REG - Orchard Funding Grp - Final Results
10/12/2024 07:00
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RNS Number : 3682P Orchard Funding Group PLC 10 December 2024
10 December 2024
Orchard Funding Group PLC
("Orchard Funding Group" or the "company" or the "group")
Full Year Results
For the 12 months ended 31 July 2024
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 2024.
Highlights
· Lending volume is up from £99.87m in 2023 to £114.70m in 2024
(14.85%)
· Loan book (post ECL provision) is up from £58.99m in 2023 to
£66.98m in 2024 (13.54%)
· Borrowing is up from £34.72m in 2023 to £40.22m in 2024 (15.84%)
· Gross total income in the period increased by 22.65% to £9.64
million for the 12 months to 31 July 2024 (31 July 2023: £7.86 million)
· Net total income is up from £5.60m in 2023 to £6.89m in 2024
(23.04%)
· Profit after tax fell by 8.19% from £1.71 million (31 July 2023)
to £1.57 million
· Operating costs (excluding impairments) are up from £3.30m in 2023
to £3.60m in 2024 (9.09%)
· Expected credit losses and other impairments are up from £0.14m in
2023 to £1.17m in 2024
· Earnings Per Share ("EPS") fell in the period by 7.91% to 7.39p (31
July 2023: 8.03p)
· As reported to the market on 17 May 2024, the directors do not
intend to propose a dividend
· We have increased borrowing availability by £3.00 million over
that available last year
Further detail on the above is given throughout the Group strategic report on
pages 4 to 12 of the full financial statements.
Ravi Takhar, Chief Executive Officer of the company, stated:
"Our business is resilient. We have had to endure a number of impacts to our
group during the year and notwithstanding those impacts, we have continued to
trade confidently and profitably.
We enter our 10th 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 about the prospects for the
business going forward."
For further information, please contact:
Orchard Funding Group PLC
+44 (0)1582 280 140
Ravi Takhar, Chief Executive Officer
Allenby Capital Limited (Nomad and Broker)
+44 (0)20 3328 5656
Nick Naylor/James Reeve (Corporate Finance)
Amrit Nahal/Jos Pinnington (Sales and Corporate Broking)
For Investor Relations please go to: www.orchardfundinggroupplc.com
(http://www.orchardfundinggroupplc.com)
Chairman's statement
I am pleased to report a strong financial performance, despite this being a
challenging year for our business. As previously reported, we were impacted
by the withdrawal of guaranteed asset protection (GAP) products by several
insurance companies. We were also subject to an external fraud, and one of
our largest introducers has recently entered administration. The financial
impact of the last two events is £811k. The macro-economic headwinds also
continued with higher base rates for longer than anticipated by the market.
Despite this, we have achieved record lending volumes, more than £100m for
the first time (£114.7m) and a loan book that has ended the year at £67m.
This growth has been seen predominantly in our core insurance premium
funding markets, whilst we continue to make slow but steady progress in the
asset finance and bridging sectors.
The Board is pleased that this growth in volumes has ensured that despite the
difficulties we have faced, we have maintained profit before tax at £2.12m
(2023 £2.17m). We have also stabilised our margins with net income margin
maintained at circa 9%.
This could not have been achieved without the continuing hard work and
commitment of our staff together with the ongoing support of our introducer
partners and funders. Our business has again showed its resilience and
ability to withstand shocks and continue to deliver for all of our
stakeholders.
We are mindful of how the ongoing economic challenges could affect our
customers. The board is encouraged by the normalisation of inflationary
conditions and the expected gradual shift to a lower base rate environment.
I remain optimistic about our medium-term outlook, and our ability to continue
to grow our lending volumes in a controlled way and to maintain our margins.
We have previously advised that the Board believes it is in the company's best
interest to cease the payment of dividends for the current financial year. I
am aware that this will be disappointing, as we have a track record of
consistently paying returns to shareholders. However, the capital retained can
be used to make, if appropriate, an acceptable tender offer to shareholders in
the future and will enable management the strategic flexibility, when
appropriate, to deploy funds to support the lending of the business.
Steven Hicks
Chairman
9 December 2024
Chief executive's review
Our business is resilient. We have had to endure a number of impacts to our
group during the year and notwithstanding those impacts, we have continued to
trade confidently and profitably.
Our staff has 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.
Higher than historic base rates continue to impact our business as they have
a direct and immediate impact on our cost of funds. We operate in extremely
competitive markets and are not able to pass on base rate rises to our
customers and therefore continue to suffer an erosion of our net income. The
recent base rate cuts are welcomed and will benefit the net income of our
business going forward.
