REG - Sancus Lending Group - Final Results
31/03/2022 07:00
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RNS Number : 6791G Sancus Lending Group Limited 31 March 2022
Sancus Lending Group Limited
(formerly GLI Finance Limited)
Final Results for the Year Ended 31 December 2021
HIGHLIGHTS
Rory Mepham, Chief Executive Officer of Sancus Lending Group Limited,
commented:
"Since my appointment as CEO in June 2021, I have prioritised the turnaround
of the Group's financial performance. 2021 was the start of a transitional
period for the Company. We have rebranded, strengthened the management team,
invested in technology and expanded our presence in the UK and Ireland. We
have also undertaken a thorough review of the loan book and, where required,
provisioned accordingly.
Our plan is to return the Group to profitability by growing the Groups loans
under management while ensuring that our credit and other processes are best
in class. We will also broaden our funder base and improve funding terms. The
business will continue to focus on expanding the Group's presence in the UK
and Ireland together with rebuilding its loan book in the Offshore markets of
Jersey, Guernsey and Gibraltar.
We started 2022 with a clear strategy to return the business to profitability,
and a management team committed to achieving that."
Strategic and Operational Highlights
· Change of name to Sancus Lending Group Limited, announced on 11
May 2021, reflecting the Group's continued focus on property lending in
residential development and bridge financing;
· Appointment of Rory Mepham as CEO and Steve Smith as Chairman;
· Significant investment in the sales and credit teams at the end
of 2021 and into 2022, to support and drive growth over the coming years;
· Focus on the maintenance of robust institutional grade credit
processes, smooth loan execution, active loan management, data integrity and a
proactive approach to loans that become stressed or distressed;
· Geographic focus remains unchanged, with the UK and Ireland the
key areas of growth for the business whilst the Offshore markets currently
remain the Group's largest market. Core Sancus revenue growth was 6% in FY21,
with UK revenue up 131%;
· Impressive growth of 60% on new facilities written; from £50m to
£80m year on year, and a strong pipeline in the Group's key growth markets
for FY22 and beyond;
· Loan book at year end £142m (2020: £171m) as a result of large
Offshore loan repayments; and
· Positive shift in the residential property market presents the
Group with a favourable outlook and an opportunity to focus on the right
strategic steps to support growth in coming years.
Financial Headlines
· Group revenue for the year was £9.0m (2020: £10.9m) with the
reduction in Sancus Loans Limited representing a decrease of £2m;
· Group loss for the year was £10.3m (2020: loss £14.5m);
· £6.4m of operating losses relates to expected credit losses
under IFRS9 and represents a realistic view on delinquent or defaulted loans,
virtually all of which were written in or prior to 2018; and
· Increase in operating expenses to £6.2m (FY20: £5.6m) reflects
investment in sales and credit teams.
Enquires:
Sancus Lending Group Limited via Instinctif Partners
Rory Mepham, CEO
Nominated Adviser and Broker
Liberum Capital Limited +44 (0)203 100 2000
Chris Clarke
Lauren Kettle
Public Relations Adviser
Instinctif Partners
Tim Linacre +44 (0) 7949 939 237
CHAIRMAN'S STATEMENT
Introduction
I was delighted to take on the role of Chairman of the Group on 31 August
2021, having joined Sancus in May 2021, and am looking forward to the
challenge ahead.
A number of key events took place prior to my appointment. The successful fund
raise at the end of 2020 was the first step in what the Board believes will be
a structured change programme which will reposition the Group for growth. Our
target markets continue to present compelling opportunities and coupled with
the reduced appetite amongst traditional balance sheet lenders, we are
optimistic this will increase the potential to write high quality new
business.
2021 was a busy year. The Group was rebranded as Sancus Lending Group Limited
(from GLI Finance Limited) on 11 May 2021, the change reflecting the Group's
continued focus on lending for residential property development and bridge
financing purposes.
There have also been a number of changes to our senior executive team, with
new appointments expected to drive Group development and growth, which are
outlined more fully below.
As part of a wider review of the business and the expansion of the credit and
recoveries teams, we carried out a detailed review of the Group's loan book in
June 2021, resulting in impairments of £3m. Whilst we have seen some
improvement in the quality of the loan book as the worst effects of the
pandemic reduced, we have made an additional £3.4m provision in the second
half of the year which we believe draws a line under recent losses. Virtually
all of the provisions relate to loans written in or before 2018.
Finally, after a five-year tenure our auditor, Deloitte LLP stood down and
have been replaced by Moore Stephens following a tender process.
Our People
There were a number of personnel changes during 2021. Following the
resignation of Andy Whelan, Rory Mepham assumed the role of Interim CEO on 30
June 2021 and was then confirmed as CEO on 23 November 2021. Rory joined the
business in January 2021 with initial responsibility for funding and
origination and has extensive experience in corporate finance, capital
raising, debt finance, fund management and development. During his transition,
Rory was supported by Dan Walker who originally joined the Group in 2018, and
was appointed as Deputy CEO in June 2021. Dan subsequently left the Group on
31 January 2022, and we thank him for his contribution. On 8 March 2022 James
Waghorn was appointed as Chief Investment Officer and together with Rory and
Emma Stubbs, our Chief Financial Officer, completes our Executive Management
Team. James has over 14 year's experience in the UK and European real estate
market and has extensive experience across the corporate real estate,
investment and property development sectors.
On 31 August 2021, Patrick Firth stepped down after sixteen years with the
Group and I would like to thank Patrick for his invaluable contribution during
this time.
As Rory sets out in more detail in his report, the Group has invested in
rebuilding and reinforcing the team and our headcount has increased from 25 at
the end of 2021 to 36 as at 30 March 2022. The new resource will largely be
focussed on expansion in our growth markets UK and Ireland but will also
reinforce our credit and management focus as we deliver new business in the
coming years.
Dividend and Shareholders
As part of its wider strategic review of the business, the Board has decided
to withdraw its previous dividend policy as the business plan requires the
reinvestment of surplus resources in order to deliver the planned growth
objectives. The Company last declared a dividend in 2016 and thereafter
adopted a policy consistent with prudent capital and liquidity management,
recognising the need to provide the time and funding necessary for the various
platforms in which the Group was invested to reach their potential. This
followed the transitioning of the business from an investment company to a
trading company, when historically it was earning positive cashflows from CLO
investments which enabled the business to pay dividends. The Board's decision
to formally withdraw its previous dividend policy is therefore consistent with
the approach that has been adopted over recent years, to reinvest surplus
resources for growth. As such, the Group does not intend to declare a dividend
for the year. The Board intends to revisit this policy at the appropriate
time, should the profitability and cash flow profile of the business support
the reinstatement of a dividend.
On behalf of the Board, I would like to thank shareholders for their
continuing support and patience. We certainly do not underestimate the scale
and challenge ahead, but with the continuing support of shareholders and all
of our stakeholders and in the belief that we have the strategy, the systems
and the personnel to put the business onto a firmer footing, I look forward to
reporting more positive developments in the coming period.
Steve Smith
Chairman
CHIEF EXECUTIVE OFFICER'S REVIEW
Outlook
Since my appointment as CEO in June 2021, I have prioritised planning the
turnaround of the Group's financial performance. A return to Group
profitability relies on successfully growing loans under management whilst
widening its range of funders, improving funding terms and adopting
institutional grade processes in all areas. The business is focused on
expanding the Group's presence in the UK and Ireland, together with rebuilding
its loans under management in the Offshore markets of Jersey, Guernsey and
Gibraltar.
The business has written in excess of £1.2 billion of loans since inception
and as at 31 December 2021 the Group loan book stood at £142m. Sancus is
targeting significant growth of loans under management over the coming years.
Assembling the team, having the right structure, effective institutional
management systems and becoming increasingly technology enabled is necessary
to achieve increased scale. The investment in these areas is underway and will
continue in 2022.
The perennial imbalance between supply and demand for housing continues to
offer a favourable landscape for the Group's anticipated growth in its target
markets. Banks having retrenched from both SME and development financing
further provides attractive opportunities for alternative lenders. We continue
to track the geopolitical situation closely and note the potential for further
supply chain disruption and inflationary risks in the construction sector.
The successful delivery of Sancus's growth objectives will be driven by the
four key pillars of the Group's business: Origination, Loan Management,
Funding and Finance & Operations.
Origination
Originating sufficient lending volumes across the target jurisdictions and
product types will provide the business with the scale and diversification it
needs to deliver sustainable profitable growth. Significant investment has
been made in recruiting experienced business development team members in each
of our markets during 2021, an initiative which will continue in 2022.
In the 15 months to March 2022, we took the total business development heads
from 8.5 to 15, with a particular focus on our sales activity in the UK with
business development heads in this region going from 2 to 8 over the last 15
months. The new team members come from experienced backgrounds in the industry
and bring with them a large pool of potential sources of new business. Team
members will be incentivised to deliver quality new business with a focus on
the business earning an appropriate return for where a given loan sits on the
risk / return spectrum.
Whilst it is possible that further hiring will be required in the future, we
consider that this recruitment drive provides the team that can substantially
deliver against the Group's required targets. The Board will remain alert to
market dynamics and future opportunities as they present themselves and will
look to add to the team in line with business requirements.
As part of the risk management process, no members of the credit committee
have an origination function. This ensures an appropriate separation between
the origination and credit functions.
We have seen growth in new loan facilities written during the year with £80m
written during FY21 against £50m for FY20. Loan deployments saw a 10%
increase from £69m at the end of 2020 to £76m for 2022. We have a strong
pipeline for 2022.
Arrangement fees and commitments fees are received on the full value of loan
facility written and therefore a key metric in monitoring the performance of
our sales team. We continue to see significant demand for development finance
and are increasing our presence in the bridging market with a couple of key
hires.
We envisage origination growth in the UK and Ireland in 2022 and the years
beyond and is a key area of investment for the Group. We further anticipate
that the Offshore business (including the Channel Islands and Gibraltar) will
continue to offer lending opportunities and we are confident that our
businesses in those jurisdictions are well placed to execute against those
opportunities as they arise.
During the year, we have placed a greater emphasis on diversifying and growing
our origination channels to include a wider variety of brokers, other
introducers, and a greater range of marketing tools utilised in a targeted
fashion. We have also established a working group to explore the extent to
which technology may be able to support our growth in origination.
Loan Management
Scaling the business successfully necessitates a focus on the maintenance of
robust institutional grade credit processes, smooth loan execution, active
loan management, data integrity and a proactive approach to loans that become
stressed or distressed.
· Maintaining a high-quality credit process whilst scaling the
quantity of new loans is a priority. During 2021 our experienced credit team
has been supplemented by new members with a track record in the property
sector and qualifications as Chartered Surveyors. We have standardised our
approach across all jurisdictions including valuation, legal title, borrower,
market due diligence and monitoring surveyor standards.
· Standardisation of the loan execution process has been
implemented across the Group, including documentation, conditions precedent,
conditions subsequent and closing checklists. We have also implemented a new
workflow process to expediate the time between the loan credit approval and
loan drawdown and exploring how we can better utilise technology to better
manage certain elements. The business is both actively engaging with external
suppliers of software packages together with continuing to invest our own loan
management system. The required investment in terms of possible subscription
charges and additional technology staff has been budgeted in our forecasts.
· Greater emphasis has been placed on actively managing loans once
the initial drawdown has been made. This has been particularly important
during a time when various market related pressures such as cost inflation,
are impacting our borrowers. Active management is helping us to deal with
issues before they become problems.
· Where loans unavoidably become delinquent or defaulted Sancus is
adopting a proactive approach to minimise the risk of loss. The period of time
during which loans become stressed can lead to further strain on loan
covenants, so decisive action is often required without compromising on the
integrity of decision making.
· Due consideration is always afforded to the interests of all
stakeholders in a given loan.
· Further investment has been made in recruiting experienced loan
management team members in each of our markets during 2021, and this will
continue in 2022.
The Sancus asset backed lending loan book decreased by 17% since the end of
2020 from £171m to £142m. This decrease was driven by some large Offshore
loan repayments in the period and the knock-on effect of Covid-19 on loan
closures, and masks promising improvements in the UK and Irish business, where
we saw new facilities written in these two businesses combined of £60m in
2021, a 76% increase from £34m in 2020. We have a strong pipeline and expect
to see an increase in the loan book by the end of 2022. At the year end, the
asset backed loan book comprised Offshore at £96m (Dec 2021: £147m) UK at
£29m (Dec 2021: £15m) and Ireland at £17m (Dec 2021: £9m).
Under the leadership of the Senior Management Team, a detailed evaluation of
the Group's loan book has been completed. Particular focus has been on
reviewing historic loans that are either delinquent or defaulted. As a result
of this exercise, the Group is reporting an increase in expected credit loss
provisions of £6.4m for the financial year (FY20: £4.7m). Virtually all of
the provisions made relate to legacy loans written in 2018 or before. For all
of these positions, the new senior management team have put together
deliverable workout strategies, and these are now underway. These strategies
have been shared in a transparent manner with our funding sources and feedback
has been incorporated into our plans. The seasoned property professionals
within the new Sancus team have proven track records in the Groups markets and
will continue to be involved in working hard to recover value for all
participants in these positions.
Funding
We continue to focus on growing the funding capacity of the business on
improved terms. Additionally, we are seeking to work with a diversified mix
of funders, both private and institutional, to match funders with the loans
meeting their varied risk and rewards criteria. Currently, the Group continues
to be supported by four sources of funding:
· Co-Funders
· Loan Note program
· Institutional funders
· Proprietary Capital
Co Funders remain our largest funding channel, with the majority of the loan
book in the Channel Islands and Gibraltar being co-funded, though its share
reduced in the year from 64% of the total to 50% as a result of large loan
repayments. We continue to nurture relationships with the Co-Funder base,
typically being Offshore private individuals and family offices. In addition
to the large pool of Co-Funders that have been working with Sancus for a
number of years, the business is actively seeking to widen its net and has
recruited team members in its Offshore team to be exclusively focused on
targeting and building relationships with potential new Co-Funders.
During the year we have continued to launch further loan notes through
Amberton Asset Management with the successful launch of Loan Note 7, raising
£16.7 million. Loan Note 7 matures on 10 May 2024 and has a coupon of 7% p.a.
(payable quarterly), with Sancus providing a 10% first loss guarantee. On 31
January 2022 Sancus Loan Note 8 launched with £2.0m of assets and a target of
£20 million. Loan Note 8 has a term of five years and a coupon of 5% p.a.
(payable quarterly), with Sancus providing a 20% first loss guarantee. As the
business matures it is planned to increase the regularity and widen the
variety of Loan Note products.
Sancus has a secured institutional funding line from the Honeycomb Investment
Trust ("HIT"), which is managed by Pollen Street Capital and is designed to be
complementary to our Co-Funder base and Loan Notes. As announced on 4 December
2020 the HIT credit facility was increased to £75m from £45m and the term
was extended to 28 January 2024. At 31 December 2021 the total drawn was
£49.9m (31 December 2020: £45.0m). The HIT facility continues to be
strategic for the business and is generally utilized in relation to funding
development loans.
Sancus has additionally secured a forward flow bridge funding arrangement with
a global private equity backed debt acquisition business and continues to
explore additional long term financing lines that could sit alongside our
syndicated lending approach.
The availability, cost and flexibility of funding is key to achieving our
growth ambitions and we are reviewing the capital position of the business
with a view to ensuring it is best placed to grow funding capacity on improved
terms. Over the course of 2021 the loan book funded by institutional funding
increased by 22% with the majority of the UK and Irish loan book funded by
this channel. We will seek to increase this along with the loan notes over
time.
Own capital has fluctuated around £7m/£8m over the course of the year inline
with our strategy to increase our Return on Tangible Assets ("ROTA").
Finance & Operations
A focus on operational efficiencies within Finance and Operations to be driven
by technology wherever possible is underway, linking into the technology
strategy noted above. Continued focus and improvement on Corporate Governance,
Compliance and Risk via way of policy and procedures to ensure the business is
well set for future growth plans.
Effective compliance and corporate governance remains a priority for the
Board. This is critical to ensuring that only well-considered risks are taken,
and expected returns emerge as planned.
Sancus has developed, and continues to evolve, its own proprietary loan
managements system ("LMS") for the administration of loans. A comprehensive
review of the LMS system and our wider Technology strategy has been carried
out during the year and further steps will be undertaken in 2022.
As highlighted above, we have made a number of recent hires across the
business, in particular to bolster our Funding and Origination capabilities in
the markets in which we are active. At the end of December 2021, the Group
headcount was 35 (31 December 2020: 25) with the largest increase in the Sales
and Credit teams and as we build our presence across the UK and Ireland, we
expect this to increase over time.
A key milestone at the end of 2020 was the successful new equity raise as well
as restructuring our debt (Bonds and ZDPs) and increasing and extending the
term of our facility with HIT. This transaction had the full support of our
largest shareholder Somerston Group who participated in both the equity raise
and new bond issue. With the ZDP's intended to play a long-term part the
Group's finance strategy, given the current maturity date of 5 December 2022,
we intend to engage with the ZDP holders in due course in order to seek their
support at this critical time in the Group's turnaround and as it embarks on a
redefined growth strategy.
Realising value from the legacy FinTech Ventures Investments remains a target
for the management team. Monitoring and governance of FinTech Ventures is
ongoing and we continue to assist our investee platforms with their strategy.
Unfortunately, the profitability of many of these companies have failed to
meet expectations within an acceptable timeframe and their ability to raise
additional capital without proving concept is severely constrained. It remains
a challenging market for many of the FinTech platforms.
Strategic KPIs
The Board have agreed the following KPI's with the senior management team.
These have been selected based on their link to the successful delivery of our
strategy and the executive management team will be monitored against these
throughout the year. The composition of KPI's are further monitored by the
Board on a regular basis and upon their successful delivery are designed to
create shareholder value.
· Revenue growth.
· Growing loans under management.
· Reducing cost of funding.
· Become a capital efficient business.
· Increasing operating profits - by increasing gross margin and
reducing costs.
· Return on Equity.
· Ensuring a risk based approach is taken on all decision making.
Summary of Financial Performance
Our full year 2021 financial results have been overshadowed by the ongoing
impact of Covid-19 as we saw a reduction in our loan book and revenue as
delays to loan completions impacted the results. This resulted in revenue of
£9.0m for the year compared to £10.9m last year.
2021 was the start of what we expect will be a transitional period for the
Group, where we saw the Group rebrand, a number of changes to senior
management and continued expansion of our presence in the UK and Ireland. From
the delays we saw over the last few years on development sites and following a
full review of our loan books, we have seen an increase in IFRS 9 provisions
in the year of £6.4m. Coupled with an increase in operating costs as we have
started to build out the team for our growth plans, this has resulted in an
overall loss for the year of £10.3m for the year (2020: loss of £14.5m).
Although headline revenue showed a decrease, Note 3 Segmental Reporting sets
out the results by Offshore, UK and Ireland and we can start to see revenue
growth in our growth target markets, with the UK revenue up by 132% over the
course of 2021.
Ireland results are relatively flat (revenue up 6%) against last year however
strict Covid-19 restrictions in Ireland during 2021 did cause some delays to
loan closures. However, we have seen a good start to 2022 and with most
restrictions now largely lifted and further resources allocated to Ireland we
expect 2022 to show a good growth story.
We have seen Offshore revenue decrease by 12% in the year, partly due to some
large exit fees which were received in 2020 but also a reduction in
administration fees as we saw the loan book in this region decrease over the
last few years. The Offshore team has been rebuilt over the course of 2021 and
into 2022 following some changes in senior management and they are focussed on
building the loan book over the next few years.
Operating costs in the year were £6.2m (2020: £5.6m) with a breakdown shown
in Note 7. The increase we have seen this year is largely around employment
costs where we have started to build out the UK and Irish operations as well
as building up the credit team in particular. We have also been through a
period of change in senior management during the year which has contributed to
the increase in these costs.
Following a thorough review of the loan book we have seen an increase in the
expected credit loss provisions (IFRS 9) of £6.4m in the year (2020: £4.7m).
This brings the total loan and debtor provision balance to £13.5m. The
majority of this provision figure relates to loans written in or before 2018.
As disclosed in Note 22 the total loan and debtor provision balance is £13.5m
at 31 December 2021 (2020: £7.9m). On a total loan and debtor exposure
including first loss positions within HIT and the loan notes this represents
15.7% (2020: 7.0%).
The Group's net assets have reduced in the year from £29.5m at 31 December
2020 to £19.1m as a result of the operating loss in the year which includes
an increase in the expected credit loss provision of £6.4m.
Goodwill remains at £22.9m, which relates to the carrying amount of goodwill
arising on the acquisition of Sancus Jersey and Sancus Gibraltar. This is
assessed by the Board for impairment on an annual basis or sooner if there has
been any indication of impairment. A full impairment review of the carrying
amount of goodwill was reported in the June 2021 interim accounts. The
resultant value in use calculation indicated that no impairment of goodwill
was required in either Sancus Jersey or Sancus Gibraltar. Following on from
this review the Board have considered whether there have been any further
indicative events of impairment since June 2021, and they have concluded there
have not. The next full impairment review will take place in the 2022 Interim
Report.
Group cash remains healthy. Within the £12.4m of cash and cash equivalents
balance at 31 December 2021, £4.9m relates to Group operational cash with
£7.5m within Sancus Loans Limited.
On balance sheet loans (excluding those loans in Sancus Loans Limited) were
£11.6m before IFRS 9 provisions at 31 December 2021 compared to £11.8m at 31
December 2020. During the year a provision of £6.4m has been made against
loans and loan debtors. Sancus Loans Limited had loans of £49.9m at 31
December 2021 (31 December 2021: £45.0m).
