REG - Secure Trust BankPLC - Interim Results for the six months to 30 June 2023
09/08/2023 07:00
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RNS Number : 7064I Secure Trust Bank PLC 09 August 2023
PRESS RELEASE
9 August 2023
For immediate release
LEI: 213800CXIBLC2TMIGI76
SECURE TRUST BANK PLC
Interim Results for the six months to 30 June 2023
Foundations set for a strong 2023; Launching 'Optimising for Growth' strategic
priorities
Secure Trust Bank PLC ('STB' or the 'Group'), a leading specialist lender, is
pleased to announce its financial results for the six months to 30 June 2023.
STB continued to build momentum, delivered solid income growth, managed costs
effectively and delivered a significant increase of 14.6% in continuing profit
before tax pre impairments. STB is declaring an interim dividend of 16.0 pence
per share for HY 2023 (HY 2022: 16.0 pence per share). The Group achieved a
continuing profit before tax of £16.5 million (HY 2022: £17.1 million).
The Group has laid the foundations for a strong 2023 and expects a significant
improvement in profitability during the second half of the year.
David McCreadie, Chief Executive, said:
"Our specialist lending businesses have significant growth potential in large
addressable markets. We have grown our lending balances by 45% since the start
of 2021 and are optimising for growth by being simpler, enhancing our customer
experience and leveraging our distribution networks.
We have laid strong foundations for the rest of the year and are on track to
meet our target cost optimisation savings. I am pleased with our positive
operational performance and we continue to help our customers and business
partners during these challenging times.
We have demonstrated our ability to grow and are well placed to realise our
ambitions. We have a clear focus and strengthened capital position, and will
scale the Group further to deliver our return on average equity ('ROAE')
target. We remain confident about the future."
Highlights(1)
· Introducing the Optimising for Growth strategic priorities to
drive sustainable and attractive ROAE
· 8.2% growth in lending balances to £3.2 billion (FY 2022: £2.9
billion)
· Cost income ratio remained flat at 56.9% (HY 2022: 57.0%); on
track to deliver £4m in annualised savings(2)
· Profit before tax pre impairment up 14.6% to £39.3 million (HY
2022: £34.3 million)
· Profit before tax of £16.5 million (HY 2022: £17.1 million)
adversely affected by a material impairment of £7.2 million relating to a
long-running problem debt case within Commercial Finance. The aggregate cost
of impairments for Commercial Finance since inception is 0.6% including this
impairment
· Arrears stable at low levels in Consumer Finance divisions
· Expect significant improvement in profitability during the second
half of the year through loan book growth and cost leverage
Optimising for Growth
At its core, the Group's strategic priority is to grow our loan book and
revenue, which in turn drives cost efficiency. This will be enhanced by the
simplification and streamlining of the Group's operating model. Combined,
these initiatives will deliver sustainable, value-creating returns on equity
at attractive levels. Optimising for Growth has three core strategic
priorities and we have made good progress against all of them during the year:
· Simplify - Since the start of 2021 we have taken action to
simplify the Group into a focused and more cost-efficient specialist lending
business, with four core lending segments. The sale of our Debt Managers
(Services) Limited's loan portfolio completed the simplification of the
lending activities for the Group. The next phase of our simplification is
around increased integration of shared services, the streamlining of
operational processes and enhanced digitalisation of our business. Project
Fusion, our cost efficiency programme, is key to mitigating ongoing cost
inflation that the business faces and is on track to deliver on its £4m
annualised cost savings(2) target by year-end. Combined, these initiatives
give us high confidence in driving our cost income ratio to below 50% in the
medium term.
· Enhance Customer Experience - STB has a long track record of
achieving high customer satisfaction scores for our consumer lending
businesses and savings products. We are proud of our performance but will not
take it for granted. We will continue to strive to improve our customer
experience across all our lending. The delivery of improved customer
experience is a key element in driving our growth. In the latest surveys, we
achieved 4.6 stars out of 5 (HY 2022: 4.5 stars out of 5), and our Vehicle
Finance and Retail Finance teams were recognised by being awarded by Feefo's
'Platinum Trusted Service Award'.
· Leverage Networks - STB is built on the importance of strong
relationships. We have a wide range of existing relationships with a range of
partners, retailers, car dealers, intermediaries, new business originators,
and advisers. The Group looks to deepen these existing relationships: to take
market share opportunities; to originate new business; to expand our product
offering. During the year, we launched AppToPay with a selection of existing
retail partners. We maintained our large retail network, working with over
1,400 retailers, as well as our dealer, broker and internet introducer network
supporting Vehicle Finance (680). Nearly two-thirds of our private equity
group clients have more than one connection to Business Finance.
These three strategic priorities are enabled by our technology platform that
has seen significant investment in recent years and which we believe will
position the Group for growth and increased market share in large addressable
markets, as has been demonstrated in recent years and during HY 2023.
The Group achieved record new business lending during the period, increasing
2.4% compared to the first six months of 2022, while maintaining its
disciplined credit and risk approach. The net lending book has grown 8.2% in
the period. Net interest margin ('NIM') decreased to 5.4% (HY 2022: 5.7%)
reflecting new Tier 2 capital, which reduced NIM by 20 bps in the period but
provides capital for growth, and the strategic shift towards lower yielding,
lower risk lending in both our Business Finance and Consumer Finance
divisions. In line with the Group's strategy, the cost income ratio remained
flat at 56.9% (HY 2022: 57.0%), demonstrating our ability to leverage our cost
base.
In Consumer Finance, net lending balances grew to £1.6 billion (FY 2022 £1.4
billion) following record new business lending of £863.6 million in the 6
months to June 2023 (HY 2022: £743.4 million). In Business Finance, net
lending balances were maintained at £1.5 billion (FY 2022 £1.5 billion) with
new business lending of £283.8 million in the 6 months to June 2023 (HY 2022:
£377.6 million).
On a continuing basis the Group achieved a profit before tax of £16.5 million
(HY 2022: £17.1 million).
The impairment charge of £23.0 million (HY 2022: £17.9 million) reflects a
cost of risk of 1.5% (HY 2022: 1.3%), growth in new business, and one material
loss of £7.2 million relating to a long running problem debt case within
Commercial Finance. The circumstances around the particular case were unique,
with a lessons learned exercise confirming no similar concerns across the
Commercial Finance portfolio. Impairment charges in the Group's IFRS 9 models
reflect a normalisation of provisions within Vehicle Finance and improved
macroeconomic scenarios compared to December 2022. The Group is aware of the
uncertain economic outlook and retains management overlays to modelled
provisions for customer affordability challenges. Arrears within Consumer
Finance remain stable at low levels reflecting the impact of credit tightening
measures taken in 2022 and a higher proportion of prime lending.
The Directors have approved an interim dividend of 16.0 pence per share for
2023, which is payable on 28 September 2023 to shareholders on the register at
the close of business on 1 September 2023. This is in line with the Group
policy to return 25% of earnings to shareholders.
