REG - Lendinvest PLC LendInvest PLC-LINV - Interim Financial Results
19/12/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20231219:nRSS2224Xa&default-theme=true
RNS Number : 2224X Lendinvest PLC 19 December 2023
19 December 2023
LendInvest plc
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2023
LendInvest plc (LSE: LINV; "LendInvest", the "Company" or the "Group") is a
leading platform for mortgages in the UK. The LendInvest Mortgages Division
provides mortgages to both professional Buy-to-Let landlords and Homeowners as
well as a range of Bridging loans. The LendInvest Capital Division provides
larger, more structured finance primarily to property developers.
Today it announces its unaudited results for the six months ended 30
September 2023.
Key features:
● Net assets at 30 September were £67.5m (31 March 2023: £76.5m).
Due to actions taken to strengthen the balance sheet, cash and cash
equivalents has increased to £88.0m (31 March 2023: £46.7m)
● Funds under Management increased by 21% year on year to £4,167.4m
(2022: £3,442.1m) with new forward flow arrangements in H1 FY24 of £0.7bn
● Assets under management increased by 11% year on year to
£2,695.1m (2022: £2,431.1m)
● New lending was 28% lower than the prior year at £415.2m (2022:
£575.0m) due to market volatility and limited funding available during the
period for new lending in the Capital Division
● First half loss before tax of £15.1m (2022: profit before tax of
£14.8m) reflecting the following:
o Net interest income £17.7m lower due to reduction in income generating
assets on the balance sheet and a reduction in new lending. Prior year
comparative includes a £9.2 million gain from the exercise of the call option
in our first securitisation, Mortimer 2019-1 BTL plc
o Net gains on derecognition of financial assets in the period were £0.1m
(2022: £3.8m). This includes a net loss of £10.7m realised on the loan book
sale to Chetwood Financial Limited. The transaction was completed to
strengthen the balance sheet and de-risk the business by reducing dilution of
future net interest margin and by reducing group debt
o Impairment charge increased to £7.1m (2022: £1.9m). 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
o Administrative expenses increased to £21.1m (2022: £17.1m), driven by a
c£0.9m increase in non-cash costs, c£0.9m of non-trading professional
advisory costs and an increase in the average headcount compared to prior
period.
o To address this, post period-end the business has restructured its
people-related costs, reducing headcount by over 27%. This will reduce current
payroll costs by c£5m per annum and, coupled with other cost savings, is
expected to reduce administrative expenses to a level similar to those
reported in FY23
● The Board is not recommending the payment of an interim dividend
but this position will be reviewed at the year end
6 months ended 6 months ended
30 September 2023
30 September 2022
Change
Unaudited
Funds under management (FuM) (£'m) 4,167.4 3,442.1 21%
Assets under management (AuM) (£'m) 2,695.1 2,431.1 11%
Proportion of AuM on balance sheet 31% 50% -19pps
New lending (£'m) 415.2 575.0 -28%
Net operating income (£'m) 13.1 33.8 -61%
(Loss) profit before tax (£'m) (15.1) 14.8 -203%
Net assets (£'m) 67.5 60.2 12%
Strategy overview
The market backdrop has been challenging this year and, against this backdrop,
it was deemed appropriate to focus heavily on the fundamentals of
strengthening the balance sheet and financial position of the business.
This has resulted in a substantial 88% increase in cash reserves since the
last year end; it has delivered a material reduction in the balance sheet
credit risk profile, with the proportion of loan assets held on the balance
sheet reducing by 19pps to 31%; and funding facilities have also been
increased and extended. This has included £700m of new forward flow capacity
and, post period end, a refinance of the maturing retail bond, with a
reduction in the parent guarantee, coupled with the largest BTL securitisation
in the company's history.
However, this has required some difficult decisions that have impacted the
results. The disposal of a c£250m low margin loan portfolio resulted in a
substantial loss. And a robust approach to debt recovery has boosted cash but
has led to a much higher impairment charge. Post period end, the business has
also completed a major restructuring exercise, which will contribute to a
material reduction in the cost base going forward.
Having strengthened the balance sheet and reduced the cost base, the focus is
now on growing new lending and returning the business to profitability. We are
confident that the business has strong foundations on which to build, and
there are signs that the market backdrop will be more positive in the 2024
calendar year. Performance in the second half of FY24 is also expected to
benefit from a sale of the residual interests in the most recent RMBS
securitisation, which is in progress, and is expected to generate a pre-tax
profit of at least £10m.
Rod Lockhart, Chief Executive of LendInvest, commented:
"After a challenging first half, management is focused on accelerating new
lending and returning the business to profitability. The core strengths of our
business remain strong and we're beginning to see encouraging signs of
improvement in the broader market landscape. Combined with the tough but
necessary measures we've implemented to streamline costs; these factors are
positioning us well to return to profitability in the 2025 financial year."
Other strategic highlights
● Successful launch of Residential Mortgages product, and LendInvest
Mortgages and LendInvest Capital divisions to better align to our product
suite and our customer base
● Our strong reputation for quality products and excellent customer
service continued, reflected by our Trustpilot rating of 4.5
● Welcomed BNP Paribas to a £300 million funding syndicate with HSBC
and Barclays to fund the business's short-term mortgages
● Wells Fargo joined a £200 million financing syndicate with National
Australia Bank (NAB) to support the continued growth of our Buy-to-Let
proposition
● Secured £500 million in funding from Chetwood Finance Limited to
strengthen our Residential Mortgages and Buy-to-Let product offering
● Issued our fourth listed bond from our second Euro Medium Term Note
programme, the LendInvest Secured Income II plc bonds due 2027, raising £40
million
● Completed fifth and largest oversubscribed RMBS transaction of £410m
prime Buy-to-Let mortgages ("Mortimer BTL 2023-1 plc") in November, receiving
the tightest pricing on a BTL RMBS transaction in the last six months
Analysts and investors presentation: 9.00am on Tuesday 19 December 2023
A webcast for analysts and investors will be hosted by Rod Lockhart, Chief
Executive Officer, and David Broadbent, Chief Financial Officer
at 9.00am today, Tuesday 19 December 2023. A playback facility will also be
available in due course. To access the webcast, please register here
(https://www.lsegissuerservices.com/spark/LENDINVEST/events/c8dc77ec-ebc9-4217-acbd-909418c1c6a2)
Enquiries:
LendInvest via Teneo +44 (0)20 7353 4200
Rod Lockhart, Chief Executive Officer
David Broadbent, Chief Financial Officer
Leigh Rimmer, Head of Communications
investorrelations@lendinvest.com (mailto:investorrelations@lendinvest.com)
Panmure Gordon (NOMAD and Joint +44 (0)20 7886 2500
Broker)
Atholl Tweedie / David Watkins
Cavendish (Joint Broker) +44 (0)20 7220 0500
Jonny Franklin-Adams / Tim Redfern
Teneo (Financial PR) +44 (0)20 7353 4200
Tom Murray / Ed Cropley / Olivia Lucas
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.
Forward-looking statements
Certain statements in this announcement are forward-looking statements. In
some cases, these forward looking statements can be identified by the use of
forward looking terminology including the terms "anticipate", "believe",
"intend", "estimate", "expect", "may", "will", "seek", "continue", "aim",
"target", "projected", "plan", "goal", "achieve" and words of similar meaning
or in each case, their negative, or other variations or comparable
terminology. Forward-looking statements are based on current expectations and
assumptions and are subject to a number of known and unknown risks,
uncertainties and other important factors that could cause results or events
to differ material from what is expressed or implied by those statements. Many
factors may cause actual results, performance or achievements of LendInvest to
be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Important factors that
could cause actual results, performance or achievements of LendInvest to
differ materially from the expectations of LendInvest, include, among other
things, general business and economic conditions globally, industry trends,
competition, changes in government and changes in regulation and policy,
changes in its business strategy, political and economic uncertainty and other
factors. As such, undue reliance should not be placed on forward-looking
statements. Any forward-looking statement is based on information available to
LendInvest as of the date of the statement. All written or oral
forward-looking statements attributable to LendInvest are qualified by this
caution. Other than in accordance with legal and regulatory obligations,
LendInvest undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events or otherwise. Nothing in this announcement should be regarded as a
profit forecast.
Operating review
Market backdrop
Since our last results announcement we have seen further increases in base
rates and lower levels of mortgage approvals and property market transactions.
Swap rates, which are effectively used to price fixed mortgages, continue to
be volatile, with markets reacting to major macro events including military
conflict, economic data, political uncertainty and bank failures.
When swap rates change, lenders need to change the pricing of the product
range that they offer to the market. This volatility creates operational
friction making it more challenging to maintain a consistent competitively
priced product range in the market.
Alongside this, the cost of mortgages for borrowers has increased
substantially over the last 2 years and house prices have been falling. This
has had an impact on the overall volume of property transactions and it is
estimated by UK Finance that BTL market activity has contracted by
approximately 50% over the last 12 months.
The construction sector also remains challenged, with an increase in
insolvencies and property developers suffering from both increased borrowing
costs and inflationary pressures on both wages and materials. As a result,
appetite for development finance is reduced, live developments are taking
longer to complete and expected developers' returns are being impacted.
Despite these factors, expected credit losses on our BTL lending remain
consistently low. Also, notwithstanding the increase in expected credit losses
in the period, the lifetime credit losses on the overall portfolio remain in
line with expectations. Also, the credit risk profile of the Group is
improving as the proportion of AuM held on the Group's balance sheet continues
to reduce.
Since the period end, we have seen potential early signs of a more positive
outlook. Swap rates have fallen and improving capital market sentiment has
been reflected in both the pricing and over-subscription of our recent RMBS
securitisation. We are seeing a pick-up in BTL mortgage loan applications and
there is the possibility that base rates may be approaching, or have
potentially reached, their peak; and it would appear that the fall in
residential house prices may not be as severe as originally thought.
Strategy execution
The market backdrop negatively impacted the performance of the business.
However, the business has core fundamental strengths that enables it to
navigate the market backdrop, which will be key to returning the business to
profitability and sustainable profit growth thereafter.
Continuing to grow and diversify FuM
The business has a strong track record of securing funding from a diverse
range of high-quality investors and institutions, which has underpinned
continued growth in FuM. The different types of funding, including forward
flow arrangements, allows the business to be agile from a product and pricing
perspective, enabling it to remain in the market, whilst others with less
flexible funding have had to periodically withdraw.
During the first half, the strength of our capital markets operations has been
shown with total Funds under Management at 30 September 2023, including
committed forward flow arrangements, increasing by c£562m to £4.17bn, a 21%
increase on H1 FY23.
Unaudited 30 September 2023 31 March 30 September 2022
£'m
2023
(£'m)
£'m Growth Growth
(%)
(%)
Funds under 4,167.4 3,605.9 +16% 3,442.1 +21%
Management ("FuM")
This increase primarily reflects the previously announced £500m forward-flow
agreement with Chetwood Financial Limited for BTL lending, and a further
£200m of forward-flow commitments in respect of short-term mortgages.
FuM includes £55m of retail bonds, which matured on 6 October 2023 and
carried a coupon of 5.375%. These bonds were refinanced by a new issue of
£60m retail bonds. Of the new issuance, c.£20m are currently held in
treasury and are included in FuM. The new bonds carry a coupon of 11.5%.
Subsequent to the period end, the business successfully completed its fifth
public market securitisation transaction in respect of a £410m BTL loan
portfolio. This is the largest securitisation completed by the business to
date and received the tightest pricing on a BTL RMBS transaction in the
previous six months. This transaction generated a cash inflow of c£34m. Due
to the size of the transaction, the business intends to reduce the current
surplus capacity in its warehouse facilities for BTL lending by c£355m,
thereby reducing ongoing commitment fees.
A potential sale of the residual interests in the securitisation is in
progress.
Strengthening the balance sheet
The business has well-embedded processes for product pricing to ensure that
our lending delivers an appropriate risk-adjusted margin for each specific
product line, which considers the cost of the relevant funding line, interest
rate swaps and expected credit losses. Products that carry higher credit risk
carry a consequently higher risk-adjusted margin. This pricing strategy
reflects our service-led proposition, which is based on speed, agility and
flexibility, all supported by our market-leading technology platform. The
pricing is not set to achieve a certain market share; nor does the business
write unprofitable business as a loss-leader in the expectation that those
customers move onto a more profitable product in the future or revert onto a
more favourable variable rate.
A core part of the strategy is to minimise the amount of credit risk exposure
by maximising the amount of lending originated on behalf of and managed for
third parties. We believe that this part of the strategy is particularly
important at a time when the market conditions remain difficult. Significant
progress has been made in this respect, with balance sheet exposures reducing
substantially in the first half.
In this context, total Assets under Management at 30 September 2023 were
£2.7bn, which represents a £108m increase since the financial year ended 31
March 2023 ('FY23') and an 11% increase on H1 FY23.