The Group's liabilities consist of the Bond of £12.5m which has a quarterly
coupon of 7% p.a. and matures on 31 December 2025; and ZDPs of £10.6m with a
coupon of 8% and payable on 5 December 2022. The HIT credit facility was
increased to £75m from £45m on 4 December 2020 and at 31 December 2021 was
£49.9m (£52.5m including IOM loans) ((31 December 2020: £45.0m (£45.6m
including IOM loans)). The Directors are considering their options regarding
the ZDPs inline with the growth strategy of the business as noted above.
Going Concern
The Directors have considered the going concern basis in the preparation of
the financial statements as supported by the Director's assessment of the
Company's and Group's ability to pay its debts as they fall due and have
assessed the current position and the principal risks facing the business with
a view to assessing the prospects of the Company.
Liabilities which fall due in the next 12 months include the final capital
entitlement of the Company's ZDP shares, which are repayable on 5 December
2022 at £11.3m.
As part of the Group's growth plan the Company is considering its options
regarding this liability which may include re-financing, part repayment and/or
extension of the ZDPs and an equity raise. This will require consultation with
the relevant stakeholders, including ordinary shareholders and ZDP
shareholders and regulatory approvals and consents. Accordingly, there can be
no certainty that the proposals will proceed.
These factors and assumptions constitute a material uncertainty that may cast
significant doubt over the Company's ability to continue as a going concern,
such that it may be unable to realise its assets and discharge its liabilities
in the normal course of business. The Directors expect that if they are able
to action the mitigations in accordance with the plan outlined above, the
material uncertainty will be extinguished. The Directors are therefore of the
opinion that the Company will have adequate financial resources to continue in
operation and meet its liabilities as they fall due for the foreseeable future
and continue to adopt the going concern basis in preparing the financial
statements.
Outlook
The Group has been through a substantial period of change with a new chief
executive and other new members of the senior executive team now in place.
This new senior executive team have a clearly defined strategy to return the
business to profitability. The road map to achieving this goal has been
clearly communicated to the whole team and all members of the Sancus team are
clear on the vision for the business together with understanding the role that
they have to play in delivering this target. While a great deal of hard work
lies ahead, I am certain the team are up to the challenge and are excited
about the future.
I want to thank all shareholders for their support during this period of
change and over the preceding year. We are enthusiastic about the
opportunities that lie ahead of us and look forward to delivering
profitability.
Rory Mepham
Chief Executive Officer
PRINCIPAL RISKS, UNCERTAINTIES AND RELATED INTERNAL CONTROLS
The Group aims to carefully manage the risks which are inherent across its
business activities in order to deliver an appropriate risk adjusted
commercial return. The principal risks which the Group has consciously
accepted in the pursuit of value creation are liquidity risk, regulatory and
compliance risk, market risk, credit risk, strategic risk, and investment
risk. With regard to the FinTech activities, exposure to investment risk is a
factor of the strategic, liquidity, credit and operational risks assumed by
the platforms in which the Group is invested.
This section on the Group's Principal Risks should be read together with the
sections on the Group's Governance Framework, the operation of the Audit and
Risk Committee, as well as Note 22 which describes the sensitivity of the
Group's financial results to its Financial Risk exposures. These sections
explain how these risks are being managed, monitored and governed.
The table below describes the Group's assessment of the principal risks being
those which have the potential to have a significant impact on the Group's
business model, future performance, solvency or liquidity.
Principal Risks Internal controls mitigating Risks Current Rating of Risks
Group
1. Capital and liquidity Risk Medium
Sancus's own funding is sourced primarily from the ZDP shares and the Sancus has a Treasury Committee which meets once a month to manage its capital Completion of the fundraising and liability management exercise in December
Corporate Bond (as detailed in Note 17). and liquidity position, and forecasts over several years to predict longer 2021 has significantly improved the Group's capital and liquidity position.
term funding requirements.
Expansion of lending and investment activities will be constrained to the
Management at Group and subsidiary level are focussed on raising additional on
extent of retained profits unless further sources of funding are secured. Management of each of the operating companies balance their lending and and off balance sheet funding in order to grow lending activities and support
funding and proposals to advance lending are typically contingent on funding commitments.
sufficient funding having been secured in advance.
The business seeks to maintain a material liquidity buffer at all times.
2. Regulatory and Compliance Risk Low
As a Financial Services business, compliance with regulation is considered All entities have developed and implemented appropriate policies and The compliance framework as described is considered to be operating
paramount within the Group, particularly with regard to Anti Money Laundering procedures relating to regulatory compliance and Anti Money Laundering. effectively.
(AML) regulations which are critically important.
The Group Compliance Committee monitors these risks, and forthcoming The Group is mindful of the conflicts in Russia and Ukraine and have carried
The Company has chosen to comply with the provisions of the QCA Corporate regulations, with appropriate reporting from the various Heads of Compliance out a check of our clients against various sanction lists in relation to
Governance Code. and Money Laundering Reporting Officers. Further reviews of AML compliance Russia and have not identified any individual or entity of any concern.
are carried out by independent third parties where appropriate. Additionally, we subscribe to WorldCheck for standard AML checking purposes
with all clients set up for ongoing monitoring, which provides any real-time
negative information, that include updated sanctions.
The Company has an appointed NOMAD, Liberum, with whom it liaises regularly,
to ensure compliance with the AIM rules, including the Market Abuse
Regulations.
Boards receive quarterly reports from Compliance Officers and where
appropriate, Money Laundering Reporting Officers on compliance monitoring
plans and any breaches identified.
3. Market risk Low
The primary market risks are considered to be interest rate and foreign Exposures to these risks are monitored regularly by the Sancus Treasury More information on the sensitivity to these risks is contained in Note 22.
exchange risk. Given the nature of the business operations, with relatively Committee and reported to the Board on a quarterly basis.
short term lending and currencies on lending opportunities being matched (or
hedged) the exposure is considered to have limited impact on its position as a
Going Concern.
Covid-19 could cause interest rate and foreign exchange fluctuations although
These risks are identified and assessed at the time of entering into new the impact of this we believe is likely to be minimal as loans have fixed
transactions. rates and are short term. Co-Funders might look elsewhere to investment;
however, we believe this to be a minimal risk as our lending model enables
Foreign exchange risk primarily arises from the USD and Euro investments in investors to receive attractive risk adjusted returns on asset backed lending.
the FinTech portfolio and Euro loans held in the Irish lending book.
4. Credit Risk Medium
The Group has direct credit exposures through its on balance sheet lending and Each operational entity has its own credit policies and procedures which are The IFRS 9 provision increased substantially during the year. However, the
credit support. Indirect credit risk (potential losses to Co-Funders) could the subject of at least annual review by operating entity Boards. credit performance across the Group remains resilient with actual losses
impact further business development.
incurred being less than 1% of loans advanced.
The respective Credit Committees take all credit decisions, monitor credit
exposures on an ongoing basis and manage recoveries situations. Following See Note 22 (5) for further details.
Covid-19 tighter lending criteria has been implemented.
Covid-19 created downside risk through potential delays in loan repayments and
reduced recoveries. We believe the risk of this going forward has reduced.
Sancus
5. Operational Risk - Execution of the Sancus strategy Medium
Approximately 80% of Sancus's capital has been deployed into the Sancus Group. The Board and Executive Committee of Sancus Group recognise the challenge of By its nature, this risk remains an on-going area of focus for the Board,
There is a risk that the planned growth of these businesses will not be building the business to meet the financial targets and actively manage all particularly with respect to business development in the UK and Ireland.
realised primarily as a result of sub optimal levels of loan origination and aspects of the business on an ongoing basis. Plans and budgets are in place
funding. and performance against these is monitored regularly by the management team
and the Executive Committee.
The emergence of Covid-19 created downside risk on new loan origination levels
although we believe this risk has now reduced.
There continues to be strong demand from both Borrowers and Co-Funders for the
lending products offered across the business, and the risk adjusted returns
available to Co-Funders. IT capabilities for Sancus were further enhanced during 2021, providing
Co-Funders with online interactive services and creating operational
efficiencies.
FinTech Ventures
6. Investment risk - Platform Valuations Low
Across the majority of the FinTech portfolio, the growth rates historically The Group has board seats or board observer rights on most investee company As a result of the platforms taking longer to reach profitability, and given
have been slower than originally anticipated and the business models have boards and thus is able to participate in the strategic discussions and that several are seeking additional capital, the Board has valued our holding
proved more capital intensive. monitor the progress on each platform. of the FinTech portfolio at £0.5m at the end of 2021.
Many of the FinTech platforms require additional capital to fund their ongoing The Group regularly monitors the progress of each business, with regular The valuations are also subject to a number of material estimation
growth to enable them to reach profitability. There remains a risk that some review of financial and KPI reporting. uncertainties, refer to Note 22 (4).
platforms may not be successful in the longer term, either as a result of lack
of loan funding, lack of working capital funding or difficulties in .
establishing a competitive position in their chosen markets
Period end valuations are conducted for all investments in platforms. These
are based on a variety of factors including the pricing for any recent
relevant capital transactions by the respective platform or using an
appropriate valuation methodology such as a discounted cash flow model. The
forecasts provided by management of the platforms are often challenged, and
where considered appropriate, adjustments are made and sensitivity analysis is
included as part of the valuation work.
SOCIAL RESPONSIBLITY
Our ESG journey at Sancus
At Sancus, we are committed to taking environmental, social and governance
("ESG") factors seriously. We recognise our responsibility to incorporate
sustainability throughout the operations of our business, be custodians of
the environment and practice good stewardship of our stakeholders'
interests. We are now taking steps to improve our approach to managing these
factors.
Q1 2022 has been focused on starting to define our ESG strategy. Having now
established an internal ESG focus group we will also draw on external industry
experts as required.
It is essential that we understand what ESG factors are most important to our
stakeholders, such that we can focus our strategy around improving our
approach to these material issues. We are well on our way to completing a
materiality assessment and intend to engage with stakeholders in the coming
period.
Our approach to ESG will be to breakdown the topics into People, Planet and
Prosperity. Starting by ascertaining which factors are material to our
business, establish our baseline, set objectives & goals, assess the gap
between goals and baseline, establish a roadmap, set KPIs and report on
progress.
We are committed to providing an ESG report, focusing on our progress in the
2022 Annual Report.
CORPORATE GOVERNANCE
Board of Directors and Executive Management Team
Introduction
The Board recognises the importance of a strong corporate governance culture.
The composition of the Board is the subject of ongoing review. Somerston Group
had the right to nominate a candidate for appointment to the Board and took up
this right in 2019 with the appointment of Nick Wakefield. On the 8 March 2022
it was announced that Nick Wakefield has been replaced by Tracy Clarke (bio
noted below).
Board of Directors
The Company operates a unitary Board Structure, comprised of both Executive
and Non-Executive Directors. Biographical details of the Directors can be
found below. The terms of Directors' appointments are available from the
Company Secretary.
On joining the Board, any new director will have received an induction through
face to face meetings with existing directors, senior management and the
Company Secretary.
The Chairman leads the Board and is responsible for its overall effectiveness
in directing the Company, its corporate governance responsibilities, and
addressing any training or development needs of the directors.
Steve Smith - Independent Non-Executive Director
Mr Smith was formerly an Executive Director and the Chief Investment Officer
of The British Land Company plc, the FTSE 100 real estate investment trust,
with responsibility for the group's property and investment strategy, standing
down in 2013. Prior to this, Mr Smith was Global Head of Asset Management and
Transactions at AXA Real Estate Investment Managers, where he was responsible
for the asset management of a portfolio of assets valued at more than €40
billion on behalf of life funds, listed property vehicles, unit linked and
closed end funds. Prior to joining AXA in 1999, Mr Smith was Managing Director
at Sun Life Properties for over five years. Over the last decade, Mr Smith has
worked extensively in governance related roles for a number of real estate
focused organisations. Mr Smith is Chairman of the Board and is a member of
the Audit and Risk Committee and Remuneration and Nomination Committee. Mr.
Smith was appointed to the Board on 11 May 2021. He is resident in the UK.
John Whittle - Independent Non-Executive Director
Mr Whittle has a background in large third party Fund Administration. He has
worked extensively in high tech service industries and has in-depth experience
of strategic development and mergers/acquisitions. He has experience of listed
company boards as well as the private equity, property and fund of funds
sectors. He is currently a director of Starwood European Real Estate Finance
Limited and TRIG (both listed on the main market of the London Stock Exchange)
and Chenavari Toro Income Fund Limited (admitted to trading on the Specialist
Fund Segment of the London Stock Exchange). Mr Whittle, a Chartered
Accountant, has also served as Finance Director of Close Fund Services Limited
(responsible for internal finance and client financial reporting), Managing
Director of Hugh Symons Group PLC and Finance Director and Deputy MD of
Talkland International Limited (now Vodafone Retail).
Mr. Whittle was appointed to the Board, the Audit and Risk Committee and the
Remuneration and Nomination Committee on 23 September 2016, after having
served as an Alternate Director since December 2015. He is resident in
Guernsey. Mr Whittle is Chairman of the Audit and Risk Committee, and of the
Remuneration and Nomination Committee.
Tracy Clarke - Non-Executive Director
Ms Clarke is a representative of the Somerston group of companies
("Somerston"), the Company's largest shareholder which has the right to
nominate one individual for appointment to the Board. Ms Clarke joined
Somerston in 2016 and acts as the group's Chief Operating Officer. Ms Clarke
is also Managing Director of Carlton Management Services Limited, a licensed
Jersey trust company business. Prior to joining Somerston, Ms Clarke worked
for Deutsche Bank in Jersey and Zurich for over 10 years, specialising in
financial Intermediary and external asset manager business. Ms Clarke is a
Fellow of the Institute of Chartered Accountants in England and Wales and
holds the CISI Investment Advice Diploma. Ms Clarke was appointed to the Board
on 8 March 2022 and is a member of the Company's Audit and Risk Committee and
Remuneration and Nomination Committee.
Rory Mepham - Executive Director
Rory joined Sancus in January 2021, assuming the role of Interim CEO on 1 July
2021 and was then confirmed as CEO and board member on 23 November 2021.
Joining Sancus from The Somerston Group where he managed their European real
estate platform which includes business in the hotel, retail, land
development, student housing and PRS sectors. Rory has over 20 years
experience in the UK and European property market. He has spent his career
working with institutional capital and has an extensive track record in
M&A, corporate finance, capital raising, debt finance, investment
management and property development. Rory Holds an MBA from the Cranfield
School of Management, a BSc(Hons) in Land Management from the University of
Reading and qualified as a member of the Royal Institute of Chartered
Surveyors (MRICS).
Emma Stubbs - Executive Director
Emma joined the Group in November 2013 as Chief Financial Officer and was
appointed to the Board on 16 September 2014. Emma is also a Board member of
Sancus Group Holdings Limited and a number of the subsidiary entities. Emma
was appointed as a Non Executive Director on Funding Options Limited on 24
March 2020. Emma is also a Non-Executive Director of Amberton Limited. Emma is
a Fellow member of the Association of Chartered Certified Accountants and
qualified with Deloitte in 2004. She graduated from the University of the West
of England with a BA Hons degree in Accounting and Finance. Emma is resident
in Guernsey.
Executive Management Team
Rory Mepham - Chief Executive Officer
See above.
Emma Stubbs - Chief Financial Officer
See above.
Dan Walker - Chief Operating Officer (left Company on 31 January 2022)
James Waghorn - Chief Investment Officer (joined Executive Management Team on
8 March 2022)
James was appointed to the Executive Management Team on 8 March 2022. James
has over 14 years experience in the UK and European real estate market. James
has extensive experience across the corporate real estate, investment and
property development sectors. For the past 6 years James' has led Somerston's
land development business, a strategic land and
development focused business with capacity for in excess of 2,350 units within
its strategic portfolio. James holds a BSc in Investment and Finance in
Property from the University of Reading and is MRICS accredited. James joined
Sancus in January 2021.
GOVERNANCE FRAMEWORK
The Board is committed to maintaining high standards of corporate governance
throughout the Company's operations and to ensuring that all of its practices
are conducted transparently, ethically and efficiently. The Board believes
that scrutinising all aspects of the Company's business and reflecting,
analysing and improving its procedures will minimise the potential for
downside risk and will preserve shareholder value. In compliance with the AIM
Rules for Companies, published March 2018, the Company has chosen to comply
with the provisions of the QCA Corporate Governance Code (the "QCA Code"). The
Company is also mindful of the provisions of the Finance Sector Code of
Corporate Governance, as amended by the Guernsey Financial Services Commission
in November 2021.
The Board believes that applying the principles and reporting against the
provisions of the QCA Code accurately reflects the nature, scale and
complexity of the business and enables the Board to provide information to
shareholders on its activities in accordance with the principles set out in a
recognised governance framework. Furthermore, through applying the relevant
provisions the Company is better positioned to mitigate downside risk and in
doing so, preserve long-term shareholder value. The Company's corporate
governance framework has been based on these principles and is designed to
deliver the Group's strategy, and the application of such principles to the
operation of the Board ensures that its decision-making processes remain
focussed on the long-term sustainable success of the Company.
As at 31 December 2021, the Company complied substantially with the relevant
provisions of the QCA Code and it is the intention of the Board that the
Company will comply with these provisions throughout the year ending 31
December 2022, save with regard to the following:
· The appointment of a Senior Independent Director: Given the size
and composition of the Board, the Board does not consider it is necessary to
appoint a Senior Independent Director. The Board considers that all the
independent Directors have different qualities and areas of expertise on which
they may lead where issues arise and to whom concerns can be referred.
· Internal audit function: The Board has considered the need for an
internal audit function and is satisfied that the compliance policies,
procedures and reporting mechanisms in place throughout the group are
sufficient, and that implementing a separate internal audit function would be
unnecessary. This requirement is assessed annually by the Audit and Risk
Committee.
How we apply the QCA Code
The Company has established specific formally constituted committees and
implemented certain policies, to ensure that:
· It is led by an effective Board which is collectively responsible
for the long-term sustainable success of the Company and establishes a culture
whereby the tone is set from the top which is consistent with the objectives,
strategy and business model of the Group;
· the Board and its committees have the appropriate balance of
skills, experience, independence, and knowledge of the Company to enable them
to discharge their respective duties and responsibilities effectively;
· the Board establishes a formal and transparent arrangement for
considering how it applies the corporate reporting, risk management, and
internal control principles and for maintaining an appropriate relationship
with the Company's auditors; and
· there is a dialogue with shareholders based on the mutual
understanding and alignment of objectives, conducted primarily through the CEO
and the Corporate Broker.
Risk management remains a key area of focus during Board meetings.
Composition and Independence of the Board of Directors
The Board of Directors is responsible for ensuring the affairs of the Company
are properly managed through formulating, reviewing and approving the
Company's strategy, budgets, and corporate actions and that oversight,
scrutiny and challenge is applied to Executives responsible for the day-to-day
activities of the Group. The Company seeks to deliver long-term growth for
shareholders and maintain a flexible, efficient and effective management
framework within an entrepreneurial environment.
It is important that the Board itself contains the right mix of skills and
experience in order to deliver the strategy of the Company. As such, the Board
is comprised of:
· Two Independent Non-Executive Directors, one of which serves as
the Chairman, who is responsible for leadership of the Board and ensuring its
effectiveness on all aspects of its role;
· One Non-Executive Director who, whilst sharing the fiduciary and
statutory duties of the independent directors, is also an executive director
of the Somerston Group, a significant shareholder of the Company, and
therefore not considered independent under the QCA Code; and
· Two Executive Directors, who are also members of the Group's
Executive Committee and are therefore not considered independent under the QCA
Code.
The Board is comprised of individuals holding professional qualifications and
experience relevant to the activities of the Company. The time requirement
expected from each of the Directors is set out in writing in their respective
appointment letters.
Liberum Capital has been appointed as the Company's Corporate Broker and
Nominated Adviser under the AIM Rules and advises on compliance with the AIM
Rules, corporate communications and acts as financial adviser to corporate
actions. Additionally, the Company has appointed a professional Company
Secretary who assists the Board of Directors in preparing for and running
effective board meetings, including the timely dissemination of appropriate
information. The Company Secretary provides guidance to the extent required by
the Board on certain aspects of the legal and regulatory environment, within
which the Company operates.
The Board believes that long serving Directors should not be prevented from
forming part of the Board or from acting as Chairman and no limit has been
imposed on the overall length of service of the Directors. Each Director will
retire and seek reappointment at every third annual general meeting, with
those serving for nine years or more subject to reappointment annually. The
Board meets on at least a quarterly basis during the financial year.
The Board has appointed several committees to support it in different areas of
the business; each with formal terms of reference, with specific roles as set
out below.
The Board undertakes an annual evaluation of its own performance, the
performance of its formally constituted committees and that of individual
Directors. This includes a formal process of self-appraisal reviewing the
balance of skills, experience, independence and diversity present on the
Board, and individual director performance, contribution and commitment to the
Group to ensure that the Board and its committees continue to operate
effectively, or to identify areas where action is required. The remainder of
the Board is responsible for evaluating the performance of the Chairman. The
Chairman also has responsibility for assessing the individual Board members'
training requirements. No significant findings were identified in the 2021
evaluation which required further action.
The Directors remain mindful of the benefits which can flow from increasing
the level of diversity represented on the Board including, but not limited to,
cultural, gender, experience and background. Such factors will be taken into
consideration by the Nomination Committee during any selection process.