The Group achieved a total ROAE of 6.8% (HY 2022: 12.5%) and maintained strong
capital ratios. ROAE in HY 2022 benefitted from a one-off £6.1 million gain
recognised on the sale of the Debt Manager (Services) Limited's loan
portfolio. Excluding the gain/(losses) from discontinued operations, the total
continuing ROAE for 30 June 2022 would be 8.4% compared to 7.5% for 30 June
2023.
Financial summary
Six months Six months Change(3
to 30 June 2023
to 30 June 2022 ) %
Total profit before tax £15.0m £24.7m (39.3)
Continuing profit before tax £16.5m £17.1m (3.5)
Continuing profit before tax and pre impairments £39.3m £34.3m 14.6
Total basic earnings per share 59.4 pence 102.4 pence (42.0)
Continuing basic earnings per share 65.8 pence 69.1 pence (4.8)
Ordinary dividend per share 16.0 pence 16.0 pence -
Total return on average equity 6.8% 12.5%(4) (5.7)pp
Net interest margin 5.4% 5.7% (0.3)pp
Cost of risk 1.5% 1.3% 0.2pp
Cost income ratio 56.9% 57.0% (0.1)pp
30 June 31 December Change(3
2023
2022 ) %
Total lending balances £3,158.5m £2,919.5m 8.2
Customer deposits £2,648.9m £2,514.6m 5.3
Common Equity Tier 1 ('CET 1') ratio 13.0% 14.0% (1.0)pp
Total capital ratio 15.2% 16.1%(5) (0.9)pp
Other highlights
· Customer deposits grew to £2,648.9 million (FY 2022: £2,514.6
million) through a combination of growth in fixed term funds and Access
accounts. Savings markets have repriced following the Bank of England Base
Rate increases and predictions of further increases, resulting in a cost of
funds of 3.9% (HY 2022: 1.4%). Funding costs are expected to continue to
increase as maturing deposits reprice in a higher interest rate environment.
· Tier 2 capital of £90.0 million issued to refinance existing
2018 Tier 2 capital with 2023 first call dates and support growth, with the
buy-back of existing Tier 2 capital completed in the period, providing
additional growth capital for the Group.
· Customer satisfaction remains high, as measured by Feefo, 4.6
stars (HY 2022: 4.5 stars)
· Listed as an official UK Best Workplace™ for the fourth year
running, ranking 12 out of 87 companies (large organisations category), a
significant improvement from 2022 (ranked 29 out of 67).
· We have made progress against our ESG strategy that was launched
at the start of 2023, especially around Equity, Diversity and Inclusion,
Climate Action, Customer Trust and Education and Skills.
Outlook
We remain confident about the future despite near term uncertainties. We are
committed to navigating our businesses carefully during these uncertain times
and will continue to be flexible in how we react during this period of
economic uncertainty. 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
continue to capture opportunities with our usual focus on disciplined credit
and risk management.
Our Optimising for Growth strategic priorities will support the delivery of
our medium-term targets. We are well placed to realise our ambitions and have
shown resilience and agility through the challenges of the last few years.
During the first half of the year, we have laid the foundations for a strong
2023 and expect a significant improvement in our profitability during the
second half of the year and in 2024, through loan book growth and cost
leverage.
The Group plans to host a Capital Markets event on 8 November, with a focus on
our Retail Finance business and more detail on delivering our medium-term
targets.
Medium-term targets 30 June 2023 Target
Actual
Net interest margin 5.4% >5.5%
Cost income ratio 56.9% <50%
Total return on average equity 6.8% 14% - 16%
CET 1 ratio 13.0% >12.0%
Compound Annual Growth Rate(6) 15.9% >15.0%
Footnotes:
1. Performance metrics presented below relate to continuing operations unless
otherwise stated. For further details see the Appendix to the 2023 Interim
Report.
2. Cost savings relative to operating expenses for the 12 months ended
December 2021.
3. pp represents the percentage point movement
4. HY 2022 benefitted from a one-off £6.1 million gain recognised on the sale
of the Debt Manager (Services) Limited's loan portfolio.
5. The total capital ratio have also been restated to reflect the prior year
restatement of land and buildings from fair value to historic cost. Further
details are provided Note 1.3.1 to the Interim Report
6. Compound Annual Growth Rate is the annual growth rate calculated as the
annualised compound growth in continuing loans and advances to customers since
31 December 2020.
Results presentation
This announcement together with the associated investors' presentation are
available
on: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, 9
August 2023 at 10.00am, which can be accessed by registering at:
https://brrmedia.news/STB_IR23 (https://brrmedia.news/STB_IR23)
For those wishing to ask a question, please dial into the event by conference
call:
Dial +44 (0)330 551 0200
Confirmation code (if prompted): Secure Trust Bank
Enquiries:
Secure Trust Bank PLC
David McCreadie, Chief Executive
Rachel Lawrence, Chief Financial Officer
Phil Clark, Investor Relations
Tel: 0121 693 9100
Stifel Nicolaus Europe Limited (Joint Broker)
Robin Mann
Akshman Ori
Tom Marsh
Nicholas Harland
Tel: 020 7710 7600
Canaccord Genuity Limited (Joint Broker)
Emma Gabriel
Harry Rees
Tel: 020 7523 8000
Teneo
Tom Murray
Misha Bayliss
Tel: 020 7353 4200
This announcement contains inside information.
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.
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 a change in accounting policy relating to land and buildings, which
are now presented at historical cost. Further details are provided in Note
1.3.1 to the Interim Financial Statements.
'Secure Trust Bank PLC', 'STB' and the 'Group' refer to Secure Trust Bank PLC
together with its subsidiaries.
Measuring performance: Key performance indicators
The following key performance indicators are the primary measures used by
management to assess the performance of the Group.
30 June 30 June 31 December
2023
2022
2022
Grow
Loans and advances to customers (£million) 3,158.5 2,751.2 2,919.5
Why we measure this: Shows the growth in the Group's lending balances, which
generate income
Compound annual growth rate(1) (%) 15.9 16.7 15.6
Why we measure this: Shows the rate of growth in the Group's lending balances
Net interest margin (%) 5.4 5.7 5.7
Why we measure this: Shows the interest margin earned on the Group's lending
balances, net of funding costs
Total return on average equity (%) 6.8 12.5 10.8(5)
Why we measure this: Measures the Group's ability to generate profit from the
equity available to it
Sustain
Cost to income ratio(2) (%) 56.9 57.0 55.0
Why we measure this: Measures how efficiently the Group utilises its cost base
to produce income
Cost of risk(3) (%) 1.5 1.3 1.4
Why we measure this: Measures how effectively the Group manages the credit
risk of its lending portfolios
Common Equity Tier 1 ('CET 1') ratio (%) 13.0 14.0 14.0
Why we measure this: The CET 1 ratio demonstrates the Group's capital strength
Care
Customer Feefo ratings (Stars) 4.6 4.5 4.6
(mark out of 5 based on star rating from 854 reviews (30 June 2022: 496
reviews, 31 December 2022: 990 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 85
(based on 2022 all employee survey)
Why we measure this: Indicator of employee engagement and satisfaction
Environmental intensity indicator(4) N/A N/A 2.8
(tonnes of carbon dioxide equivalent per £1 million Group income)
Key performance indicators have been presented in the Financial review on a
continuing basis, unless otherwise stated.
