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REG - Sancus Lending Group - Interim Results

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RNS Number : 4094E  Sancus Lending Group Limited  17 September 2024

The information contained within this announcement is deemed 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. The person responsible for making this announcement on behalf of the
Company is Rory Mepham.

 

 

Sancus Lending Group Limited

 

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

 

Interim Results for the six month period ended 30 June 2024

 

17 September 2024

 

 

HIGHLIGHTS

 

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

 

In the first half of 2024 (H1 2024) the Group has achieved revenues of £7.5m
versus £5.4m in H1 2023 despite the headwinds caused by the higher interest
rate in our three core markets of the UK, Ireland and Channel Islands which
continue to impact housing sales and borrower confidence. The 39% increase in
revenue reflects our success in driving increased fee income. Our Assets Under
Management increased to £209m versus £202m as at 31 December 2023 and we
continue to strive to move from loss to profitability.

 

 

Financial Highlights

 

 •    New loan facilities written in H1 2024 of £51m (H1 2023: £57m).
 •    Group revenue H1 2024 of £7.5m (H1 2023: £5.4m).
 •    A reduction in IFRS 9 provisions in H1 2024 of £0.5m (H1 2023: increase of
      £0.8m).
 •    Reduction in Group Borrowing Costs to £1.2m (H1 2023: £1.7m) and a gain on
      repurchase of ZDPs of c. £1.1m (H1 2023: £nil).
 •    Group operating loss H1 2024 of £1.5m (H1 2023: loss £3.3m).
 •    Net loss after tax H1 2024 of £0.6m (H1 2023: loss £3.3m).

 

 

Strategic and Operating Highlights

 

 •    Joint venture with Hawk Lending Limited launched. The joint venture business
      has now started writing new business.
 •    Geographic focus remains unchanged, with three core markets UK, Ireland and
      Offshore.  UK represents 36% of the current loan book, Channel Islands 45%
      and Ireland 19%.
 •    Continued progress in diversifying our sources of funding and improving
      funding costs. The £25m Morton Family facility is now live.
 •                 The Group remains focused on maintaining credit
      discipline.

 

 

 

For further information, please contact:

 

 Sancus Lending Group Limited                      +44 (0)1534 708 900

 Rory Mepham

 Keith Lawrence

 Liberum (Nominated Adviser and Corporate Broker)  +44 (0) 20 3100 2000

 Lauren Kettle

 Chris Clarke

 William King

 Instinctif Partners (PR Adviser)                  +44 (0)207 457 2020

 Vivian Lai

 Hannah Scott

 Sanne Fund Services (Guernsey) Limited            +44 (0)1481 755530

 (Company Secretary)

 Matt Falla

 

CHAIRMAN'S STATEMENT

 

Introduction

 

The Company has continued to make strategic progress against the current
backdrop of economic uncertainty. Whilst the Group reported a loss of £(0.6)m
for H1 2024, the loss is materially improved from the loss of £(3.3)m in H1
2023 and has also been helped by the exceptional gain of c. £1.1m on the ZDP
shares. The Company remained disciplined in the volume of new loans written in
H1 2024 and enters H2 2024 cautiously optimistic about its new business
opportunities. The joint venture we announced with Hawk Lending Limited in
December 2023 became operational in H1 2024 and the business has now started
writing new business. The management team is taking all necessary steps to
ensure it becomes a profitable contributor to the Group.

 

Our People

 

As detailed in the 2023 Annual Report, Keith Lawrence was appointed as our new
Group Chief Financial Officer in March 2024, succeeding Tracy Clarke who had
acted as Interim Chief Financial Officer since March 2023. Tracy has now
resumed her role as a non-executive director of the Group.

 

Capital

 

In April 2024 Somerston, the Group's largest shareholder, subscribed for £5m
of preference shares in Sancus Loans Limited, one of our core subsidiaries.
Also in April, the Group repurchased 1.4m of its ZDP shares at a cost of
£1.5m, resulting in an accounting gain of c. £1.1m.

 

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 dividend
policy will be revisited at the appropriate time, should the profitability and
cash flow profile 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.

 

As I noted in the Chairman's statement in the 2023 annual report, we remain
cautious about the continuing challenges ahead. I firmly believe that we have
the right strategy, systems and personnel to put the business onto a stronger
footing and return to profitability and I look forward to reporting more
positive developments in the coming period.

 

 

 

Steve Smith

Chairman

16 September 2024

CHIEF EXECUTIVE OFFICER'S REVIEW

 

Overview

 

In the first half of 2024 we continued to navigate the negative impacts of a
sustained period of higher interest rates on the housing market. Against this
backdrop, we remain focused on the steps required to ensure we become a
profitable property private credit business in our core markets of the UK,
Ireland and Channel Islands.

 

Revenues in H1 2024 were £7.5m versus £5.4m in H1 2023. This reflects modest
growth in our loan book and also increased fee income in the UK in particular.

 

Loan book origination in H1 2024 was £51m versus £57m written in H1 2023,
partly due to continued low market confidence in all of our core markets.  As
at 30 June 2024 we had Assets Under Management ("AUM") of £209m versus £202m
as at 31 December 2023. As we enter the second half of 2024 we are optimistic
that market conditions will improve, especially in the UK, allowing us to
increase our loan volumes whilst retaining our underwriting discipline.

 

 

Our Strategy

 

We provide an update below against the strategic pillars set out in our 2023
Annual Report:

 

Focusing on revenue growth

 

 •    The Revenue rose 39% to £7.5m compared to £5.4m in H1 2023. This increase
      reflects fee income growth, especially in the UK and also modest growth in our
      AUM.

 

Achieving operating and cost efficiency

 

 •    Our reported operating expenses were £2.8m in H1 2024 versus £3.3m in H1
      2023. We remain committed to achieving further expense savings and operating
      efficiency.

