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REG - Sancus Lending Group - Interim Results

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RNS Number : 5249A  Sancus Lending Group Limited  26 September 2022

26 September 2022

 

Sancus Lending Group Limited

("Sancus", the "Company" or "Group")

Interim Results for the six-month period ended 30 June 2022

 

 

HIGHLIGHTS

 

Rory Mepham, Chief Executive Officer of Sancus Lending Group Limited,
commented:

 

"We started 2022 with a clear strategy to return the business to
profitability, and a management team focussed on execution.  In the first
half of the year we have made good progress towards this as well as a number
of significant positive achievements. The number of new facilities written is
significantly up on last year in the UK and Ireland and I am pleased to report
no further IFRS9 provisions have been made during the period, following a
thorough review of the loan book last year.

 

Our focus on returning the Group to profitability remains our top priority. We
are also looking to broaden our funder base and improve funding terms, expand
the Group's presence in the UK and Ireland and grow its loan book in the
Offshore markets of the Channel Islands and Gibraltar.

 

The next step of our plan is to address and secure our long-term financing
strategy, and our ZDPs remain an integral part of this. The current maturity
date of the ZDPs is 5 December 2022 and we will shortly be engaging with the
holders to agree a long-term plan meeting the needs of all stakeholders whilst
enabling the Group to reinvest for growth."

 

 

Financial Highlights

 

 ·                 Impressive growth of new loan facilities written of £86m in the first half of
                   the year (H1 2021: £53m) and exceeding the full year loans written in 2021 of
                   £83m;
 ·                 Stabilisation of the loan book with no new IFRS9 provisions made in the period
                   (H1 2021: £3.0m loss);
 ·                 Group revenue for the first half of the year was £4.8m (H1 2021: £5.0m); and
 ·                 Group operating loss for the period halved to £2.1m (H1 2021: loss £4.1m).

 

 

Operational Highlights

 

 ·             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; and
 ·             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. UK revenue increased by 36% on last year and Ireland
               is up 227%.
 ·             Uncertain market outlook may present opportunities for well capitalised
               alternative lenders.

 

 

The information contained within this Announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No.596/2014 as amended by The Market Abuse (Amendment) (EU Exit)
Regulations 2019. By the publication of this Announcement via a Regulatory
Information Service, this inside information is now considered to be in the
public domain.

 

 

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             +44 (0) 7949 939 237
 Tim Linacre

Victoria Hayns

 

 

 

CHAIRMAN'S STATEMENT

 

Introduction

 

Our structured change programme which will reposition the Group for growth is
well underway. Our chosen markets continue to present compelling opportunities
and with reduced appetite amongst traditional balance sheet lenders, we are
confident we can write high quality new business.

 

The expansion of the sales teams has started to pay dividends with a
significant improvement in new loan facilities written in the first half of
the year of £86m, versus £53m written in the same period last year.

 

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
last year resulting in impairments of £6.4m in FY 2021 which at the time we
believed drew a line under recent losses. I am therefore pleased to report no
further IFRS9 provisions in the period.

 

 

Our People

 

Following last year's personnel changes, the team has settled in well and are
working collaboratively to deliver our key goals of profitability and
growth.  The Group has invested in rebuilding and reinforcing the team and
our headcount has increased from 32 at the end of 2021 to 42 at 30 June 2022.
We do not envisage further material hires. The new resource is focussed on
expansion in our growth markets of the UK and Ireland and our credit and
management focus as we deliver new business in the coming years.

 

 

Zero Dividend Preference Shares ("ZDPs")

 

The key milestones at the end of 2020 were the new equity raise, the
restructuring of our debt (Bonds and ZDPs) and the increase and extension of
our facility with HIT. Somerston Group, our largest shareholder, participated
in both the equity raise and new bond issue and I thank them for their
continued support.

 

On 15 July 2022 the Group entered into a ZDP share buyback programme to
purchase up to £0.5m of the ZDPs pursuant to the authority granted to the
Directors by shareholders at the Group's AGM in May 2022. We fully deployed
the funds we were looking to return by 19 August 2022.

 

The ZDPs are an integral part of the Group's finance strategy and given the
maturity date of 5 December 2022, we will engage with the ZDP shareholders
shortly and seek their support to restructure enabling the Group to implement
its plan to return to profitability.

 

 

Dividend and Shareholders

 

It is the Board's intention to reinvest surplus resources for growth. As such,
the Group does not intend to declare a dividend for the period. 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 and for the efforts of the management and
employees.

 

While the Group has made good progress in the first half of the year, we do
not underestimate the scale and continuing challenge ahead. I am firmly of the
view that we have the right strategy, systems and personnel to put the
business onto a firmer footing and return to profitability and I look forward
to reporting more positive developments in the coming period.

 

Steve Smith

Chairman

 

 

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Overview

 

The first half of the year saw a number of significant achievements and I am
pleased with the progress made.

 

We saw a significant increase in loans written in H1 2022 with £86m written
in the six months to June 2022 versus £53m written in the same period in
2021. This will lead to corresponding growth of loans under management as
these loans are drawn.

 

This loan book growth has been prevalent in the UK (144% growth versus June
2021) and Irish markets (150% growth versus June 2021) where the Sancus name
and reputation continue to develop. In the UK we are particularly proud to
have been shortlisted for the award of Development Finance provider of the
year at the Bridging & Commercial awards, a clear demonstration of our
growing reputation as a straightforward and trusted business partner.

 

It will take time for the loan writing process to deliver revenue uplift as
there is a time lag between execution and drawdown, though fees are paid
upfront on new deals and we generally receive exit fees when the loan is
repaid. At the end of H1 2022 the loan book stood at £147m, a modest increase
of £5 million versus FY 2021, but we expect growth in the loan book to
increase in the second half of the year as the newly written loans continue to
be drawn.

 

 

Strategic KPIs

 

The Board agreed the following KPI's and we have started to see improvements:

 

·      Revenue growth

 

o  4% down on last year due to modest progress on loan deployment. Positive
upticks in our growth areas of the UK and Ireland, with the UK revenue up 36%
on last year and Ireland up 227%.

 

·      Growing loans under management

 

o  Loan book increase from £142m at the end of 2021 to £147m at the end of
June 2022.

 

·      Reducing cost of funding

 

o  This remains a focus for the Group, and we continue to seek cheaper cost
of funding. We are cognisant of recent rises in base rates. To address this,
we have started to implement a variable rate to borrowers based on Bank of
England base rates.

 

·      Become a capital efficient business

 

o  We continue to reduce the amount of own capital within loans, which at 30
June 2022 represented 4.2% of the total loan book, in comparison to 5.9% at
the end of June 2021.