Continuing businesses include the Retail Finance, Vehicle Finance, Real Estate
Finance and Commercial Finance businesses only. Discontinued business includes
the Debt Management business. Further details of discontinued business can be
found in Note 6 of 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 (pages 37 to
49) and Climate-related financial disclosures sections on (pages 50 to 59) of
the 2022 Annual Report and Accounts.
1. Compound annual growth rate is the annual growth rate calculated as the
annualised compound growth in continuing loans and advances to customers since
31 December 2020.
2. A decrease in the cost to income ratio reflects an improving performance.
3. A decrease in the cost of risk reflects an improving performance.
4. Data is only collated on an annual basis.
5. Total return on average equity has been restated to reflect a change in
accounting policy relating to land and buildings, which are now presented at
historical cost. Further details are provided in Note 1.3.1.
Chairman's statement
STB is building momentum as we scale our business and improve efficiency. As a
result of robust credit discipline, our lending and savings books grew
strongly during the first six months of the year.
The Group delivered a continuing profit before tax of £16.5 million (30 June
2022: £17.1 million) and we anticipate strong profit growth in the second
half of 2023 as we benefit from the additional income from a larger balance
sheet. The Board has approved an interim dividend of 16.0 pence per share (30
June 2022: 16.0 pence per share).
I would like to thank the Board for their support in helping the Group
navigate through another challenging period. Consumer Duty regulations went
live at the end of last month and I am especially grateful to Finlay
Williamson for taking on the role as our Consumer Duty Board Champion.
High levels of inflation, a war in Europe and increasingly higher interest
rates have all created unprecedented uncertainty and it is unsurprising that
banks are not currently favoured as a sector by investors. STB is a well
capitalised specialist lender with an established track record and a clear
strategy to achieve growth. In the first half of the year, tangible book value
per share increased by 2.0% to £17.46 (31 December 2022: £17.11). With our
resilient, diversified business model and our proven agility, we are well
placed to continue to scale the Group's businesses and deliver value for our
shareholders.
Lord Forsyth
Chairman
Chief Executive's statement
I am pleased with our positive operational performance during the first six
months of the year. We have continued to build momentum, delivering strong new
business volumes and loan book growth, allowing us to scale the Group in line
with our ambitions. Project Fusion, our cost efficiency programme, is on track
to deliver its target of £4 million in annualised savings(1) by the end of
the year. We have strengthened our capital base via our recent £90 million
Tier 2 bond issuance. Overall, we have laid the foundations for a strong 2023
and expect a significant improvement in our profitability during the second
half of the year and in 2024.
Optimising for Growth: Our strategic priorities
We are using our credit discipline and operational agility to achieve our
vision of becoming the most trusted specialist lender in the UK. Our strategic
pillars to achieve this are built around Grow, Sustain and Care. Growth is a
particularly important priority. Growth of our loan book and revenue will
deliver a reduced cost to income ratio and support our return on equity
target. We have defined our specialist lending segments and the continued
simplification and streamlining of the Group's operating model will further
enhance our cost efficiency. Combined, these initiatives underpin our
confidence in delivering on all our medium-term targets.
Our Optimising for Growth framework has three core strategic priorities:
1. Simplify
Since the start of 2021, the Group has been simplified into a focused
specialist lending business with four core lending segments. The sale of Debt
Managers (Services) Limited's loan portfolio completed the simplification of
the lending activities for the Group. The next phase of our simplification is
around increased integration of shared services, the streamlining of
operational processes and digitalisation of our business. Project Fusion, our
cost efficiency programme, helps to mitigate ongoing cost inflation that the
business faces. Combined, these initiatives give us high confidence in driving
our cost income ratio to below 50% in the medium-term.
Project Fusion achieved £2 million of annualised savings(1) during 2022 and
is on track to achieve the target of £4 million in annualised savings(1) by
the end of 2023. In the property workstream, the Group moved to single sites
in Solihull and Cardiff. In the digitalisation workstream, we have reduced the
number of documents and letters printed and posted to customers and now
deliver these through digital channels. In the operational efficiency
workstream, the Group has successfully renegotiated a significant number of
supplier contracts.
With a greater focus on cost discipline, we contained our period-on-period
cost growth at 9.7%, despite the significant inflation in the UK economy, and
maintained a broadly flat cost income ratio of 56.9% (30 June 2022: 57.0%).
2. Enhance customer experience
The Group has a long track record of achieving high customer satisfaction
scores for our Consumer Finance and Savings businesses. We are proud of our
performance but will not take it for granted. We will continue to strive to
improve customer experience across all of our operations. The delivery of
improved customer experience is a key element in driving our growth more cost
efficiently.
Feefo scores continue to rate highly at 4.6 stars out of 5 (30 June 2022: 4.5
stars out of 5). Our Vehicle Finance and Retail Finance teams were recognised
by Feefo's 'Platinum Trusted Service Award', and our Savings team secured
Feefo's 'Trusted Service Award'. Established in 2014, the Trusted Service
Awards recognise brands that use the platform to collect verified reviews and
receive exceptional feedback from their customers. The award is an independent
seal of excellence, which recognises businesses that consistently deliver a
world-class customer experience.
For the second year in a row, Vehicle Finance was also nominated for the
Finance Provider of the Year Award at the Motor Trader Independent Dealer
Awards 2023. Our Commercial Finance team took home the Asset-Based Lender of
the Year Award at the recent Real Deals Private Equity Awards, the longest
running and most prestigious Private Equity awards in Europe.
Our internal net promoter scores remain high for our Consumer Finance
businesses and benchmark well against our industry. Our customer experience is
increasingly digital, with over 75% of our Retail Finance customers registered
for online account management.
Our preparations for the introduction of Consumer Duty at the end of July have
seen a comprehensive review of our Consumer Finance and Savings products and
customer experience. Consumer testing has been completed on our
communications, and we have identified further opportunities to enhance these
to improve our customer experience. Our products continue to offer good
customer outcomes and represent fair value, which was initially assessed by an
independent party, and we will continue to monitor and develop our products
and services in line with developing best practice post-implementation.
We have raised record levels of deposits and retained funds on maturing
products, and supported customers by increasing rates on managed rate products
as the Bank of England Base Rate increased. Our deposits are entirely from
retail customers and 96% of deposits are fully covered by the FSCS.
3. Leverage networks
The Group is built on the importance of strong relationships. We have
relationships with a range of partners, retailers, car dealers,
intermediaries, new business originators and advisers. The Group looks to
further deepen these existing relationships to originate new business; to
expand our product offering; and to take market share opportunities.