 

Becoming a capital efficient business

 

 •    The amount of own capital within loans continues to be maintained at a low
      level, which at 30 June 2024 represented 0.4% of the total loan book, in
      comparison to 4.5% at 30 June 2023.
 •    We continue to make progress in diversifying our sources of fundings. As at 30
      June 2024 our Loan Note programme funding was £28m, modestly higher than the
      balance as at 31 December 2023 of £27m. The £25m Morton Family facility we
      agreed as part of our joint venture with Hawk Lending Limited is now live and
      we expect to use this facility during  H2 2024. Both the Loan Note programme
      and the Morton Family facility have interest rates lower than our
      institutional funding line.
 •    As at 30 June 2024 £87.75m of our loans were financed by an institutional
      line arranged by Pollen Street Capital (31 December 2023: £77.75m).

 

Our AUM, pro-forma for our joint venture with Hawk Lending, increased 3% from
£202m as at 31 December 2023 to £209m as at 30 June 2024.

 

 

Financial Summary

 

We have reported an operating loss of £1.5m for H1 2024 versus an operating
loss of £3.8m in H1 2023. The loss before tax in H1 2024 was £0.6m versus
£3.3m in H1 2023. In addition to the revenue growth outlined above, this
reflects:

 

 •    Operating expenses being £2.8m in H1 2024 versus £3.3m in H1 2023,
      reflecting both our continued focus on achieving operating efficiency and the
      transfer of certain costs, including staff costs, to the joint venture with
      Hawk Lending and which is reported as a "Share of net loss of joint venture."
 •    Group borrowing costs of £1.2m in H1 2024 versus £1.7m in H1 2023 following
      our purchase of 1.4m ZDPs in April 2024. This purchase of ZDPs also resulted
      in an accounting gain of £1.1m (recorded within "Other net gains").
 •    £0.5m reduction in expected credit losses (versus a £0.8m charge in H1
      2023). Our H1 2023 and full year 2023 results were materially impacted by our
      need to recognise expected credit losses against historic loans.
 •    Our share of the loss from our joint venture with Hawk Lending was £262k (H1
      2023: £nil), due to the delay between the launch of the joint venture and the
      start of writing new business.  The joint venture is now fully operational
      and we are focussed on ensuring it becomes a profit contributor to the Group.

 

 

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, to be custodians of
the environment and to practise good stewardship of our stakeholders'
interests.

 

Alongside the publication of our 2023 Results we published our second
Environmental, Social, and Governance report, marking the start of our journey
towards greater transparency and sustainability. The report highlights our
progress and achievements in the areas of environmental protection, social
responsibility and governance, as well as the challenges and opportunities
that we face.

 

 

Outlook

 

We continue to believe there are grounds for optimism and that with our
strategic focus and progress the long-term profitable growth potential for our
business is clear. Whilst the operating environment was somewhat uncertain for
much of H1 2024 we are cautiously optimistic as we enter H2 2024.

 

 

Rory Mepham

Chief Executive Officer

16 September 2024

 

 

 

 

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 the year ended 31 December 2023 and were not expected to change
in the 6 months to the end of the 2024 financial year. Further details on
these risks and uncertainties can be found in the 2023 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

16 September 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2024 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 20.

 

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 2024 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 statements
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 Kingston Smith LLP

9 Appold Street,

London,

EC2A 2AP

 

16 September 2024

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

 

 

                                                                            Notes  Period ended  Period ended
                                                                                   30 June 2024  30 June 2023

                                                                                   (unaudited)   (unaudited)

                                                                                   £'000         £'000

 Revenue                                                                    4      7,499         5,407
 Cost of sales                                                              5      (5,445)       (3,441)
 Gross profit                                                                      2,054         1,966
 Operating expenses                                                         6      (2,846)       (3,318)
 Group borrowing costs                                                      7      (1,182)       (1,664)
 Changes in expected credit losses                                          19     466           (799)
 Operating loss                                                                    (1,508)       (3,815)
 FinTech Ventures fair value movement                                       19     -             362
 Other net gains                                                            16     1,158         37
 Loss on disposal of other assets                                                  -             (202)
 Profit on disposal of other assets                                         14     -             303
 Share of net loss of joint ventures accounted for using the equity method  10     (262)         -
 Loss for the period before tax                                                    (612)         (3,315)
 Income tax expense                                                                (35)          2
 Loss for the period after tax                                                     (647)         (3,313)

 Items that may be reclassified subsequently to profit and loss
 Foreign exchange arising on consolidation                                         (30)          (20)
 Other comprehensive loss for the period after tax                                 (30)          (20)
 Total comprehensive loss for the period                                           (677)         (3,333)

 Basic loss per Ordinary Share                                              8      (0.12)p       (0.57)p
 Diluted loss per Ordinary Share                                            8      (0.12)p       (0.57)p

 

 

 

The accompanying Notes in the "Notes to the Financial Statements" section form
an integral part of these financial statements.

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)

 

                                                                       30 June 2024  31 December 2023 (audited)

                                                                       (unaudited)
 ASSETS                                                         Notes  £'000         £'000
 Non-current assets
 Property, plant and equipment                                  9      200           294
 Goodwill                                                       11     -             -
 Other intangible assets                                        12     -             -
 Sancus loans and loan equivalents                              19     11,946        10,148
 FinTech Ventures investments                                   19     -             -
 Investments in equity-accounted joint ventures and associates  10     14,370        14,255
 Other investments                                                     50            50
 Total non-current assets                                              26,566        24,747

 Current assets
 Other assets                                                   14     -             -
 Sancus loans and loan equivalents                              19     75,556        68,617
 Trade and other receivables                                    13     10,816        8,058
 Cash and cash equivalents                                             5,995         4,990
 Total current assets                                                  92,367        81,665

 Total assets                                                          118,933       106,412

 EQUITY
 Share premium                                                  15     118,340       118,340
 Treasury shares                                                15     (1,172)       (1,172)
 Other reserves                                                        (119,821)     (119,144)
 Total Equity                                                          (2,653)       (1,976)

 LIABILITIES
 Non-current liabilities
 Borrowings                                                            119,228       106,086
 Other liabilities                                                     84            130
 Total non-current liabilities                                  16     119,312       106,216

 Current liabilities
 Trade and other payables                                              1,046         925
 Hedging contracts                                                     118           231
 Tax liabilities                                                       110           76
 Lease liabilities                                                     90            152
 Provisions                                                            11            18
 Interest payable                                                      899           770
 Total current liabilities                                      16     2,274         2,172

 Total liabilities                                                     121,586       108,388

 Total equity and liabilities                                          118,933       106,412

 

 

 

The financial statements were approved by the Board of Directors on 16
September 2024 and were signed on its behalf by:

 

Director: John Whittle

 

The accompanying Notes in the "Notes to the Financial Statements" section form
an integral part of these financial statements.