Unaudited 30 September 2023 31 March 2023 Growth 30 September 2022 Growth
(%)
(%)
Assets under 2,695.1 2,587.0 +4% 2,431.1 +11%
Management ("AuM") (£'m)
On balance sheet (£'m) 822.4 1,168.5 -30% 1,213.2 -32%
Off balance sheet (£'m) 1,872.7 1,418.5 +32% 1,217.9 +54%
Proportion of assets on balance sheet 31% 45% -14pps 50% -19pps
The forward-flow agreements noted above are a key part of the Group's strategy
of becoming more 'capital-lite'. As a result, the proportion of AuM held on
the balance sheet has fallen further from 45% at the end of FY23 to 31% at the
end of September 2023 (H1 FY23: 50%). The main drivers of that reduction were:
● The sale in April of the non-risk retention residual economic
interest in the Mortimer BTL 2021-1 plc securitisation for a cash
consideration of £8.6m. This transaction resulted in a reduction in the
Group's gross loans and advances of £236m and generated a net pre-tax profit
of £10.8m; and
● The sale in May of a portfolio of BTL residential mortgages
to Chetwood Financial Limited for a cash consideration of £243m inclusive
of the proceeds from cancelled interest rate derivatives. The book value of
the portfolio was c.£250m and the net pre-tax loss on the sale of the
portfolio and the cancellation of the related derivatives was £10.7m. The net
interest margin on the loan portfolio that was sold had been impacted by the
sharp rise in interest rates in 2022. The decision was therefore taken to sell
the portfolio at a loss to ensure that profitability in future periods was not
diluted and to use the proceeds from the transaction to reduce debt and
finance new lending at a better more normalised risk-adjusted margin.
The business has also taken opportunities to accelerate recoveries in respect
of non-performing assets. This has contributed to the increase in impairment
in the period but has also boosted cash reserves.
Building our product range: specialist residential mortgage proposition
A core fundamental strength of the business is the breadth of its product
range and its ability to develop and bring to market new products and new
product lines to take advantage of market opportunities. The most significant
of these has been the development and roll out of the new specialist
residential mortgage proposition.
LendInvest entered the UK residential mortgage market on a beta launch basis
at the end of 2022. A small group of mortgage brokers were identified to help
ensure that all aspects of the proposition were robust and fit for purpose,
both in terms of technical capability, but also product and target market fit.
After a successful start, distribution was gradually rolled out to the point
where the proposition was technically the whole of the market in April 2023.
Since then, we have continued to grow broker partners as demonstrated by the
recent launch with the Legal & General Mortgage Club, the largest mortgage
club in the UK. We have also commenced lending in Scotland.
In line with distribution build, LendInvest has also continued to improve its
product offering. Whilst the key target market are those customers who have a
more complex income make-up, including the self-employed, other aspects of the
proposition are designed to help support Professionals and Key Workers.
Additionally, we cater for those consumers who may have had some level of
historical credit event but have been able to demonstrate recovery.
Since launch the business has received £128.2m of loan applications; it has
built a loan pipeline of £36.5m and has an issued loan book of £40.9m (as at
30 November 2023).
In a highly intermediated market, LendInvest has a substantial distribution
network and is a reputable and trusted partner. During the first half our
distribution network continued to remain strong with over 300 active broker
firms. Importantly, our Trustpilot rating remained high at 4.5, which
demonstrates the continued excellent quality of the service we provide.
Further enhancing our market-leading Technology
During the period to 30 September 2023, we continued to invest in the
development of our market-leading proprietary technology platform. This is
fundamental to both our service proposition and our ability to build our
product range.
During the period, additions to Intangible Assets held on the balance sheet
were £2.2m (2022: £2.8m) and comprised key enhancements, which are expected
to improve our operational effectiveness and have a direct impact on loan
origination volumes.
This has included the development of the specialist residential proposition
noted above and the launch of our new BTL Broker Portal (Next Gen BTL).
Feedback from brokers has been overwhelmingly positive and we are now rolling
this across the wider market. This will remove our dependence on certain
third-party technology, which will have the twin benefit of reducing operating
costs and will also facilitate product switches between Bridging and BTL
loans.
Senior Management changes
David Broadbent has resigned as Chief Financial Officer and will leave the
business in March to take up a new role. Hugo Davies, our Chief Capital
Officer, will take on CFO responsibilities whilst the business conducts a
market search for a permanent replacement. He will be supported by Stephen
Shipley, who will join the business as Finance Director in January. Stephen
was formerly the CFO of Foundation Home Loans and prior to that held various
senior positions at Barclays including CFO of Group Treasury. He brings a
wealth of market knowledge and experience to the team.
Review of the interim results
6 months ended 6 months ended
30 September 2023 30 September 2022 Change
Unaudited £'m £'m (%)
Total Gross Assets under Management 2,695 2,431 11%
On balance sheet 822 1,213 -32%
Off balance sheet 1,873 1,218 54%
New lending 415 575 -28%
Net interest income 6.3 24.0 -74%
Net fee income 6.6 5.9 12%
Net gains on derecognition of 0.1 3.8 -97%
financial assets
Net other income 0.1 0.1 0%
Net operating income 13.1 33.8 -61%
Administrative expenses (21.1) (17.1) 23%
Impairment losses on financial assets (7.1) (1.9) 274%
Total operating expenses (28.2) (19.0) 48%
(Loss) profit before tax (15.1) 14.8 -202%
AuM at a group level increased by £264m at H1 FY24, an increase of 4% since
the end of the last financial year. This reflects an increase in the BTL
portfolio, the building of our new residential mortgage book and a
particularly strong performance in respect of our short-term mortgages
products which has grown by 44% in the last 12 months. There has also been an
increase in the AuM for our more complex and larger structured bridging
products, whilst AuM for our Development Finance has reduced by 6% since the
year end.
As noted above, the market backdrop has had a negative impact on performance
in the first half. This is primarily reflected in new lending volumes, which
contracted by 28% when compared with the same period last year. This was
partly driven by BTL volumes, which were impacted by swap volatility,
resulting in significant friction from repeated re-pricing. This was
exacerbated by the dependence on third-party technology which, as noted above,
has now been removed. In contrast, short-term mortgage lending in the
Mortgages Division was particularly strong, with professional landlords taking
advantage of the fall in property prices. As noted above, the new specialist
homeowner product is developing well.
Loan origination in the Capital Division in respect of Development Finance and
more complex and larger Bridging continues to be impacted by a combination of
macroeconomic factors, with demand for development finance reduced as a result
of some property developers deferring new projects out of caution, and also
the limited capacity for new lending in existing managed funds. With the
launch of a new fund expected to take place around the end of Q1 2024, we
expect to have more capacity for new lending in respect of these product lines
in FY25.
Net interest income in the period has reduced by 74% to £6.3m (2022:
£24.0m). This partly reflects the fact that the value of loans and advances
held on the balance sheet has reduced by 33%, primarily as a result of the
transactions noted in the strategy section above. Net interest income in the
prior year also benefited from a £9.2 million gain arising from the
cancellation of interest rate swaps on the call of the Mortimer BTL 2019-1
assets.
Net fee income in the period was 12% higher than the prior year at £6.6m
(2022: £5.9m). This primarily represents asset management fees of £5.3m
(2022: £4.6m). Fee income on origination of loans to third parties reduced in
the period to £0.2m (2022: £2.3m) but this was largely offset by fee income
on loans and advances, which was £1.3m in the period (2022: £0.7m), with the
increase primarily related to extension fees.
As noted above, the net profit from the sale of residual interests in our
third securitisation and the loan book sale to Chetwood Financial Limited are
included in the £0.1m gain on derecognition of financial assets in the
period. The prior year gain on derecognition of financial assets was primarily
related to a £3.3 million gain recognised on the sale of the residual
economic interest in our fourth securitisation, Mortimer BTL 2022-1 plc.
Administrative expenses
Unaudited 6 months ended 6 months ended Change
30 September 2023
30 September 2022
£'m
£'m (%)
Wages and salaries 10.2 8.9 14%
Share-based payments 1.0 0.7 43%
Depreciation and amortisation 1.9 1.4 36%
Fees payable to the auditors 0.8 0.6 14%
Lease finance expense 0.1 0.2 -50%
Other operating expenses 7.1 5.3 37%
Total administrative expenses 21.1 17.1 23%
Administrative expenses increased by 23% to £21.1 million (2022: £17.1
million). This was partly driven by an increase in wages and salaries with the
average headcount in the period c4% higher than the prior year. This also led
to a related increase in the cost of share-based payments.
During the six months between March and September 2023, operational headcount
has fallen from 275 to 247 employees. This resulted in redundancy costs in
respect of permanent employees of c£0.3m, with the business also serving
notice on a number of contractors, who also left the business. We have
completed further headcount reduction since the period end.
Other operating expenses include c£0.9m of non-trading professional advisory
costs. Whilst these are non-recurring costs, they relate to projects that will
continue into the second half of FY24, albeit at a lower level.
Impairment
The impairment charge increased in the period to £7.1m (2022: £1.9m)
reflecting two main factors. Firstly, the business has been robust in its
approach to recoveries, choosing to enforce certain positions to realise cash
sooner but with a consequential acceleration in impairment. This accounted for
£3.2m of the impairment charge in the period. Secondly, the Capital Division
experienced an increase in provisions, with a small number of larger and more
complex Structured Bridging and Development Finance loans being impacted by
the more challenging macroeconomic backdrop. Whilst the charge in the period
is higher than expected, the underlying expected credit losses on the vintages
of these products remain in line with expectations at around 1-1.5%.
Importantly, the historical portfolio of on-balance sheet lending in this
Division continues to mature and the overall exposure continues to reduce.
Expected credit losses have continued to remain low in respect of BTL lending.
Segmental analysis
The LendInvest Mortgages Division provides mortgages to both professional BTL
landlords and Residential homeowners as well as a range of Bridging loans. The
LendInvest Capital Division provides larger, more structured finance primarily
to property developers. An analysis of the first half result based on these
segments is presented below.
In accordance with the provision of paragraphs 29 and 30 of IFRS 8 Operating
Segments, the prior year segmental analysis has not been re-stated for the new
operating segments because the information is not readily available and the
cost to develop it would be excessive.
6 months ended 30 September 2023 £'m
Mortgages £'m Capital Central Group
Unaudited £'m £'m £'m
Total AuM 2,076 619 - 2,695
On balance sheet 635 187 - 822
Off balance sheet 1,441 432 - 1,873
New lending 283 132 - 415
Net interest income 5.3 1.0 - 6.3
Net fee income 2.9 3.7 - 6.6
Net gains on derecognition of 0.1 - - 0.1
financial assets
Net other income 0.1 - - 0.1
Net operating income 8.4 4.7 - 13.1
Administrative expenses (5.4) (2.5) (13.2) (21.1)
Impairment losses on financial assets (0.7) (6.4) - (7.1)
Total operating expenses (6.1) (8.9) (13.2) (28.2)
(Loss) profit before tax 2.3 (4.2) (13.2) (15.1)
Outlook
The prospect of a more stable and even falling interest rate environment is
expected to have a positive impact on performance. However, the business is
executing the following proactive strategies to accelerate the return to
profitability as soon as possible:
1. Continued build out of the specialist residential proposition
As noted above, the early development of the specialist residential mortgage
proposition has gone to plan, and the business is well placed to build on this
through the remainder of FY24 and into FY25. The product range is fully
developed and, therefore, the key to growing this product line will be to
continue to build awareness across the market, including brokers and mortgage
clubs.
2. Increase BTL loan origination
As noted above, the performance in respect of short-term mortgage loans in the
Mortgages Division in the first half was strong and the business has
benefitted from the development of its new specialist residential mortgage
division. This trend is expected to continue.
However, loan origination in the Mortgages Division was 28% lower in the first
half when compared to last year because of a subdued performance in respect of
new BTL lending. This was largely related to swap rate volatility impacting
our ability to maintain a competitively priced product set in the market. The
aim is to increase BTL lending volumes through the technology improvements we
have made, particularly the release of our new BTL broker portal, and through
building out new and existing relationships with funding partners.
3. Secure new funding for the Capital Division
The primary source of funding for the Capital Division is the Luxembourg fund,
which is then supported by the additional leverage provided by facilities from
HSBC, the British Business Bank and Shawbrook Bank. The Funds team is
currently in the process of raising a new fund ('Fund 3') that will support
new development finance and larger structured bridging lending. At this stage
the team is working with potential cornerstone investors with a view to
launching the new fund around the end of FY24.
The team is also in discussions with existing and potential new partners with
a view to syndicating existing and future loans, thereby freeing up capacity
for new lending and providing this division with additional upfront
origination and arrangement fees.
4. Cost restructuring
As noted above, the business has started to reduce its headcount in order to
reduce overall administrative expenses. This is illustrated by the following
table:
31 March 2022 30 September 2022 31 March 2023 30 September 2023 30 November 2023
Headcount 227 277 275 247 199
Since the period end, the business has completed a restructuring exercise that
has reduced headcount to less than 200 employees. Importantly, the
restructuring has been designed so as not to impact the business' capacity for
lending, so that it is well placed to take advantage when the market backdrop
improves. The majority of the reduction in headcount relates to technology
resources, recognising that the core build of our market leading proprietary
technology platform is complete and does not require the same rate of
investment going forward.
