REG - Secure Trust BankPLC - Interim Results for the six months to 30 June 2022
04/08/2022 07:00
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RNS Number : 8403U Secure Trust Bank PLC 04 August 2022
PRESS RELEASE
Thursday 4 August 2022
For immediate release
LEI: 213800CXIBLC2TMIGI76
SECURE TRUST BANK PLC
Interim Results for the six months to 30 June 2022
This announcement contains inside information This announcement contains
inside information for the purposes of Article 7 of the Market Abuse
Regulation (EU) No. 596/2014 as it forms part of UK domestic law by virtue of
the European Union (Withdrawal) Act 2018.
Continued growth and significant strategic progress
Secure Trust Bank PLC ("STB" or the "Group"), a leading specialist lender, is
pleased to announce a positive trading performance for the six months to 30
June 2022. STB continued to build momentum, delivered strong income growth,
managed costs effectively and delivered a significant increase in core(1)
profit before tax pre impairments. As expected, STB delivered a lower
statutory profit before tax of £24.7 million in H1 2022 (H1 2021: £30.7
million) as impairment levels normalised and lending growth accelerated. STB
is declaring an interim dividend of 16 pence per share for 2022 (H1 2021: 20
pence per share).
The Group achieved record new business lending in its core(1) businesses
during the period, increasing 85.8% compared to the first six months of 2021.
The core(1) net lending book has grown 12.2% in the period. In line with the
Group strategy, core(1) cost income ratio improved to 57.0% from 60.3%.
In Consumer Finance, core(1) net lending balances grew to £1.2 billion (31
December 2021 £1.0 billion) following record new business lending of £743.4
million in the 6 months to June 2022 (H1 2021: £431.5 million). In Business
Finance, core(1) net lending balances grew to £1.5 billion (31 December 2021
£1.4 billion) with record new business lending of £377.6 million in the 6
months to June 2022 (H1 2021: £171.7 million).
Pursuant to our strategy to simplify the business and focus on attractive
market segments, the Group completed the sale of Debt Managers (Services)
Limited's ('DMS') loan portfolio. The disposal resulted in the recognition of
an initial profit of £8.1 million. Additional wind-down costs are expected in
the second half of the year when the activities of the business will be closed
down after the portfolio is migrated to the purchaser. The Group also
completed the acquisition of AppToPay Limited to support the planned entry,
through its Retail Finance business, into the regulated digital Buy Now Pay
Later market.
On a core(1) basis the Group achieved a statutory profit before tax of £17.1
million (H1 2021: £29.3 million).
The core(1) impairment charge of £17.9 million (H1 2021: £0.4 million
credit) reflects a more normalised core(1) cost of risk of 1.3% (H1 2021:
(0.1)%) and growth in new business. Impairment charges per the Group's IFRS 9
models reflect improved macroeconomic scenarios compared to December 2021,
albeit the Group is aware of the uncertain outlook. Arrears within our Vehicle
Finance business moved back towards pre-pandemic levels from the low level
experienced through the COVID-19 pandemic.
Although the Group has successfully navigated the challenges of COVID-19, the
country continues to face economic uncertainty, due to high levels of
inflation, supply chain disruption and the global impacts of the war in the
Ukraine. The Group is proactively managing the impacts of these events on its
business and remains committed to supporting its consumer and business
customers.
To balance returns to shareholders with investment for future growth, the
Board's dividend policy is to target an annual 25% pay-out ratio. The interim
dividend of 16 pence per share for 2022 is payable on 26 September 2022 to
shareholders on the register at the close of business on 26 August 2022.
The Group achieved a total return on average equity of 12.5% (H1 2021: 19.0%)
and maintained strong capital ratios.
FINANCIAL HIGHLIGHTS
Six months Six months Change(4
to 30 June 2022
to 30 June 2021 ) %
Statutory profit before tax £24.7m £30.7m (19.5)
Core(1) profit before tax £17.1m £29.3m (41.6)
Core(1) profit before tax pre impairments £34.3m £28.2m 21.6
Basic earnings per share 102.4 pence 139.5 pence (26.6)
Core(1) basic earnings per share 69.1 pence 133.1 pence (48.1)
Ordinary dividend per share 16 pence 20 pence (20.0)
Total return on average equity(2) 12.5% 19.0% (6.5)pp
Core(1) net interest margin 5.7% 6.0% (0.3)pp
Core(1) cost of risk 1.3% (0.1)% 1.4pp
Core(1) cost income ratio 57.0% 60.3% (3.3)pp
30 June 31 December Change(4
2022
2021 ) %
Loan Book(3) £2,751.2m £2,531.9m 8.7
Core(1) Loan Book £2,751.2m £2,451.0m 12.2
Deposits £2,290.9m £2,103.2m 8.9
CET 1 capital ratio 14.0% 14.5% (0.5)pp
Total capital ratio 16.3% 16.8% (0.5)pp
OPERATIONAL HIGHLIGHTS
· Total new business lending volumes increased by 85.8% to £1,121.0
million (H1 2021: £603.2 million)
· Total lending balances increased by 8.7% to £2,751.2 million (31
December 2021: £2,531.9 million)
· Core(1) lending balances increased by 12.2% to £2,751.2 million
(31 December 2021: £2,451.0 million)
· Total Consumer Finance core(1) lending balances grew by 21.5% to
£1,248.8 million (31 December 2021: £1,028.1 million), primarily with growth
in prime interest free products through strong retailer partnerships and new
products launched in 2021 within Vehicle Finance.
· Total Business Finance core(1) lending balances grew by 5.6% to
£1,502.4 million (31 December 2021: £1,422.9 million), driven by higher
utilisation levels in Commercial Finance. Real Estate Finance growth was
lower, at 3.0% due to large loan repayments in the first six months of the
year.
· Customer deposits grew to £2,290.9 million (31 December 2021:
£2,103.2 million) with a move towards fixed term funds. Bank of England Base
Rate increases were passed onto managed rate products, resulting in a core(1)
cost of funds of 1.4% (H1 2021: 1.4%), though with the continued increase in
Base Rate our funding costs will increase for the full year.
· The disposal of the DMS loan portfolio which completed in May 2022
resulted in the recognition of an initial total profit of £8.1 million(5),
with additional costs to arise in H2 2022 as the business is wound down.
· Customer satisfaction remains high, as measured by Feefo, 4.5
stars (2021: 4.6 stars)
· Listed as an official UK Best Workplace™ for the fourth year
running, ranking 29 out of 67 companies.
OUTLOOK AND STRATEGY
The Group has firmly embedded its strategy of focusing on its core markets
where it has depth of expertise and opportunity to grow, and is determined to
become the UK's most trusted specialist lender. We continue to invest in new
products and consider strategic acquisitions to complement our four core
businesses. We are conscious of the economic headwinds impacting our
customers. We will continue to support them as we did through the pandemic and
will ensure the Group continues to operate within risk appetite, lending
responsibly during these challenging times. Our diversified and resilient
business model, agility and strong capital and liquidity positions make us
well placed to both weather uncertain market conditions and deliver
sustainable long-term growth.
STB remains well positioned to capitalise on the opportunity to build on its
strong foundations in its attractive, specialist lending markets and to
deliver its medium-term targets which were updated in March 2022.
Medium-term targets 30 June 2022 Target
Actual
Core(1) net interest margin 5.7% >5.5%
Core(1) cost income ratio 57.0% <50%
Total return on average equity 12.5% 14% - 16%
CET 1 ratio 14.0% >12.0%
Core(1) Compound Annual Growth Rate(6) 16.7% >15.0%
Footnotes:
1. Core businesses include the Retail Finance, Vehicle Finance, Real Estate
Finance and Commercial Finance businesses only, and are equivalent to
continuing operations. It excludes the Debt Management, Consumer Mortgages and
Asset Finance businesses. The associated loan portfolios for all non-core
businesses were sold in 2022 or 2021 and have been treated as discontinued
operations for statutory purposes.
2. June 2021 restated in relation to reflect the IFRS Interpretations
Committee's clarification on the accounting treatment of Software-as-a-Service
arrangement. Further details are provided Note 1.3.1 to the Interim Financial
Statements.
3. 31 December 2021 includes £1.3 million of assets held for sale.
4. pp represents the percentage point movement
5. Includes selling costs of £1.2 million, and £0.8 million of associated
costs to wind down the debt management business. See Note 6 to the Interim
Financial Statements for further details.
6. CAGR is the annual growth rate calculated as the annualised compound growth
in 'core' loans and advances to customers since 31 December 2020.
Lord Forsyth, Chairman, said:
"Our new vision is fully embedded and being driven forward by the Board. We
have a well-established and diversified business, an excellent management team
and can look forward to the future with confidence. The Board is mindful of
current uncertainty and how high levels of inflation, the war in Ukraine and
the impending changes in the UK government will affect our customers. We will
continue to support them during these challenging times and manage our
business responsibly."
David McCreadie, Chief Executive, said:
"I am pleased with our positive operational performance during the first six
months of the year. The Group has grown lending balances beyond pre-pandemic
levels in all our core businesses and achieved record new business volumes. We
have completed the simplification of the Group, delivered strong income growth
and become more efficient. We are committed to navigating our businesses
carefully through these uncertain times and will continue to be flexible in
how we react during this period of economic uncertainty. Our new purpose- to
help consumers and businesses fulfil their ambitions - will guide us and we
remain committed to supporting our customers and business partners.
We have significant growth potential in our attractive markets and will
capture opportunities with our usual focus on disciplined risk management. We
are well placed to realise our ambitions and have shown resilience through the
challenges of the last few years. We will also continue to consider potential
M&A opportunities which can complement our core markets. We remain
confident about the future despite near term uncertainties."
Results presentation
This announcement together with the associated investors' presentation are
available on:
http://www.securetrustbank.com/results-reports/results-reports-presentations
(http://www.securetrustbank.com/results-reports/results-reports-presentations)
Secure Trust Bank will host a webcast for analysts and investors today, 4
August 2022 at 10.00 am, which can be accessed by registering at:
https://stream.brrmedia.co.uk/broadcast/62d550420485375c36e3fa32
For those wishing to ask a question, please dial in to the event by conference
call:
Dial +44 (0)330 165 4012
Confirmation code: 8618986
Enquiries:
Secure Trust Bank PLC
David McCreadie, Chief Executive Officer
Rachel Lawrence, Chief Financial Officer
Tel: 0121 693 9100
Stifel Nicolaus Europe Limited (Joint Broker)
Robin Mann
Gareth Hunt
Stewart Wallace
Tel: 020 7710 7600
Canaccord Genuity Limited (Joint Broker)
Andrew Potts
Tel: 020 7523 8000
Tulchan Communications
Tom Murray
Misha Bayliss
Tel: 020 7353 4200
The person responsible for the release of this information on behalf of STB is
Mark Stevens, Company Secretary.
Forward looking statements
This announcement contains forward looking statements about the business,
strategy and plans of STB and its current objectives, targets and expectations
relating to its future financial condition and performance. Statements that
are not historical facts, including statements about STB's or management's
beliefs and expectations, are forward looking statements. By their nature,
forward looking statements involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future. STB's actual
future results may differ materially from the results expressed or implied in
these forward looking statements as a result of a variety of factors. These
include UK domestic and global economic and business conditions, risks
concerning borrower credit quality, market related risks including interest
rate risk, inherent risks regarding market conditions and similar
contingencies outside STB's control, the COVID-19 pandemic, expected credit
losses in certain scenarios involving forward looking data, any adverse
experience in inherent operational risks, any unexpected developments in
regulation, or regulatory and other factors. The forward looking statements
contained in this announcement are made as of the date of this announcement,
and (except as required by law or regulation) STB undertakes no obligation to
update any of its forward looking statements.
Contents
Interim Business Report
Measuring Performance: Key Performance Indicators
Chairman's statement
Chief Executive's statement
Financial review
Business review
Economic and regulatory environment
Principal risks and uncertainties
Interim Financial Statements
Condensed consolidated statement of comprehensive income
Condensed consolidated statement of financial position
Condensed consolidated statement of changes in equity
Condensed consolidated statement of cash flows
Notes to the financial statements
Appendix to the Interim Report (unaudited)
Governance
Directors' responsibility statement
Independent review report to Secure Trust Bank PLC
Alternative performance measures
Certain key performance indicators and performance metrics represent
alternative performance measures that are not defined or specified under IFRS.
Definitions of these alternative performance measures, their calculation and
an explanation of the reasons for their use can be found in the Appendix to
the Interim Report.
Prior year results and key performance indicators have been restated to
reflect the IFRS Interpretations Committee's clarification on the accounting
treatment of Software-as-a-Service arrangement. Further details are provided
in the 2021 Annual Report and Account within Note 1 to the Financial
Statements (page 115) and Note 1.3.1 to the Interim Financial statements.
Interim Business Report
Measuring performance: Key Performance Indicators
The following key performance indicators are the primary measures used by
management to assess the performance of the Group. During 2021 the number of
key performance indicators was reduced and realigned to the Group's published
medium-term guidance measures.
30June 30 June 31 December
2022
2021
2021
Grow
Core loans and advances to customers (£million) 2,751.2 2,234.6 2,451.0
Why we measure this: Shows the growth in the Group's lending balances, which
generate income
Core compound annual growth rate(1) (%) 16.7 4.6 12.2
Why we measure this: Shows the rate of growth in the Group's lending balances
Core net interest margin (%) 5.7 6.0 6.1
Why we measure this: Shows the interest margin earned on the Group's lending
balances, net of funding costs
Total return on average equity (%) 12.5 19.0(5) 15.9
Why we measure this: Measures the Group's ability to generate profit from the
equity available to it
Sustain
Core cost to income ratio(2) (%) 57.0 60.3 60.0
Why we measure this: Measures how efficiently the Group utilises its cost base
to produce income
Core cost of risk(3) (%) 1.3 (0.1) 0.2
Why we measure this: Measures how effectively the Group manages the credit
risk of its lending portfolios
Common Equity Tier 1 ('CET 1') ratio (%) 14.0 14.1(5) 14.5
Why we measure this: The CET 1 ratio demonstrates the Group's capital strength
Care
Customer Feefo ratings (Stars) 4.5 4.7 4.6
(mark out of 5 based on star rating from 496 reviews (30 June 2021: 594
reviews, 31 December 2021: 937 reviews)
Why we measure this: Indicator of customer satisfaction with the Group's
products and services
Employee survey trust index score (%)(4) N/A N/A 80
(based on 2021 all employee survey)
Why we measure this: Indicator of employee engagement and satisfaction
Environmental intensity indicator(4) N/A N/A 3.0
(tonnes of carbon dioxide equivalent per £1 million Group income)
Why we measure this: Indicator of the Group's impact on the environment
Certain key performance indicators represent alternative performance measures
that are not defined or specified under International Financial Reporting
Standards ('IFRS'). Definitions of the financial key performance indicators,
their calculation and an explanation of the reasons for their use can be found
in the Appendix to the Interim Report.
Core businesses include the Retail Finance, Vehicle Finance, Real Estate
Finance and Commercial Finance businesses only, and are equivalent to
continuing operations. It excludes the Debt Management, Consumer Mortgages and
Asset Finance businesses. As a result, certain ratios have been restated on a
'Core' basis. Further details can be found in Note 3 to the Interim Financial
Statements. Further explanation of the financial key performance indicators is
discussed in the narrative of the Financial review, where they are identified
by being in bold font. Further explanation of the non-financial key
performance indicators is provided in the Managing our business responsibly
and Climate-related financial disclosures sections on pages 38 and 49 of the
2021 Annual Report and Accounts.
1. CAGR is the annual growth rate calculated as the annualised compound growth
in 'core' loans and advances to customers since 31 December 2020.
2. The decrease in the cost to income ratio reflects an improving trend.
3. The increase in the cost of risk reflects a declining trend.
4. Data is only collated on an annual basis.
5. KPIs have also been restated in relation to reflect the IFRS
Interpretations Committee's clarification on the accounting treatment of
Software-as-a-Service arrangement. Further details are provided Note 1.3.1 to
the Interim Financial statements.
Chairman's statement
I am pleased to report that the Group has continued to capture the growth
opportunities that were outlined at the Capital Markets Day in November 2021.
The team has completed the simplification of the Group's business activities
and has a clear plan to achieve further lending in each of our specialist
lending businesses.
As expected, the Group delivered a lower total statutory profit before tax of
£24.7 million (30 June 2021: £30.7 million) for the first half of 2022 as
impairment levels normalised and lending accelerated. The Board is proposing
an interim dividend of 16.0 pence per share (30 June 2021: 20 pence per
share). The challenges of COVID-19 have been successfully navigated and there
is strong growth in our businesses. The Board is mindful of current
uncertainty and how high levels of inflation, the war in Ukraine and the
impending changes in the Government will affect our customers. We will
continue to support them during these challenging times and manage our
business responsibly. The Group is maintaining a cautious approach to loan
loss provisioning and has set an overall impairment charge of £18.6 million
(30 June 2021: £1.1 million credit).
Our new vision is fully embedded and being driven forward by the management
team. The focus on our core(1) businesses saw the sale of Debt Manager
(Services) Limited's loan portfolio completed in May 2022 generating an
initial profit of £8.1 million(2). In the same month we received approval
from the FCA to complete the purchase of AppToPay Limited. This technology
will enable Retail Finance to offer a new regulated digital 'Buy Now Pay
Later' product which applies affordability assessments and appropriate
consumer protections.
We are determined to be the UK's most trusted specialist lender and will
continue to consider strategic acquisitions which complement our business.
I would like to thank the Board for their strong support during this eventful
period, as well as our fantastic employees, whose resilience and dedication
has achieved success despite unprecedented challenges.
We have a well-established and diversified business, an excellent management
team and can look forward to the future with confidence.
Lord Forsyth
Chairman
3 August 2022
1. Core businesses include the Retail Finance, Vehicle Finance, Real Estate
Finance and Commercial Finance businesses only, and are equivalent to
continuing operations. It excludes the Debt Management, Consumer Mortgages and
Asset Finance businesses. The associated loan portfolios for all non-core
businesses were sold in 2022 or 2021 and have been treated as discontinued
operations for statutory purposes.
2. Includes selling costs of £1.2 million, and £0.8 million of associated
costs to wind down the debt management business. See Note 6 to the Interim
Financial Statements for further details.
Chief Executive's statement
Positive performance and sustained growth
I am delighted with our positive operational performance during the first six
months of the year. We have continued to build momentum, delivered strong
income growth, been disciplined in managing our cost base and delivered a
significant increase in core(1) profit before tax pre impairments. The Group's
impairment provisions are normalising, as expected.
The Group has grown lending beyond pre-pandemic levels in all our core(1)
businesses and achieved record new business volumes of £1,121.0 million in
the six months to June 2022 (H1 2021: £603.2 million).