 

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

 

                                                                Share       Treasury Shares  Warrants Outstanding  Foreign Exchange Reserve                                                                                                                                                                                                                                                                                                        Retained Earnings/  207BTotal

                   208BEquity
                                                                 Premium                                                                                                                                                                                                                                                                                                                                                                           (Losses)
                                                                0B£'000     1B£'000          2B£'000               3B£'000                                                                                                                                                                                                                                                                                                                         4B£'000             £'000
 Balance at 31 December 2023 (audited)                          118,340     (1,172)          -                     15                                                                                                                                                                                                                                                                                                                              (119,159)           (1,976)
 Transactions with owners                                       5B-         6B-              7B-                   8B-                                                                                                                                                                                                                                                                                                                             9B-                 -
 Total comprehensive loss for the period                        10B-        11B-             12B-                  13B(30)                                                                                                                                                                                                                                                                                                                         14B(647)            (677)
 Balance at 30 June 2024 (unaudited)                            15B118,340  16B(1,172)       17B-                  19B                                                                                                                                                            (15)                                                                                                                                                             19B(119,806)        (2,653)

 Balance at 31 December 2022 (audited)                          118,340     (1,172)          -                     31                                                                                                                                                                                                                                                                                                                              (110,025)           7,174
 Transactions with owners                                       -           -                -                     -                                                                                                                                                                                                                                                                                                                               -                   -
 Total comprehensive loss for the period                        -           -                -                     (20)                                                                                                                                                                                                                                                                                                                            (3,313)             (3,333)
 Balance at 30 June 2023 (unaudited)                            118,340     (1,172)          -                     11                                                                                                                                                                                                                                                                                                                              (113,338)           3,841

 

 

The accompanying Notes in the "Notes to the Financial Statements" section form
an integral part of these financial statements.

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

 

                                                                 Period ended                                                  Period ended
                                                                 30 June 2024                                                  30 June 2023

                                                                 (unaudited)                                                   (unaudited)
                                                          Notes  £'000                                                         £'000
                                                                 (3,175)                                                       (4,374)

 Cash outflow from operations, excluding loan movements   17

 Decrease / (Increase) in Sancus loans                           126                                                           (211)
 Increase in loans through the Pollen facility                   (8,862)                                                       (9,237)
 Net cash outflow from operating activities                      (11,911)                                                      (13,822)

 Cash (outflow) / inflow from investing activities
 Net investments in FinTech Ventures                             -                                                             125
 Investment in joint ventures                             10     (427)                                                         (50)
 Sale of Sancus Properties Limited                               -                                                             1,008
 Expenditure on fixed assets and intangibles                     (18)                                                          (5)
 Net cash (outflow) / inflow from investing activities           (445)                                                         1,078

 Cash inflows from financing activities
 Drawdown of Pollen facility                              17     10,000                                                        10,000
 Issue of preference shares                               17     5,000                                                         -
 Capital element of lease payments                        17     (108)                                                         (109)
 Debt issue costs                                                                              -                                                             32
 (Purchase) / Sale of ZDPs                                17     (1,501)                                                       3,000
 Net cash inflow from financing activities                       13,391                                                        12,923

 Effects of Foreign Exchange                                     (30)                                                          (20)

 Net increase in cash and cash equivalents                       1,005                                                         159

 Cash and cash equivalents at beginning of period                4,990                                                         4,134

 Cash and cash equivalents at end of period                      5,995                                                         4,293

 

 

 

£3.5m of the £6.0m cash held at 30 June 2024 is for the exclusive use of
Sancus Loans Limited (30 June 2023: £2.2m of the £4.3m).

 

 

The accompanying Notes in the "Notes to the Financial Statements" section 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 ("NRFSB"), 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 changed
where its business is managed and controlled, from Guernsey to Jersey,
effective 1 April 2023. The Board agreed that the Company should revoke its
NRFSB status, which was completed on 23 June 2023.

 

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 2023 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 2023, 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 16 September 2024.

 

(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 2023.

 

(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 liabilities 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. The Directors have prepared
a cash flow forecast for the period to 30 September 2025 which shows that the
Company and the Group will have sufficient cash resources to meet their
ongoing liabilities as they fall due for at least twelve months from the date
of approval of these financial statements. Following the extension of the ZDPs
at the end of 2022, for a further 5 years to 5 December 2027 and with the
Bonds maturity date not until 31 December 2025, the Company does not have any
debt liabilities that fall due within the next 12 months.  Based on this,
along with the issuance of preference shares by a subsidiary of the Group in
April 2024, the Directors are of the opinion that the Company and Group has
adequate financial resources to continue in operation and meet its liabilities
as they fall due for the foreseeable future.

 

It is however expected, whereby equity is required to facilitate an increase
in drawdown from institutional funding lines that the Company will require
growth capital to fund the continued growth of the loan book. The Company's
largest shareholder, Somerston, has indicated their willingness to support the
Company's growth plans. The Company will be looking at options available to
raise additional growth capital over the course of the year, which may include
a form of equity raise or sale by the Company of ZDP shares held in treasury.

 

The Directors therefore believe it is appropriate to 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 2023.

 

 

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 Properties Limited, Sancus Group Holdings Limited
and the JV.

