REG - Orchard Funding Grp - Half-year Report
29/03/2022 07:00
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RNS Number : 3014G Orchard Funding Group PLC 29 March 2022
Orchard Funding Group PLC
("Orchard Funding Group" or the "company" or the "group")
Half Year Results
For the six months ended 31 January 2022
Orchard Funding Group, the finance group which specialises in insurance
premium finance and the professions funding market, is pleased to announce its
unaudited results for the six months ended 31 January 2022.
Highlights - in the six months to 31 January 2022, compared to the six months
to 31 January 2021:
All amounts are £m unless otherwise stated 6 months to 31 January 2022 6 months to 31 January 2021 % increase/ (decrease)
Lending volume 38.15 30.04 27.02%
Average interest earning assets 33.45 27.61 21.15%
Total revenue 2.89 2.31 25.26%
Net interest income 2.14 1.64 30.49%
Profit before tax 1.00 0.61 63.93%
Profit after tax 0.81 0.47 72.34%
EPS (pence)(1) 3.78 2.19 72.27%
Operating costs 1.25 1.27 (1.57%)
Average external funding 9.94 10.43 (4.70%)
Cost of external funds 0.22 0.22 -
Cost of funds/funds ratio 4.69% 4.45% 5.47%
Own resources (net current financial assets) 14.29 15.47 (7.63%)
Towards the end of the previous financial year the group refinanced its
borrowings. Toyota Financial Services (UK) PLC provided the Group with a
facility of £15.00m and Natwest Bank PLC with £5.00m, making a total of
£20m to be used for general lending. Of this £11.42m was in use at the end
of the period. The board is again recommending an interim dividend of 1 pence
per share (31 January 2021: 1 pence).
More detail on the financial highlights is given in the CFO's summary.
Ravi Takhar, Chief Executive Officer of the company, stated:
"We have started the first half of the year positively and ahead of our
original projections. Our culture continues to be cautious, prudent and long
term and this enables us to manage the difficult economic and political times
the World finds itself in. We continue to run our own race and support our
stakeholders, in particular our staff, bankers and shareholders by providing
fair and consistent returns for their investment and faith in our business. We
look forward to the next six months cautiously and with some optimism based on
our good start to the financial year."
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
Neil Patel
Lauren Kettle
For Investor Relations please go to: www.orchardfundinggroupplc.com
(http://www.orchardfundinggroupplc.com)
Chairman's statement
As Covid restrictions have eased and the general business environment has
improved we have seen an increase in demand for our lending products,
particularly in our core insurance business. The geopolitical situation,
increasing energy prices and inflationary pressures still represent headwinds
for our business, however we are cautiously optimistic regarding future
business performance.
I am pleased to report improvements in all the key business metrics with
lending volume up 27%, total revenue up 25% and PBT up 64% on the equivalent
period last year. More financial detail is provided in the CFO summary.
We have a strong capital position and surplus liquidity, and we remain in a
strong position to take advantage of opportunities. We continue to develop
our business organically whilst piloting entry into new lending markets.
Steven Hicks
Chairman
Chief Financial Officer's summary
This time last year I reported on unprecedented economic conditions which had
existed through the six month period to 31 January 2021, concerning
uncertainty surrounding the financial impact that might have arisen from the
COVID-19 pandemic.
We are, again, in unprecedented economic conditions regarding the situation in
Ukraine. So far, and it is still early on, markets have been bearing up
reasonably well.
It does look credible and reasonable to hope that the conflict will remain
contained in Ukraine and although Russia will feel the full force of global
sanctions, there will no doubt be an economic impact elsewhere. There is
already higher inflation than we have seen in the last 20 years in the UK and
there are likely to be some extra inflationary effects in respect of this
conflict. We have also seen higher interest rates since last year.
Our own results in the six months to 31 January 2022 reflect the easing of
COVID-19 restrictions and performance has been much better than in the
equivalent six months of the previous year. Lending volume, average loan book,
turnover and PBT were all up on the equivalent period in 2021 (by 27.02%,
21.15%, 25.26% and 63.93% respectively).