At the end of the first six months, we delivered core(1) net lending growth of
12.2% (£300.2 million). Our Consumer Finance businesses contributed
significantly to this growth, increasing by 21.5%, with Business Finance
lending increasing by 5.6%. Total loan balances including non-core lending
grew 8.7% during the period.
Across our core(1) businesses, net interest margin was 5.7% in the six months
to June 2022 (H1 2021: 6.0%). Total net interest margin decreased to 5.9%
compared to 6.3% in the first half of 2021. These decreases were primarily
driven by the growth of lower risk lending in Retail Finance, with average
balances increasing by 24.5%.
In March we announced our exit from the debt purchase market and in May we
completed the sale of Debt Manager (Services) Limited's ('DMS's') portfolio of
loans, which generated an initial profit of £8.1 million(2). We expect
further closure related costs to be incurred in the second half of the year.
As a consequence of exiting this business, we have previously reset our
medium-term market guidance for net interest margin to be >5.5% and cost
income ratio to <50%. The exit from the debt purchase market completes the
simplification of our lending activities.
We have raised record levels of deposits (including retained funds on maturing
products), and supported customers by increasing rates on managed rate
products as the Bank of England Base Rate increased. However, we are mindful
of the risks a rapidly changing rate environment can have on the Group's cost
of funds and new business pricing and continue to manage this challenge as
effectively as possible, noting it may take time to fully pass through funding
cost increases to the various business lines.
Operating income in our core(1) businesses increased by 14.1% and with a
greater focus on cost discipline we contained cost growth at 7.9%. Our
performance is reflected in the improved core(1) cost income ratio, which
reduced from 60.3% in H1 2021 to 57.0%.
Group impairment provisions are normalising and returning towards pre-pandemic
levels. That combined with the growth of our lending book, has resulted in the
recognition of a core(1) impairment charge of £17.9 million (30 June 2021:
£0.4 million credit). Including non-core businesses, the impairment charge
was £18.6 million (30 June 2021: £1.1 million credit). We are also mindful
of the high levels of inflation, the impact on cost-of-living, household
incomes and potential consequences for customers' ability to service their
debts. We have therefore maintained management overlays in our loan loss
provisioning to reflect these risks. The Business Finance businesses are more
resilient to these impacts due to the secured nature of lending.
Following a normalisation of impairment charges in the Consumer Finance
businesses, we have observed arrears within our Vehicle Finance business
returning towards pre-pandemic levels as Government support though COVID-19
has tapered off, however these remain below pre-pandemic levels. As a result,
we have achieved a total profit before tax of £24.7 million (30 June 2021:
£30.7 million). On a core(1) basis profit before tax was £17.1 million (30
June 2021: £29.3 million).
Capital and liquidity strength
We have maintained strong capital ratios during the period with a Common
Equity Tier 1 ratio of 14.0% as at 30 June 2022 (30 June 2021: 14.1%), where
we continue to utilise the transitional IFRS 9 provisions, albeit with the
benefit tapering down as we entered the year. The sale of the DMS loan
portfolio released approximately £72 million of risk weighted assets, and the
associated capital has been deployed to support growth in our remaining
core(1) businesses.
The Financial Policy Committee ('FPC') have announced plans to increase the
Countercyclical Buffer ('CCyB') from 0% to 1% in December 2022. Alongside
this, the PRA announced the removal of temporary firm specific PRA buffers to
take effect at the same time. Furthermore, in July the FPC announced a further
increase to the CCyB to 2% to take effect in July 2023. Our capital planning
considers these changes, and we are positioned well to manage the impact of
the adjustments. We will continue to consider options to optimise and increase
our capital resources to support the continued growth of our balance sheet.
We have maintained liquidity metrics above the regulatory thresholds
throughout the period.
Vision and purpose
We have firmly embedded our strategy of focusing on our core markets where we
have depth of expertise and opportunity to grow. We are determined to become
the UK's most trusted specialist lender. As part of our communication
strategy, we held a 'Mega Teambrief' event in June 2022 for all colleagues to
attend, which focussed on how each of our diverse, specialist businesses
support the Group's vision, purpose and strategy.
As noted above, our focus on delivering against our strategic objectives saw
the completion of the sale of DMS's portfolio of loans. We are now working
with the purchaser to migrate customers and employees to their business
operations and this will complete later in the year. This will allow us to
focus on the remaining four core(1) lending businesses which each have
significant growth opportunities. We also completed the purchase of AppToPay
Limited, which will provide the proprietary technology platform to enable the
Retail Finance business to enter the digital 'Buy Now Pay Later' market.
We will continue to consider potential M&A opportunities which can
complement our core markets.
Supporting our customers
In the first six months of the year, we received awards from Moneyfacts and
Feefo. Moneyfacts recognised the strength of our Savings proposition and
awarded us 'Best Notice Account Provider', and Feefo awarded us the Platinum
Trusted Service award for Vehicle Finance and Retail Finance, and the Feefo
Trusted Service Award for our Savings proposition. The Feefo Platinum award is
awarded to those companies who have achieved the Gold service award for three
consecutive years, and recognises our consistent support for customers during
the challenging period of these last few years. Feefo scores continue to rate
highly at 4.5 stars out of 5 (31 December 2021: 4.6 stars out of 5).
We have continued to support our customer needs by growing volumes in the new
products that were introduced in 2021. Within our Vehicle Finance business,
Prime Hire Purchase lending and Prime Personal Contract Purchase ('PCP')
lending grew £42.3 million since 31 December 2021. In addition, Stock Funding
has been supporting the dealer network, with new business more than doubling
compared to H1 2021. We also continue to support Commercial Finance clients
through the UK Government Coronavirus Business Interruption Loan Schemes and
Recovery Loan Schemes ('RLS') and have recently been accredited by the British
Business Bank to offer the forthcoming RLS Phase 3 product.
As the country faces high levels of inflation, we are aware of the stress it
will have on household and business finances. We are committed to supporting
our customers and business partners through these challenging times.
Our people
I am hugely appreciative of the support from colleagues across the Group, and
the first six months brought about a number of reasons to celebrate.
We were listed as an official UK Best Workplace™ for the fourth year
running. We were ranked 29 out of 67 companies and we have now been awarded a
trio of accolades from Great Place to Work®: UK Best Workplace™, UK Best
Workplace for Women™ and more recently for UK Best Workplace for
Wellbeing™. We were also able to finally celebrate and recognise our
Outstanding Achievers from the last three years at a celebratory event held in
April.
We undertook an external employee 'pulse' survey, where 85% of colleagues
continue to say that this is a great place to work and our Trust Outcome
increased by 1% to 87% from H1 2021. We also signed up to the HM Treasury's
Women in Finance Charter which underlines our commitment to equality,
diversity and inclusion.
We have introduced a range of resources and information on financial wellbeing
for our colleagues in recent times. Although rising prices impact everyone, we
know that those who earn less are most affected. Recognising this, we
announced that we will pay an exceptional, one-off payment in October of
£1,000 to colleagues who earn £35,000 or below.
I would like to take this opportunity to thank all colleagues across the Group
for their continued hard work and commitment during the first half of the
year.
Expertise and technology
We have deep expertise and strengths in our businesses, and diversity across
the Group as a whole. Our core businesses are scalable and supported by
established management teams with the underlying technology to support and
deliver further growth.
Outlook
We are committed to carefully navigating our businesses during these uncertain
times and will continue to be flexible in how we react during this period of
economic uncertainty. Our new purpose will guide us - to help consumers and
businesses fulfil their ambitions - and we are committed to supporting our
customers and business partners.
We will continue to monitor inflation and the impact it will have on the
cost-of-living. Further increases in the Bank of England Base Rate are
predicted and this will have a direct impact on customer pricing. Despite
these challenges, we have significant growth potential and will capture
opportunities with our usual focus on disciplined risk management. We are well
placed to realise our ambitions and have shown resilience through the
challenges of the last few years. We remain confident about the future despite
near term uncertainties.
David McCreadie
Chief Executive Officer
3 August 2022
1. Core businesses include the Retail Finance, Vehicle Finance, Real Estate
Finance and Commercial Finance businesses only, and are equivalent to
continuing operations. It excludes the Debt Management, Consumer Mortgages and
Asset Finance businesses. The associated loan portfolios for all non-core
businesses were sold in 2022 or 2021 and have been treated as discontinued
operations for statutory purposes.
2. Includes selling costs of £1.2 million, and £0.8 million of associated
costs to wind down the debt management business. See Note 6 to the Interim
Financial Statements for further details.
Financial review
"Positive growth in core operating income combined with cost discipline have
produced a solid first half result"
Income statement 30 June 30 June Movement 31 December
2022
2021
%
2021
£million
£million
£million
Continuing/Core
Interest income and similar income 90.6 80.0 13.3 163.9
Interest expense and similar charges (17.5) (14.8) 18.2 (27.7)
Net interest income 73.1 65.2 12.1 136.2
Fee and commission income 8.1 6.1 32.8 13.3
Fee and commission expense (0.2) (0.3) (33.3) (0.6)
Net fee and commission income 7.9 5.8 36.2 12.7
Operating income 81.0 71.0 14.1 148.9
Net impairment (charge)/credit on loans and advances to customers (17.9) 0.4 (4,575.0) (5.0)
Gains on modification of financial assets 0.7 0.7 - 1.5
Losses from derivatives and hedge accounting (0.5) - - (0.1)
Operating expenses (46.2) (42.8) 7.9 (89.4)
Profit before income tax from continuing operations 17.1 29.3 (41.6) 55.9
Income tax expense (4.2) (4.5) (6.7) (10.4)
Profit for the period from continuing operations 12.9 24.8 (48.0) 45.5
Discontinued operations:
Profit before income tax from discontinued operations 7.6 1.4 442.9 0.1
Income tax expense (1.4) (0.2) 600.0 -
Profit for the period from discontinued operations 6.2 1.2 416.7 0.1
Profit for the period 19.1 26.0 (26.5) 45.6
Basic earnings per share (pence) - Total 102.4 139.5 (26.6) 244.7
Basic earnings per share (pence) - Continuing 69.1 133.1 (48.1) 244.1
Selected Key Performance Indicators and performance metrics £million £million Movement £million
%
Total profit before tax 24.7 30.7 (19.5) 56.0
% % Percentage point movement %
Core net interest margin 5.7 6.0 (0.3)pp 6.1
Core cost of funds 1.4 1.4 - 1.2
Core cost to income ratio 57.0 60.3 (3.3)pp 60.0
Core cost of risk 1.3 (0.1) 1.4pp 0.2
Total return on average equity(1) 12.5 19.0 (6.5)pp 15.9
Common Equity Tier 1 ('CET 1') ratio(1) 14.0 14.1 (0.1)pp 14.5
Total capital ratio(1) 16.3 16.3 - 16.8
1. June 2021 KPIs have been restated in relation to reflect the IFRS
Interpretations Committee's clarification on the accounting treatment of
Software-as-a-Service arrangement. Further details are provided Note 1.3.1 to
the Interim Financial statements.
Certain key performance indicators and performance metrics represent
alternative performance measures that are not defined or specified under IFRS.
Definitions of these alternative performance measures, their calculation and
an explanation of the reasons for their use can be found in the Appendix to
the Interim Report. In the narrative of this Financial review, key performance
indicators are identified by being in bold font.
'Core' key performance indicators and performance metrics have been presented
above. Core businesses include the Retail Finance, Vehicle Finance, Real
Estate Finance and Commercial Finance businesses only, and are equivalent to
continuing operations. It excludes the Debt Management, Consumer Mortgages and
Asset Finance businesses. The associated loan portfolios for all non-core
businesses were sold in 2022 or 2021 and have been treated as discontinued
operations for statutory purposes. As a result, certain ratios have been
restated on a 'Core' basis. Further details of core business can be found in
the Appendix to the Interim Report.
Profit and earnings
The Group achieved strong growth in its balance sheet, exceeding pre-pandemic
levels. Profit before tax was affected by a number of factors. Whilst growth
in the Group's lending balances increased operating income, this combined with
a normalisation of impairment rates led to an increase in impairment charges
compared with H1 2021, primarily driven by the Vehicle Finance business. In
addition, profit before tax benefited from the recognition of the profit on
disposal of the Debt Manager (Services) Limited ('DMS') loan portfolio.
As a result of the above, total statutory profit before tax decreased by 19.5%
to £24.7 million (H1 2021: £30.7 million). On a core basis (continuing
operations), statutory profit before tax decreased by 41.6% to £17.1 million
(H1 2021: £29.3 million). As a result, total earnings per share decreased
from 139.5 pence per share to 102.4 pence per share, and core earnings per
share decreased from 133.1 pence per share to 69.1 pence per share. Total
return on average equity decreased from 19.0% to 12.5%. Detailed disclosures
of earnings per ordinary share are shown in Note 7 to the Interim Financial
Statements. The components of the Group's profit are analysed in more detail
in the sections below.
Net interest income
Core net interest income of £73.1 million was 12.1% higher than the prior
year. This was driven by a change in mix business towards Consumer Finance
off-set by interest expense. Core loans and advances to customers increased by
12.2% from £2,451.0 million to £2,751.2 million.
On a total basis, net interest income was £77.6 million, 5.6% higher than the
prior period. Total loans and advances to customers increased by 8.7% from
£2,531.9 million(1) to £2,751.2, average lending balances over 2022 were
12.5% higher than the average over the first six months of 2021.
Interest income increased over the period and was attributed to the Consumer
Finance and Commercial Finance business. A reduction in Real Estate Finance
interest income has been a consequence of the move from higher margin
development lending to lower margin, lower risk, residential investment
lending.
The Group has passed on Bank of England Base Rate increases on to our managed
rate products and has refocussed funding sources to fixed term bonds. As a
result of this core interest expense was £17.5 million (H1 2021: £14.8
million), an increase of 18.2%. The cost of funds remained at 1.4% (H1 2021:
1.4%), however with the continued increase in Base Rate our funding cost will
increase for the full year.
The Group's core net interest margin decreased to 5.7% (H1 2021: 6.0%). On a
total basis net interest margin was 5.9% (H1 2021: 6.3%). The decrease has
primarily been driven by the continued shift towards prime interest free
lending in Retail Finance, which has a lower gross yield and cost of risk as
well as the reduction in higher yielding development loans in Real Estate
Finance.
1. Including assets held for sale of £1.3 million relating to a small leasing
book.
Net fee and commission income
Core net fee and commission income increased by 36.2% to £7.9 million (H1
2021: £5.8 million). This was predominantly driven by growth in Commercial
Finance fee income.
Impairment charge
In H1 2022 the core cost of risk increased from (0.1)% to 1.3% The core
impairment charge for the year was a £17.9 million charge (H1 2021: £0.4
million credit, which reflected a release of COVID-19 driven provisions).
Total cost of risk including non-core businesses increased from (0.2)% to
1.4%.
During the year the Group enhanced its IFRS 9 process by engaging the use of
external economic advisors to inform its macroeconomic variables model
assumption inputs. Our IFRS 9 models use the correlation between macroeconomic
variables, such as unemployment and house price indices, and historic credit
losses to derive estimated future losses given a range of economic forecast
scenarios.
As in previous years, the majority of our impairment charge arises from growth
in the Consumer Finance businesses. Although the economic inputs, compared to
last year's pandemic impacted period, have given rise to a £2.6 million
release of loan loss provisions, a number of other factors have impacted the
IFRS 9 charge for the period. The core Consumer Finance loan book has grown
21.5% and we have observed an increase in customer arrears within the Vehicle
Finance business which returned to pre-pandemic credit criteria for its
lending at the end of 2021. This resulted in Vehicle Finance contributing
£12.4 million to the overall charge, with the majority of the remainder of
the charge relating to Retail Finance.
The impairment provision also included £2.0 million of management overlays
which adjusted the loan loss provision levels estimated using the Group's IFRS
9 models as at 30 June 2022. In the ongoing response to the rising
cost-of-living, the overlay for customer affordability was increased by £0.7
million to £5.3 million. An underlay of £2.2 million was established to
adjust the elevated probability of default assumptions within the IFRS 9 model
within the Vehicle Finance business. Further details of management overlays
are included in Note 10 to the Interim Financial Statements.
Overall, the impairment provision as a proportion of the gross loans and
advances to customers reduced from 2.6% as at 31 December 2021 to 2.4% as at
30 June 2022, however on a core basis was maintained at 2.4%. A breakdown of
the charge by product is shown in Note 3 to the Interim Financial Statements.
Further analysis of the Group's loan book and its credit risk exposures is
provided in Notes 9 and 20 to the Interim Financial Statements.
Operating expenses
In H1 2022 the Group's core cost base increased by £3.4 million to £46.2
million (H1 2021: £42.8 million), however the Group's core cost to income
ratio decreased from 60.3% to 57.0%. The Group's total cost to income ratio
decreased from 64.0% in H1 2021 to 59.6%. Included within costs were £1.1
million relating to non-recurring corporate projects (H1 2021: £nil), which
if excluded would have reduced the core cost income ratio and the total cost
income ratio to 55.7% and 58.3% respectively.
Taxation
The effective statutory tax rate has increased to 22.7% (H1 2021: 15.3%). On a
continuing basis this is 24.6% (H1 2021: 15.4%).
The effective rate for 2022 has increased above the Corporation Tax rate of
19% as there is a deferred tax charge arising from a reassessment of the rates
at which the deferred tax asset would reverse out in future periods, mainly
arising from changes to the banking surcharge. Further information is provided
in Note 5 to the Interim Financial Statements.
Discontinued business
In May 2022, the Group disposed of the loan portfolio of DMS, realising an
overall initial profit on disposal of £8.1 million. Further costs are
expected to be incurred during the remainder of the year. DMS will operate as
a servicer for the purchaser whilst the loan book is migrated over to its
operating platform. Further details of the impact of the closure of the
business are provided in Note 6 to the Interim Financial Statements.
During 2021 the Group disposed of the Asset Finance and Consumer Mortgage
portfolios. The loss on disposal primarily related to the sale of the Consumer
Mortgage book (loss of £1.3 million). £1.3 million of interest income was
recognised within net interest income, resulting in an overall nil profit
impact. The Asset Finance sale resulted in a £0.1 million loss. Both had
limited impact on Group's operations as the service delivery of both
portfolios were outsourced to third party providers.
The profits and losses of all the business above, including the profit/loss on
disposal, have been included within discontinued operations in the Interim
Report. Further details of the contribution of each business unit can be found
in Note 3 to the Interim Financial Statements.
Distributions to shareholders
The Group's policy is to pay total dividends representing 25% of annual
earnings. The Board recommend the payment of an interim dividend for 2022 of
16.0 pence per share (H1 2021: 20.0 pence per share).