Executive Management Team
As at the year end, the Company's Executive Management Team comprised Rory
Mepham (Chief Executive Officer), Emma Stubbs (Chief Financial Officer) and
Dan Walker (Chief Operating Officer and UK Managing Director) (together the
"Executive Management Team" or "Management"). Management are responsible for
the day-to-day management of the Company's operations. The non-executive
independent Directors monitor and evaluate the performance of the Management
Team on an ongoing basis. Dan Walker left the Company on 31 January 2022 and
on 8 March 2022 James Waghorn was appointed to the Executive Management Team
as Chief Investment Officer.
BOARD COMMITTEE STRUCTURE
Audit and Risk Committee
The Audit and Risk Committee conducts formal meetings at least twice a year.
The Audit and Risk Committee's key duties include:
· monitoring the integrity of the financial statements of the
Group, including its annual and half-yearly reports and any other formal
announcement relating to its financial performance, reviewing, challenging
(where necessary) and reporting to the Board on significant financial
reporting issues and judgements which they contain having regard to matters
communicated to it by the auditor, and how they were addressed;
· reviewing the Group's internal financial controls and the Group's
internal control and risk management systems;
· making recommendations to the Board for it to put to the
shareholders for their approval in general meeting in relation to the
appointment, re-appointment or removal of the external auditor and to
recommend the remuneration and terms of engagement of the external auditor;
· monitoring the external auditor's independence and objectivity
and the effectiveness of the audit process, taking into account relevant
professional and regulatory requirements;
· in conjunction with executive management, advise the Board on the
overall risk appetite, tolerance and strategy of the Group, current risk
exposures and future risk strategy; and
· keep under review the Group's overall risk assessment processes
that inform the Board's decision making, ensuring both qualitative and
quantitative metrics are used.
The Audit and Risk Committee has three members, two of whom are independent,
non-executive directors and one of whom is a non-executive director, and at
least one member has recent and relevant financial experience. The current
members of the Committee are John Whittle as the Chairman, Steve Smith and
Tracy Clarke.
The Audit and Risk Committee is supported by a risk management and oversight
process employed by the Executive Management Team and receives reports twice a
year on key risks and developments during the period, or as otherwise required
in the case of a material development.
The terms of reference of the Audit and Risk Committee are available from the
Company Secretary.
Remuneration and Nomination Committee
The purpose of the Remuneration and Nomination Committee is to determine and
agree with the Board the framework or broad policy for the remuneration of the
Company's Directors, senior executives, and any bonus-related arrangements in
place by the Company as well as to consider the structure, size and
composition of the Board. The key duties of the Remuneration and Nomination
Committee include:
· determining and agreeing with the Board the framework or broad
policy for the remuneration of the Company's Chairman, executive and
non-executive directors and such other members of the management as it is
designated to consider;
· reviewing the ongoing appropriateness and relevance of the
remuneration policy;
· reviewing the structure, size and composition of the Board;
· considering the succession planning for Directors and the
Executive Management Team;
· reviewing the leadership needs of the organisation; and
· identifying candidates for appointment to the Board.
The Remuneration and Nomination Committee has three members, all of whom are
non-executive directors and two are independent. The current members of the
committee are John Whittle as the Chairman, Steve Smith and Tracy Clarke.
The terms of reference of the Remuneration and Nomination Committee are
available from the Company Secretary.
Meetings and attendance
The Directors meet on a quarterly basis ('Quarterly' meetings per the table
below) and at other unscheduled times ('Other' meetings per the table below)
when necessary to assess Group operations and the setting and monitoring of
strategy and performance.
The table below, details the attendance of the Board at eligible Board and
Committee meetings during the year, noting that certain Directors retired or
were appointed during the course of the year as set out below the table:
Board
Remuneration & Nomination Committee Audit and Risk Committee
Quarterly Other
Total number of meetings held during the year 4 19 6 4
Stephen Smith (Chairman)(1) 3 of 3 7 of 7 3 of 3 3 of 3
Patrick Firth (2) 3 of 3 16 of 16 6 of 6 2 of 2
John Whittle 4 of 4 18 of 19 6 of 6 4 of 4
Nicholas Wakefield 4 of 4 18 of 19 6 of 6 4 of 4
Andrew Whelan (3) 2 of 2 12 of 16 n/a n/a
Emma Stubbs 4 of 4 19 of 19 n/a n/a
Rory Mepham (4) 1 of 1 1 of 1 n/a n/a
(1) Stephen Smith was appointed to the Board on 11 May 2021 and appointed
as Chairman of the Board on 1 September 2022.
(2) Patrick Firth resigned as Chairman of the Board on 31 August 2021.
(3) Andrew Whelan resigned from the Board on 30 June 2021.
(4) Rory Mepham was appointed to the Board on 23 November 2021.
Relations with Stakeholders
The Board's advisers and the Executive Management Team maintain regular
dialogue with key shareholders, the feedback from which is reported to the
Board and the Chairman. Shareholders who wish to communicate with the Board
should contact the Company Secretary in the first instance.
The Board also regularly monitors the shareholder profile of the Company. All
shareholders have the opportunity to and are encouraged to attend the
Company's annual general meeting at which members of the Board are available
in person to meet shareholders and answer questions.
Whilst the primary duty of the Directors is owed to the Company as a whole,
the Board takes into consideration the interests of all key stakeholder groups
as part of its decision-making process and particular consideration is given
to the impact of any decision on holders of its securities, the Co-Funders to
the underlying loan businesses, and providers of the Group's long-term debt
capital. The Board also recognises the crucial roles played by those involved
throughout the Group's operations who contribute to delivering strategy,
including staff and key service providers, to ensure a continued alignment of
interests between their activities and those of the Company.
Terms of Reference of Committees
Committee Terms of Reference are available from the Company Secretary.
AUDIT AND RISK COMMITTEE REPORT
The Audit and Risk Committee
The Audit and Risk Committee has a formal terms of reference mandate
documenting the duties and responsibilities which it has been delegated by the
Board. These are available from the Company Secretary.
The Audit and Risk Committee has been in operation throughout the year under
review.
Chairman and Membership
The Audit and Risk Committee comprises of John Whittle as Chairman, Steve
Smith and Tracy Clarke. Only Non-Executive Directors serve on the Audit and
Risk Committee and members of the Audit and Risk Committee have no links with
the Company's external auditor and are independent of the Executive Management
Team. The Audit and Risk Committee meets not less than three times a year in
Guernsey and meets the external auditor at least twice a year in Guernsey. The
identity of the Chairman of the Audit and Risk Committee is reviewed on an
annual basis and the membership of the Audit and Risk Committee, and its terms
of reference are kept under review. Regular attendees at the Audit and Risk
Committee include the CEO, CFO and CIO.
Duties
The Audit and Risk Committee is responsible for monitoring the financial
reporting process, including the appropriateness of the Company's accounting
policies and the effectiveness of the Company's risk management and internal
control systems.
The Committee continues to spend a considerable amount of time reviewing
significant risks and areas of judgement. In particular, the Committee
conducts detailed reviews and analysis of the valuations prepared by the
Executive Management Team of the FinTech Ventures investments, the Subsidiary
Goodwill value in use models to assess if any impairment might be required and
the Expected Credit Loss model. These valuations are key elements in the
Group's financial statements and the Audit and Risk Committee questions these
carefully.
External Audit
The Audit and Risk Committee is responsible for overseeing the relationship
with the external auditor, including the ongoing assessment of the auditor's
independence. The Committee makes recommendations to the Board with regard to
the appointment of the external auditor and approves their terms of engagement
and fees. The Committee discusses and agrees the nature and scope of the
audit as set out in the audit engagement letter, reviews the results of the
audit as described in the auditors' management letter and the ongoing
independence and objectivity of the external auditor. Following a tender
process, Moore Stephens were appointed as the Company's auditor in 2021,
taking over from Deloitte who held this position since 2016.
Processes are in place to safeguard the independence of the external auditor,
including controls around the use of the external auditor for non-audit
services. The external auditor also provides the Audit and Risk Committee
with further assurance as to the procedures that it maintains to preserve
objectivity and confirmation that it remains independent. All non-audit
services are pre-approved by the Audit and Risk Committee.
Effectiveness of External Auditor
The Committee assessed the effectiveness of the external auditor and the
external audit process for 2021 through a number of steps, including:
· agreement of their engagement letter and fees;
· review of the external audit plan;
· meetings with the external auditors;
· considering the extent of any non-audit services provided by the
external auditors;
· considering the external auditors' fulfilment of the agreed audit
plan and variations from it;
· considering the report from the auditor highlighting any major
issues that arose during the course of the audit; and
· conducting interviews to obtain feedback from the Executive
Management Team to evaluate the performance of the audit team.
For the audit for the year ended 31 December 2021, the Audit and Risk
Committee was satisfied that the audit was effective and that there were no
factors which had any bearing on the independence or effectiveness of the
external auditor.
Financial Reporting
The Audit and Risk Committee reviews, considers and, if thought appropriate,
recommends to the Board the approval of the contents of the half yearly report
and annual report and audited financial statements together with the external
auditor's report thereon. It focuses particularly on compliance with legal
requirements, accounting standards and the relevant Listing Rules. The
ultimate responsibility for reviewing and approving the half year report and
annual report and audited financial statements remains with the Board.
The Audit and Risk Committee provides a forum through which the external
auditor reports to the Board and the external auditor is invited to attend
Audit and Risk Committee meetings at which annual and half yearly financial
statements are considered. After discussions with the Executive Management
Team and external auditor, the Audit and Risk Committee determined that the
key risks of misstatement of the Group's financial statements relate to the
valuation of financial assets at fair value through profit or loss, the
valuation and recoverability of goodwill, loan impairments and revenue.
Freely tradeable market prices are not available for the majority of the
Group's financial assets, including the carrying value of goodwill arising on
consolidation, which are therefore based on a discounted cash flow basis.
Goodwill impairment reviews are carried out annually or sooner where an
indicative event of impairment has been identified. The next annual review
will coincide with the preparation of the 2022 interim accounts, there having
been no indicative event of impairment since the last annual review which
coincided with the preparation of the 2021 interim accounts. Full details can
be found in Note 2 (h), Note 3 and Note 12 to the financial statements.
For the valuations of the FinTech Ventures portfolio, the Executive Management
Team provides a detailed valuation report on a quarterly basis. The Executive
Management Team has confirmed to the Audit and Risk Committee that the
valuation methodology has been applied consistently during the year. The
accounting policies are described in detail in Note 2 (f) to the financial
statements.
The Audit and Risk Committee has assessed the processes around the expected
credit loss provisions recorded in respect of the Group's loan assets and
reviewed the IFRS 9 model adopted at year-end which had also gone through the
credit committee for approval.
The accounting policies for revenue recognition are described in detail in
Note 2 (o) to the financial statements. The Audit and Risk Committee has
reviewed the revenue recognition policies of the Group and has determined that
they are in accordance with the accounting standards and have been applied
consistently.
After due consideration, the Audit and Risk Committee recommends to the Board
that the Annual Report and Financial Statements, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Group and Company's performance, business model and
strategy.
Non-Audit and audit related fees paid to the External Auditors
During 2021 no non-audit fees were paid to Moore Stephens, the external
auditors. £15,000 was paid to Moore Stephens for audit related services,
being the half year review. There is no perceived threat to auditor
independence given the nature of the services provided and the safeguards in
place.
Risk Management and Internal Control Systems
During 2021, management continued to enhance its reporting on risk management
to the Board and the Audit and Risk Committee, which cover the operation of
the Company and its wholly owned subsidiaries. The Audit and Risk Committee
has received and considered these reports on three occasions, which has been
the basis for its conclusion below.
In addition to the review of risk management reports, and in accordance with
the guidance published in the Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting by the Financial Reporting
Council (the "FRC"), the Audit and Risk Committee has reviewed the Company's
internal control procedures and concluded that these are adequate to manage
the current risk profile.
A robust, ongoing process of Risk Management and Internal Control
The Board and Executive Management Team are responsible for safeguarding the
assets of the Group through establishing effective systems of risk management
and internal control. This responsibility is shared by the Directors of
subsidiary companies, who are similarly responsible for safeguarding the
assets of these companies.
The Board is also responsible for deciding on whether the nature and extent of
risks taken within the Group are within its risk appetite. Such risks have
been formally defined, setting the basis for the design and implementation of
the Group's internal control framework.
On behalf of the Board, the Audit and Risk Committee oversees the Group's risk
management and internal control systems. These systems are designed to ensure
proper accounting records are maintained and that internal and published
financial information is reliable, and that the assets of the Group are
safeguarded. Such a system of internal controls can only provide reasonable
and not absolute assurance against misstatement or loss.
Critical components of the Group's internal control framework include the
documented policies which describe how each risk is to be managed and governed
and the governance committees established in terms of such policies, which
have mandates describing how they should operate, what reports they should
receive and how they should govern the management of principal risks. Such
policies have been implemented at Company as well as subsidiary levels.
On a semi-annual basis, the Executive Management Team review the key risks
across the Group to ensure they are being managed within the Company's risk
appetite. Action plans are drawn up if any risks are considered to be
outside of the Company's risk appetite and these are monitored on a regular
basis until they return to levels back within the risk appetite.
On a semi-annual basis, the Board and/or Audit and Risk Committee receive
reports on risk management, the key risks and the exposures outstanding. Also
included in these reports are the results of Executive Management Team's risk
and issue identification discussions noted above. These meetings also provide
the Directors with the opportunity to consider any other issues which
management may not have identified and give direction on any additional risk
management actions which might be required.
Described in the table below are the Group's risk definitions and the primary
governance bodies, other than the Board and Audit and Risk Committee which
either manage or oversee the management of such risks, at Company and/or
subsidiary level.
Insurance
The Sancus and subsidiaries insurance programme is subject to annual review
each year, with cover generally renewed in April of the following year. A
significant amount of Insurance cover is held for Public Indemnity, Directors'
and Officers' liability, Cyber, and Crime. Appropriate office and travel
insurance is also in place.
During 2021, the Committee did not receive any reports relating to
whistleblowing across the Group.
On behalf of the Audit and Risk Committee
John Whittle
Chairman
Audit and Risk Committee
REMUNERATION REPORT
Introduction
An ordinary resolution for the approval of the annual remuneration report will
be put to the shareholders at the annual general meeting to be held in 2022.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee comprises of John Whittle as
Chairman, Steve Smith and Tracy Clarke. The key duties include, but are not
limited to, agreeing a framework for Director remuneration, ensuring
management staff are appropriately incentivised to enhance performance, and
reviewing the effectiveness of the remuneration policy on an on-going basis.
No Director is involved in determining their own remuneration.
Remuneration Policy
In February 2020 the Remuneration Policy was last approved and adopted. The
Company is committed to the objective of maximising shareholder return in the
longer term. The remuneration policy aims to be competitive, aligned with
shareholder interests and relatively simple and transparent. The Board takes
into consideration the views of significant shareholders when determining the
remuneration of directors.
The objective is to put in place a remuneration package that, as a whole:
· aligns the interests of employees with that of shareholders and
the success of the Company;
· is appropriately benchmarked, such that it aids retention and
recruitment; and
· meets applicable legal or regulatory requirements, is tax
efficient and simple to implement and administer.
The Board is reviewing the Remuneration Policy against these objectives.
The Policy is divided into two parts; the first part in relation to the
remuneration of the Non-Executive directors of the Company, and the second
part in relation to the remuneration of the Executive Directors of the
Company.
Part 1 - Remuneration Policy of Non-Executive Directors
Each Non-Executive Director receives a fixed fee per annum based on their
role and responsibility within the Company and the time commitment required.
It is not considered appropriate that Non-Executive Directors' remuneration
should be performance related and none of the Non-Executive Directors are
eligible for pension benefits, share options, long-term incentive schemes or
other benefits in respect of their services as Non-Executive directors of the
Company. Shares held by the Non-Executive Directors are disclosed in the
Annual Report.
Pursuant to Article 30.3 of the Company's Articles of Incorporation (the
"Articles") the Board may award additional remuneration to any Director
engaged in exceptional work at the request of the Board on a time spent basis
to compensate for the additional time spent over their expected time
commitment.
The total remuneration of the Non‑Executive Directors has not exceeded the
£300,000 per annum limit (excluding amounts payable in respect of any
out-of-pocket expenses pursuant to Article 30.2 or any additional remuneration
awarded pursuant to Article 30.3) pursuant to an ordinary resolution passed at
the Annual General Meeting of the Company held on 19 May 2016.
The Articles provide that Non-Executive Directors retire and offer themselves
for re‑election at the first annual general meeting after their appointment
and at least every three years thereafter. A Non-Executive Director's
appointment may at any time be terminated by and at the discretion of either
party upon three months' written notice. A Non-Executive Director's
appointment will terminate immediately without notice (or payment in lieu of
notice) if such director is not re-appointed at a General Meeting of the
Company (if required under the Articles), if such director is removed as a
director at a General Meeting of the Company, or if such director resigns or
ceases to be a director in accordance with the provisions of the Articles.
The terms and conditions of appointment of each Non-Executive Director are
available for inspection at the Company's registered office.
The last independent remuneration review was carried out in July 2014. The
Directors intend to put in place a Long-Term Incentive Plan for Senior
Management and an external advisor will be engaged to assist with this during
the course of 2022 which will also include a remuneration review.
For comparative purposes the table below sets out the Non-Executive Directors'
remuneration approved and actually paid for the year to 31 December 2020 as
well as proposed for the year ending 31 December 2021 (to be approved at the
2022 AGM). There has been no change to the base fee, other than the fees noted
below were reduced by 10% in the third quarter of 2020 as part of the Covid-19
cost saving initiative.
Director Role Base for 2021 Additional fees for 2021 Total fees for 2021 Base for 2020 Additional fees for 2020 Total fees for 2020
Patrick Firth* Non-Executive Director and Chairman of the Board £23,333 £10,000 for Chairman of the Board £33,333 £34,125 £14,625 for Chairman of the Board £48,750
Steve Smith** Non-Executive Director and Chairman of the Board £22,446 £5,000 for Chairman of the Board £27,446 - - -
John Whittle Non-Executive Director, Chairman of the Audit and Risk Committee and Chairman £35,000 £5,000 for Chairman of the ARC and £2,500 for Chairman of Rem & Nom Co £42,500 £34,125 £4,875 for Chairman of the ARC and £2,438 for Chairman of Rem Co £41,438
of the Remuneration Committee
Nicholas Wakefield*** Non-Executive Director £35,000 Nil £35,000 £34,125 Nil £34,125
Total £115,779 £22,500 £138,279 £102,375 £21,938 £124,313
* Pro rata for 2021 as Mr Firth resigned as a Non-Executive Director and
Chairman of the Board on 31 August 2021.
** Pro rata for 2021 as Mr Smith was appointed to the Board on 11 May 2021 and
succeeded Mr Firth as Board Chairman following his resignation.
*** Pro rata for 2022 as Mr Wakefield was succeeded by Ms Clark on 8 March
2022.
Part 2 - Remuneration Policy of Executive Directors
Base Remuneration
For the year ended 31 December 2021, the Executive Directors' base salary from
the Company, excluding all reasonable expenses incurred in the course of their
duties which were reimbursed by the Company, were as detailed in the table
below:
31 December 2021 31 December 2020
Andrew Whelan* £260,981 £260,981
Rory Mepham** £220,000 -
Emma Stubbs £170,000 £163,113
Dan Walker £200,000 £175,960
*Mr Whelan resigned on 30 June 2021, and his contract ended on 28 February
2022.
** Mr Mepham was appointed Interim CEO on 30 June 2021 and permanent CEO on 23
November 2022.
In addition to fixed salary payments, in 2021 the Executive Management Team
members received pension contributions of £3,278 (Andrew Whelan), £7,045,
Rory Mepham, £6,299, (Emma Stubbs) and £7,581 (Dan Walker). (2020: £19,478
(Andrew Whelan), £12,174 (Emma Stubbs), £6,932 (Aaron Le Cornu) and £9,240
(Dan Walker)).
Long Term Incentives
The Board intends to introduce a Long Term Incentive Plan for Senior
Management during 2022 and an external advisor will be engaged to assist with
this.
Discretionary Executive Bonus
In the year to 31 December 2021 discretionary bonuses in cash of £125,000,
£50,000, £75,000 and £75,000 were paid to Andrew Whelan, Rory Mepham, Emma
Stubbs and Dan Walker respectively (Year to 31 December 2020: discretionary
bonuses of £125,000, £25,000 and £60,000 were paid to Andrew Whelan, Emma
Stubbs and Dan Walker respectively).
On behalf of the Remuneration Committee
John Whittle
Remuneration Committee Chairman
DIRECTORS' REPORT
The Directors submit their Report together with the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Financial Position, the
Consolidated Statement of Changes in Shareholders' Equity, the Consolidated
Statement of Cash Flows and the related Notes for the year ended 31 December
2021, which have been prepared in accordance with International Financial
Reporting Standards as adopted by the UK, in accordance with any relevant
enactment for the time being in force, and are in agreement with the
accounting records, which comply with Section 238 of The Companies (Guernsey)
Law, 2008.
Principal Activities
The Company was incorporated and domiciled in Guernsey, Channel Islands, as a
company limited by shares and with limited liability on 9 June 2005 in
accordance with The Companies (Guernsey) Law, 1994 (since superseded by The
Companies (Guernsey) Law, 2008). Until 25 March 2015, the Company was
Authorised as a Closed-ended Investment Scheme and was subject to the
Authorised Closed-ended Investment Scheme Rules 2008 issued by the Guernsey
Financial Services Commission ("GFSC"). On 25 March 2015, the Company was
registered with the GFSC as a Non-Regulated Financial Services Business, at
which point the Company's authorised fund status was revoked. The Company's
Ordinary Shares were admitted to the AIM market of the London Stock Exchange
on 5 August 2005. The ZDPs were listed and traded on the main market of the
London Stock Exchange with effect from 5 October 2015 and following
shareholder approval now have a maturity date of 5 December 2022. The
Company's 2021 bonds were repaid on 21 December 2021 and a total of £12.575m
principal of new bonds (the "New Bonds") were issued on 22 December 2021. The
New Bonds are not listed and have an interest rate of 7%.