Within our Retail Finance business, a pilot of AppToPay has been launched with
a focused group of existing retail partners, marking the Group's entry into
the digital Buy Now, Pay Later market. The product has been fully integrated
into the suite of products offered by Retail Finance, so that no IT
integration effort is required by our retail partners.
Our Retail Finance business is supported by over 1,400 retail partners. Loan
book growth has been achieved from expanding our distribution and growth with
existing partners. New business grew by 14.7% compared to the first half of
2022, resulting in lending balances of £1.2 billion.
A key strategic priority for Vehicle Finance has been the expansion of our
distribution network to drive loan book growth. During 2023, the Group
increased its Vehicle Finance dealer network to 680 from 560 at the end of
2022. Combined with the build out of the product portfolio in consumer lending
and stock funding, the Group has seen the total loan book increase to £440.4
million from £373.1 million at year-end 2022, with £250.1 million of new
business lending.
Our Business Finance businesses offer bespoke products and personalised
relationships. In Commercial Finance, private equity groups, professional
advisory firms and accountants are important relationships. Nearly two-thirds
of our private equity clients have made more than one client introduction.
Enabled by technology
In recent years, the Group has invested in improving its technology
infrastructure and IT platform, both to support enhanced customer experiences
and drive operational efficiency. Major projects in the last couple of years
have included our motor transformation project, AppToPay, and Open Banking
payments. Since 2018, the Group has spent £16.4 million on strategic IT
projects and has a modern, scalable environment to support our growth
ambitions. Our technology platform will: unlock our ability to simplify the
Group through digitalisation; allow us to deliver enhanced customer
experiences; and to leverage our networks through ease of integration with
third parties.
During the first half, the Group implemented a series of technology
enhancements, including the completion of the project to replace our legacy
collections platform for Vehicle Finance, launch of the pilot of AppToPay in
Retail Finance, a workflow management tool for Commercial Finance and
confirmation of payee within our Savings platform. We will commence the
customer testing phase of our new digital Savings App in the next few months,
with a wider rollout planned before the end of the year.
Delivering market share gains in large addressable markets
With our four specialist lending segments, the Group operates in large
addressable markets. Through our strategic decision to launch new products to
increase the proportion of lower risk, prime customers our Consumer Finance
businesses have expanded their addressable markets significantly in recent
years. The Group believes it has significant market share opportunities to
take advantage of, and it has demonstrated a strong track record of market
share gain in recent years.
The Group has grown lending in all our businesses and achieved record new
business volumes of £1.15 billion in the six months to June 2023 (30 June
2022: £1.12 billion).
At the end of the first six months, we delivered net lending growth of 8.2%
(£239.0 million). Our Consumer Finance businesses contributed significantly
to this growth, increasing by 13.5%, with Business Finance lending increasing
by 3.1%.
Within our Retail Finance business, we have increased our market share for new
business from 11.4% at the end of 2022 to 12.9%(2). The planned exit of the
second largest player from the market at the start of 2023 has provided new
opportunities for the Group. Within our Vehicle Finance business, we have
increased our market share for new business from 1.1% at the end of 2022 to
1.3%(3) on the back of improved distribution, despite the tightening of our
credit criteria over the last 12 months.
Credit discipline
We recognised an impairment charge of £23.0 million (30 June 2022: £17.9
million). We have actively tightened our credit criteria in our Vehicle
Finance business, which had a positive impact on the impairment charge.
However, we also recognised one material loss of £7.2 million on a
long-running problem debt case within Commercial Finance. The circumstances
around the particular case were unique, with a lessons learned exercise
confirming no similar concerns across the portfolio. The Commercial Finance
team has a long-term track record of excellent credit discipline and minimal
impairments since that business was established in 2014. Arrears across
Consumer Finance have remained stable and at lower levels than pre-pandemic
times due to the higher mix of prime lending in our loan book.
Capital and liquidity strength
The Group strengthened its capital position during the year through the new
issue of £90.0 million Tier 2 bonds with 2033 maturity, and subsequent
buyback of the two £25 million Tier 2 bonds with maturity in 2028 and first
call dates in 2023. We have maintained strong capital ratios during the period
with a Common Equity Tier 1 ratio of 13.0% as at 30 June 2023 (30 June 2022:
14.0%), where we continue to utilise the transitional IFRS 9 provisions,
albeit with the benefit tapering down by £9.3 million as we entered the year.
Increases to the Countercyclical Buffer ('CCyB') at the end of 2022, and again
in July 2023, to a level of 2%, have been incorporated within our capital
management framework.
We have maintained liquidity metrics above the regulatory thresholds
throughout the period.
Environmental, Social and Governance ('ESG')
The Group continues to make progress against our ESG priorities. On Climate
Action, the 'paper to digital' initiative continues at pace. Within Equity,
Diversity and Inclusion, we continue to make progress towards our initial
targets for Women in Finance. In Education and Skills, we have launched our
MentorMe initiative, a mentoring programme within the Group, and continued to
offer the 'Blazing my trail' programme, an extremely popular course, which
supports employees to learn to be their authentic selves, improve
self-confidence and plan their futures. For Customer Trust, our latest
customer feedback report highlighted our strengths and areas for improvement.
Fundraising activities have supported a number of charities, and many of our
people have participated in volunteering.
Our people
We have once again been recognised as one of the UK's Best Workplaces™ by
Great Place to Work®, the global authority on workplace culture, reaching our
highest ranking of 12 out of 87 (large organisation category), surpassing last
year's ranking of 29 out of 67. In addition, we were also ranked 12 out of 25
for Best Workplace for Wellbeing™, and 17 out of 89 companies for UK Best
Workplace™ for Women.
Our recent colleague pulse survey highlighted 85% of colleagues continue to
say that STB is a great place to work, and our Trust Outcome came out at 87%.
It is pleasing to know how positively our colleagues feel about the
organisation. I would like to thank them for all their hard work and
commitment.
Outlook
We remain confident about the future, despite near-term uncertainties. 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. We will continue to monitor inflation and the impact the
cost of living will have on our customers. Further increases in the Bank of
England Base Rate are predicted and this will have a direct impact on product
pricing. Despite these challenges, we have significant growth potential and
will capture opportunities with our usual focus on disciplined risk
management.
Our Optimising for Growth strategic priorities will support the delivery of
our medium-term targets. We are well placed to realise our ambitions and have
shown resilience and agility through the challenges of the last few years.
During the first half of the year, we have laid the foundations for a strong
2023 and expect a significant improvement in our profitability during the
second half of the year and in 2024.
David McCreadie
Chief Executive Officer
1. Cost savings relative to operating expenses for the 12 months ended
December 2021.
2. Source: Finance & Leasing Association ('FLA'): New business values
within retail store and online credit: 2023 based on January to May. Market
share of 12.9% in 2023 (1 January 2022 to 31 December 2022: 11.4%): FLA total
and Retail Finance new business of £3,838 million (1 January 2022 to 31
December 2022: £9,846 million) and £495.9 million (2022: £1,124.3 million)
respectively.