 

·      Increasing operating profits - by increasing gross margin and
reducing costs

 

o  Operating loss for H1 2022 was £2.1m against an operating loss of £4.1m
last June. We have reported no further IFRS9 losses in the period.

o  Our cost base has increased on prior year as we focus on growth but in the
future we expect the cost ratio to revenue to reduce.

 

·      Return on Equity ("ROE")

o  Going forward we plan to become profitable and increase our ROE.

 

·      Ensuring a risk based approach is taken on all decision making

o  Embedding institutional credit processes and becoming increasingly
technology enabled has been a focus of the Group over the last year.

 

 

Origination

 

We have seen growth in new loan facilities written during the year with £86m
written during the first half of 2022 against £53m for the first half of 2021
and a total of £83m in FY 2021, as the benefits of our investment in the
sales and origination teams begin to come through.

 

Maintaining a high-quality credit process whilst scaling the quantity of new
loans is a priority. We expect to see continued growth in the UK and Ireland
as these remain key areas of investment for the Group. We further anticipate
that the Offshore business (including the Channel Islands and Gibraltar) will
continue to see attractive lending opportunities and we are confident that our
businesses in these jurisdictions are well placed to execute against those
opportunities as they arise.

 

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 are
exploring how we can better utilise technology to manage certain elements more
efficiently. We expect the onboarding of Salesforce (our chosen CRM software)
and its integration with our Loan Management System to be completed in the
second half of the year which will create further standardisation and
efficiencies.

 

 

Loan Management

 

The Sancus asset backed lending loan book increased since the end of 2021 from
£142m to £147m. With the number of new facilities written and as we see
funds deployed, we expect to be reporting a further increase in our loan book
at year-end. Further investment has been made in recruiting experienced loan
management team members during the period.

 

Continued 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 and we are pleased to report that the percentage of loan book
in recovery continues to reduce.

 

 

Funding

 

We continue to focus on growing the funding capacity of the business on
improved terms. This is particularly important in the context of the wider
economic climate where we are in a significant inflationary environment. As is
widely reported, the Bank of England Bank Rate has increased from 0.1% this
time last year to 2.25% at the time of writing this report (with further
increases likely). Additionally, we are seeking to work with a diversified mix
of funders, both private and institutional, to match funders with loans
meeting their varied risk and reward criteria. Currently, the Group is reliant
on four funding sources:

 

·      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 Offshore markets being Co-Funded. As a proportion of total funding
it has reduced from 51% at the end of December 2021 to 44% at 30 June 2022. 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.

 

Loan Notes, managed by Amberton Limited, remain an important funding
instrument for the business. Loan Note 8 was launched in January 2022 and
currently stands at £3.05 million. Loan Note 8 matures on 1 December 2026 and
has a coupon of 5% p.a. (payable quarterly), with Sancus providing a 20% first
loss guarantee. Loan Note 7 was launched in May 2021 and currently stands at
£17.3 million. Loan Note 7 matures in May 2024 and has a coupon of 7% p.a.
(payable quarterly), with Sancus providing a 10% first loss guarantee. As the
business matures it is planned to increase the regularity and widen the
variety of Loan Note products.

 

Sancus has an institutional funding line from the Honeycomb Investment Trust
("HIT"), which is managed by Pollen Street Capital and is designed to
complement our Co-Funder base and Loan Notes. On 3 December 2020 the HIT
credit facility was increased to £75m from £45m and the term was extended to
28 January 2024. At 30 June 2022 the total drawn was £55m and at the date of
this report stood at £65m (31 December 2021: £49.9m). The HIT facility
continues to be strategic for the business.

 

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 strategy.

 

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 market
adjusted improved terms. During the first half of 2022 the loan book funded by
institutional funding increased by 5% 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.

 

 

Finance & Operations

 

A focus on operational efficiencies within Finance & Operations to be
driven by technology wherever possible is underway. We continue to drive focus
and improvement in relation to corporate governance, Compliance & Risk
with the implementation of a developed risk management structure to ensure the
business is well set for future growth plans.

 

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 over the course of the last year and further steps have been undertaken in
2022.

 

We made several hires across the business over the last year, in particular to
bolster our Funding and Origination capabilities in the markets in which we
are active. At the end of June 2022, the Group headcount was 42 (31 December
2021: 32) with the largest increases in the Origination and Loan Management
teams. We believe the business is now well resourced to meet its objectives
and are focussing on continuous improvement and development of our people.

 

Realising value from the legacy FinTech Ventures Investments remains a target
for the management team. Monitoring and governance of FinTech Ventures
continues as we assist our investee platforms with their strategy.
Unfortunately, the profitability of many of these companies has 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.

 

 

Summary of Financial Performance

 

While Group revenue for the first half of 2022 was relatively flat on the
comparative period last year at £4.8m (H1 2021: £5.0m) we have seen an
increase in the UK and Irish revenues which is showing positive signs of
further growth over time.

 

We have reported an operating loss of £2.1m (H1 2021: loss of £4.1m) and no
further expected credit losses (IFRS 9) in the period (H1 2021: £3.0m loss).
An increase in operating expenses in the period has been driven by the
building out of our team. We expect costs to stabilise and we do not envisage
growing the team in the foreseeable future.

 

The Group's net assets have reduced in the period from £19.1m at 31 December
2021 to £17.1m as a result of the operating loss in the period.

 

The Board has carried out a full impairment review of the carrying amount of
goodwill and the resultant value-in-use calculation which indicated that no
impairment of goodwill was required in either Sancus Lending (Jersey) or
Sancus Lending (Gibraltar). The goodwill value therefore remains at £22.9m.

 

Group cash and cash equivalents was £8.6m at 30 June 2022. £5.4m of this
related to Group operational cash and £3.2m was within Sancus Loans Limited.

 

We continue to reduce our on balance sheet loans (excluding those loans in
Sancus Loans Limited). These amounted to £8.0m before IFRS9 provisions at 30
June 2022 compared to £9.7m at 31 December 2021 (£2.8m net of IFRS9
provisions at 30 June 2022 compared to £4.7m at 31 December 2021). Sancus
Loans Limited had loans of £58.4m at 30 June 2022 (31 December 2021:
£49.9m).

 

The Group's liabilities consist of the Bond of £12.6m which has a quarterly
paid coupon of 7% p.a. and matures on 31 December 2025; and ZDPs of £10.9m
with a coupon of 8% which matures on 5 December 2022. We will shortly be
engaging with stakeholders to discuss restructuring the ZDPs to enable the
Group to have time for its plans to be implemented and return to
profitability. The HIT credit facility was increased to £75m from £45m on 4
December 2020 and stood at £55m at 30 June 2022.

