REG - Orchard Funding Grp - Final Results
13/12/2023 07:15
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RNS Number : 5381W Orchard Funding Group PLC 13 December 2023
13 December 2023
Orchard Funding Group PLC
("Orchard Funding Group" or the "company" or the "group")
Full Year Results
For the 12 months ended 31 July 2023
Orchard Funding Group PLC, the finance company which specialises in insurance
premium finance and the professions funding market, is pleased to announce its
audited full year results for the year ended 31 July 2023.
Highlights
· Increases in lending, revenue and profit
· Gross total income in the period increased by 27.14% to £7.86
million for the 12 months to 31 July 2023 (31 July 2022 £6.19 million)
· The loan book increased by 34.87% year on year to £58.99 million
· Profit after tax rose by 12.50% from £1.52 million to £1.71
million
· Earnings Per Share ("EPS") rose in the period by 12.82% to 8.03p
(31 July 2022 7.11p)
· The group lent £99.87 million to clients in the 12 months to 31
July 2023 an increase of 24.90% (31 July 2022 £79.96 million)
· We are again proposing a full year dividend per share of 3.0 pence
· We have increased the amount of funding to which we have access
(from £28.70m to £30.74m unrestricted funds).
Ravi Takhar, Chief Executive Officer of the company, stated:
"We are delighted to report our robust performance and return to historic
profit levels.
We have grown our business whilst maintaining the historic credit quality of
our lending book. We continue to benefit from excellent liquidity from Toyota
Financial Services and Nat West. We have also now bolstered our liquidity with
access to the listed retail bond market through Orchard Bond Finance.
We continue to invest in and benefit from our software platform, which gives
us a number of advantages in underwriting, servicing and marketing our
business.
We are very well placed to manage the current difficulties in the UK economy
and will continue to manage and operate our business carefully and in the best
interests of all our stakeholders."
For further information, please contact:
Orchard Funding Group PLC
+44 (0)1582 346 248
Ravi Takhar, Chief Executive Officer
Liberum (Nomad and Broker)
+44 (0)20 3100 3222
Investment banking
Lauren Kettle
Chris Clarke
For Investor Relations please go to:
www.orchardfundinggroupplc.com (http://www.orchardfundinggroupplc.com)
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014 as amended by The Market Abuse (Amendment) (EU Exit)
Regulations 2019. Upon the publication of this announcement via the Regulatory
Information Service, this inside information is now considered to be in the
public domain.
Group financial highlights
Until 2019, Orchard grew its lending year on year. From August 2019 to July
2021 lending fell primarily due to the impact of Covid-19. In the last two
years this situation has been reversed. This year overall lending increased.
Comparing lending, income and profit for 2023 with 2022:
2023 2022 Increase
(£m) (£m) (%)
Lending volume 99.87 79.96 24.90%
Loan book (post ECL provision) 58.99 43.74 34.87%
Borrowing 34.72 25.53 36.00%
Gross total income 7.86 6.19 26.98%
Net total income 5.60 4.84 15.70%
Other operating costs 3.44 2.97 15.82%
Operating profit 2.16 1.88 14.89%
Further detail on the above is given throughout the Group strategic report on
pages 4 to 15 of the full financial statements.
Chairman's statement
I am very pleased to report that the business continues to grow despite the
ongoing economic headwinds. We have again achieved record lending volumes of
nearly £100m and the outstanding loan book is at an all time high. This
growth has been achieved in our core insurance premium funding markets.
The economic outlook is showing some signs of improvement but the ongoing
uncertainty and significant increase in base lending rates has impacted our
business. Our margins have been compressed, although despite this we have
still delivered higher profits. The planned expansion into longer term
lending in the static caravan market and the short term bridging loan market
has been slowed, as we proceed with caution in line with our prudent approach
to lending.
I am very proud of what our committed staff have achieved this year. They have
delivered record volumes of business with only a small increase in numbers.
This increase in productivity is a testament to their hard work and also to
the scalability of our systems and the effectiveness of our flexible hybrid
working arrangements.
We continue to benefit from excellent support from our introducing partners
and funders. In particular, it has been good to see the relationship with
Toyota Financial Services continue to develop and business volumes increase.
Relatively high base rates will likely endure well into 2024 and the Bank of
England has been clear that a low base rate environment is not imminent. The
macroeconomic and geopolitical situation remains unstable and this brings
ongoing uncertainty for our business in the short term. Margins will continue
to be squeezed and we will be alert for any increase in arrears and ready to
support our customers as necessary. The medium term outlook remains positive.
We are seeing ongoing growth in our core market and I remain optimistic that
our platform of a highly skilled team and strong track record will enable us
to diversify into aligned lending markets.
I am pleased to confirm that we are proposing to maintain the dividend at 3
pence per share enabling us to keep retaining profits to invest in future
growth.
Steven Hicks
Chairman
12 December 2023
Chief executive's review
We are pleased to report record lending of nearly £100 million and record
earnings for the year ended 31 July 2023.
Our staff have worked hard and successfully to continue to increase our
lending in our core market of insurance premium finance. Whilst our
professions and leisure lending has remained solid, safe and stable, the
economic back drop has limited our appetite to lend in the static caravan and
property bridging market.
Another factor that has impacted our earnings significantly is the rapid rise
in base rate, which has a direct and immediate impact on our cost of funds. We
operate in extremely competitive markets which has limited our ability to pass
on base rate rises to our customers and have therefore suffered an erosion of
our net income.
We continue to carefully manage operational costs and retain a loyal and
hardworking team of staff.
IT is still an important focus of the business. We continue to develop our
lending platform Lend XP and have also developed our open banking platform to
enable fully automated affordability calculations for our customers.
We operate in highly regulated markets. The regulatory framework is burdensome
and the costs of regulatory compliance continue to increase. We continue to
manage our regulatory obligations and responsibilities effectively.
As we enter a new financial year there are some obvious headwinds that the
business will be required to navigate.
A significant concern is the increase in cost of funds, which will more fully
impact the business going forward. We will also have to manage the impact on
consumer demand for credit due to the current difficult economic conditions.
Our business has operated in its markets for over 20 years. We enter our 8th
year as a listed company with the benefit of our accumulated experience, our
loyal staff, excellent funding partners and market leading and cost effective
IT. We are therefore optimistic and excited about the prospects for the
business going forward.
I would like to thank our staff, Toyota and NatWest, our funding partners, our
shareholders, bond holders and customers for their continued support and
loyalty.
We are pleased to be able to maintain our dividend payment.
Ravi Takhar
Chief executive officer
12 December 2023
Group strategic report
Strategy and objectives
Our strategy has remained the same since we commenced business - to increase
our profitability in a prudent, sustainable manner, having due regard for the
interests of all stakeholders. Stakeholders are not just our employees and
shareholders but also introducing partners, other customers, creditors,
regulators, other parts of government and the local and wider community. It is
the responsibility of the board of directors to ensure that all stakeholders
are treated in a fair manner, despite the fact that each group may have
conflicting interests. This concept of even-handedness permeates through the
decision making process.
The strategic drivers behind our principal objective are still to:
· differentiate our business from that of our competitors, based on
service excellence, fair pricing and robust underwriting procedures;
· increase lending in a responsible manner using a two pronged approach
- increase the number of partners who fit in with our business values
(brokers, accountants and other third party introducers) as well as to
increase the volume of business from each of these partners, while always
having regard to the risks associated with lending and keeping fair treatment
of customers at the heart of our business;
· preserve and, where deemed necessary, increase our sources of
liquidity;
· innovate by reviewing markets and product lines which we believe are
appropriate for our lending criteria - safe lending and sensible returns - as
well as evaluating other ways of doing business;
· continually improve our IT systems by further development to enable
efficient processing of information and to assist in reducing the various
risks attaching to our business;
· support our excellent staff in their work by providing them with the
means to find lending opportunities, assisting them in developing those
opportunities, offering continuous training and ensuring, where we are able,
that there is a balance between work and home life.