The Company does not have a fixed life and the Articles do not contain any
trigger events for a voluntary liquidation of the Company.
Following the approval by Shareholders at the Company AGM on 19 May 2016, the
Company changed its status from being an investing company for the purpose of
the AIM rules to a trading Company.
The Executive Management Team is responsible for the day-to-day management of
the Company.
The Group
As at 31 December 2021, the Group comprises the Company and the entities
disclosed in Note 20 to the financial statements.
Directors and Executive Management Team of the Company
A list of the Directors and the Executive Management Team who served the
Company during the year and as at 30 March 2022 is set out in this
announcement.
Results and Dividends
No Dividends were paid during the year (31 December 2020: Nil).
Substantial Shareholdings
As at 31 December 2021, the Company was aware of the following substantial
shareholders who held 3% or more of issued share capital of the Company:
Number of Percentage of total
Ordinary Shares ordinary shares
held issued held
Somerston Group 200,349,684 40.90%
Philip J Milton & Company plc 86,793,928 17.72%
Investec Wealth and Investment 16,590,873 3.39%
DBH Global Holdings 15,603,285 3.19%
Chelverton Asset Management 14,700,000 3.00%
Directors' Interests
As at 31 December 2021, the Directors had the following beneficial interests
in the Ordinary Shares of the Company:
31 December 2021 31 December 2020
No. of Ordinary Shares Held No. of Ordinary Shares Held No. of Ordinary Shares Held % of Ordinary Shares
John Whittle 138,052 138,052 138,052 0.03
Nick Wakefield - - - -
Emma Stubbs 1,380,940 1,380,940 1,380,940 0.28
Steve Smith (Chairman) - - -
Rory Mepham - - - -
Statement of Directors' Responsibilities
The Directors are responsible for preparing the financial statements in
accordance with International Financial Reporting Standards (IFRS) as adopted
by the United Kingdom (UK), and The Companies (Guernsey) Law, 2008 for each
financial period to give a true and fair view of the state of affairs of the
Group as at the end of the financial year and of the profit or loss for that
period. International Accounting Standard 1 requires that financial
statements present fairly for each financial period the Group's financial
position, financial performance and cash flows. This requires faithful
representation of the effects of transactions, other events and conditions in
accordance with the definitions and recognition criteria for assets,
liabilities, income and expenses set out in the International Accounting
Standards Board's "Framework for the preparation and presentation of financial
statements". In virtually all circumstances a fair presentation will be
achieved by compliance with all IFRSs as adopted by the UK.
In preparing the financial statements, the Directors are required to:
· Ensure that the financial statements comply with the Memorandum
and Articles of Incorporation and IFRSs, as adopted by the United Kingdom;
· Select suitable accounting policies and apply them
consistently;
· Present information including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable information;
· Make judgements and estimates that are reasonable and prudent;
and
· Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company and the Group will
continue in business.
The Directors confirm that they have complied with the above requirements in
preparing the financial statements.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the financial statements
have been properly prepared in accordance with The Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the Company and
the Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors also confirm that the annual report and financial statements,
taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and Company's
performance, business model and strategy.
Internal Controls Review
Taking into account the ongoing work of the Audit and Risk Committee in
monitoring the risk management and internal control systems on behalf of the
Board the Directors have conducted a robust assessment of the principal risks
and uncertainties faced by the Group and is satisfied that each of these has
been properly identified and is being effectively managed through the
operation of appropriate internal controls and risk management systems, within
the constraints of the resources of the Group.
Statement as to Disclosure of Information to Auditor
The Directors who held office at the date of approval of this Directors'
Report confirm that:
· There is no relevant audit information of which the Company's auditors is
unaware; and
· The Directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the
auditors are aware of that information.
Auditor
Moore Stephens have indicated their willingness to continue in office and a
resolution to re-appoint Moore Stephens will be tabled at the forthcoming AGM.
Going Concern
The Directors have considered the going concern basis in the preparation of
the financial statements as supported by the Director's assessment of the
Company's and Group's ability to pay its debts as they fall due and have
assessed the current position and the principal risks facing the business with
a view to assessing the prospects of the Company.
Liabilities which fall due in the next 12 months include the final capital
entitlement of the Company's ZDP shares which are repayable on 5 December
2022 at £11.3m.
As part of the Group's growth plan the Company is considering its options
regarding this liability which may include re-financing, part repayment and/or
extension of the ZDPs and an equity raise. This will require consultation with
the relevant stakeholders, including ordinary shareholders and ZDP
shareholders and regulatory approvals and consents. Accordingly, there can be
no certainty that the proposals will proceed.
These factors and assumptions constitute a material uncertainty that may cast
significant doubt over the Company's ability to continue as a going concern,
such that it may be unable to realise its assets and discharge its liabilities
in the normal course of business. The Directors expect that if they are able
to action the mitigations in accordance with the plan outlined above, the
material uncertainty will be extinguished. The Directors are therefore of the
opinion that the Company will have adequate financial resources to continue in
operation and meet its liabilities as they fall due for the foreseeable future
and continue to adopt the going concern basis in preparing the financial
statements.
Board Succession
The Board notes the resignation of Patrick Firth in August 2021 and the
appointment of Steve Smith who succeeded Mr Firth as Chairman of the Board on
his resignation. The Directors remain focussed on ensuring the Board is
comprised of individuals with the requisite skills, knowledge, experience and
diversity to operate effectively and to meet the future leadership needs of
the Company. The Board welcomes the appointment of Ms Tracy Clarke who
succeeded Mr Nick Wakefield in March 2022 as the Somerston appointed Board
representative.
Independent auditor's report to the members of Sancus Lending Group Limited
Opinion
We have audited the financial statements of Sancus Lending Group Limited (the
'company' or the 'parent company and its subsidiaries together as the 'group')
for the year ended 31 December 2021 which comprise of the Consolidated
Statement of Comprehensive Income, Consolidated Statement of Financial
Position, Consolidated Statement of Cash Flows, the Consolidated Statements of
Changes in Equity and notes to the financial statements, including a summary
of significant accounting policies. The financial reporting framework that has
been applied in their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the United Kingdom and, as
regards the Group's consolidated financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
In our opinion:
· the financial statements give a true and fair view of the state
of the group's affairs as at 31 December 2021 and of the group's loss for the
year then ended;
· the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the United Kingdom; and
· the Group's financial statements have been prepared in accordance
with the requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's Responsibilities for the
audit of the financial statements section of our report. We are independent of
the Group, in accordance with the ethical requirements that are relevant to
our audit of the financial statements in Guernsey, including the FRC's Ethical
Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to Note 2(a) in the financial statements, which sets out
that the company's ZDP shares are repayable on 5 December 2022 at £11.3
million and that the company is considering its options regarding this
liability. As stated in Note 2(a), this indicates that a material uncertainty
exists that may cast significant doubt on the company's ability to continue as
a going concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the Group's
consolidated financial statements is appropriate. Our evaluation of the
directors' assessment of the entity's ability to continue to adopt the going
concern basis of accounting included Review of board and treasury minutes,
subsequent year financial forecasts and management's going concern assessment.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this announcement.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
The key audit matters that we identified in the current year are:
Audit Matter Procedures
Impairment of Goodwill We obtained our understanding of how the discounted cash flow forecasts are
modelled as part of the Board's processes to identify and recognise
impairment. With regards to valuation, we performed the following procedures:
As at 31 December 2021, the Group has recorded goodwill of £22.9m (2020: We obtained an understanding of the relevant controls over the impairment
£22.9m) representing 23.1% (2020: 22%) of group total assets at year end. assessment process;
Discounted cash flow models are prepared by management to assist the Board and
the Audit and Risk Committee in determining whether indicators of impairment
exist and estimating the recoverable amount of goodwill, based on information
available at 30 June 2021. The management believes that there is no further We have reviewed and checked the key assumptions to the cash flows including
change till 31 December 2021. revenue growth rates, discount rates, the potential impacts of Covid-19 and
future income and expenditure cash flows, and tested for any inconsistencies
The risk is explained further in the Strategic report where this is included with our understanding of the group's business model;
as a key risk of misstatement. Note
2(h) and Note 3 set out the associated accounting policy and disclosure in
respect of critical judgements and key sources of estimation uncertainty, with
Note 12 setting out details of the impairment tests and goodwill We internally performed stress testing on the key assumptions to determine the
valuation sensitivities. impact on the recoverable amount of goodwill and whether this would lead to
any impairment;
We checked the critical model assumptions related to the cash flow and growth
rate assumptions, which were used in the forecast to model the recovery to
pre-Covid-19 levels of loan origination, by assessing trends in external
sector reports, evaluating the expected cash flows from the loan pipeline and
loans originated post impairment test date;
We agreed inputs to supporting evidence where appropriate;
We reviewed the models prepared by management for consistency with the
requirements of IAS 36;
We challenged management's assertion that no further impairment triggers exist
at the balance sheet date,
considering the sources of information to identify such indicators as listed
in IAS 36 Impairment of Assets; and
We reviewed the disclosures made per requirements of IAS 36.
Based on our audit work, we concur with management that the goodwill balance
was not impaired as at 31 December 2021.
As described in Note 3 to the financial statements, we noted that management
have assumed a recovery to pre-Covid-19 levels of loan issuance in 2021 in
their forecasts and should this not occur, this could lead to future
impairment.
Note 12 to the financial statements describes the underlying sensitivity of
the key inputs used.
Impairment and recoverability of loans receivable We have performed the following procedures:
We have obtained an understanding of significant controls over the loan's
impairment process;
As at 31 December 2021. the aggregate value of Sancus loans amounted to
£53.24m (2020: £53.22m) representing 54.89% of total assets (2020: 51.7%).
The loan portfolio comprises property-backed (Sancus) and Small and
Medium-sized Enterprises ("SME") loans (via BMS Finance (UK) Sarl). Through Performed a walkthrough of relevant controls in the valuation process to
Sancus, the group has direct exposure to loans through co-investment alongside confirm they were appropriately designed and implemented;
third-party lenders.
We have tested, on a sample basis, inputs used in the 'Loans Monitoring
The group has also provided a first loss guarantee as part of the Sancus Loan Report', including the accuracy of covenant calculations, such as loan to
Note structures and has direct investment into loan SPVs including BMS Finance value ratios, collateral values, and other financial and non-financial
(UK) Sarl. The value of these assets are also supported by the underlying loan information;
book. Management is required to assess loans for impairment, including the
application of the expected credit loss ('ECL') model under IFRS 9.
We have checked the reasonableness of management's significant judgments
relating to the categorisation of loans into the various credit stages
In making this assessment, management makes several significant judgements. required under IFRS 9. We have considered this in relevance to management's
These include determining appropriate assumptions for calculating the loss definition of a significant increase in credit risk ('SICR') and the
allowance under IFRS9 (including probability of default and loss given definition of default
default), as well as loan-specific matters including cash flow forecasts and
and performed a review of the Loan Monitoring Report to assess evidence of
covenant compliance, specifically related to loan to value (LTV) ratio. As a changes in credit risk resulting
result, errors or deliberate manipulation of these determining factors could
from factors such as:
result in material misstatement of the financial statements, as such it is
- exceedances in LTV;
considered as a fraud key audit matter.
- covenant breaches;
- delinquencies in payments; or
The risk is explained further in the strategic report where this is included
- other signs of financial stress.
as a key risk of misstatement. Note
2(f) and Note 3 set out the associated accounting policy and disclosure in
respect of critical judgements and key sources of estimation uncertainty, with
Note 22 setting out details of the associated risk factors, including We also checked the reasonableness of management's assumptions related to the
credit risk. recoverable value of any non-performing loans in light of available evidence
and the underlying collateral;
We have checked the reasonableness of management's assumptions relating to
their capital market expectations, such as Covid-19, including any overlays
required to compensate for the change in the market environment not reflected
in the ECL model;
We have evaluated the reasonableness of management's judgements and estimates
in deriving the probability of default (PD), determining the loss given
default (LGD) and exposure at default (EAD) for each stage within which loans
are classified and their compliance with IFRS 9 requirements;
We tested the numerical accuracy of the ECL calculation based on the above
inputs; and
We evaluated the adequacy of disclosures made in the financial statements in
light of the requirements of IFRS 7 and IFRS 9.
We have concluded that the overall carrying value of loans is reasonable.
As described in Note 3 to the financial statements, IFRS 9 requires the
application of a probability-weighted unbiased estimate in determining the ECL
on loans;
there are therefore certain loans where the amounts recovered could be
materially different to the
estimate at 31 December 2021.
Note 22 to the financial statements describes the underlying sensitivity of
the key inputs used
Revenue recognition We have performed the following procedures:
We have obtained reports from the Loan Management System ("LMS"), related to
interest income and tested on sample basis by recalculating interest income
The Group's revenue for the year ended 31 December 2021 was £9m (2020: and comparing it with the amounts accounted in the general ledger.
£10.86m) of which £5.39m (2020: £5.53m) sourced from interest income and
fees enforced as per lending agreements and £3.62m (2020: £5.33m) was from
interest on loans.
We also performed analytical review to test the reasonableness of interest
income.
We consider revenue as a presumed fraud risk and have directed our tests
towards this risk
For fee income, we have verified on sample basis, fee from various contracts
and tested for accuracy.
We have concluded that the reported revenue is presented fairly.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both
in planning the scope of our audit work and in evaluating the results of our
work. Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Group Materiality £450k
Basis 2% of net assets
Rationale considered as most appropriate based on the significance of the on balance
sheet lending and goodwill balances.
In determining performance materiality, we considered the following
significant judgements:
· Our risk assessment, including our assessment of the Group's
overall control environment; and
· No past audit experience with the Group.
We have also adopted a lower level of materiality for revenue balances
consistent with the prior year audit. We consider revenue to be a critical
performance measure for the group as it is expected
to be a key driver for future distributions from profits now the group has
further developed its SME and property backed lending business.
The lower level materiality applied was £180k (2020: £177k), being
approximately 2% (2020: 1.7%) of total revenue. We agreed with the Audit and
Risk Committee that this was appropriate as revenue balances are relatively
low compared to our overall group materiality set out above, yet there is an
increasing focus on these as performance measures.
Performance materiality
We set performance materiality at a level lower than materiality to reduce the
probability that, in aggregate, uncorrected and undetected misstatements
exceed the materiality for the financial statements as a whole. Group
performance materiality was set at 60% of group materiality for the 2021 audit
(2020: 60%). In determining performance materiality, we considered the
following factors:
· Our risk assessment, including our assessment of the group's
overall control environment and that we consider it appropriate to rely on
controls on a key business process;
· Our past experience of the audit, which has indicated a low
number of uncorrected misstatements identified in prior periods; and
· The potential impact of Covid-19 on the application of control
procedures which might increase the possibility of having undetected
misstatements.
Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the
Committee all audit differences in excess of £23k (2020: £33k), as well as
differences below that threshold that, in our view, warranted reporting on
qualitative grounds. We also report to the Audit and Risk Committee on
disclosure matters that we identified when assessing the overall presentation
of the financial statements.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the group and its
environment, including internal control, and assessing the risks of material
misstatement for the parent company and its subsidiaries. Audit work to
respond to the risks of material misstatement was performed directly by the
group audit team for both the parent entity and its subsidiaries. All
subsidiaries in the group were subject to full scope audits.
Audit work performed for the subsidiaries was executed by the group audit team
at levels of materiality applicable to each subsidiary, which in all instances
was lower than group materiality and ranged between £4.4k and £1,006k (2020:
between £9.7k and £557k).
Other information
The directors are responsible for the other information. The other information
comprises the information included in the annual report, other than the
financial statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form
of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent
company and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors'
report.
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
· adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received from
branches not visited by us; or
· the consolidated financial statements are not in agreement with
the accounting records and returns; or
· certain disclosures of directors' remuneration specified by law
are not made; or
· we have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the group's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements. A further description of our
responsibilities for the audit of the financial statements is located on the
Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor's report.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
The objectives of our audit in respect of fraud, are; to identify and assess
the risks of material misstatement of the financial statements due to fraud;
to obtain sufficient appropriate audit evidence regarding the assessed risks
of material misstatement due to fraud, through designing and implementing
appropriate responses to those assessed risks; and to respond appropriately to
instances of fraud or suspected fraud identified during the audit. However,
the primary responsibility for the prevention and detection of fraud rests
with both management and those charged with governance of the company.
Our approach was as follows:
· We obtained an understanding of the legal and regulatory
requirements applicable to the company and considered that the most
significant are the Companies (Guernsey) Law, 2008, International Financial
Reporting Standards as adopted by the UK, and taxation legislation.
· We obtained an understanding of how the company complies with
these requirements by discussions with management and those charged with
governance.
· We assessed the risk of material misstatement of the financial
statements, including the risk of material misstatement due to fraud and how
it might occur, by holding discussions with management and those charged with
governance.
· We inquired of management and those charged with governance as to
any known instances of non-compliance or suspected non-compliance with laws
and regulations.
· Based on this understanding, we designed specific appropriate
audit procedures to identify instances of non-compliance with laws and
regulations. This included making enquiries of management and those charged
with governance and obtaining additional corroborative evidence as required.
As part of an audit in accordance with ISAs (UK) we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
· Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the circumstances,
but not for the purposes of expressing an opinion on the effectiveness of the
group's internal control.
· Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
directors.
· Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the group's ability to continue as a going concern.
If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our
auditor's report. However, future events or conditions may cause the group
to cease to continue as a going concern.
· Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner that
achieves fair presentation.
· Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within the group
to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the consolidated
financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in
our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Use of our report
The report is made solely to the company's members, as a body, in accordance
with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the company's members those matters
we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our audit work, for the report, or for the opinions we have formed.
Jeff Vincent (Senior Statutory Auditor)
for and on behalf of Moore Stephens Audit and Assurance (Guernsey) Limited
Level 2 Park Place
Park Street
St Peter Port
Guernsey
GY1 3HZ
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
Notes 2021 2020
£'000 £'000
Revenue 5 9,022 10,861
Cost of sales 6 (6,537) (6,118)
Gross profit 2,485 4,743
Operating expenses 7 (6,231) (5,582)
Operating loss before credit losses (3,746) (839)
Changes in expected credit losses 22 (6,399) (4,665)
Incurred losses on financial assets (90) -
Operating Loss (10,235) (5,504)
FinTech Ventures fair value movement 22 434 (5,996)
Other net losses 8 (557) (3,032)
Loss for the year before tax (10,358) (14,532)
Income tax 18 19 15
Loss for the year after tax (10,339) (14,517)
Items that may be reclassified subsequently to profit and loss
Foreign exchange gain/(loss) arising on consolidation 12 (23)
Other comprehensive income/(loss) for the year after tax 12 (23)
Total comprehensive loss for the year (10,327) (14,540)
Loss for the year after tax attributable to equity holders of the company (10,339) (14,517)
Total comprehensive loss attributable to equity holders of the company (10,327) (14,540)
Basic Loss per Ordinary Share 10 (2.16)p (4.60)p
Diluted Loss per Ordinary Share 10 (2.09)p (4.19)p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
ASSETS Notes 31 December 2021 31 December 2020
£'000 £'000
Non-current assets
Fixed assets 11 660 774
Goodwill 12 22,894 22,894
Other intangible assets 13 53 168
Sancus loans and loan equivalents 22 6,643 3,863
FinTech Ventures investments 22 500 -
Other investments 100 -
Investments in joint ventures and associates 9 500 866
Total non-current assets 31,350 28,565
Current assets
Other assets 14 496 1,015
Sancus loans and loan equivalents 22 46,602 49,369
Trade and other receivables 15 6,075 8,204
Cash and cash equivalents 12,436 15,786
Total current assets 65,609 74,374
Total assets 96,959 102,939
EQUITY
Share premium 16 116,218 116,218
Treasury shares 16 (1,172) (1,099)
Other reserves (95,952) (85,625)
Capital and reserves attributable to equity holders of the Group 19,094 29,494
Total equity 19,094 29,494
LIABILITIES
Non-current liabilities
Borrowings 64,677 69,450
Lease liabilities 364 469
Total non-current liabilities 17 65,041 69,919
Current liabilities
Borrowings 10,532 -
Trade and other payables 1,628 1,638
Tax liabilities 86 118
Provisions - 1,542
Lease liabilities 212 188
Interest payable 366 -
Other liabilities - 40
Total current liabilities 17 12,824 3,526
Total liabilities 77,865 73,445
Total equity and liabilities 96,959 102,939
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2021
Note Share Premium Treasury Shares Warrants Outstanding Foreign Retained Earnings/ Capital and reserves attributable to
Exchange (Losses) equity holders of
Reserve the Company
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2021 116,218 (1,099) 847 (1) (86,471) 29,494
Acquired on sale of BMS 16 - (73) - - - (73)
Movement in fair value of warrants 16 - - (462) - 462 -
Transactions with owners - (73) (462) - 462 (73)
Total comprehensive income/loss for the year - - - 12 (10,339) (10,327)
Balance at 31 December 2021 116,218 (1,172) 385 11 (96,348) 19,094
Balance at 1 January 2020 112,557 (1,099) - 22 (71,107) 40,373
Warrants issued during the year 16 - - 847 - (847) -
Equity raised (net of costs) 16 3,661 - - - - 3,661
Transactions with owners 3,661 - 847 - (847) 3,661
Total comprehensive loss for the year - - - (23) (14,517) (14,540)
Balance at 31 December 2020 116,218 (1,099) 847 (1) (86,471) 29,494
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
Notes 31 December 31 December
2021 2020
£'000 £'000
Cash flow from operations, excluding loan movements 19 (4,121) (3,837)
Increase/(Decrease) in Sancus loans (1,340) 5,060
Decrease in loans through platforms 8 18
(Increase)/Decrease in Sancus Loans Limited loans (4,564) 472
Decrease in loans re: UK SARL 1,808 3,581
Investment in Sancus Loan Notes (100) -
Net Cash flows (used in) / from operating activities (8,309) 5,294
Investing activities
Net investments in FinTech Ventures (66) 277
Investment in Sancus (IOM) Holdings Limited (16) -
Investment in joint venture (91) (100)
Cash outflow on disposal of BMS Finance AB Limited - (215)
Expenditure on SPL Properties (157) (229)
Sale of SPL Properties 743 1,597
Property, equipment and other intangibles acquired (14) (29)
Net cash inflow from investing activities 399 1,301
Financing activities
Drawdown of HIT facility 19 7,500 4,187
Repayment of HIT facility 19 - (3,500)
Capital element of lease payments 19 (193) (216)
Proceeds from equity issued - 3,681
Repayment of bonds 19 - (6,125)
Issue of bonds 19 - 8,700
Debt issue costs 19 (3) (314)
Repayment of ZDPs 19 (2,756) (4,443)
Net cash generated by financing activities 4,548 1,970
Effects of foreign exchange 12 (23)
Net (decrease)/increase in cash and cash equivalents (3,350) 8,542
Cash and cash equivalents at beginning of year 15,786 7,244
Cash and cash equivalents at end of year 12,436 15,786
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Sancus Lending Group Limited (formerly GLI Finance Limited), (the "Company"),
and together with its subsidiaries, ("the Group") was incorporated, and
domiciled in Guernsey, Channel Islands, as a company limited by shares and
with limited liability, on 9 June 2005 in accordance with The Companies
(Guernsey) Law, 1994 (since superseded by The Companies (Guernsey) Law, 2008).