3. Source: FLA. Cars bought on finance by consumers through the point of sale:
New business values: Used cars: 2023 based on January to May 2023, FLA total
and Vehicle Finance total of £9,429 million (1 January 2022 to 31 December
2022: £23,472 million) and £119.2 million (1 January 2022 to 31 December
2022: £262.9 million) respectively.
About us
Our vision
To be the most trusted specialist lender in the UK
Purpose
To help more consumers and businesses fulfil their ambitions
Our strategic pillars
Grow Sustain Care
· Generate growth and attractive returns in specialist segments · Create sustainable value through market expertise and deep · Help customers with simple, clear and compelling products
customer knowledge
· Exploit digital capabilities to build scale and drive cost
· Deliver consistently excellent customer care and swift outcomes
efficiency · Utilise strong credit discipline, capital allocation and risk
management capabilities
Always act with integrity and transparency, delivering value for all stakeholders
Our strategic priorities
Simplify Enhance Customer Experience Leverage Networks
Strengths
Specialist Expert Diverse Ambitious
Focus on attractive returns in our core markets Strong market expertise, relationships and digital capabilities Diverse portfolios in consumer and business lending Clear opportunities for growth and strategy for long-term value creation
Values
Customer Focused Risk Aware Future Orientated Teamwork Ownership Performance
Driven
Because they are at the heart of everything we do It keeps our customers and us safe and secure Embracing change and implementing good ideas give us a competitive advantage We achieve more when we work well together Each of us need to take personal responsibility
We will only be the most trusted specialist lender in the UK by each of us
taking personal accountability for our performance
Financial review
Income statement 30 June 30 June Change 31 December
2023
2022
%
2022
£million
£million
£million
Continuing operations
Interest income and similar income 138.8 90.6 53.2 203.0
Interest expense and similar charges (57.8) (17.5) 230.3 (50.4)
Net interest income 81.0 73.1 10.8 152.6
Fee and commission income 8.1 8.1 - 17.4
Fee and commission expense - (0.2) (100.0) (0.4)
Net fee and commission income 8.1 7.9 2.5 17.0
Operating income 89.1 81.0 10.0 169.6
Net impairment charge on loans and advances to customers (23.0) (17.9) 28.5 (38.2)
Gains on modification of financial assets 0.2 0.7 (71.4) 1.1
Fair value gains/(losses) on financial instruments 0.9 (0.5) (280.0) (0.3)
Operating expenses (50.7) (46.2) 9.7 (93.2)
Profit before income tax from continuing operations 16.5 17.1 (3.5) 39.0
Income tax expense (4.2) (4.2) - (9.4)
Profit for the period from continuing operations 12.3 12.9 (4.7) 29.6
Discontinued operations:
(Loss)/profit before income tax from discontinued operations (1.5) 7.6 (119.7) 5.0
Income tax credit/(expense) 0.3 (1.4) (121.4) (0.9)
(Loss)/profit for the period from discontinued operations (1.2) 6.2 (119.4) 4.1
Profit for the period 11.1 19.1 (41.9) 33.7
Basic earnings per share (pence) - Total 59.4 102.4 (42.0) 180.5
Basic earnings per share (pence) - Continuing 65.8 69.1 (4.8) 158.5
Selected Key Performance Indicators and performance metrics £million £million Change £million
%
Total profit before tax 15.0 24.7 (39.3) 44.0
% % Percentage point movement %
Net interest margin ('NIM') 5.4 5.7 (0.3) 5.7
Yield 9.3 7.1 2.2 7.5
Cost of funds 3.9 1.4 2.5 1.9
Cost to income ratio 56.9 57.0 (0.1) 55.0
Cost of risk 1.5 1.3 0.2 1.4
Total return on average equity(1) 6.8 12.5 (5.7) 10.8
Common Equity Tier 1 ('CET 1') ratio 13.0 14.0 (1.0) 14.0
Total capital ratio(1) 15.2 16.2 (1.0) 16.1
1. Restated to reflect a change in accounting policy relating to land and
buildings, which are now presented at historical cost. Further details are
provided in 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.
Key performance indicators have been presented in the Financial review on a
continuing basis, unless otherwise stated.
Continuing businesses include the Retail Finance, Vehicle Finance, Real Estate
Finance and Commercial Finance businesses only. Discontinued business includes
the Debt Management business. Further details of discontinued business can be
found in Note 6 of the Interim Financial Statements.
The first half of 2023 saw a continued focus on growth whilst maintaining
strong credit discipline and cost management. Growth has been targeting higher
credit quality prime lending, particularly within our Consumer Finance
business. Balance sheet growth has generated 10.0% increase in operating
income, and this has been achieved with an 9.7% increase in costs. The Group
achieved a profit before tax of £16.5 million (30 June 2022: £17.1 million),
with CET 1 ratio remaining strong at 13.0%.
Earnings per share fell from 69.1 pence per share (30 June 2022) to 65.8 pence
per share. Total return on average equity decreased from 12.5% (30 June 2022)
to 6.8%. Return on average equity performance in H1 2022 was impacted by the
one-off £6.1 million gain recognised on the sale of the Debt Managers
(Services) Limited's loan portfolio. Excluding the gain/(losses) from
discontinued operations, the continuing return on average equity for 30 June
2022 would be 8.4% compared to 7.5% for 30 June 2023.
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.
Operating income
The Group's operating income increased by 10.0% to £89.1 million (30 June
2022: £81.0 million). Net interest income on the Group's lending assets
continues to be the largest component of operating income. This increased by
10.8% to £81.0 million (30 June 2022: £73.1 million), driven by growth in
net lending assets, with average balances increasing by 16.3% to £3,005.6
million (30 June 2022: £2,584.2 million).
The Group's net interest margin decreased to 5.4% (30 June 2022: 5.7%),
reflecting new Tier 2 capital, which reduced NIM by 20 bps in the period, but
provides capital for growth, and the strategic shift towards lower yielding,
lower risk lending in both our Business Finance and Consumer Finance
divisions.
The Group's other income, which relates to net fee and commission income,
remained at similar levels to the prior period.
Impairment charge
Impairment charges increased to £23.0 million (30 June 2022: £17.9 million).
The charge was impacted by one material loss of £7.2 million relating to a
long-running problem debt case within the Commercial Finance business, which
was highlighted in the 2022 Annual Report and Accounts (Note 47.2).
Circumstances around the particular case were unique, with a lessons learned
exercise confirming no similar concerns across the portfolio. Whilst it is
disappointing to record a loss of this magnitude, the cost of risk since
inception of the business in 2014, excluding this specific impairment charge
has been 0.04% of average lending balances, and would be 0.6%, inclusive of
this case. This loss in the period resulted in an increase in cost of risk to
1.5% (30 June 2022: 1.3%). Overall impairment provisions remain robust at
£79.5 million (30 June 2022: £67.0 million) with an aggregate coverage level
of 2.5% (30 June 2022: 2.4%).