Balance sheet
Summarised balance sheet 30 June Restated(1) 31 December 2021
2022
30 June
£million
£million
2021
£million
Assets
Cash and balances at central banks 253.0 138.4 235.7
Loans and advances to banks 54.2 43.3 50.3
Debt securities 34.9 15.0 25.0
Loans and advances to customers(2) 2,751.2 2,389.9 2,531.9
Fair value adjustment for portfolio hedged risk (17.0) 2.4 (3.5)
Derivative financial instruments 17.7 1.8 3.8
Other assets 41.1 43.4 42.7
3,135.1 2,634.2 2,885.9
Liabilities
Due to banks 400.3 310.4 390.8
Deposits from customers 2,290.9 1,939.7 2,103.2
Fair value adjustment for portfolio hedged risk (15.2) 0.6 (5.3)
Tier 2 subordinated liabilities 51.0 50.8 50.9
Derivative financial instruments 17.3 4.0 6.2
Other liabilities 76.4 42.9 37.7
2,820.7 2,348.4 2,583.5
1. Restated in relation to reflect the IFRS Interpretations Committee's
clarification on the accounting treatment of Software-as-a-Service
arrangement. Further details are provided Note 1.3.1 to the Interim Financial
statements.
2. Loans and Advances to customers include loan portfolios classified as
Assets held for sale (30 June 2021: £62.4 million, 31 December 2021: £1.3
million).
The assets of the Group increased by 8.6% to £3,135.1 million as at 30 June
2021 (31 December 2021 £2,885.9 million). The liabilities of the Group
increased by 9.2% to £2,820.7 million (31 December 2021: £2,583.5 million).
Loans and advances to customers
Loans and advances to customers (which include secured and unsecured loans and
finance lease receivables) increased by 8.7% to £2,751.2 million as at 30
June 2021 (31 December 2021: £2,531.9 million(1)). Excluding non-core
portfolios(2),which were sold during 2022 and 2021 the growth was stronger at
12.2%.
Loan originations in the year, being the total of new loans and advances to
customers entered into during the period, increased by 79.4% to £1,121.0
million (H1 2021: £624.8 million).
New business volumes 30 June 30 June
2022
2021
Consumer Finance
Retail Finance 535.0 353.1
Vehicle Finance 208.4 78.4
Debt Management - 21.6
Business Finance
Real Estate Finance 241.8 129.5
Commercial Finance 135.8 42.2
Total 1,121.0 624.8
Further analysis of loans and advances to customers, including a breakdown of
the arrears profile of the Group's loan books, is provided in Note 10 and 20.
1. Including assets held for sale of £1.3 million at 31 December 2021
2. See Appendix for excluded businesses which were disposed of during 2021 and
2022.
Debt securities and Due to banks
Debt securities consist solely of sterling UK Government Treasury Bills
('T-Bills'). As at 30 June 2022 the Group held £34.9 million of T-Bills (31
December 2021: £25.0 million) which were temporarily required to be utilised
as collateral against Term Funding Scheme with additional incentives for SMEs
('TFSME').
Amounts due to banks consisted primarily of drawings from the Bank of England
TFSME facility.
Deposits from customers
Customer deposits include Fixed term bonds, ISAs, Notice and Access accounts.
Customer deposits increased by 8.9% during the period and closed at £2,290.9
million (31 December 2021: £2,103.2 million). Total funding ratio of 110.8%
reducing slightly from the end of 2021 (31 December 2021: 112.4%). As set out
in the liquidity section of the Financial review, the mix of the deposit book
has continued to change as the Group has adapted to the recent Base Rate
changes, with a focus on retaining stable funds, which is reflected in the
increase in fixed term bonds.
Tier 2 subordinated liabilities
Tier 2 subordinated liabilities represent two £25.0 million tranches of 6.75%
Fixed Rate Callable Subordinated Notes, including interest accrued. Further
details of the note issuances are provided in Note 15 to the Interim Financial
Statements. The Notes qualify as Tier 2 capital.
Capital
Management of capital
Our capital management policy is focused on optimising shareholder value over
the long term. Capital is allocated to achieve targeted risk adjusted returns
whilst ensuring appropriate surpluses are held above the minimum regulatory
requirements.
Key factors influencing the management of capital include:
· The level of buffers and the capital requirement set by the
Prudential Regulation Authority ('PRA');
· Estimated credit losses calculated using IFRS 9 methodology, and
the applicable transitional rules;
· New business volumes; and
· The product mix of new business.
Capital resources
Capital resources increased over the period from £350.6 million to £363.6
million. This includes the proposed interim dividend of £3.0 million (H1
2021: £3.7 million, 31 December 2021: £7.7 million). The increase was
primarily due to CET 1 capital and was driven by retained earnings growth,
offset by the impact of changes to the IFRS 9 adjustment as set out below.
Capital 30 June Restated(1) 31 December 2021
2022
30 June
£million
£million
2021
£million
CET 1 capital 313.8 290.8 303.6
Tier 2 capital 49.8 46.5 47.0
Total capital 363.6 337.3 350.6
Total risk exposure 2,237.1 2,063.2 2,087.4
Capital ratios
CET 1 capital ratio 14.0 14.1 14.5
Total capital ratio 16.3 16.3 16.8
Leverage ratio 10.6 10.9 10.3
1. Restated in relation to reflect the IFRS Interpretations Committee's
clarification on the accounting treatment of Software-as-a-Service
arrangement. Further details are provided Note 1.3.1 to the Interim Financial
statements.
The Group has elected to adopt the IFRS 9 transitional rules. For 2022, this
allows for 25% (2021: 50%) of the initial IFRS 9 transition adjustment, net of
attributable deferred tax, to be added back to eligible capital. The same
relief is allowed for increases in provisions between 1 January 2018 to 31
December 2019, except where these provisions relate to defaulted accounts. The
same relief is allowed for increases in provisions since 1 January 2020,
however as a response to the COVID-19 pandemic, this is applied at 75% in 2022
(2021: 100%). All transitional relief will taper off by 31 December 2024.
The Group's regulatory capital is divided into:
· CET 1 capital, which comprises shareholders' funds, after adding
back the IFRS 9 transition adjustment and deducting qualifying intangible
assets, both of which are net of attributable deferred tax.
· Tier 2 capital, which is solely subordinated debt net of
unamortised issue costs, capped at 25% of the capital requirement.
The Group operates the standardised approach to credit risk, whereby risk
weightings are applied to the Group's on and off balance sheet exposures. The
weightings applied are those stipulated in the Capital Requirements
Regulation.
Excluding the impact of the IFRS 9 transitional rules, the Group's CET 1
capital ratio and total capital ratio would reduce to 13.7% and 15.9%
respectively.
Capital requirements
The Total Capital Requirement, set by the PRA, includes both the calculated
requirement derived using the standardised approach and the additional capital
derived in conjunction with the Internal Capital Adequacy Assessment Process
('ICAAP'). In addition, capital is held to cover generic buffers set at a
macroeconomic level by the PRA.
30 June Restated(1) 31 December 2021
2022
30 June
£million
£million
2021
£million
Total Capital Requirement 211.9 195.4 196.7
Capital conservation buffer 55.9 51.6 51.9
Countercyclical buffer - - -
Total 267.8 247.0 248.6
1. Restated in relation to reflect the IFRS Interpretations Committee's
clarification on the accounting treatment of Software-as-a-Service
arrangement. Further details are provided Note 1.3.1 to the Interim Financial
statements.
The increase in lending balances through the first six months of the year
resulted in an increase in risk weighted assets over 2022, bringing the total
risk exposure up from £2,087.4 million to £2,237.1 million.
The capital conservation buffer has been held at 2.5% of total risk exposure
since 1 January 2019. The countercyclical capital buffer was 0% throughout
2021 as part of the PRA's response to COVID-19 however the Financial Policy
Committee have announced that the rate will increase to 1% of relevant risk
exposures from 13 December 2022 and subsequently to 2% on 5 July 2023. In
addition, the PRA confirmed the removal of firm specific temporary PRA buffers
from December 2022.
Liquidity
Liquidity resources
We continued to hold significant surplus liquidity over the minimum
requirements throughout the first six months of the year, managing liquidity
by holding High Quality Liquid Assets ('HQLA') and utilising predominantly
retail funding balances from customer deposits over 2022. Liquidity remained
high at the end of the period due to a number of factors, including prefunding
Notice account withdrawals and lending growth expected in July. Total liquid
assets increased to £338.3 million as at 30 June 2022 (31 December 2021:
£303.0 million).
The Group is a participant in the Bank of England's Sterling Money Market
Operations under the Sterling Monetary Framework and has drawn £390.0 million
under the TFSME. The Group has no liquid asset exposures outside of the United
Kingdom and no amounts that are either past due or impaired.
Liquid assets 30 June 30 June 31 December 2021
2022
2021
£million
£million
£million
Aaa - Aa3 285.6 152.1 259.0
A1 - A3 47.6 28.7 38.9
Unrated 5.1 5.1 5.1
Total 338.3 185.9 303.0
We continue to attract customer deposits to support balance sheet growth.
Although we have continued to focus on attracting ISA account funding, we have
increased acquisition levels of fixed term bonds which are a more stable form
of funding. The composition of customer deposits is shown in the table below.
Customer deposits 30 June 30 June 31 December 2021
2022
2021
%
%
%
Fixed term bonds 52 50 46
Notice accounts 30 35 37
ISA 14 6 12
Access accounts 4 9 5
Total 100 100 100
Management of liquidity
The Group uses a number of measures to manage liquidity. These include:
· The Overall Liquidity Adequacy Requirement ('OLAR'), which is the
Board's view of the Group's liquidity needs as set out in the Board approved
Internal Liquidity Adequacy Assessment Process ('ILAAP').
· The Liquidity Coverage Ratio ('LCR'), which is a regulatory
measure that assesses net 30-day cash outflows as a proportion of HQLA.
· Total funding ratio, as defined in the Appendix to the Interim
Report.
· High Quality Liquid Assets ('HQLA') are held in the Bank of
England Reserve Account and UK Treasury Bills. For LCR purposes the HQLA
excludes UK Treasury Bills which are encumbered to provide collateral as part
of the Group's TFSME drawings with the Bank of England.
The Group met the LCR minimum threshold throughout the year and, with the
Group's LCR (based on a rolling 12 month-end average) was 363.0%.
Business review
Consumer Finance
Retail Finance
Retail Finance includes lending products for in-store and online retailers to
enable consumer purchases.
30 June 30 June Movement Movement 31 December 2021
2022
2021
£million
%
£million
£million
£million
Lending balance 916.2 694.3 221.9 32.0 764.8
Total revenue 35.9 32.7 3.2 9.8 67.7
Impairment charge 5.6 2.4 3.2 133.3 5.0
H1 2022 performance
The Retail Finance business has reported strong lending growth in the first
half of the year, with new lending volumes increasing to £535.0 million (an
increase of 51.5% on the equivalent period last year). This has led to an
increase of 19.8% in closing lending balances, to £916.2 million at the end
of H1 2022 (31 December 2021: £764.8 million).
The growth in the first half of the year has come primarily from the
furniture, jewellery and healthcare sub-markets. As such the mix of new
business has continued to shift towards prime interest free lending, which has
a lower gross yield and cost of risk. Market share of new business increased
by 3.2%(1) to 11.7% linked to lending growth.
Total revenue increased by 9.8% to £35.9 million in H1 2022, compared to
£32.7 million in H1 2021, driven by higher average lending balances.
Impairment charges increased to £5.6 million (H1 2021: £2.4 million) which
is mainly linked to higher average lending balances, H1 2021 also benefited
from lower provisioning under IFRS 9 due to improvements in macroeconomic
factors. The shift in mix towards interest free has improved customer credit
quality and resulted in a lower cost of risk.
We anticipate further lending growth from our existing retail partners and our
operational plans are focused on digitalising all key processes to improve the
customer and retail partners experience. The acquisition of AppToPay will
promote additional lending in the new digital Buy Now Pay Later markets using
mobile application-based technology.
1. Source: Finance & Leasing Association ('FLA'): New business values
within retail store and online credit. 2022 based on January to May, FLA total
and Retail Finance new business of £3,661.0 million and £430.1 million
respectively. 2021 based on January to December, FLA total and Retail Finance
new business of £8,981.0 million and £771.5 million respectively.
Vehicle Finance
Finance is arranged through motor dealerships, brokers and internet
introducers and involves fixed rate, fixed term hire purchase and personal
contract purchase arrangements on used cars.
30 June 30 June Movement Movement 31 December 2021
2022
2021
£million
%
£million
£million
£million
Lending balance 332.6 244.3 88.3 36.1 263.3
Total revenue 22.3 19.4 2.9 14.9 39.3
Impairment charge/(credit) 12.4 (3.4) 15.8 (464.7) 0.1
H1 2022 performance
In the five months to May 2022 the consumer used car finance market reported
new business up 36% by value(1), and 15% by volume compared with the same
month in 2021(2). The Vehicle Finance business saw its consumer market share
increase over the same period from 0.6% to 1.1%(1).
The Vehicle Finance business has reported strong lending growth in the first
half of the year, with new lending volumes increasing to £208.5 million (an
increase of 165.8% on the equivalent period last year). This has led to an
increase of 26.3% in closing lending balances, to £332.6 million at the end
of H1 2022 (31 December 2021: £263.3 million).
Total revenues increased by 14.9% to £22.3 million in H1 2022 compared to
£19.4 million in H1 2021, driven by higher average lending balances.
Impairments have increased from a credit of £3.4 million in H1 2021 to a
£12.4 million charge in H1 2022. This was impacted by increased new business
volumes and arrears returning towards pre-pandemic levels after a relatively
benign period. Credit criteria have been tightened to proactively manage the
overall risk profile of the lending book, where the impact will be observed
from the second half of 2022.
We will continue to drive returns on the technology investment and enhanced
customer journeys delivered by our Motor Transformation Programme across all
our products to improve growth and enhance earnings.
1. Source Finance and Leasing Association. Cars bought on finance by consumers
through the point of sale: New business values. Used cars January to May 2022,
FLA total and Vehicle Finance total of £10,159 million and £116.3 million
respectively. Used cars January to May 2021, FLA total and Vehicle Finance
total of £7,474 million and £42.6 million respectively.
2. Source Finance and Leasing Association. Cars bought on finance by consumers
through the point of sale: New business volumes. Used cars. January to May
2022, FLA total of 624,894 and January to May 2021, FLA total of 561,411
Business Finance
Real Estate Finance
Supports SMEs in providing finance principally for residential development and
residential investment.
30 June 30 June Movement Movement 31 December 2021
2022
2021
£million
%
£million
£million
£million
Lending balance 1,142.6 1,056.6 86.0 8.1 1,109.6
Total revenue 27.0 27.5 (0.5) (1.8) 54.8
Impairment (credit)/charge (0.2) 1.1 (1.3) (118.2) 0.1
H1 2022 performance
Real Estate Finance's lending balances increased to £1,142.6 million at 30
June 2022, which represented 3.0% growth since December 2021 (31 December
2021: £1,109.6 million). New Business has been very strong in H1 2022 with
£241.8 million of new lending, but the lending balances have been affected by
some larger, early repayments.
Total revenue in H1 2022 was £27.0 million (H1 2021: £27.5 million), which
was 1.8% down on H1 2021 as the mix in lending balances moved towards
investment loans from higher margin development loans. The mix of investment
loans increased from 75% to 88% between H1 2021 and H1 2022, reflecting the
maturity of a number of larger development loans, but has been stable since
December 2021. The Bank of England Base Rate increases have not had a material
impact on the existing portfolio.
The business recognised an impairment credit in H1 2022 of £0.2 million (H1
2021: £1.1 million charge) due to improved credit quality on stage 2 and 3
cases and continued strong portfolio management.
The outlook for new business is challenging in the second half of the year.
The development market activity is slowing down due to the inflationary
pressures and supply side constraints and the Residential Investment market is
very competitive at a time of rising cost of funds.
Commercial Finance
Provision of invoice discounting and factoring to SME businesses.
30 June 30 June Movement Movement 31 December 2021
2022
2021
£million
%
£million
£million
£million
Lending balance 359.8 239.4 120.4 50.3 313.3
Total revenue 12.5 7.6 4.9 64.5 17.4
Impairment charge/(credit) 0.1 - 0.1 - (0.2)
H1 2022 performance
Commercial Finance has continued its strong 2021 performance into the first
half of 2022. At 30 June 2022, lending balances have grown by 14.8% to £359.8
million over the last 6 months (31 December 2021: £313.3 million). In the
first half of 2022, average lending balances have increased by 51.8% compared
to H1 2021 and by 35.7% since December 2021. As a result, total revenues grew
strongly by 64.5% to £12.5 million over the corresponding period last year
(H1 2021: £7.6 million).
This performance was driven by healthy levels of new business, low client
attrition and a growth in funds in use with clients. There was a small
impairment charge of £0.1 million in 2021 (H1 2021: £nil million) reflecting
our continued strong and effective credit risk practices and the strength of
our lending security, notably our client's receivables.
The Group continues to administer UK Government Coronavirus Business
Interruption Schemes and Recovery Loan Schemes ('RLS') and has been accredited
by the British Business Bank to offer the forthcoming RLS Phase 3 product. At
30 June 2022, the outstanding lending balances under these schemes totalled
£36.2 million (31 December 2021: £42.7 million). Commercial Finance took the
conscious decision not to participate in the UK Government's Bounce Bank Loan
Scheme, which closed in March 2021.
Our clients are experiencing economic headwinds through factors such as cost
inflation, supply chain disruption and the availability of people in a tight
labour market. In response, we have increased portfolio diligence and
continued to focus our people on providing support to our clients.
Savings
The Group attracts funding primarily via retail savings, offering individuals
competitive, simple products, applied for and serviced online and backed by
the UK Financial Services Compensation Scheme.
30 June 30 June Movement Movement 31 December 2021
2022
2021
£million
%
£million
£million
£million
Fixed term bonds 1,182.4 972.6 209.8 21.6 974.6
Notice accounts 696.8 684.1 12.7 1.9 771.9
ISAs 310.8 173.4 137.4 79.2 255.0
Access accounts 100.9 109.6 (8.7) (7.9) 101.7
2,290.9 1,939.7 351.2 18.1 2,103.2
H1 2022 performance
During the first half of the year, the Savings business has continued to
generate and retain deposits by offering a competitive, diversified range of
products backed by supportive customer service.
The cost of retail deposits rose during H1 2022, driven by successive
increases in the Bank of England Base Rate and a more competitive savings
market. We continue to support our customers and have passed through recent
Base Rate changes on our managed rate products. Our diversified product range
and pricing agility has positioned us well to respond to these changes, while
continuing to support growth. Retail deposits have increased to £2.3 billion
(31 December 2021: £2.1 billion).