Our business model
Our core business remains providing credit to businesses and consumers to
enable them to spread the cost of their insurance premiums, professional fees
or other service fees. Until two years ago this credit was offered over a
period of up to one year. Two years ago we expanded into asset finance (up to
seven years) and gap insurance (up to three years). Last year we introduced a
bridging loan product which, again, is up to one year. These newer ranges have
dovetailed well with our core business. Our business model is a "hold to
collect" model in which financial assets are held to maturity to collect cash
flows of principal and interest, rather than holding them for sale. More
detail on this is given in note 3.6(d) on page 40 of the full financial
statements.
The nature of most of our lending is similar in terms of risk, reward and
processes. However, we have a significant amount of lending which is no risk
and offers lower returns than other types of lending. This is lending for
Toyota products. Our lending in this area has grown by almost 20% over the
previous year. We have therefore applied segregation to the results of the
group. This is shown in note 6. The divisions are described in the note as
"Toyota products" and "Standard lending". In most other cases our Standard
lending is covered by recourse to a guaranteeing partner. Our underwriting and
debt management procedures are similar enough that we have not found it
necessary to disaggregate results arising from our several other markets.
All of our lending is within the UK.
Lending limits to our customers are set by reference to financial information
(credit reports, regulatory and other requirements) and by reference to other
qualitative information for both our introducing partners and for the end
borrowers. In addition, an annual review process, including regulatory
permissions and credit checks, is conducted for each introducing partner and
each partner is monitored monthly for the group's financial exposure to that
entity. The majority of our lending gives us recourse to the introducing
partner, is through regulated introducers and no cash is passed over until at
least the first repayment is received. In the case of insurance, the customer
can have their cover withdrawn for non-payment with any refunds being paid to
Orchard. In the case of longer term lending, the procedure is more vigorous,
making use of open banking technology (as mentioned earlier) to further
mitigate the risk of default. In terms of bridging finance, our maximum loan
compared to the value of the property ("LTV") is 75%, with no loan this year
being more than 70% LTV.
A retail listed bond was issued on 2 March 2022. Full details plus the
prospectus are on the company's website at
https://www.orchardfundinggroupplc.com/bonds. This raised £3.90m and has
given us further secure liquidity.
Excluding the bond, the group has borrowing facilities up to up to a maximum
of £27.00m (2022 £25.00m) for general lending. In addition Orchard Finance
has a facility of up to £20.00m (2022 £10.00m) to be used exclusively for
lending in respect of products from the provider of those funds.
Of the general facility, £6.28m was unused at the year end (2022 £8.58m), Of
the restricted facility, £9.76m was unused (2022 £4.64m). We send regular
reports to our funders to indicate that we are complying with covenants and
the loans are subject to an external audit by those funders where they require
it.
The balance of lending is provided from group resources. At 31 July 2023 the
group had net financial assets (financial assets less financial liabilities)
amounting to £19.20m (2022 £17.62m).
The group's average cost of finance (calculated by interest payments over
borrowings in the year) was 6.64% (3.57% on the same basis in the year to 31
July 2022). Cost of finance includes arrangement and legal fees payable for
access to funding and fees for non-use of the facility. If only interest and
no charges were included in the cost of finance, the percentages would be
6.03% for 2023 and 2.95% for 2022.
Principal risks and uncertainties
The group's activities expose it to a variety of risks.
The board has identified the following principal risks, their potential impact
on Orchard, an assessment of change in risk year-on-year, our risk appetite
and how we mitigate risk. Principal risks are those which could have most
impact on our ability to continue in business. Indicators of those risks (key
risk indicators or KRIs) are shown below.
Credit risk
Explanation of the risk The risk that debtors or guarantors will default
Impact on the group A major loss could have a serious effect on group profits - the whole of the
capital loss will impact on profit.
Year-on-year change in risk Risk has changed in that the economy has worsened with higher inflation and
higher interest rates. There is still a risk of business collapses and
higher unemployment although commentators are not now forecasting a recession.
Risk appetite Our aim is to limit reported credit losses to below 0.5% of income generating
assets.
Mitigation of risk In most cases, money is only lent for periods up to one year predominantly
through introducers who guarantee the loans and who are regulated businesses
themselves. Borrowing limits are set based on prudent underwriting principles.
Impairment reviews are regularly conducted to identify potential problems
early. Note 17 gives further details of mitigation of credit risk.
In addition, our documentation is reviewed regularly by our legal team to
ensure that debts are not subject to challenge at a later date.
Liquidity risk
Explanation of the risk A lack of funding to finance our business.
Impact on the group Without adequate funding we cannot conduct our business.
Year-on-year change in risk Risk has fallen since last year. The providers of our funds have increased our
facilities and we still have cash from issuing the five year retail bond.
Risk appetite We aim to have 5% more funds than would be sufficient to enable our plans to
be met.
Mitigation of risk Our borrowing facilities are due for renewal in April 2024 for Bexhill, May
2024 for Orchard Finance and June 2024 for Orchard Funding. There has been no
indication from the providers of our funds that they will withdraw their
support. Excess available credit plus our net financial assets amounted to
£19.208m at 31 July 2023. Our total operating costs for the year were £3.44m
giving more than sufficient headroom to operate well into the future.
Interest rate risk
Explanation of the risk The risk that we lend at one rate and borrow at a rate higher than
anticipated.
Impact on the group Reduced margins mean reduced profit.
Year-on-year change in risk Risk has changed substantially. Our lending is all at fixed rates. In the past
this has not been a major problem as base rates remained stable. However, we
have seen eight rate rises since August 2022 until July 2023 with another in
August meaning that the cost of servicing our lending has risen while the
income has remained stable. We continue to look closely at all new lending to
ensure that our margins are sufficient for us still to remain profitable. Most
of our lending is within twelve months but we do have longer term fixed rate
lending. This is still a small proportion of our total lending (3.26% of our
2023 lending).
Risk appetite Our risk appetite in the past was 25% above the interest rate that we were
paying when a loan was made, without being able to pass this on to our
customers. Clearly this is unsustainable in the current climate when rates are
rising to counter high levels of inflation. Our appetite now is to ensure that
the net interest margin on new lending remains above 7.50%. Last year we used
10.00% but the level of interest rate increases this year has shown that this
is not possible. At 7.50% we are still profitable.
Mitigation of risk Management is in regular contact with its funders and routinely reviews the
financial situation in the economy. The majority of loans made are relatively
short term (no more than twelve months with the average at ten) so any
increase is likely to have a fairly short-term impact. Longer term loans are
still a very small percentage of the business.
Non-repayment risk
Explanation of the risk The retail bond is a five year bond. At the end of that term the money will
need to be repaid to the bond holders. This is the risk that there will be
insufficient cash in the system to make those repayments.
Impact on the group The amount raised on the market was approx. £3.90m. Should the company which
raised the money not be able to repay this it would lead to the group having
to find £0.39m under a guarantee but, more importantly, lead to reputational
risk which might cause other funders to consider not renewing facilities.
Year-on-year change in risk Again, there is no change in risk since last year.