During the second quarter of the financial year, the Group refreshed
macroeconomic inputs to its IFRS 9 Expected Credit Loss ('ECL') models
incorporating its external economic advisors latest UK economic outlook. The
forecast economic assumptions within each IFRS 9 scenario, and the weighting
applied, are set out in more detail in Note 10 to the Interim Financial
Statements.
The Group has applied Expert Credit Judgements ('ECJ's') where management
believes the IFRS 9 modelled output is not fully reflecting current risks in
the loan portfolios. Further details of these ECJs are included in Note 10 to
the Financial Statements.
Fair value gains/(losses) on financial instruments
During the period, the Group realised a gain of £1.2 million (30 June 2022:
£nil) in relation to the buy-back of the 2018 Tier 2 debt. The Group also
recognised a loss of £0.8 million (30 June 2022: £nil) relating to interest
rate swaps being entered into ahead of hedge accounting becoming available,
which will reverse to the income statement over the remaining life of the
swaps. The Group has highly effective hedge accounting relationships, and as a
result, recognised a small hedging ineffectiveness gain of £0.5 million (30
June 2022: £0.5 million loss).
Operating expenses
The Group's cost base increased in the period by 9.7% to £50.7 million (30
June 2022: £46.2 million), with the cost income ratio remaining flat at 56.9%
(30 June 2022: 57.0%), despite the impact of inflation on operating expenses.
The ratio reflects both the increase in operating income and the ongoing
programme of initiatives that seek to achieve more efficient and effective
operational processes, including digitalisation of processes, supplier and
procurement reviews, organisational design and property management.
Taxation
The effective tax rate on continuing activities of 25.5%, increased compared
with 2022 (30 June 2022: 24.6%). The effective rate is above the Corporation
Tax rate of 23.5% reflecting a reduced deferred tax asset on future share
option exercises. The total effective tax rate is 26.0% (30 June 2022: 22.7%).
Discontinued business
In May 2022, the Group disposed of the loan portfolio of Debt Managers
(Services) Limited, realising an overall initial profit on disposal of £6.1
million in the first half of 2022. A further £1.5 million of wind-down costs
have been incurred during the period.
Distributions to shareholders
The Board approved an interim dividend of 16.0 pence per share (30 June 2022:
16.0 pence per share).
Balance sheet
Summarised balance sheet 30 June Restated(1) Restated(1
2023
30 June ) 31 December 2022
£million
2022
£million
£million
Assets
Cash and balances at central banks 318.3 253.0 370.1
Loans and advances to banks 33.3 54.2 50.5
Debt securities - 34.9 -
Loans and advances to customers 3,158.5 2,751.2 2,919.5
Fair value adjustment for portfolio hedged risk (47.7) (17.0) (32.0)
Derivative financial instruments 50.3 17.7 34.9
Other assets(1) 38.2 40.8 36.8
3,550.9 3,134.8 3,379.8
Liabilities
Due to banks 409.3 400.3 400.5
Deposits from customers 2,648.9 2,290.9 2,514.6
Fair value adjustment for portfolio hedged risk (33.7) (15.2) (23.0)
Derivative financial instruments 36.1 17.3 26.7
Tier 2 subordinated liabilities 92.9 51.0 51.1
Other liabilities 64.2 76.4 83.5
3,217.7 2,820.7 3,053.4
1. Restated to reflect a change in accounting policy relating to land and
buildings, which are now presented at historical cost. Further details are
provided in Note 1.3.1 to the Interim Financial Statements.
New business
Loan originations in the period, being the total of new loans and advances to
customers entered into during the period, increased by 2.4% to £1,147.4
million (30 June 2022: £1,121.0 million).
New business volumes 30 June 30 June Change
2023
2022
%
Consumer Finance
Retail Finance 613.5 535.0 14.7
Vehicle Finance 250.1 208.4 20.0
Business Finance
Real Estate Finance 252.4 241.8 4.4
Commercial Finance 31.4 135.8 (76.9)
Total 1,147.4 1,121.0 2.4
Customer lending and deposits
Group lending assets increased by 8.2% to £3,158.5 million (31 December 2022:
£2,919.5 million), surpassing £3 billion for the first time, primarily
driven by strong growth in our Consumer Finance and Real Estate Finance
business.
Consumer Finance balances grew by £192.7 million or 13.5%, driven by strong
demand from strategic partner retailers in the first half of 2022.
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 20 to the
Interim Financial Statements.
Customer deposits include Fixed term bonds, ISAs, Notice and Access accounts.
Customer deposits increased by 5.3% to £2,648.9 million (31 December 2022:
£2,514.6 million). Total funding ratio of 109.8% decreased slightly from 31
December 2022 (112.5%). As set out below, the mix of the deposit book has
continued to change as the Group has adapted to the ongoing Base Rate changes,
with a focus on meeting customer demand for Access products, and retaining
stable funds, which is reflected in the increase in Fixed term bonds.
Investments and wholesale funding
As at the end of 2022, the Group held no debt securities (31 December 2022:
£nil). Amounts due to banks consisted primarily of drawings from the Bank of
England Term Funding Scheme with additional incentives for SMEs ('TFSME')
facility.
Tier 2 subordinated liabilities
Tier 2 subordinated liabilities represents £90.0 million of 10.5-year 13.0%
Fixed Rate Callable Subordinated Notes, which qualify as Tier 2 capital. The
existing 2018 Notes were repurchased in February and March 2023.
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 £376.8 million to £383.5
million. The increase was primarily in CET 1 capital and was driven by total
profit for the period of £11.1 million, offset by the 2023 interim dividend
of £3.0 million, and the reduction in the IFRS 9 transitional adjustment of
£9.3 million. In addition, the increase in Tier 2 was driven by the
newly-issued £90.0 million subordinated debt, which will have increased
utility over time as capital eligibility increases as a consequence of risk
weighted asset growth.
Capital 30 June Restated(1) Restated(1)
2023
30 June
31 December
£million
2022
2022
£million
£million
CET 1 capital, excluding IFRS 9 transitional adjustment 324.4 305.0 315.2
IFRS 9 transitional adjustment 2.4 8.5 11.7
CET 1 capital 326.8 313.5 326.9
Tier 2 capital 56.7 49.8 49.9
Total capital 383.5 363.3 376.8
Total risk exposure 2,518.5 2,237.1 2,334.6
Capital ratios
CET 1 capital ratio 13.0 14.0 14.0
Total capital ratio 15.2 16.2 16.1
CET 1 capital ratio (excluding IFRS 9 transitional adjustment) 12.9 13.7 13.6
Total capital ratio (excluding IFRS 9 transitional adjustment) 15.1 15.9 15.7
Leverage ratio 10.1 10.6 10.7
1. Restated to reflect a change in accounting policy relating to land and
buildings, which are now presented at historical cost. Further details are
provided in Note 1.3.1 to the Interim Financial Statements.