We launched our first access account to new customers this year and expect
continued growth of balances during H2 2022, mirroring customer interest in
easy access products in the current economic and rising rate environment. In
addition, we increased ISA deposits to £310.8 million (31 December 2021:
£255.0 million) and target further growth during H2 2022 through new and
existing customers.
Our variable savings rates for existing customers have been aligned to
increases in market rates during the first half of 2022 and we continue to
retain a significant proportion of maturing term balances through competitive
products. This approach supports the retention of customers and deposits,
providing a stable foundation to support the growth of our lending businesses.
We expect a continuation of the recent increases in cost of retail deposits
during H2 2022. Our ability to raise deposits across our product range
provides the flexibility to manage costs while meeting the needs of Savings
customers in a changing economic environment.
We have continued to develop our capacity to support growth through increasing
the flexibility of our savings operation. Our move towards wider use of
digital channels saw account and interest statements move online during H1
2022. Hybrid working has been embedded into the operation and during H2 2022
we will continue to develop our ability to support deposits growth through the
development of third-party administration and distribution channels.
Economic and regulatory environment
Economic review
Recent developments
As we move into the second half of 2022 the UK and global economy faces
significant headwinds despite COVID-19 pandemic risks receding due to the
widespread vaccination programme and Government economic intervention.
UK GDP has shown modest growth of circa 1% in the five months to May 2022 and
3.5% in the 12 months to May 2022 as the country continues its emergence from
the COVID-19 pandemic. Employment levels are encouraging at 75.9%(1) but still
below pre COVID-19 levels. Unemployment remains at a low level of 3.8%, and
vacancies in the labour market remain at high levels of circa 1.3 million.
Downside risks to the economy are driven by high levels of inflation, with CPI
reaching 9.1% in May 2022, and geopolitical uncertainty due to the ongoing war
in Ukraine. Inflation is being largely driven by tradeable goods and global
energy prices with service price inflation driven by wage growth as employers
seek to recruit and retain staff having a lesser impact. Wage growth is not
expected to keep pace with inflation putting extreme pressures on UK household
incomes. The Bank of England has used its powers to control inflation by
moving the Base Rate of interest to 1.25% with further rate rises expected in
the second half of 2022.
The first rounds of Government measures to support the cost-of-living crisis
have provided £37 billion so far this year to the most vulnerable households.
However, there is clear conflict in Westminster over whether further
Government intervention could only drive inflation up further. Tackling
inflation will be the priority of the next UK Prime Minister following Boris
Johnson's decision to stand down as leader of the governing Conservative
Party.
House prices have continued to rise as they did throughout the pandemic.
However, house price growth is expected to soften as we enter 2023, due to
higher costs of borrowing and household outgoings.
Outlook
In May 2022, the Monetary Policy Committee ('MPC') estimated inflation would
peak at slightly over 10% in Q4 2022 before falling towards its 2% target in
two years' time as tightened monetary policy and energy price caps begin to
take effect. The increased cost-of-living is expected to slow GDP growth in
the second half off 2022 with annual growth of 3% to 3.6% (7.4%: GDP 2021)
predicted by economists.
Rising inflation and the higher costs of living will stretch consumers'
incomes during the coming year increasing the risk of customer default.
1. Source: Office of National Statistics ('ONS'), March to May 2022 UK
employment rate age 16 to 64.
Government and regulatory
Recent developments
This has been another busy period for Government and regulatory announcements
impacting the Group. The key announcements in the first half of the year are
set out below:
The Group became subject to revised regulatory requirements from 1 January
2022, as set out in the policy statements PS21/21 'The UK Leverage Ratio
Framework' and PS22/21 'Implementation of Basel Standards: Final Rules'. The
policy statements broadly align with the EU's Capital Requirements Regulation
II and impact the Group's regulatory requirements, including capital, large
exposures, net stable funding and leverage. In addition, the new requirements
will enable the Group to reduce the scope of Pillar 3 reporting requirements
which is primarily due to its size and simple structure.
In May 2022, the Government issued the paper 'Audit Reporting and Governance
Authority: proposals for a new regulatory audit regulator' giving more detail
of the audit reforms announced in the Queen's speech. The proposals include
the replacement of the Financial Reporting Council with a new stronger
regulator, the Audit, Reporting and Governance Authority. The proposals also
include a stronger sanctions regime for directors who breach their legal
duties to be open with auditors and a requirement for FTSE 350 firms to
conduct part of their audit using a challenger firm, in order to reduce the
dominance of the 'Big Four' audit firms.
During 2021, the PRA consulted on proposals for a strong and simple prudential
framework for non-systemic banks and building societies. The discussion paper
set out several proposals for ways in which the regulatory regime could be
simplified for smaller firms over the coming years. Subsequently, during April
2022, consultation paper CP5/22: 'The Strong and Simple Framework: a
definition of a Simpler-regime Firm' was issued setting out the proposed
eligibility requirements to qualify for reporting under the new regime.
Further consultation papers are expected in 2023 and 2024 setting out the
proposed reporting requirements for the new regime. The date upon which the
new regime would come into force is still to be announced.
The MPC announced a 0.25% increase in the UK Base Rate to 0.5% on 3 February
2022 and a second increase of 0.25% to 0.75% on 17 March 2022, followed by
further increases of 0.25% each on 5 May 2022 and 16 June 2022 taking the rate
to 1.25% at the half year. The MPC's updated central projections in its May
2022 report are conditioned on a market implied path for the UK Base Rate that
rises to 2.5% by the middle of 2023.
In December 2021, the Financial Policy Committee ('FPC') announced that the UK
Countercyclical Capital Buffer ('CCyB') rate would be increased to 1% from 13
December 2022. having been reduced to 0% in March 2020 because of the
pandemic. In July 2022, the FPC confirmed a further increase in the UK CCyB
rate to 2% from 5 July 2023. The FPC stated that they would continue to
monitor the rate due to the current uncertainty around the economic outlook.
The PRA plan to issue a consultation paper on the implementation of Basel 3.1
in the final quarter of 2022. The PRA intends to consult on a proposal that
these changes will become effective on 1 January 2025, which is in line with
other major jurisdictions.
The FCA has also published a number of papers. The FCA Business Plan was
published in April 2022 which sets out the areas of focus for the FCA over the
next 12 months and how they will measure progress. The Group has completed an
impact assessment against the activities outlined within the business plan. It
also finalised rules in April 2022, which require listed companies to report
information against targets on the representation of women and ethnic
minorities on their boards and executive management and additional disclosures
in annual reports.
In June 2022 the FCA published a Dear CEO letter telling lenders to support
consumers who are struggling with the rising cost-of-living and material on
vulnerable customers and borrowers in financial difficulty alongside a number
of industry wide speeches which highlight the current regulatory focus in this
area. We are in the process of completing an impact assessment, however there
are no new requirements or themes that we are not already aware of, and the
Group already has established processes for supporting customers who are in
financial difficulty.
Finally, in July 2022, the FCA issued their policy statement on the new
Consumer Duty that will set higher expectations for the standard of care that
firms provide to consumers. The implementation date for these changes is 31
July 2023.
We expect the high level of Government and regulatory change, which directly
impacts the Group, to continue. Our horizon scanning processes should ensure
that we are able to assess this change on a timely basis. We are well placed
to deal with the impact of these changes.
Principal risks and uncertainties
Risk overview
The effective management of risk is a crucial component within the Group's
strategy and one of its core values, supporting sustainable growth whilst
keeping the Group and its customers safe and secure.
The Group operates an Enterprise-wide Risk Management Framework which governs
the process for identifying and managing risk across its business. This
framework provides a consistent taxonomy and overarching framework across all
risk disciplines and is reviewed annually to ensure full coverage of new and
emerging risks.
The key risks facing the Group, which it defines as principal risks, are
detailed below, alongside an up-to-date assessment.
Further details of the Group's risk management frameworks, including risk
appetite statements and governance can be found on the Group's website:
www.securetrustbank.com (http://www.securetrustbank.com) .
Principal risk Description
Credit risk Credit risk is the risk that a counterparty will be unable to satisfy their
debt servicing commitments when due.
Liquidity and Funding risk The risk that the Group is unable to meet its obligations as they fall due or
can only do so at excessive cost.
Capital risk Capital risk is the risk that the Group will have insufficient capital
resources to meet minimum regulatory requirements and to support the business.
Market risk The risk that the value of, or revenue generated from, the Group's assets and
liabilities is impacted as a result of market movements, predominantly
interest rates.
Operational risk Operational risk is the risk that the Group may be exposed to direct or
indirect loss arising from inadequate or failed internal processes, personnel
and succession, technology or infrastructure, or from external factors.
Conduct risk The risk that the Group's products and services, and the way they are
delivered, result in poor outcomes for customers, or harm to the Group.
Regulatory risk The risk that the Group fails to be compliant with all relevant regulatory
requirements.
Financial Crime risk The risk that the Group fails to prevent the facilitation of financial crime
by not having effective systems and controls and does not meet regulatory
requirements.
Climate Change risk The risk of the potential 'physical' effects of climate change and the
'transitional' risks from the UK's adjustment towards a carbon neutral economy
on the Group's strategy, performance and operational resilience.
Changes to the Group's risk profile since the position set out in the 2021
Annual Report and Accounts are set out below.
Credit risk
Consumer Finance credit risk: Stable
Overall credit performance across the Consumer Finance businesses has been
robust in the first half of the year. The Retail Finance business has shown
continued improvement in arrears and impairments as it has continued its move
towards better credit performing sectors and products. The Vehicle Finance
business has seen further growth in Prime Hire Purchase ('HP') and Personal
Contract Purchase ('PCP'), the latter being subject to a carefully managed
roll out. This has led to an overall improvement in business mix in the
period. Higher than expected impairment charges were seen in Vehicle Finance
due to increased new business volumes and arrears returning towards
pre-pandemic levels after a relatively benign period. Significant management
action has already been taken to tighten lending parameters.
Both Consumer Finance businesses have revised affordability calculations in
the period to reflect higher inflation and increased cost-of-living.
Notwithstanding this, a close continued monitoring is being maintained on both
portfolios, with a view to continuing to support our customers during the
second half of 2022.
Business Finance credit risk: Stable
The Business Finance credit portfolios have also seen robust performance in
the first half of 2022, with both maintaining their selective approach to new
business acquisition. Within the Real Estate Finance business, no material
adverse trends or early warning triggers were evident in the period and new
business was subject to enhanced stress testing against rising inflation
affordability and interest rates. The Commercial Finance business continues to
perform well, benefitting from close working relationships with customers and
tailored lending facilities. It continues to be an accredited lender under the
COVID-19 Government lending guarantee schemes ('CBILS'/'CLBILS'/'RLS'), with
exposure under these schemes performing well with zero claims made on the
underlying guarantees and almost half of initial lending balances repaid.
Liquidity and Funding risk: Stable
The Group has maintained its liquidity and funding ratios in excess of
regulatory and internal risk appetite requirements throughout the first half
of the year. The Group continues to hold significant levels of high-quality
liquid assets and there is no material risk that liabilities cannot be met as
they fall due.
As at 30 June 2022, the Group had drawn £390.0 million of borrowing under the
Bank of England's Term Funding Scheme with additional incentives for SMEs. The
Group continued to maintain an active presence in the retail deposits market
throughout 2022 to generate funding for new lending primarily through a range
of fixed term Bonds and ISA products.
Capital risk: Stable
The Group's balance sheet and total risk exposure has increased since the
beginning of the year as the Group continues to grow its core businesses
organically. The sale of Debt Manager (Services) Limited's ('DMS') loan
portfolio resulted in a release of around £72 million of risk weighted
assets, with the associated capital release being deployed to support the
growth in the Group's remaining specialist lending businesses.
The Group continues to benefit from the capital relief that has been provided
by the PRA in respect of IFRS 9 transitional provisions and the COVID-19
related 'quick-fix' that tapers off to 31 December 2024.
The recent announcement by the Bank of England to further increase the
Countercyclical Capital Buffer ('CCyB') to 2% from July 2023, following its
previous announcement to increase the CCyB to 1% from December 2022, will
require the Group to hold increased levels of minimum regulatory capital. The
Group manages its capital requirements on a forward-looking basis against
minimum regulatory requirements and Board risk appetites. It assesses the
adequacy of the quantum and quality of capital held under stress through the
annual Internal Capital Adequacy Assessment Process ('ICAAP'). The Group will
take opportunities to increase overall levels of capital and to optimise its
capital stack as and when appropriate.
The Group continues to meet its capital ratio measures. Details of the Common
Equity Tier 1 ratio, total capital ratio and leverage ratio are included in
the Financial review.
Market risk: Stable
The Group where possible aims to match its asset and liability profiles and
hedges any significant residual fixed rate positions using Sterling Overnight
Index Average ('SONIA') interest rate derivatives. These derivatives are hedge
accounted for through fair value or cash flow hedge relationships which are
highly effective.
Interest Rate Risk in the Banking Book ('IRRBB') is monitored by a range of
Board Risk Appetite measures including Earnings at Risk ('EAR'), Market Value
Sensitivity ('MVS') and Economic Value of Equity ('EVE').
The Group has remained within these risk appetite thresholds throughout the
year and continues to enhance its risk identification, measurement, and
mitigation for IRRBB.
The Group has a small exposure to foreign exchange risk through its Commercial
Finance lending, all exposures are appropriately hedged.
The Group does not operate a trading book.
Operational risk: Improving
The Group's operational risk processes and standards are defined in a formal
Operational Risk Management Framework, which is aligned to the Basel Committee
on Banking Supervision criteria for the sound management of operational risk.
The Group responded well to the COVID-19 pandemic, proving its resilience and
ability to adapt to the external environment. The Group has developed and
successfully implemented a hybrid working model, ensuring it remains agile in
its operational capability whilst ensuring operational risk is effectively
managed. Having met the 2022 regulatory deadline, the Group continues to
enhance and further embed its approach to achieving Operational Resilience for
all its Important Business Services
The Group has made strong progress in managing and monitoring its third-party
suppliers and has invested in additional resource to strengthen supplier
governance capabilities and develop an enhanced control framework. Significant
progress has also been made in improving regulatory reporting, resulting in an
overall 'improving' assessment.
No material operational losses were recorded in the period.
Conduct risk: Stable
The Group continued to operate within overall risk appetite.
There continues to be monthly review and challenge of Key Risk Indicators
across the business, with the Group Executive Committee having oversight of
the first line activities for assurance to senior management that the first
line of defence is identifying conduct risks when they arise and taking
appropriate actions to mitigate them, with escalation to the Risk Committee
where appropriate.
A gap analysis was completed against the consultation paper for the Consumer
Duty and the four outcomes. The policy statement on the Consumer Duty has now
been published with the deadline for implementation of July 2023. The Group
will review the gap analysis against the policy statement to validate its
plans. It considers that implementation of the appropriate changes and
enhanced processes necessary to evidence adherence to the Duty is achievable
by the deadline.
Regulatory risk: Stable
In the period, engagement with the regulators related to the acquisition and
change in control of AppToPay Limited and the sale of the DMS loan portfolio.
Additionally, the Group responded to information requests and questions,
received new SMF18 approvals and submitted notifications regarding material
outsourcing.
The Group will continue to work on new regulations and legislation that will
come into force over the next 18 months and beyond.
Financial Crime risk: Stable
The inherent risk to the Group has not materially changed over the period and
investment continues to be made in enhancing controls. Economic Crime is a key
focus for regulators and particularly so since the recent passing of the
Economic Crime Bill. The Group continues to engage with industry bodies as it
considers the impact of these changes for the Group.
Climate Change risk: Stable
The 2021 Annual Report and Accounts included a summary of the key risks the
Group faces in relation to climate change, in line with the guidance from the
'Task Force on Climate-Related Financial Disclosures'. Since then, the Group
has made good progress with developing stress test scenarios aligned to the
Network for Greening the Financial System ('NGFS') Climate Change Pathways and
an emissions reduction target for our scope 1 and 2 Greenhouse Gas emissions.
The results of this work will be published in our next Annual Report and
Accounts.
Whilst our overall current assessment is that the associated risks are not
material, we recognise the significance of this area of risk and will continue
to improve our responses in 2022 and beyond.
Interim Financial Statements
Condensed consolidated statement of comprehensive income
For the period ended Note Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Continuing operations:
Income statement
Interest income and similar income 3 90.6 80.0 163.9
Interest expense and similar charges (17.5) (14.8) (27.7)
Net interest income 73.1 65.2 136.2
Fee and commission income 3 8.1 6.1 13.3
Fee and commission expense (0.2) (0.3) (0.6)
Net fee and commission income 7.9 5.8 12.7
Operating income 81.0 71.0 148.9
Net impairment (charge)/credit on loans and advances to customers 10 (17.9) 0.4 (5.0)
Gains on modification of financial assets 4 0.7 0.7 1.5
Losses from derivatives and hedge accounting (0.5) - (0.1)
Operating expenses (46.2) (42.8) (89.4)
Profit before income tax from continuing operations 17.1 29.3 55.9
Income tax expense 5 (4.2) (4.5) (10.4)
Profit for the period from continuing operations 12.9 24.8 45.5
Discontinued operations:
Profit before income tax from discontinued operations 6 7.6 1.4 0.1
Income tax expense 6 (1.4) (0.2) -
Profit for the period from discontinued operations 6 6.2 1.2 0.1
Profit for the period 19.1 26.0 45.6
Other comprehensive income
Items that will not be reclassified to the income statement
Revaluation - fair value gain taken to reserves 0.1 - 0.5
Taxation - - (0.1)
0.1 - 0.4
Items that will be reclassified to the income statement
Cash flow hedge - fair value loss taken to reserves (0.5) (0.1) (0.4)
Taxation - - 0.1
(0.5) (0.1) (0.3)
Other comprehensive income for the period, net of income tax (0.4) (0.1) 0.1
Total comprehensive income for the period 18.7 25.9 45.7
Profit attributable to:
Equity holders of the Company 19.1 26.0 45.6
Total comprehensive income attributable to:
Equity holders of the Company 18.7 25.9 45.7
Earnings per share for profit attributable to the equity holders of the
Company during the year (pence per share)
Basic earnings per ordinary share 7 102.4 139.5 244.7
Diluted earnings per ordinary share 7 99.1 136.8 239.4
Basic earnings per ordinary share - continuing operations 69.1 133.1 244.1
Diluted earnings per ordinary share - continuing operations 67.0 130.5 238.9
The condensed consolidated statement of comprehensive income has been
represented to reflect the disclosure of discontinued operations in prior
periods. See Note 6 for further details.