Risk appetite There is no risk appetite for non-repayment. The costs to the group could be
significant.
Mitigation of risk This risk is mitigated by the fact that the amounts involved could easily be
covered by the likely cash position at the time that repayment is due.
Systems risk
Explanation of the risk Disruption to or failure of our IT systems.
Cyber threats - data being accessed illegally.
Impact on the group Persistent or serious failures could lead to lack of confidence in our system
and reduce our operational capabilities.
Penalties for allowing data breaches are severe and could lead to us not being
able to operate at all.
Year-on-year change in risk Our system is proving robust and risk has therefore remained as last year.
The risk of cyber-crime has not increased.
Risk appetite There is no risk appetite for either failure or cyber-crime.
Mitigation of risk Remote support access enables prompt resolution of incidents. Internet
connection provides guaranteed access.
We have commissioned a risk assessment of our system by external IT
specialists.
Our controls are such that even a minor disruption is very quickly picked up
and action taken. Systems are covered by a support contract which enables
quick identification of any problems.
The group continues to develop its processes for prevention of cyber threats.
If prevention is not guaranteed, the systems in place give us the capability
to detect, respond and recover from those attacks.
All our staff are well trained in the use of our systems and are well placed
to notice and unusual activity.
Conduct risk
Explanation of the risk Any action that leads to unfair customer outcomes.
Any action that has an adverse effect on market stability or effective
competition.
Fraud.
Impact on the group Failing to deal effectively with conduct risk faces regulatory action, fines,
and reputational damage.
Year-on-year change in risk Risk has not changed.
Risk appetite The board has no appetite for non-compliance with regulation or for any
instance of fraud within or on the organisation.
Mitigation of risk The board sets standards which comply with regulation and best practice. The
CEO monitors staff compliance with those standards, reports deficiencies to
the board and provides staff with advice on the interpretation of the
standards.
Controls are in place to prevent internal fraud with day to day supervision by
the CEO.
Regular monitoring of introducing partners is conducted including a review of
sources of loan repayments.
Our documentation is reviewed by our legal team to ensure that it is meets the
requirements of the FCA.
The group's overall risk management programme focuses on reducing the effect
of these risks on its financial performance. A risk appetite (the level at
which risk is accepted by the group before action needs to be taken) is
established for the key risk areas. A regular assessment of the principal
risks affecting the group, based on a traffic light classification, is carried
out by the executive directors who then pass this on to the full board of
directors. The board identifies, evaluates and mitigates financial risks and
there are written policies for all major risk areas at subsidiary company
level (where the activity takes place). The tables above show the group's
principal risk appetite and how risk is mitigated. A risk register is
maintained in which any instances of any of the aforementioned risks are
recorded and, where necessary, acted upon.
We are committed to maintaining the highest standards of ethics and integrity
in the way we do business. We adopt a zero tolerance approach to bribery and
fraud and expect our business partners to do the same. Our staff are
encouraged to contact the board if they have any concerns in this regard. We
are committed to behaviour that results in fair outcomes for our customers
(both introducers and end borrowers).
In summary:
· credit risk is reduced by a robust system of checks on introducers,
borrowers and by third party guarantees;
· liquidity risk is alleviated by borrowing facilities from our
funders;
· interest rate risk is mitigated by the fact that most loans are short
term, by regular interaction with our bankers and by reviewing the net
interest margin;
· non-repayment risk is alleviated by our normal business processes of
finding markets which can give a profitable return and generate sufficient
cash to make the repayments on the bonds;
· risk from disruption to the IT system and cyber-crime is avoided by
thorough business continuity procedures and procedures designed to prevent,
detect, respond and recover from malicious attacks; and
· conduct risk is mitigated by staff training, board oversight and
monitoring of introducing partners.
The nature of the business is that loans are made either to finance companies
or to clients of our introducing partners. Although there is some significant
lending to individual finance companies, the underlying debts making up these
loans are collected by Orchard and assigned to Orchard. At 31 July 2023, the
largest nominal exposure was £8.29m (2022 £6.69m) to one finance company
representing 13.98% (2022 15.25%) of our loans before expected credit loss
provisions ("ECL"). The highest exposure to a non-finance company was
£3.19m (2022 £2.15m) and consisted of advances comprising many smaller loans
(the average amount for each loan was £223). At 31 July 2023 total
outstanding loans were £59.29m before ECL (2022 £43.87m), of which the
highest individual loan (not a block loan to a premium finance company) was
£321k. This was for property bridging and represented less than 0.54% (2022
0.43%) of total outstanding loans.
We review debts for impairment and expected credit losses and make provision
where necessary. As part of this process, we have increased the provision by
£64k during the year to 31 July 2023 (2022 £63k), net of reversal of
previous provisions and items written off against those provisions. This has
been charged to the income statement below operating costs. The provision this
year is £305k carried forward at 31 July 2023 (£135k at 31 July 2022). As
our loan book grows so does the provision. Note 3.6 outlines the approach to
credit impairments.
The main uncertainties in these financial statements are those connected with
the level of expected credit losses. Although objective evidence is obtained
where possible (macroeconomic factors etc.), these still require management
judgement. They are detailed in note 4.
The business environment
Businesses are still in a period of instability. The ongoing problems in
Ukraine and the conflict in the Middle East have led to further unrest in
the markets.
As a result of the above we have seen rates of inflation not seen for many
years, with the Bank of England increasing interest rates to combat these high
inflation rates. Bank of England base rate has increased nine times since our
last year end. Although inflation fell in October to its lowest level in two
years, interest rate decreases are not likely until the Bank of England sees
inflation under control.
In this environment, individuals and businesses are more likely to try to
conserve cash and spread expenditure over a period of time. Insurance is one
type of expenditure which lends itself to this approach. It is also a purchase
which is a necessity either for legal reasons or for security. Orchard's core
business is exactly that - providing funds for the spreading of insurance
payment. We are in an ideal position to provide help to our introducers and
their customers in these difficult times by providing this service.
Development and performance of the business
Overview
We have continued to grow our lending, continuing the trend seen in the last
financial year with growth in every month this year except December. Overall
growth in lending was 24.91% over the previous year.
Most of our premium finance growth continues to come from the direct insurance
side (this was up 45.56% compared to the previous year) rather than from
broker premium funding companies ("PFC"'s). PFCs still remain our largest
market and has grown to £46.68m in this financial year (2022 £37.03m). After
some stabilising of the market for professional fee funding last year, demand
has fallen this year to £3.73m (2022 £4.38m).
Product lines already introduced are reviewed regularly to evaluate the impact
they are having on the business. To date that impact has been encouraging. We
continue to use the same disciplined approach when evaluating potential new
markets.
We began lending into longer term markets, as mentioned last year, and this
has slowed this year due to the economic environment. We still intend to grow
these further once the economic conditions improve.
To summarise: it remains our intention to increase our sales in existing
markets and expand into adjacent markets, always having regard to returns that
are needed to keep the business financially healthy. We shall continue to
control costs, only spending where we believe it will increase our
profitability. We have sufficient liquidity at present but this is always kept
under review.
Financial indicators
The function of the group remains to lend money safely. Good quality customers
are therefore central to the development of the business. We have continued to
add to our introducing partner base and have continued to sell more through
this base. Despite hard economic conditions, this continues to work well.
Our margin is an important area. Some of our borrowing is fixed to bank base
rate and some to the Sterling Overnight Index Average, "SONIA." As these rates
alter so will our borrowing costs. Given the short term nature of most of our
lending any likely changes would only have an impact on our margins in the
short term. We continue to ensure, where possible given the current economic
conditions, that as base rate or SONIA rise, we are faster to readjust our
pricing. There remains greater risk with our longer term products that rate
increases would erode margins.