Until 25 March 2015, the Company was an Authorised Closed-ended Investment
Scheme and was subject to the Authorised Closed-ended Investment Scheme Rules
2008 issued by the Guernsey Financial Services Commission ("GFSC"). On 25
March 2015, the Company was registered with the GFSC as a Non-Regulated
Financial Services Business, at which point the Company's authorised fund
status was revoked. The Company's Ordinary Shares were admitted to trading on
the AIM market of the London Stock Exchange on 5 August 2005 and its issued
ZDPs were listed and traded on the Standard listing Segment of the main market
of the London Stock Exchange with effect from 5 October 2015.
The Company does not have a fixed life and the Articles do not contain any
trigger events for a voluntary liquidation of the Company. The Company is an
operating company for the purpose of the AIM rules. The Executive Management
Team is responsible for the management of the Company.
As at 31 December 2021, the Group comprises the Company and its subsidiaries
(Note 20). During 2021 as part of the Group's rebranding the Company and a
number of its subsidiaries have been renamed:
Previous name New name Date of name change
Sancus BMS Group Limited Sancus Group Holdings Limited 17 March 2021
Sancus BMS (Ireland) Limited Sancus Lending (Ireland) Limited 29 March 2021
GLI Finance Limited Sancus Lending Group Limited 11 May 2021
Sancus (Guernsey) Limited Sancus Lending (Guernsey) Limited 12 July 2021
Sancus Funding Limited Sancus Lending (UK) Limited 13 July 2021
Sancus Finance Limited Sancus Holdings (UK) Limited 13 July 2021
Sancus (Jersey) Limited Sancus Lending (Jersey) Limited 6 October 2021
Sancus (Gibraltar) Limited Sancus Lending (Gibraltar) Limited 6 October 2021
The Company has taken advantage of the exemption conferred by the Companies
(Guernsey) Law, 2008, Section 244, not to prepare company only financial
statements.
2. ACCOUNTING POLICIES
(a) Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"), as adopted by the UK,
and all applicable requirements of Guernsey Company Law. The financial
statements have been prepared under the historical cost convention, as
modified for the measurement of investment at fair value through profit or
loss. With the exception of any new and amended accounting standards which
require policy changes, detailed in Note 2 (v), the principal accounting
policies of the Group have remained unchanged from the previous year and are
set out below. Comparative information in the primary statements is given for
the year ended 31 December 2020.
The Group does not operate in an industry where significant or cyclical
variations, as a result of seasonal activity, are experienced during any
particular financial period.
Going Concern
The Directors have considered the going concern basis in the preparation of
the financial statements as supported by the Director's assessment of the
Company's and Group's ability to pay its debts as they fall due and have
assessed the current position and the principal risks facing the business with
a view to assessing the prospects of the Company.
Liabilities which fall due in the next 12 months include the final capital
entitlement of the Company's ZDP shares which are repayable on 5 December 2022
at £11.3m.
As part of the Group's growth plan the Company is considering its options
regarding this liability which may include re-financing, part repayment and/or
extension of the ZDPs and an equity raise. This will require consultation with
the relevant stakeholders, including ordinary shareholders and ZDP
shareholders and regulatory approvals and consents. Accordingly, there can be
no certainty that the proposals will proceed.
These factors and assumptions constitute a material uncertainty that may cast
significant doubt over the Company's ability to continue as a going concern,
such that it may be unable to realise its assets and discharge its liabilities
in the normal course of business. The Directors expect that if they are able
to action the mitigations in accordance with the plan outlined above, the
material uncertainty will be extinguished. The Directors are therefore of the
opinion that the Company will have adequate financial resources to continue in
operation and meet its liabilities as they fall due for the foreseeable future
and continue to adopt the going concern basis in preparing the financial
statements.
(b) Basis of consolidation
The financial statements comprise the results of Sancus Lending Group and its
subsidiaries for the year ended 31 December 2021. The subsidiaries are all
entities where the Company has the power to control the investee, is exposed,
or has rights to variable returns and has the ability to use its power to
affect these returns. Subsidiaries are fully consolidated from the date on
which control is transferred to the Company. They are deconsolidated from the
date that control ceases. Profit or loss and other comprehensive income of
subsidiaries acquired or disposed of during the year is recognised from the
effective date of acquisition, or up to the effective date of disposal, as
applicable. Intercompany transactions, balances and unrealised gains on
transactions between Group companies are eliminated in full on consolidation.
(c) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held on call with
banks and other short term highly liquid investments that are readily
convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value.
(d) Dividends
Dividend distributions are made at the discretion of the Company. A dividend
distribution to shareholders is accounted for as a reduction in retained
earnings. A proposed dividend is recognised as a liability in the period in
which it has been approved and declared by the Directors.
(e) Expenditure
All expenses are accounted for on an accrual basis. Management fees,
administration fees, finance costs and all other expenses (excluding share
issue expenses which are offset against share premium) are charged through the
Consolidated Statement of Comprehensive Income.
(f) Financial assets and liabilities
Classification, recognition and initial measurement
Classification and measurement of debt assets is driven by the business model
for managing the financial assets and the contractual cash flow
characteristics of those financial assets. There are three principal
classification categories for financial assets that are debt instruments: (i)
amortised cost, (ii) fair value through other comprehensive income and (iii)
fair value through profit and loss. Equity investments in the scope of IFRS 9
are measured at fair value with gains and losses recognised in profit and loss
unless an irrevocable election is made to recognise gains or losses in other
comprehensive income.
We are a lending business, which participates in financing to borrowers,
Sancus loans, HIT loans, loan equivalents and loans through platforms. As a
result all of these loans/loan equivalents are held solely for the collection
of contractual cash flows, being interest, fees and payment of principal.
These assets are held at amortised cost using the effective interest rate
method, adjusted for any credit loss allowance.
FinTech Ventures investments relate to equity, preference shares and some
working capital loans. Whilst some of these investments attract interest, the
assets are held primarily to assist the development of the entities involved.
These investments are held at fair value with charges recognised in profit and
loss.
Trade payables, financial liabilities and trade receivables are held solely
for the collection and payment of contractual cash flows, being payments of
principal and interest where applicable. Trade receivables are held at
amortised cost using the effective interest rate method, adjusted for any
credit loss allowance. Trade payables and financial liabilities are held at
amortised cost with any interest cost calculated in accordance with the
effective interest rate.
Financial assets and financial liabilities are initially recognised on the
trade date, which is the date on which the Group becomes party to the
contractual provisions of the instrument.
Financial assets and financial liabilities at fair value through profit or
loss are initially recognised at fair value, with transaction costs recognised
in the Consolidated Statement of Comprehensive Income. Financial assets and
financial liabilities not at fair value through profit or loss are initially
recognised at fair value plus transaction costs that are directly attributable
to their acquisition or issue.
Subsequent to initial recognition, financial assets are either measured at
fair value or amortised cost as noted above. Realised gains and losses arising
on the derecognition of financial assets and liabilities are recognised in the
period in which they arise. The effect of discounting on trade and other
receivables is not considered to be material.
Fair value measurement
"Fair value" is the price that would be received to sell an asset or be paid
to transfer a liability in an orderly transaction between market participants
at the measurement date in the principal or, in its absence, the most
advantageous market to which the Group has access at that date. The fair value
of a liability reflects its non-performance risk.
When available, the Group measures the fair value of an instrument using
quoted price in an active market for that instrument. A market is regarded as
"active" if transactions of the asset or liability take place with sufficient
frequency and volume to provide pricing information on an on-going basis. The
Group measures financial instruments quoted in an active market at a mid
price.
If there is no quoted price in an active market, the Group uses valuation
techniques that maximise the use of relevant observable inputs and minimise
the use of unobservable inputs. The chosen valuation technique incorporates
all of the factors that market participants would take into account in pricing
a transaction. Please refer to Note 22.
The Group recognises transfers between levels of the fair value hierarchy as
at the end of the reporting period during which the change has occurred. If
in the case of any investment the Directors at any time consider that the
above basis of valuation is inappropriate or that the value determined in
accordance with the foregoing principles is unfair, they are entitled to
substitute what in their opinion, is a fair value. Gains and losses arising
from changes in the fair value of the financial assets and liabilities at fair
value through profit or loss are included in the Consolidated Statement of
Comprehensive Income in the period in which they arise.
Debt and Equity Instruments
Debt and equity instruments issued by a group entity are classified as either
financial liabilities or as equity in accordance with the substance of the
contractual arrangements and the definitions of a financial liability and an
equity instrument. An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting all of its
liabilities.
Equity instruments are recorded at the proceeds received less any direct costs
of issue.
Derecognition
Sales of all financial assets are recognised on trade date - the date on which
the Group disposes of the economic benefits of the asset. Financial assets are
derecognised when the rights to receive cash flows from the asset have expired
or the Group has transferred substantially all risks and rewards of ownership.
On derecognition of a financial asset, the difference between the carrying
amount of the asset (or the carrying amount allocated to the portion of the
asset derecognised) and the consideration received (including any new asset
obtained less any new liability assumed) is recognised in the Consolidated
Statement of Comprehensive Income. Any interest in such transferred financial
assets that is created or retained by the Company is recognised as a separate
asset or liability.
The Group derecognises a financial liability when its contractual obligations
are discharged, cancelled or expire.
Derivative financial instruments
The Group enters into foreign exchange forward contracts in order to manage
its exposure to foreign exchange rate movements. Further details can be found
in Note 22.
Forward contracts are initially recognised at fair value at the date the
contract is entered into and are subsequently remeasured to their fair value
at each balance sheet date. Resulting gains/losses are recognised in profit or
loss immediately. Forward contracts with positive fair value are recognised as
financial assets whereas forward contracts with negative fair value are
recognised as financial liabilities. Contracts are presented as non-current
assets or liabilities if the remaining maturity of the instrument is more than
12 months and is not expected to be settled within 12 months. Other contracts
are presented as current assets.
Expected credit losses
Credit risk is assessed at initial recognition of each financial asset and
subsequently re-assessed at each reporting period-end. For each category of
Credit risk loans have been categorized into Stage 1, Stage 2 and Stage 3 with
Stage 1 being to recognise 12 month Expected Credit Losses (ECL), Stage 2
being to recognise Lifetime ECL not credit impaired and Stage 3 being to
recognise Lifetime ECL credit impaired. When for example LTV exceeds 65% or
amounts become 30 days past due judgement will be used to reassess whether
Credit risk has increased significantly enough to move the loan from one stage
to another. A loan is considered to be in default when there is a failure to
meet the legal obligation of the loan agreement. This would include provisions
against loans that are considered by management as unlikely to pay their
obligations in full without realisation of collateral. Refer to Note 22 for
further details.
Sancus loans and loan equivalents are assessed for credit risk based on
information available at initial recognition, predominantly (but not solely)
using Loan to Value (LTV). For trade and other receivables, the Group has
applied the simplified approach to recognise lifetime expected credit losses
although loan interest receivable is included in the gross carrying value when
determining ECL.
Provision for ECL is calculated using the credit risk, the probability of
default and the probability of loss given default, all underpinned by the LTV,
historical position, forward looking considerations and on occasion subsequent
events, and the subjective judgement of the Board. ECL assumes the life of the
loan is consistent with contractual term.
Financial guarantee contracts
Financial guarantee contracts are only recognised as a financial liability
when it becomes probable that the guarantee will be called upon in the future.
The liability is measured at fair value and subsequently in accordance with
the expected credit loss model under IFRS 9. The fair value of financial
guarantees is determined based on the present value of the difference in cash
flows between contracted payments required under the debt instrument and the
payments that would be required without the guarantee, or the estimated amount
that would be payable to a third party for assuming the obligations.
(g) Foreign currency translation
Functional and presentation currency
The financial statements of the Group are presented in the currency of the
primary economic environment in which the Company operates (its functional
currency). The Directors have considered the primary economic currency of the
Company and considered the currency in which finance is raised, distributions
made, and ultimately what currency would be returned if the Company was wound
up. The Directors have also considered the currency to which the underlying
investments are exposed. On balance, the Directors believe Sterling best
represents the functional currency of the Company. Therefore, the books and
records are maintained in Sterling and for the purpose of the financial
statements, the results and financial position of the Group are presented in
Sterling, which is also the presentation currency of the Group.
Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions
and from the translation at year end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the
Consolidated Statement of Comprehensive Income. Non-monetary items measured at
historical cost are translated using the exchange rates at the date of the
transaction (not retranslated). Non-monetary items measured at fair value are
translated using the exchange rates at the date when fair value was
determined.
All subsidiaries are presented in Sterling, which is the primary currency in
which they operate with the exception of Sancus Lending (Ireland) Limited
whose primary currency is the Euro. Translation differences on non-monetary
items are reported as part of the fair value gain or loss reported in the
Consolidated Statement of Comprehensive Income.
Foreign exchange differences arising on consolidation of the Group's foreign
operations are taken direct to reserves. The rates of exchange as at the
year-end are £1: USD1.3527 (31 December 2020 USD1.3664) and £1: EUR1.1898
(31 December 2020 EUR1.1202)
(h) Goodwill
Goodwill represents the future economic benefits arising from a business
combination that are not individually identified and separately recognised.
Goodwill is measured as the excess of (a) the aggregate of: (i) the
consideration transferred measured in accordance with IFRS 3, which generally
requires acquisition-date fair value; (ii) the amount of any non-controlling
interest in the acquiree measured in accordance with IFRS 3; and (iii) in a
business combination achieved in stages, the acquisition-date fair value of
the acquirer's previously held equity interest in the acquiree; over (b) the
net of the acquisition-date amounts of the identifiable assets acquired and
the liabilities assumed measured in accordance with IFRS 3. Goodwill is
carried at cost less accumulated impairment losses. Refer to Note 2 (k) for a
description of impairment testing procedures and Note 12 for details on
impairment testing.
(i) Interest costs
Interest costs are recognised when economic benefits are due to debt holders.
Interest costs are accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash payments through the expected
life of the financial liability to the liability's net carrying amount on
initial recognition.
(j) Other intangible assets
Intangible assets with finite useful lives are amortised to profit or loss on
a straight-line basis over their estimated useful lives. Useful lives and
amortisation methods are reviewed at the end of each annual reporting period,
or more frequently when there is an indication that the intangible asset may
be impaired, with the effect of any changes accounted for on a prospective
basis. Amortisation commences when the intangible asset is available for use.
The residual value of intangible assets is assumed to be zero.
Computer software
Costs associated with maintaining computer software programmes are recognised
as an expense as incurred. Development costs that are directly attributable to
the design and testing of identifiable and unique software products controlled
by the Group are recognised as intangible assets when the following criteria
are met:
· it is technically feasible to complete the software product so
that it will be available of use;
· management intends to complete the software product and use or
sell it;
· there is an ability to use or sell the software product;
· it can be demonstrated how the software product will generate
probable future economic benefits;
· adequate technical, financial and other resources to complete the
development and to use or sell the software product are available; and
· the expenditure attributable to the software product during its
development can be reliably measured.
Directly attributable costs that are capitalised as part of the software
product include the software development employee costs and third party
contractor costs. Other development expenditures that do not meet these
criteria are recognised as an expense as incurred. Development costs
previously recognised as an expense are not recognised as an asset in a
subsequent period. Capitalised development costs are recorded as intangible
assets and amortised from the point at which the asset is ready for use over
their estimated useful lives, which does not exceed four years.
(k) Impairment testing of goodwill, intangible assets and
property and equipment
An impairment loss is recognised for the amount by which the asset's or
cash-generating unit's carrying amount exceeds its recoverable amount, which
is the higher of fair value less costs of disposal and value-in-use. To
determine the value-in-use, management estimates expected future cash flows
from each cash-generating unit and determines a suitable discount rate in
order to calculate the present value of those cash flows. The data used for
impairment testing procedures are directly linked to the Group's latest
approved budget, adjusted as necessary to exclude the effects of future
reorganisations and asset enhancements. Discount factors are determined
individually for each cash-generating unit and reflect management's assessment
of respective risk profiles, such as market and asset-specific risk factors.
Impairment losses for cash-generating units reduce first the carrying amount
of any goodwill allocated to that cash-generating unit. Any remaining
impairment loss is charged pro rata to the other assets in the cash-generating
unit. With the exception of goodwill, all assets are subsequently reassessed
for indications that an impairment loss previously recognised may no longer
exist. An impairment loss is reversed if the asset's or cash-generating unit's
recoverable amount exceeds its carrying amount.
All impairments or subsequent reversals of impairments are recognised in the
Consolidated Statement of Comprehensive Income.
(l) Investment in Joint Venture and associates
A joint venture is a joint arrangement over which the Group has joint control.
An associate is an entity over which the Group has significant influence but
is not a subsidiary.
An investment in a joint venture or associate is accounted for by the Group
using the equity method except for certain FinTech Ventures associates as
described in Note 3. These are measured at fair value through profit or loss
in accordance with policy Note 2 (f).
Any goodwill or fair value adjustment attributable to the Group's share in the
joint venture or associate is not recognised separately and is included in the
amount recognised as an investment.
The carrying amount of the investment in a joint venture or associate is
increased or decreased to recognise the Group's share of the profit or loss
and other comprehensive income of the joint venture or associate and adjusted
where necessary to ensure consistency with the accounting policies of the
Group.
Unrealised gains and losses on transactions between the Group and its joint
venture or associate are eliminated to the extent of the Group's interest in
the entity. Where unrealised losses are eliminated, the underlying asset is
also tested for impairment.
(m) Non-Current Liabilities
Loans payable are recognised initially at fair value less directly
attributable transaction costs. Subsequent to initial recognition, loans
payable are stated at amortised cost using the effective interest rate method.
The ZDPs are contractually required to be redeemed on their maturity date and
they will be settled in cash, thus, ZDP shares are classified as liabilities
(refer to Note 17) in accordance with IAS 32 Financial Instruments:
Presentation. After initial recognition, these liabilities are measured at
amortised cost, which represents the initial proceeds of the issuance plus the
accrued entitlement to the reporting date. Any ZDPs acquired by the group, as
noted in Note 17, are held in Treasury and shown as a reduction in carrying
value.
(n) Property and equipment
Tangible fixed assets include computer equipment, furniture and fittings
stated at cost less accumulated depreciation. Depreciation is provided at
rates calculated to write off the cost of tangible property and computer
equipment on a straight-line basis over its expected useful economic life as
follows:
Furniture and fittings 3 to 5 years
Computer equipment 2 to 4 years
(o) Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for services provided in the
normal course of business, net of discounts, VAT and other sales-related taxes
where applicable in the Group. Revenue is reduced for estimated rebates and
other similar allowances. The Group has five principal sources of revenue and
related accounting policies are outlined below:
Interest on loans
Interest income is recognised in accordance with IFRS 9. Interest income is
accrued over the contractual life of the loan, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected
life of the financial asset to that asset's net carrying amount on initial
recognition.
Dividend income
Dividend income from investments is recognised when the shareholders' rights
to receive payment have been established (provided that it is probable that
the economic benefits will flow to the Group and the amount of revenue can be
measured reliably).
Fee income on syndicated and non-syndicated loans
In accordance with the guidance in IFRS 15 Revenue, the Group distinguishes
between fees that are an integral part of the effective interest rate of a
financial instrument, fees that are earned as services are provided, and fees
that are earned on the execution of a significant act.
i) Commitment and arrangement fees
Commitment and arrangement fees earned for syndicated loans are recognised on
origination of the loan as compensation for the service of syndication. This
is a reflection of the commercial reality of the operations of the business to
arrange and administer loans for other parties i.e. the execution of a
significant act and satisfying the Group's performance obligation at the point
of arranging the loan.