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 30 June Restated(1
2023
2022 ) 31 December 2022
£million
£million
£million
Total Capital Requirement 226.7 211.9 210.1
Capital conservation buffer 63.0 55.9 58.4
Countercyclical buffer 25.2 - 23.3
Total 314.9 267.8 291.8
1. Restated to reflect a change in accounting policy relating to land and
buildings, which are now presented at historical cost. Further details are
provided in 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 the period, bringing the
total risk exposure up from £2,334.6 million to £2,518.5 million. The
capital conservation buffer has been held at 2.5% of total risk exposure since
1 January 2019. The countercyclical capital buffer rose from 0% to 1% of
relevant risk exposures in December 2022, and remained at this level at the
end of the period. The countercyclical capital buffer rose to 2% on 5 July
2023.
Liquidity
Management of liquidity
The Group uses a number of measures to manage liquidity risk. 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 High Quality
Liquid Assets ('HQLA').
· Total funding ratio, as defined in the Appendix to the Interim
Report.
· 'HQLA' are held in the Bank of England Reserve Account and UK
Treasury Bills. For LCR purposes, the HQLA excludes UK Treasury Bills that are
pledged as collateral against 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 average LCR being 217.0% (based on a rolling 12 month-end average).
Liquid assets
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 the period. The Group held
additional levels of liquidity at the end of 2022 (31 December 2022: £416.9
million) to support funding planned for Business Finance drawdowns in early
2023. These returned to more normal levels at the end of the period (30 June
2023: £347.3 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 2022
2023
2022
£million
£million
£million
Aaa - Aa3 318.3 285.6 370.1
A1 - A2 29.0 49.1 41.6
Unrated - 5.1 5.2
Total 347.3 339.8 416.9
We continue to attract customer deposits to support balance sheet growth. The
composition of customer deposits is shown in the table below:
Customer deposits 30 June 30 June 31 December 2022
2023
2022
%
%
%
Fixed term bonds 54 52 56
Notice accounts 12 30 20
ISA 19 14 17
Access accounts 15 4 7
Total 100 100 100
Business review
Consumer Finance
Retail Finance
We provide quick and easy finance options at point of purchase:
· Helping consumers purchase lifestyle goods and services without
having to wait.
· Supporting the growth of UK retailers by offering integrated
finance options that drive sales.
30 June 30 June Movement Change 31 December 2022
2023
2022
£million
%
£million
£million
£million
New business 613.5 535.0 78.5 14.7 1,124.3
Lending balance 1,179.9 916.2 263.7 28.8 1,054.5
Total revenue 49.2 35.9 13.3 37.0 78.0
Impairment charge 8.9 5.6 3.3 58.9 14.8
What we do
· We operate a market-leading online e-commerce service to
retailers, providing unsecured, prime lending products to UK customers to
facilitate the purchase of a wide range of consumer products, including
bicycles, music, furniture, outdoor/leisure, electronics, dental, jewellery,
home improvements and football season tickets. These markets include a large
number of household names.
· The finance products are either interest bearing or have
promotional interest-free credit subsidised by retailers. For interest-free
products, the customer pays the same price for the goods, regardless of
whether credit is taken or not. Taking the credit option allows the customer
to spread the cost of the main purchase into more manageable monthly payments,
and afford ancillary extras and add-ons, which can also be financed.
Interest-free borrowing attracts a large proportion of high credit quality
customers.
· The online processing system allows customers to sign their
credit agreements digitally, thereby speeding up the pay-out process, and
removing the need to handle sensitive personal documents.
· The business is supported by a highly experienced senior team and
workforce.
H1 2023 performance
· Strong lending growth, with an increase of 11.9% on balances at
31 December 2022, resulting from an increase in our market share of the retail
store and online credit market(1).
· Extension of our footprint with key retail partners and the
introduction of new retailer relationships as we leveraged our strong track
record of systems integration.
· Lending and revenue growth has come mainly from interest-free
lending into the furniture and jewellery sectors, which attracts a prime
customer at a lower credit risk, but a lower net interest margin. At the end
of the H1 2023, 86.2% (31 December 2022: 85.1%) of the lending book related to
interest-free lending.
· We have consciously focused on primer sectors remaining cautious
in response to the economic environment. As a result, whilst the impairment
charge has increased compared to H1 2022, it remains in line with expectation
and aligned to a growing lending balance and stable coverage levels.
· We anticipate further lending growth from our existing retail
partners and our operational plans are focused on digitalisation of all key
processes to improve the customer and our retail partners' experience.
· AppToPay was launched in April 2023 and 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: 2023 based on January to May. Market
share of 12.9% in 2023 (2022: 11.4%): FLA total and Retail Finance new
business of £3,838 million (1 January 2022 to 31 December 2022: £9,846
million) and £495.9 million (1 January 2022 to 31 December 2022: £1,124.3
million) respectively.
Vehicle Finance
We help to drive more business in UK car dealerships:
· Providing funds to customers to help them buy used vehicles from
dealers via Vehicle Finance.
· Providing funds to dealers to help them buy vehicles for their
forecourts and showrooms via Stock funding.
30 June 30 June Movement Change 31 December 2022
2023
2022
£million
%
£million
£million
£million
New business 250.1 208.4 41.7 20.0 401.7
Lending balance 440.4 332.6 107.8 32.4 373.1
Total revenue 29.0 22.3 6.7 30.0 48.0
Impairment charge 4.9 12.4 (7.5) (60.5) 21.3
What we do
· We provide lending products that are secured against the vehicle
being financed. The majority of vehicles financed are used cars sold by
independent dealers.
· We also provide vehicle stock funding, whereby funds are advanced
and secured against dealer forecourt used car stock; sourced from auctions,
part exchanges or trade sources.
· Finance is provided via technology platforms, allowing Vehicle
Finance to receive applications online from its introducers; provide an
automated decision; facilitate document production through to pay-out to
dealer, and manage in-life loan accounts.
H1 2023 performance
· In the first five months of 2023, new business volumes for
point-of-sale finance for used cars in the UK (by value) was 10% lower than in
the same period in 2022(1). Over the same period, the Vehicle Finance business
grew its share of this market from 1.1% to 1.3%.
· Prime Hire Purchase and Personal Contract Purchase products
introduced in 2021 delivered £63.0 million of new business in the first half
of 2023 (30 June 2022: £46.8 million). Lending balances from Prime products
grew to £131.8 million or 29.9% of lending balances (31 December 2022: £90.4
million, 24.2%). Near Prime new business was £82.7 million (30 June 2022:
£96.2 million), demonstrating the impact of us tightening our credit
criteria. New business growth exceeded lending growth due to the short-term
duration of Stock Funding.
· Revenues grew broadly in line with lending balances. However, the
move towards Prime lending has resulted in an improvement in total arrears
levels, and this coupled with IFRS 9 ECL models now reacting to credit
tightening that took place in 2022, has resulted in a reduction in the
impairment charge in the first half of 2023 compared with 2022.
· Stock Funding grew lending balances from £18.8 million in the
first half of 2022 (5.7% of lending balances) to £30.0 million in 2023 (6.8%
of lending balances). Stock Funding now represents 7.7% of Vehicle Finance
revenues.