 

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 2024  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                     350       2,056   719      (720)                       -                  2,405             -            5,094           -                                        -                     7,499

 Operating Profit/(loss) *   (66)      252     261      (741)                       -                  (294)             (493)        -               -                                        (5)                   (792)
 Credit Losses               395       24      -        47                          -                  466               -            -               -                                        -                     466
 Debt Costs                  -         -       -        -                           (1,182)            (1,182)           -            -               -                                        -                     (1,182)
 Other Gains/(losses)        (44)      -       18       103                         -                  77                1,131        -               -                                        -                     1,208
 Loss on JVs and associates  (262)     -       -        -                           -                  (262)             -            -               -                                        (50)                  (312)
 Taxation                    -         -       (35)     -                           -                  (35)              -            -               -                                        -                     (35)

 Profit/(loss) After Tax     23        276     244      (591)                       (1,182)            (1,230)           638          -               -                                        (55)                  (647)

 

 

 

 

 

 

 Six months to 30 June 2023  Offshore  UK      Ireland  Sancus Loans Limited (SLL)  Sancus Debt Costs  Total Sancus      Head Office  SLL Debt Costs  FinTech Ventures Fair Value  Other       Consolidated Financial Statements

                                                                                                                                                      & Forex
                             £'000     £'000   £'000    £'000                       £'000              £'000             £'000        £'000           £'000                        £'000       £'000

 Revenue                     721       1,131   886      (603)                       -                  2,135             -            3,272           -                            -           5,407

 Operating Profit/(loss) *   (228)     (160)   320      (625)                       -                  (693)             (662)        -               -                            (9)         (1,364)
 Credit Losses               (122)     (29)    -        (648)                       -                  (799)             -            -               -                            -           (799)
 Debt Costs                  -         -       -        -                           (1,652)            (1,652)           -            -               -                            -           (1,652)
 Other Gains/(losses)        101       -       8        84                          -                  193               -            -               362                          (5)         550
 Loss on JVs and associates  -         -       -        -                           -                  -                 -            -               -                            (50)        (50)
 Taxation                    2         -       -        -                           -                  2                 -            -               -                            -           2

 Profit After Tax            (247)     (189)   328      (1,189)                     (1,652)            (2,949)           (662)        -               362                          (64)        (3,313)

 

 

* Operating Profit/(loss) before credit losses and debt costs

 

Sancus Loans Limited is consolidated into the Group's results as it is a 100%
owned subsidiary of the Group. Sancus Loans Limited is considered 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 £nil (2023: £244,000), Offshore to Ireland
£37,000 (2023: £37,000), Head Office to Offshore £62,500 (2023: £68,000)
and UK to Head Office £nil (2023: £96,000). "Other" includes FinTech
(excluding fair value and forex).

 

 

 At 30 June 2024            Offshore  UK        Ireland  Sancus Loans Limited (SLL)  Total Sancus      Head Office  Fintech Portfolio  Other   Inter Company Balances      Consolidated Financial Statements

                            £'000     £'000     £'000    £'000                       £'000             £'000        £'000              £'000   £'000                       £'000

 Total Assets               45,065    16,108    2,083    98,117                      161,373           42,616       -                  5       (85,061)                    118,933

 Total Liabilities          (53,157)  (16,999)  (474)    (108,719)                   (179,349)         (27,293)     -                  (5)     85,061                      (121,586)

 Net Assets/ (liabilities)  (8,092)   (891)     1,609    (10,602)                    (17,976)          15,323       -                  -       -                           (2,653)

 At 31 December 2023

 Total Assets               32,329    17,298    1,668    86,822                      138,117           59,306       -                  9       (91,020)                    106,412

 Total Liabilities          (54,670)  (18,494)  (273)    (96,832)                    (170,269)         (29,130)     -                  (9)     91,020                      (108,388)

 Net Assets/(liabilities)   (22,341)  (1,196)   1,395    (10,010)                    (32,152)          30,176       -                  -       -                           (1,976)

 

 

 

Head Office liabilities include borrowings £26.9m (December 2023: £28.9m).
Other FinTech assets and liabilities are included within "Other."

 

 

4.     REVENUE

 

                                              30 June 2024  30 June 2023

                                              (unaudited)   (unaudited)
                                              45B£'000      46B£'000
   Co-Funder fees                             47B1,577      47B1,228
 Earn out (exit) fees                         49B350        49B394
 Transaction fees                             51B1,129      51B1,024
 Total revenue from contracts with customers  53B3,056      53B2,646

 Interest on loans                            55B26         55B86
 Sancus Loans Limited interest income         57B4,375      57B2,669
 Other income                                 59B42         59B6
 Total Revenue                                61B7,499      61B5,407

 

 

 

5.     COST OF SALES

 

                                     30 June 2024  30 June 2023

                                     (unaudited)   (unaudited)
                                     63B£'000      64B£'000
 Sancus Loans Limited interest cost  67B5,105      67B3,272
 Other cost of sales                 69B340        69B169
 Total cost of sales                 71B5,445      71B3,441

 

 

 

6.      OPERATING EXPENSES

 

                                        30 June 2024                                     30 June 2023

                                        (unaudited)                                      (unaudited)
                                        73B£'000                                         74B£'000

 Administration and secretarial fees    75B61                                            75B47
 Amortisation and depreciation          77B112                                           77B118
 Audit fees                             79B184                                           79B63
 Corporate Insurance                                                  54                 81B4
 Directors Remuneration                 83B88                                            83B55
 Employment costs                       85B1,662                                         85B2,157
 Investor relations expenses            87B30                                            87B30
 Legal and professional fees            89B93                                            89B185
 Marketing expenses                     91B2                                             91B55
 NOMAD fees                             93B70                                            93B38
 Other office and administration costs  95B431                                           95B502
 Pension costs                          97B40                                            97B46
 Registrar fees                         99B15                                            99B15
 Sundry                                 101B4                                            101B3
 Total operating expenses               103B2,846                                        103B3,318

 

 

 

 

7.              GROUP BORROWING COSTS

 

Group borrowing costs reflect the interest cost of the Corporate bond and ZDPs
(see note 16).

 

                        115B30 June 2024  116B30 June 2023

(unaudited)
(unaudited)

                        £'000             £,000

 

 Group Borrowing Costs  127B1,182         128B1,664

 

 

 

8.              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 15 describes the warrants in issue which are currently out of the money,
and therefore are not considered to have a dilutive effect on the calculation
of Loss per Ordinary Share.