Condensed consolidated statement of financial position
As at the period ended Note Unaudited Restated Audited
30 June
Unaudited
31 December 2021
2022
30 June
£million
£million
2021
£million
ASSETS
Cash and balances at central banks 253.0 138.4 235.7
Loans and advances to banks 54.2 43.3 50.3
Debt securities 34.9 15.0 25.0
Loans and advances to customers 9 2,751.2 2,327.5 2,530.6
Fair value adjustment for portfolio hedged risk (17.0) 2.4 (3.5)
Derivative financial instruments 17.7 1.8 3.8
Assets held for sale 11 3.3 62.4 1.3
Investment property 1.4 4.3 4.7
Property, plant and equipment 9.0 9.4 9.3
Right-of-use assets 1.7 2.5 2.2
Intangible assets 6.9 7.0 6.9
Current tax assets 0.5 - 0.8
Deferred tax assets 5.9 7.2 6.9
Other assets 12.4 13.0 11.9
Total assets 3,135.1 2,634.2 2,885.9
LIABILITIES AND EQUITY
Liabilities
Due to banks 12 400.3 310.4 390.8
Deposits from customers 13 2,290.9 1,939.7 2,103.2
Fair value adjustment for portfolio hedged risk (15.2) 0.6 (5.3)
Derivative financial instruments 17.3 4.0 6.2
Liabilities directly associated with assets held for sale - - 2.0
Current tax liabilities - 2.5 -
Lease liabilities 2.5 3.6 3.1
Other liabilities 72.4 34.8 31.3
Provisions for liabilities and charges 14 1.5 2.0 1.3
Subordinated liabilities 15 51.0 50.8 50.9
Total liabilities 2,820.7 2,348.4 2,583.5
Equity attributable to owners of the parent
Share capital 7.5 7.5 7.5
Share premium 82.2 82.2 82.2
Cash flow hedge reserve (0.8) (0.1) (0.3)
Revaluation reserve 1.4 0.9 1.3
Retained earnings 224.1 195.3 211.7
Total equity 314.4 285.8 302.4
Total liabilities and equity 3,135.1 2,634.2 2,885.9
The condensed consolidated statement of financial position and condensed
consolidated statement of cash flows have been restated to reflect the IFRS
Interpretations Committee's clarification on the accounting treatment of
Software-as-a-Service arrangement. See Note 1.3.1 for further details.
Condensed consolidated statement of changes in equity
Unaudited Share Share Cash flow hedge reserve Revaluation Retained Total
capital
premium
£million
reserve
earnings
£million
£million
£million
£million
£million
Balance at 1 January 2022 7.5 82.2 (0.3) 1.3 211.7 302.4
Total comprehensive income for the period
Profit for the six months to 30 June 2022 - - - - 19.1 19.1
--
Other comprehensive income, net of income tax
Cash flow hedge losses - - (0.5) - - (0.5)
Revaluation gains - - - 0.1 - 0.1
Total other comprehensive income - - (0.5) 0.1 - (0.4)
Total comprehensive income for the period - - (0.5) 0.1 19.1 18.7
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends - - - - (7.7) (7.7)
Share-based payments - - - - 1.0 1.0
Total contributions by and distributions to owners - - - - (6.7) (6.7)
Balance at 30 June 2022 7.5 82.2 (0.8) 1.4 224.1 314.4
Unaudited Share Share Cash flow hedge Revaluation Retained Total
capital
premium
reserve
reserve
earnings
£million
£million
£million
£million
£million
£million
Balance at 1 January 2021 (as previously stated) 7.5 82.2 - 0.9 179.9 270.5
Software-as-a-Service adjustment net of tax (see Note 1.3.1) - - - - (2.9) (2.9)
Balance at 1 January 2021 (restated) 7.5 82.2 - 0.9 177.0 267.6
Total comprehensive income for the period
Profit for the six months to 30 June 2021 - - - - 26.0 26.0
Other comprehensive income, net of income tax
Cash flow hedge losses - - (0.1) - - (0.1)
Total other comprehensive income - - (0.1) - - (0.1)
Total comprehensive income for the period - - (0.1) - 26.0 25.9
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends - - - - (8.2) (8.2)
Share-based payments - - - - 0.5 0.5
Total contributions by and distributions to owners - - - - (7.7) (7.7)
Balance at 30 June 2021 7.5 82.2 (0.1) 0.9 195.3 285.8
Audited Share Share Cash flow hedge Revaluation Retained Total
capital
premium
reserve
reserve
earnings
£million
£million
£million
£million
£million
£million
Balance at 1 January 2021 (as previously stated) 7.5 82.2 - 0.9 179.9 270.5
Software-as-a-Service adjustment net of tax (see Note 1.3.1) - - - - (2.9) (2.9)
Balance at 1 January 2021 (restated) 7.5 82.2 - 0.9 177.0 267.6
Total comprehensive income for the period
Profit for the year ended 31 December 2021 - - - - 45.6 45.6
Other comprehensive income, net of income tax
Cash flow hedge losses - - (0.3) - - (0.3)
Revaluation gains - - - 0.4 - 0.4
Total other comprehensive income - - (0.3) 0.4 - 0.1
Total comprehensive income for the period - - (0.3) 0.4 45.6 45.7
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends - - - - (11.9) (11.9)
Share-based payments - - - - 1.0 1.0
Total contributions by and distributions to owners - - - - (10.9) (10.9)
Balance at 31 December 2021 7.5 82.2 (0.3) 1.3 211.7 302.4
Condensed consolidated statement of cash flows
For the period ended Note Unaudited Restated Unaudited
30 June
Unaudited
31 December 2021
2022
30 June
£million
£million
2021
£million
Cash flows from operating activities
Profit for the year 19.1 26.0 45.6
Adjustments for:
Income tax expense 5.6 4.7 10.4
Depreciation of property, plant and equipment 0.6 0.7 1.3
Depreciation of right-of-use assets 0.3 0.4 0.7
Amortisation of intangible assets 0.8 0.8 1.5
Impairment charge/(credit) on loans and advances to customers 18.6 (1.1) 4.5
Gains on modification of financial assets (0.7) (0.7) (1.5)
Share-based compensation 1.0 0.5 1.0
Revaluation gain - - (0.4)
(Gain)/loss on disposal of loan books (8.1) - 1.4
Other non-cash items included in profit before tax 1.0 0.2 0.4
Cash flows from operating 38.2 31.5 64.9
profits before changes in operating assets and liabilities
Changes in operating assets and liabilities:
- loans and advances to customers (308.8) (29.2) (238.4)
- loans and advances to banks and balances at central banks 4.2 1.9 4.7
- other assets (0.5) 2.9 6.0
- deposits from customers 187.7 (52.8) 110.7
- provisions for liabilities and charges (0.3) (0.1) (0.7)
- other liabilities 38.9 (21.5) (24.4)
Income tax paid (4.3) (3.8) (12.6)
Net cash outflow from operating activities (44.9) (71.1) (89.8)
Cash flows from investing activities
Consideration on sale of loan books 81.9 - 60.4
Selling costs relating to the sale of loan books (1.2) - -
Redemption of debt securities 45.0 20.0 90.0
Purchase of debt securities (45.0) (35.0) (90.0)
Purchase of property, plant and equipment (0.2) (0.2) (0.2)
Purchase of intangible assets (0.8) (0.4) (1.1)
Net cash inflow/(outflow) from investing activities 79.7 (15.6) 59.1
Cash flows from financing activities
Drawdown of amounts Due to banks 8.7 34.0 114.4
Dividends paid (7.7) (8.2) (11.9)
Repayment of lease liabilities (0.5) (0.3) (0.9)
Net cash inflow from financing activities 0.5 25.5 101.6
Net increase/(decrease) in cash and cash equivalents 35.3 (61.2) 70.9
Cash and cash equivalents at 1 January 303.0 232.1 232.1
Cash and cash equivalents at end of period 18 338.3 170.9 303.0
Notes to the financial statements
1. Accounting policies
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
1.1. Reporting entity
Secure Trust Bank PLC is a public limited company incorporated in England and
Wales in the United Kingdom (referred to as 'the Company') and is limited by
shares. The Company is registered in England and Wales and has the registered
number 00541132. The registered address of the Company is One Arleston Way,
Shirley, Solihull, West Midlands B90 4LH. The Interim Report as at and for the
period ended 30 June 2022 comprise Secure Trust Bank PLC and its subsidiaries
(together referred to as 'the Group' and individually as 'subsidiaries'). The
Group is primarily involved in banking and financial services.
During the period the Group completed the acquisition of 100% of the issued
share capital of AppToPay Limited for £1.0 million. AppToPay Limited is the
owner of a proprietary technology platform, and the acquisition is
complementary to the Group's existing retail finance proposition, which
supports our planned entry into the Digital Buy Now Pay Later market. In
addition to this, an earn-out of a maximum of £0.2 million is payable in
2023, subject to certain performance conditions.
The Group has elected to use the optional practical expedient within IFRS 3
Business Combinations which allows a simplified assessment that a purchase is
accounted for as an asset purchase as opposed to a business combination if
substantially all the fair value of the gross assets acquired is concentrated
in a single identifiable asset. AppToPay Limited's principal asset is a
software development intangible asset. The resulting impact on the Group is an
increase in intangible assets of £1.0 million.
1.2. Basis of presentation
The Interim Report does not constitute statutory accounts as defined in
Section 434 of the Companies Act 2006 and has been prepared in accordance with
International Accounting Standards in conformity with the requirements of the
Companies Act 2006 and United Kingdom adopted International Financial
Reporting Standards and IAS 34 Interim Financial Reporting.
A copy of the statutory accounts for the year ended 31 December 2021 has been
delivered to the Registrar of Companies. The auditor's report on those
accounts was not qualified and did not contain statements under Section 498(2)
or (3) of the Companies Act 2006. The results for the periods ending 30 June
2022 and 30 June 2021 are unaudited. The results for the year ending 31
December 2021 are audited.
The Interim Report has been prepared under the historical cost convention, as
modified by the valuation of derivative financial instruments, investment
properties and land and buildings at fair value. The Interim Report is
presented in pounds sterling, which is the functional and presentational
currency of the entities within the Group.
The preparation of the Interim Report in conformity with IFRS requires the use
of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity or
areas where assumptions and estimates are significant to the Interim Report
are disclosed in Note 2.
1.2.1 Going concern
The Directors have assessed the Group's ability to continue to adopt the going
concern basis of accounting, as required by accounting standards.
As disclosed in the 2021 Annual Report and Accounts (pages 36 and 37), the
Group considers a number of factors in making this assessment. This includes
reviewing current performance, past performance, changes in the economic and
regulatory environment, the risk profile of the business, operational
resilience and possible future events that will impact the business. The Group
also undertakes stress testing to ensure the adequacy of capital and liquidity
under a severe but plausible stress. The Board sets risk appetites to enable
the Group to withstand stress and tail risk events.
Since the year-end the Group has reviewed its principal risks to ensure they
remain appropriate and relevant (for further details see Principal Risks and
uncertainties). There has been no significant deterioration in the risk
profile of the Group and no new principal risks have arisen in the six-month
period.
In addition, the Group has reviewed its five-year profit and loss, net assets,
and capital forecasts to reflect actual performance in the year to date,
strategic changes in the business plan, and the impact of changes in the
macroeconomic environment on its loan loss provisioning and business
activities (the 'Reforecast'). The most notable change to the business plan
was the disposal of Debt Manager (Services) Limited's ('DMS') loan portfolio.
Macroeconomic inputs to the Reforecast reflect increases in Base Rates, which
impact customer pricing and funding costs, and revised forecast economic
variables which impact IFRS 9 loan loss provisioning. The Reforecast also
reflected future changes in the Countercyclical Capital Buffer as announced
and contemplated by the Bank of England. Under the Reforecast, the Board is
satisfied that the Group can continue to operate within its capital and
liquidity risk appetites.
The 2022 Internal Capital Adequacy Assessment Process ('ICAAP') is in progress
and will be presented to the Board in Q3 2022. Details of the Group's 2021
ICAAP are included in the 2021 Annual Report and Accounts. The Group will be
refreshing the scenarios used for stress testing in the 2022 ICAAP to reflect
a post COVID-19 macroeconomic outlook and downside scenarios that reflect a
more typical prolonged economic recession. This approach follows direction
from the PRA who have not published a 2022 macro stress scenario for smaller
banks to use in their ICAAP work.
The Board approved the Internal Liquidity Adequacy Assessment Process
('ILAAP') in June 2022. This provides assurance that the Group can maintain
liquidity resources which are adequate, both as to amount and quality, to
ensure that there is no significant risk that its liabilities cannot be met as
they fall due. As part of the ILAAP, the Group reviews the liquidity risks to
which it is exposed and assesses the quantum of liquid resources required to
survive, and remain viable, under a severe but plausible combined
idiosyncratic and whole of market 90 day stress. The Group maintained
liquidity levels in excess of its liquidity risk appetite and regulatory
requirements throughout the year and is forecast to continue to do so over the
ILAAP planning horizon and going concern period.
Taking the updates noted above, the Directors confirm they are satisfied that
the Group has adequate resources to continue in business for the foreseeable
future. For this reason, they continue to adopt the 'going concern' basis for
preparing the accounts.
1.3. Accounting policies
The accounting policies applied in preparing the unaudited Condensed Interim
Financial Statements are consistent with those used in preparing the audited
statutory financial statements for the year ended 31 December 2021.
1.3.1 Software-as-a-Service agreements prior year adjustment
The Group's previous accounting policy was to treat all configuration and
customisation work carried out by the Software-as-a-Service ('SaaS') provider,
third parties and contractors as part of a SaaS contract as a prepayment,
which was amortised over the underlying hosting contract.
However, during 2021, the IFRS Interpretations Committee published an agenda
decision clarifying how arrangements in respect of SaaS cloud technology
arrangements should be accounted for. Only configuration and customisation
work carried out by the SaaS provider or a subcontractor (agent) of the SaaS
provider, which is distinct from SaaS access, should be treated as a
prepayment, with the prepayment being amortised over the underlying hosting
contract. Configuration and customisation work carried out by third parties or
employees or in-house contractors that do not meet the definition of an
intangible asset should be expensed as incurred.
Therefore, the Group was required to change its accounting policy, to remove
costs incurred by third parties and contractors from the SaaS prepayment and
expense these amounts, and to adjust the amortisation charge accordingly.
Due to the change in accounting policy, the Group is required to restate its
comparatives in accordance with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors. The prior year adjustment reduces opening
retained earnings at 1 January 2021 by £2.9 million (being a £3.6 million
restatement of prepayments less deferred tax of £0.7 million) and has no
impact on the income statement for the six months ended 30 June 2021. This
prior year adjustment has already been disclosed in the results for the year
ended 31 December 2021 included in the 2021 Annual Report and Accounts.
A summary of the impact on the primary statements is as follows:
Statement of financial position Note As originally stated Prior year adjustment Unaudited Restated
Unaudited
30 June
Unaudited
30 June
2021
30 June
2021
£million
2021
£million
£million
Cloud software development prepayment 8.4 (3.6) 4.8
Deferred tax assets 6.5 0.7 7.2
Other assets 2,622.2 - 2,622.2
Total assets 2,637.1 (2.9) 2,634.2
Total liabilities 2,348.4 - 2,348.4
Total equity 288.7 (2.9) 285.8
Total liabilities and equity 2,637.1 (2.9) 2,634.2
1.3.2 Bank accounts with restriction on use
During the period, the International Financial Reporting Interpretations
Committee concluded that restrictions on use of a demand deposit arising from
a contract with a third party do not result in the deposit no longer being
cash. This will result in a prior year adjustment to cash and cash
equivalents. This is effective immediately, but an entity is entitled to
sufficient time to make that determination and implement any necessary
accounting policy change. Accordingly, no adjustments will be made to the
results for the period ended 30 June 2022, but will be implemented at 31
December 2022. The amount of this prior year adjustment has not yet been
quantified, but it will only impact cash and cash equivalents, which has a
resulting impact on the cash flow statement.
1.3.3 Taxation
Taxes on profits in interim periods are accrued using the tax rate that will
be applicable to expected total annual profits.
1.3.4 Standards in issue but not yet effective
There are no new standards in issue but not yet effective that have a material
effect on the Group.
2. Critical accounting judgements and key sources of estimation
uncertainty
2.1 Judgements
No critical judgements have been identified.
2.2. Key sources of estimation uncertainty
Estimations which could have a material impact on the Group's financial
results and are therefore considered to be key sources of estimation
uncertainty all relate to allowances for impairment of loans and advances and
are therefore set out in Note 10.
3. Operating segments
The Group was organised into seven operating segments, which consisted of the
different products available, as disclosed below.
The Asset Finance and Consumer Mortgages loan books were sold during 2021.
Although Asset Finance and Consumer Mortgages were disclosed in continuing
operations in the prior year, the Directors have reassessed this judgement and
concluded that on the basis they have been previously presented as separate
business segments, and discussed as part of the Strategic Report, it has been
deemed appropriate to include these as discontinued operations, and as such
comparatives have been re-presented on this basis.
During the current period, the Group disposed of the Debt Management operating
segment. Accordingly, the results of all of the above businesses are now
included in discontinued operations.
As a result, the Group is now organised into four operating segments: Real
Estate Finance, Commercial Finance, Vehicle Finance and Retail Finance.
Business Finance
1) Real Estate Finance: lending on portfolios of residential property as well
as the development of new build property.
2) Asset Finance: lending to small and medium sized enterprises to acquire
commercial assets, which was sold during 2021.
3) Commercial Finance: lending is predominantly against receivables, typically
releasing 90% of qualifying invoices under invoice discounting and factoring
services. Unsecured lending to existing customers through the Government
guaranteed Coronavirus Business Interruption Loan Scheme, Coronavirus Large
Business Interruption Loan Scheme and Recovery Loan Scheme is also provided.
Consumer Finance
4) Vehicle Finance: hire purchase lending for used cars primarily to prime and
near-prime customers and Personal Contract Purchase lending into the consumer
prime credit market, both secured against the vehicle financed. In addition, a
Stock Funding product is also offered to allow dealers to finance vehicles on
their forecourt as part exchanges, from auction partners or from other trade
sources.
5) Retail Finance: a market leading online service to retailers, providing
unsecured prime lending products to the UK customers of its retail partners to
facilitate the purchase of a wide range of consumer products.
6) Debt Management: a credit management services business which primarily
invests in purchased debt portfolios from third parties, as well as fellow
group undertakings. In addition, it collects debt on behalf of a range of
clients. The Debt Management loan book was sold during 2022.
7) Consumer mortgages for the self-employed, contract workers, those with
complex income and those with a recently restored credit history, sold via
select mortgage intermediaries, which was sold during 2021.