This restructuring will result in further redundancy costs of £1.2m in the
second half of FY24 (FY24: £1.5m) and will reduce payroll costs from current
levels by c£5m, or c25% per annum. The benefit to the profit and loss account
from these changes will be lower, with the majority of costs related to staff
working on technology development having been previously capitalised as
additions to intangible assets. However, we expect the benefit of this in
FY25, coupled with further reductions in third party costs, will return
administrative expenses to a level similar to those reported in FY23.
Outlook summary
In line with previous securitisations, the business is exploring a potential
sale of residual interests in the most recent Mortimer 23 transaction. This is
likely to be completed in the second half of FY24 and is expected to generate
a pre-tax profit of at least £10m.
We then expect to see the benefit of the growth and cost reduction strategies
noted above, hopefully coupled with a more positive market backdrop, to have a
positive impact on performance with a view to the business returning to
profitability by H2 FY25.
Finance Review
Summary of the Condensed consolidated interim statement of profit and loss
The summary of the Condensed consolidated interim statement of profit and loss
account for the 6 months' period ended 30 September 2023 is shown below.
As noted at the time of the FY23 results announcement, in order to assist our
stakeholders in understanding our financial statements and to be able to more
easily compare them to our peer group, we have updated the layout of our
Condensed consolidated interim statement of profit and loss. This separately
shows net interest income recognised under IFRS 9, net fee income recognised
under IFRS 15, net gains on derecognition of financial assets, and net other
income. This new presentation helps to split income generated from assets held
on our balance sheet from those managed on behalf of third parties.
6 months ended 6 months ended
30 September 2023
30 September 2022
Change
£'m £'m
Unaudited (%)
Net interest income 6.3 24.0 -74%
Net fee income 6.6 5.9 12%
Net gains on derecognition of financial assets 0.1 3.8 -97%
Net other income 0.1 0.1 0%
Net operating income 13.1 33.8 -61%
Administrative expenses (21.1) (17.1) 24%
Impairment losses on financial assets (7.1) (1.9) 274%
Total operating expenses (28.2) (19.0) 48%
(Loss) profit before tax (15.1) 14.8 -202%
Income tax credit (charge) 3.9 (2.4) -263%
(Loss) profit after taxation (11.2) 12.4 -190%
Earnings per share for profit attributable to the ordinary equity holders of
the Group:
Basic earnings per share (pence/share) (8.18) 10.75 -176%
Diluted earnings per share (pence/share) (8.18) 10.38 -176%
Further information on performance in the period relative to the prior year is
contained in the Operating Review and the Notes to the unaudited financial
statements included within this announcement.
Basic and dilutive earnings per share are the same value as an exercise of
options would lead to a decrease in the loss per share and would not be
dilutive.
Cash, Cash Flow, and Free Cash Flow
Despite the first half loss, the business has increased its cash resources
from a combination of asset sales coupled with robust management of working
capital and debt recovery.
As at 30 September 2023, the business held cash and cash equivalents of
£88.0m, an 88% increase during the 6 month period. Of this total, £54.7m is
held for loan funding purposes and £3.5m of restricted cash balances is held
on behalf of investors in the business's Self-Select Platform.
6 months ended 6 months ended
30 September 2023
30 September 2022
Unaudited
£'m £'m (restated)
Net cash inflow from operations 116.8 10.1
Net cash outflow from investing activities (2.9) (21.0)
Net cash (outflow) inflow from financing activities (72.6) 6.0
Net increase (decrease) in cash and cash equivalents 41.3 (4.9)
Cash and cash equivalents at beginning of the period 46.7 118.2
Cash and cash equivalents at end of the period 88.0 113.3
In the period there was a net cash inflow from operations of £116.8m
primarily as a result of a managed reduction in gross loan and advances. There
was a net cash outflow from investing activities of £2.9m reflecting
capitalised development costs. Additionally, there was a net cash outflow from
financing activities of £72.6m, driven by a reduction in interest bearing
liabilities and derecognition of securitisation facilities.
Free cash for in the period was also strong, reflecting the factors noted
above.
Free cash flow is defined as the net cash outflow from operating activities,
less purchases of property, plant and equipment and capitalisation of
internally developed software. Additionally, an adjustment has been made to
reverse movements in loans and advances. This reflects the operating model of
the business to finance increases in loan and advances through increases in
interest bearing liabilities, which are excluded from this calculation.
Further to this, there was a reduction in restricted cash held on behalf of
Platform investors of £2.8m which has been reversed, and a net cash outflow
of £0.9m from lease-related financing activities.
6 months ended 6 months ended
30 September 2023
30 September 2022
Unaudited
£'m £'m (restated)
Net cash flow from operations 116.8 7.9
Reverse movements in loans and advances (81.5) 4.8
Adjusted net cash flow from operations 35.3 12.7
Capitalisation of internally developed software (2.2) (2.8)
PPE additions - (0.2)
Reverse movement in restricted cash from Platform investors 2.8 12.1
Cash outflows from lease related financing activities (0.9) (0.7)
Free cash flow 35.0 23.8
The free cash flow in the six months to 30 September 2023 was £35.0 million.
A full year dividend of 4.5 pence per share (approximately £4.5 million) was
approved at the AGM on 18 September 2023, and paid on 13 October 2023 in
respect of the financial year ended 31 March 2023.
Net assets
Unaudited 30 September 2023 30 September 2022
£'m £'m
Net assets 67.5 60.2
Net assets at 30 September were £67.5m (31 March 2023: £76.5m; 30 September
2022: £60.2m) with the increase on prior year primarily reflecting fair value
gains on loans and advances recognised in H2 FY23.
Going Concern
The interim results have been prepared on a going concern basis. To assess the
appropriateness of this basis, the Directors considered a wide range of
information relating to present and future conditions, including the Group's
current financial position and future projections of profitability, cash flows
and capital resources.
The information included financial forecasts that have been prepared across a
range of potential scenarios as well as detailed consideration of potential
risks, including the impact of funding lines maturing in the next 12 months
from the date of approval of these financial statements. The Directors believe
that the Group will be able to refinance facilities falling due within the
next 12 months 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 third parties. The Directors do not consider that
this creates a material uncertainty in the going concern assessment of the
Group.
The Directors have also considered the factors likely to affect its future
development, as set out in the Operating Review, and any associated risks
alongside the Group's financial plan. Having reviewed these plans and other
relevant information, the Directors consider the Group to have sufficient
resources to continue to operate for a period of at least 12 months from the
signing of these accounts and it is on this basis that the Directors have
continued to prepare the accounts on a going concern basis.
Responsibility statement of the directors in respect of the interim
consolidated financial statements for the six-month period ended 30 September
2023
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been prepared in
accordance the UK-adopted International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority
Approved on behalf of the board:
Roderick Lockhart
Director
18 December 2023
INDEPENDENT REVIEW REPORT TO LendInvest PLC
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2023 is not prepared,
in all material respects, in accordance with UK adopted International
Accounting Standard 34 and the London Stock Exchange AIM Rules for Companies.
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2023 which comprises the Condensed consolidated interim statement of
profit or loss, Condensed consolidated interim statement of other
comprehensive income, Condensed consolidated interim statement of financial
position, Condensed consolidated interim statement of changes in equity,
condensed interim statements of cash flows and notes to the condensed interim
financial statements.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1.2, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with
the London Stock Exchange AIM Rules for Companies which require that the
half-yearly report be presented and prepared in a form consistent with that
which will be adopted in the Company's annual accounts having regard to the
accounting standards applicable to such annual accounts.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting the requirements of the rules of the London
Stock Exchange AIM Rules for Companies for no other purpose. No person is
entitled to rely on this report unless such a person is a person entitled to
rely upon this report by virtue of and for the purpose of our terms of
engagement or has been expressly authorised to do so by our prior written
consent. Save as above, we do not accept responsibility for this report to
any other person or for any other purpose and we hereby expressly disclaim any
and all such liability.
BDO LLP
Chartered Accountants
London, UK
18 December 2023
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT AND LOSS
Note 6 months ended 6 months ended
30 September 2023 30 September 2022
£'m £'m (restated)
(Unaudited) (Unaudited)
Interest income calculated using the effective interest rate 4 34.1 31.6
Other interest and similar income 4 (0.3) 2.5
Interest expense and similar charges 5 (27.5) (10.1)
Net interest income 6.3 24.0
Fee income 6 7.7 7.6
Fee expenses 6 (1.1) (1.7)
Net fee income 6 6.6 5.9
Net gains on derecognition of financial assets 7 10.8 3.8
Loss on sale of loan portfolio 7 (10.7) -
Net other operating income 0.1 0.1
Net operating income 13.1 33.8
Administrative expenses (21.1) (17.1)
Impairment losses on financial assets 13 (7.1) (1.9)
Total operating expenses (28.2) (19.0)
Profit (loss) before tax (15.1) 14.8
Income tax (charge) credit 3.9 (2.4)
Profit (loss) after taxation (11.2) 12.4
Earnings per share for profit attributable to the ordinary equity holders of
the Group:
Basic earnings per share (pence/share) 24 (8.18) 10.75
Diluted earnings per share (pence/share) 24 (8.18) 10.38
CONDENSED CONSOLIDATED INTERIM STATEMENT OF OTHER COMPREHENSIVE INCOME
Note 6 months ended 6 months ended
30 September 2023 30 September 2022
£'m £'m (restated)
(Unaudited) (Unaudited)
(Loss) Profit for the period (11.2) 12.4
Other comprehensive income:
Items that will or may be reclassified to profit or loss:
Cash flow hedge adjustment recycled to profit or loss 25 (21.5) -
Cash flow hedge adjustment recorded in OCI 25 - 26.5
Fair value gain (loss) on loans and advances and hedge items measured at fair 25 37.2 (81.5)
value through OCI
Cumulative gain (loss) on financial assets reclassified to profit or loss upon 25 (7.2) 27.4
disposal and reclassification from FVTOCI to FVTPL
Deferred tax charge on gross movements through OCI 25 (2.1) 6.9
Other comprehensive income (loss) for the period 6.4 (20.7)
Total comprehensive (loss) for the period (4.8) (8.3)
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
Note As at 30 September 2023 As at 31 March
£'m 2023
£'m
Assets (Unaudited) (Audited)
Cash and cash equivalents 12 88.0 46.7
Trade and other receivables 11 4.5 6.1
Loans and advances 13 807.5 1,122.9
Fair value adjustment for portfolio hedged risk 0.2 0.1
Investment securities 14 23.5 23.9
Property, plant and equipment 15 1.8 2.2
Intangible assets 17 11.3 10.5
Derivative financial assets 22 12.0 46.0
Net investment in sublease 0.8 1.0
Investment in joint venture 0.2 0.2
Investment in third parties 2.0 2.0
Corporate tax receivable 10 2.7 -
Deferred taxation asset 10 - 1.2
Total assets 954.5 1,262.8
Liabilities
Trade and other payables 18 (30.3) (23.7)
Interest bearing liabilities 19 (853.3) (1,159.3)
Lease liabilities 16 (2.8) (3.3)
Deferred taxation liability 10 (0.6) -
Total liabilities (887.0) (1,186.3)
Net assets 67.5 76.5
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION (continued)
As at 30 September 2023 As at 31 March
Equity £'m 2023
£'m
Share capital 23 0.1 0.1
Share premium 23 55.2 55.2
Employee share reserve 25 4.3 3.3
Own Share Reserve 25 (0.6) (0.6)
Fair value reserve 25 6.0 (16.5)
Cash flow hedge reserve - 16.1
Retained earnings 25 2.5 18.9
Total equity 67.5 76.5
These condensed consolidated interim financial statements of LendInvest plc,
with registered number 08146929, were approved by the Board of Directors and
authorised for issue on 19 December 2023. Signed on behalf of the Board of
Directors by:
Roderick Lockhart
Director
18 December 2023
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
Own share reserve £'m Share capital Share premium Employee Share Reserve Fair value reserve Cash flow hedge reserve Retained earnings Total
£'m £'m £'m net of deferred tax net of deferred tax £'m £'m
£'m £'m
(Unaudited)
Balance as at 1 April 2023 (0.6) 0.1 55.2 3.3 (16.5) 16.1 18.9 76.5
Profit (loss) after taxation - - - - - - (11.2) (11.2)
Recognition of employee - - - 1.0 - - - 1.0
share options schemes
Deferred tax on employee share option scheme deduction - - - - - - (0.7) (0.7)
FY23 final dividend declared - - - - - - (4.5) (4.5)
Fair value adjustments on - - - - 22.5 - - 22.5
loan & advances through OCI
Cash flow hedge adjustments through OCI - - - - - (16.1) - (16.1)
Balance as at 30 September 2023 (0.6) 0.1 55.2 4.3 6.0 - 2.5 67.5
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY (continued)
Own share reserve £'m Share capital Share premium Employee Share Reserve Fair value reserve Cash flow hedge reserve Retained earnings Total
£'m £'m £'m net of deferred tax net of deferred tax £'m £'m (re-stated)
£'m £'m
(re-stated)
(Unaudited)
Balance as at 1 April 2022 - 0.1 55.2 2.7 3.8 19.8 15.9 97.5
Profit after taxation - - - - - - 12.4 12.4
Recognition of employee - - - 0.7 - - - 0.7
share options schemes
Transfer from share reserve to retained earnings - - - (1.2) - - 1.2 -
Dividends paid - - - - - - (6.2) (6.2)
Shares purchased by EBT (3.0) - - - - - - (3.0)
Shares issued from own share reserve 1.8 - - - - - (1.8) -
Fair value adjustments on - - - - (40.6) - - (40.6)
loan & advances through OCI
Cash flow hedge adjustments through OCI - - - - - 20.0 - 20.0
Balance as at 30 September 2022 (1.2) 0.1 55.2 2.2 (36.8) 39.8 21.5 80.8
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
Note 6 months ended 30 September 2023 6 months ended 30 September 2022
£'m £'m (restated)
(Unaudited) (Unaudited)
Cash flows from operating activities
(Loss) profit for the period (11.2) 14.8
Adjusted for:
Depreciation of property, plant and equipment 15 0.1 0.2
Amortisation of intangible fixed assets 17 1.4 0.8
Share-based payment expenses to reserves 9 1.0 0.7
Finance income - (0.2)
Income tax expense (3.9) -
Derivative unrealised (loss)/gain and hedge accounting 0.3 (2.5)
Derivative fair value gains reclassified to profit and loss - (21.2)
Fair value re-cycled to line item 'loss on sale of loan portfolio' in profit (20.0) -
or loss
Derivative settlements - 19.3
Impairment provision(1) 13 7.1 2.0
Income from sublease (0.1) -
Depreciation of right of use asset 15 0.3 0.3
Interest expense of right of use asset 0.2 0.2
Loss/(gain) on disposal of portfolios 30.6 (3.8)
Gain on disposal of residual interest (10.8) -
Proceeds from sale of residual notes 8.6 5.7
Income tax (paid) - (2.1)
Change in working capital
Decrease/(increase) in loans and advances 13 81.5 (4.8)
Decrease/(increase) in trade and other receivables 11 1.7 (6.4)
Increase in trade and other payables 18 2.4 7.1
Derivative settlements 27.6 -
Net cash inflow from operations 116.8 10.1
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS (continued)
Cash flow from investing activities
Purchase of property, plant and equipment 15 - (0.2)
Capitalisation of internally developed software 17 (2.2) (2.8)
Interest received - 0.2
Swap initial exchange costs (0.8) (18.2)
Income from sublease 0.1 -
Net cash outflow from investing activities (2.9) (21.0)
Cash flow from financing activities
Cash receipt from interest bearing liabilities 19 164.9 38.7
Proceeds to fund securitisation repayments - 437.3
Redemption of securitisation facilities 19 - (444.4)
Repayment of funding line post sale of loan portfolio 19 (236.8) -
Repayment of retail bonds - (28.1)
Proceeds from issuance of retail bonds - 9.3
Principal elements of finance lease payments 16 (0.5) (0.5)
Interest expense of right of use asset 16 (0.2) (0.2)
Dividends paid 26 - (6.1)
Net cash (outflow) from financing activities (72.6) 6.0
Net (decrease)/increase in cash and cash equivalents 41.3 (4.9)
Cash and cash equivalents at beginning of the period 12 46.7 118.2
Cash and cash equivalents at end of the period(2) 12 88.0 113.3
(1)The non-cash movement in the impairment provision differs from the charge
to the statement of profit and loss in respect to the impairment provision for
the six-month period ended 30 September 2022. This is due to the charge to the
statement of profit and loss including a credit of 0.1m in respect of cash
amounts recovered in the period on loans that have previously been written
off.