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.
Our business has operated in its markets for over 20 years. We enter our 10th
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 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.
Ravi Takhar
Chief executive officer
9 December 2024
Group strategic report
Strategy and objectives
Our strategy remains as before - 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
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.
During the year the board began the process of reviewing the company's capital
allocation policy and whether continued admission on the AIM market was
appropriate given the size of the group. This process is continuing with
conversations being held between the board and investors.
Our business model
Our business 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 2.6 to the full
financial statements. The financial assets are loans to businesses and
consumers to enable them to spread the cost of their insurance premiums,
professional fees or other service fees. Most of our lending remains within a
one year repayment period although approximately 1.33% of our lending is for a
period in excess of one year and 0.85% in excess of five years excluding
lending by Orchard Finance which is financially risk free.
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. Lending in this area was growing substantially until earlier
this year when the FCA announced an enquiry into the selling of this product.
Toyota initially withdrew from the market but is now reviewing this. This part
of the business, because of the lower risk and lower returns is reported on as
a separate segment. This is shown in note 5 to the full financial statements.
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. 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%.
Notwithstanding the above, we suffered an instance of fraud. This was caused
by a fraudulent introducer creating fraudulent credit agreements. The board
initially set aside a provision of £500k, as notified to the market on 1
March 2024. Subsequent analysis indicated that the actual potential loss is
£391k and the provision has been adjusted accordingly. The board has
conducted a thorough review of its wider lending book and introducer network
to satisfy itself that no fraud risk exists elsewhere in its current loan
book, alongside a review of its systems and controls and to ensure that the
risk that the group suffers a similar fraud in the future is minimised.
The group has borrowing facilities, other than the retail bond of £3.90m, up
to up to a maximum of £30.00m (2023 £27.00m) for general lending. In
addition Orchard Finance has a facility of up to £20.00m (2023 £20.00m) to
be used exclusively for lending in respect of products from the provider of
those funds.
Of the general facility, £7.02m was unused at the year end (2023 £6.28m) and
of the restricted facility, £6.55m was unused (2023 £9.76m). 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 group's average cost of finance (calculated by interest payments over
borrowings in the year) was 7.99% (6.70% on the same basis in the year to 31
July 2023). Cost of finance includes arrangement and legal fees and fees for
non-use of the facility.
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.
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 below 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).
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 increased last year with the worsening state of the economy in part
caused by worldwide conflicts. The board believe that this risk remains the
same this year.
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 16 to the full financial statements 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 remained stable since last year. The providers of our funds have
maintained their support.
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 2025 for Bexhill, May
2025 for Orchard Finance and June 2025 for Orchard Funding. There has been no
indication from the providers of our funds that they will withdraw their
support.
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 Rates have not changed substantially since last year and the associated risk
remains much the same. Most of our lending is within twelve months and any
longer term lending is in line with the previous year.
Risk appetite Our risk appetite is to ensure that the net interest margin on new lending
remains above 7.5%.
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 nature of the business is that loans are made either to finance companies
("PFC") 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 2024, the largest nominal exposure was £10.76m (2023 £8.29m) to one PFC
representing 15.79% (2023 13.98%) of our loans after expected credit loss
provisions ("ECL"). The highest exposure to a non-PFC was £4.56m (2023
£3.19m) and consisted of advances comprising many smaller loans (the average
amount for each loan was £271 (2023 £223)). The highest individual loan (not
a block loan to a premium finance company) was £376k (2023 £321k),
representing less than 0.56% (2023 0.54%) of total outstanding loans.
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 3 to the full financial statements.
The business environment
Businesses are still in a period of instability. The ongoing conflicts in
Ukraine and the Middle East have led to continuing unrest in the markets.
Despite the above, inflation has begun to fall and the Bank of England have
reduced the base rate in the last few months indicating that they feel that
inflation is now heading 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 14.89% over the previous year.
Most of our premium finance growth continues to come from the direct insurance
side which was up 17.26% compared to the previous year. Lending to broker
premium funding companies ("PFC"'s) was 13.75% higher than in 2023. Demand for
professional fee funding has fallen again, by 10.59%. this year.
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.