 

                                                           30 June 2024     30 June 2023

                                                           (unaudited)      (unaudited)

 Number of shares in issue                                 105B584,138,346  105B584,138,346
 Weighted average number of shares outstanding             107B584,138,346  107B584,138,346
 Loss attributable to Ordinary Shareholders in the period  109B£677,000     109B£3,333,000
 Basic Loss per Ordinary Share                             111B(0.12)p      111B(0.57)p
 Diluted Loss per Ordinary Share                           113B(0.12)p      113B(0.57)p

 

9.           PROPERTY, PLANT AND EQUIPMENT

 

                                  Right of use assets  Property & Equipment      Total
 Cost                             £'000                £'000                     £'000
 At 31 December 2023              1,365                419                       1,784
 Additions in the period          -                    18                        18
 Disposals in the period          -                    -                         -
 At 30 June 2024                  1,365                437                       1,802

 Accumulated depreciation         £'000                £'000                     £'000
 At 31 December 2023              1,084                406                       1,490
 Charge in the period             106                  6                         112
 Disposals in the period          -                    -                         -
 At 30 June 2024                  1,190                412                       1,602

 Net book value 30 June 2024      175                  25                        200

 Net book value 31 December 2023  281                  13                        294

 

 

 

10.          INVESTMENTS IN JOINT VENTURES

 

                                                                            115B30 June 2024  116B31 December 2023

(unaudited)
(audited)

 

                                                                            117B£'000         118B£'000
 At beginning of year                                                       119B14,255        120B-
 Additions - joint venture                                                  121B427           122B100
 Additions - goodwill                                                       123B-             124B14,255
 Impairment of joint venture                                                125B(50)          126B(100)
 Share of net loss of joint ventures accounted for using the equity method  125B(262)         126B-
                                                                            127B14,370        128B14,255

 

The Group has a 50% share in Amberton Limited. Additions in the period include
£50,000 of investment in Amberton Limited and which was subsequently written
down to a carrying value of £Nil. Amberton Limited, which is a Jersey
registered entity, was incorporated in January 2021 and has been established
as a joint venture to manage the loan note programme going forward.

 

On 5 December 2023, the Group entered into a Joint Venture ("JV") agreement
with Hawk Family Office Limited for a new bridge and development lending
business in the Channel Islands. Sancus Lending (Jersey) Limited ("SLJL")
entered into a Business and Asset Purchase Agreement ("BAPA") with Hawk
Lending Limited (the previous lending business of Hawk Family Office Limited)
and Hawkbridge Limited (the new joint venture lending business)
("Hawkbridge"). Under the terms of the BAPA, SLJL sold to Hawkbridge Limited
its business as a going concern including goodwill, business information,
moveable assets, records and third party rights. The consideration for the
business of SLJL was the issue of 12 shares in the newly formed JV holding
company, Hawkbridge Limited, giving Sancus Group Holdings Limited a 50%
ownership in the JV. Hawkbridge Limited has two wholly owned subsidiaries,
Hawkbridge Lending Limited and Westmead Debt Services Limited. The Group has
contributed £377,000 of capital into the JV in order to cover initial costs
and operating expenses before the JV became cash generative.

 

Under the joint venture shareholder agreement, all new Channel Islands lending
business will be written through Hawkbridge. Hawkbridge will also provide
administration and other services to SLJL and Hawk Lending Limited.

 

Under IFRS 11, this joint arrangement is classified as a joint venture and has
been included in the consolidated financial statements using the equity
method.

 

Summarised financial information in relation to the joint venture is presented
below:

 

                                                               115B30 June 2024  116B31 December 2023

(unaudited)
(audited)
                                                               117B£'000         118B£'000
 Current assets                                                119B381           120B-
 Non-current assets                                            121B28,517        122B28,510
 Current liabilities                                           123B157           124B-
 Non-current liabilities                                       125B-             126B-

 Included in the above amounts are:
 Cash and cash equivalents                                     125B255           126B-
 Current financial liabilities (excluding trade payables)      125B62            126B-
 Non-current financial liabilities (excluding trade payables)  125B-             126B-

 Net assets (100%)                                             127B28,741        128B28,510
 Group share of net assets (50%)                               127B14,370        128B14,255
 Revenues                                                      119B244           120B-

 Loss and total comprehensive loss for the period (100%)       121(524)          122B-
 Group share of total comprehensive income (50%)               123B(262)         124B-

 Included in the above amounts are:
 Depreciation and amortisation                                 125B(50)          126B(100)
 Income tax expense                                            125B(50)          126B(100)

No dividends were received from the JV during the period ended 30 June 2024.

 

The JV is a private company; therefore no quoted market prices are available
for its shares.

 

The Group has no additional commitments relating to the JV.

 

 

 

11.        GOODWILL

                         115B30 June 2024  116B31 December 2023

(unaudited)
(audited)
                         117B£'000         118B£'000
 At 31 December 2023     119B-             120B14,255
 Impairment of goodwill  121B-             122B-
 Disposal of goodwill    123B-             124B(14,255)
                         127B-             128B-

 

 

On 5 December 2023, the Group entered into a Joint Venture ("JV") agreement
with Hawk Family Office Limited for a new bridge and development lending
business in the Channel Islands. Sancus Lending (Jersey) Limited ("SLJL")
entered into a Business and Asset Purchase Agreement ("BAPA") with Hawk
Lending Limited (the previous lending business of Hawk Family Office Limited)
and Hawkbridge Limited (the new joint venture lending business)
("Hawkbridge"). Under the terms of the BAPA, SLJL sold to Hawkbridge Limited
its business as a going concern including goodwill, business information,
moveable assets, records and third party rights. The consideration for the
business of SLJL was the issue of 12 shares in the newly formed JV holding
company, Hawkbridge Limited, giving Sancus Group Holdings Limited a 50%
ownership in the JV. Hawkbridge Limited has two wholly owned subsidiaries,
Hawkbridge Lending Limited and Westmead Debt Services Limited.

 

Under the joint venture shareholder agreement, all new Channel Islands lending
business will be written through Hawkbridge. Hawkbridge will also provide
administration and other services to SLJL and Hawk Lending Limited.

 

Following the sale of the business of SLJL to Hawkbridge Limited on 5 December
2023, the remaining business is in run off. As detailed in Note 10, the
investment in the joint venture has been recognised separately on the Balance
Sheet and has been accounted for using the equity method.