(2)Cash and cash equivalents include restricted cash of £3.5m received from
Platform Investors.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
1.1 General information
LendInvest plc is a public company incorporated on 17 July 2012 in the United
Kingdom under the Companies Act. The company listed on AIM on 14 July 2021.
The address of its registered office is Two Fitzroy Place, 8 Mortimer Street,
London W1T 3JJ.
These Condensed consolidated interim financial statements of LendInvest plc,
for the six-month period ended 30 September 2023, comprise the results of the
Company and its subsidiaries (together referred to as "the Group")
(collectively "these financial statements").
1.2 Basis of accounting
These condensed consolidated interim financial statements have been prepared
in accordance with IAS 34 "Interim Financial Reporting" and have been prepared
on a historical cost basis, except as required in the valuation of certain
financial instruments which are carried at fair value. These condensed
consolidated interim financial statements have been prepared applying the
accounting policies and presentation that were applied in the preparation of
the Group's published financial statements for the year ended 31 March 2023.
These condensed consolidated interim financial statements are not statutory
accounts. The Group statutory accounts for the year ended 31 March 2023 have
been reported on by its auditor and delivered to the Registrar of Companies.
The report of the auditor on those statutory accounts was unqualified, did not
include a reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report, and did not contain a statement
under Section 498(2) or (3) of the Companies Act 2006.
All amounts are presented in pounds sterling, which is the functional currency
of the Company and all its subsidiaries. Amounts are rounded to the nearest
million, except where otherwise indicated.
1.2.1 Going Concern
The Group's business activities together with the factors likely to affect its
future development and position are set out in the Operating Review. The
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.
The Directors believe that the Group will be able to refinance facilities
falling due within the next 12 months 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. More information on
the Directors' assessment of going concern is set out in the Finance Review.
1.3 Accounting policies
The accounting policies and methods of computation are consistent with those
set out in the Annual Report 2023.
1.4 Changes in the presentation of the Consolidated interim statement of
profit and loss
The purpose of IAS 1 - Presentation of Financial Statements - is to prescribe
the basis of general-purpose financial statements, to ensure comparability
both within the entity's financial statements of previous periods and the
financial statements of other entities. During the year, the composition of
the Consolidated interim statement of profit and loss has been amended to more
clearly reflect the nature of the profits from operations and to align the
Consolidated interim statement of profit and loss to wider industry standards
to enable comparability.
The cost of sales and gross profit lines items as reported in the Consolidated
interim statement of profit and loss in prior periods are not terms generally
associated with financial services entities and the components of this line
item has been reclassified to enhance comparability to our peers.
The interest expense and funding line costs line items are directly related to
the derivation of interest on loans and advances under IFRS 9 - Financial
Instruments and are reported as an element of net interest income. Origination
fees, and asset management and fund fees, relate to fee income under IFRS 15 -
Revenue recognition, and are reported as a component of net fee income. Please
refer to notes 4-7 for enhanced disclosure of the composition of the amended
line items.
The revised layout is a truer reflection of these two main categories of
profit drivers:
· Net interest income: reflective of profits/losses from interest
and similar charges accounted for under the effective interest rate basis as
prescribed by IFRS 9 - Financial Instruments.
· Net fee income: reflective of profits from fees and similar
income accounted for under IFRS 15 - Revenue from Contracts with Customers.
The table below shows the comparative position for those items which have been
reclassified and where those amounts have been reclassified to in the
Consolidated interim statement of profit and loss.
6 months ended 30 September 2022
Consolidated interim statement of profit and loss extract £'m
Gain on derecognition of financial assets 3.8
- Report as gain on derecognition of financial assets 3.8
Cost of sales (11.4)
- Amounts reclassified to interest expense and similar charges (9.7)
- Amounts reclassified to fee expenses (1.7)
Finance income 2.7
- Amounts reclassified to interest and similar income 2.7
This change has no effect on the Group's profits or net assets.
1.5 Prior period adjustments
i) For the prior period adjustment noted during FY23
in relation to fair value hedge accounting, the Group restated its FY22
Condensed consolidated interim statement of financial position, Condensed
consolidated interim statement of other comprehensive income, and Condensed
consolidated interim statement of changes in equity, in accordance with IFRS
9. Please refer to Note 1.26 in FY23 Annual Report. The Group considered the
prior period adjustment for interim reporting at 30th September 2023 as per
IAS 34 disclosure requirements. For the period ending H1 FY24, the Group has
correctly reclassified amounts relating to changes in the hedged risk from OCI
to profit or loss over the hedged period for macro portfolio hedging. This is
in line with the hedge accounting policy referred to in the FY23 Annual
Report. In line with the above, the Group restated its September 2022
Condensed consolidated interim statement of other comprehensive income and
Condensed consolidated interim statement of changes in equity in accordance
with IAS 8 and IFRS 9. This change does not impact the Condensed consolidated
interim statement of profit and loss or Condensed consolidated interim
statement of financial position for the reporting period. There is no change
to the earnings per share of the Group.
ii) During a review of the H1 FY23 interim financial
statements, it was identified that non-cash transactions related to the
issuance and redemption of bonds were included in the Condensed consolidated
statement of cashflows. There is no change to the Condensed consolidated
interim statement of profit and loss and Consolidated statement of financial
position. However, a change in the Consolidated statement of cash flows
statement is included in respect of the six months to 30 September 2022. The
audited financial statements at 31 March 2023 takes into account the non-cash
transaction treatment related to financing activities.
Restated Condensed consolidated interim statement of other comprehensive As at 30 September 2022 Adjustment (i) £'m As at 30 September 2022
income
£'m (reported) £'m (restated)
Profit after taxation 12.4 - 12.4
Other comprehensive (loss)/income:
Fair value loss on loans and advances measured at fair value through other (81.5) (81.5)
comprehensive income
Cumulative gain (loss) on financial - 27.4 27.4
assets reclassified to profit or loss
upon disposal and reclassification
from FVTOCI to FVTPL
Cash flow hedge adjustment 26.5 - 26.5
Deferred tax credit on gross movements through OCI 13.7 (6.9) 6.8
Other comprehensive (loss)/income for the year (41.3) 20.5 (20.8)
Total comprehensive income for the year (28.9) 20.5 (8.4)
Restated Condensed consolidated interim statement of changes in equity Share capital £'m Share premium £'m Own share reserve £'m Employee share reserve Fair value reserve net of deferred tax Cash flow hedge reserve net of deferred tax Retained earnings £'m Total
£'m £'m £'m £'m
Balance as at 30 September 2022 (reported) 0.1 55.2 (1.2) (57.4) 39.8 21.5 60.2
2.2
Adjustment (i) - - - - 20.6 - - 20.6
Balance as at 30 September 2022 (restated) 0.1 55.2 (1.2) 2.2 (36.8) 39.8 21.5 80.8
Restated Consolidated statement of cash flows (extract) As at 30 September 2022 Adjustment Adjustment (ii) As at 30 September 2022
£'m (reported) (i) £'m £'m £'m (restated)
Cash generated from financing activities
Repayment of retail bonds (57.7) - 29.6 (28.1)
Proceeds from issuance of retail bonds 38.9 - (29.6) 9.3
Cash generated from financing activities 6.0 - - 6.0
2. Financial risk management
General objectives, policies and processes
The Board has the overall responsibility for the establishment and oversight
of the Group's risk management framework. The Group's risk management
activities and exposure to credit, liquidity and market risk are consistent
with those set out in the Annual Report 2023. The tables below analyse the
Group's contractual undiscounted cash flows of its financial assets and
liabilities:
Carrying amount Gross nominal inflow/ (outflow) Amounts due in less than 6 months Amounts due in 6 - 12 months Amounts due between one and five years Amounts due in more than 5 years
As at 30 September 2023 £'m £'m £'m £'m £'m £'m
(Unaudited)
Financial assets
Cash and cash equivalents 88.0 88.0 88.0 - - -
Trade and other receivables 1.9 1.9 1.9 - - -
Derivative financial asset 12.0 12.0 0.1 2.4 4.5 5.0
Loans and advances 807.5 1,099.2 219.8 161.2 186.0 532.3
Investment securities 23.5 27.0 0.8 0.8 25.4 -
932.9 1,228.9 310.6 164.4 215.9 537.3
Financial liabilities
Trade and other payables 29.1 29.1 29.1 - - -
Interest bearing liabilities(1) 853.3 921.4 214.6 21.2 653.2 32.4
Lease liability 2.8 3.0 0.7 0.7 1.6 -
885.2 953.5 244.4 21.9 654.8 32.4
(1)The maturity profile of the loan note liability is based on the asset
recall option exercise date, as the asset recall triggers the repayment of the
outstanding loan notes. The maturity profile of the loan notes does not match
the maturity profile of the loans and advances which is based on the expected
redemptions of the underlying mortgages which will be transferred on to
another entity when the asset recall option is exercised.
Carrying amount Gross nominal inflow/ (outflow) Amounts due in less than 6 months Amounts due in 6 - 12 months Amounts due between one and five years Amounts due in more than 5 years
£'m £'m £'m £'m £'m
As at 31 March 2023 £'m
(Audited)
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) (1,371.6) (257.8) (305.9) (415.9) (392.0)
Lease liability (3.3) (3.8) (0.7) (0.7) (2.4) -
(1,184.9) (1,397.7) (280.8) (306.6) (418.3) (392.0)
Lease liability 2.8 3.0 0.7 0.7 1.6 -
885.2 953.5 244.4 21.9 654.8 32.4
3. Segmental analysis
In prior periods the business has been managed on the basis of two core
segments, namely short-term lending and BTL lending. From the beginning of
this financial period, the management structure of the business has changed to
better reflect the service and operating model of the Group's different
product propositions:
· Mortgages Division: provides mortgages to both professional BTL
landlords and Homeowners as well as a range of Bridging loans. These are
typically higher volume, lower value transactions that rely on technology
supporting a highly efficient underwriting and onboarding process.