Our lending in most of the markets in which we operate has grown substantially
this period, on average at 27.02%. However, funding for professional fees,
school fees and working capital have all fallen. As reported in the full year
report to 31 July 2021, demand for professional fee funding was slowing and
this has continued (down 3.96% on the equivalent period in 2021).
Our lending in the direct insurance market has risen to the point that it has
now overtaken lending to broker premium funding companies. Growth here has
been significant (59.99% over the six months to 31 January 2022).
Our operational cost base is already lean and we have continued to keep this
so. Further information on costs is given later on.
Last year, as a result of COVID-19, our employees began working from home.
This worked so well and was so popular among our staff that we have continued
to operate in this manner. As always, the safety and wellbeing of our team,
including their mental health, is of the utmost importance to us. We are still
in regular contact with our staff and ensure that if anyone is feeling any
sort of pressure from home-working, they report it to us. Should this happen
we would endeavour to assist them with advice and other support. Our systems
have proved robust enough to be able to manage this home-working in a seamless
manner.
Throughout the period of the pandemic, we allowed payment holidays and waived
charges for late payment where applicable. Charges for late payment have now
been re-introduced.
We are in a strong financial position. At 31 January 2022 we had net current
financial assets of £14.29m (31January 2021 £15.47m) and £8.58m of unused
borrowing facility (31 January 2021 £9.14m). Together, these show a strong
capital, funding and liquidity position. The main reason that we have a lower
net current financial position is that there are more financial assets the
repayment terms of which exceed one year.
Impairment reviews are carried out at each reporting period on all financial
assets. The method employed is shown in the audited accounts to 31 July 2021
and is based on expected credit losses (ECLs). Until the last financial year
all our lending was within one year. Last year we had loans to customers
outstanding at the balance sheet date which were due after more than one year.
This is therefore the first reporting period that
we have had to review these debts to establish whether they have moved from
one ECL stage to another. There have been no changes. At 31 January 2022 the
provision was £493k (31 January 2021 £444k).
Our principal risks, as shown in the full year financial statements to 31 July
2021, are credit risk, liquidity risk, interest rate risk, IT disruption risk
and conduct risk. A full explanation of each of them together with their
impact and mitigation are detailed in those financial statements.
Interest rate risk may very well increase during the next six months as a
result of the invasion of Ukraine. We have already seen energy prices rise
significantly and interest rates rose at the end of 2021 from 0.10% to 0.25%.
There were other increases in February and March 2022 taking rates to 0.75%.
There may be more to come. As already stated, most of Orchard's lending is
short term (one year or less) so we can react fairly quickly to rate changes.
We do not believe that credit risk is an issue. The type of products that we
finance are mostly necessary purchases (e.g. insurances). Based on our past
experience when there were other significant, detrimental impacts on the
economy (e.g. the credit crisis from 2008 and the recent pandemic) actual
losses have been exceptionally low.
During the six month period to 31 January 2022, we acquired two companies -
Cherry Orchard Funding Limited ("COF") and Orchard Bond Finance plc ("OBF").
In the annual financial statements to 31 July 2021, we indicated in the
section on future developments that the board had agreed to a pilot test of
bridging finance. This was what COF was acquired to do. In addition, we
signalled that we were continuing to look at alternative sources of finance to
protect our liquidity. OBF is the vehicle through which a retail bond issue
was made. On 1 March 2022, this company issued £7.80m of £100 bonds at a
rate of 6.25%. Details are shown on the company's website at
"https://www.orchardfundinggroupplc.com/orchardnews".
Key Performance Indicators (KPIs)
Our KPIs are set so that fluctuations outside a certain tolerance would
trigger an examination of our operations to establish why they have occurred
and, if necessary, take any remedial action deemed necessary. This half-year
our KPIs have exceeded expectations.
Our KPIs are based on lending, the cost of lending and, to some extent,
operating costs. We try to ensure that risk is mitigated when lending but,
unfortunately, no lending is risk free.