 

 

ESG

 

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.

 

H1 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 issues. We are well on our way to completing a materiality
assessment and intend to engage with stakeholders in the coming period.

 

We will report more fully on this in our 2022 Annual Report.

 

 

Outlook

 

Despite the uncertain outlook for the economy, 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. The economic uncertainty
is likely to lead to the continued retrenchment of Banks from both SME and
development financing which 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.

 

We continue to be enthusiastic about the opportunities that lie ahead of us
and look forward to delivering profitability.

 

Rory Mepham

Chief Executive Officer

 

 

RISKS, UNCERTAINTIES AND RESPONSIBILITY STATEMENT

 

Risks and uncertainties

 

There are a number of potential risks and uncertainties which could have a
material impact on the Group's performance over the remainder of the financial
year. These include, but are not limited to, Capital and liquidity risk,
Regulatory and compliance risk, Market risk, Credit risk with respect to the
loan book (primarily bridging loans and, increasingly, development loans),
Operational risk and the execution of Sancus strategy. These risks remain
unchanged from December 2021 and are not expected to change in the 6 months to
the end of the financial year. Further details on these risks and
uncertainties can be found in the December 2021 Annual Report.

 

 

Responsibility statement

 

The Directors confirm that to the best of their knowledge:

 

·      The Interim Report has been prepared in accordance with the AIM
rules of the London Stock Exchange;

 

·      This financial information has been prepared in accordance with
IAS 34 as adopted by the UK;

 

·      The interim results include a fair review of the important events
during the first half of the financial year and their impact on the financial
information as required by DTR 4.2.7R; and

 

·      The interim results include a fair review of the disclosure of
related party transactions as required by DTR 4.2.8R.

 

 

Approved and signed on behalf of the Board of Directors

 

 

INDEPENDENT REVIEW REPORT ON INTERIM FINANCIAL INFORMATION

 

Conclusion

 

We have been engaged by Sancus Lending Group Limited (the 'Company') to review
the condensed set of consolidated financial statements in the Interim Report
for the six months ended 30 June 2022 which comprises the condensed
consolidated statement of comprehensive income, the condensed consolidated
statement of financial position, the condensed consolidated statement of
changes in shareholders' equity, the condensed consolidated statement of cash
flows and related Notes 1 to 19.

 

We have read the other information contained in the Interim Report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of Consolidated
Financial Statements.

 

Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of consolidated financial statements in the
half-yearly financial report for the six months ended 30 June 2022 is not
prepared, in all material respects, in accordance with International
Accounting Standard 34 as adopted by the UK and the AIM Rules of the London
Stock Exchange.

 

Basis for Conclusion

 

We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Auditing Practices Board
for use in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.

 

As disclosed in note 2 of the interim condensed consolidated financial
statements, the financial statements of the Company are prepared in accordance
with IFRSs as adopted by the UK. The condensed set of financial statements
included in this half-yearly financial report has been prepared in accordance
with the International Accounting Standard 34, "Interim Financial Reporting",
as adopted by the UK.

 

Conclusions Relating to Going Concern

 

Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.

 

This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.

 

Responsibilities of directors

 

The Interim Report is the responsibility of, and has been approved by, the
Directors.  The Directors are responsible for preparing the Interim Report in
accordance with the AIM Rules of the London Stock Exchange.

 

In preparing the half-yearly financial report, the directors are responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.

 

Auditor's Responsibilities for the review of the financial information

 

In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of consolidated financial statement
in the half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.

 

Moore Stephens Audit and Assurance (Guernsey) Limited

Level 2 Park Place

Park Street

St Peter Port

Guernsey, GY1 3HZ

 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

For the period ended 30 June 2022

 

 

                                                                 Notes  Period ended  Period ended
                                                                        30 June 2022  30 June 2021

                                                                        (unaudited)   (unaudited)

                                                                        £'000         £'000

 Revenue                                                         4      4,823         5,002
 Cost of sales                                                   5      (3,560)       (3,386)
 Gross profit                                                           1,263         1,616
 Operating expenses                                              6      (3,350)       (2,671)
 Changes in expected credit losses                               17     -             (3,028)
 Operating loss                                                         (2,087)       (4,083)
 FinTech Ventures fair value movement                            17     114           8
 Other net losses                                                       (9)           (95)
 Loss for the period before tax                                         (1,982)       (4,170)
 Income tax expense                                                     -             (58)
 Loss for the period after tax                                          (1,982)       (4,228)

 Items that may be reclassified subsequently to profit and loss
 Foreign exchange arising on consolidation                              10            9
 Other comprehensive income for the period after tax                    10            9
 Total comprehensive loss for the period                                (1,972)       (4,219)

 Basic loss per Ordinary Share                                   7      (0.41)p       (0.88)p
 Diluted loss per Ordinary Share                                        (0.41)p       (0.81)p

 

The accompanying Notes form an integral part of these financial statements.

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

As at 30 June 2022

 

                                                      30 June 2022  31 December 2021 (audited)

                                                      (unaudited)
 ASSETS                                        Notes  £'000         £'000
 Non-current assets
 Fixed assets                                  8      549           660
 Goodwill                                      9      22,894        22,894
 Other intangible assets                       10     21            53
 Sancus loans and loan equivalents             17     43,111        6,643
 FinTech Ventures investments                  17     850           500
 Investments in joint ventures and associates         -             500
 Other investments                                    100           100
 Total non-current assets                             67,525        31,350

 Current assets
 Other assets                                  12     674           496
 Sancus loans and loan equivalents             17     16,480        46,602
 Trade and other receivables                   11     5,242         6,075
 Cash and cash equivalents                            8,609         12,436
 Total current assets                                 31,005        65,609

 Total assets                                         98,530        96,959

 EQUITY
 Share premium                                 13     116,218       116,218
 Treasury shares                               13     (1,172)       (1,172)
 Other reserves                                       (97,924)      (95,952)
 Total Equity                                         17,122        19,094

 LIABILITIES
 Non-current liabilities
 Borrowings                                           67,260        64,677
 Other liabilities                                    253           364
 Total non-current liabilities                 14     67,513        65,041

 Current liabilities
 Borrowings                                    14     10,944        10,532
 Trade and other payables                      14     1,859         1,628
 Tax liabilities                               14     104           86
 Provisions                                    14     70            -
 Other liabilities                             14     918           578
 Total current liabilities                            13,895        12,824

 Total liabilities                                    81,408        77,865

 Total equity and liabilities                         98,530        96,959

 

The financial statements were approved by the Board of Directors on 23
September 2022 and were signed on its behalf by:

 Director: John Whittle

 

The accompanying Notes form an integral part of these financial statement.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)