· Capital Division: provides larger, more structured finance
primarily to property developers. These are typically higher value, lower
volume transactions that require more bespoke management and a more in-depth
underwriting analysis.
In accordance with the provision of paragraphs 29 and 30 of IFRS 8 Operating
Segments, due to the information to restate prior periods not being available,
and because the costs to develop would be excessive, the prior year segmental
analysis has not been re-stated.
Current year
The Group's lending operations are carried out solely in the UK, and effective
from 1(st) 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 6 months ended 30 September 2023:
LendInvest Mortgages
LendInvest Mortgages provides mortgages to both professional BTL landlords and
Homeowners as well as a range of short-term Bridging loans.
LendInvest Capital
The LendInvest Capital division provides larger, more structured finance
primarily to property developers and larger Bridging loans & 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 the costs associated with restating the prior period, management have made
the decision to not restate prior period results in the new reportable
segments.
The segmental analysis of the condensed consolidated interim statement of
profit and loss is as follows:
6 months ended 30 September 2023 Mortgages Capital Central Total
£'m £'m £'m £'m
Statement of Profit and Loss Information (Unaudited)
Interest income calculated using the effective interest rate 26.3 7.8 - 34.1
Other interest and similar income (0.3) - - (0.3)
Interest charges and similar charges (20.7) (6.8) - (27.5)
Net interest income 5.3 1.0 - 6.3
Fee income 3.4 4.3 - 7.7
Fees expenses (0.5) (0.6) (1.1)
Net fee income 2.9 3.7 - 6.6
Gain on derecognition of financial assets 10.8 - - 10.8
Loss on sale of loan portfolio (10.7) - - (10.7)
Net other income 0.1 - - 0.1
Net segment operating income 8.4 4.7 - 13.1
Administrative expenses (5.4) (2.5) (13.2) (21.1)
Impairment losses on financial assets (0.7) (6.4) - (7.1)
Total segment operating expenses (6.1) (8.9) (13.2) (28.2)
Segment profit/ (loss) before tax 2.3 (4.2) (13.2) (15.1)
Central administrative expenses represent the cost of providing central
services that are not directly attributable to the operating segments.
The segmental analysis of the condensed consolidated interim statement of
financial position is as follows:
Mortgages Capital Central Total
As at 30 September 2023 £'m £'m £'m £'m
Statement of Financial Position Information (Unaudited)
Loans and advances 635.8 171.7 - 807.5
Derivative financial asset 12.0 - - 12.0
Fair value adjustment for portfolio hedged risk asset 0.2 - - 0.2
Investment in securities 23.5 - - 23.5
Total segment assets 671.5 171.7 - 843.2
Cash and cash equivalents - - 88.0 88.0
Trade and other receivables - - 4.5 4.5
Property, plant and equipment - - 1.8 1.8
Net investment in sublease - - 0.8 0.8
Intangible fixed assets - - 11.3 11.3
Investment in joint venture - - 0.2 0.2
Investment in third parties - - 2.0 2.0
Corporate tax receivable - - 2.7 2.7
Total Assets 671.5 171.7 111.3 954.5
Liabilities
Interest bearing liabilities (675.8) (177.5) - (853.3)
Total segment liabilities (675.8) (177.5) - (853.3)
Trade and other payables - - (30.3) (30.3)
Lease liabilities - - (2.8) (2.8)
Deferred taxation - - (0.6) (0.6)
Total liabilities (675.8) (177.5) (33.7) (887.0)
For comparative purposes the current year results have been included in the
reportable segments which were used in the prior year.
6 months ended 30 September 2023 Short Term Lending Buy-to-Let Total
£'m £'m £'m
Statement of Profit and Loss Information (Unaudited)
Interest revenue 19.1 12.6 31.7
Fee and other income 8.8 4.6 13.4
Gain on derecognition of financial asset - 0.1 0.1
Segment Revenue 27.9 17.3 45.2
Interest expense (13.1) (13.1) (26.2)
Cost of sales (other) (4.4) (1.7) (6.1)
Impairment provision (6.9) (0.2) (7.1)
Finance income 0.4 - 0.4
Finance expense - (0.2) (0.2)
Segment Profit 3.9 2.1 6.0
Operating expenses - - (21.1)
Profit before tax 3.9 2.1 (15.1)
Central administrative expenses represent the cost of providing central
services that are not directly attributable to the operating segments.
The segmental analysis of the condensed consolidated interim statement of
financial position is as follows:
As at 30 September 2023 Short Term Lending Buy-to-Let Central Total
£'m £'m £'m £'m
Statement of Financial Position Information (Unaudited)
Loans and advances 359.5 448.0 - 807.5
Derivative financial asset - 12.0 - 12.0
Fair value adjustment for portfolio hedged risk asset - 0.2 - 0.2
Total segment assets 359.5 460.2 - 819.7
Cash and cash equivalents - - 88.0 88.0
Trade and other receivables - - 4.5 4.5
Property, plant and equipment - - 1.8 1.8
Investment in securities - - 23.5 23.5
Net investment in sublease - - 0.8 0.8
Intangible fixed assets - - 11.3 11.3
Investment in joint venture - - 0.2 0.2
Corporation Tax Receivable - - 2.7 2.7
Investment in third parties - - 2.0 2.0
Total Assets 359.5 460.2 134.8 954.5
Liabilities
Interest bearing liabilities (374.5) (478.8) - (853.3)
Total segment liabilities (374.5) (478.8) - (853.3)
Trade and other payables - - (30.3) (30.3)
Lease liabilities - - (2.8) (2.8)
Deferred Taxation - - (0.6) (0.6)
Total liabilities (374.5) (478.8) (33.7) (887.0)
Prior year
The Group's lending operations were carried out solely in the UK with two main
lending products: short-term lending and Buy-to-Let mortgages. The results and
net assets of the Group are derived from the provision of property related
loans only. The following summary describes the operations of the two
reportable segments:
Short term lending
Provides finance for borrowers who need to quickly secure property, generate
cash flow or fund works through the Group's bridging products, and provides
property developers with funding to start or exit a project through
development products. The term of these loans is up to 24 months.
Buy-to-let lending
Provides finance for professional portfolio landlords looking to purchase or
remortgage BTL investment properties in England, Wales and Scotland. The
mortgages are available to both individual and corporate borrowers, and funds
are lent against standard properties as well as houses in multiple occupation
and multi-unit freehold blocks. The term of these loans is up to 30 years.
The segmental analysis of the condensed consolidated interim statement of
profit and loss is as follows:
6 months ended 30 September 2022 Short Term Lending Buy-to-Let Total
£'m £'m £'m
Statement of Profit and Loss Information (Unaudited)
Interest revenue 10.5 20.7 31.2
Fee and other income 4.7 2.8 7.5
Gain on derecognition of financial asset 0.5 3.3 3.8
Segment Revenue 15.7 26.8 42.5
Interest expense (6.4) (2.1) (8.5)
Cost of sales (other) (1.1) (1.8) (2.9)
Impairment Provision (1.4) (0.5) (1.9)
Finance income - 2.7 2.7
Finance expense - - -
Segment Profit 6.8 25.1 31.9
Operating expenses - - (17.1)
Profit before tax - - 14.8
All other cost lines in the condensed consolidated interim statement of profit
and loss were centrally incurred and were not allocated to either operating
segment. These centrally incurred costs were not included in the measure of
segment profit and loss reviewed management.
The segmental analysis of the condensed consolidated interim statement of
financial position is as follows:
Short Term Lending Buy-to-Let Central Total
As at 31 March 2023 £'m £'m £'m £'m
Statement of Financial Position Information (Audited)
Loans and advances 329.9 793.0 - 1,122.9
Derivative financial asset - 46.0 - 46.0
Fair value adjustment for portfolio hedged risk asset - 0.1 - 0.1
Total segment assets 329.9 839.1 - 1,169.0
Cash and cash equivalents - - 46.7 46.7
Trade and other receivables - - 6.1 6.1
Property, plant and equipment - - 2.2 2.2
Investment in securities - - 23.9 23.9
Net investment in sublease - - 1.0 1.0
Intangible fixed assets - - 10.5 10.5
Investment in joint venture - - 0.2 0.2
Investment in third parties - - 2.0 2.0
Deferred taxation - - 1.2 1.2
Total Assets 329.9 839.1 93.8 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) (23.7)
Lease liabilities - - (3.3) (3.3)
Total liabilities (331.5) (827.8) (27.0) (1,186.3)
All other lines in the condensed consolidated interim statement of financial
position are centrally allocated and are not allocated to either operating
segment.
4. Interest and similar income
6 months ended 6 months ended
30 September 2023 30 September 2022
£'m £'m
(Unaudited) (Unaudited)
Interest income calculated using the effective interest rate method
On loans and advances to customers 32.7 31.3
On investment securities 0.9 0.1
On cash deposits 0.5 0.2
Total interest income calculated using the effective interest rate method 34.1 31.6
Other interest and similar income
On derivative financial instruments and hedge accounting (0.3) 2.5
Total other interest and similar income (0.3) 2.5
Total interest and similar income 33.8 34.1
5. Interest expense and similar expense
6 months ended 6 months ended
30 September 2023 30 September 2022
£'m £'m
(Unaudited) (Unaudited)
On amounts due to funding partners (22.6) (7.0)
On debt securities in issue (3.6) (1.3)
Funding line cost amortisation (1.3) (1.8)
Total interest expense and similar charges (27.5) (10.1)
6. Net fee income
6 months ended 6 months ended
30 September 2023 30 September 2022
£'m £'m
(Unaudited) (Unaudited)
Fee income on loans and advances 1.7 0.7
Fee income on asset management 5.9 4.6
Fee income on origination of loans to third parties 0.2 2.3
Fee income 7.7 7.6
Fee expense on origination of loans to third parties (0.5) (1.3)
Fee expense on asset management (0.6) (0.4)
Fee expense (1.1) (1.7)
Net fee and commission income 6.6 5.9
7. Derecognition of financial assets
6 months ended 6 months ended
30 September 2023 30 September 2022
£'m £'m
(Unaudited) (Unaudited)
Net gains on sale of loans and loan portfolios - 0.5
(Loss) on sale of loan portfolio (10.7) -
Profit on derecognition of securitised loan portfolios 10.8 3.3
Net gains on derecognition of financial assets 0.1 3.8
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 £8.6m. This transaction resulted in a reduction in the
Group's gross loans and advances of £236m, a reduction in interest-bearing
liabilities of £228m and generated a net pre-tax profit of £10.8m. Please
refer to note 25 reserves for the related cash flow hedge reserve movement due
to sale of residual notes.
On 26 May 2023, the Group sold a portfolio of BTL residential mortgages
to Chetwood Financial Limited for a cash consideration of £243m inclusive
of the proceeds from cancelled interest rate derivatives. The book value of
the portfolio was c.£250m and the net pre-tax loss on the sale of the
portfolio and the cancellation of the related derivatives was £10.7m. £234m
of interest-bearing liabilities were re-paid on completion of the transaction.
Please refer to note 25 reserves for the related fair value reserve movement
due to sale of BTL mortgage portfolio.
8. (Loss) / profit before taxation
(Loss) / profit before taxation has been stated after charging:
6 months ended 6 months ended
30 September 2023 30 September 2022
£'m £'m
(Unaudited) (Unaudited)
Wages and salaries 10.3 8.9
Depreciation and amortisation 1.9 1.4
Audit related assurance services 0.7 0.6
Fees payable to the auditors for other assurance services 0.1 0.1
Share-based payments 1.0 0.7
Lease finance expense 0.1 0.2
9. Share-based payments
Company Share Option Plans
During the six months ended 30 September 2023, the Group issued awards under
the Long-Term Incentive Plan (LTIP), the Deferred Bonus Plan (DBP, which forms
part of the LTIP) and the Share Incentive Plan (SIP), to certain employees.
The number of options/awards made under the plans are as follows:
LTIP: 2,719,000
DBP: 1,358,755
SIP: 1,020,559
There were no options or awards which vested in the LTIP or SIP share-based
plan respectively in the period. Under the DBP, a total of 161,001 options
vested in the period.
The grant of shares or options under these schemes may be made on an annual or
on an ad hoc basis. The DBP and LTIP options awards aforementioned are
pro-rated due to leavers during the period.
Share Option expense recognised
During the six months ended 30 September 2023, the Group recognised a £1.0
million expense as a result of issued share options vesting.
6 months ended 30 September 2023 6 months ended 30 September 2022
£'m £'m
(Unaudited) (Unaudited)
The expense is included in administrative expenses 1.0 0.7
10. Taxation on profit on ordinary activities
The Group is subject to all taxes applicable to a commercial company in the
United Kingdom. The UK business profits of the Group are subject to UK income
tax at the prevailing basic rate of 25% (2022: 19%).