 

 

 

12.          OTHER INTANGIBLE ASSETS

 

                                       £'000
 Cost
 At 30 June 2024 and 31 December 2023  1,584

 Amortisation
 At 31 December 2023                   1,584
 Charge for the period                 -
 At 30 June 2024                       1,584

 Net book value at 30 June 2024        -

 Net book value at 31 December 2023    -

 

 

Other Intangible assets comprise capitalised contractors' costs and costs
related to core systems development. The assets have been fully amortised.

 

 

 

13.          TRADE AND OTHER RECEIVABLES

 

                                               115B30 June 2024  116B31 December 2023

(unaudited)
(audited)
 Current                                       117B£'000         118B£'000
 Loan fees, interest and similar receivable    119B9,879         120B7,235
 Taxation                                      123B-             124B5
 Other trade receivables and prepaid expenses  125B937           126B818
                                               127B10,816        128B8,058

 

 

 

14.          OTHER ASSETS

 

                              Development properties
 Cost                         £'000
 At 31 December 2022          706
 Additions                    -
 Disposals                    (706)
 At 31 December 2023          -
 Disposals                    -
 At 30 June 2024              -

 

 

Other assets are development properties previously held as security against
certain loans which have defaulted. Other assets are held at the lower of cost
and net realisable value. All development properties classified as Other
Assets were sold during 2023 with a profit on disposal of £303k recognised in
the Condensed Consolidated Statement of Comprehensive Income.

 

 

 

15.          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 2024 (Period to 30
June 2023: Nil).

 

 Share Capital

 Number of Ordinary Shares - nil par value
 At 30 June 2024 (unaudited) and 31 December 2023 (audited)  129B584,138,346

 

 Share Premium

 Ordinary Shares - nil par value                             130B£'000
 At 30 June 2024 (unaudited) and 31 December 2023 (audited)  131B118,340

 

 

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

 

                                          132B30 June 2024   133B31 December 2023

(unaudited)
(audited)

                                          Number of shares   Number of shares

 Balance at start and end of period/year  134B11,852,676     135B11,852,676

 

 

                                      136B30 June 2024  137B31 December 2023

(unaudited)
(audited)

                                      £'000             £'000

 Balance at start end of period/year  138B1,172         139B1,172

 

 

Warrants in Issue

 

As at 30 June 2024 there were 89,396,438 Warrants in issue to subscribe for
new Ordinary Shares at a subscription price of 2.25 pence per ordinary share.
The Warrants are exercisable on at least 30 days notice within the period
ending 31 December 2025. 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 30 June 2024 is
£Nil (31 December 2023: £Nil).

 

 

 

16.   LIABILITIES

 

 Non-current liabilities                30 June 2024         141B31 December 2023

(unaudited)
(audited)
                                142B£'000                    143B£'000
 Corporate bond (1)             144B14,963                   145B14,950
 Pollen facility (2)            146B87,281                   147B77,169
 ZDP shares (3)                 148B11,984                   149B13,967
 Preference shares (4)          148B5,000                    149B-
 Lease liability                B84                          151B130
 Total non-current liabilities  152B119,312                  153B106,216

 

 Current liabilities                          30 June 2024         155B31 December 2023

(unaudited)
(audited)
                                      156B£'000                    157B£'000
 Accounts payable                     158B319                      159B126
 Accruals and other payables           727                                 799
 Taxation                             162B110                      163B76
 Interest payable                     166B899                      167B770
 Derivative contracts (note 19)       168B118                      169B231
 Provisions for financial guarantees  170B11                       171B18
 Lease liability                      172B90                       173B152
 Total current liabilities            2,274                        174B2,172

 

 Movement on provision for financial guarantees
                                                     175B£'000
 At 31 December 2022                                 176B413
 Profit and loss charge in the year                  177B(395)
 At 31 December 2023                                 178B18
 Profit and loss charge in the period                179B(7)
 At 30 June 2024                                     180B11

 

 

Provisions for financial guarantees are recognised in relation to Expected
Credit Losses ("ECLs") on off-balance sheet loans and receivables where the
Company has provided a subordinated position or other guarantee (see Note 19).
The fair value is determined using the exact same methodology as that used in
determining ECLs (Note 19).

 

 

(1)           Corporate bond

 

The £15m (31 December 2023: £15m) Corporate bonds bear interest at 7% (2023:
7%). The bonds have a maturity date of 31 December 2025.

 

(2)           Pollen facility (previously HIT Facility)

 

On 28 January 2018, Sancus signed a funding facility with Honeycomb Investment
Trust plc (HIT), now Pollen Street PLC ("Pollen"). 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 and on 23 November 2022 this was extended further to 23
November 2026. In addition to the extension the facility was increased to
£75m in December 2020 and to £125m in November 2022.

 

The Pollen 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 participates 10% on
every drawdown with a first loss position on the Pollen facility. Sancus has
also provided Pollen with a guarantee, capped at £4m 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 20 Guarantees.

 

(3)           ZDPs

 

The ZDP Shares have a maturity date of 5 December 2027, following a 5 year
extension of the final capital repayment approved on 5 December 2022. The
final capital entitlement is £2.5332 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.

 

The ZDP shares bore interest at an average rate of 8% until 5 December 2022.
As part of the extension agreement noted above the interest rate increased to
an average of 9% per annum with effect from 5 December 2022, through to the
final repayment date of 5 December 2027. 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 prior approval from the ZDP
shareholders. The Memorandum and Articles (section 7.6) also specify that two
debt cover tests must be met in relation to the ZDPs. At 30 June 2024 the
Company was in compliance with these covenants as Cover Test A was 2.39
(minimum of 1.7) and the adjusted Cover Test B was 3.70 (minimum of 2.05). At
30 June 2024 senior debt borrowing capacity amounted to £15m. The Pollen
facility does not impact on this capacity as it is non-recourse to Sancus.

 

The Company purchased 1,388,889 Zero Dividend Preference shares of no par
value at a price of £1.08 per ZDP share on 29 April 2024. All of the ZDP
shares purchased will be held as treasury shares.

 

At 30 June 2024 the Company held 11,894,628 ZDP shares in Treasury (31
December 2023: 10,505,739) with an aggregate value of £22,893,204 (31
December 2023: £19,291,480).