For the period ended 30 June 2022

 

                                                                                    Share     Treasury Shares  Warrants Outstanding  Foreign Exchange Reserve  Retained Earnings/  Total

                   Equity
                                                                                    Premium                                                                    (Losses)
                                                                                    £'000     £'000            £'000                 £'000                     £'000               £'000
 Balance at 31 December 2021 (audited)                                              116,218   (1,172)          385                   11                        (96,348)            19,094
 Fair value of warrants                                                             -         -                (385)                 -                         385                 -
 Transactions with owners                                                           -         -                (385)                 -                         385                 -
 Total comprehensive profit/(loss) for the period                                   -         -                -                     10                        (1,982)             (1,972)
 Balance at 30 June 2022 (unaudited)                                                116,218   (1,172)          -                     21                        (97,945)            17,122

 Balance at 31 December 2020 (audited)                                              116,218   (1,099)          847                   (1)                       (86,471)            29,494
 Acquired on sale of BMS Finance AB                                                 -         (73)             -                     -                         -                   (73)
 Fair value of warrants                                                             -         -                616                   -                         (616)               -
 Transactions with owners                                                           -         (73)             616                   -                         (616)               (73)
 Total comprehensive profit/(loss) for the period                                   -         -                -                     9                         (4,228)             (4,219)
 Balance at 30 June 2021 (unaudited)                                                116,218   (1,172)          1,463                 8                         (91,315)            25,202

 

The accompanying Notes form an integral part of these financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

For the period ended 30 June 2022

 

                                                                 Period ended  Period ended
                                                                 30 June 2022  30 June 2021

                                                                 (unaudited)   (unaudited)
                                                          Notes  £'000         £'000
                                                                 (626)

 Cash outflow from operations, excluding loan movements   15                   (2,654)

 Decrease / (Increase) in Sancus loans                           195           (2,298)
 Decrease in loans to UK and Irish SARLS                         -             1,796
 (Increase) / Decrease in loans through the HIT facility         (5,840)       4,518
 Investment in Sancus Loan notes                                 -             (50)
 Net cash (outflow)/inflow from operating activities             (6,271)       1,312

 Cash inflows / (outflows) from investing activities
 Divestment / (Investment) in IOM Preference Shares              516           (16)
 Net (Investments) / Repayments in FinTech Ventures              (236)         (492)
 (Investment) / Divestment in joint ventures                     (50)          9
 Expenditure on SPL Properties                            12     (178)         (52)
 Sale of SPL Properties                                          -             51
 Expenditure on fixed assets and intangibles                     (14)          (4)
 Net cash inflow / (outflow) from investing activities           38            (504)

 Cash inflows / (outflows) from financing activities
 Draw down of HIT facility                                15     2,500         2,496
 Capital element of lease payments                        15     (104)         (97)
 Repayment of ZDPs                                        15     -             (2,756)
 Net cash inflow / (outflow) from financing activities           2,396         (357)

 Effects of Exchange                                             10            9

 Net (decrease) / increase in cash and cash equivalents          (3,827)       460

 Cash and cash equivalents at beginning of period                12,436        15,786

 Cash and cash equivalents at end of period                      8,609         16,246

 

£3.2m of the £8.6m cash held at 30 June 2022 is for the exclusive use of
Sancus Loans Limited (June 2021: £12.4m of the £16.2m).

 

The accompanying Notes form an integral part of these financial statements.

 

 

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS

 

1.    GENERAL INFORMATION

 

Sancus Lending Group Limited (the "Company"), 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 zero dividend preference shares 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 Company's Memorandum and
Articles of Incorporation (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 Team is responsible
for the management of the Company.

 

The Company has taken advantage of the exemption conferred by the Companies
(Guernsey) Law, 2008, Section 244, not to prepare company only financial
statements which is consistent with the 2021 Annual Report.

 

 

2.    ACCOUNTING POLICIES

 

(a)        Basis of preparation

 

These condensed consolidated financial statements ("financial statements")
have been prepared in accordance with International Financial Reporting
Standard (IAS) 34 'Interim Financial Reporting', as adopted by the United
Kingdom and all applicable requirements of Guernsey Company Law.  They do not
include all the information and disclosures required in annual financial
statements and should be read in conjunction with the Company's annual audited
financial statements for the year ended 31 December 2021, which have been
prepared in accordance with International Financial Reporting Standards
("IFRS") as adopted by the United Kingdom.

 

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.

 

These financial statements were authorised for issue by the Company Directors
on 23 September 2022.

 

(b)        Principal accounting policies

 

The same accounting policies and methods of computation are followed in these
financial statements as in the last annual financial statements for the year
ended 31 December 2021.

 

(c)        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 ZDPs which are repayable on 5 December 2022 at
£10.7m.

 

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.

(d)        Critical accounting estimates and judgements in applying
accounting policies

 

The critical accounting estimates and judgements are as outlined in the
financial statements for the year ended 31 December 2021.

 

 

3.    SEGMENTAL REPORTING

 

Operating segments are reported in a manner consistent with the manner in
which the Executive 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 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 these 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

 Six months to 30 June 2022  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                     658       1,386   752      (251)                       -                  2,545             -            2,278           -                                        -                     4,823

 Operating Profit/(loss) *   (481)     (319)   467      (259)                       -                  (592)             (618)        -               -                                        (17)                  (1,227)
 Credit Losses               191       -       -        (191)                       -                  -                 -            -               -                                        -                     -
 Debt Costs                  -         -       -        -                           (860)              (860)             -            -               -                                        -                     (860)
 Other Gains/(losses)        24        -       5        (34)                        -                  (5)               5            -               155                                      -                     155
 Loss on JVs and associates  -         -       -        -                           -                  -                 -            -               -                                        (50)                  (50)
 Taxation                    -         -       -        -                           -                  -                 -            -               -                                        -                     -

 Profit After Tax            (266)     (319)   472      (484)                       (860)              (1,457)           (613)        -               155                                      (67)                  (1,982)

 Six months to 30 June 2021

 Revenue                     1,883     1,018   230      (239)                       -                  2,892             -            2,033           -                                        77                    5,002

 Operating Profit/(loss) *   685       136     (8)      (248)                       -                  565               (693)        -               -                                        73                    (55)
 Credit Losses               (2,270)   -       -        (746)                       -                  (3,016)           -            -               -                                        (12)                  (3,028)
 Debt Costs                  -         -       -        -                           (1,000)            (1,000)           -            -               -                                        -                     (1,000)
 Other Gains/(losses)        96        2       (26)     1                           -                  73                -            -               (4)                                      (49)                  20
 Loss on JVs and associates  -         -       -        -                           -                  -                 -            -               -                                        (107)                 (107)
 Taxation                    (58)      -       -        -                           -                  (58)              -            -               -                                        -                     (58)

 Profit After Tax            (1,547)   138     (34)     (993)                       (1,000)            (3,436)           (693)        -               (4)                                      (95)                  (4,228)

 

* 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 £220,000, Offshore to Ireland £37,000,
Head Office to Offshore £62,500 and UK to Head Office £31,000. "Other"
includes FinTech (excluding fair value and forex).