As of 30 September 2023, the Group had a deferred tax liability of £(0.6)m
(31 March 2023: net deferred tax asset of £1.2m). The deferred tax
(liability) / asset include:
● Asset of £0.8m (31 March 2023: Asset of £1.4m) related to
temporary differences arising between the tax base of share-based payments and
the carrying amount;
● Liability of £(0.1)m (31 March 2023: Liability of £(0.1)m)
related to temporary differences arising between the tax base of property,
plant and equipment and the carrying amount;
● Liability of £(2.0)m (31 March 2023: Asset of £0.2m) related to
the fair value reserve on loans and advances and cash flow hedge reserve;
● Asset of £0.1m (31 March 2023: Asset of £0.1m) related to the
ECL provision on transition to IFRS 9;
● Asset of £0.1m (31 March 2023: Asset of £0.1m) related to
transition to IFRS 16;
● Asset of £0.7m (31 March 2023: nil) related to recognised tax
losses available for offset against future taxable profits; and
● Liability of £0.2m (31 March 2023: Liability of £(0.5)m) related
to accelerated deductions from research and development activity.
11. Trade and other receivables
As at 30 September 2023 As at 31 March 2023
£'m £'m
(Unaudited) (Audited)
Due within one year
Trade receivables 1.7 0.5
Other receivables:
Prepayments and accrued income 2.6 1.9
Other receivables 0.2 2.5
Due after one year
Rent deposit - 1.2
4.5 6.1
12. Cash and cash equivalents
As at 30 September 2023 As at 31 March 2023
£'m £'m
(Unaudited) (Audited)
Cash 84.5 40.4
Cash equivalents - -
Trustee's account 3.5 6.3
88.0 46.7
Trustees' accounts relate to monies held on account for the benefit of our
investors in the Self-select Platform, prior to them either investing in loans
or withdrawing their capital. Operationally, the Company does not treat the
Trustees' balances as available funds. An equal and opposite payable amount is
included within the trade payables balance (see note 18).
13. Loans and advances
On 14 April 2023, the Group sold its non-risk retention residual economic
interest in the Mortimer BTL 2021-1 plc securitisation. This transaction
resulted in a reduction in the Group's gross loans and advances of £236m.
On 26 May 2023, the Group sold a portfolio of BTL residential mortgages
to Chetwood Financial Limited. The book value of the portfolio was c.£250m.
As at 30 September 2023 As at 31 March 2023
£'m £'m
(Unaudited) (Audited)
Gross loans and advances 822.4 1,168.5
ECL provision (15.5) (9.1)
Fair value adjustment (*) 0.6 (36.5)
Loans and advances 807.5 1,122.9
(*) Fair value adjustment to gross loans and advances due to classification
as FVTOCI. Fair value adjustments are a function of changes in discount rates
on the Group's loan assets. The changes in the underlying variables during the
period and effect on fair value is discussed in Note 25.
ECL provision
Movement in the period £'m
Under IFRS 9 at 1 April 2023 (Audited) (9.1)
Additional provisions made during the period(1) (8.1)
Utilised in the period(2) 1.2
Recoveries of amounts previously written off 0.5
Under IFRS 9 at 30 September 2023 (Unaudited) (15.5)
Movement in the period £'m
Under IFRS 9 at 1 April 2022 (Audited) (11.0)
Additional provisions made during the period(1) (2.8)
Utilised in the period(2) -
Recoveries of amounts previously written off 0.1
Under IFRS 9 at 30 September 2022 (Unaudited) (13.7)
(1)The increase in provision during the period primarily related to individual
assessments in respect of a small number of larger and more complex structured
bridging and development finance loans. The increased provision therefore
reflects idiosyncratic factors on particular loans, rather than a systemic
increase in the risk profile of the overall loan portfolio. Additional
provisions made during the period include £0.5m (2022: £0.7m) of expected
credit losses incurred on the interest income recognised on stage 3 loans and
advances.
(2)The provision utilised in the period includes £0.5m in respect of loans
that have been written off. 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 £4.8m (2022: £9.0m). The remaining balance of the
provision utilised in the period of £0.7m represents the ECL provision that
was being carried in respect of the loan portfolio that was sold to Chetwood
Financial Limited. This has been recycled to the related loss on derecognition
of financial assets.
The net movement on the ECL provision for the period to 30 September 2023 that
has impacted the condensed consolidated interim statement of profit and loss
is £6.4m (2022: £2.7m). The impairment charge for the period is £7.1m
(2022: £1.9m), the difference being the £0.7m of provision related to the
loan portfolio sale referenced above.
Analysis of loans and advances by stage
Stage 1 Stage 2 Stage 3 Total
As at 30 September 2023 £'m £'m £'m £'m
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Gross loans and advances 614.3 150.8 57.3 822.4
ECL provision (0.3) (1.7) (13.5) (15.5)
Fair value adjustment - 0.6 - 0.6
Loans and advances 614.0 149.7 43.8 807.5
The maximum LTV on stage 1 loans is 90%. The maximum LTV on stage 2 loans is
92%. The maximum LTV on Stage 3 loans is 103% and the total value of
collateral (capped at the gross loan value) held on stage 3 loans is £54.9m.
Stage 1 Stage 2 Stage 3 Total
As at 31 March 2023 £'m £'m £'m £'m
(Audited) (Audited) (Audited) (Audited)
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 £34.3m.
The fair value adjustments on Stage 3 loans are not applied. Loans and
Advances recognised as Stage 3 are credit impaired and their carrying value
represents the discounted cashflows which could be recovered after assessing
the likelihood of the borrower rehabilitating or the alternative outcome which
involves reliance on the proceeds from the sale of security The discounted
cash flows are arrived based on a proprietary model which considers
macroeconomic as well as behavioural factors.
Credit risk on gross loans and advances
The table below provides information on the Group's loans and advances by
stage and risk grade.
Risk grades detailed in the table range from 1 to 10 with a risk grade of 1
being assigned to cases with the lowest credit risk and 10 representing cases
in default. Equifax Risk Navigator (RN) scores are used to assign the initial
Risk Grade score with additional SICR rules used to generate the final Risk
Grade.
Stage 1 Stage 2 Stage 3 Total
As at 30 September 2023 £'m £'m £'m £'m
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Risk Grades 1 - 5 612.9 120.5 - 733.4
Risk Grades 6 - 9 1.4 30.3 - 31.7
Default - - 57.3 57.3
Total 614.3 150.8 57.3 822.4
Stage 1 Stage 2 Stage 3 Total
As at 31 March 2023 £'m £'m £'m £'m
(Audited) (Audited) (Audited) (Audited)
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
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 probability of default.
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
ECLs are 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. Evidence that asset
quality has improved will include:
· repayment of arrears;
· improved credit worthiness; and
· 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.
Movement analysis of net loans by stage
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2023(1) 902.2 191.8 28.9 1,122.9
Transfer to stage 1 21.6 (21.6) - -
Transfer to stage 2 (75.7) 75.9 (0.2) -
Transfer to stage 3 (10.7) (21.6) 32.3 -
New financial assets originated 300.7 - - 300.7
New financial assets originated and transferred to stage 2 or 3 (23.5) 23.0 0.5 -
Financial assets which have repaid (109.0) (48.8) (2.5) (160.3)
Balance movement in loans (391.6) (49.0) (15.2) (455.8)
Total movement in loans and advances (288.2) (42.1) 14.9 (315.4)
As at 30 September 2023 614.0 149.7 43.8 807.5
Movement analysis of gross loans by stage
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2023(1) 935.7 196.7 36.1 1,168.5
Transfer to stage 1 22.5 (22.5) - -
Transfer to stage 2 (77.2) 77.4 (0.3) (0.1)
Transfer to stage 3 (10.6) (21.5) 32.2 0.1
New financial assets originated 296.6 - - 296.6
New financial assets originated and transferred to stage 2 or 3 (23.1) 22.6 0.5 -
Financial assets which have repaid (109.2) (49.2) (2.8) (161.2)
Balance movement in loans (420.4) (52.7) (7.9) (481.0)
Write offs - - (0.5) (0.5)
Total movement in loans and advances (321.4) (45.9) 21.2 (346.1)
As at 30 September 2023 614.3 150.8 57.3 822.4
Movement analysis of ECL by stage
Stage 1 Stage 2 Stage 3 Total
£'m £'m £'m £'m
As at 1 April 2023(1) 0.5 1.2 7.4 9.1
Transfer to stage 1 0.2 (0.2) - -
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 3 (0.4) 0.3 0.1 -
Financial assets which have repaid (0.1) (0.2) (0.4) (0.7)
Changes in models/risk parameters (0.4) 0.5 6.5 6.6
Adjustments for interest on impaired loans - - 0.5 0.5
Write offs - - (0.5) (0.5)
Total movement in impairment provision (0.2) 0.5 6.1 6.4
As at 30 September 2023 0.3 1.7 13.5 15.5
Critical accounting estimates relating to the impairment of financial assets:
The calculation of ECLs requires the Company 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.
Forward-looking information
The Company incorporates forward-looking information into the calculation of
ECLs and the assessment of whether there has been a significant increase in
credit risk ('SICR'). The use of forward-looking information represents a key
source of estimation uncertainty. The Company uses three forward-looking
economic scenarios:
1. a central scenario aligned to the Company's business plan;
2. a downside scenario as modelled in the Company's risk management
process; and
3. an upside scenario representing the impact of modest improvements
to assumptions used in the central scenario.
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:
As at 30 September 2023 As at 31 March 2023
Base 40% 40%
Upside 40% 40%
Downside 20% 20%
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,
three alternative scenarios are derived, relating to a base case (most
likely), downside (broadly equivalent to a one-in-ten years event) and a
moderate upside scenario. Assumptions on the likely out-turn represent a
weighted average of these three scenarios provided by Oxford Economics, and
are detailed below:
As at 30 September 2023
Macro Assumptions 2024 2025 2026 2027 2028 2029 2030 2031 2032
Real GDP growth (% growth YoY)
Base 0.38% 1.47% 2.26% 1.54% 1.65% 1.53% 1.40% 1.36% 1.36%
Upside 4.89% 3.07% 3.25% 1.62% 1.51% 1.38% 1.26% 1.21% 1.21%
Downside -3.23% 0.62% 1.87% 1.56% 1.76% 1.64% 1.52% 1.47% 1.47%
Unemployment %
Base 4.60% 4.40% 3.90% 3.90% 3.80% 3.80% 3.80% 3.70% 3.70%
Upside 3.55% 2.74% 2.23% 2.26% 2.30% 2.37% 2.49% 2.60% 2.71%
Downside 5.80% 6.80% 7.00% 6.80% 6.60% 6.30% 6.10% 5.90% 5.70%
House price inflation %
Base -7.10% -2.84% 4.62% 7.06% 5.98% 4.51% 3.65% 2.90% 2.97%
Upside -2.84% 0.70% 7.74% 6.79% 5.71% 4.24% 3.38% 2.64% 2.71%
Downside -12.60% -7.52% 1.01% 7.43% 6.34% 4.86% 3.99% 3.26% 3.32%
Commercial real estate (% growth YoY)
Base 2.04% 3.73% 3.21% 2.86% 2.18% 1.66% 1.28% 1.15% 0.91%
Upside 9.94% 4.95% 2.80% 1.01% 0.52% 0.26% 0.17% 0.16% 0.25%
Downside -3.41% 3.53% 3.84% 4.52% 3.67% 2.65% 2.22% 1.69% 1.54%
As at 31 March 2023
Macro Assumptions 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Real GDP growth (% growth YoY)
Base 0.01% 0.60% 2.40% 2.62% 1.43% 1.44% 1.33% 1.36% 1.37% 1.38%
Upside 0.00% 5.90% 3.80% 3.80% 1.30% 1.30% 1.20% 1.20% 1.20% 1.20%
Downside 0.01% -3.84% 1.70% 2.25% 1.54% 1.56% 1.44% 1.47% 1.49% 1.49%
Unemployment %
Base 3.87% 4.26% 4.04% 3.76% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75%
Upside 3.87% 3.22% 2.40% 2.12% 2.16% 2.27% 2.39% 2.50% 2.61% 2.73%
Downside 3.87% 5.58% 6.60% 6.93% 6.71% 6.50% 6.29% 6.08% 5.88% 5.67%
House price inflation %
Base 1.16% -7.15% -2.06% 2.68% 5.93% 5.07% 3.70% 3.39% 3.37% 3.40%
Upside 1.16% -1.45% 1.59% 6.38% 5.68% 4.82% 3.45% 3.14% 3.11% 3.15%
Downside 1.16% -13.37% -6.72% -2.58% 6.32% 5.45% 4.07% 3.77% 3.74% 3.77%
Commercial real estate (% growth YoY)
Base -10.08% 3.34% 2.16% 3.11% 1.80% 1.68% 1.29% 1.22% 1.11% 1.02%
Upside -10.08% 15.5% 4.08% 3.83% -0.48% -0.15% -0.17% 0.04% 0.16% 0.25%
Downside -10.08% -6.39% 1.63% 3.44% 3.56% 3.09% 2.42% 2.12% 1.83% 1.60%
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 the
value of underlying securities that underpin credit risk management; all of
which directly impact the Group's operational activities and success.