Other
The 'Other' segment includes other products, which are individually below the
quantitative threshold for separate disclosure and fulfil the requirement of
IFRS 8.28 by reconciling operating segments to the amounts in the financial
statements.
Other included principally OneBill (the Group's consumer bill management
service), which was closed during 2021 and RentSmart (principally the funding
and operation of finance leases through a disclosed agency agreement with
RentSmart Limited). The RentSmart loan book was also sold during 2022. Assets
and liabilities in respect of the RentSmart business were included in Assets
and liabilities held for sale as at 31 December 2021 (see Note 11 for further
details).
The Asset Finance, Debt Management and Consumer Mortgages segments all fell
below the quantitative threshold for separate disclosure, but the Directors
considered that they represented sufficiently distinct types of business to
merit separate disclosure. All of these segments are included in discontinuing
operations.
Management review these segments by looking at the income, size and growth
rate of the loan books, impairments and customer numbers. Except for these
items no costs or balance sheet items are allocated to the segments.
Unaudited Interest income and similar income Fee and commission income Revenue from external customers Net impairment Loans and advances to customers
30 June 2022
£million
£million
£million
(credit)/ charge on loans and advances to customers
£million
£million
Real Estate Finance 26.9 0.1 27.0 (0.2) 1,142.6
Commercial Finance 7.1 5.4 12.5 0.1 359.8
Business Finance 34.0 5.5 39.5 (0.1) 1,502.4
Retail Finance 34.2 1.7 35.9 5.6 916.2
Vehicle Finance 21.6 0.7 22.3 12.4 332.6
Debt Management 5.3 1.1 6.4 0.7 -
Consumer Finance 61.1 3.5 64.6 18.7 1,248.8
Other 0.8 0.2 1.0 - -
95.9 9.2 105.1 18.6 2,751.2
Of which:
Continuing 90.6 8.1 98.7 17.9 N/A
Discontinued 5.3 1.1 6.4 0.7 N/A
Unaudited Interest income and similar income Fee and commission income Revenue from external customers Net impairment charge/ Loans and advances to customers(1)
30 June 2021
£million
£million
£million
(credit) on loans and advances to customers
£million
£million
Real Estate Finance 27.2 0.3 27.5 1.1 1,056.6
Asset Finance 0.3 - 0.3 0.1 5.8
Commercial Finance 3.8 3.8 7.6 - 239.4
Business Finance 31.3 4.1 35.4 1.2 1,301.8
Retail Finance 31.5 1.2 32.7 2.4 694.3
Vehicle Finance 18.7 0.7 19.4 (3.4) 244.3
Debt Management 7.3 0.1 7.4 (0.8) 90.4
Consumer Mortgages 1.3 - 1.3 - 56.6
Consumer Finance 58.8 2.0 60.8 (1.8) 1,085.6
Other (1.1) 0.9 (0.2) (0.5) 2.5
89.0 7.0 96.0 (1.1) 2,389.9
Of which:
Continuing 80.0 6.1 86.1 (0.4) N/A
Discontinued 9.0 0.9 9.9 (0.7) N/A
1. Total loans and advances to customer includes assets held for sale of
£62.4 million.
Audited Interest income and similar income Fee and commission income Revenue from external customers Net impairment charge/ Loans and advances to customers(1)
31 December 2021
£million
£million
£million
(credit) on loans and advances to customers
£million
£million
Real Estate Finance 54.5 0.3 54.8 0.1 1,109.6
Asset Finance 0.3 - 0.3 0.1 -
Commercial Finance 8.8 8.6 17.4 (0.2) 313.3
Business Finance 63.6 8.9 72.5 - 1,422.9
Retail Finance 65.0 2.7 67.7 5.0 764.8
Vehicle Finance 38.0 1.3 39.3 0.1 263.3
Debt Management 14.3 0.3 14.6 (0.6) 79.6
Consumer Mortgages 1.3 - 1.3 - -
Consumer Finance 118.6 4.3 122.9 4.5 1,107.7
Other (2.2) 1.1 (1.1) - 1.3
180.0 14.3 194.3 4.5 2,531.9
Of which:
Continuing 163.9 13.3 177.2 5.0 N/A
Discontinued 16.1 1.0 17.1 (0.5) N/A
1. Total loans and advances to customer includes assets held for sale of £1.3
million.
Interest expense and similar charges, fee and commission expense and operating
expenses are not aligned to operating segments for day-to-day management of
the business, so they cannot be allocated on a reliable basis. Accordingly,
profit by operating segment has not been disclosed.
All of the Group's operations are conducted wholly within the United Kingdom
and geographical information is therefore not presented.
4. Gains on modification of financial assets
Although not included as an option within customer contracts, following
regulatory guidance the Group offered payment holidays to its Consumer Finance
and Asset Finance customers during 2020 due to the COVID-19 pandemic, which
were not considered to be substantial. This is considered under IFRS 9 as a
modification to contractual cash flows, which requires the carrying value of
these loans to be adjusted to the net present value of future cash flows.
A small number of payment holidays were granted during 2021, resulting in no
further loan modification losses being recognised. The movement during the
year in the net present value of the loans remaining to be unwound as a result
of the modification was as follows:
Reduction in net present value Vehicle Finance Retail Finance Total
£million
£million
£million
At 1 January 2021 2.5 0.6 3.1
Credit to the income statement (0.6) (0.1) (0.7)
Balance remaining to be unwound at 30 June 2021 (unaudited) 1.9 0.5 2.4
Credit to the income statement (0.5) (0.3) (0.8)
Balance remaining to be unwound at 31 December 2021 (audited) 1.4 0.2 1.6
Credit to the income statement (0.6) (0.1) (0.7)
Balance remaining to be unwound at 30 June 2022 (unaudited) 0.8 0.1 0.9
5. Income tax expense
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Current taxation
Corporation tax charge - current year 4.6 5.5 11.2
Corporation tax credit - adjustments in respect of prior years - (0.2) (0.5)
4.6 5.3 10.7
Deferred taxation
Deferred tax charge/(credit) - current year 1.0 (0.8) (0.7)
Deferred tax charge - adjustments in respect of prior years - 0.2 0.4
1.0 (0.6) (0.3)
Income tax expense 5.6 4.7 10.4
Of which:
Continuing 4.2 4.5 10.4
Discontinued (Note 6) 1.4 0.2 -
Total 5.6 4.7 10.4
The tax for all the periods above has been calculated at the current effective
rate, which is 19%.
The current period includes a deferred tax charge arising from a reassessment
of the rates at which the deferred tax asset would reverse out in future
periods, mainly arising from changes to the banking surcharge. The main
component of the deferred tax asset is deferred tax on the IFRS 9 transition
adjustment, which reverses on a straight-line basis over 10 years commencing
in 2018.
The future tax rates used in 2021 had reflected the increase in Corporation
Tax from 19% to 25% with effect from 1 April 2023 legislated in June 2021. The
rates had continued to assume banking surcharge of 8% on any taxable profits
of Secure Trust Bank PLC in excess of £25 million in an accounting period.
The Finance Act 2022, enacted on 24 February 2022, included legislation to
reduce the banking surcharge to 3% on bank tax profits in excess of £100
million with effect from 1 April 2023. The resulting reduction in the deferred
tax asset is just less than £0.9 million.
6. Discontinued operations
Discontinued businesses include Debt Management, Consumer Mortgages and Asset
Finance. The Asset Finance and Consumer Mortgages loan books were sold during
2021. Although Asset Finance and Consumer Mortgages were disclosed in
continuing operations in the prior year, the directors have reassessed this
judgement and concluded that on the basis they have been previously presented
as separate business segments, and discussed as part of the Strategic Report,
it has been deemed appropriate to include these as discontinued operations,
and as such comparatives have been re-presented on this basis.
On 11 March 2022 the Group announced that it had agreed to sell Debt Managers
(Services) Limited's ('DMS') portfolio of loans to Intrum UK Finance Limited.
The sale completed on 30 May 2022. As the Group has exited this market, the
results have presented this as a discontinued business. DMS will continue to
service the loan book on behalf of Intrum UK Finance Limited until all loans
are migrated to the purchaser, which is expected to complete by the end of
2022. As per the terms of the contract, the Group received £81.9 million, for
the loan book of £71.8 million. Direct and indirect costs incurred in
relation to the sale to 30 June 2022 amounted to £2.0 million. Further costs
are expected to be incurred during the remainder of the year.
Income statement Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Interest income and similar income 5.3 9.0 16.1
Interest expense and similar charges (0.8) (0.7) (1.5)
Net interest income 4.5 8.3 14.6
Fee and commission income 1.1 0.9 1.0
Net fee and commission income 1.1 0.9 1.0
Operating income 5.6 9.2 15.6
Net impairment (charge)/credit on loans and advances to customers (0.7) 0.7 0.5
Profit/(loss) on disposal of loan book 8.9 - (0.6)
Other closure costs (0.8) - (0.8)
Operating expenses (5.4) (8.5) (14.6)
Profit before income tax from discontinued operations 7.6 1.4 0.1
Income tax expense (1.4) (0.2) -
Profit for the period from discontinued operations 6.2 1.2 0.1
Basic earnings per ordinary share - discontinued operations 33.2 6.4 0.5
Diluted earnings per ordinary share - discontinued operations 32.2 6.3 0.5
Unaudited Audited Audited Audited
DMS
Consumer
Asset
Total
30 June
Mortgages
Finance
31 December
2022
31 December
31 December
2021
£million
2021
2021
£million
£million
£million
Consideration received 81.9 54.6 5.8 60.4
Carrying value of loan books disposed (71.8) (54.5) (5.8) (60.3)
Selling costs (1.2) (0.6) (0.1) (0.7)
Profit/(loss) on disposal of loan book (including selling costs) 8.9 (0.5) (0.1) (0.6)
Other closure costs (0.8) (0.8) - (0.8)
Overall profit/(loss) on disposal of loan portfolio(s) 8.1 (1.3) (0.1) (1.4)
Net cash flows Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Operating (81.2) 2.0 (58.3)
Investing 80.7 (0.2) 60.4
Financing - - -
Net cash (outflow)/inflow (0.5) 1.8 2.1
7. Earnings per ordinary share
7.1 Basic
Basic earnings per ordinary share are calculated by dividing the profit
attributable to equity holders of the parent by the weighted average number of
ordinary shares as follows:
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
Profit attributable to equity holders of the parent (£million) 19.1 26.0 45.6
Weighted average number of ordinary shares (number) 18,658,851 18,634,320 18,637,444
Earnings per share (pence) 102.4 139.5 244.7
7.2 Diluted
Diluted earnings per ordinary share are calculated by dividing the profit
attributable to equity holders of the parent by the weighted average number of
ordinary shares in issue during the year, as noted above, as well as the
number of dilutive share options in issue during the year, as follows:
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
Weighted average number of ordinary shares 18,658,851 18,634,320 18,637,444
Number of dilutive shares in issue at the period-end 609,051 367,546 407,729
Fully diluted weighted average number of ordinary shares 19,267,902 19,001,866 19,045,173
Dilutive shares being based on:
Number of options outstanding at the period-end 1,205,610 1,087,539 949,193
Weighted average exercise price (pence) 297 357 370
Average share price during the period (pence) 1,205 966 1,103
Diluted earnings per share (pence) 99.1 136.8 239.4
8. Dividends
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
2020 final dividend - 44.0 pence per share (paid May 2021) - 8.2 8.2
2021 interim dividend - 20.0 pence per share (paid September 2021) - - 3.7
2021 final dividend - 41.1 pence per share (paid May 2022) 7.7 - -
7.7 8.2 11.9
The Directors recommend the payment of a interim dividend of 16.0 pence per
share (2021: 20.0 pence per share). This will be paid on 26 September 2022
with an associated record date of 26 August 2022.
9. Loans and advances to customers
Unaudited Loans and advances to customers Assets held for sale Total
30 June 2022
£million
£million
£million
Gross loans and advances 2,818.2 - 2,818.2
Less: allowances for impairment of loans and advances (67.0) - (67.0)
2,751.2 - 2,751.2
Unaudited Loans and advances to customers Assets held for sale Total
30 June 2021
£million
£million
£million
Gross loans and advances 2,401.1 64.0 2,465.1
Less: allowances for impairment of loans and advances (73.6) (1.6) (75.2)
2,327.5 62.4 2,389.9
Audited Loans and advances to customers Assets held for sale Total
31 December 2021
£million
£million
£million
Gross loans and advances 2,598.1 1.3 2,599.4
Less: allowances for impairment of loans and advances (67.5) - (67.5)
2,530.6 1.3 2,531.9
10. Allowances for impairment of loans and advances
Expected Credit Losses (ECL) by stage by business are disclosed below:
Not credit-impaired Credit-impaired
Unaudited Stage 1: Stage 2: Stage 3: Total provision Gross loans and advance to customers Provision cover
30 June 2022
Subject to
Subject to lifetime ECL
Subject to lifetime ECL
£million
£million
%
12-month ECL
£million
£million
£million
Business Finance:
Real Estate Finance 0.1 0.1 2.0 2.2 1,144.8 0.2
Commercial Finance 0.7 0.1 0.4 1.2 361.0 0.3
Consumer Finance:
Retail Finance 11.3 7.8 5.4 24.5 940.7 2.6
Vehicle Finance:
Voluntary termination provision 4.9 - - 4.9
Other impairment 5.0 17.6 11.6 34.2
9.9 17.6 11.6 39.1 371.7 10.5
22.0 25.6 19.4 67.0 2,818.2 2.4
Not credit-impaired Credit-impaired
Unaudited Stage 1: Stage 2: Stage 3: Total provision Gross loans and advances to customers Provision cover
30 June 2021
Subject to
Subject to lifetime ECL
Subject to lifetime ECL
£million
£million
%
12-month ECL
£million
£million
£million
Business Finance:
Real Estate Finance 0.5 1.8 3.7 6.0 1,062.6 0.6
Asset Finance 0.6 0.1 0.8 1.5 7.3 20.5
Commercial Finance 0.8 0.3 0.2 1.3 240.7 0.5
Consumer Finance:
Retail Finance 13.1 5.8 3.9 22.8 717.1 3.2
Vehicle Finance:
Voluntary termination provision 4.0 - - 4.0
Other impairment 5.7 10.5 17.0 33.2
9.7 10.5 17.0 37.2 281.5 13.2
Debt Management - - 6.3 6.3 96.7 6.5
Consumer Mortgages 0.1 - - 0.1 56.7 0.2
Other - - - - 2.5 -
24.8 18.5 31.9 75.2 2,465.1 3.1
Less: Assets held for sale (0.7) (0.1) (0.8) (1.6) (64.0) 2.5
24.1 18.4 31.1 73.6 2,401.1 3.1
Not credit-impaired Credit-impaired
Audited Stage 1: Stage 2: Stage 3: Total provision Gross loans and advances to customers Provision cover
31 December 2021
Subject to
Subject to lifetime ECL
Subject to lifetime ECL
£million
£million
%
12-month ECL
£million
£million
£million
Business Finance:
Real Estate Finance 0.1 0.4 2.7 3.2 1,112.8 0.3
Commercial Finance 0.5 0.1 0.5 1.1 314.4 0.3
Consumer Finance:
Retail Finance 10.0 7.6 4.1 21.7 786.5 2.8
Vehicle Finance:
Voluntary termination provision 4.2 - - 4.2
Other impairment 3.7 11.9 14.4 30.0
7.9 11.9 14.4 34.2 297.5 11.5
Debt Management - - 7.3 7.3 86.9 8.4
Other - - - - 1.3 -
18.5 20.0 29.0 67.5 2,599.4 2.6
Less Assets held for sale - - - - (1.3) -
18.5 20.0 29.0 67.5 2,598.1 2.6
The impairment charge/(credit) disclosed in the income statement can be
analysed as follows:
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Expected credit losses: impairment charge 18.4 0.7 4.9
Charge in respect of off balance sheet loan commitments 0.2 0.2 (0.2)
Loans written off net of amounts utilised - (1.9) -
Recoveries of loans written off - (0.1) (0.2)
18.6 (1.1) 4.5
Of which:
Continuing 17.9 (0.4) 5.0
Discontinued (Note 6) 0.7 (0.7) (0.5)
Total 18.6 (1.1) 4.5
Total provisions above include expert credit judgements (management overlays)
as follows:
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Specific overlays held against credit-impaired (1.7) (6.9) (0.4)
secured assets held within the Business Finance portfolio
Management judgement in respect of:
Consumer Finance affordability 5.3 - 4.6
Vehicle Finance used car valuations 1.6 1.4 1.5
Uncertainty over the future impact of COVID-19 impact - 3.8 0.4
Adjustment of model over-extrapolation of observed defaults (2.2) - -
POCI adjustment - 6.0 7.3
Other (1.0) 0.6 (0.1)
Expert credit judgements over the IFRS 9 model results 2.0 4.9 13.3
The specific overlays for Business Finance have been estimated on an
individual basis by assessing the recoverability and condition of the secured
asset, along with any other recoveries that may be made. For further details
on Consumer Finance affordability and Vehicle Finance used car valuations, see
Notes 10.1.2 and 10.1.5 respectively.