Most other operating costs in this business are relatively stable. We have
increased our staffing levels this year and we have increases resulting from
growing sales. The other main increase is the amortisation of costs incurred
in issuing the bond. Overall, operating costs (including ECL and impairment of
an investment) are 15.94% higher than in 2022. Details of these costs are
shown in note 6.
Financial key performance (KPIs) and other performance indicators
The table below gives a breakdown of group KPIs as well as indicators not
considered KPIs but which give a better understanding of the figures.
Group profit before tax was 15.43% higher than in 2022. The board are
satisfied with the results this year.
All £m unless otherwise stated
2023 2022 2021 2020 2019
KPIs
Lending volume £99.87 £79.96 £61.02 £65.53 £72.99
Average interest earning assets(1) £51.36 £36.81 £28.59 £29.72 £31.54
Total revenue £7.86 £6.19 £4.60 £5.28 £5.49
Average external funding(2) £20.32 £15.77 £9.28 £12.82 £14.35
Cost of external funds £1.35 £0.59 £0.56 £0.62 £0.70
Cost of funds/funds ratio(3) 6.64% 3.57% 6.03% 4.84% 4.88%
Own resources (net financial assets)(4) £19.20 £17.61 £15.88 £15.74 £15.23
Operating costs (including impairments) £3.44 £2.91 £2.52 £2.44 £2.20
Net interest margin(5) 9.48% 11.98% 11.26% 13.26% 13.19%
ROAE (Return on average equity)(6) 9.94% 9.36% 5.35% 8.31% 10.90%
Other performance indicators
Net interest income £4.87 £4.41 £3.22 £3.94 £4.16
Profit before tax £2.17 £1.88 £1.05 £1.56 £1.97
Profit after tax £1.71 £1.52 £0.84 £1.27 £1.58
Gross interest margin(7) 12.11% 13.58% 13.22% 15.34% 15.41%
EPS (pence)(8) 8.03 7.11 3.91 5.96 7.67
DPS (pence)(9) 3.00 3.00 3.00 3.00 3.00
Return on capital employed (ROCE)(10) 4.42% 5.19% 4.33% 6.74% 7.24%
1. Average interest earning assets consist of the average of the opening
and closing loan book after taking account of the impairment provision.
2. Average external funding comprises amounts borrowed on a daily basis
net of repayments.
3. Cost of funds/funds ratio is the cost of external funds divided by
average external funding.
4. The method of calculating own resources available has changed from
using net current financial assets to net financial assets to take account of
long term financial assets and liabilities as this reflects better the
resources available over the longer term. Comparatives have been recalculated
on this basis.
5. Net interest margin is net interest income divided by the average loan
book.
6. ROAE consists of profit after tax divided by average equity. Average
equity is the average of opening and closing equity.
7. Gross interest margin is gross interest income divided by the average
loan book.
8. There are no factors which would dilute earnings therefore fully
diluted earnings per share are identical.
9. Dividends per share are based on interim dividends paid in the year and
proposed final dividend for the year.
10. ROCE consists of earnings before interest, tax, depreciation and
amortisation divided by capital employed. Capital employed comprises capital
and reserves together with borrowings, less cash held.
Net total income (as shown in the Consolidated statement of comprehensive
income) continues to grow. Operating costs before ECL and impairment of
investment are up by £397k. Included in interest payable and similar charges
are costs associated with the bond issue which have the first full years
amortisation amounting to £46k. Staff costs were £277k higher, reflecting
the fact that we have taken on additional staff and increased pay. Commission
has grown by £126k this year as sales have increased. The impairment
allowance this year was £64k. In addition we carried out a review on our
investment in Open B Gateway Limited and concluded that this was severely
impaired. The fair value of this investment has been estimated at £Nil
resulting in an impairment of £75k. This is detailed in note 16.
Non-financial indicators
Staffing
The most important non-financial indicator remains quality of management and
staff.
Our senior members of staff are all fully trained in every facet of the
business and have good relationships with more junior staff members whom they
are able and willing to assist when required. They have been with us for many
years.
Customer care is of paramount importance in our business culture and this
aspect is a constant part of training for everyone in the organisation.
Feedback from our partners in this area has been very positive. Non-financial
performance targets set for our staff have all been met. These include, but
are not limited to, ensuring that our partners and end-user customers receive
prompt responses to any queries they raise.
Orchard is a small group with 18 employees excluding the main board directors.
Although no employee is on the main board, there is no formal workforce
advisory panel, nor is there a designated workforce non-executive director,
all employees have access to the executive directors at any time and can raise
any issues with them. They are also able to contact the Chairman should they
wish to discuss a matter which they feel may not be appropriate for the
executive. There are two non-main board directors as directors of the
subsidiaries.
Partner retention
Partner retention is another significant area in our business. This couples
well with another non-financial indicator, brand preference. As our partner
base grows, so does awareness of who we are and what we do. We review our
partner base regularly to establish whether they are increasing or decreasing
the amount of business they do with us. Action is taken if business from one
source is unexpectedly dropping.
Innovation
A key non-financial strategy is innovation (see Strategy and objectives on
page 4 of the full financial statements). Innovation is the ability to
continually evolve and grow our business in our chosen markets. When looking
at new products we stay within our risk parameters and examine whether the
returns justify the resources expended. If new products fit our return and
risk expectations, we proceed to the testing stage - relatively small amounts
of lending. We believe that innovation is fundamental to growth.
IT systems
A robust, reliable and secure IT system is crucial to the business. We work
closely with external outsource partners to continually review and develop our
IT systems. Our system and has been tried and tested for a number of years. We
began two years ago to take advantage of the open banking system as part of
our risk strategy and this has been invaluable. Our customers have seen
advantages of this, making it easier to manage their agreements. We continue
to upgrade the system in response to customer requirements.
Quality of lending
Our lending has been based on sound underwriting since we began - we carefully
assess any person or body to whom we lend. In addition, we receive at least
one instalment before we pay out (eliminating first payment default); the
direct debit establishes timely collection and an electronic link to our
borrowers; in most cases our partners guarantee the payment should the end
borrower default; and, if the partner fails, many of our end borrowers are
protected by the financial services compensation scheme thereby ensuring that
we are paid. In addition, the open banking system has helped ensure quality of
lending.
Good governance
The role of the board is set out in the Corporate governance report on pages
19 to 21 of the full financial statements. Among its objectives is to protect
and enhance long-term value for all stakeholders. It sets the overall strategy
for the group and supervises executive management. The non-executive directors
are there to challenge the executives. The board also ensures that good
corporate governance policies and practices are implemented within the group.
In the course of discharging its duties, the board acts in good faith, with
due diligence and care, and in the best interests of the group and its
shareholders.
Going concern
The financial statements have been prepared on a going concern basis which
assumes that the group will be able to continue its operations for the
foreseeable future.
The directors continually assess the prospects of the group. Forecasts are
prepared for a four year period, on a rolling basis. These are also subject to
stress testing, the main aspects of which are the value of loans made, the
return on those loans and the level of expected credit losses. In these
scenarios, there is no indication that there will be a problem in continuing
as a going concern. It is important to appreciate that the further away in
time the estimate, the less reliable it is.