All our lending is managed on a similar basis, carry similar risks and rewards
and need to comply with similar regulations. They are therefore combined for
reporting purposes.
The table below gives a breakdown of group KPIs. There is also a table showing
those items not considered KPIs but which give a better understanding of the
figures.
Return on average equity is based on PAT divided by the average of equity at
the end of the previous reporting period and that of the current period. We
believe that this measure is seen as more useful than simply looking at equity
at the end of the period.
Average external funding is based on the amount borrowed for the exact number
of days for which the advance was made.
Key performance indicators
All amounts are £m unless otherwise stated 6 months to 31 January 2022 6 months to 31 January 2021 Year to 31 July 2021
Lending volume 38.15 30.04 61.02
Average interest earning assets(1) 33.45 27.61 28.59
Total revenue 2.89 2.31 4.60
Average external funding 9.94 10.43 9.28
Cost of external funds 0.22 0.22 0.56
Cost of funds/funds ratio 4.69% 4.45% 6.03%
Own resources (net current financial assets) 14.29 15.47 14.15
Operating costs 1.25 1.27 2.52
Return on average equity 9.94% 5.97% 5.35%
Financial summary - other performance indicators
All amounts are £m unless otherwise stated 6 months to 31 January 2022 6 months to 31 January 2021 Year to 31 July 2021
Net interest income 2.14 1.64 3.22
Net interest margin (%) 12.80% 11.88% 9.30%
Profit before tax 1.00 0.61 1.05
Profit after tax 0.81 0.47 0.84
EPS (pence)(2) 3.78 2.19 3.91
DPS (pence) 2.00 2.00 3.00
Return on capital employed 7.16% 5.86% 4.33%
1. Average interest earning assets consist of the average of the opening
and closing loan book after taking account of the impairment provision.
2. There are no factors which would dilute earnings therefore fully
diluted earnings per share are identical.
Although lending volume, average interest earning assets and total revenue are
all up by between 20% and 30%, PBT, PAT and EPS are substantially higher. The
increases in these areas were to be expected although the upturn in PBT has
been a mix of increased income and reduced operating costs.
Staff costs last year reflected costs associated with obtaining the banking
licence. With the withdrawal of the licence application, we were able to
reduce our costs in this area and we have seen an 11.27% reduction over the
equivalent period in the previous year. We have also seen an increase in
professional fees in developing the bridging market but, overall, our
operating costs have reduced by 1.57%. We operate in regulated markets and
there is a certain level of cost base that we have to maintain. As always,
however, the situation will be kept under review.
The board is pleased to maintain the dividend at the same rates as this time
last year. Therefore it is declaring an interim dividend of 1 pence per share
to be paid on 24 June 2022 to shareholders on the register at 10 June 2022,
with an associated ex-dividend date of 9 June 2022.
In summary, the next six months will be challenging as a result of
international issues, but the board feels that no further provisions or
estimates (based on our forecasts) are needed.