Consistent with the policy outlined above, commitment and arrangement fees
earned on loans originated for the sole benefit of the Group are also recorded
in revenue on completion of the service of analysing or originating the loan.
Whilst this is not in accordance with the requirements of the effective
interest rate method outlined in IFRS 9 Financial Instruments, this is not
considered to have a material impact on the financial performance or financial
position of the Group.
ii) Exit fees
Where a loan is syndicated and has standard terms the exit fee is recognised
as part of the arrangement fee, reflecting the costs of syndication at the
start of the loan. Where a loan is syndicated and has milestones or conditions
which determine if the fee becomes payable and/or the magnitude of the fee the
exit fee is treated as variable consideration in line with IFRS 15 and is only
recognised when the relevant milestones/conditions are met. Where loans are
not syndicated the exit fee is deemed to be part of the effective interest
rate and recognised over the term of the loan.
Fee income earned by peer-to-peer subsidiary platforms
Fee income earned by subsidiaries whose principal business is to operate
online lending platforms that arrange financing between Co-Funders and
Borrowers includes arrangement fees, trading transaction fees, repayment fees
and other lender related fees. Revenue earned from the arrangement of
financing is classified as a transaction fee and is recognised immediately
upon acceptance of the arrangement by borrowers. Other transaction fees,
including revenue from Co-Funders in relation to the sale of their loan
participations in platform secondary markets is also recognised immediately.
Loan repayment fees are charged on a straight-line basis over the repayments
of the borrower's financing arrangement.
Advisory fees
Advisory fee income is invoiced and recognised on an accruals basis in
accordance with the relevant investment advisory agreement.
(p) Share based payments
As explained in the Remuneration Report, the Company provides a discretionary
bonus, part of which is satisfied through the issuance of the Company's own
shares, to certain senior management. The cost of such bonuses is taken to the
Consolidated Statement of Comprehensive Income with a corresponding credit to
Shareholders' Equity. The fair value of any share options granted is
determined at the grant date and the expense is spread over the vesting period
in accordance with IFRS 2.
(q) Taxation
Current tax, including corporation tax in relevant jurisdictions that the
Group operates in, is provided at amounts expected to be paid (or recovered)
using the tax rates and laws that have been enacted or substantively enacted
by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right
to pay less tax in the future have occurred at the balance sheet date.
Timing differences are differences between the Group's taxable profits, and
its results as stated in the financial statements, that arise from the
inclusion of gains and losses in tax assessments in periods different from
those in which they are recognised in the financial statements.
(r) Treasury shares
Where the Company purchases its own Share Capital, the consideration paid,
which includes any directly attributable costs, is recognised as a deduction
from Share Premium.
When such shares are subsequently sold or reissued to the market, any
consideration received, net of any directly attributable incremental
transaction costs, is recognised as an increase in Share Premium. Where the
Company cancels treasury shares, no further action is required to the Share
Premium account at the time of cancellation.
(s) Warrants
Warrants are accounted for as either equity or liabilities based upon the
characteristics and provisions of each instrument and are recorded at fair
value as of the date of issuance. In subsequent periods an amount representing
the difference between the warrant exercise price and the prevailing market
price of the company's shares is transferred from/to retained earnings to/from
warrants outstanding.
(t) Inventories - Development properties
Inventories are stated at the lower of cost and net realisable value. Cost
comprises initial outlay and, where applicable, additional costs that have
been incurred in bringing the inventories to their present location and
condition. Net realisable value represents the estimated selling price less
all estimated costs of completion and costs to be incurred in marketing and
selling. Repossessed assets are accounted for under IAS 2: Inventories because
the Group will either immediately seek to dispose of those assets which are
readily marketable or pursue the original development plans to sell for those
that are not readily marketable. Such assets are classed as "Other Assets"
within current assets on the balance sheet.
(u) Leases
The Group assesses whether a contract is or contains a lease, at inception of
the contract. The Group recognises a right-of-use asset and a corresponding
lease liability with respect to all lease arrangements in which it is the
lessee, except for short-term leases (defined as leases with a lease term of
12 months or less) and leases of low value assets. For these leases, the Group
recognises the lease payments as an operating expense on a straight-line basis
over the term of the lease unless another systematic basis is more
representative of the time pattern in which economic benefits from the leased
assets are consumed.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted by using the
incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise
fixed lease payments (including in-substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an index or rate
(initially measured using the index or rate at the commencement date), the
amount expected to be payable by the lessee under residual value guarantees,
the exercise price of purchase options (if the lessee is reasonably certain to
exercise the options) and payments of penalties for terminating the lease if
the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented within current and non-current liabilities in
the consolidated statement of financial position. It is subsequently measured
by increasing the carrying amount to reflect interest on the lease liability
(using the effective interest method) and by reducing the carrying amount to
reflect the lease payments made. The Group remeasures this liability (and
makes a corresponding adjustment to the related right-of-use asset) whenever
the lease term has changed or there is a change in the lease payments used on
inception to measure the liability as described above.
The right-of-use assets comprise the initial measurement of the corresponding
lease liability, lease payments made at or before the commencement day, less
any lease incentives received and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation and impairment
losses.
Right-of-use assets are depreciated over the shorter period of lease term and
useful life of the underlying asset. If a lease transfers ownership of the
underlying asset or the cost of the right-of-use asset reflects that the Group
expects to exercise a purchase option, the related right-of-use asset is
depreciated over the useful life of the underlying asset. The depreciation
starts at the commencement date of the lease.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired
and accounts for any identified impairment loss as described in the 'Property,
Plant and Equipment' policy.
Variable rents that do not depend on an index or rate are not included in the
measurement of the lease liability and the right-of-use asset. The related
payments are recognised as an expense in the period in which the event or
condition that triggers those payments occurs and are included in 'Operating
expenses' in profit or loss.
(v) Adoption of new and revised Standards
Amendments to IFRSs and IASs that are mandatorily effective for the current
year
In the current year, the Group has applied a number of amendments to IFRSs and
IASs issued by the International Accounting Standards Board (IASB) that are
mandatorily effective for an accounting period that begins on or after 1
January 2021. These have been listed below. Their adoption has not had any
material impact on the disclosures or on the amounts reported in the financial
statements.
Amendments to IFRS 4, 7, 9, 16 and IAS 39: Amendments regarding replacement
issues in the context of the IBOR reform
IFRSs, IASs and amendments that are in issue but not yet effective
At the date of approval of these Consolidated Financial Statements, the
following IFRSs, IASs and amendments, which have not been applied in these
Consolidated Financial Statements and are not envisaged to have a material
impact on the financial statements when they are applied, were in issue but
not yet effective:
§ Amendments to IFRS 1: Amendments resulting from 'Annual Improvements to
IFRS Standards 2018-2020'
§ Amendments to IFRS 3: Amendments updating a reference to the Conceptual
Framework
§ Amendments to IFRS 4: Amendments regarding the expiry date of the
deferral approach
§ Amendments to IFRS 9: Amendments resulting from 'Annual Improvements to
IFRS Standards 2018-2020'
§ Amendments to IFRS 16: Amendments to extend the exemption from assessing
whether a COVID-19-related rent concession is a lease modification
§ IFRS 17: Insurance Contracts
§ Amendments to IFRS 17: Amendments to address concerns and implementation
challenges that were identified after IFRS 17 was published
§ Amendments to IFRS 17: Amendments regarding the initial application of
IFRS 17 and IFRS 9
§ Amendments to IAS 1: Amendments regarding the classification of
liabilities
§ Amendments to IAS 1: Amendments to defer the effective date of the
January 2020 amendments
§ Amendments to IAS 1: Amendments regarding the disclosure of Accounting
Policies
§ Amendments to IAS 8: Amendments regarding the definition of accounting
estimates
§ Amendments to IAS 12: Amendments regarding deferred tax on leases and
decommissioning obligations
§ Amendments to IAS 16: Amendments prohibiting a company from deducting
from the cost of property, plant and equipment amounts received from selling
items produced while the company is preparing the asset for its intended use
§ Amendments to IAS 37: Amendments regarding the costs to include when
assessing whether a contract is onerous
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN
APPLYING ACCOUNTING POLICIES
In the application of the Group's accounting policies, which are described in
Note 2, the directors are required to make judgements (other than those
involving estimations) that have a significant impact on the amounts
recognised and to make estimates and assumptions about the carrying amounts of
assets and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual results may
differ from these estimates. There is no change in applying accounting
policies for critical accounting estimates and judgments from the prior year.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
Critical judgements in applying the group's accounting policies
The following are the critical judgements, apart from those involving
estimations (which are dealt with separately below), that the directors have
made in the process of applying the Group's accounting policies and that have
the most significant effect on the amounts recognised in the financial
statements.
Fair value accounting for FinTech Ventures investments
Some of the Group's FinTech Ventures investments meet the definition of an
associate. However, the Group has applied the exemption available under IAS
28.18 which states that when an investment in an associate is held by, or is
held indirectly through, an entity that is a venture capital organisation, the
entity may elect to measure investments in those associates at fair value
through profit or loss in accordance with IAS 39 - Financial Instruments.
The Directors consider that the Group is of a nature similar to a venture
capital organisation on the basis that FinTech Ventures investments form part
of a portfolio which is monitored and managed without distinguishing between
investments that qualify as associate undertakings. Furthermore, the most
appropriate point in time for exit from such investments is being actively
monitored as part of the Group's investment strategy.
The Group therefore designates those investments in associates which qualify
for this exemption as fair value through profit or loss. Refer to Note 22 for
fair value techniques used. If the Group had not applied this exemption the
investments would be accounted for using the equity method of accounting. This
would have the impact of taking a share of each investment's profit or loss
for the year and would also affect the carrying value of the investments.
The Directors consider that equity and loan stock share the same investment
characteristics and risks and they are therefore treated as a single unit of
account for valuation purposes and a single class for disclosure purposes.
Exit fees
The Directors consider that the economic measurement of fee revenues that
arise and become due on the completion of a loan (exit fees and warrants)
should be accounted for as variable consideration and the exit fee constrained
to the extent that it is highly probable that a significant reversal in the
amount of cumulative revenue recognised will not occur. Variable consideration
is included based on the expected value or most likely amount, with the
estimated transaction price associated with syndication services (being the
performance obligation to which these fees are attributable) due on collection
of the loan, updated at the end of each reporting period to represent the
circumstances present and any changes in circumstances during the reporting
period. This includes factors such as timing risk, liquidity risk, quantum
uncertainty and conditions precedent in the syndicated finance contract. The
Directors consider that this treatment best reflects the commercial operations
of the Group as an administrator of loan arrangements.
IFRS 10 Control Judgements
Judgement is sometimes required to determine whether after considering all
relevant factors, the Group has control, joint control or significant
influence over an entity or arrangement. Other companies may make different
judgements regarding the same entity or arrangement. The Directors have
assessed whether or not the Group has control over Sancus Loan Note 7 based on
whether the Group has the practical ability to direct the relevant activities
unilaterally. In making their judgement, the directors considered the rights
associated with its investment in preference shares. After assessment, the
directors concluded that the Group does not have the ability to affect returns
through voting rights (the preference shares do not have voting rights) or
other arrangements such as direct management of these entities (the Group does
not have control over the investment manager). If the Directors had concluded
that the ownership of preference shares was sufficient to give the Group
control, these entities would instead have been consolidated with the results
of the Group.
IFRS 9 Credit Risk
Credit risk and determining when a significant increase in credit risk has
occurred are critical accounting judgements and are assessed at each reporting
period end. Credit risk is used to calculate estimated credit losses (ECL).
Further details on credit risk can be found in Note 22.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty at the reporting period, that may have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are discussed below.
Impairment of goodwill
As detailed in Note 12, the Directors carry out an impairment review annually
to assess whether goodwill is impaired. In doing so, the Directors assess the
value in use of each cash generating unit through an internal discounted cash
flow analysis. The last impairment review was carried out for the June 2021
interim reporting.
Given the nature of the Group's operations, the calculation of value in use is
sensitive to the estimation of future cash flows and the discount rates
applied, the impact of which is also disclosed in Note 12. Refer Notes 2(h)
and 2(k) for accounting policies relating to the valuation and impairment of
goodwill.
IFRS 9 ECL
Key areas of estimation and uncertainty are the probabilities of default (PD)
and the probabilities of loss given default (PL) which are used along with the
credit risk in the calculation of ECL. Further details on ECLs, PD and PL can
be found in Note 22. Should the estimates of PD or PL prove to be different
from what actually happens in the future, then the recoverability of loans
could be higher or lower than the accounts currently suggest, although this
should be mitigated by the levels of LTV which are, in the main, less than
70%. Where loans are in default and classified within stage 3, the Directors
estimate of the present value of amounts recoverable through enforcement or
other repayment plans could be materially different to the actual proceeds
received to settle the balances due. In respect of certain loans held by the
Group, the range of outcomes is significant and has a material impact on the
calculation of ECL.
Fair Value of the FinTech Ventures investments
The Group invests in financial instruments which are not quoted in active
markets and measures their fair values as detailed in Note 22.
All of the FinTech Ventures investments are categorised as Level 3 in the fair
value hierarchy. In the past the Directors have estimated the fair value of
financial instruments using discounted cash flow methodology, comparable
market transactions, recent capital raises and other transactional data
including the performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held by the
Group in the FinTech Ventures investments, as well as the challenges that have
faced the platforms during the pandemic, the Board's estimate of liquidation
value of these assets is £0.5m at 31 December 2021 (31 December 2020: £Nil)
following £0.5m deployed into an existing investment in March 2021. Changes
in the performance of these businesses and access to future returns via its
current holdings could affect the amounts ultimately realised on the disposal
of these investments, which may be greater or less than £0.5m. There have
been no transfers between levels in the period (2020: None).
4. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the manner in
which the Executive Management Team reports to the Board, which is regarded to
be the Chief Operating Decision Maker (CODM) as defined under IFRS 8. The main
focus of the Group is Sancus. Bearing this in mind the Executive Management
Team have identified 4 segments based on operations and geography.
Finance costs and Head Office costs are not allocated to segments as such
costs are driven by central teams who provide, amongst other services,
finance, treasury, secretarial and other administrative functions based on
need. The Group's borrowings are not allocated to segments as these are
managed by the Central team. Segment assets and liabilities are measured in
the same way as in the financial statements and are allocated to segments
based on the operations of the segment and the physical location of those
assets and liabilities.
The four segments based on geography, whose operations are identical (within
reason), are listed below. Note that Sancus Loans Limited, although based in
the UK, is reported separately as a stand-alone entity to the Board and as
such is considered to be a segment in its own right.
1. Offshore
Contains the operations of Sancus Lending (Jersey) Limited, Sancus Lending
(Guernsey) Limited, Sancus Lending (Gibraltar) Limited, Sancus Properties
Limited and Sancus Group Holdings Limited.
2. United Kingdom (UK)
Contains the operations of Sancus Lending (UK) Limited and Sancus Holdings
(UK) Limited.
3. Ireland
Contains the operations of Sancus Lending (Ireland) Limited.
4. Sancus Loans Limited
Contains the operations of Sancus Loans Limited.
Reconciliation to Consolidated Financial Statements
Year to 31 December 2021 Offshore UK Ireland Sancus Loans Limited (SLL) Sancus Debt Costs Total Sancus Head Office SLL Debt Costs Fintech Ventures Fair Value & Forex Other Consolidated Financial Statements
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue 3,810 1,480 667 (1,149) - 4,808 - 4,137 - 77 9,022
Operating Profit/(loss) * 1,207 (462) 88 (1,170) - (337) (1,601) - - 67 (1,871)
Credit Losses (3,892) - - (2,579) - (6,471) - - - (18) (6,489)
Debt Costs - - - - (1,875) (1,875) - - - - (1,875)
Other Gains/(losses) 56 2 (38) (100) - (80) - - 420 10 350
Loss on JVs and associates - - - - - - - - - (473) (473)
Taxation 19 - - - - 19 - - - - 19
(Loss)/Profit After Tax (2,610) (460) 50 (3,849) (1,875) (8,744) (1,601) - 420 (414) (10,339)
Year to 31 December 2020
Revenue 4,338 638 628 876 - 6,480 - 3,785 - 596 10,861
Operating Profit/(loss) * 1,916 (672) 201 859 - 2,304 (890) - - (302) 1,112
Credit Losses (3,923) - - (965) - (4,888) - - - 223 (4,665)
Debt Costs - - - - (1,952) (1,952) - - - - (1,952)
Other Gains/(losses) 4 - - - - 4 - - (6,022) (1,072) (7,090)
Loss on JVs and associates - - - - - - - - - (1,937) (1,937)
Taxation 15 - - - - 15 - - - - 15
(Loss)/Profit After Tax (1,988) (672) 201 (106) (1,952) (4,517) (890) - (6,022) (3,088) (14,517)
* Operating Profit/(loss) before credit losses and debt costs
Sancus Loans Limited is consolidated into the Group's results as it is 100%
owned by Sancus Group. However, the reality is that Sancus Loans Limited is a
Co-Funder the same as any other Co-Funder. As a result the Board reviews the
economic performance of Sancus Loans Limited in the same way as any other
Co-Funder, with revenue being stated net of debt costs. Operating expenses
include recharges from UK to Offshore £635,000, Offshore to Ireland
£114,000, Head Office to Offshore £130,000 and Offshore to Head Office
£55,000. "Other" includes Fintech (excluding fair value and forex) and Sancus
Group Holdings operations.
Reconciliation to Financial Statements
At 31 December 2021 Offshore UK Ireland Sancus Loans Limited (SLL) Total Sancus Head Office Investment in IOM Fintech Portfolio Other Inter Company Balances Consolidated Financial Statements
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Total Assets 45,397 11,127 586 60,504 117,614 43,129 500 500 793 (65,577) 96,959
Total Liabilities (40,503) (12,599) (714) (64,355) (118,171) (23,978) - - (1,293) 65,577 (77,865)
Net Assets/(liabilities) 4,894 (1,472) (128) (3,851) (557) 19,151 500 500 (500) - 19,094
At 31 December 2020
Total Assets 44,486 7,203 488 54,131 106,308 47,137 866 - 4,177 (55,549) 102,939
Total Liabilities (38,720) (8,214) (679) (53,255) (100,868) (27,774) - - (352) 55,549 (73,445)
Net Assets/(liabilities) 5,766 (1,011) (191) 876 5,440 19,363 866 - 3,825 - 29,494
Head Office liabilities include borrowings £23,007,000 (2020: £24,897,000).
Other Fintech assets and liabilities, and Sancus Group Holdings assets and
liabilities are included within "Other".
5. REVENUE
2021 2020
£'000 £'000
Co-Funder fees 1,574 1,836
Earn out (exit) fees 962 1,863
Advisory fees - 399
Transaction fees 2,862 1,434
Total revenue from contracts with customers 5,398 5,532
Interest on loans 168 456
HIT Interest income 2,989 4,660
Sundry income 467 213
Total Revenue 9,022 10,861
The disaggregation of revenue reflects the different performance obligations
in contracts with customers as described in the accounting policy Note 2(o)
and the typical timing of payment for those relevant revenue streams.
6. COST OF SALES
2021 2020
£'000 £'000
Interest costs 1,911 2,016
HIT interest costs 4,137 3,785
Other cost of sales 489 317
Total cost of sales 6,537 6,118
7. OPERATING EXPENSES
2021 2020
£'000 £'000
Amortisation and depreciation 356 428
Audit fees 155 231
Company secretarial 124 78
Corporate insurance 96 72
Employment costs 4,363 3,573
Investor relations expenses 81 67
Legal & professional 251 222
Marketing expenses 93 38
NOMAD fees 76 75
Other office and administration costs 514 620
Pension costs 87 145
Registrar fees 31 23
Sundry 4 10
6,231 5,582
8. OTHER NET LOSSES
The £557,000 Other net losses is predominantly made up of losses on Foreign
exchange £143,000 and loss on joint ventures and associates of £473,000
offset by the profit on the sale of Sancus Property Limited properties of
£59,000. (2020 £3,032,000: predominantly made up of the write down of other
assets of £892,000 (Note 14) and loss on joint ventures and associates of
£1,937,000 (Note 9).
9. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
31 December 2021 31 December 2020
£'000 £'000
At beginning of year 866 2,703
Additions 107 100
Share of profit/(loss) of associate 161 (574)
Share of loss in joint venture (91) (100)
Write down joint venture/associate (543) (1,263)
At end of year 500 866
The investment in joint venture relates to a 50% share in Amberton Limited (31
December 2020: 50% share in Amberton Asset Management Limited). Both
investments were held at £Nil. Amberton Asset Management Limited was
liquidated on 13 December 2021. Amberton Limited, which is Jersey a registered
entity, was incorporated in January 2021 and has been established as a joint
venture to manage the loan note programme going forward (duties previously
performed by Amberton Asset Management Limited).
Details of material associates
Principal Activity Place of Incorporation Proportion of ownership interest/voting rights held by the group
31 December 2021 31 December 2020
Sancus (Isle of Man) Holdings Limited Holding Company for Sancus (IOM) Limited Guernsey 29.32% 29.32%
The above associate is accounted for using the equity method in these
consolidated financial statements as set out in the Group's accounting
policies in Note 2.
Summarised financial information in respect of Sancus (Isle of Man) Holdings
is set out below. The summarised financial information represents amounts in
associates' financial statements prepared in accordance with IFRSs.