The character of our lending is such as to permit us to react to any changes
in base rate within a relatively short period of time other than with those
loans that can be up to three or seven years ahead. These amount to 3.26%
(2022 5.10%) of which 2.81% (2022 4.38%) are three years or less. Not included
in these figures are loans made by Orchard Finance where, although longer
term, the risk is taken by the provider of the funds.
The key assumptions and bases used in the forecasts are that for the year
ending by 31 July 2026:
· Loans through our partners will grow to circa £133m;
· Liquidity will be available to fund those loans;
· Net interest margins on lending will fall to an average for the year of
8.15%;
· Overheads will increase at the rate of inflation with stepped increases
at certain points, e.g. when capacity constraints are hit or when project
spending is required;
· The funding system will be able to accommodate the increased business.
The directors have prepared and reviewed the financial projections covering a
period of almost four years from the date of signing of these financial
statements. In each year, and in particular in the 12 to 18 month period from
signing, there is sufficient cash and there are sufficient reserves to enable
the group to pay its debts as they fall due. In addition, management have
further stress tested these projections to a point which they believe is
unlikely to happen (reducing lending, reducing margins and increasing bad
debt) to give a confidence buffer. Even in this scenario, based on the level
of existing cash, the projected income and expenditure and the excess of our
loan book over external debt, the directors have a reasonable expectation that
the company and group have adequate resources to continue in business for the
foreseeable future. Accordingly, the going concern basis has been used in
preparing the financial statements.
Future developments
There has been little change in how we wish to grow the business in the
future. Fee funding, site fee and school fee income have fallen this year and
it is expected that they will fall further. Against that, we have seen growth
in PFC, insurance premium funding, asset financing and bridging finance. We
are still exploring complementary markets but will only sell into these if
they fit our risk and return profile.
We took an investment in Open B Banking in 2020 and increased our investment
in that company in 2021. Although the supplier is not actively engaged in
developing the system further (hence the reason for the impairment of our
investment detailed in note 16 to the full financial statements) we have the
rights to further develop this ourselves and we are doing so as part of our
own IT development.
Despite the fact that we have secure sources of funding at present, we shall
continue to look at alternative sources of liquidity as this is of key
importance to what we do.
Environmental, social responsibility, community, human rights issues and gender diversity
The impact of the group on the environment consists of power used in an office
environment and fuel used for getting to and from work.
Although the group operates out of an office in Luton, most of our employees
work from home at least 3 days a week. This has proved to be worthwhile for
both employee and employer. It is envisaged that this method of working will
continue. It has meant that our carbon footprint as a business in the area has
fallen (although there is some impact on the environment from home working).
We provide health club membership and childcare vouchers for any staff who
wish them.
We provide equal opportunities for all applicants and members of staff,
irrespective of race, colour, sex, disability or marital status.
The composition of the main board of directors is currently all male. The
board of the subsidiaries consist of two females and one male each (although
one subsidiary has two male directors). Males make up 56.52% of the employees
in total (61.90% in 2022).
We are a small entity in terms of staffing and our CEO is always available for
staff to discuss any matters with him. Although many of our staff continue to
operate from home, he is able to be contacted by telephone, e-mail or face to
face if necessary. In this way our staff have communication lines to the board
via the CEO. If they would prefer to discuss a matter with the Chairman, he is
also available.
We review the background of our suppliers and will not use any supplier which,
as far as we are aware, breaches our own high standards as regards human
rights.
Environmental issues are therefore negligible (see SECR reporting on page 13
of the full financial statements).
Section 172(1) Statement
Section 172(1) requires a director of a company to act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard to:
(a) the likely consequences of any decision in the long term,
(b) the interests of the company's employees,
(c) the need to foster the company's business relationships with suppliers, customers and others,
(d) the impact of the company's operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
All matters brought to the board for consideration are reviewed in the light
of how they will impact on stakeholders.
This review involves balancing the interests of all stakeholders and includes
having regard to:
· profitability;
· risk associated with the proposal (see Principal risks and
uncertainties on page 5 of the full financial statements);
· how the decision will impact on our employees (both in financial terms
and how the quality of their work life and outside life will be affected).
Further detail on how we engage with our workforce is shown on page 12 of the
full financial statements;
· what impact it will have on our partners and other customers (as
mentioned under Non-financial indicators on page 10 of the full financial
statements). Proper customer care, particularly in avoiding unfair outcomes,
is of overriding importance to Orchard;
· our reputation (the impact of loss of reputation is dealt with under
Conduct risk on page 7 of the full financial statements);
· either the CEO and/or CFO are in contact with major investors at least
twice a year (albeit by Teams or telephone) to discuss the group's progress
and overall plans. This gives us an insight into how our investors perceive
us. All reports and other documents are on our website and any investor may
request a meeting with any member of the board.
In a wider sense:
· Orchard does not deal unfairly with its suppliers and business
associates and ensures that payment terms are adhered to. In fact, in many
cases it assists those associates to expand their business;
· it behaves as a good neighbour, helping the local community where it is
able and employing people from the locality - which also assists in reducing
our carbon footprint;
· in its dealings with government, particularly the revenue authorities,
it is completely open, paying what it owes on time;
· it has had no instances from the FCA of non-compliance with
regulations;
· Environmental, social responsibility, community, human rights issues
and gender diversity are discussed above.
The board considers whether proposals put to it have long-term outcomes which
affect its stakeholders. In most cases the proposals have no material
long-term consequences. However, where there are potential consequences, the
board takes account of the long-term nature of its decisions.
Streamlined Energy and Carbon Reporting (SECR)
The directors believe that the company is exempt from reporting under the SECR
framework as its energy use is below the threshold for reporting.
Approved by the directors and signed by order of the board
Liam McShane,
Company secretary
12 December 2023
Consolidated statement of comprehensive income
2023 2022
Notes £000 £000
Continuing operations
Interest receivable and similar income 5 6,215 5,003
Interest payable and similar charges 5 (1,349) (587)
Net interest income 4,866 4,416
Other trading income 5 1,649 1,187
Other direct costs 5 (911) (756)
Net other income 738 431
Net total income 5,604 4,847
Other operating costs 5 (3,302) (2,905)
Net impairment losses on financial assets 5 (64) (63)
Impairment loss on investment at fair value through profit and loss (75) -
Operating profit 2,163 1,879
Interest receivable 5 9 1
Interest payable 6 (1) (2)
Profit before tax 2,171 1,878
Tax 7 (458) (360)
Profit for the year from continuing operations attributable to the owners of 1,713 1,518
the parent
Earnings per share attributable to the owners of the parent during the year
(pence)
Basic and diluted 9 8.03 7.11
Consolidated statement of financial position
2023 2022
Notes £000 £000
Non-current assets
Property, plant and equipment 7 13
Right of use assets 6 16
Intangible assets 41 7
Investment at fair value through profit and loss 6 81
Loans to customers 10 7,967 6,594
8,027 6,711
Current assets
Loans to customers 10 51,021 37,143
Other receivables and prepayments 10 279 189
Cash and cash equivalents:
Bank balances 2,550 4,796
53,850 42,128
Total assets 61,877 48,839
Liabilities
Current liabilities
Trade and other payables 12 8,955 6,337
Borrowings 11 26,079 19,468
Tax payable 449 299
35,483 26,104
Non-current liabilities
Borrowings 11 8,643 6,057
Deferred tax liabilities 2 1
8,645 6,058
Total liabilities 44,128 32,162
Equity attributable to the owners of the parent
Called up share capital 214 214
Share premium 8,692 8,692
Merger reserve 891 891
Retained earnings 7,952 6,880
Total equity 17,749 16,677
Total equity and liabilities 61,877 48,839
Consolidated statement of changes in equity
Called up
share Retained Share Merger Total
capital earnings Premium reserve equity
£000 £000 £000 £000 £000
Balance at 1 August 2021 214 6,003 8,692 891 15,800
Profit and total comprehensive income - 1,518 - - 1,518
Transactions with owners:
Dividends paid - (641) - - (641)
Balance at 31 July 2022 214 6,880 8,692 891 16,677
Profit and total comprehensive income - 1,713 - - 1,713
Transactions with owners:
Dividends paid - (641) - - (641)
Balance at 31 July 2023 214 7,952 8,692 891 17,749
Retained earnings consist of accumulated profits less losses of the group.