Liam McShane
Chief Financial Officer
Consolidated statement of comprehensive income
6 Months to
6 Months to 31 January 2021 Year to
31 January 2022 31 July 2021
Notes £000 £000 £000
Continuing operations
Interest receivable and similar income 2 2,355 1,883 3,783
Interest payable and similar charges (219) (243) (559)
Net interest income 2,136 1,640 3,224
Other trading income 2 536 425 817
Other direct costs (343) (300) (603)
Net other income 193 125 214
Net total income 2,329 1,765 3,438
Other operating costs (1,245) (1,267) (2,516)
Net impairment (losses)/gains on financial assets (86) 109 131
Operating profit 998 607 1,053
Interest receivable - - -
Interest payable (1) (2) (3)
Profit before tax 997 605 1,050
Tax 4 (190) (134) (211)
Profit and total comprehensive income for the period from continuing 807 471 839
operations attributable to the owners of the parent
Earnings per share attributable to the owners of the parent during the period
(pence)
Basic and diluted 5 3.78 2.19 3.91
Consolidated statement of financial position
At 31 January 2022 At 31 January 2021 At 31 July 2021
£000 £000 £000
Assets
Non-current assets
Property, plant and equipment 15 30 23
Right of use assets 36 76 56
Intangible assets - 11 4
Deferred tax asset - - -
Investment at fair value through profit and loss 81 6 81
consolidated income
Loans to customers 3,124 22 2,257
Other receivables - 4 -
3,256 149 2,421
Current assets
Loans to customers 33,896 27,898 27,616
Other receivables and prepayments 268 199 233
Cash and cash equivalents:
Bank balances and cash in hand 3,188 4,146 2,170
37,352 32,243 30,019
Total assets 40,608 32,392 32,440
Liabilities and equity
Current liabilities
Trade and other payables 8,893 6,512 4,182
Borrowings 13,822 10,112 11,439
Tax payable 329 60 138
23,044 16,684 15,759
Non-current liabilities
Borrowings 1,382 58 878
Deferred tax 2 4 3
1,384 62 881
Total liabilities 24,428 16,746 16,640
Equity attributable to the owners of the parent
Called up share capital 214 214 214
Share premium 8,692 8,692 8,692
Merger reserve 891 891 891
Retained earnings 6,383 5,849 6,003
Total equity 16,180 15,646 15,800
Total equity and liabilities 40,608 32,392 32,440
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 2020 214 5,805 8,692 891 15,602
Changes in equity
Profit and total comprehensive income - 471 - - 471
Transactions with owners:
Dividends paid - (427) - - (427)
Balance at 31 January 2021 214 5,849 8,692 891 15,646
Changes in equity
Profit and total comprehensive income - 368 - - 368
Transactions with owners:
Dividends paid - (214) - - (214)
Balance at 31 July 2021 214 6,003 8,692 891 15,800
Changes in equity
Profit and total comprehensive income - 807 - - 807
Transactions with owners:
Dividends paid - (427) - - (427)
Balance at 31 January 2022 214 6,383 8,692 891 16,180
The merger reserve arose through the formation of the group on 23 June 2015
using the consolidation method which treats the merged companies as if they
had been combined throughout the current and comparative accounting periods.
The accounting principles for these combinations gave rise to a merger reserve
in the consolidated statement of financial position, being the difference
between the nominal value of new shares issued by the company for the
acquisition of the shares of the subsidiaries and each subsidiary's own share
capital.
The share premium account arose on the issue of shares on the IPO on 1 July
2015 at a premium of 95p per share. Costs directly attributable to the issue
of shares have been deducted from the account.
Consolidated statement of cash flows
6 Months to
6 Months to 31 January 2021 Year to
31 January 2022 31 July 2021
£000 £000 £000
Cash flows from operating activities:
Operating profit 998 607 1,053
Adjustment for depreciation and amortisation 32 36 71
1,030 643 1,124
Increase in trade and other receivables (7,182) (646) (2,679)
Increase in trade and other payables 4,711 3,598 1,243
(1,441) 3,595 (312)
Income tax paid - (339) (337)
Net cash (absorbed)/generated by operating activities (1,441) 3,256 (649)
Cash flows from investing activities
Interest received - - -
Purchases of property, plant and equipment - (1) (3)
Purchase of right of use assets - (75) -
Sales of property, plant and equipment - - (75)
Net cash absorbed by investing activities - (76) (78)
Cash flows from financing activities
Dividends paid (427) (427) (641)
Net proceeds from borrowings 2,901 224 12,245
Borrowings repaid - (1,116) (10,977)
Lease repayments (15) (15) (30)
Net cash generated/(absorbed) by financing activities 2,459 (1,334) 597
Net increase/(decrease) in cash and cash equivalents 1,018 1,846 (130)
Cash and cash equivalents at the beginning of the period 2,170 2,300 2,300
Cash and cash equivalents at the end of period 3,188 4,146 2,170
Cash and cash equivalents consists of bank balances.
Notes to the financial statements
1. General information
Orchard Funding Group PLC ("the company") and its subsidiaries (together "the
group") provide funding and funding support systems for insurance premiums,
professional and equivalent fees and other leisure activities. The group
operates in the United Kingdom.