The Financial Conduct Authority ("FCA") has been investigating the selling of
GAP insurance products for some time now. As a result of their proposals,
several providers of this product decided to leave the market. This included
Toyota Financial Services. There is currently a review of this by Toyota
Financial Services and it looks likely that they will maintain some presence
in this market. Our largest partner broker for this product, Nukula Limited
trading as Insure That, went into administration in July 2024. A provision has
been made for these debts amounting to £479k. At 31 October 2024 debtors were
again reviewed for impairment and this provision was still considered to be
valid.
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 the group 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 (excluding ECL, other
impairments and consolidation goodwill) are 9.09% higher than in 2023. Details
of these costs are shown in note 5 of the full financial statements.
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 2.51% lower than in 2023. Given the level of
impairment allowance this year, the board are satisfied with the results.
All £m unless otherwise stated
2024 2023 2021 2020 2019
KPIs
Lending volume £114.70 £99.87 £79.96 £61.02 £65.53
Average interest earning assets(1) £62.98 £51.36 £36.81 £28.59 £29.72
Total revenue £9.64 £7.86 £6.19 £4.60 £5.28
Average external funding(2) £23.92 £20.32 £15.77 £9.28 £12.82
Cost of external funds £1.91 £1.35 £0.59 £0.56 £0.62
Cost of funds/funds ratio(3) 7.99% 6.64% 3.57% 6.03% 4.84%
Own resources (net financial assets) (4) £20.11 £19.20 £17.61 £15.88 £15.74
Operating costs (excluding impairments) £3.60 £3.30 £2.91 £2.52 £2.44
Impairment charges/(credits) £1.17 £0.14 £0.06 £(0.13) £0.13
Net interest margin(5) 9.15% 9.48% 11.98% 11.26% 13.26%
ROAE (Return on average equity)(6) 8.56% 9.94% 9.36% 5.35% 8.31%
Other performance indicators
Net interest income £5.76 £4.87 £4.41 £3.22 £3.94
Profit before tax £2.12 £2.17 £1.88 £1.05 £1.56
Profit after tax £1.57 £1.71 £1.52 £0.84 £1.27
Gross interest margin(7) 12.18% 12.11% 13.58% 13.22% 15.34%
EPS (pence) (8) 7.39 8.03 7.11 3.91 5.96
DPS (pence) (9) 0.00 3.00 3.00 3.00 3.00
Return on capital employed (ROCE)(10) 3.83% 4.42% 5.19% 4.33% 6.74%
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 other impairments
are up by £299k. Included in interest payable and similar charges are costs
associated with the bond issue which have amortisation amounting to £42k.
Staff costs were £51k higher. Commission has grown by £209k this year as
sales have increased.
As a result of the fraud and InsureThat going into administration, as
mentioned earlier, provision has had to be made in the sum £391k regarding
the fraud and £475k in respect of InsureThat. The balance of the impairment
allowance in the Consolidated statement of comprehensive income this year is
£369K.
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. . Our staff have significant
experience in working within the group.
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 19 employees excluding the main board directors.
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 with 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
18 to 20 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 seven years ahead. These amount to 1.33% (2023 3.26%)
of which 0.48% (2023 2.81%) 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 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 in 2020. We increased our holding to 60% in
May 2024 and to 90% in August 2024. This investment was fully impaired last
year as the company was not actively engaged in developing the system further.
The group has now taken on the responsibility for this. These financial
statements reflect the results of Open B and the impairment of the investment
has been reversed.
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 three 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 2023).
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 12
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 section earlier);
· 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 earlier
on this page;
· what impact it will have on our partners and other customers (as
mentioned under Non-financial indicators on page 10). 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
9 December 2024
Directors' report
The directors present their annual report together with the audited accounts
of the group and the company for the year ended 31 July 2024.
Results and dividends
The group profit for the year after taxation was £1.57m (2023 £1.71m). This
is shown on page 15 of the full financial statements. The directors consider
that the going concern basis is appropriate, supported by the profitability of
the group and the significant cash balances. During the year the group paid
dividends amounting to £427k to shareholders (2023 £641k) - note 7. The
board is not proposing the payment of a dividend in accordance with the update
on capital allocation policy reported to the market on 17 May 2024.
Future developments
Future developments and a fuller business review are contained in the Chief
executive's review and the Group strategic report on pages 4 to 12 of the full
financial statements.
Directors and their interests
The directors who served during the year and their beneficial interests in the
share capital of the company are shown in the remuneration report on pages 15
and 16 of the full financial statements. There is a directors' and officers'
indemnity insurance policy in existence. There were no other third party
indemnity provisions for the directors.