They represent the amounts available for further investment in group
activities. Only the element which constitutes profits of the parent company
are available for distribution. There are no restrictions on payment of
dividends by the subsidiaries to the parent or by the parent to shareholders.
The share premium account arose on the IPO on 1 July 2015 at a premium of 95p
per share. Costs of the IPO have been deducted from the account as permitted
by IFRS.
The merger reserve arose through the formation of the group on 23 June 2015
using the capital reorganisation method.
Consolidated statement of cash flows
2023 2022
£000 £000
Cash flows from operating activities:
Operating profit 2,163 1,879
Depreciation and amortisation 45 63
Impairment loss on investment at fair value through profit and loss 75 -
2,283 1,942
Increase in loans to customers, other receivables and prepayments (15,256) (13,820)
Increase in trade and other payables 2,618 2,155
(10,355) (9,723)
Tax paid (307) (201)
Net cash absorbed by operating activities (10,662) (9,924)
Cash flows from investing activities
Interest received 9 1
Purchases of property, plant and equipment (8) (4)
Deposit paid on property (43) -
Purchase of intangible assets (57) (12)
Sale of property, plant and equipment 2 -
Net cash absorbed by investing activities (97) (15)
Cash flows from financing activities
Dividends paid (641) (641)
Net receipts from borrowings 9,184 13,236
Lease repayments (30) (30)
Net cash generated by financing activities 8,513 12,565
Net (decrease)/increase in cash and cash equivalents (2,246) 2,626
Cash and cash equivalents at the beginning of the year 4,796 2,170
Cash and cash equivalents at the end of year 2,550 4,796
Notes to the consolidated financial statements
1. Preliminary announcement
The preliminary announcement set out above does not constitute Orchard's
statutory financial statements for the years ended 31 July 2023 or 2022 within
the meaning of section 434 of the Companies Act 2006 but is derived from those
audited financial statements. The auditor's report on the consolidated
financial statements for the years ended 31 July 2023 and 2022 is unqualified
and does not contain statements under s498(2) or (3) of the Companies Act
2006.
The preliminary announcement was approved by the board and authorised for
release on 12 December 2023.
The accounting policies used for the year ended 31 July 2023 are unchanged
from those used for the statutory financial statements for the year ended 31
July 2022. The 2023 statutory accounts will be delivered to the Registrar of
Companies following the Company's Annual General Meeting.
2. Compliance with accounting standards
While the financial information included in this preliminary announcement has
been computed in accordance with UK adopted International Accounting
Standards, this announcement does not itself contain sufficient information to
comply with UK adopted International Accounting Standards.
Effect of new, or changes to financial reporting standards
At the date of authorisation of these financial statements, all of the new or
amended Accounting Standards and Interpretations issued by the International
Accounting Standards Board ('IASB') that are mandatory for the current
reporting period and are relevant to the group's operations have been applied.
There are a number of new standards, amendments and interpretations that been
issued but are not effective for these financial statements. They are not
expected to impact the financial statements as either they are not relevant to
the group's activities or are consistent with accounting policies already
followed by the group.
3. Going concern
The financial statements have been prepared on a going concern basis which
assumes that the group will be able to continue its operations for the
foreseeable future.
The directors have prepared and reviewed financial projections, on an annual
basis, covering a period of almost four years from the date of signing of
these financial statements, with a particular focus on the period of 12 to 18
months from the date of signing. Based on the level of existing cash, the
projected income and expenditure and the excess of our loan book over external
debt (amounting to approximately £24.28m at the year end), the directors have
a reasonable expectation that the company and group have adequate resources to
continue in business for the foreseeable future. Accordingly, the going
concern basis has been used in preparing the financial statements. This is
discussed more fully in the Group strategic report under Going concern.
4. Restatement
There is a requirement to present amounts owed from subsidiary undertakings as
current only where they are expected to be received within 12 months or within
the company's normal operating cycle. Previously amounts owed by subsidiaries
have been shown as current assets. It has now been concluded that, although
these amounts are repayable on demand, there is no expectation to receive them
within 12 months. The amounts owed by subsidiaries have therefore been
reclassified as non-current and the comparative and pre-comparative Company
statement of financial position, Company statement of cash flows and
associated notes have been restated accordingly in the full financial
statements.
In addition, there was an amount owing to one subsidiary which had been set
against amounts owing by other subsidiaries. This has now been separately
disclosed and the comparative and pre-comparative Company statement of
financial position, Company statement of cash flows and associated notes
restated in respect of this in the full financial statements..
The restatements have not impacted the net assets of the company (total assets
less total liabilities) or its profit for the year. The change in presentation
has no impact on the results of the group.
5. Segment information
As noted on page 4 of the full financial statements, the group now reports to
the board of directors (the Chief Operating Decision Makers ("CODM")) in terms
of two segments - lending for Toyota products (shown as "Toyota products" in
these financial statements) which carry no credit risk and have a lower
return, and other lending (shown as "Standard lending" in these financial
statements), the nature of which is similar in terms of risk, reward and
processes.
The CODM reviews monthly management information including our KPIs (see page 9
of the full financial statements for these).
Revenue (which for these purposes includes interest income, which is outside
the scope of IFRS 15) consists of income which is recognised at a single point
in time and that which occurs over a given period There is a small amount of
income falling within the scope of IFRS 15 which is recognisable over more
than one year. Any discounting would be immaterial.
The group has no single major customer. All income is from financing. Revenue
can be analysed as follows:
Revenue
2023 2022
Standard Toyota Standard Toyota
Total lending products Total lending products
£000 £000 £000 £000 £000 £000
Timing of revenue recognition:
Over time - interest revenue outside the scope of IFRS 15 5,328 5,328 - 4,163 4,163 -
At a point in time - non utilisation fees 769 769 - 794 794 -
At a point in time - default and settlement fees 118 118 - 46 46 -
Interest receivable and similar income 6,215 6,215 - 5,003 5,003 -
At a point in time - direct debit charges 787 787 - 672 672 -
Over time - loan administrative fees 717 376 341 374 207 167
Over time - licence fees 145 145 - 141 141 -
Other trading income 1,649 1,308 341 1,187 1,020 167
Total revenue 7,864 7,523 341 6,190 6,023 167
2023
Central Standard Toyota
Total costs lending products
£000 £000 £000 £000
Revenue
Interest revenue 6,215 - 6,215 -
Other revenue 1,649 - 1,308 341
7,864 - 7,523 341
Expenses by nature
Interest payable and similar charges
Interest payable 1,270 - 1,270 -
Bank fees 79 - 79 -
1,349 - 1,349 -
Other direct costs
Bank fees 911 - 855 56
Net total income 5,604 - 5,319 285
Other operating costs
Employee costs 1,659 786 873 -
Advertising and selling costs 672 - 672 -
Professional and legal fees 401 118 279 4
IT costs 176 2 174 -
Cost of listing 80 80 - -
Depreciation and amortisation 45 - 45 -
Other net expenses 269 1 267 1
3,302 987 2,310 5
Impairment losses 139 75 64 -
3,441 1,062 2,374 5
Operating profit 2,163 (1,062) 2,945 280
Interest receivable 9 - 9 -
Interest payable (1) - (1) -
Profit before tax 2,171 (1,062) 2,953 280
2022
Central Standard Toyota
Total costs lending products
£000 £000 £000 £000
Revenue
Interest revenue 5,003 - 5,003 -
Other revenue 1,187 - 1,020 167
6,190 - 6,023 167
Expenses by nature
Interest payable and similar charges
Interest payable 464 - 464 -
Bank fees 123 - 123 -
587 - 587 -
Other direct costs
Bank fees 756 - 726 30
Net total income 4,847 - 4,710 137
Other operating costs
Employee costs 1,382 627 755 -
Advertising and selling costs 544 - 544 -
Professional and legal fees 418 45 361 12
IT costs 165 2 163 -
Cost of listing 79 79 - -
Depreciation and amortisation 63 - 63 -
Other net expenses 254 1 252 1
2,905 754 2,138 13
Impairment losses 63 - 63 -
2,968 754 2,201 13
Operating profit/(loss) 1,879 (754) 2,509 124
Interest receivable 1 - 1 -
Interest payable (2) - (2) -
Profit/(loss) before tax 1,878 (754) 2,508 124
Set out below are assets and liabilities by segment.
