed funding available for lending 1,344.0 1,018.9
FuM 4,127.3 3,605.9
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
Year ended 31 March 2024 Year ended 31 March 2023
(£'m) (£'m)
Unaudited
(Loss)/profit after taxation (20.1) 11.4
Derivative financial instruments and hedge accounting 4.0 (5.1)
Corporation tax (7.2) 2.9
Depreciation and amortisation 3.2 2.1
Depreciation of right-of-use asset 0.7 0.7
Interest expense - lease liabilities 0.3 0.4
Share-based payment charge 1.3 1.9
Exceptional operating expenses 2.7 -
Adjusted EBITDA (15.1) 14.3
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.
Year ended 31 March 2024 Year ended 31 March 2023
(£'m) (£'m)
Unaudited
Gross Loans and advances 477.0 1,168.5
Off-Balance Sheet Assets 2,306.3 1,418.5
Platform AuM 2,783.3 2,587.0
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