Directors' responsibilities
The directors are responsible for preparing the strategic report, directors'
report and the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare group and company financial
statements for each financial year. The directors have elected under company
law, and are required under the AIM Rules of the London Stock Exchange, to
prepare the group financial statements in accordance with UK adopted
international accounting standards and have elected under company law to
prepare the company financial statements in accordance with UK adopted
international accounting standards and applicable law.
The group and company financial statements are required by law and UK adopted
international accounting standards to present fairly the financial position of
the group and the company and the financial performance of the group. The
Companies Act 2006 provides in relation to such financial statements that
references in the relevant part of that Act to financial statements giving a
true and fair view are references to their achieving a fair presentation.
Under company law the directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the group and the company and of the profit or loss of the group
for that period.
In preparing each of the group and company financial statements, the directors
are required to:
a) select suitable accounting policies and then apply them consistently;
b) make judgements and accounting estimates that are reasonable and
prudent;
c) state whether they have been prepared in accordance with UK adopted
international accounting standards;
d) prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the group and the company will continue in
business.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the group's and the company's transactions and
disclose with reasonable accuracy at any time the financial position of the
group and the company and to enable them to ensure that the financial
statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the group and the company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Orchard Funding Group plc
website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Research and development
During the financial year no costs were incurred in relation to research and
development (2023 £Nil). There are costs incurred in continuing development
of software in the year which are capitalised. These amounted to £214k in the
year (2023 £57k) and are shown in note 14 to the full financial statements.
Financial instruments
Detailed information on the group's financial instruments is given in notes
2.6 and 2.7 to the full financial statements.
The group's objectives and policies for managing risk are shown under
Principal risks and uncertainties on pages 5 to 8 of the full financial
statements.
Employees and environmental issues
The group is an equal opportunity employer. Details of the group's approach to
employee and environmental matters are shown on page 11 of the full financial
statements.
Statement as to disclosure of information to auditor
The directors who were in office on the date of approval of these financial
statements have confirmed, as far as they are aware, that there is no relevant
audit information of which the auditor is unaware. Each of the directors have
confirmed that they have taken all of the steps that they ought to have taken
as directors in order to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that information.
Approved by the directors and signed by order of the board
Liam McShane,
Company secretary
9 December 2024
Consolidated statement of comprehensive income
2024 2023
Notes £000 £000
Continuing operations
Interest receivable and similar income 4 7,674 6,215
Interest payable and similar charges 4 (1,911) (1,349)
Net interest income 5,763 4,866
Other trading income 4 1,966 1,649
Other direct costs 4 (844) (911)
Net other income 1,122 738
Net total income 6,885 5,604
Other operating costs 4 (3,601) (3,302)
Net impairment losses on financial assets 4 (1,235) (64)
Impairment loss on investment at fair value through profit and loss - (75)
Reversal of impairment loss on investment at fair value through profit and 75 -
loss
Fair value adjustment for goodwill on consolidation (11) -
Operating profit 4 2,113 2,163
Interest receivable 5 6 9
Interest payable 5 - (1)
Profit before tax 2,119 2,171
Tax 6 (552) (458)
Profit for the year from continuing operations attributable to:
Owners of the parent 1,579 1,713
Non-controlling interests (12) -
1,567 1,713
Earnings per share (pence)
Basic and diluted 8 7.39 8.03
Consolidated statement of financial position
2024 2023
Notes £000 £000
Non-current assets
Property, plant and equipment 448 7
Right of use assets - 6
Intangible assets 145 41
Investment at fair value through profit and loss 6 6
Loans to customers 9 9,038 7,967
9,637 8,027
Current assets
Loans to customers 9 57,944 51,021
Other receivables and prepayments 9 122 279
Cash and cash equivalents:
Bank balances 1,482 2,550
59,548 53,850
Total assets 69,185 61,877
Liabilities
Current liabilities
Trade and other payables 11 9,488 8,955
Borrowings 10 29,693 26,079
Current tax payable 542 449
39,723 35,483
Non-current liabilities
Borrowings 10 10,529 8,643
Deferred tax liabilities 1 2
10,530 8,645
Total liabilities 50,253 44,128
Equity
Called up share capital 214 214
Share premium 8,692 8,692
Merger reserve 891 891
Retained earnings 9,104 7,952
Equity attributable to the owners of the parent 18,901 17,749
Non-controlling interests 31 -
Total equity 18,932 17,749
Total equity and liabilities 69,185 61,877
Consolidated statement of changes in equity
Called up share capital Retained earnings Share premium Merger reserve Attributable to the owners of the parent Non-controlling interests Total equity
£000 £000 £000 £000 £000 £000
Balance at 1 August 2022 214 6,880 8,692 891 16,677 - 16,677
Profit and total comprehensive income - 1,713 - - 1,713 - 1,713
Transactions with owners:
Dividends paid - (641) - - (641) - (641)
Balance at 31 July 2023 214 7,952 8,692 891 17,749 - 17,749
Non-controlling interests at the date of acquisition - - - - - 43 43
Profit and total comprehensive income - 1,579 - - 1,579 (12) 1,567
Transactions with owners:
Dividends paid - (427) - - (427) - (427)
Balance at 31 July 2024 214 9,104 8,692 891 18,901 31 18,932
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 and the Companies Act 2006.