2023 2022
Standard Toyota Standard Toyota
Total lending products Total lending Products
£000 £000 £000 £000 £000 £000
Assets:
Segment assets 61,785 48,823 12,962 48,692 41,990 6,702
Unallocated assets:
Investments 6 81
Land and buildings 6 16
Other fixed assets 48 20
Current assets 32 30
Total assets 61,877 48,839
Liabilities:
Segment liabilities 43,305 30,755 12,550 31,526 24,967 6,559
Unallocated liabilities:
Current liabilities 357 292
Borrowings for right of use assets 15 44
Taxation 449 299
Deferred taxation 2 1
Total liabilities 44,128 32,162
6. Finance income and costs
The group's income comes from making loans.
Interest payable on borrowings to finance these loans is therefore included as
a cost of sale under interest payable and similar charges. The amount included
was £1,270k (2022 £464k).
The group receives a small amount of interest from its bank balances. This
year it amounted to £9k (2022 £1k).
Interest payable is in respect of right-of-use assets and amounted to £1k
(2022 £2k).
7. Tax expense
7.1 Current year tax charge:
2023 2022
£000 £000
Current tax expense 458 360
Adjustment re previous year tax expense - 2
Deferred tax expense relating to the origination and reversal of temporary - (2)
differences
458 360
7.2 Tax reconciliation
The tax assessed for the year differs from the applicable corporation tax rate
in the UK -21.01% for 2023 and 19.00% for 2022. The tax rate for 2023 is the
blended rate for the period as a result of the corporate tax rate increasing
from 19% to 25% on 1 April 2023.
The differences are explained below.
2023 2022
£000 £000
Profit before tax for the financial year 2,171 1,878
Applicable rate - 21.01% (2022 19.00%) 21.01% 19.00%
Tax at the applicable rate 456 357
Effects of:
Expenses not deductible for tax 2 1
Adjustment re previous year tax expense - 2
Tax charge for the year 458 360
8. Dividends
2023 2022
£000 £000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 July 2022 of 2p (2021 2p) per share
427 427
Interim dividend for the year ended 31 July 2023 of 1p (2022 1p) per share 214 214
641 641
Proposed final dividend for the year ended 31 July 2023 of 2p (2022 2p) per 427
share
427
9. Earnings per share
Earnings per share is based on the profit for the year of £1.71m (2022
£2.52m) and the weighted average number of the ordinary shares in issue
during the year of 21.35m (2022 21.35m). There are no options or other factors
which would dilute these therefore the fully diluted earnings per share is
identical.
10. Loans to customers and other receivables
2023 2022
Group Group
£000 £000
Non-current
Financial assets at amortised cost
Loans to customers:
Gross 7,972 6,595
Impairment provision (5) (1)
7,967 6,594
Current
Financial assets at amortised cost
Loans to customers:
Gross 51,320 37,277
Impairment provision (299) (134)
51,021 37,143
Financial assets at amortised cost
Other receivables 151 127
151 127
Total current financial assets 51,172 37,270
Prepayments 128 62
51,300 37,332
Loans to customers
Standard credit terms for loans to customers are based on the length of the
loan but repayments are due on a monthly basis. Detail of impairment reviews
are shown in note 3.6 to the full financial statements.
The expected credit losses on receivables not past due have been assessed as
very low, because of the following factors:
· With the majority of our lending no loan is made until the first
repayment has been received by the group;
· In the event of default, the group has recourse to the underlying
borrower;
· In the case of insurance premium receivables, the Financial Services
Compensation Scheme provides additional cover to the group;
· For insurance premium receivables, the cover ceases, premiums paid
are refunded, and the group has access to these refunds.
Loans to customers can be analysed as follows. The reference to stage 1, 2 and
3 refer to those stages explained in note 3.6 to the full financial
statements.
The figures refer to the group as the company has no loans to customers.
Total loans to customers:
2023 2022
Gross Impairment allowance Net Gross Impairment allowance Net
£000 £000 £000 £000 £000 £000
Amount receivable - stage 1 58,820 (65) 58,755 43,652 (39) 43,613
Amount receivable - stage 2 266 (35) 231 126 (9) 117
Amount receivable - stage 3 206 (204) 2 94 (87) 7
59,292 (304) 58,988 43,872 (135) 43,737
Included in amounts receivable above are stage 1 receivables due after more
than one year amounting to £7,972k on which the impairment allowance was £5k
(2022 £6,587k and £1k respectively). There are no stage 2 debts due after
more than one year this year (2022 £8k). There was no impairment allowance on
these.
An amount of £128k is due after more than five years (2022 £86k). It is
stage 1 debt and there is no impairment allowance on the amount this year or
last.
Over 98% of customer receivables are subject to recourse to the introducing
partner in the event of default by the borrower.
There are debts included in the table where a third party takes the credit
risk and on which no impairment allowance is needed. These amount to £11,588k
(2022 £6.078k).
11. Borrowings
2023 2022
£000 £000
Non-current:
Retail bond 3,744 3,702
Borrowings arising from right-of-use assets - 15
Other borrowings 4,899 2,340
8,643 6,057
Current:
Borrowings arising from right-of-use assets 15 29
Other borrowings 26,064 19,439
26,079 19,468
Borrowings other than those arising from right-of-use are secured. The parent
company has no external borrowings.
11.1 Terms and debt repayment schedule
Bexhill's current facility was increased during the year from £20.00m to
£22.00m and is renewable in April 2024. Orchard Funding's facility is
renewable in June 2024 with the renewal date for Orchard Finance being May
2024. There is no indication that these facilities will not be renewed.
Average interest is calculated by the interest paid in the year divided by
average borrowings in the year.
Borrowings by Bexhill of £19.23m (2022 £14.92m) are secured by a fixed and
floating charge over all the assets of Bexhill, bear interest at an average
rate of 6.04% excluding associated costs (2022 3.10% on the same basis) and
are repayable within one year of the advance. The rate is variable and is
2.50% above bank base rate. At the year end the rate payable by Bexhill was
7.50%. The maximum drawdown on the facility is currently £22.00m (2022
£20.00m) of which £2.78m was undrawn at the year-end (2022 £5.08m). The
outstanding amount of £19.22m (2022 £14.92m) is repayable otherwise than by
instalments by the renewal date.