 

 

                                                                                                  Reconciliation to Financial Statements

 At 30 June 2022           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              43,991    11,908    534      63,252                      119,685            42,820          -                       850                   477          (65,302)                            98,530

 Total Liabilities         (40,295)  (13,055)  (180)    (67,659)                    (121,189)          (24,194)        -                       -                     (1,327)      65,302                              (81,408)

 Net Assets/(liabilities)  3,696     (1,147)   354      (4,407)                     (1,504)            18,626          -                       850                   (850)        -                                   17,122

 At 31 December 2021

 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

 

Head Office liabilities include borrowings £23.4m (December 2021: £23m).
Other FinTech assets and liabilities are included within "Other"

4.     REVENUE

 

                                              30 June 2022  30 June 2021

                                              (unaudited)   (unaudited)
                                              £'000         £'000
 Co-Funder fees                               767           777
 Earn out (exit) fees                         260           270
 Transaction fees                             1,711         1,662
 Total revenue from contracts with customers  2,738         2,709

 Interest on loans                            58            117
 HIT interest income                          2,027         1,794
 Other income                                 -             382
 Total Revenue                                4,823         5,002

 

 

5.       COST OF SALES

 

                      30 June 2022  30 June 2021

                      (unaudited)   (unaudited)
                      £'000         £'000
 Interest costs       881           1,016
 HIT interest costs   2,278         2,033
 Other cost of sales  401           337
 Total cost of sales  3,560         3,386

 

 

6.       OPERATING EXPENSES

 

                                        30 June 2022  30 June 2021

                                        (unaudited)   (unaudited)
                                        £'000         £'000

 Administration and secretarial fees    61            67
 Amortisation and depreciation          157           195
 Audit fees                             69            84
 Corporate Insurance                    69            27
 Directors Remuneration                 64            69
 Employment costs                       2,201         1,719
 Investor relations expenses            30            37
 Legal and professional fees            82            123
 Marketing expenses                     126           20
 NOMAD fees                             38            38
 Other office and administration costs  385           247
 Pension costs                          51            28
 Registrar fees                         15            15
 Sundry                                 2             2
 Total operating expenses               3,350         2,671

 

 

7.        LOSS PER ORDINARY SHARE

 

Consolidated loss per Ordinary Share has been calculated by dividing the
consolidated loss attributable to Ordinary Shareholders in the period by the
weighted average number of Ordinary Shares outstanding (excluding treasury
shares) during the period.

 

Note 13 describes the warrants in issue which are currently out of the money,
and therefore have not been considered to have a dilutive effect on the
calculation of Loss per Ordinary Share.

 

                                                           30 June 2022  30 June 2021

                                                           (unaudited)   (unaudited)

 Number of shares in issue                                 489,843,477   489,843,477
 Weighted average number of shares outstanding             477,990,801   478,294,522
 Loss attributable to Ordinary Shareholders in the period  £1,982,000    £4,228,000
 Basic Loss per Ordinary Share                             (0.41)p       (0.88)p
 Diluted Loss per Ordinary Share                           (0.41)p       (0.81)p

 

 

8.        FIXED ASSETS

 

                          Right of use assets  Property & Equipment      Total
 Cost                     £'000                £'000                     £'000
 At 31 December 2021      1,247                463                       1,710
 Additions in the period  -                    14                        14
 Disposals                -                    (15)                      (15)
 At 30 June 2022          1,247                462                       1,709

 

 Accumulated depreciation         £'000   £'000   £'000
 At 31 December 2021              686     364     1,050
 Charge in the period             98      27      125
 Disposals                        -       (15)    (15)
 At 30 June 2022                  784     376     1,160

 Net book value 30 June 2022      463     86      549

 Net book value 31 December 2021  561     99      660

 

 

9. GOODWILL

 

 Goodwill at 30 June 2022 and 31 December 2021 comprises:
                                                               £'000

 Sancus Lending (Jersey)                                       14,255
 Sancus Lending (Gibraltar)                                    8,639
 Total                                                         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 annual review is
due on 30 June each year. As a result the Board has assessed the Goodwill for
impairment on 30 June 2022.

 

The value in use of Sancus Lending (Jersey) and Sancus Lending (Gibraltar) was
based on an internal Discounted Cash Flow ("DCF") value-in-use analysis using
cash flow forecasts for the years 2022/23 to 2026/27. The starting point for
each of the cash flows was the revised forecast for the year 2022/23 produced
by Jersey and Gibraltar management. Management's revenue forecasts applied a
compound annual growth rate (CAGR) to revenue of 25.5% and 11.2% for Jersey
and Gibraltar respectively. A cost of equity discount rate of 13.5% was
employed in the valuation model for Jersey and 14.0% for Gibraltar. The
resultant valuation indicated that no impairment of goodwill was required in
either Jersey or 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 13% for Jersey and circa 20% for
Gibraltar or a sustained increase of circa 9% in the cost of Equity discount
rate for Jersey and circa 11% for Gibraltar would remove the headroom.

 

 Sensitivity Applied                               Reduction in headroom implied by sensitivity

                                                   Jersey           Gibraltar        Total

                                                    £'000            £'000           £'000

 10% decrease in revenue per annum                 5,026            2,483            7,509
 3% increase in cost of Equity discount rate       2,490            1,619            4,109

 

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.

 

 

10.     OTHER INTANGIBLE ASSETS

 

                                       £'000
 Cost
 At 30 June 2022 and 31 December 2021  1,584

 Amortisation
 At 31 December 2021                   1,531
 Charge for the period                 32
 At 30 June 2022                       1,563

 Net book value at 30 June 2022        21

 Net book value at 31 December 2021    53

 

 

Intangible assets comprise capitalised contractors' costs and costs related to
core systems development. No impairment provision has been recorded. The
amortisation charge has been recorded within Operating Expenses.