 

(4)           Preference Shares

 

In April 2024, Somerston Fintech Limited, a subsidiary of Somerston Group, the
majority shareholder of the Company, subscribed for £5,000,000 of preference
shares in Sancus Loans Limited ("Sancus Loans"). The Preference Shares have a
non-cash, cumulative coupon of 15% and a maturity date of 23 November 2026.

 

 

 

17.          NOTES TO THE CASH FLOW STATEMENT

 

 Cash outflow from operations (excluding loan movements)           181B30 June 2024  182B30 June 2023

(unaudited)
(unaudited)
                                                                   183B£'000         184B£'000

 Loss for the period                                               185B(647)         185B(3,313)

 Adjustments for:

 Net gain on FinTech Ventures                                      187B-             187B(362)
 Other net gains                                                   189B(769)         189B(195)
 Loss on disposal of subsidiary                                    189B-             189B202
 Accrued interest on ZDPs                                          191B636           191B1,106
 Impairment of financial assets                                    193B(466)         193B799
 Taxation                                                          195B4             195B45
 Amortisation / depreciation of property, plant and equipment      197B112           197B118
 Amortisation of debt issue costs                                  199B138           199B195

 Changes in working capital:
 Trade and other receivables                                       201B(2,297)       201B(2,133)
 Trade and other payables                                          203B114           203B(836)

 Cash outflow from operations, excluding loan movements            205B(3,175)       205B(4,374)

 

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 2024  Financing cash flows(1)  Amortisation of debt issue costs  Other      30 June 2024

                                                                                       Non-cash                          Non-cash
                                              £'000           £'000                    £'000                             £'000      £'000
 ZDPs                                         13,967          (1,501)                  13                                (495)(2)   11,984
 Corporate Bond                               14,950          -                        13                                -          14,963
 Pollen Facility                              77,169          10,000                   112                               -          87,281
 Preference Shares                            -               5,000                    -                                 -          5,000
 Lease Liability                              282             (108)                    -                                 -          174
 Total liabilities from financing activities  106,368         13,391                   138                               (495)      119,402

 

 

                                              1 January 2023  Financing cash flows(1)  Amortisation of debt issue costs  Other      30 June 2023

                                                                                       Non-cash                          Non-cash
                                              £'000           £'000                    £'000                             £'000      £'000
 ZDPs                                         9,117           3,000                    12                                1,139(2)   13,268
 Corporate Bond                               14,925          -                        12                                -          14,937
 Pollen Facility                              66,826          10,000                   171                               -          76,997
 Lease Liability                              364             (109)                    -                                 (99)       156
 Total liabilities from financing activities  91,232          12,891                   195                               1,040      105,358

 

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

(2) Interest accruals.

 

 

 

18.          RELATED PARTY TRANSACTIONS

 

Transactions with the Directors/Executive Team

 

Non-executive Directors

 

As at 30 June 2024, 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 2024      30 June 2023
                                                                      £                 £

 Stephen Smith (Chairman)                                             50,000            50,000
 John Whittle                                                         42,500            42,500
 Tracy Clarke (stepped down as non-executive director 30 March 2023,  35,000            35,000
 reappointed 31 March 2024)

 

 

Tracy Clarke was appointed Interim Group CFO and joined the Executive Team on
30 March 2023. She subsequently stepped down on 31 March 2024 and returned to
her role of non-executive Director. Fees paid to her include £32,500 in
respect of her role as Interim CFO.

 

Total Directors' fees charged to the Company for the period ended 30 June 2024
were £87,500 (30 June 2023: £55,000).

 

 

Executive Team

 

For the period ended 30 June 2024, 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 2024  30 June 2023
                                                                         £'000         £'000

 Aggregate remuneration in respect of qualifying service - fixed salary  149           284
 Aggregate amounts contributed to Money Purchase pension schemes         6             10
 Aggregate bonus paid                                                    -             -

 

 

All amounts have been charged to Operating Expenses.

 

On 30 March 2023 Carlton Management Services Limited ("Carlton"), was
appointed to manage and develop the Group's finance function, including new
technology integrations for forecasting, performance and treasury management
under a service agreement. The agreement was terminated on 31 March 2024. The
annualised fee for the service was £170,000. Carlton sub-lease office space
in the Group's offices in Jersey, with a sub lease end date of 31 August 2024,
at an annual cost of c.£100,000 p.a.

 

On 30 March 2023 Carlton entered into a Director service agreement with Sancus
Lending Group Limited for the provision of Tracy Clarke as Interim Group CFO,
with an annual fee of £130,000. This agreement terminated on 31 March 2024.

 

Tracy Clarke is Managing Director of Carlton Management Services Limited.

 

From time to time, the Somerston Group may participate as a Co-Funder in
Sancus loans, on the same commercial terms available to other Co-Funders.

 

In April 2024, Somerston Fintech Limited, a subsidiary of Somerston Group, the
majority shareholder of the Company, subscribed for £5,000,000 of preference
shares in Sancus Loans Limited ("Sancus Loans"). The Preference Shares have a
non-cash, cumulative coupon of 15% and a maturity date of 23 November 2026.

 

The Group has not recorded any other transactions with any Somerston Group
companies for the period ended 30 June 2024 (2023: none).

 

 

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

 

As at 30 June 2024, the Directors had the following beneficial interests in
the Ordinary Shares of the Company:

 

               30 June 2024                                                    31 December 2023
               No. of Ordinary Shares Held  % of total issued Ordinary Shares  No. of Ordinary Shares Held  % of total issued Ordinary Shares

 John Whittle  138,052                      0.02                               138,052                      0.02
 Rory Mepham   2,000,000                    0.34                               2,000,000                    0.34
 ( )

 

In the six month period to 30 June 2024 and the year to 31 December 2023, none
of the above received any amounts relating to their shareholding.

 

Transactions with connected entities

 

There were no significant transactions with connected entities that took place
during the current period.

 

There is no ultimate controlling party of the Company.