Orchard Funding borrowings are secured by a fixed and floating charge over all
the assets of Orchard Funding, bear interest at an average rate of 6.31% pa
excluding associated costs (2022 3.53% on the same basis) and are repayable
within one year of the advance. The rate is variable and is 2.75% above the
Sterling Overnight Index Average (SONIA) rate. At the year end the rate
payable by Orchard Funding was 7.95%. The maximum drawdown facility is
currently £5.00m (2022 £5.00m) of which £3.50m was undrawn at the year-end
(2022 £3.50m). The outstanding amount of £1.5m (2022 £1.5m) is repayable
otherwise than by instalments by the renewal date.
Orchard Finance has access to a maximum drawdown borrowing facility of
£20.00m (2022 £7.50m) of which £9.76m was undrawn at the year end (2022
£2.14m). This facility can only be used for products of the lender, bears no
interest, is secured by a fixed and floating charge and is repayable as monies
are received by Orchard Finance from loans made by it. Non-current borrowings
of £4.90m (2022 £2.34m) and current borrowings of £5.34m (2022 £3.02m) are
matched with receipts from loans to customers and are repayable on that basis
up to 36 months after the loan is made.
On 3 March 2022 a five year, retail bond was issued. The bond raised £3.90m
in 5 tranches. These were issued at between 0.9965 discount and 1.006 premium.
The total amount issued was also £3.90m. Costs of the issue amounting to
£0.21m were offset against the proceeds and are being amortised over five
years. The market value of the bonds was £3.90m at 31 July 2023 (£3.99m at
29 July 2022, the last trading day of the financial year). The interest
payable is fixed at 6.5% for the life of the bonds. They are wholly repayable
in March 2027.
The directors consider that the terms of these facilities closely match the
maturity dates of the group's receivables.
No amounts are due after five years on any of the facilities.
11.2 Retail Bond
2023 2022
Group Group
£000 £000
Redemption amount 3,897 3,897
Amortised costs carried forward (153) (195)
Carrying value 3,744 3,702
11.3 Right-of-use assets
Liabilities in respect of right-of-use assets are unsecured, bear interest at
the group's marginal cost of borrowing on inception of the lease. This was
3.60%.
The minimum payments under lease liabilities are as follows:
2023 2022
Group Group
£000 £000
Within 1 year 15 30
Later than 1 year but no later than 5 - 15
15 45
Future finance charges - (1)
15 44
The present value of lease liabilities are as follows:
Within 1 year 15 29
Later than 1 year but no later than 5 - 15
15 44
11.4 Reconciliation of liabilities arising from financing activities
The information given below relates to the group. The parent has no cash-flows
from financing activities as all its costs are paid for by its
subsidiaries.
At 1 August 2021 Cash flows At 31 July 2022 Cash flows At 31 July 2023
Non-cash movement
£000 £000 £000 £000 £000 £000
Non-current:
Retail bond - 3,702 3,702 42 - 3,744
Borrowings arising from right-of-use assets - leases 44 (29) 15 (15) -
-
Other borrowings 834 1,506 2,340 - 2,559 4,899
878 5,179 6,057 42 2,544 8,643
Current:
Bank loans 11,411 8,028 19,439 - 6,625 26,064
Borrowings arising from right-of-use assets - leases 28 1 29 - (14) 15
11,439 8,029 19,468 - 6,611 26,079
Total liabilities from financing activities 12,317 13,208 25,525 9,155 34,722
42
Interest on right-of-use assets included in liabilities (2) (1)
Cashflows from financing activities 13,206 9,154
Comprising:
Net receipts from borrowings 13,236 9,184
Lease repayments (30) (30)
13,206 9,154
The non-cash movement was in respect of the element of amortised costs for the
bond which were charged in the year to comprehensive income.
12. Trade and other payables
Current liabilities 2023 2022
Group Group
£000 £000
Trade payables 6,565 4,522
Intercompany payables - -
Other payables 59 55
Other tax and social security costs 40 33
Accruals and deferred income 2,291 1,727
8,955 6,337
Trade payables are unsecured and are usually paid within 30 days of
recognition. Included within accruals and deferred income is deferred income
of £1.13m (2022: £0.70m) relating to income received in advance for loan
administration services. The majority of this balance is expected to reverse
within the next 12 months.
Intercompany payables are interest free and repayable on demand.
13. Financial instruments
The company is exposed to the risks that arise from its use of financial
instruments. The objectives, policies and processes of the company for
managing those risks and the methods used to measure them are detailed in note
5 to the full financial statements.
13.1 Principal financial instruments
The principal financial instruments used by the group and company, from which
financial instrument risk arises, are as follows:
· Loans to customers and other receivables
· Cash and cash equivalents
· Trade payables
· Borrowings including financing for right-of-use assets
13.2 Financial instruments by category
The group held the following financial assets at the reporting date:
2023 2022
Group Group
£000 £000
Non-current assets
Financial assets at fair value through profit and loss:
Investments 6 81
Financial assets at amortised cost:
Investments - -
Intercompany receivables - -
Loans to customers 7,967 6,594
Current assets
Financial assets at amortised cost:
Loans to customers 51,021 37,143
Other receivables: current 151 127
Cash and cash equivalents:
Bank balances and cash in hand 2,550 4,796
61,695 48,741
The group held the following financial liabilities at the reporting date:
2023 2022
Group Group
£000 £000
Financial liabilities at amortised cost:
Interest bearing loans and borrowings:
Borrowings payable: non-current 8,643 6,057
Borrowings payable: current 26,079 19,468
Trade and other payables 7,775 5,605
Intercompany payables - -
42,497 31,130
13.3 Fair value of financial instruments
The board does not consider the fair value of financial assets and liabilities
to be materially different to their carrying values.
13.4 Financial risk management
The group's activities expose it to a variety of financial risks. These risks
are dealt with in detail in the Group strategic report under Principal risks
and uncertainties.
14. Treatment of borrowings
The group borrows money and lends this on, together with its own funds, to its
customers.
Any increase in activity leads to an increase in debtors and an associated
increase in borrowings. If the company was one which bought and sold goods or
services the money borrowed would be similar to the company's stock in trade
and the change in creditors would be shown as part of operating cash flows.
However, accounting standards require cash flows from financing to be shown
separately and this means that there appears to be a large inflow or outflow
of cash from the company's operations (depending on whether lending to
customers decreases or increases in the year) which is then covered by
borrowings. For reasons stated above this is not the case.
15. Capital commitments and post balance sheet events
The group paid a deposit of £42.65k in April 2023 for a property to be used
as the office as the current lease is to expire early next year. The full cost
of the property was £444.00k and was a cash purchase. Completion was on 29
September 2023. The deposit has been carried forward at present as a
prepayment.
With the exception of that transaction, there were no post balance sheet
events which fall to be disclosed in these financial statements.
16. Availability of annual report and accounts and notice of AGM
A copy of the report and accounts for the year ended 31 July 2023 will shortly
be posted to shareholders and a copy will be available to download from the
company's website at www.orchardfundinggroupplc.com. Accompanying the report
and accounts is a notice convening the company's annual general meeting, to be
held at 10.00am on Thursday 11 January 2024, at 222 Armstrong Road, Luton,
Bedfordshire LU2 0FY. A copy of the notice of AGM will also be available to
download from the company's website.
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