The Company undertakes a review of its economic scenarios and the probability
weightings applied at least quarterly, and more frequently if required.
As at 30 September 2023
ECL provision
Scenario £'m
Expected credit losses - 100% upside scenario 13.5
Expected credit losses - 100% downside scenario 16.9
As at 31 March 2023
ECL provision
Scenario £'m
Expected credit losses - 100% upside scenario 7.9
Expected credit losses - 100% downside scenario 10.0
The results of this review are recommended to the Audit & Risk Committee
and the Group's Board. Given the steep rise in the Bank of England Base Rate,
the impairment charge for Buy-to-Let loans includes a post model adjustment to
account for an increased risk of default as borrowers' revert to materially
higher variable rates, from low fixed rates, over the next 12 months resulting
in an additional impairment charge of £0.2m (2022: £0.6m). This is the only
post model adjustment.
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 the Probability of Default ('PD') and Loss Given Default
('LGD'). Sensitivity analysis is performed by the Group to assess the impact
of changes in these key assumptions on the expected credit loss provision
recognised on loans and advances. A summary of the key assumptions and
sensitivity analysis as at 30 September 2023 is provided in the following
table:
Impact on ECL
Assumption Sensitivity analysis £'m
Unemployment 20% increase in the unemployment rate 0.0
Forced sale discount 10% absolute increase in the forced sale discount 0.7
As at 31 March 2023
Impact on ECL
Assumption Sensitivity analysis £'m
Unemployment 20% increase in the unemployment rate 0.1
Forced sale discount 10% absolute increase in the forced sale discount 0.2
Critical judgements relating to the impairment of financial assets
The Company 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 & Risk 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. The
assessment of whether there has been a SICR also incorporates forward-looking
information. The Company considers that a SICR has occurred when any of the
following have occurred:
1. The overall creditworthiness of the borrower has materially worsened,
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 one 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 bridging loans and 85% for all
other products;
5. Where a short-term bridging loan has less than one month before maturity;
and
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).
Stage 2 criteria are designed to be effective indicators of a SICR. As part of
the bi-annual review of key impairment judgements, the Company 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, it 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 Company utilises three different risk rating models, three separate PDs
have been provided for each portfolio. Risk Grades 1-9 are for non-defaulted
accounts with 10 indicating default. Therefore, all Stage 3 loans are assigned
to this grade. As stated above, 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.
As at 30 September 2023
Balances (£'m) ECL (£'m) Probability of default
Risk Grade Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Bridging Development BTL Residential
RG1 560.0 0.9 - (0.3) - - 7% 0% 0% 0%
RG2 30.0 56.0 - - (0.8) - 12% 1% 0% 0%
RG3 13.7 23.6 - - (0.3) - 19% 2% 1% 1%
RG4 3.9 12.9 - - (0.2) - 30% 3% 1% 1%
RG5 5.4 27.1 - - (0.1) - 45% 4% 2% 2%
RG6 1.3 23.1 - - (0.2) - 69% 6% 4% 4%
RG7 - 2.0 - - - - 79% 8% 7% 7%
RG8 - 0.4 - - - - 88% 11% 12% 12%
RG9 - 4.8 - - (0.1) - 93% 15% 19% 19%
RG10 - - 57.3 - - (13.5) 100% 100% 100% 100%
Total 614.3 150.8 57.3 (0.3) (1.7) (13.5) - - - -
As at 31 March 2023
Balances (£'m) ECL (£'m) Probability of default
Risk Grade Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 Bridging Development BTL
RG1 882.1 0.9 - (0.4) - - 7% 0% 0%
RG2 34.1 93.9 - (0.1) (0.4) - 12% 1% 0%
RG3 7.3 37.7 - - (0.3) - 19% 2% 1%
RG4 4.3 24.7 - - (0.2) - 30% 3% 1%
RG5 6.4 13.0 - - (0.1) - 45% 4% 2%
RG6 1.2 21.1 - - (0.1) - 69% 6% 4%
RG7 0.3 1.5 - - (0.1) - 79% 8% 7%
RG8 - 0.5 - - - - 88% 11% 12%
RG9 - 3.4 - - (0.1) - 93% 15% 19%
RG10 - - 36.1 - - (7.3) 100% 100% 100%
Total 935.7 196.7 36.1 (0.5) (1.3) (7.3) - - -
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 Company's definition of default follows product-specific
characteristics allowing for the provision to reflect operational management
of the portfolio. Below is a short description of each product type and the
Company'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 borrower fails to repay their loan after 30 days and does not seek an
authorised extension; or it is structured and the loan is two months in
arrears.
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 the 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.
Buy-to-let (BTL) Loans - BTL loans are extended to borrowers looking to
purchase a new rental property or refinance an existing rental property. A BTL
loan is considered to be in default if the loan is three months in arrears.
Specialist Residential - Residential loans support borrowers looking to
purchase or refinance their primary residence. A residential loan defined as
in default if the loan is three months in arrears; or if the borrower has been
declared bankrupt.
The Company 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.
14. Investment securities
As at 30 September 2023 As at 31 March 2023
£'m £'m
(Unaudited) (Audited)
Retained interest in
Mortimer BTL 2020-1 PLC - 10.7
Mortimer BTL 2021-1 PLC 10.7 -
Mortimer BTL 2022-1 PLC 12.8 13.2
Total 23.5 23.9
The Group sold its residual interest it held in Mortimer BTL 2020 - 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 202-1 Plc held by the Group.
The Group sold its holding of the certificate for Mortimer BTL 2021 - PLC on
the 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 June 25 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. The investment
securities of £10.7m 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 Group securitised a portfolio of mortgage loans on 12 May 2022. On 14
August 2022, the Group sold its holdings of residual notes in the
securitisation vehicle, Mortimer BTL 2022-1 plc. The sale of the residual
notes represented the excess spreads in the securitisation vehicle as well as
an option to repurchase the assets from the vehicle on 23 June 2025. The sale
of the residual notes and call options resulted in a derecognition event as
substantially all of the risks, rewards and control of the vehicle passed to
the purchaser. As the variable returns and control of the vehicle had been
transferred, the Mortimer BTL 2022-1 plc entity has also been deconsolidated
from the Group's results. The investment securities of £12.8m represent the
retained risk retention in the form of debt securities issued by
unconsolidated structured entities as part of the securitisation transactions
that are retained by the group.
15. Property, plant and equipment
Computer equipment Furniture and fittings Leasehold improvements £'m Right of use asset £'m Total £'m
£'m £'m
Cost
Balance as at 31 March 2023 0.4 0.1 0.4 5.2 6.1
Additions - - - - -
Balance as at 30 September 2023 0.4 0.1 0.4 5.2 6.1
Computer equipment Furniture and fittings Leasehold improvements £'m Right of use asset £'m Total £'m
Accumulated depreciation and impairment £'m £'m
Balance as at 31 March 2023 0.2 0.1 0.2 3.4 3.9
Charge for the period 0.1 - - 0.3 0.4
Balance as at 30 September 2023 0.3 0.1 0.2 3.7 4.3
Net carrying value as at 30 September 2023 0.1 - 0.2 1.5 1.8
Net carrying value as at 31 March 2023 0.2 - 0.2 1.8 2.2
16. Lease arrangements
Future minimum payments under non-cancellable leases:
As at 30 September 2023 As at 31 March 2023
Premises £'m £'m
Due within a year 0.6 1.1
Due between 1-5 years 2.2 2.2
Due later than 5 years - -
2.8 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 £9.54 per square foot. The Group and the Company have no significant
contingent liabilities at the period end.
17. Intangible fixed assets
Internally developed software has been capitalised as an intangible fixed
asset and is being amortised over a useful economic life of five years. During
this period, the Group capitalised internal costs of £2.2m (the six months
ended 30 September 2022: £2.8m). Amortisation: During the six months ended 30
September 2023, the Group amortised £1.4m against intangible fixed assets
(the six months ended 30 September 2022: £0.8m).
Software licences Internally developed software
£'m £'m Total
Cost £'m
Balance as at 31 March 2023 0.7 18.3 19.0
Additions - 2.2 2.2
Balance as at 30 September 2023 0.7 20.5 21.2
Software licences Internally developed software
Accumulated amortisation and impairment £'m £'m Total
£'m
Balance as at 31 March 2023 0.7 7.8 8.5
Charge for the period - 1.4 1.4
Balance as at 30 September 2023 0.7 9.2 9.9
Net carrying value as at 30 September 2023 - 11.3 11.3
Net carrying value as at 31 March 2023 - 10.5 10.5
18. Trade and other payables
As at 30 September 2023 As at 31 March 2023
£'m £'m
(Unaudited) (Audited)
Trade payables 15.1
14.5
Other payables:
Taxation and social security costs 1.4 1.4
Accruals and deferred income 9.7 7.0
Sub - lease deposit rent payable 0.2 0.2
FY23 Final Dividend placeholder 4.5 -
30.3 23.7
The trade payables balance includes Trustees' balances of £3.5m 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.
The accruals and deferred income balance includes a £4.5m accrual for the
FY23 dividend declared on 18 September 2023 but paid on 13 October 2023.
19. Interest bearing liabilities
As at 30 September 2023 As at 31 March 2023
£'m £'m
(Unaudited) (Audited)
Funds from investors and partners 853.4 1,159.6
Accrued Interest 3.4 4.3
Funding line costs (3.5) (4.6)
853.3 1,159.3
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 £8.6m. This transaction resulted in a reduction in the
Group's interest-bearing liabilities of £234m.
On 26 May 2023, the Group sold a portfolio of BTL residential mortgages
to Chetwood Financial Limited for a cash consideration of £243m inclusive
of the proceeds from cancelled interest rate derivatives. £237m of
interest-bearing liabilities were re-paid on completion of the transaction.
During the six-month period, the Group drew down £165m from funding lines to
finance new originations.
The Group's interest on funding has ranged between 1% to 8% in the 6 months
period ended 30 September 2023.
Funding line costs are amortised on an effective interest rate basis. Interest
bearing liabilities are secured by charges over the assets and operations of
the Group.
20. Reconciliation of liabilities arising from financing activities
Interest bearing liabilities Leases Derivatives
£'m £'m £'m
31 March 2022 (Audited) (1,214.1) (4.1) 32.5
Cash flows 54.8 1.4 (8.4)
Fair value changes - - 21.9
Reinstatement of dilapidations provision - (0.1) -
Lease liability interest - (0.5) -
31 March 2023 (Audited) (1,159.3) (3.3) 46.0
Cash flows 71.8 0.7 26.6
Fair value changes - - (60.6)
Leases finance expense - (0.2) -
De-consolidation 234.2 - -
30 September 2023 (Unaudited) (853.3) (2.8) 12.0
21. Financial instruments
Principal financial instruments
The principal financial instruments used by the Group, from which financial
instrument risk arises, are loans and advances, trade and other receivables,
cash and cash equivalents, loans and borrowings, derivatives, and trade and
other payables.
Categorisation of financial assets and financial liabilities
With the exception of loan commitments classified as fair value through profit
or loss, all financial assets of the Group are carried at amortised cost or
fair value through other comprehensive income as at 30 September 2023 and 31
March 2023 depending on the business model under which the Group manages the
financial assets. All financial liabilities of the Group are carried at
amortised cost as at 30 September 2023 and 31 March 2023 due to the nature of
the liability.
Financial instruments measured at amortised cost, rather than fair value,
include cash and cash equivalents, trade and other receivables, trade and
other payables, rent deposit and interest-bearing liabilities. Due to their
short-term nature, the carrying value of cash and cash equivalents, trade and
other receivables, and trade and other payables approximates their fair value.
(a) Carrying amount of financial instruments
A summary of the financial instruments held by category is provided below:
As at 30 September 2023 As at 31 March 2023
£'m £'m
(Unaudited) (Audited)
Financial assets at amortised cost
Cash and cash equivalents 88.0 46.7
Trade and other receivables 4.5 4.2
Loans and advances(1) 148.2 174.2
Investment securities 23.5 23.9
Financial assets at fair value through other comprehensive income
Loans and advances 659.3 948.7
Fair value adjustment for portfolio hedged risk 0.2 0.1
Financial assets at fair value through profit and loss
Derivative financial asset 12.0 46.0
Total financial assets 935.7 1,243.8
Financial liabilities at amortised cost
Trade and other payables (30.3) (22.3)
Interest bearing liabilities (853.3) (1,159.3)
Lease liabilities (2.8) (3.3)
Total financial liabilities (886.4) (1,184.9)
(1)The balance relates to a portfolio of loans which was repurchased from the
Mortimer 2019-1 BTL plc securitisation vehicle. This portfolio is managed
under a hold to collect business model and therefore measured at amortised
cost.
(b) Carrying amount versus fair value
The following table compares the carrying amounts and fair values of the
Group's financial assets and financial liabilities.