The merger reserve arose through the formation of the group on 23 June 2015
using the capital reorganisation method.
Consolidated statement of cash flows
2024 2023
£000 £000
Cash flows from operating activities:
Operating profit 2,113 2,163
Depreciation and amortisation 95 45
Impairment loss on investment at fair value through profit and loss - 75
Reversal of impairment loss on investment at fair value through profit and (75) -
loss
Goodwill on acquisition written off 11
Adjustment for assets and liabilities at date of acquisition 107
2,251 2,283
Increase in loans to customers, other receivables and prepayments (7,837) (15,256)
Increase in trade and other payables 575 2,618
(5,011) (10,355)
Tax paid (460) (307)
Net cash absorbed by operating activities (5,471) (10,662)
Cash flows from investing activities
Interest received 6 9
Purchases of property, plant and equipment (453) (8)
Deposit paid on property - (43)
Purchase of intangible assets (214) (57)
Transfer of intangible assets purchased in the previous year 33
Sale of property, plant and equipment - 2
Net cash absorbed by investing activities (628) (97)
Cash flows from financing activities
Dividends paid (427) (641)
Net receipts from borrowings 5,473 9,184
Lease repayments (15) (30)
Net cash generated by financing activities 5,031 8,513
Net (decrease)/increase in cash and cash equivalents (1,068) (2,246)
Cash and cash equivalents at the beginning of the year 2,550 4,796
Cash and cash equivalents at the end of year 1,482 2,550
Notes to the consolidated financial statements
1. General information
Orchard Funding Group plc ("the company") and its subsidiaries (together "the
group") provide funding and funding support systems to insurance brokers and
professional firms through the trading subsidiaries. The group operates in the
United Kingdom.
The company is a public company listed on the AIM market of the London Stock
Exchange, incorporated in England and Wales and domiciled in the United
Kingdom. The address of its registered office is 222 Armstrong Road, Luton,
Bedfordshire LU2 0FY.
Orchard Funding Group plc ("the company") and its subsidiaries (together "the
group") provide funding and funding support systems to insurance brokers and
professional firms through the trading subsidiaries. The group operates in the
United Kingdom.
The preliminary announcement set out above does not constitute Orchard's
statutory financial statements for the years ended 31 July 2024 or 2023 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 2024 and 2023 is unqualified
and does not contain statements under s498(2) or (3) of the Companies Act
2006.
Subject to the disclosures in note 2 below, the accounting policies used for
the year ended 31 July 2024 are unchanged from those used for the statutory
financial statements for the year ended 31 July 2023. The 2024 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 International Accounting Standards in
conformity with the Companies Act 2006, this announcement does not itself
contain sufficient information to comply with International Accounting
Standards in conformity with the Companies Act 2006.
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 £26.76m 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. Segmental reporting
The group operates wholly within the United Kingdom therefore there is no
meaningful information that could be given on a geographical basis. The group
recognises two classes of lending - Toyota products and standard lending. The
risks, rewards and management of all products forming part of standard lending
are so similar, or are immaterial in terms of income, assets or lending, that
any segregation (other than central costs) would not give meaningful
information to users of the financial statements. Toyota products are similar
in terms of management but carry no risk and lower returns. The board views
this as a separate segment.
The board assesses each segment based on segment operating profit (before tax
and exceptional items, but after finance costs which form part of interest
payable and similar charges and other direct costs).