 

 

11.     TRADE AND OTHER RECEIVABLES

 

                                               30 June 2022  31 December 2021

(unaudited)
(audited)

 

 Current                                       £'000         £'000
 Loan fees, interest and similar receivable    3,285         4,146
 Receivable from associated companies          12            10
 Taxation                                      32            40
 Derivative contracts (Note 17)                -             759
 Other trade receivables and prepaid expenses  1,913         1,120
                                               5,242         6,075

 

12.      OTHER ASSETS

 

                              Development properties
 Cost                         £'000
 At 31 December 2020          1,015
 Additions                    157
 Disposals                    (676)
 At 31 December 2021          496
 Additions                    178
 At 30 June 2022              674

 

Other assets are developments which were previously held as security against
certain loans which have defaulted. These assets are held at the lower of cost
and net realisable value. The remaining £674,000 comprises of one development
property which is held at cost.

 

 

13.     SHARE CAPITAL, SHARE PREMIUM & DISTRIBUTABLE RESERVE

 

Sancus Lending Group Limited has the power under the Articles to issue an
unlimited number of Ordinary Shares of nil par value.

 

No Ordinary Shares were issued in the period to 30 June 2022 (Period to 30
June 2021: Nil).

 

 Share Capital

 Number of Ordinary Shares - nil par value
 At 30 June 2022 (unaudited) and 31 December 2021 (audited)  489,843,477

 

 

 Share Premium

 Ordinary Shares - nil par value                             £'000
 At 30 June 2022 (unaudited) and 31 December 2021 (audited)  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

 

                                                                       30 June 2022       31 December 2021

(unaudited)
(audited)

                                                                       Number of shares   Number of shares

 Balance at start of the period/year                                   11,852,676         7,925,999
 Sancus Lending Group shares acquired on the sale of BMS Finance AB    -                  3,926,677
 Balance at end of period/year                                         11,852,676         11,852,676

 

 

                                                                       30 June 2022  31 December 2021

(unaudited)
(audited)

                                                                       £'000         £'000

 Balance at start of the period/year                                   1,172         1,099
 Sancus Lending Group shares acquired on the sale of BMS Finance AB    -             73
 Balance at end of period/year                                         1,172         1,172

 

 

Warrants in Issue

 

On 22 December 2020, in connection with the issue of 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 30 June 2022 and up to the date of signing these condensed interim
financial statements none of these warrants have been exercised. The warrants
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 30 June 2022 is £Nil (31 December 2021: £385,000).

 

 

14.   LIABILITIES

 

 Non-current liabilities        30 June          2022           31 December 2021

(unaudited)
(audited)
                                £'000                           £'000
 Corporate bond (1)             12,487                          12,474
 HIT facility (2)               54,773                          52,203
 Lease Creditor                 253                             364
 Total non-current liabilities  67,513                          65,041

 

 

 Current liabilities              30 June           2022     (unaudited)                31 December  2021         (audited)
                                  £'000                                                 £'000
 ZDPs (3)                         10,944                                                10,532
 Accounts payable                 160                                                   93
 Accruals and other payables       1,699                                                1,519
 Taxation                         104                                                   86
 Payable to associated companies  -                                                     16
 Interest payable                 378                                                   366
 Derivative contracts (note 17)   321                                                   -
 Provisions                       70                                                    -
 Lease creditor                   219                                                   212
 Total current liabilities        13,895                                                12,824

 

 Movement on provision for financial guarantees
                                                     £'000
 At 31 December 2020                                 1,542
 Profit and loss credit in the year                  (1,542)
 At 31 December 2021                                 -
 Profit and loss charge in the period                70
 At 30 June 2022                                     70

 

Provisions for financial guarantees are recognised in relation to Expected
Credit Losses ("ECLs") on off-balance sheet loans and debtors where the
Company has provided a subordinated position or other guarantee (see Note 18).
The fair value is determined using the exact same methodology as that used in
determining ECLs (Note 17).

 

(1)      Corporate Bond

 

On 22 December 2020 Sancus Lending Group issued £12,575,000 corporate bonds
of which £3,875,000 were rolled from  the existing £10m bonds (the
remaining £6,125,000 being repaid) and £8,700,000 issued for cash. Over the
term of the bonds £15m may be issued. The bond maturity date is 31 December
2025 and they bear interest at 7% (2021: 7%).

 

(2)      HIT Facility

 

On 29 January 2018, Sancus Lending (UK) Limited signed a new funding facility
with Honeycomb Investment Trust plc (HIT). The funding line had a term of 3
years and comprised of a £45m accordion and revolving credit facility. On 3
December 2020 the term of the facility was extended to 28 January 2024. On the
same date 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
an obligation to maintain a 10% first loss position on the HIT facility.
Sancus Lending Group 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.

 

(3)      ZDPs

 

The ZDPs have a maturity date of 5 December 2022 with a final capital
entitlement of £1.6464 per ZDP share, and bear interest at an average rate of
8.0% (2021: 8.0%).

 

Refer to the Company's Memorandum and Articles of Incorporation for full
detail of the rights attached to the ZDPs. This document can be accessed via
the Company's website www.sancus.com.

 

In accordance with article 7.5.5 of the Articles, the Company may not incur
more than £30m of long term debt without the prior approval from the ZDP
shareholders. The Articles also specify that two debt cover tests must be met
in relation to the ZDPs. At 30 June 2022 the Company was in compliance with
these covenants as Cover Test A was 3.14 (minimum of 1.7) and Cover Test B was
5.65 (minimum of 3.25).

 

At the period end senior debt borrowing capacity amounted to £17.4m. The HIT
facility does not impact on this capacity as this is non-recourse to the
Company.

 

The number of ZDPs in issue at 30 June 2022 and 31 December 2021 was
19,101,384 of which 12,235,748 (31 December 2021: 12,235,748) with an
aggregate value of £19,522,833 (31 December 2021: £18,810,266) are held by
the Company.

 

 

15. NOTES TO THE CASH FLOW STATEMENT

 

 Cash outflow from operations (excluding loan movements)          30 June 2022  30 June 2021

(unaudited)
(unaudited)
                                                                  £'000         £'000

 Loss for the period                                              (1,982)       (4,228)

 Adjustments for:

 Net gain on FinTech Ventures                                     (114)         (8)
 Other net losses / (gains)                                       417           88
 Adjustment in carrying value of Sancus IOM Holdings Limited      -             116
 Accrued interest on ZDPs                                         400           468
 Impairment of financial assets                                   -             3,028
 Gain on SPL assets                                               -             (51)
 Gain on purchase of ZDPs                                         -             (34)
 Amortisation / depreciation of fixed assets                      157           195
 Amortisation of debt issue costs                                 95            105

 Changes in working capital:
 Trade and other receivables                                      82            (1,793)
 Trade and other payables                                         319                                             (540)

 Cash outflow from operations, excluding loan movements           (626)         (2,654)

 

 

Changes in liabilities arising from financing activities

 

The table below details 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.