Reconciliations of the opening to closing allowance for impairment of loans and advances are presented below:
Not credit-impaired Credit-impaired
Unaudited Stage 1: Stage 2: Stage 3: Total
Subject to
Subject to lifetime ECL
Subject to lifetime ECL
£million
12-month ECL
£million
£million
£million
At 1 January 2022 18.5 20.0 29.0 67.5
Increase due to change in credit risk
- Transfer to stage 2 (3.3) 19.9 - 16.6
- Transfer to stage 3 (0.4) (8.9) 13.1 3.8
- Transfer to stage 1 1.3 (2.4) - (1.1)
Passage of time (2.2) 0.1 (4.1) (6.2)
New loans originated 11.2 - - 11.2
Matured and derecognised loans (1.6) (1.6) - (3.2)
Changes to credit risk parameters (2.2) (1.5) - (3.7)
Other adjustments 1.0 - - 1.0
Charge to income statement 3.8 5.6 9.0 18.4
Allowance utilised in respect of write-offs (0.3) - (18.6) (18.9)
30 June 2022 22.0 25.6 19.4 67.0
Not credit-impaired Credit-impaired
Unaudited Stage 1: Stage 2: Stage 3: Total
Subject to
Subject to lifetime ECL
Subject to lifetime ECL
£million
12-month ECL
£million
£million
£million
At 1 January 2021 27.1 27.3 28.3 82.7
(Decrease)/increase due to change in credit risk
- Transfer to stage 2 (2.6) 11.4 - 8.8
- Transfer to stage 3 - (8.6) 10.8 2.2
- Transfer to stage 1 1.6 (2.8) - (1.2)
Passage of time (6.3) (6.3) (0.2) (12.8)
New loans originated 8.9 - - 8.9
Matured and derecognised loans (2.0) (1.8) - (3.8)
Changes to model methodology - (0.4) - (0.4)
Changes to credit risk parameters (1.2) (0.3) 0.2 (1.3)
Other adjustments 0.3 - - 0.3
Charge to income statement (1.3) (8.8) 10.8 0.7
Allowance utilised in respect of write-offs (1.0) - (7.2) (8.2)
30 June 2021 24.8 18.5 31.9 75.2
Not credit-impaired Credit-impaired
Audited Stage 1: Stage 2: Stage 3: Total
Subject to
Subject to lifetime ECL
Subject to lifetime ECL
£million
12-month ECL
£million
£million
£million
At 1 January 2021 27.1 27.3 28.3 82.7
(Decrease)/increase due to change in credit risk
- Transfer to stage 2 (5.3) 27.1 (0.2) 21.6
- Transfer to stage 3 (0.1) (15.7) 20.6 4.8
- Transfer to stage 1 2.9 (5.3) - (2.4)
Passage of time (10.9) (6.7) (3.0) (20.6)
New loans originated 18.2 - - 18.2
Matured and derecognised loans (4.1) (4.1) - (8.2)
Changes to model methodology (0.1) (0.2) 0.9 0.6
Changes to credit risk parameters (8.0) (2.3) 0.7 (9.6)
Other adjustments 0.5 - - 0.5
Charge to income statement (6.9) (7.2) 19.0 4.9
Allowance utilised in respect of write-offs (1.7) (0.1) (18.3) (20.1)
31 December 2021 18.5 20.0 29.0 67.5
The tables above have been prepared based on monthly movements in the ECL.
Passage of time represents the impact of accounts maturing through their
contractual life and the associated reduction in PDs. For stage 3 assets it
represents the unwind of the discount applied in calculating the ECL.
Changes to model methodology represent movements that have occurred due to
enhancements made to the models during the year.
Changes to credit risk parameters represent movements that have occurred due
to the Group updating model inputs. This would include the impact of, for
example, updating the macroeconomic scenarios applied to the models.
Other adjustments represent the movement in the Vehicle Finance voluntary
termination provision.
Stage 1 write-offs arise on Vehicle Finance accounts where borrowers have
exercised their right to voluntarily terminate their agreements.
10.1 Key sources of estimation uncertainty
Estimations which could have a material impact on the Group's financial
results and are therefore considered to be key sources of estimation
uncertainty all relate to the impairment charge on loans and advances to
customers and are therefore set out below.
The current macroeconomic environment (see the Regulatory section for further
details) has been considered in determining reasonably possible changes in key
sources of estimation uncertainty which may occur in the next 12 months.
The impairment charge comprises of two principal elements:
· modelled ECLs, and
· expert credit judgements, which are overlaid onto the output from
the models.
Modelled ECLs are calculated by multiplying three main components: the
probability of default ('PD'), exposure at default and loss given default
('LGD'). These variables are derived from internally developed statistical
models and historical data, adjusted to reflect forward-looking information.
Exogenous, Maturity, Vintage modelling is used in the production of
forward-looking lifetime PDs in the calculation of ECLs. As the Group's
performance data does not go back far enough to capture a full economic cycle,
the proxy series of the quarterly rates of write offs for UK unsecured lending
data is used to build an economic response model to incorporate the effects of
recession.
The determination of both the PD and LGD require estimation which is discussed
further below.
10.1.1 Estimation of PDs
Sensitivity to reasonably possible changes in PD could potentially result in
material changes in the ECL allowance for Vehicle Finance and Retail Finance.
A 50% change in the PD for Vehicle Finance would immediately impact the ECL
allowance by £7.2 million (30 June 2021:10% change impacted ECL allowance by
£1.4 million, 31 December 2021: a 15% change impacted the ECL allowance by
£2.3 million).
A 10% change in the PD for Retail Finance would immediately impact the ECL
allowance by £1.3 million (30 June 2021: 20% change impacted ECL allowance by
£3.8 million, 31 December 2021: a 30% change impacted the ECL allowance by
£4.6 million).
During the period, there was a 47% (30 June 2021: 11%, 31 December 2021: 14%)
change in PD for Vehicle Finance, and a 10% (30 June 2021: 14%, 31 December
2021: 27%) change in PD for Retail Finance.
Due to collateral protection on the Business Finance books, sensitivity to
reasonably possible changes in PD are not considered material.
10.1.2. Consumer Finance customer affordability
A new PD judgement was applied at 31 December 2021 to reflect the heightened
risk of lower customer affordability in the Consumer Finance businesses due to
the increased cost-of-living. A 15% uplift was applied to the ECL on loans
identified as most likely to be impacted by increases in cost-of-living, which
impacted the ECL by £5.3 million (31 December 2021: £4.6 million). If the
uplift factor was increased to 20%, the ECL would have been impacted by a
further £1.1 million (31 December 2021: £0.9 million).
10.1.3. Vehicle Finance cure rates
Where loans are in stage 3 and return to less than 90 days past due, expected
future cure rates are an element of the LGD calculation. Cure rates are
currently above the assumption used in the model of 6.3%, but management are
expecting that cure rates will return to their pre-COVID-19 pandemic levels.
An increase in the cure rate to 12% would decrease the ECL by £1.6 million
(31 December 2021: £2.0 million).
10.1.4. Vehicle Finance recovery rates
With the exception of the Vehicle Finance portfolio, the sensitivity of the
ECL allowance to reasonably possible changes in the LGD is not considered
material. The Vehicle Finance portfolio is particularly sensitive to changes
in LGD due to the range of outcomes which could crystallise depending on
whether the Group is able to recover the vehicle as security. For the Vehicle
Finance portfolio a 20% change in the LGD is considered reasonably possible
due to delays in the vehicle collection process. A 20% reduction in the
vehicle recovery rate assumption element of the LGD for Vehicle Finance would
increase the ECL by £1.4 million (30 June 2021: £4.2 million, 31 December
2021 £2.0 million). During the year, there was a 0% (30 June 2021: 0%, 31
December 2021: 0%) change in the vehicle recovery rate assumption.
10.1.5 Vehicle Finance used car values
Since the onset of the COVID-19 pandemic, we have observed an increase in used
car prices of 26%. This increase in used car prices has been incorporated into
the modelled LGD reducing the ECL provision by £2.1 million (31 December
2021: £3.0 million), however, the Directors believe that only 14% of the
increase in used car prices will be permanent and have applied an overlay for
lower recoveries with an increased provision of £1.6 million (31 December
2021: £1.5 million).
10.1.6 LGD on Real Estate Finance loans in stage 3
The ECL on Real Estate Finance loans in stage 3 is calculated using a
probability weighted expected outcome for each loan, with the scenarios
ranging from best case to downside case(s) to worst case. If the base cases
were removed, with a corresponding increase in downside case(s) and no
movement in worst case, which management considers to be a reasonably possible
outcome, the ECL would increase by £1.2 million (31 December 2021: £2.2
million). The average actual weighting given to the base cases at 30 June 2022
was 82.5% (31 December 2021: 62.5%).
10.1.7 Adjustment of model over-extrapolation of observed defaults
The Vehicle Finance ECL model was adjusted for an over-extrapolation of recent
observed defaults, which resulted in a management overlay reducing the ECL by
£2.2 million. The overlay was quantified as 50% of the reduction in ECL
charge that would occur if using average Vehicle Finance PDs, which the
Directors consider to be reasonable until further corroborative data is
available. If defaults do continue to increase at the rate predicted by the
ECL model, an additional £2.2 million charge would be recognised.
10.1.8 Incorporation of forward-looking data
The Group incorporates forward-looking information into both its assessment of
whether the credit risk of a financial asset has increased significantly since
initial recognition and its measurement of expected credit loss by developing
a number of potential economic scenarios and modelling expected credit losses
for each scenario.
The macroeconomic scenarios used were provided by external economic advisors,
having previously being internally developed, which had regard to externally
published scenarios. The scenarios and weightings applied are summarised
below:
Unaudited UK Unemployment Rate - Annual Average UK HPI - movement from H1 2022
30 June 2022
Scenario Weightings Year 1 Year 2 Year 3 5 Yr Average Year 1 Year 2 Year 3 5 Yr Average
%
%
%
%
%
%
%
%
Upside 20% 3.6 3.6 3.6 3.6 4.2 5.5 8.4 7.3
Base 50% 3.8 3.8 3.7 3.8 1.3 0.3 1.0 2.0
Downside 25% 6.0 6.2 6.3 6.1 (6.9) (17.1) (23.0) (15.0)
Severe 5% 6.3 6.5 6.6 6.4 (11.0) (25.7) (34.8) (23.4)
Unaudited UK Unemployment Rate - Annual Average UK HPI - movement from H1 2021
30 June 2021
Scenario Weightings Year 1 Year 2 Year 3 5 Yr Average Year 1 Year 2 Year 3 5 Yr Average
%
%
%
%
%
%
%
%
Upside 20% 5.1 4.8 4.4 4.4 (0.5) (0.2) 2.8 3.9
Base 50% 6.9 7.0 5.9 5.6 (2.4) (3.0) - 1.3
Downside 25% 7.5 7.7 6.6 6.1 (3.6) (5.9) (2.9) (1.3)
Severe 5% 9.3 10.2 8.4 7.8 (13.0) (22.4) (19.4) (16.3)
Audited UK Unemployment Rate - Annual Average UK HPI - movement from December 2021
31 December 2021
Scenario Weightings 2022 2023 2024 5 Yr Average 2022 2023 2024 5 Yr Average
%
%
%
%
%
%
%
%
Upside 20% 4.1 4.0 4.0 4.0 0.8 3.9 8.1 8.3
Base 50% 4.9 4.4 4.2 4.3 1.0 1.9 3.9 4.9
Downside 25% 5.7 5.6 4.8 4.9 (3.0) (1.9) 2.1 2.7
Severe 5% 6.8 8.3 6.8 6.3 (10.7) (11.2) (7.2) (6.2)
The sensitivity of the ECL allowance to reasonably possible changes in
macroeconomic scenario weighting is presented below:
Increase in downside case Increase in severe stress case
weighting by 10% and reduction in upside case
weighting by 5%and reduction
in base case
Unaudited Unaudited Audited Unaudited Unaudited Audited
June
June
December
June
June
December
2022
2021
2021
2022
2021
2021
£million
£million
£million
£million
£million
£million
Vehicle Finance 1.1 0.2 0.2 0.8 0.1 0.2
Retail Finance 1.6 0.3 0.3 1.2 0.2 0.2
The sensitivity is immaterial for other lending products.
The Group recognised an impairment charge of £18.6 million (30 June 2021:
£1.1 million credit, December 2021: £4.5 million charge). Were each of the
macroeconomic scenarios to be applied 100%, rather than using the weightings
set out above, the increase/(decrease) on ECL provisions would be as follows:
Unaudited Vehicle Finance Retail Finance Business Finance Total Group
30 June 2022
£million
£million
£million
£million
Scenario
Upside (1.7) (2.6) (0.3) (4.6)
Base (1.2) (1.8) (0.2) (3.2)
Downside 3.0 4.6 0.5 8.1
Severe 3.7 5.7 1.1 10.5
Unaudited Vehicle Finance Retail Finance Business Finance Total Group
30 June 2021
£million
£million
£million
£million
Scenario
Upside (1.7) (2.2) (1.3) (5.2)
Base 0.1 0.1 (0.4) (0.2)
Downside 0.7 0.9 0.3 1.9
Severe 2.6 3.4 7.1 13.1
Audited Vehicle Finance Retail Finance Business Finance Total Group
31 December 2021
£million
£million
£million
£million
Scenario
Upside (1.2) (2.0) (2.5) (5.7)
Base (0.4) (0.4) (1.9) (2.7)
Downside 1.0 1.5 0.5 3.0
Severe 3.3 4.6 8.4 16.3
10.1.8 Climate-risk impact
The Group has considered the impact of climate-related risks on the financial
statements, in particular the impact on impairment within the Vehicle Finance
business. While the effects of climate change represent a source of
uncertainty (in respect of potential transitional risks such as those that may
arise from changes in future Government policy), the Group does not consider
there to be a material impact on its judgements and estimates from the
physical, transition and other climate-related risks in the short-term.
11. Assets and liabilities held for sale
Under IFRS 5, Non-current Assets Held for Sale and Discontinued Operations,
assets and liabilities are required to be reclassified as 'Held for sale' on
the face of the statement of financial position if they are expected to be
sold within 12 months of the balance sheet date.
As at 30 June 2022, the Group's office property in Bourne End was available
for immediate sale in its present condition and its sale was highly probable.
Accordingly, it was reclassified in the June 2022 Condensed consolidated
statement of financial position at its carrying amount of £3.3 million from
Investment properties to Assets held for sale. During July 2022, the sale
completed, and the property was sold for £3.4 million.
As at 30 June 2021, the Asset Finance and Consumer Mortgages loan books were
both in advanced stages of a sales process. Accordingly, it was reclassified
in the June 2021 Condensed consolidated statement of financial position at its
carrying value of £62.4 million from Loans and advances to customers to
Assets held for sale. The sale of both books completed during July 2021.
As at 31 December 2021, assets of £1.3 million relating to a loan book and a
liability of £2.0 million relating to collateral held, were in the process of
being sold to its partner, RentSmart Limited. The assets and liabilities were
sold for their carrying amount on 31 January 2022. There is no provision held
against the RentSmart loans, as the credit risk associated with those loans is
retained by RentSmart Limited.
Further information on the contribution of each business to the Group can be
found in Note 3. Details of impairment allowances for each business can be
found in Note 10.
12. Due to banks
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Amounts due under the Bank of England's liquidity support operations, Term 390.0 303.0 390.0
Funding Scheme and Term Funding Scheme with additional incentives for SMEs
Amounts due to other credit institutions 9.4 7.3 0.7
Accrued interest 0.9 0.1 0.1
400.3 310.4 390.8
Amounts due under the Bank of England's liquidity support operations Term
Funding Scheme with additional incentives for SMEs are due for repayment
between March 2025 and October 2025.
13. Deposits from customers
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Fixed term bonds 1,182.4 972.6 974.6
Notice accounts 696.8 684.1 771.9
ISAs 310.8 173.4 255.0
Access accounts 100.9 109.6 101.7
2,290.9 1,939.7 2,103.2
14. Provisions for liabilities and charges
ECL allowance on loan commitments Other Total
£million
£million
£million
Balance at 1 January 2021 1.1 0.8 1.9
Charge to income statement 0.2 0.1 0.3
Utilised - (0.2) (0.2)
Balance at 30 June 2021 (Unaudited) 1.3 0.7 2.0
(Release)/charge to income statement (0.4) 0.2 (0.2)
Utilised - (0.5) (0.5)
Balance at 31 December 2021 (Audited) 0.9 0.4 1.3
Charge to income statement 0.2 0.3 0.5
Utilised - (0.3) (0.3)
Balance at 30 June 2022 (Unaudited) 1.1 0.4 1.5
ECL allowance on loan commitments
In accordance with the requirements of IFRS 9 the Group holds an ECL allowance
against loans it has committed to lend but have not yet been drawn. For the
Real Estate Finance and Commercial Finance portfolios, where a loan facility
is agreed that includes both drawn and undrawn elements and the Group cannot
identify the ECL on the loan commitment separately, a combined loss allowance
for both drawn and undrawn components of the loan is presented as a deduction
from the gross carrying amount of the drawn component, with any excess of the
loss allowance over the gross drawn amount presented as a provision. At 30
June 2022, 30 June 2021, 31 December 2021 no provision was held for losses in
excess of drawn amounts.
Other
Other includes
· provision for fraud, which relates to cases where the Group has
reasonable evidence of suspected fraud, but further investigation is required
before the cases can be dealt with appropriately
· s75 Consumer Credit Act 1974 provision; and
· restructuring provision (June 2021 only).
The Directors expect all provisions to be fully utilised within the next 12
months.
15. Subordinated liabilities
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Notes at par value 50.0 50.0 50.0
Unamortised issue costs (0.2) (0.4) (0.3)
Accrued interest 1.2 1.2 1.2
51.0 50.8 50.9
16. Contingent liabilities and commitments
16.1 Contingent liabilities
As a financial services business, the Group must comply with numerous laws and
regulations, which significantly affect the way it does business. Whilst the
Group believes there are no material unidentified areas of failure to comply
with these laws and regulations, there can be no guarantee that all issues
have been identified.
16.2 Credit commitments
Commitments to extend credit to customers were as follows:
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Business Finance
Real Estate Finance 77.3 56.3 68.9
Commercial Finance 152.6 120.7 120.9
Consumer Finance
Retail Finance 100.8 91.1 83.6
Vehicle Finance 1.6 0.5 0.5
332.3 268.6 273.9
17. Share-based payments
Movements in the share options outstanding during the period are set out
below:
Outstanding at 1 January 2022 Granted Number Exercised Number Outstanding at 30 June 2022
Number
Number
Long term incentive plan 401,800 230,789 (17,565) 615,024
Deferred bonus plan 19,686 38,344 (4,316) 53,714
Sharesave plan 542,446 - (5,574) 536,872
963,932 269,133 (27,455) 1,205,610
Outstanding at 1 January 2021 Granted Number Exercised Number Outstanding at 30 June 2021
Number
Number
Long term incentive plan 473,096 243,550 (3,884) 712,762
Deferred bonus plan 51,319 1,702 (826) 52,195
Sharesave plan 572,464 - - 572,464
1,096,879 245,252 (4,710) 1,337,421
Outstanding at 1 January 2021 Granted Number Forfeited, lapsed and cancelled Number Exercised Number Outstanding at 31 December 2021
Number
Number
Long term incentive plan 473,096 243,550 (300,999) (13,847) 401,800
Deferred bonus plan 51,319 13,023 (43,830) (826) 19,686
Sharesave plan 572,464 57,645 (87,663) - 542,446
1,096,879 314,218 (432,492) (14,673) 963,932
The weighted average of the original grant date valuation of the options
granted in the period is £7.69. 12,779 of the options granted in the period
will vest in April 2023, 12,779 will vest in 2024, with the remainder vesting
in 2025.
18. Cash flow statement
18.1 Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents
comprise the following balances with less than three months' maturity from the
date of acquisition.