2024
Central Standard Toyota
Total costs lending Products
£000 £000 £000 £000
Revenue
Interest revenue 7,674 - 7,674 -
Other revenue 1,965 - 1,377 588
9,639 - 9,051 588
Expenses by nature
Interest payable and similar charges
Interest payable 1,841 - 1,841 -
Bank fees 69 - 69 -
1,910 - 1,910 -
Other direct costs
Bank fees 844 - 738 106
Net total income 6,885 - 6,403 482
Other operating costs
Employee costs 1,710 786 924 -
Advertising and selling costs 853 - 853 -
Professional and legal fees 314 118 194 2
IT costs 221 3 218 -
Cost of listing 83 83 - -
Depreciation and amortisation 106 - 106 -
Other net expenses 325 4 317 4
3,612 994 2,612 6
Net impairment charges 1,160 - 1,160 -
4,772 994 3,772 6
Operating profit/(loss) 2,113 (994) 2,631 476
Interest receivable 6 6 -
Interest payable - -
Profit/(loss) before tax 2,119 (994) 2,637 476
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
Revenue recognition by timing:
2024 2023
Standard Toyota Standard Toyota
Total lending products Total lending products
£000 £000 £000 £000 £000 £000
Over time - interest revenue outside the scope of IFRS 15 6,735 6,735 - 5,328 5,328 -
At a point in time - non utilisation fees 773 773 - 769 769 -
At a point in time - default and settlement fees 166 166 - 118 118 -
Interest receivable and similar income 7,674 7,674 - 6,215 6,215 -
At a point in time - direct debit charges 558 558 - 787 787 -
Over time - loan administrative fees 1,263 675 588 717 376 341
Over time - licence fees 144 144 - 145 145 -
Other trading income 1,965 1,377 588 1,649 1,308 341
Total revenue 9,639 9,051 588 7,864 7,523 341
Set out below are assets and liabilities by segment.
2024 2023
Standard Toyota Standard Toyota
Total lending products Total lending Products
£000 £000 £000 £000 £000 £000
Assets:
Segment assets 68,581 52,543 16,038 61,785 48,823 12,962
Unallocated assets:
Investments 6 6
Land and buildings 440 6
Other fixed assets 153 48
Current assets 5 32
Total assets 69,185 61,877
2024 2023
Standard Toyota Standard Toyota
Total Lending products Total lending Products
£000 £000 £000 £000 £000 £000
Liabilities:
Segment liabilities before taxation 49,393 33,577 15,816 43,305 30,755 12,550
Unallocated liabilities:
Current liabilities 317 357
Borrowings for right of use assets - 15
Taxation 542 449
Deferred taxation 1 2
Total liabilities 50,253 44,128
5. 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 £1,842k (2023 £1,270k) excluding fees.
The group receives an amount of interest from its bank balances. This year it
amounted to £6k (2023 £9k).
Interest payable is in respect of right-of-use assets and amounted to £Nil
(2023 £1k). The agreement for those assets terminated during the year.
6. Tax expense
6.1 Current year tax charge:
2024 2023
£000 £000
Current tax expense 553 458
Deferred tax expense relating to the origination and reversal of temporary (1) -
differences
552 458
6.2 Tax reconciliation
The tax assessed for the year differs from the applicable corporation tax rate
in the UK (25% for 2024 and 21.01% for 2023). 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.
2024 2023
£000 £000
Profit before tax for the financial year 2,119 2,171
Applicable rate - 25.00% (2023 21.01%) 25.00% 21.01%
Tax at the applicable rate 530 456
Effects of:
Items not deductible for tax 19 2
Fair value adjustment for goodwill on consolidation 3 -
Tax charge for the year 552 458
7. Dividends
2024 2023
£000 £000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 July 2023 of 2p (2022 2p) per share 427 427
Interim dividend for the year ended 31 July 2024 of 0p (2023 1p) per share - 214
427 641
Proposed final dividend for the year ended 31 July 2024 of 0p (2023 2p) per -
share
427
8. Earnings per share
Earnings per share is based on the profit for the year attributable to the
owners of £1.58m (2023 - £1.71m) and the weighted average number of the
ordinary shares in issue during the year of 21.35m(2023 - 21.35m). There are
no options or other factors which would dilute these therefore the fully
diluted earnings per share is identical.
9. Loans to customers and other receivables
2024 2023
Group Company Group Company
£000 £000 £000 £000
Non-current
Financial assets at amortised cost
Intercompany receivables - 13,076 - 12,903
Loans to customers:
Gross 9,348 - 7,972 -
Impairment provision (310) - (5) -
9,038 13,076 7,967 12,903
Current
Financial assets at amortised cost
Loans to customers:
Gross 58,780 - 51,320 -
Impairment provision (836) - (299) -
57,944 - 51,021 -
Financial assets at amortised cost
Other receivables 77 - 151 -
77 - 151 -
Total current financial assets 58,021 - 51,172 -
Prepayments 45 5 128 32
58,066 5 51,300 32
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 2.6 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;
· A charge is made for late payments.