 

                                              1 January 2022  Financing cash flows(1)  Amortisation of debt issue costs  Other      30 June 2022

                                                                                       Non-cash                          Non-cash
                                              £'000           £'000                    £'000                             £'000      £'000
 ZDPs                                         10,532          -                        12                                400(2)     10,944
 Corporate Bond                               12,474          -                        13                                -          12,487
 HIT Facility                                 52,203          2,500                    70                                -          54,773
 Lease Liability                              576             (104)                    -                                 -          472
 Total liabilities from financing activities  75,785          2,396                    95                                400        78,676

 

                                              1 January 2021  Financing cash flows(1)  Amortisation of debt issue costs  Other      30 June 2021

                                                                                       Non-cash                          Non-cash
                                              £'000           £'000                    £'000                             £'000      £'000
 ZDPs                                         12,424          (2,756)                  12                                434(2)     10,114
 Corporate Bond                               12,473          -                        12                                (24)(2)    12,461
 HIT Facility                                 44,553          2,496                    81                                -          47,130
 Lease Liability                              657             (97)                     -                                 (16)(3)    544
 Total liabilities from financing activities  70,107          (357)                    105                               394        70,249

 

(1)These amounts can be found under financing cash flows in the cash flow
statement.

(2) Interest accruals.

(3) Lease variation.

 

 

16.     RELATED PARTY TRANSACTIONS

 

Transactions with the Directors/Executive Team

 

Non-executive Directors

 

As at 30 June 2022, 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:

 

                                                              30 June 2022      30 June 2021
                                                              £'000             £'000

 Patrick Firth (Previous chairman - resigned 31 August 2021)  -                 50,000
 Stephen Smith (Chairman)                                     50,000            35,000
 John Whittle                                                 42,500            42,500
 Nick Wakefield (resigned 8 March 2022)                       -                 35,000
 Tracy Clarke (appointed 9 March 2022)                        35,000            -

 

On 9 March 2022 Tracy Clarke was appointed as a non-executive Director to the
Board. Tracy's directorships were listed in the RNS issued on 9 March 2022.

 

Tracy Clarke is a director of a number of Somerston Group companies. The
Somerston Group of companies collectively 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 loans. Other than this and the Directors' fees and expenses in relation
to Tracy's (and previously Nick's) appointment as a Director of the Group, the
Group has not recorded any transactions with any Somerston Group companies for
the period ended 30 June 2022 (30 June 2021: none).

 

Total Directors' fees charged to the Company for the period ended 30 June 2022
were £63,750 (30 June 2021: £68,640).

 

 

Executive Team

 

For the period ended 30 June 2022, the Executive Team members' remuneration
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:

 

                                                                         30 June 2022  30 June 2021
                                                                         £'000         £'000

 Aggregate remuneration in respect of qualifying service - fixed salary  238           303
 Aggregate amounts contributed to Money Purchase pension schemes         10            8
 Aggregate bonus paid                                                    -             125

 

All amounts have been charged to Operating Expenses.

 

 

Directors' and Persons Discharging Managerial Responsibilities ("PDMR")
shareholdings in the Company

 

As at 30 June 2022, the Directors had the following beneficial interests in
the Ordinary Shares of the Company:

 

                30 June 2022                                                    31 December 2021
                No. of Ordinary Shares Held  % of total issued Ordinary Shares  No. of Ordinary Shares Held  % of total issued Ordinary Shares

 John Whittle   138,052                      0.03                               138,052                      0.03
 Emma Stubbs    1,380,940                    0.28                               1,380,940                    0.28
 Dan Walker(1)  -                            -                                  911,300                      0.19

 

(1) Dan Walker resigned 31 January 2022

 

In the six month period to June 2022 and the year to December 2021, none of
the above received any amounts relating to their shareholding.

 

 

Transactions with connected entities

 

The following significant transactions with connected entities took place
during the current period:

 

 Receivable from/(payable to) related parties                   30 June 2022  31 December 2021
                                                                £'000         £'000
 Sancus (IOM) Holdings Limited(1)                               -             (16)
 Amberton Limited                                               12            10

 

(1) Sancus (IOM) Holdings Limited ceased to be a connected entity on 31
January 2022 when the Group sold its interest.

 

 Net Cost recharges
                     30 June 2022      30 June 2021
 Amberton Limited    4                 18

 

There is no ultimate controlling party of the Company.

 

 

17.     FINANCIAL INSTRUMENTS - Fair values and risk management

 

Sancus loans and loan equivalents

 

                                                      30 June 2022 (unaudited)  31 December 2021 (audited)
 Non-current                                          £'000                     £'000

 Sancus loans                                         786                       447
 Sancus Loans Limited loans                           42,325                    6,196
 Total Non-current Sancus loans and loan equivalents  43,111                    6,643

 Current

 Sancus loans                                         2,059                     4,269
 Sancus Loans Limited loans                           14,421                    42,333
 Total Current Sancus loans and loan equivalents      16,480                    46,602

 Total Sancus loans and loan equivalents              59,591                    53,245

 

 

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:

 

                                           30 June 2022      31 December 2021 (audited)

                                           (unaudited)
                                           Level 2  Level 3  Level 2         Level 3
                                           £'000    £'000    £'000           £'000

 Fintech Ventures investments              -        850      -               500
 Derivative contracts                      (321)    -        759             -
 Total assets / liabilities at fair value  (321)    850      759             500

 

The classification and valuation methodology remains as noted in the 2021
Annual Report.

 

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 £0.85m at 30 June 2022 (31 December 2021: £0.5m)
following £0.35m deployed into an existing investment in March 2022. 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 £0.85m. There have
been no transfers between levels in the period (2021: None).

 

 

Assets at Amortised Cost

                                    30 June 2022  31 December 2021
                                    (unaudited)   (audited)
                                    £'000         £'000
 Sancus loans and loan equivalents  59,591        53,245
 Trade and other receivables        3,329         4,196
 Cash and cash equivalents          8,609         12,436
 Total assets at amortised cost     71,529        69,877

 

 

Liabilities at Amortised Cost

                                      30 June 2022  31 December 2021
                                      (unaudited)   (audited)
                                      £'000         £'000
 ZDPs                                 10,944        10,532
 Corporate Bond                       12,487        12,474
 HIT facility                         54,773        52,203
 Trade and other payables             3,204         2,656
 Total liabilities at amortised cost  81,408        77,865

 

Refer to Note 14 for further information on liabilities.