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Cash and balances at central banks 253.0 138.4 235.7
Loans and advances to banks 54.2 43.3 50.3
Debt securities 34.9 - 25.0
Less restricted cash
Included in cash and balances at central banks (2.3) (1.3) (1.7)
Included in loans and advances to central banks (1.5) (9.5) (6.3)
Total restricted cash (3.8) (10.8) (8.0)
338.3 170.9 303.0
18.2 Changes in liabilities arising from financing activities
All changes in liabilities arising from financing activities arise from
changes in cash flows, apart from £0.1 million (June 2021: £0.1 million,
December 2021: £0.1 million) of lease liabilities interest expense, and £0.1
million (June 2021: £0.1 million, December 2021: £0.1 million) amortisation
of issue costs on subordinated liabilities.
19. Related party transactions
There were no changes to the nature of the related party transactions during
the period to June 2022 that would materially affect the position or
performance of the Group. The nature and relative quantum of related party
transactions has not changed in the six months ended 30 June 2022 in
comparison to the year ended 31 December 2021. Details of the transactions for
the year ended December 2021 can be found in the 2021 Annual Report and
Accounts.
20. Management of credit risk
The Group takes on exposure to credit risk, which is the risk that a
counterparty will be unable to pay amounts in full when due. Details of the
management of credit risk can be found in the 2021 Annual Report and Accounts.
Stage 1 Stage 2 Stage 3 Total
Unaudited £million <= 30 days > 30 days Total Excl. purchased credit-impaired Purchased Total £million
30 June 2022
past due
past due
£million
£million
credit‑
£million
£million
£million impaired
£million
Business Finance
Real Estate Finance 969.7 143.7 - 143.7 31.4 - 31.4 1,144.8
Commercial Finance 344.5 14.5 - 14.5 2.0 - 2.0 361.0
Consumer Finance
Retail Finance 827.2 105.0 2.7 107.7 5.8 - 5.8 940.7
Vehicle Finance 253.6 97.6 2.8 100.4 17.7 - 17.7 371.7
Total drawn exposure 2,395.0 360.8 5.5 366.3 56.9 - 56.9 2,818.2
Off balance sheet
Loan commitments 332.3 - - - - - 332.3
Total gross exposure 2,727.3 360.8 5.5 366.3 56.9 - 56.9 3,150.5
Less:
Impairment allowance (22.0) (21.7) (3.9) (25.6) (19.4) - (19.4) (67.0)
Provision for loan commitments (1.1) - - - - - - (1.1)
Total net exposure 2,704.2 339.1 1.6 340.7 37.5 - 37.5 3,082.4
Stage 1 Stage 2 Stage 3 Total
Unaudited £million <= 30 days > 30 days Total Excl. purchased credit-impaired Purchased credit‑ Total £million
30 June 2021
past due
past due
£million
£million impaired
£million
£million
£million
£million
Business Finance
Real Estate Finance 780.8 231.3 4.1 235.4 46.4 - 46.4 1,062.6
Asset Finance 5.4 1.1 - 1.1 0.8 - 0.8 7.3
Commercial Finance 227.6 12.8 - 12.8 0.3 - 0.3 240.7
Consumer Finance
Retail Finance 642.7 67.9 2.2 70.1 4.3 - 4.3 717.1
Vehicle Finance 177.3 79.3 1.1 80.4 23.8 - 23.8 281.5
Debt Management - - - - 11.0 85.7 96.7 96.7
Consumer Mortgages 53.1 - 2.1 2.1 1.5 - 1.5 56.7
Other 2.5 - - - - - - 2.5
Total drawn exposure 1,889.4 392.4 9.5 401.9 88.1 85.7 173.8 2,465.1
Off balance sheet
Loan commitments 268.6 - - - - - - 268.6
Total gross exposure 2,158.0 392.4 9.5 401.9 88.1 85.7 173.8 2,733.7
Less:
Impairment allowance (24.8) (16.2) (2.3) (18.5) (25.9) (6.0) (31.9) (75.2)
Provision for loan commitments (1.3) - - - - - - (1.3)
Total net exposure 2,131.9 376.2 7.2 383.4 62.2 79.7 141.9 2,657.2
Stage 1 Stage 2 Stage 3 Total
Unaudited £million <= 30 days > 30 days Total Excl. purchased credit-impaired Purchased credit‑ Total £million
31 December 2021
past due
past due
£million
£million impaired
£million
£million
£million
£million
Business Finance
Real Estate Finance 911.4 161.4 - 161.4 40.0 - 40.0 1,112.8
Commercial Finance 291.7 17.5 - 17.5 5.2 - 5.2 314.4
Consumer Finance
Retail Finance 659.4 120.1 2.6 122.7 4.4 - 4.4 786.5
Vehicle Finance 207.0 68.9 2.2 71.1 19.4 - 19.4 297.5
Debt Management - - - - 10.8 76.1 86.9 86.9
Total drawn exposure 2,069.5 367.9 4.8 372.7 79.8 76.1 155.9 2,598.1
Off balance sheet
Loan commitments 271.0 2.9 - 2.9 - - - 273.9
Total gross exposure 2,340.5 370.8 4.8 375.6 79.8 76.1 155.9 2,872.0
Less:
Impairment allowance (18.5) (16.6) (3.4) (20.0) (23.1) (5.9) (29.0) (67.5)
Provision for loan commitments (0.9) - - - - - - (0.9)
Total net exposure 2,321.1 354.2 1.4 355.6 56.7 70.2 126.9 2,803.6
20.1 Concentration risk
Management assesses the potential concentration risk from geographic, product
and individual loan concentration. Due to the nature of the Group's lending
operations the Directors consider the lending operations of the Group as a
whole to be well diversified. Details of the Group's loans and advances to
customers and loan commitments by product is provided in Notes 3 and 16.2.
The Group's Real Estate Finance loan book is secured against UK property only.
The geographical concentration of these business loans and advances to
customers, by location of the security is as follows:
Unaudited Unaudited Audited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Central England 95.1 151.8 90.1
Greater London 696.7 650.1 619.7
Northern England 61.5 60.0 66.2
South East England (excl. Greater London) 225.7 145.3 258.7
South West England 22.2 28.1 30.7
Scotland, Wales and Northern Ireland 43.6 27.3 47.4
Gross loans and advances to customers 1,144.8 1,062.6 1,112.8
Allowance for impairment (2.2) (6.0) (3.2)
Total 1,142.6 1,056.6 1,109.6
Loan-to-value 57% 57% 56%
Under its credit policy, the Real Estate Finance business lends to a maximum
loan-to-value of 70% for investment loans and up to 65% for residential
development loans and pre-let commercial development loans (based on gross
development value).
21. Capital risk
The Group's capital management policy is focused on optimising shareholder
value, in a safe and sustainable manner. There is a clear focus on delivering
organic growth and ensuring capital resources are sufficient to support
planned levels of growth. The Board regularly reviews the capital position.
The following table shows the regulatory capital resources as managed by the
Group:
Unaudited Unaudited Unaudited
30 June
30 June
31 December 2021
2022
2021
£million
£million
£million
Tier 1
Share capital 7.5 7.5 7.5
Share premium 82.2 82.2 82.2
Retained earnings 224.1 198.2 211.7
Revaluation reserve 1.4 0.9 1.3
IFRS 9 transition adjustment 8.5 13.9 13.9
Goodwill (1.0) (1.0) (1.0)
Intangible assets net of attributable deferred tax (5.9) (4.3) (4.3)
Common Equity Tier 1 ('CET 1') capital before foreseeable dividend 316.8 297.4 311.3
Foreseeable dividend (3.0) (3.7) (7.7)
CET 1 capital 313.8 293.7 303.6
Tier 2
Subordinated liabilities 49.8 50.8 50.9
Less ineligible portion - (4.3) (3.9)
Total Tier 2 capital 49.8 46.5 47.0
Total own funds/Total capital 363.6 340.2 350.6
Reconciliation to total equity:
IFRS 9 transition adjustment (8.5) (13.9) (13.9)
Eligible subordinated liabilities (49.8) (46.5) (47.0)
Cash flow hedge reserve (0.8) (0.1) (0.3)
Goodwill and other intangible assets net of attributable deferred tax 6.9 5.3 5.3
Foreseeable dividend 3.0 3.7 7.7
Total equity 314.4 288.7 302.4
The Group is subject to capital requirements imposed by the PRA on all
financial services firms. During the periods, the Group complied with these
requirements.
22. Fair value of loans and advances to customers and deposits from
customers
The fair value of loans and advances to customers and deposits from customers
is set out below:
Unaudited Unaudited Unaudited Unaudited Fair Audited Carrying amount Audited
Carrying amount
Fair
Carrying amount
value
31 December
Fair
30 June
value
30 June
30 June
2021
value
2022
30 June
2021
2021
£million
31 December
£million
2022
£million
£million
2021
£million
£million
Total loans and advances to customers 2,751.2 2,771.7 2,389.9 2,419.0 2,531.9 2,569.9
Deposits from customers 2,290.9 2,297.3 1,939.7 1,957.7 2,103.2 2,106.9
Freehold land and buildings, investment properties and derivatives are carried
at fair value. All other assets and liabilities are carried at amortised cost.
Appendix to the Interim Report
Key performance indicators and other alternative performance measures
(i) Net interest margin ratio
Net interest margin is calculated as interest income and similar income less
interest expense and similar charges for the financial period as a percentage
of the average loan book. The calculation of the average loan book is the
average of the monthly balance of loans and advances to customers, net of
provisions, over seven or 13 months. The resulting ratios for June 2022 and
June 2021 are multiplied by 365/181 to give an annual equivalent comparable to
the annual results:
Total June June December
2022
2021
2021
£million
£million
£million
Interest income and similar income (continuing and discontinued) 95.9 89.0 180.0
Interest expense and similar charges (continuing and discontinued) (18.3) (15.5) (29.2)
Net interest income (continuing and discontinued) 77.6 73.5 150.8
Opening loan book 2,531.9 2,358.9 2,358.9
(including loans included in assets held for sale of: £1.3 million as at 1
January 2022).
Closing loan book 2,751.2 2,389.9 2,531.9
(including loans included in assets held for sale of (30: June 2021: £62.4
million,
31 December 2021: £1.3 million).
Average loan book 2,639.7 2,346.3 2,374.0
Total net interest margin 5.9% 6.3% 6.4%
Core June June December
2022
2021
2021
£million
£million
£million
Interest income and similar income (continuing) 90.6 80.0 163.9
Interest expense and similar charges (continuing) (17.5) (14.8) (27.7)
Net interest income (continuing) 73.1 65.2 136.2
Core opening loan book 2,451.0 2,184.9 2,184.9
Core closing loan book 2,751.2 2,234.6 2,451.0
Core average loan book 2,584.2 2,174.2 2,240.5
Core net interest margin 5.7% 6.0% 6.1%
The net interest margin ratio measures the yield net of funding costs of the
loan book.
A reconciliation of total loan book to core loan book is set out below:
June June December December
2022
2021
2021
2020
£million
£million
£million
£million
Loan and advances to customers 2,751.2 2327.5 2,530.6 2,358.9
Assets held for sale - loan portfolios - 62.4 1.3 -
Total loan book 2,751.2 2,389.9 2,531.9 2,358.9
Less non-core loan portfolios:
Asset Finance (sold during 2021) - (5.8) - (10.4)
DMS (sold during 2022) - (90.4) (79.6) (81.8)
Consumer Mortgages (sold during 2021) - (56.6) - (77.7)
Other - (2.5) (1.3) (4.1)
Total non-core portfolios - (155.3) (80.9) (174.0)
Core loans and advances to customers/loan book 2,751.2 2,234.6 2,451.0 2,184.9
(ii) Core loans and advances to customers and compound annual growth rate
Annual growth rate is calculated as the annualised growth in 'core' loans and
advances to customers based on the number of days in the period since 31
December 2020:
June June December
2022
2021
2021
£million
£million
£million
Core loans and advances to customers 2,751.2 2,234.6 2,451.0
Compound annual growth rate (since 31 December 2020) 16.7% 4.6% 12.2%
(iii) Return on average equity
Average equity is calculated as the average of the monthly equity balances
over seven or 13 months as appropriate for the financial period and average
required equity is calculated as the average of the monthly balances of total
required equity over seven or 13 months as appropriate for the financial
period. The resulting ratios for June 2022 and June 2021 are multiplied by
365/181 to give an annual equivalent comparable to the annual results:
Total June June December
2022
2021
2021
£million
£million
£million
Profit for the period/Profit after tax 19.1 26.0 45.6
Opening equity 302.4 267.6 267.6
Closing equity 314.4 285.8 302.4
Average equity 308.2 276.3 287.0
Total return on average equity 12.5% 19.0% 15.9%
Return on average equity is a measure of the Group's ability to generate
profit from the equity available to it.
(iv) Cost to income ratio
Cost to income ratio is calculated as operating expenses for the financial
period as a percentage of operating income for the financial period.
Total June June December
2022
2021
2021
£million
£million
£million
Operating expenses (continuing and discontinued) 51.6 51.3 104.0
Operating income (continuing and discontinued) 86.6 80.2 164.5
Total cost to income ratio 59.6% 64.0% 63.2%
Core June June December
2022
2021
2021
£million
£million
£million
Operating expenses (continuing) 46.2 42.8 89.4
Operating income (continuing) 81.0 71.0 148.9
Core cost to income ratio 57.0% 60.3% 60.0%
The cost to income ratio measures how efficiently the Group is utilising its
cost base in producing income.
(v) Cost of risk
Cost of risk is calculated as the total of the net impairment charge on loans
and advances to customers and gains and losses on modification of financial
assets for the financial period as a percentage of the average loan book. The
resulting ratios for June 2022 and June 2021 are multiplied by 365/181 to give
an annual equivalent comparable to the annual results:
Total June June December
2022
2021
2021
£million
£million
£million
Net impairment charge/(credit) on loans and advances to customers 18.6 (1.1) 4.5
(continuing and discontinued)
Gains on modification of financial assets (continuing and discontinued) (0.7) (0.7) (1.5)
Total 17.9 (1.8) 3.0
Average loan book 2,639.7 2,346.3 2,374.0
Total cost of risk 1.4% (0.2)% 0.1%
Core June June December
2022
2021
2021
£million
£million
£million
Net impairment charge/(credit) on loans and advances to customers (continuing) 17.9 (0.4) 5.0
Gains on modification of financial assets (continuing) (0.7) (0.7) (1.5)
Total 17.2 (1.1) 3.5
Core average loan book 2,584.2 2,174.2 2,240.5
Core cost of risk 1.3% (0.1)% 0.2%
The cost of risk measures how effective the Group has been in managing its
credit losses.
(vi) Cost of funds
Cost of funds is calculated as the interest expense for the financial period
expressed as a percentage of average loan book. The resulting ratios for June
2022 and June 2021 are multiplied by 365/181 to give an annual equivalent
comparable to the annual results:
Total June June December
2022
2021
2021
£million
£million
£million
Interest expense and similar charges (continuing and discontinued) 18.3 15.5 29.2
Average loan book 2,639.7 2,346.3 2,374.0
Total cost of funds 1.4% 1.3% 1.2%
Core June June December
2022
2021
2021
£million
£million
£million
Interest expense and similar charges (continuing) 17.5 14.8 27.7
Core average loan book 2,584.2 2,174.2 2,240.5
Core cost of funds 1.4% 1.4% 1.2%
The cost of funds measures the cost of money being lent to customers.
(vii) Funding ratio
The funding ratio is calculated as the total funding at the year-end, being
the sum of deposits from customers, borrowings under the Bank of England's
liquidity support operations, Term Funding Scheme and the Term Funding Scheme
with additional incentives for SMEs, Tier 2 capital and equity, divided by the
loan book at the year-end:
Total June June December
2022
2021
2021
£million
£million
£million
Deposits from customers 2,290.9 1,939.7 2,103.2
Borrowings under the Bank of England's liquidity support operations, Term 390.9 303.1 390.1
Funding Scheme and the Term Funding Scheme with additional incentives for SMEs
(including accrued interest)
Tier 2 capital (including accrued interest) 51.0 50.8 50.9
Equity 314.4 285.8 302.4
Total funding 3,047.2 2,579.4 2,846.6
Total loan book 2,751.2 2,389.9 2,531.9
Funding ratio 110.8% 107.9% 112.4%
The funding ratio measure the Group's liquidity.
(vii) Core profit before tax pre impairments
Core profit before tax pre impairments is profit before tax, excluding
impairment charges/(credits) and gains on modification of financial assets.
Core June June December
2022
2021
2021
£million
£million
£million
Profit before income tax from continuing operations 17.1 29.3 55.9
Exclude:
Net impairment charge/(credit) on loans and advances to customers 17.9 (0.4) 5.0
Gains on modification of financial assets (0.7) (0.7) (1.5)
Core profit before tax pre impairments 34.3 28.2 59.4
Governance
Directors' responsibility statement
The Directors confirm that, to the best of their knowledge:
· the Interim Financial Statements have been prepared in accordance
with United Kingdom adopted International Accounting Standard 34 - 'Interim
Financial Reporting', issued by the IASB and give a true and fair view of the
assets, liabilities, financial position and profit of the undertakings
included in the consolidation as a whole;
· the Interim Business Report includes a fair review of the
information required by Section 4.2.7R of the Disclosure Guidance and
Transparency Rules, issued by the UK Listing Authority (that being an
indication of important events that have occurred during the first six months
of the current financial year and their impact on the condensed financial
statements and a description of the principal risks and uncertainties for the
remaining six months of the financial year); and
· the Interim Business Report includes a fair review of the
information required by Section 4.2.8R of the Disclosure Guidance and
Transparency Rules, issued by the UK Listing Authority (that being disclosure
of related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or the performance of the enterprise during that period; and any
changes in the related party transactions described in the last annual report
which could do so).
Approved by the Board of Directors and signed on behalf of the Board.
Lord Forsyth David McCreadie
Chairman Chief Executive Officer
3 August 2022
Independent review report to Secure Trust Bank PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the Interim Financial Statements 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 equity, the
condensed consolidated statement of cash flows and related Notes 1 to 22.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the Interim
Financial Statements for the six months ended 30 June 2022 is not prepared, in
all material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
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 Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making inquiries, 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 1.2, the annual financial statements of the Group will be
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this Interim
Financial Statements has been prepared in accordance with United Kingdom
adopted International Accounting Standard 34, "Interim Financial Reporting".
Conclusion relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting or that the
Directors 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
ISRE (UK), however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the Interim Financial Statements
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the Interim Financial Statements, the Directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to liquidate the
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 Interim Financial Statements, we are responsible for
expressing to the Group a conclusion on the condensed set of financial
statement in the Interim Financial Statements. 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.
Use of our report
This report is made solely to the Company 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
Financial Reporting Council. Our work has been undertaken so that we might
state to the Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our review work, for this report, or for the conclusions
we have formed.
Deloitte LLP
Statutory Auditor
Birmingham
3 August 2022
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