Loans to customers can be analysed as follows. The reference to stage 1, 2 and
3 refer to those stages explained in note 2.6 to the full financial
statements.
The figures refer to the group as the parent company has no loans to
customers.
Total loans to customers:
2024 2023
Gross Impairment allowance Net Gross Impairment allowance Net
£000 £000 £000 £000 £000 £000
Amount receivable - stage 1 66,931 (141) 66,790 58,820 (65) 58,755
Amount receivable - stage 2 140 - 140 266 (35) 231
Amount receivable - stage 3 1,057 (1,005) 52 206 (204) 2
68,128 (1,146) 66,982 59,292 (304) 58,988
The above loans comprise loans with credit risk as follows:
Risk free - third party carries the risk 14,940 - 14,940 11,588 - 11,588
Those where the group takes the lending risk 53,188 (1,146) 52,042 47,704 (304) 47,400
68,128 (1,146) 66,982 59,292 (304) 58,988
Loans amounting to £2,490k (2023 £1,402k) were secured on the assets which
they financed.
The following amounts are debts which have moved from stage 1 or 2 to 3 during
the year leading to an increase in impairment allowance:
2024 2023
Gross Impairment allowance Net Gross Impairment allowance Net
£000 £000 £000 £000 £000 £000
Amount receivable - stage 1 1,288 (4) 1,284 1,810 (4) 1,806
Amount receivable - stage 2 - - - 142 (72) 70
Amount receivable - stage 3 664 (591) 73 - - -
1,952 (595) 1,357 1,952 (76) 1,876
Amounts falling due after more than five years included above:
2024 2023
Gross Impairment allowance Net Gross Impairment allowance Net
£000 £000 £000 £000 £000 £000
Amount receivable - stage 1 258 - 258 128 - 128
Amount receivable - stage 2 - - - - - -
Amount receivable - stage 3 - - - - - -
258 - 258 128 - 128
97.58% of customer receivables are subject to recourse to the introducing
partner in the event of default by the borrower (2023 98.50%).
Intercompany receivables
The parent is owed a substantial amount by four of its subsidiaries. These
debts are interest free and due on demand. Neither subsidiary has the cash to
repay these immediately and therefore, under the requirements of IFRS 9,
provision may need to be made in the financial statements of the parent.
However, the board does not see any need for a provision because:
· the loans to customers which each subsidiary has made will
generate sufficient cash to repay these loans (after payment of other
liabilities) on a "run off" basis (as cash is collected it could be paid
across to the parent). The majority of loans to customers in the subsidiaries
are all repayable within 12 months; and
· any risk of loss is considered remote (not expected) and
therefore no impairment provision is necessary as any credit loss would be
immaterial.
10. Borrowings
2024 2023
£000 £000
Non-current:
Retail bond 3,786 3,744
Other borrowings 6,743 4,899
10,529 8,643
Current:
Borrowings arising from right-of-use assets - 15
Other borrowings 29,693 26,064
29,693 26,079
All borrowings are secured. The parent company has no external borrowings.
10.1 Terms and debt repayment schedule
Bexhill's current facility is renewable in April 2025. Orchard Funding's
facility is renewable in June 2025 with the renewal date for Orchard Finance
being May 2025. 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 £20.48m (2023 £19.23m) are secured by a fixed and
floating charge over all the assets of Bexhill, bear interest at an average
rate of 7.75% excluding associated costs (2023 6.04% 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
7.75% (2023 7.50%). The maximum drawdown on the facility is currently £25.00m
(2023 £22.00m) of which £4.52m was undrawn at the year-end (2023 £2.78m).
The outstanding amount of £20.48m (2023 £19.23m) 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 7.95% pa
excluding associated costs (2023 6.31% 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% (2023 7.95%). The maximum drawdown
facility is currently £5.00m (2023 £5.00m) of which £2.50m was undrawn at
the year-end (2023 £3.50m). The outstanding amount of £2.5m (2023 £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 (2023 £20.00m) of which £6.55m was undrawn at the year end (2023
£9.76m). 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 £6.74m (2023 £4.90m) and current borrowings of £6.72m (2023 £5.34m) are
matched with receipts from loans to customers and are repayable on that basis
up to 36 months after the loan is made.