31 December 2021 31 December 2020
£'000 £'000
Non-current assets 1 2
Current assets 5,309 4,821
Current liabilities (49) (164)
Equity attributable to owners of the company 5,261 4,659
Revenue 173 278
Profit from continuing operations 133 250
Reconciliation of the above summarised financial information to the carrying
amount of the interest in Sancus (Isle of Man) Holdings Limited recognised in
the consolidated financial statements:
31 December 2021 31 December 2020
£'000 £'000
Net assets of associate 5,261 4,659
Proportion of the Group's ownership interest in the associate 1,543 1,366
Goodwill arising on acquisition 763 763
Write down of carrying value (1,806) (1,263)
Carrying amount of the Group's interest in the associate 500 866
10. LOSS PER ORDINARY SHARE
Consolidated loss per Ordinary Share has been calculated by dividing the
consolidated loss for the year after tax attributable to Ordinary Shareholders
of £10,339,000 (31 December 2020: loss of £14,517,000) by the weighted
average number of Ordinary Shares (excluding treasury shares) outstanding
during the period of 478,141,413 (31 December 2020: 315,797,259).
Note 16 describes the warrants in issue. Taking these warrants into account
the weighted average number of Ordinary Shares used in calculating the diluted
loss per share was 493,540,868 (31 December 2020: 346,046,187).
31 December 2021 31 December 2020
Number of shares 489,843,477 489,843,477
Weighted average no. of shares in issue throughout the year 478,141,413 315,797,259
Basic Loss per share (2.16)p (4.60)p
Diluted Loss per share (2.09)p (4.19)p
11. FIXED ASSETS
Cost Right-of-use assets Property & Equipment Total
£'000 £'000
£'000
At 31 December 2019 1,089 433 1,522
Additions in the year - 29 29
Leases expired (75) - (75)
Lease variations 253 - 253
At 31 December 2020 1,267 462 1,729
Additions in the year 128 15 143
Disposals - (14) (14)
Leases expired (132) - (132)
Lease variations (16) - (16)
At 31 December 2021 1,247 463 1,710
Accumulated depreciation Right-of-use assets Property & Equipment Total
£'000 £'000
£'000
At 31 December 2019 231 273 504
Charge in the year 208 54 262
Leases expired (75) - (75)
Lease variations 264 - 264
At 31 December 2020 628 327 955
Charge for the year 190 51 241
Disposals - (14) (14)
Leases expired (132) - (132)
At 31 December 2021 686 364 1,050
Net book value 31 December 2021 561 99 660
Net book value 31 December 2020 639 135 774
12. GOODWILL
£'000
At 31 December 2021 and 31 December 2020 goodwill comprises:
Sancus Lending Jersey 14,255
Sancus Lending Gibraltar 8,639
22,894
Impairment tests
The carrying amount of goodwill arising on the acquisition of certain
subsidiaries is assessed by the Board for impairment on an annual basis or
sooner if there has been any indication of impairment. The Board last assessed
the Goodwill for impairment on the preparation of the 2021 interim accounts,
with the next assessment due on the preparation of the 2022 interim accounts,
assuming that there having been no indicators of impairment in the interim
period.
The value in use of Sancus Jersey and Sancus Gibraltar was based on an
internal Discounted Cash Flow ("DCF") value-in-use analysis using cash flow
forecasts for the years 2021/22 to 2025/26. The starting point for each of the
cash flows was the revised forecast for 2021 produced by Sancus Lending Jersey
and Gibraltar management. Management's revenue forecasts applied a compound
annual growth rate (CAGR) to revenue of 16.1% and 19.6% for Jersey and
Gibraltar respectively. A cost of equity discount rate of 11.5% was employed
in the valuation model for Sancus Jersey and 12.0% for Sancus Gibraltar. The
resultant valuation indicated that no impairment of goodwill was required in
either Sancus Lending Jersey or Sancus Lending Gibraltar, with significant
headroom.
Goodwill valuation sensitivities
When the discounted cash flow valuation methodology is utilised as the primary
goodwill impairment test, the variables which influence the results most
significantly are the discount rates applied to the future cash flows and the
revenue forecasts. The table below shows the impact on the Consolidated
Statement of Comprehensive Income of stress testing the period end goodwill
valuation with a decrease in revenues of 10% and an increase in cost of equity
discount rate of 3%. These potential changes in key assumptions fall within
historic variations experienced by the business (taking other factors into
account) and are therefore deemed reasonable. The current model reveals that a
sustained decrease in revenue of circa 20% for Jersey and circa 28% for
Gibraltar or a sustained increase of circa 11% in the cost of Equity discount
rate for Jersey and circa 14% for Gibraltar would remove the headroom.
Sensitivity Applied Reduction in headroom implied by sensitivity
Sancus Sancus
Jersey Gibraltar Total
£'000 £'000 £'000
10% decrease in revenue per annum 5,650 3,063 8,713
3% increase in cost of equity discount rate 4,040 2,679 6,719
Neither a 10 % decrease in revenue nor a 3% increase in the cost of Equity
discount rate implies a reduction of Goodwill in Jersey or Gibraltar.
13. OTHER INTANGIBLE ASSETS
Cost £'000
At 31 December 2021, 31 December 2020 and 31 December 2019 1,584
Amortisation £'000
At 31 December 2019 1,250
Charge for the year 166
At 31 December 2020 1,416
Charge for the year 115
At 31 December 2021 1,531
Net book value 31 December 2021 53
Net book value 31 December 2020 168
Other Intangible assets comprise capitalised contractors' costs and other
costs related to core systems development. No impairment provision has been
recorded. The amortisation charge has been recorded in Operating expenses.
14. OTHER ASSETS
Development
properties
£'000
At 31 December 2019 3,336
Additions 236
Disposals (1,665)
Write downs (892)
At 31 December 2020 1,015
Additions 157
Disposals (676)
At 31 December 2021 496
Other assets comprise of a number of repossessed properties and developments
which were previously held as security against certain loans which have
defaulted. The write down in the prior year is that necessary to bring the
assets to the lower of cost and net realisable value. The remaining £0.5m
comprises of one development property which is held at cost.
15. TRADE AND OTHER RECEIVABLES
31 December
2021 31 December
£'000 2020
£'000
Loan fees, interest and similar receivable 4,146 7,438
Receivable from associated companies 10 49
Taxation 40 -
Derivative contracts (Note 22) 759 94
Other trade receivables and prepaid expenses 1,120 623
6,075 8,204
Loan fees, interest and similar receivables amounted to £11,201,000 at 31
December 2021 (31 December 2020: £9,628,000) before provisions against
receivables of £7,055,000 (31 December 2020: £2,190,000).
16. SHARE CAPITAL, SHARE PREMIUM & DISTRIBUTABLE RESERVE
Sancus has the power under its articles of association to issue an unlimited
number of Ordinary Shares of no par value.
No Ordinary shares were issued during the year. (2020: 177,777,778 Ordinary
shares for a consideration of £4,000,000).
Share Capital - ordinary shares of nil par value
31 December 2021 31 December 2020
Number of shares Number of shares
At beginning of the year 489,843,477 312,065,699
Issued during the year - 177,777,778
At end of the year 489,843,477 489,843,477
Share Premium - Ordinary shares of nil par value
31 December 2021 31 December 2020
£'000 £'000
At beginning of the year 116,218 112,557
Issued during the year - 4,000
Costs of issue - (339)
At end of the year 116,218 116,218
Ordinary shareholders have the right to attend and vote at Annual General
Meetings and the right to any dividends or other distributions which the
company may make in relation to that class of share.
Treasury Shares
31 December 2021 Number of shares 31 December 2020 Number of shares
At beginning of the year 7,925,999 7,925,999
Sancus shares acquired on sale of BMS Finance AB Limited 3,926,677 -
At end of the year 11,852,676 7,925,999
Treasury Shares (Continued)
31 December 2021 31 December 2020
£'000 £'000
At beginning of the year 1,099 1,099
Sancus shares acquired on sale of BMS Finance AB Limited 73 -
At end of the year 1,172 1,099
Warrants in Issue
On 22 December 2020, in connection with the issue of the New Bonds, the
Company issued 153,994,543 Warrants to subscribe in cash for new Ordinary
Shares at a subscription price of 2.25 pence per Ordinary Share. The
Warrants will be exercisable on at least 30 days notice in the period to 31
December 2025. As at 31 December 2021 and up to the date of signing these
accounts none of these warrants have been exercised. The warrants in issue are
classified as equity instruments because a fixed amount of cash is
exchangeable for a fixed amount of equity, there being no other features which
could justify a financial liability classification. The fair value of the
warrants at 31 December 2021 is £385,000 (31 December 2020: £847,000).
17. LIABILITIES
31 December 2021 31 December 2020
Non-current liabilities £'000 £'000
ZDP shares (1) - 12,424
Corporate Bond (2) 12,474 12,473
HIT Facility (3) 52,203 44,553
Lease creditors (Notes 2(u), 2(v) & 24) 364 469
65,041 69,919
31 December 2021 31 December 2020
Current liabilities £'000 £'000
ZDP shares (1) 10,532 -
Accounts payable 93 436
Payable to associated companies 16 -
Interest payable 366 -
Accruals and other payables 1,519 1,202
Taxation 86 118
Deferred income - 40
Provisions for financial guarantees - 1,542
Lease creditors (Notes 2(u), 2(v) & 24) 212 188
12,824 3,526
Provisions for financial guarantees were recognised in the prior year in
relation to ECLs on off-balance sheet loans and debtors where the company has
provided a subordinated position or other guarantee (Note 25). No such
provision was required in the current year. The fair value is determined using
the exact same methodology as that used in determining ECLs (Note 2(f) and
Note 22). The amount credited to operating profit in the year was £1,542,000
(2020: £1,542,000 charged to operating profit), there being no other
movements.
31 December 2021 31 December 2020
Interest costs on debt facilities £'000 £'000
ZDP shares (1) 969 1,246
Corporate Bond (2) 906 706
HIT Facility (3) 4,137 3,785
Lease Interest 36 64
6,048 5,801
(1) ZDP shares
The ZDP Shares have a maturity date of 5 December 2022 with a final capital
entitlement of £1.6464 per ZDP Share.
Under the Companies (Guernsey) Law, 2008 shares in the Company can only be
redeemed if the Company can satisfy the solvency test prescribed under that
law. Refer to the Company's Memorandum and Articles of Incorporation for full
detail of the rights attached to the ZDP Shares. This document can be accessed
via the Company's website www.sancus.com (http://www.sancus.com) .
The ZDP shares bear interest at an average rate of 8% (2020: 8%). In
accordance with article 7.5.5 of the Company's Memorandum and Articles of
Incorporation, the Company may not incur more than £30m of long term debt
without the prior approval from the ZDP shareholders. The Memorandum and
Articles also specify that two debt cover tests must be met in relation to the
ZDPs. At 31 December 2021 the Company was in compliance with these covenants
as Cover Test A was 3.07 (minimum of 1.7) and Cover Test B was 5.38 (minimum
of 3.25). At 31 December 2021 senior debt borrowing capacity amounted to
£17.4m. The HIT facility does not impact on this capacity as it is
non-recourse to Sancus.
In addition to a tender offer in April 2021, whereby the company acquired, and
subsequently cancelled 1,690,034 ZDP shares, the company purchased a further
226,718 ZDP shares throughout the year. At 31 December 2021 the Company held
12,235,748 shares (31 December 2020: 12,009,030) with an aggregate value of
£18,810,266 (31 December 2020: £17,051,409).
(2) Corporate Bond
£6,125,000 of the existing £10m bonds were repaid early on 21 December 2020
(maturity was 30 June 2021). The remaining £3,875,000 were rolled into new
bonds which were issued on 22 December 2020. In addition to these a further
£8,700,000 new bonds were issued for cash on 22 December 2020 giving a total
amount of new bonds issued £12,575,000 (£15m may be issued over the life of
the bonds). The bonds bear interest at 7% (2020: 7%). The new bonds have a
maturity date of 31 December 2025.
(3) HIT Facility
On 28 January 2018, Sancus signed a funding facility with Honeycomb Investment
Trust plc (HIT). The funding line initially had a term of 3 years and
comprised of a £45m accordion and revolving credit facility. On 3 December
2020 this facility was extended to a 6 year term to end on 28 January 2024. In
addition to the extension the facility was increased to £75m. The facility
bears interest at 7.25%.
The HIT facility has portfolio performance covenants including that actual
loss rates are not to exceed 4% in any twelve month period and underperforming
loans are not to exceed 10% of the portfolio. Sancus Group has a £5.8m first
loss position on the HIT facility. Sancus has also provided HIT with a
guarantee, capped at £2m that will continue to ensure the orderly wind down
of the loan book, in the event of the insolvency of Sancus Group, given its
position as facility and security agent. Refer to Note 25 Commitments and
Guarantees.
18. TAXATION
The Company is exempt from Guernsey taxation under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance, 1989. A fixed annual fee of £1,200 (31 December
2020: £1,200) is payable to the States of Guernsey in respect of this
exemption.
Reconciliation of tax charge
2021 2020
£'000 £'000
Accounting loss before tax (10,358) (14,532)
Gibraltar Corporation Tax at 10% (2020: 10%) - -
Jersey Corporation Tax at 10% (2020: 10%) - -
Adjustment in respect of prior years (19) (15)
Tax (credit)/expense (19) (15)
Certain of the Group's subsidiaries have an estimated £16.0m of losses
between them available to carry forward to offset against qualifying future
trading profits. The Group does not recognise deferred tax assets in respect
of losses arising because in the opinion of the directors the quantum and
timing of any suitable profits which can utilise these losses is unknown.
19. NOTES TO THE CASH FLOW STATEMENT
Cash generated from operations (excluding loan movements)
2021 2020
£'000 £'000
Loss for the year (10,339) (14,517)
Adjustments for:
Net losses on FinTech Ventures - 5,936
Other net losses/(gains) 9 (221)
ZDP finance costs 874 1,039
Fair Value joint ventures and associates 473 1,937
Changes in expected credit losses 6,489 4,665
Amortisation/depreciation of fixed assets 356 428
Amortisation of debt issue costs 202 201
SPL Properties (59) 960
Changes in working capital:
Trade and other receivables (1,995) (4,303)
Trade and other payables (131) 38
Cash outflow from operations (excluding loan movements) (4,121) (3,837)
Changes in liabilities arising from financing activities
The tables below detail changes in the Group's liabilities arising from
financing activities, including both cash and non-cash changes. Liabilities
arising from financing activities are those for which cash flows were, or
future cash flows will be classified in the Group's consolidated cash flow
statement as cash flows from financing activities.
Debt issue costs (1) Amortisation of debt issue costs
£'000 Non-cash
1 January Payments (1) Receipts (1) Additions Non-cash £'000 £'000 Other 31 December
2021 £'000 £'000 Non-cash 2021
£'000 £'000 £'000
ZDP Shares 12,424 (2,756)(1) - - - 24 840(3) 10,532
Corporate Bond 12,473 (24)(5) - - - 25 - 12,474
HIT Facility 44,553 - 7,500 (3) - 153 - 52,203
Lease Liability 657 (193)(1) - - 128 - (16)(4) 576
Total liabilities 70,107 (2,973) 7,500 (3) 128 202 824 75,785
Debt issue costs (1) Amortisation of debt issue costs
Payments (1) £'000 Non-cash
1 January £'000 Receipts (1) Additions Non-Cash £'000 £'000 Other 31 December 2020
2020 £'000 Non-cash £'000
£'000 £'000
ZDP Shares 16,825 (4,443) - (44) (829)(2) 76 839(3) 12,424
Corporate Bond 10,000 (6,125) 8,700 (111) - 1 8(3) 12,473
HIT Facility 44,191 (3,500) 4,187 (159) - 124 (290)(3) 44,553
Lease Liability 890 (216) - - - - (17)(4) 657
Total liabilities 71,906 (14,284) 12,887 (314) (829) 201 540 70,107
(1)These amounts can be found under financing cash flows in the cash flow
statement.
(2) A loan to the value of £829,000 which sat within Sancus loans and loan
equivalents was swapped for 621,586 ZDP shares.
(3) Comprises interest accruals and unpaid debt issue costs.
(4) Lease variations.
(5 )Interest within operating cash flows.
20. CONSOLIDATED SUBSIDIARIES
The Directors consider the following entities as wholly owned subsidiaries of
the Group as at 31 December 2021. Their results and financial positions are
included within its consolidated results.
Subsidiary entity Date of Country of Nature of Holding % held
Incorporation Incorporation
Sancus Group Holdings Limited 27 December 2013 Guernsey Directly held -Equity Shares 100%
Sancus Lending (Jersey) Limited 1 July 2013 Jersey Indirectly held - Equity Shares 100%
Sancus Lending (Guernsey) Limited 18 June 2014 Guernsey Indirectly held - Equity Shares 100%
Sancus Lending (Gibraltar) 10 March 2015 Gibraltar Indirectly held - Equity Shares 100%
Limited
Sancus Lending (Ireland) Limited 10 April 2017 Ireland Indirectly held - Equity Shares 100%
Sancus Lending (UK) Limited 17 February 2011 UK Indirectly held - Equity Shares 100%
Sancus Holdings (UK) Limited 7 January 2011 UK Indirectly held - Equity Shares 100%
FinTech Ventures Limited 9 December 2015 Guernsey Directly held - Equity Shares 100%
Sancus Properties Limited 21 August 2018 Guernsey Indirectly held - Equity Shares 100%
Sancus Loans Limited 3 July 2017 UK Indirectly held - Equity Shares 100%
Sancus Group Holdings Limited and Sancus Holdings (UK) Limited act as holding
companies. Sancus Properties Limited engages in property development. Fintech
Ventures Limited is an investment company, investing in Fintech companies. The
activities of the remaining companies named above relate to the core business
of lending.
Sancus BMS Holdings Limited was voluntarily struck off on 13 September 2021
following the sale of the BMS Fund.
21. FINTECH VENTURES AND OTHER INVESTMENTS
The Directors consider the following entities as associated undertakings of
the Group as at 31 December 2021.
Name of Investment: Nature of holding Country of incorporation Percentage holding Measurement
FinTech Ventures:
LiftForward Inc Indirectly held - Equity United States of America 18.81% Fair Value
Finexkap Indirectly held - Equity France 10.76% Fair Value
Ovamba Solutions Inc Indirectly held - Equity United States of America 20.18% Fair Value
Funding Options Limited Indirectly held - Equity and Preference Shares United Kingdom 22.78% Fair Value
Open Energy Group Inc Indirectly held - Equity United States of America 22.71% Fair Value
Finpoint Limited Indirectly held - Equity United Kingdom 12.95% Fair Value
The percentage holdings in the above table are on a fully diluted basis,
assuming any warrants and management options all vest.
22. FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT
Sancus loans and loan equivalents 31 December 2021 31 December 2020
£'000 £'000
Non-current
Sancus loans 447 442
Sancus Loans Limited loans 6,196 3,421
Total non-current Sancus loans and loan equivalents 6,643 3,863
Current
Sancus loans 4,269 7,873
Loan equivalents - 117
Sancus Loans Limited loans 42,333 41,379
Total current Sancus loans and loan equivalents 46,602 49,369
Total Sancus loans and loan equivalents 53,245 53,232
Fair Value Estimation
The financial assets and liabilities measured at fair value in the
Consolidated Statement of Financial Position are grouped into the fair value
hierarchy as follows:
31 December 2021 31 December 2020
Level 2 Level 3 Level 2 Level 3
Assets £'000 £'000 £'000 £'000
FinTech Ventures investments - 500 - -
Derivative contracts 759 - 94 -
Total assets at Fair Value 759 500 94 -
All of the FinTech Ventures investments are categorised as Level 3 in the fair
value hierarchy. In the past the Directors have estimated the fair value of
financial instruments using discounted cash flow methodology, comparable
market transactions, recent capital raises and other transactional data
including the performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held by the
Group in the FinTech Ventures investments, as well as the challenges that have
faced the platforms during the pandemic, the Board's estimate of liquidation
value of these assets is £0.5m at 31 December 2021 (31 December 2020: £Nil)
following £0.5m deployed into an existing investment in March 2021. Changes
in the performance of these businesses and access to future returns via its
current holdings could affect the amounts ultimately realised on the disposal
of these investments, which may be greater or less than £0.5m. There have
been no transfers between levels in the period (2020: None).
FinTech Ventures investments
31 December 2021 Equity Loans Total
£'000 £'000 £'000
Opening fair value - - -
New investments/divestments (8) 74 66
Realised gains recognised in profit and loss 8 426 434
Closing fair value - 500 500
FinTech Ventures investments (continued)
31 December 2020 Equity Loans Total
£'000 £'000 £'000
Opening fair value 4,500 1,799 6,299
New investments/divestments - (277) (277)
Unrealised losses recognised in profit and loss (4,500) (1,496) (5,996)
Foreign exchange loss - (26) (26)
Closing fair value - - -
Assets at Amortised Cost
31 December 2021 31 December 2020
£'000 £'000
Sancus loans and loan equivalents 53,245 53,232
Trade and other receivables 4,196 7,487
Cash and cash equivalents 12,436 15,786
Total assets at amortised cost 69,877 76,505
Due to the relatively short-term nature of the above assets, their carrying
amount is considered to be the same as their fair value.
Liabilities at Amortised Cost
31 December 2021 31 December 2020
£'000 £'000
ZDP Shares 10,532 12,424
Corporate Bond 12,474 12,473
HIT Facility 52,203 44,553
Trade and other payables 2,656 2,453
Provisions in respect of guarantees - 1,542
Total liabilities at amortised cost 77,865 73,445
Refer to Note 17 for further information on liabilities.