The company is a public company listed on AIM, a market operated by the London
Stock Exchange, incorporated and domiciled in the United Kingdom. The address
of its registered office is 721 Capability Green, Luton, Bedfordshire LU1 3LU.
The condensed consolidated interim financial information for the six months
ended 31 January 2022 has been prepared in accordance with the presentation,
recognition and measurement requirements of applicable International
Accounting Standards in conformity with the requirements of the Companies Act
2006 ('IFRS') except that the group has not applied IAS 34, Interim Financial
Reporting, which is not mandatory for UK groups listed on AIM, in the
preparation of the condensed consolidated interim financial information.
The financial information does not include all of the information required for
full annual financial statements and should be read in conjunction with the
financial statements of the group for the year ended 31 July 2021 which are
prepared in accordance with IFRS.
The accounting policies used in the preparation of condensed consolidated
interim financial information for the six months ended 31 January 2022 are in
accordance with the presentation, recognition and measurement criteria of IFRS
and are consistent with those which are expected to be adopted in the annual
statutory financial statements for the year ending 31 July 2022. There are a
number of new standards, amendments and interpretations that have 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.
Under the expected credit loss (ECL) model required in IFRS 9, there has a
further £86k charged to consolidated income (31 January 2021 recovery of
£109k). The main area of assessment is debt arrears as based on past
performance this is the best indicator of default. The main reason for the
increase is that gross loans to customers (before impairment provisions) have
risen from £28.36m at the end of January 2021 to £37.51m at the end of
January 2022. In assessing potential provisions, the group has adopted the
simplified approach which requires the entity to recognise a loss allowance
based on lifetime ECLs at each reporting date, right from origination. Part of
this process has been to examine the impact of the situation in Ukraine.
The group's 2021 annual report provides full details of significant judgements
and estimates used in the application of the group's accounting policies.
There have been no significant changes to these judgements and estimates
during the period.
The financial information included in this document is unaudited and does not
comprise statutory accounts within the meaning of section 434 of the Companies
Act 2006. The comparative figures for the financial year ended 31 July 2021
are the group's statutory accounts for that financial year. Those accounts
have been reported on by the company's auditor and delivered to the registrar
of companies. The report of the auditor was (i) unqualified, (ii) did not
include a reference to matters to which the auditor drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
2. Segmental reporting
The group's activities are providing funding for insurance premiums,
professional fees, school fees, leisure activities and asset financing wholly
within the UK.
Our lending meets the criteria for aggregation as the underwriting process,
management of the loans, distribution channels, risks and rewards are all
similar. The customer base does differ (insurance brokers, professional firms,
schools and leisure) but our lending is still subject to strict underwriting
processes. Therefore, there is no meaningful information that could be given
on a geographical or segmental basis. Revenue by type is shown below.
Notes to the financial statements
Revenue
6 Months to
6 Months to 31 January 2021 Year to
31 January 2022 31 July 2021
£000 £000 £000
Revenue
Interest revenue using the effective interest rate method 2,355 1,883 3,783
Other revenue 536 425 817
2,891 2,308 4,600
Timing of revenue recognition:
At a point in time - direct debit charges 323 352 573
At a point in time - non utilisation fees 399 101 189
Over time - loan administrative fees 143 - 101
At a point in time - default and settlement fees 32 1 -
Over time - licence fees 70 73 143
Over time - interest revenue outside the scope of IFRS 15 1,924 1,781 3,594
2,891 2,308 4,600
4. Taxation
The tax assessed for the period differs from the main corporation tax rates in
the UK (19% for the half years to 31 January 2022 and 2021 and for the full
year to 31 July 2021) because of the effect of items disallowed for tax and
accelerated capital allowances.
5. Earnings per share
Earnings per share are based on the total comprehensive income shown above,
for each relevant period, and the weighted average number of ordinary shares
in issue during each period. For all three periods, this was 21,354,167. There
are no options or other factors which would dilute these, therefore the fully
diluted earnings per share is identical.
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