In March 2022 retail bonds were issued for £3.90m which raised £3.90m. They
bear interest at a rate of 6.50% per annum, payable twice a year. The market
value of the bonds was £3.84m at 31 July 2024 (£3.90m at 31 July 2023). 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 and no amounts are due after five
years on any of the facilities.
10.2 Retail Bond
2024 2023
Group Group
£000 £000
Redemption amount 3,897 3,897
Amortised costs carried forward (111) (153)
Carrying value 3,786 3,744
10.3 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
was3.60%. The lease ended in February 2024.
The minimum payments under lease liabilities are as follows:
2024 2023
Group Group
£000 £000
Within 1 year - 15
Later than 1 year but no later than 5 - -
- 15
Future finance charges - -
- 15
The present value of lease liabilities are as follows:
Within 1 year - 15
Later than 1 year but no later than 5 - -
- 15
10.4 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 Cash flows At Cash flows At
1 August 2022 Non-cash movement 31 July 2023 Non-cash movement 31 July 2024
£000 £000 £000 £000 £000 £000 £000
Non-current:
Retail bond 3,702 42 - 3,744 42 - 3,786
Borrowings arising from right-of-use assets - leases 15 (15) - - -
- -
Other borrowings 2,340 - 2,559 4,899 - 1,844 6,743
6,057 42 2,544 8,643 42 1,844 10,529
Current:
Bank loans 19,439 - 6,625 26,064 - 3,629 29,693
Borrowings arising from right-of-use assets - leases 29 - (14) 15 - (15) -
19,468 - 6,611 26,079 - 3,614 29,693
Total liabilities from financing activities 25,525 9,155 34,722 5,458 40,222
42 42
Interest on right-of-use assets included in liabilities (1) -
Cashflows from financing activities 9,154 5,458
Comprising:
Net receipts from borrowings 9,184 5,473
Lease repayments (30) (15)
9,154 5,458
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.
11. Trade and other payables
Current liabilities 2024 2023
Company
Group Company Group (as restated)
£000 £000 £000 £000
Trade payables 7,003 - 6,565 -
Intercompany payables - 3,390 - 3,213
Other payables 133 - 59 -
Other tax and social security costs 41 23 40 20
Accruals and deferred income 2,311 294 2,291 337
9,488 3,707 8,955 3,570
Trade payables are unsecured and are usually paid within 30 days of
recognition.
Included within accruals and deferred income is deferred income of £1.23m
(2023: £1.13m) 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.
12. Financial instruments
The group and company is exposed to the risks that arise from its use of
financial instruments. The objectives, policies and processes of the group and
company for managing those risks and the methods used to measure them are
detailed in note 4 to the full financial statements.
12.1 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
12.2 Financial instruments by category
The group held the following financial assets at the reporting date:
2024 2023
Group Company Group Company
£000 £000 £000 £000
Non-current assets
Financial assets at fair value through profit and loss:
Investments 6 6 6 6
Financial assets at amortised cost:
Investments - 2,932 - 2,857
Intercompany receivables - 13,076 - 12,903
Loans to customers 9,038 - 7,967 -
Current assets
Financial assets at amortised cost:
Loans to customers 57,944 - 51,021 -
Other receivables: current 77 - 151 -
Cash and cash equivalents:
Bank balances and cash in hand 1,482 - 2,550 -
68,547 16,014 61,695 15,766
The group held the following financial liabilities at the reporting date:
2024 2023
Group Company Group Company
£000 £000 £000 £000
Financial liabilities at amortised cost:
Interest bearing loans and borrowings:
Borrowings payable: non-current 10,525 - 8,643 -
Borrowings payable: current 29,697 - 26,079 -
Total liabilities from financing activities 40,222 - 34,722 -
Trade and other payables 8,217 294 7,775 337
Intercompany payables - 3,390 - 3,213
48,439 3,684 42,497 3,550
12.3 Fair value of financial instruments
The board do not consider the fair value of financial assets and liabilities
to be materially different to their carrying values.
12.4 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.
13. 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 group 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 group'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.
14. Post balance sheet events
On 15 August 2024 a further 300 shares were transferred from a shareholder in
Open B to the company, giving it a 90% share in Open B. These were transferred
at £Nil cost.
15. Availability of annual report and accounts and notice of AGM
A copy of the report and accounts for the year ended 31 July 2024 will shortly
be posted to shareholders and a copy will be available to download from the
company's website at www.orchardfundinggroupplc.com
(http://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 8 January 2025, 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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. END FR QKCBNBBDDABKRecent news on Orchard Funding
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