 

 

19.          FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT

 

Sancus loans and loan equivalents

 

                                                      30 June 2024 (unaudited)  31 December 2023 (audited)
 Non-current                                          £'000                     £'000

 Sancus loans                                         -                         -
 Sancus Loans Limited loans                           11,946                    10,148
 Total Non-current Sancus loans and loan equivalents  11,946                    10,148

 Current

 Sancus loans                                         334                       460
 Sancus Loans Limited loans                           75,222                    68,157
 Total Current Sancus loans and loan equivalents      75,556                    68,617

 Total Sancus loans and loan equivalents              87,502                    78,765

 

 

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 2024      31 December 2023 (audited)

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

 Fintech Ventures investments              -        -        -               -
 Derivative contracts                      (118)    -        (231)           -
 Total assets / liabilities at fair value  (118)    -        (231)           -

 

 

The classification and valuation methodology remains as noted in the 2023
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, the Board's estimate of liquidation
value of these assets is £Nil at 30 June 2024 (31 December 2023: £Nil).
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 £Nil. There
have been no transfers between levels in the period (2023: None).

 

 

Assets at Amortised Cost

                                    30 June 2024  31 December 2023
                                    (unaudited)   (audited)
                                    £'000         £'000
 Sancus loans and loan equivalents  87,502        78,765
 Trade and other receivables        9,879         7,240
 Cash and cash equivalents          5,995         4,990
 Total assets at amortised cost     103,376       90,995

 

 

Liabilities at Amortised Cost

 

                                      30 June 2024  31 December 2023
                                      (unaudited)   (audited)
                                      £'000         £'000
 ZDPs                                 11,984        13,967
 Corporate bond                       14,963        14,950
 Pollen facility                      87,281        77,169
 Preference shares                    5,000         -
 Trade and other payables             2,229         2,053
 Provisions in respect of guarantees  11            18
 Total liabilities at amortised cost  121,468       108,157

 

 

Refer to Note 16 for further information on liabilities.

                                              Total Portfolio

 FinTech Ventures Investments

 30 June 2024                                 £'000
 At 31 December 2023                          -
 Net new investments / loan repaid            -
 Realised gain recognised in profit and loss  -
 At 30 June 2024                              -

 

                                                Total Portfolio

 31 December 2023                               £'000
 At 31 December 2022                            -
 Net new investments / (divestments)            715
 Realised losses recognised in profit and loss  (715)
 At 31 December 2023                            -

 

 

 

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 Pollen facility are
hedged. Forward contracts to sell Euros at loan maturity dates are entered
into when loans are drawn in Euros. At 30 June 2024 the following forward
foreign exchange contracts were open:

 

 

 June 2024

 Counterparty              Settlement date               Buy Currency  Buy Amount £'000      Sell currency     Sell amount €'000       Unrealised gain/(loss) £'000

 Alpha                     Jun 2024 to July 2024         GBP           7,827                 Euro              9,245                   (11)
 Lumon Risk Management     Jun 2023 to July 2023         GBP           27,428                Euro              32,460                  (107)

                                                                                                                                       (118)

 

 December 2023

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

 Alpha                  Dec 2023 to Jan 2024  GBP           7,710              Euro           9,000                (97)
 Lumon Risk Management  Dec 2023 to Jan 2024  GBP           23,851             Euro           27,640               (134)

                                                                                                                   (231)

 

 

No hedging has been taken out against investments in the FinTech Ventures
platforms (2023: £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 Receivables £'000

                                      Loans                                Guarantees £'000    Total

                                       £'000                                                    £'000
 Loss allowance at 31 December 2022   6,835      6,493                     413                 13,741
 Charge/(credit) for the year 2023    4,032      1,180                     (395)               4,817
 Utilised in the year 2023            (2,383)    (1,211)                   -                   (3,594)
 Loss allowance at 31 December 2023   8,484      6,462                     18                  14,964
 Credit for the period to June 2024   (303)      (156)                     (7)                 (466)
 Utilised in the period to June 2024  (4,319)    -                         -                   (4,319)
 Loss allowance at 30 June 2024       3,862      6,306                     11                  10,179

 

 

 

20.          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.

 

Pollen Facility

Sancus Group participates 10% on every loan funded by the Pollen facility,
taking a first loss position. Sancus Group Lending Limited has provided Pollen
with a guarantee capped at £4m following the restructure of the Pollen
facility in November 2022 (previously was capped at £2m) and that it will
continue to ensure the orderly wind down of the Pollen funded loan book, in
the event of the insolvency of Sancus Group, given its position as facility
and security agent. No provision has been provided in the financial statements
(2023: £Nil).

 

Sancus Loan Notes

Loan Note 7 was launched in May 2021 and was repaid in September 2023.

 

Loan Note 8 was launched in January 2022 and currently stands at c.£30.0m.
Loan Note 8 matures on 1 December 2026 and has a coupon of 8% p.a. (payable
quarterly), with Sancus providing a 20% first loss guarantee.

 

Unfunded Commitments

As at 30 June 2024 the Group has unfunded commitments of £81.4m (31 December
2023: £72.5m). 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.

 

 

 

OFFICERS AND PROFESSIONAL ADVISERS

 

 Directors
 Non-executive                    Stephen Smith
                                  John Richard Whittle
                                  Tracy Clarke (appointed 31 March 2024)

 Executive                        Rory Mepham
                                  Tracy Clarke (resigned 31 March 2024)

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

 Executive Team:

 Chief Executive Officer          Rory Mepham
 Chief Financial Officer          Keith Lawrence (appointed 31 March 2024); Tracy Clarke (resigned 31 March
                                  2024)
 Chief Investment Officer         James Waghorn

 Registered Office                Suite 1, First Floor
                                  Windsor House, Lower Pollet
                                  St Peter Port
                                  Guernsey, GY1 1WF
                                  Channel Islands

 Nominated Advisor and Broker     Panmure 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 Advisors, Channel Islands  Carey Olsen
                                  PO Box 98
                                  Carey House
                                  Les Banques
                                  St Peter Port
                                  Guernsey, GY1 4BZ
                                  Channel Islands

 

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

 Legal Advisors, USA  Troutman Pepper
                      3000 Two Logon Square
                      Eighteenth and Arch Streets
                      Philadelphia, PA 19103-2799
                      United States

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

 Auditors             Moore Kingston Smith LLP
                      9 Appold Street
                      London
                      EC2A 2AP

 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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