 

 

 FinTech Ventures Investments                 Total Portfolio

 30 June 2022                                 £'000
 At 31 December 2021                          500
 Net new investments / loan repaid            236
 Realised gain recognised in profit and loss  114
 At 30 June 2022                              850

 

                                                 Total Portfolio

 31 December 2020                                £'000
 At 31 December 2020                             -
 Net new investments / (divestments)             66
 Realised gain recognised in profit and loss     434
 At 31 December 2021                             500

 

Credit Risk

 

Credit risk is defined as the risk that a borrower/debtor may fail to make
required repayments within the contracted timescale. 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. It is categorized into Stage 1, Stage 2 and Stage
3 with Stage 1 being to recognise 12 month ECLs, Stage 2 being to recognise
Lifetime ECLs not credit impaired and Stage 3 being to recognise Lifetime ECLs
credit impaired.

 

 

Foreign Exchange Risk - Derivative instruments

 

The Treasury Committee Team 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. At 30 June 2022 the following forward
foreign exchange contracts were open:

 

 

 June 2022

 Counterparty                        Settlement date               Buy Currency           Buy Amount £'000        Sell currency          Sell amount €'000               Unrealised loss £'000

 EWealthGlobal Group                 July 2022 to May 2023         GBP                    7,883                   Euro                   9,245                           (149)
 Lumon Risk Management               July 2022 to May 2023         GBP                    13,557                  Euro                   15,839                          (172)

                                                                                                                                                                         (321)

 December 2021

 Counterparty              Settlement date                         Buy Currency  Buy Amount £'000         Sell currency         Sell amount €'000          Unrealised gain £'000

 EWealthGlobal Group       Feb 2022 to May 2023                    GBP           14,769                   Euro                  16,817                     623
 Liberum Wealth            Feb 2022                                GBP           1,183                    Euro                  1,299                      92
 Lumon Risk Management     Apr 2022 to May 2023                    GBP           5,148                    Euro                  6,046                      44

                                                                                                                                                           759

 

No hedging has been taken out against investments in the FinTech Ventures
platforms (2021: £Nil).

 

 

Provision for ECL

 

Provision for ECL is made using the credit risk, the probability of default
(PD) and the probability of 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 x PD x PL and are then
amended as necessary according to the more subjective measures as noted above.

 

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 probability of loss is arrived
at with reference to the LTV and consideration of cash that can be redeemed on
recovery.

 

 

Movement of provision for ECL

                                                         Trade Debtors £'000

                                              Loans                            Guarantees £'000    Total

                                               £'000                                                £'000
 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
 Utilised in the year 2021                    (866)      -                     -                   (866)
 Loss allowance at 31 December 2021           6,409      7,055                 -                   13,464
 Charge/(credit) for the period to June 2022  372        (442)                 70                  -
 Utilised in the period to June 2022          -          (141)                 -                   (141)
 Loss allowance at 30 June 2022               6,781      6,472                 70                  13,323

 

 

18.     GUARANTEES

 

The Group undertakes a number of Guarantees and first loss positions which are
not deemed to be contingent liabilities under IAS37 as there is no present
obligation for these guarantees and it is considered unlikely that these
liabilities will crystallise.

 

HIT Facility

Sancus Group has a 10% first loss position as part of the HIT facility. Sancus
Group 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 Holdings Limited, given its position
as facility and security agent.

 

Sancus Loan Notes

SLN7 launched on 10 May 2021. At the end of June 2022 it had £17.4m of
assets. Sancus Group Holdings Limited has a 10% first loss position on this
loan note.

 

SLN8 launched on 10 March 2022. At the end of June 2022 it had £3.0m of
assets. Sancus Group Holdings Limited has a 20% first loss position on this
loan note.

 

Commitments

As at 30 June 2022 the Group has unfunded commitments of £69.4m (31 December
2021: £47.3m). 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 and/or by our secured funding lines.

 

 

19.     POST BALANCE SHEET EVENTS

 

Between 30 June 2022 and the signing of these financial statements the Company
purchased the following ZDPs:

 

 Date of Purchase  Number of shares purchased  Purchase price per share (£)

 19 July 2022      25,000                      1.38
 21 July 2022      35,000                      1.39
 22 July 2022      17,993                      1.41
 28 July 2022      10,000                      1.42
 8 August 2022     5,000                       1.46
 9 August 2022     43,200                      1.44
 12 August 2022    6,000                       1.48
 15 August 2022    10,000                      1.50
 16 August 2022    5,000                       1.50
 17 August 2022    5,000                       1.49
 19 August 2022    176,764                     1.54

 

Following these transactions, the Company has 19,101,384 ZDPs in issue of
which 12,574,705 are held by the Company. The total number of ZDP share voting
rights is therefore 6,526,679.

 

 

OFFICERS AND PROFESSIONAL ADVISERS

 

Directors

 

 Non-executive:  Steve Smith (Chairman - appointed 31 August 2021)
                 John Richard Whittle
                 Tracy Clarke

 Executive       Rory Mepham
                 Emma Stubbs

 

The address of the Directors is the Company's registered
office.

 

Executive Team:

 

 Chief Executive Officer:       Rory Mepham

 Chief Financial Officer:       Emma Stubbs

 Chief Investment Officer:      James Waghorn

 Registered office:             Block C
                                Hirzel Court
                                St Peter Port
                                Guernsey, GY1 2NL
                                Channel Islands

 Nominated Adviser and Broker:  Liberum Capital Limited
                                Ropemaker Place
                                25 Ropemaker Street
                                London, EC2Y 9LY
                                United Kingdom

 Company Secretary:             Sanne Fund Services (Guernsey) Limited
                                Sarnia House
                                Le Truchot
                                St Peter Port
                                Guernsey, GY1 1GR
                                Channel Islands

 Legal Advisers,                Carey Olsen
 Channel Islands:               P.O. Box 98
                                Carey House
                                Les Banques
                                St Peter Port
                                Guernsey, GY1 4BZ
                                Channel Islands

 Legal Advisers, UK             Stephenson Harwood
                                1 Finsbury Circus
                                London, EC2M 7SH
                                United Kingdom

 Legal Advisers, US             Troutman Pepper
                                3000 Two Logan Square
                                Eighteenth and Arch Streets
                                Philadelphia, PA 19103-2799
                                United States

 Bankers:                       Barclays International
                                1st Floor, 39041 Broad Street
                                St Helier
                                Jersey, JE4 8NE

 Auditors:                      Moore Stephens
                                P.O. Box 146, Park Place
                                Park Street
                                St Peter Port
                                Guernsey, GY1 3HZ
                                Channel Islands

 Registrar:                     Link Market Services Limited
                                The Registry, 34 Beckenham Road
                                Beckenham
                                Kent, BR3 4TU
                                United Kingdom

 Public Relations:              Instinctif Partners Limited
                                65 Gresham Street
                                London, EC2V 7NQ
                                United Kingdom

 

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