Risk Management
The Group is exposed to financial risk through its investment in a range of
financial instruments, ie. in the equity and debt of investee companies and
through the use of debt instruments to fund its investment in loans. Such
risks are categorised as capital risk, liquidity risk, investment risk, credit
risk, and market risk (market price risk, interest rate risk and foreign
currency risk).
Comments supplementary to those on risk management in the Corporate Governance
section of this announcement are included below.
(1) Capital Risk Management
The Group's capital comprises ordinary shares as well as a number of debt
instruments. Its objective when managing this capital is to enable the Group
to continue as a going concern in order to provide a consistent appropriate
risk-adjusted return to shareholders, and to support the continued development
of its investment activities. Details of the Group's equity is disclosed in
Note 16 and of its debt in Note 17.
The Group and its subsidiaries (with the exception of Sancus Lending (UK)
Limited, which is regulated by the FCA) are not subject to regulatory or
industry specific requirements to hold a minimum level of capital, other than
the legal requirements for Guernsey incorporated entities. The Group considers
the amount and composition of its capital is currently in proportion to its
risk profile.
The Group monitors the ratio of debt (loans payable, bonds and ZDP Shares) to
other capital which, based upon shareholder approval, is limited to 5 to 1 (or
500%). At year-end this ratio increased to 394% (31 December 2020: 235%) due
to the HIT facility. The HIT facility is non-recourse to Sancus. Excluding
HIT, the ratio at year-end was 120% (31 December 2020: 84%).
(2) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and the
availability of funding through an adequate amount of committed credit
facilities to meet obligations when due. At the end of the reporting period
the group held cash of £12,436,000. The Group Treasury Committee monitors
rolling forecasts of the group's cash position in relation to its obligations
as they become due on a monthly basis. In addition, the group's liquidity
management involves projecting cash flows and considering the level of liquid
assets necessary to meet obligations. Where necessary contingency plans are
made to realise assets which are reasonably liquid in the short term.
The following table analyses the Group's financial liabilities into relevant
maturity groupings based on the period to the contractual maturity date. The
amounts in the table are the contractual undiscounted cash flows.
Contractual maturities of financial liabilities Within 12 months Between 1 and 2 years Between 2 and 5 years Total
£'000 £'000 £'000 £'000
31 December 2021
ZDP shares 10,532 - - 10,532
Corporate bond - - 12,474 12,474
Sancus Loans Limited - - 52,203 52,203
Trade and other payables 2,206 212 152 2,570
Total liabilities 12,738 212 64,829 77,779
Within 12 months Between 1 and 2 years Between 2 and 5 years Total
£'000 £'000 £'000 £'000
31 December 2020
ZDP shares - 12,424 - 12,424
Corporate bond - - 12,473 12,473
Sancus Loans Limited - - 44,553 44,553
Trade and other payables 3,408 200 269 3,877
Total liabilities 3,408 12,624 57,295 73,327
(3) Interest rate risk
Interest rate risk is the risk that the value of financial instruments will
fluctuate due to changes in market interest rates and that mismatches in the
interest rates applying to assets and liabilities will impact on the Group's
earnings.
The Group's cash balances, debt instruments and loan notes are exposed to
interest rate risk.
The Group did not enter into any interest rate risk hedging transactions
during the current or prior years.
The table below summarises the Group's exposure to interest rate risk:
Floating rate Financial Instruments Fixed Rate Financial Instruments Total
31 December 2021 £'000 £'000 £'000
Assets
Sancus loans and loan equivalents - 53,245 53,245
Cash and cash equivalents 12,436 - 12,436
Total assets 12,436 53,245 65,681
Liabilities
ZDP shares - 10,532 10,532
Corporate Bond - 12,474 12,474
Sancus Loans Limited - 52,203 52,203
Total liabilities - 75,209 75,209
Total interest sensitivity gap 12,436 (21,964) (9,528)
31 December 2020 £'000 £'000 £'000
Assets
Sancus Loans and loan equivalents 3,693 49,539 53,232
Cash and cash equivalents 15,786 - 15,786
Total assets 19,479 49,539 69,018
Liabilities
ZDP shares - 12,424 12,424
Corporate Bond - 12,473 12,473
Sancus Loans Limited - 44,553 44,553
Total liabilities - 69,450 69,450
Total interest sensitivity gap 19,479 (19,911) (432)
Interest rate sensitivities
The Group currently holds £12,436,000 in cash deposits, predominantly in
sterling. Whilst interest rates are currently negligible there is a risk that
these could go negative. At the current level of cash deposits this could cost
the group £124,000 per annum for every 1% decrease in interest rates. The
Group does not hold significant amounts in foreign currencies for any period
of time.
The Treasury Committee reviews interest rate risk on an ongoing basis, and the
exposure is reported quarterly to the Board and/or Audit and Risk Committee.
(4) Investment risk
Investment risk is defined as the risk that an investment's actual return will
be different to that expected. Investment risk primarily arises from the
Group's exposure to its FinTech Ventures portfolio (see Note 3). This risk in
turn is driven by the underlying risks taken by the platforms themselves -
their own strategic, liquidity, credit and operational risks.
The Group's framework for the management of this risk includes the following:
· Seats on the Boards of most of the platforms, which allow
input into strategy and monitoring of progress;
· pre-emptive rights on participation in capital raises, or the
support for capital raises, to protect against dilution;
· regular monitoring of the financial results of platforms;
· bi-annual reviews of the valuations of platforms, which provide
an opportunity to test the success of platforms' strategies; and
· quarterly reporting to the Board on these matters.
The Group measures fair values using the following fair value hierarchy that
reflects the significance of the inputs used in making the measurements.
· Level 1 - Inputs that are quoted market prices (unadjusted) in
active markets for identical instruments. A market is regarded as "active" if
transactions of the asset or liability take place with sufficient frequency
and volume to provide pricing information on an on-going basis. The Group
measures financial instruments quoted in an active market at a bid price.
· Level 2 - Inputs other than quoted prices included within Level 1
that are observable either directly (i.e. as prices) or indirectly (i.e.
derived from prices). This category includes instruments valued using: quoted
market prices in active markets for similar instruments; quoted prices for
identical or similar instruments in markets that are considered less than
active; or other valuation techniques in which all significant inputs are
directly or indirectly observable from market data. The chosen valuation
technique incorporates all of the factors that market participants would take
into account in pricing a transaction.
· Level 3 - Inputs that are unobservable. This category includes
all instruments for which the valuation technique includes inputs not based on
observable data and the unobservable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are valued
based on quoted prices for similar instruments but for which significant
unobservable adjustments or assumptions are required to reflect differences
between the instruments. If in the case of any investment the Directors at any
time consider that the above basis of valuation is inappropriate or that the
value determined in accordance with the foregoing principles is unfair, they
are entitled to substitute what in their opinion, is a fair value. In this
case, the fair value is estimated with care and in good faith by the Directors
in consultation with the Executive Management Team with a view to establishing
the probable realisation value for such shares as at close of business on the
relevant valuation day.
All of the FinTech Ventures investments are categorised as Level 3 in the fair
value hierarchy. In the past the Directors have estimated the fair value of
financial instruments using discounted cash flow methodology, comparable
market transactions, recent capital raises and other transactional data
including the performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held by the
Group in the FinTech Ventures investments, as well as the challenges that have
faced the platforms during the pandemic, the Board's estimate of liquidation
value of these assets is £0.5m at 31 December 2021 (31 December 2020: £Nil)
following £0.5m deployed into an existing investment in March 2021. Changes
in the performance of these businesses and access to future returns via its
current holdings could affect the amounts ultimately realised on the disposal
of these investments, which may be greater or less than £0.5m. There have
been no transfers between levels in the period (2020: None).
(5) Credit risk
Credit risk is defined as the risk that a borrower/debtor may fail to make
required repayments within the contracted time scale. The Group invests in
senior debt, senior subordinated debt, junior subordinated debt and secured
loans. Credit risk is taken in direct lending to third party borrowers,
investing in loan funds, lending to associated platforms and loans arranged by
associated platforms.
The Group mitigates credit risk by only entering into agreements related to
loan instruments in which there is sufficient security held against the loans
or where the operating strength of the investee companies is considered
sufficient to support the loan amounts outstanding.
Credit risk is determined on initial recognition of each loan and re-assessed
at each balance sheet date. The risk assessment is undertaken by the Executive
Management Team at the time of the agreements, and the Executive Management
Team continues to evaluate the loan instruments in the context of these
agreements. Credit risk is categorised into Stage 1, Stage 2 and Stage 3 with
Stage 1 being to recognise 12 month Expected Credit Losses (ECL), Stage 2
being to recognise Lifetime ECL not credit impaired and Stage 3 being to
recognise Lifetime ECL credit impaired.
Credit risk is initially evaluated using the LTV, (LTGDV and LTF where
relevant) and the circumstances of the individual borrower. For the majority
of loans security takes the form of real estate. There has been no significant
change in the quality of this security over the prior year. When determining
credit risk macro-economic factors such as GDP, unemployment rates, the impact
of Covid19 on real estate and other relevant factors are also taken into
account. A loan is considered to be in default when there is a failure to meet
the legal obligation of the loan agreement. Having regards to the principles
of IFRS 9 this would also include provisions against loans that are considered
by management as unlikely to pay their obligations in full without realisation
of collateral. Once identified as being in default a re-assessment of the
credit risk of that loan will be undertaken using the factors as noted above.
A decision will then be made as to whether to credit impair that asset.
In some instances borrowers will request loan modifications, extensions or
renegotiation of terms. Any such event will trigger a reassessment of the
credit risk of that loan where the reasons for the modification, extension or
renegotiation will be carefully assessed and may result in that asset being
credit impaired.
The entities in the Sancus Lending Group operate Credit Committees which are
responsible for evaluating and deciding upon loan proposals, as well as
monitoring the recoverability of loans, and taking action on any doubtful
accounts. All lending undertaken by Sancus Lending is secured. The credit
committee reports to the Sancus Lending Board on a quarterly basis.
Provision for ECL
A probability of default is assigned to each loan. This probability of default
is arrived at by reference to historical data and the ongoing status of each
loan which is reviewed on a regular basis. The loss given default is deemed to
be nil where LTV is equal to or less than 65%, as it is assumed that the asset
can be sold and full recovery made.
Provision for ECL is made using the credit risk, the probability of default
(PD) and the loss given default (PL) all of which are underpinned by the Loan
to Value (LTV), historical position, forward looking considerations and on
occasion, subsequent events and the subjective judgement of the Board.
Preliminary calculations for ECL are performed on a loan by loan basis using
the simple formula Outstanding Loan Value (exposure at default) x PD x PL and
are then amended as necessary according to the more subjective measures as
noted above.
To reflect the time value of money ECL is discounted back to the reporting
date using the effective interest rate of the asset (or an approximation
thereof) that was determined at initial recognition.
The following tables provide information on amounts reserved for ECL on loans
and loan equivalents as at 31 December 2021 and 31 December 2020 based on the
model adopted by management. Loans through platforms were added to the table
in 2020 (previously disclosed separately and not included in the below
analysis).
Sancus loans and loan Stage 1 Stage 2 Stage 3 Total
equivalents at 31 December 2021 £'000 £'000 £'000 £'000
Closing loans at 31 December 2020 41,972 4,047 7,213 53,232
New Loans 27,794 - - 27,794
Loans Repaid (17,640) (4,578) (3,273) (25,491)
Transfers from Stage 1 to Stage 2 (5,739) 5,739 - -
Transfers from Stage 1 to Stage 3 (16,247) - 16,247 -
Transfers from Stage 2 to Stage 3 - (368) 368 -
Loans written off (80) - - (80)
Movement in ECL - 903 (3,113) (2,210)
Closing loans at 31 December 2021 30,060 5,743 17,442 53,245
Loss allowance Stage 1 Stage 2 Stage 3 Total
at 31 December 2021 £'000 £'000 £'000 £'000
Closing loss allowance at 31 December 2020 - 903 3,296 4,199
Transfers from Stage 2 to Stage 3 - (37) 37 -
(Decrease)/Increase in provision - - 3,076 3,076
Utilisations - (866) - (866)
Closing loss allowance at 31 December 2021 - - 6,409 6,409
For certain loans the range of outcomes for loss given default considered by
the Directors is significant and therefore has a material impact on the
calculation of ECL.
Sancus loans and loan Stage 1 Stage 2 Stage 3 Total
equivalents at 31 December 2020 £'000 £'000 £'000 £'000
Closing loans at 31 December 2019 54,188 8,849 1,195 64,232
Add loans through platforms 31 - - 31
54,219 8,849 1,195 64,263
New Loans 19,168 - - 19,168
Loans Repaid (25,267) (3,582) (19) (28,868)
Transfers from Stage 1 to Stage 2 (380) 380 - -
Transfers from Stage 1 to Stage 3 (5,768) - 5,768 -
Transfers from Stage 2 to Stage 3 - (1,910) 1,910 -
Movement in ECL - 310 (1,641) (1,331)
Closing loans at 31 December 2020 41,972 4,047 7,213 53,232
Loss allowance Stage 1 Stage 2 Stage 3 Total
at 31 December 2020 £'000 £'000 £'000 £'000
Closing loss allowance at 31 December 2019 - 1,213 1,655 2,868
Transfer from Stage 2 to Stage 3 - (125) 125 -
(Decrease)/Increase in provision - (185) 1,516 1,331
Closing loss allowance at 31 December 2020 - 903 3,296 4,199
Reconciliation of Provision for ECLs to charge in the statement of
comprehensive income
Loans Trade Debtors Guarantees Total
Loss allowance at 31 December 2020 4,199 2,190 1,542 7,931
Charge/(credit) for the year 2021 3,076 4,865 (1,542) 6,399
Utilisations (866) - - (866)
Loss allowance at 31 December 2021 6,409 7,055 - 13,464
For certain loans the range of outcomes for loss given default considered by
the Directors is significant and therefore has a material impact on the
calculation of ECL.
(6) Market price risk
The Group has no exposure to market price risk of financial assets valued on a
Level 1 basis as disclosed earlier in this note.
(7) Foreign exchange risk
Foreign exchange risk is the risk that the value of financial instruments will
fluctuate due to changes in foreign exchange rates. Investments made in
currencies other than Sterling are currently valued at £Nil and therefore
there is no exposure.
The exchange rates used by the Group to translate foreign currency balances
are as follows:
Currency 31 December 2021 30 June 31 December 30 June 31 December
2021 2020 2020 2019
EUR 1.1898 1.1663 1.1202 1.1039 1.1815
USD 1.3527 1.3830 1.3664 1.2399 1.3259
The Treasury Committee monitors the Group's currency position on a regular
basis, and the Board of Directors reviews it on a quarterly basis. Loans
denominated in Euros which are taken out through the HIT facility are hedged.
Forward contracts to sell Euros at loan maturity dates are entered into when
loans are drawn in Euros. The following forward foreign exchange contracts
were open at the respective dates:
At 31 December 2021
Counterparty Settlement date Buy Currency Buy Amount £'000 Sell currency Sell amount €'000 Unrealised gain £'000
EWealthGlobal Group Limited February 2022 to May 2023 GBP 14,769 Euro 16,817 623
Liberum Wealth Limited February 2022 GBP 1,183 Euro 1,299 92
Lumon Risk Management April 2022 to GBP 5,148 Euro 6,046 44
May 2023
Unrealised gain on forward foreign contracts 759
At 31 December 2020
Counterparty Settlement date Buy Currency Buy Amount £'000 Sell currency Sell amount €'000 Unrealised gain £'000
EWealthGlobal Group Limited January 2021 to February 2022 GBP 4,121 Euro 4,641 (50)
Liberum Wealth Limited January 2021 to December 2021 GBP 8,062 Euro 8,854 144
Unrealised gain on forward foreign contracts 94
No hedging has been taken out against investments in the FinTech Ventures
platforms (2020: £Nil).
23. RELATED PARTY TRANSACTIONS
Transactions with the Directors/Executive Management Team
Non-executive Directors
As at 31 December 2021, the non-executive Directors' annualised fees,
excluding all reasonable expenses incurred in the course of their duties which
were reimbursed by the Company, were as detailed in the table below:
31 December 2021 31 December 2020
£ £
Steven Smith (Chairman - appointed Chairman 31.8.21) 50,000 -
Patrick Firth (Chairman - resigned Chairman 31.8.21) - 48,750
John Whittle 42,500 41,438
Nick Wakefield 35,000 34,125
Golf Investments Limited ('Golf'), a subsidiary of Somerston, of which Mr
Wakefield is a Director, holds 200,349,684 ordinary shares in the Company,
representing 40.9 per cent of the current issued share capital. From time to
time, the Somerston Group may participate as a Co-Funder in Sancus Lending
loans. Other than this and the directors' fees and expenses in relation to Mr
Wakefield's appointment as a director the Group does not transact with either
Golf or Somerston.
Total Directors' fees charged to the Company for the year ended 31 December
2021 were £138,279 (31 December 2020: £124,313) with £Nil (31 December
2020: £Nil) remaining unpaid at the year-end.
Executive Management Team
The Executive Management Team consisted of Rory Mepham (appointed 30 June
2021), Andrew Whelan (resigned 30 June 2021), Emma Stubbs, and Dan Walker
(resigned 31 January 2022). The Executive Management Team members'
remuneration from the Company, excluding all reasonable expenses incurred in
the course of their duties which were reimbursed by the Company, was as
detailed in the table below:
2021 2020
£'000 £'000
Aggregate remuneration in respect of qualifying service - fixed salary 598 646
Aggregate amounts contributed to Money Purchase pension schemes 24 48
Aggregate bonus paid (cash) 325 210
See remuneration report for further details. All amounts have been charged to
Operating Expenses.
Directors' and Persons Discharging Managerial Responsibilities ("PDMR")
shareholdings in the Company
The Directors and PDMRs had the following beneficial interests in the Ordinary
Shares of the Company:
31 December 2021 31 December 2020
No. of Ordinary Shares Held % of Ordinary Shares No. of Ordinary Shares Held % of Ordinary Shares
John Whittle 138,052 0.03 138,052 0.03
Andrew Whelan* - - 9,553,734 1.95
Emma Stubbs 1,380,940 0.28 1,380,940 0.28
Dan Walker 911,300 0.19 911,300 0.19
*Andrew Whelan resigned 30 June 2021.
During the year and prior year no directors received dividends on their
Ordinary Share holdings in the Company.
Mr Walker had an outstanding unsecured loan from Sancus Holdings (UK) Limited
in the amount of £31,053 at 31 December 2021 and 31 December 2020. This was
waived in January 2022. The loan was interest free and repayable on demand.
From time to time members of key management personnel participate as
co-funders in loans originated by the Group.
Transactions with connected entities
The following transactions with connected entities took place during the year:
31 December 2021 £'000 31 December 2020 £'000
Receivable from/(payable to) related parties
Sancus (IOM) Holdings Limited (16) 2
Sancus (IOM) Limited - 36
Amberton Limited 10 -
Amberton Asset Management Limited - 11
Office and staff costs recharges
Amberton Asset Management Limited 18 41
Amberton Limited 9 -
Sancus (IOM) Limited - 125
There is no ultimate controlling party of the Company. All platform loans and
preference shares bear interest at a commercial rate.
24. LEASES
The Group as Lessee
Maturity Analysis - contracted undiscounted cash flows
31 December 2021 £'000 31 December 2020 £'000
Within one year 247 240
In the second to fifth years inclusive 413 569
After five years - -
660 809
All lease commitments relate to office space.
Lease liabilities included in the statement of financial position
31 December 2021 £'000 31 December 2020 £'000
Current 212 188
Non-current 364 469
576 657
Amounts recognised in the statement of comprehensive income
2021 2020
£'000 £'000
Depreciation expense on right-of-use assets 190 208
Interest expense on lease liabilities 36 64
Expense related to short term leases 78 137
Income received from sub-leasing right-of-use assets 60 -
25. COMMITMENTS AND GUARANTEES
The Group's commitments and guarantees are described below.
HIT Facility
Sancus Group has invested £9.5m (2020: £6.3m) of its own capital in Sancus
Loans Limited which sits in a £5.8m first loss position as part of the HIT
facility. Sancus has also provided HIT with a guarantee, capped at £2m that
it will continue to ensure the orderly wind down of the HIT related loan book,
in the event of the insolvency of Sancus Group, given its position as facility
and security agent. Nothing has been provided in the accounts for this (2020:
£Nil).
Sancus Loan Notes
SLN7 launched on 10 May 2021 with £16.6m assets. As at 31 December 2021 this
had £16.3m assets. Sancus Group Holdings Limited has a 10% first loss
position on this loan note.
Unfunded Commitments
As at 31 December 2021 the Group has unfunded commitments of £47.3m (31
December 2020: £28.4m). These unfunded commitments primarily represent the
undrawn portion of development finance facilities. Drawdowns are conditional
on satisfaction of specified conditions precedent, including that the borrower
is not in breach of its representations or covenants under the loan or
security documents. The figure quoted is the maximum exposure assuming that
all such conditions for drawdown are met. Directors expect the majority of
these commitments to be filled by Co-Funders.
26. POST YEAR END EVENTS
On 31 January 2022 the Group sold its 29.32% interest in Sancus (Isle of Man)
Holdings Limited for a consideration of £500,000.
27. AVAILABILITY OF REPORT AND ACCOUNTS
The Company's annual report and accounts for the year ended 31 December 2021
is available to download from the Company's website at www.sancus.com
(http://www.sancus.com) . A copy of the report and accounts, together with
a notice for the Company's 2021 annual general meeting (the "AGM Notice"), is
expected to be posted to shareholders who have elected to receive hard copies
in April. The AGM Notice will also be available to download from the Company's
website in due course.
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