As at 30 September 2023 As at 30 September 2023 As at 31 March 2023 As at 31 March 2023
£'m £'m £'m £'m
Carrying Amount Fair Value Carrying Amount Fair Value
(Unaudited) (Audited)
Financial assets
Cash and cash equivalents 88.0 88.0 46.7 46.7
Trade and other receivables 4.5 4.5 4.2 4.2
Loans and advances 807.5 812.4 1,122.9 1,122.9
Investment securities 23.5 22.6 23.9 23.9
Derivative financial asset 12.0 12.0 46.0 46.0
Fair value adjustment for portfolio hedged risk asset 0.2 0.2 0.1 0.1
Total financial assets 935.7 939.7 1,243.8 1,243.8
Financial liabilities
Trade and other payables (30.3) (30.3) (22.3) (22.3)
Interest bearing liabilities (853.3) (847.0) (1,159.3) (1,157.9)
Lease liabilities (2.8) (2.8) (3.3) (3.3)
Total financial liabilities (886.4) (880.1) (1,184.9) (1,183.5)
The fair value of the Retail Bond 2 interest bearing liability is calculated
based on the mid-market price of £99.50 on 30 September 2023 (31 March 2023:
£98.1).
The fair value of the Retail Bond 3 interest bearing liability is calculated
based on the mid-market price of £85.50 on 30 September 2023 (31 March 2023:
£98.7).
Loans and advances are classified as fair value through other comprehensive
income and any changes to fair value are calculated based on a fair value
model using level 3 inputs and recognised through the Statement of Other
Comprehensive Income. Interest bearing liabilities are classified at amortised
cost and the fair value measured using level 1 inputs in the table above is
for disclosure purposes only.
22. Derivatives held for risk management and hedge accounting
As at 30 September 2023 As at 31 March 2023
(Unaudited) (Audited)
Asset Liability Asset Liability
Instrument type £'m £'m £'m £'m
Interest rate swap 12.0 - 46.0 -
The Condensed consolidated interim statement of financial position as at 30
September 2023 includes a balance for derivative financial assets of £12.0m.
This includes the £12.0m fair value of interest rate swap derivatives held
for risk management.
All derivatives are accounted for at fair value for the purpose of hedging
fair value risk exposures associated with the BTL and Homeowner mortgage
portfolios. The net notional principal amount of the outstanding interest rate
swap contracts at 30 September 2023 was £358.3m (31 March 2023: £779.1m).
During the period, the fair value of the derivatives positions decreased by
£34m (six months ended 30 September 2022: £64.6m increase).
23. Share capital
As at 30 September 2023 As at 31 March 2023
number number
(Unaudited) (Audited)
Issued and fully paid up
Ordinary shares of £0.0005 each 141,032,025 139,631,046
141,032,025 139,631,046
As at 30 September 2023 As at 31 March 2023
£'m £'m
Issued and fully paid up (Unaudited) (Audited)
Ordinary Shares of £0.0005 each 0.1 0.1
0.1 0.1
As at 30 September 2023 As at 31 March 2023
Share premium £'m £'m
(Unaudited) (Audited)
Closing balance 55.2 55.2
The balance on the share capital account represents the aggregate nominal
value of all ordinary and preferred shares in issue. There is no maximum
number of shares authorised by the articles of association.
The balance on the share premium account represents the amounts received in
excess of the nominal value of the ordinary and preferred shares. All ordinary
and preferred shares have a nominal value of £0.0005.
Reconciliation of movements during the period
Ordinary Shares
As at 1 April 2023 139,631,046
Shares issued on exercise of company share option scheme options 1,400,979
As at 30 September 2023 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.
24. Earnings per share
(a)
6 months ended 6 months ended
Basic earnings per share 30 September 2023 30 September 2022
(Unaudited) (Unaudited)
Pence/share Pence/share
Total basic earnings per share attributable to the ordinary equity holders of (8.18) 10.75
the Group
(b)
6 months ended 6 months ended
Diluted earnings per share 30 September 2023 30 September 2022
(Unaudited) (Unaudited)
Pence/share Pence/share
Total diluted earnings per share attributable to the ordinary equity holders (8.18) 10.38
of the Group
(c)
6 months ended 6 months ended
Number of shares used as denominator 30 September 2023 30 September 2022
(Unaudited) (Unaudited)
Number of ordinary shares used as the denominator in calculating basic 137,965,198
earnings per share
137,500,867
Adjustments for calculations of diluted earnings per share: Options - 4,895,852
Number of ordinary shares and potential ordinary shares used as denominator in 137,965,198 142,396,719
calculating diluted earnings per share
The loss after tax reported in the Condensed consolidated interim statement of
profit and loss, £11.2m (30 September 2022: profit after tax £12.4m), is the
numerator (earnings) used in calculating earnings per share.
25. Reserves
Fair value hierarchy
The level in the fair value hierarchy within which the financial asset or
financial liability is categorised is determined on the basis of the lowest
level input that is significant to the fair value measurement. Financial
assets and liabilities are classified in their entirety into only one of the
three levels. The fair value hierarchy has the following levels:
1. Quoted prices (unadjusted) in active markets for identical assets
or liabilities;
2. Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. prices) or
indirectly (i.e. derived from prices); and
3. Inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The objective of valuation techniques is to arrive at a fair value measurement
that reflects the price that would be received to sell the asset or paid to
transfer the liability in an orderly transaction between market participants
at the measurement date.
As at 30 September 2023 Level 1 Level 2 Level 3
Financial instruments £'m £'m £'m £'m
Interest rate swap* (Unaudited) 12.0 - 12.0 -
Loans and advances* (Unaudited) 659.3 - - 659.3
*Measured at fair value
For all other financial instruments, the fair value is equal to the carrying
value and has not been included in the table above.
As at 31 March 2023 Level 1 Level 2 Level 3
Financial instruments £'m £'m £'m £'m
Interest rate swap* (Audited) 46.0 - 46.0 -
Loans and advances* (Audited) 948.7 - - 948.7
*Measured at fair value
Level 2 instruments include interest rate swaps which are either two, three or
five years in length. These lengths are aligned with the fixed interest
periods of the underlying loan book. These interest rate swaps are valued
using models used to calculate the present value of expected future cash flows
and may be employed when there are no quoted prices available for similar
instruments in active markets.
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.
Financial instrument Valuation Significant Range at Range at
techniques unobservable 30 September 31 March
used inputs 2023 2023
Loans and advances Discounted cash flow valuation Prepayment Rate 2% - 14% 2% - 12.4%
Probability of default Discount Rate 16% - 84% 16% - 84%
2.5% - 10% 2.5% - 10%
Financial assets and liabilities at fair value: Level 3 analysis:
The following section provides additional analysis of the Group's financial
instruments measured at fair value that are categorised as Level 3:
Loans and advances to customers at FVOCI:
Six months ended 30 September 2023 (Unaudited)
As at 1 April 2023 948.7
Additions(1) 300.6
Movement in expected credit losses (6.4)
Net fair value gains/(losses) recognised in other comprehensive income 0.6
Balance movements (448.0)
Settlements/repayments (136.2)
As at 30 September 2023 659.3
(1)Additions include new financial assets originated, additional drawdowns and
accrued interest.
Information about sensitivity to change in significant unobservable inputs
The significant unobservable inputs used in the fair value measurement of the
reporting entity's loans and advances are prepayment rates, probability of
default and discount rates. Significant increase / (decrease) in any of those
inputs in isolation would result in a lower / (higher) fair value measurement.
A change in the assumption of these inputs will not correlate to a change in
the other inputs.
Sensitivity Analysis
Gain or (loss) at +100bps -100bps
Impact of changes in unobservable inputs 30 September 2023 £'m £'m
£'m
Prepayment rates (Unaudited) 0.6 0.4 0.8
Discount rate (Unaudited) 0.6 (12.0) 13.9
Reserves are comprised of retained earnings, own share reserve, the employee
share reserve, fair value reserve and cashflow hedge reserve.
Retained earnings represent all net gains and losses of the Group less
directly attributable costs associated with the issue of new equity and
dividends paid out to shareholders.
The employee share reserve represents the fair value of share options issued
to employees but not exercised.
The own share reserve represents treasury shares held in the Group's Employee
Benefit Trust which are held to be provided to staff on the exercising of
options, or to be granted as part of the Group's bonus scheme.
Cash flow hedge reserve
The cash flow hedge reserve is the deferred portion of the change in the fair
value of the hedging instrument that is deemed to be effective.
Financial Liabilities Deferred tax Cash Flow Hedge Reserve
Six months ended 30 September 2023 £'m £'m £'m
Balance as at 1 April 2023 (Audited) 21.5 (5.4) 16.1
Cash flow hedge adjustment through other comprehensive income (21.5) 5.4 (16.1)
Cash flow hedge reserve at 30 September 2023 (Unaudited) - - -
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
The fair value reserve represents movements in the fair value of the financial
assets classified as FVTOCI. The movements in fair value are a function of
changes in credit spreads, interest rate curves and size of the loan
portfolio. A significant change in any of these variables will have a
consequential effect on fair value movements and therefore the Group's
reported reserves.
Gross Deferred tax Net
£'m
Six months ended 30 September 2023 £'m £'m
Balance as at 1 April 2023 (Audited) (22.0) 5.5 (16.5)
Fair value movement on loans and advances during the period 37.2 (9.3) 27.9
Fair value on hedged items 12.8 (3.2) 9.6
Fair value re-cycled to line item 'loss on sale of loan portfolio' in profit (20.0) 5.0 (15.0)
or loss
Fair value reserve at 30 September 2023 (Unaudited) 8.0 (2.0) 6.0
On 26 May 2023, the Group sold a portfolio of BTL residential mortgages
to Chetwood Financial Limited. On completion of the sale, the associated fair
value adjustment amounting to £20m was recycled to the line item 'loss on
sale of loan portfolio' in the profit and loss.
26. Dividends
No dividends (2022: £6.2mil) were paid during the period. The final dividend
in respect of the year ended 31 March 2023 of 4.5 pence per share (amounting
to £4.5m) was approved on 18 September 2023, and paid on 13 October 2023.
The Board is not recommending the payment of an interim dividend in respect of
the 6 months ended 30 September 2023.
27. Related party transactions
Key management personnel compensation
Key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the Group. Key
management is defined as the directors of LendInvest plc.
6 months ended 6 months ended
30 September 2023 30 September 2022
£'m £'m
(Unaudited) (Unaudited)
Salary & bonus 0.5 0.7
Defined contribution pension cost - -
Share based payments - 0.1
Total 0.5 0.8
28. Events after reporting date
On 6 October 2023 £55m of retail bonds matured, which carried a coupon of
5.375%. These bonds were refinanced by a new issue of £60m retail bonds. Of
the new issuance, c.£20m are currently held in treasury and are included in
FuM. The new bonds carry a coupon of 11.5%.
On 29 November 2023, the business successfully completed its fifth public
market securitisation transaction in respect of a £410m BTL loan portfolio.
This transaction generated a cash inflow of c£34m which was used to repay
c£17m of third-party mezzanine debt, with the remainder available for new
lending and general business purposes. Due to the size of the transaction, the
business intends to reduce the current surplus capacity in its warehouse
facilities for BTL lending by c£355m, thereby reducing ongoing commitment
fees. This will have a corresponding impact on FuM.
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. They are
not necessarily comparable to other entities' APMs.
Assets under Management ('AuM')
The Group defines AuM as the sum of (i) the total amount of outstanding loans
and advances (including accrued interest, before 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 AuM as a useful measure because it is used to analyse and
evaluate the volume of revenue-generating assets of the platform on an
aggregate basis and is therefore helpful for understanding the performance of
the business.
The following table provides a reconciliation from the Group's reported gross
loans and advances.
6 months ended 6 months ended
30 September 2023 30 September 2022
£'m £'m
(Unaudited) (Unaudited)
Gross Loans and advances 822.4 1,213.2
Off-Balance sheet Assets 1,872.7 1,217.9
Total 2,695.1 2,431.1
Funds under Management ('FuM')
The Group defines FuM as the aggregate sum available to the Group under each
of its funding lines. The Group's FuM are used to originate revenue generating
AuM. The Directors view the difference between the Group's FuM and Platform
AuM as the headroom for future growth.
New lending/loan origination
The Group defines new lending as the total new money lent on loans which have
originated in the period, or when an existing product has been refinanced with
a new loan.
Diluted earnings per share
The Group defines diluted earnings per share as earnings per share divided by
the weighted average number of dilutive shares including adjustments for share
options.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR EADAPFFKDFAARecent news on Lendinvest
See all newsRCS - Lendinvest PLC - LendInvest secures £250m Societe Generale boost
AnnouncementREG - Lendinvest PLC LendInvest PLC-LINV - LendInvest Board Changes
AnnouncementREG - LendInvest SI. II LendInvest - LIV4 - LIV4 Analysis of Loan Portfolio Q4 2024
AnnouncementREG - LendInvest SI. II LendInvest - LIV3 - LIV3 Analysis of Loan Portfolio Q4 2024
AnnouncementREG - Lendinvest PLC LendInvest PLC-LINV - LendInvest grows Funds under Management to £5.14bn
Announcement