· As part of the continuing Motor Transformation Programme, we
successfully delivered the second phase, which launched a new collection's
platform for Prime lending. The final phase of the programme, to transition
Near Prime lending and Prime lending on to one new 'rate for risk' based
platform, will be the focus for the business in 2023.
1. Source: FLA. Cars bought on finance by consumers through the point of sale:
New business values: Used cars: 2023 based on January to May 2023, FLA total
and Vehicle Finance total of £9,429 million (1 January 2022 to 31 December
2022: £23,472 million) and £119.2 million (1 January 2022 to 31 December
2022: £262.9 million) respectively.
Business Finance
Real Estate Finance
We lend money against residential properties to professional landlords and
property developers:
· Providing mortgage-style borrowing to professional landlords to
allow them to improve and grow their portfolio.
· Providing development facilities to property developers and SME
housebuilders to help build new homes for sale or letting.
30 June 30 June Movement Change 31 December 2022
2023
2022
£million
%
£million
£million
£million
New business 252.4 241.8 10.6 4.4 384.5
Lending balance 1,221.8 1,142.6 79.2 6.9 1,115.5
Total revenue 35.1 27.0 8.1 30.0 57.7
Impairment charge/(credit) 2.2 (0.2) 2.4 (1,200.0) 1.3
What we do
· We provide lending secured against property assets to a maximum
70% loan-to-value ratio, on fixed or variable rates over a term of up to five
years.
· Finance opportunities are sourced and supported on a relationship
basis directly and via introducers and brokers.
· We have an experienced specialist team, with many years of
property expertise, who are nimble and responsive within the market.
· We maintain a strong risk management framework for existing and
prospective customers.
H1 2023 performance
· We have delivered a strong performance in difficult trading
conditions amidst ongoing interest rate volatility. Lending balances
increased, primarily driven by strong new business lending. Revenue growth
reflected growth in average lending balances and rising interest rates. At 30
June 2023, 82% of the loan book provided lending for residential investment
financing (31 December 2022: 85%).
· We have been working with our larger customers to take advantage
of investment opportunities and re-finance their existing portfolios.
· Impairment charges have increased due to higher loan balances
within IFRS 9 stage 3. This relates to a small number of loans all of which
are appropriately provided for, given the level of collateral protection, and
are subject to close monitoring and oversight.
· Secured loan book with an average loan-to-value of 56.4% (31
December 2022: 57.7%), slightly reducing the level of inherent risk to credit
losses.
· The outlook for the second half of the year is uncertain across
both development and investment markets due to the expected increase in the
Bank of England Base Rate. We will continue to support our clients through
this difficult market environment.
Commercial Finance
We support the growth of UK businesses by enabling effective cash flow:
· Providing working capital finance to UK SMEs.
· Providing funds for strategic events.
30 June 30 June Movement Change 31 December 2022
2023
2022
£million
%
£million
£million
£million
New business 31.4 135.8 (104.4) (76.9) 157.3
Lending balance 316.4 359.8 (43.4) (12.1) 376.4
Total revenue 18.2 12.5 5.7 45.6 29.3
Impairment charge 7.0 0.1 6.9 6,900.0 0.8
What we do
· Our lending remains predominantly against receivables, typically
releasing funds against up to 90% of qualifying invoices under invoice
discounting facilities. Other assets can also be funded either long or
short-term and across a range of loan-to-value ratios alongside these
facilities.
· We also provided additional lending to existing customers through
the Government guaranteed Coronavirus Business Interruption Loan ('CBIL')
Scheme, Coronavirus Large Business Interruption Loan ('CLBIL') Scheme and
Recovery Loan Scheme ('RLS').
· Business is sourced and supported both directly and via
professional introducers but is not reliant on the broker market.
· The Commercial Finance team has a strong reputation across the
Asset Based Lending ('ABL') market. The experienced specialist team works
effectively with its partners across private equity and tier 1 and 2
accountancy practices.
H1 2023 performance
· Lending balances at June 2023 were 12.1% lower than June 2022.
However, average lending balances were only 1.3% lower in the six months to 30
June 2023 than the six months to 30 June 2022. The month-end balances can be
susceptible to changes in utilisation by larger clients and, indeed, two
larger clients reduced their utilisation levels just prior to the end of the
first half of 2023. We have maintained focus on supporting our existing
customer base.
· Total revenue has grown in the first half of 2023, reflecting
that lending balances are directly linked to the Bank of England Base Rate.
· The Group's lending under Government CBIL, CLBIL and RLS is now
largely in run-off, and at 30 June 2023, the outstanding lending balances
under these schemes totalled £20.3 million (31 December 2022: £28.9
million). Commercial Finance took the conscious decision not to participate in
the UK Government's Bounce Back Loan Scheme, which closed in March 2021.
· The lack of growth in economic activity, rising inflation and
cost pressures are, in general, adding financial stress across the SME market,
and we have seen this reflected in our own customer base. We incurred an
impairment charge of £7.0 million (30 June 2022: £0.1 million) largely due
to one material loss of £7.2 million on a long-running problem debt case.
Circumstances around the particular case were unique, with a lessons learned
exercise confirming no similar concerns across the portfolio. Excluding this
specific impairment charge, the total write-off incurred between 2015 and 2023
has been 0.04% of average lending balances and would be 0.6%, inclusive of
this write-off.
Savings
Customers trust us to look after their savings and provide a competitive
return:
· Helping our customers save for special events such as a holiday,
wedding or retirement.
· Providing our customers with a diverse range of products to
choose from that offer fair value.
30 June 30 June Movement Change 31 December 2022
2023
2022
£million
%
£million
£million
£million
Fixed term bonds 1,410.0 1,182.4 227.6 19.2 1,414.0
Notice accounts 324.3 696.8 (372.5) (53.5) 500.7
ISAs 505.2 310.8 194.4 62.5 421.8
Access accounts 409.4 100.9 308.5 305.7 178.1
2,648.9 2,290.9 358 15.6 2,514.6
What we do
· We offer a range of savings accounts that are purposely simple in
design, with a choice of products from easy access to 180-day notice, and
six-month to seven-year fixed terms across both bonds and ISAs.
· Accounts are made available and priced in line with our ongoing
funding needs, allowing each individual to hold a maximum balance of £1
million.
· Our range of savings products enables us to access the majority
of the UK personal savings markets and compete for significant liquidity
pools, achieving a lower marginal cost with the volume, mix and the
competitive rates offered; optimised to the demand of our funding needs.
H1 2023 performance
· H1 2023 saw continued increases in the Bank of England Base rate,
which has impacted the rates offered within the savings market. During the
period, we have raised over £0.7 billion of new deposits and retained £0.3
billion at maturity.
· Our deposit base is made up of retail customers and 96% of total
deposits are fully covered by FSCS.
· We have continued to grow Access balances since introducing the
product last year, with it proving a popular customer choice given the ongoing
increases in the Base Rate. In part due to the growth of the Access market,
with continued repricing offering savers increasingly competitive returns
without sacrificing immediate access to funds. We have seen a corresponding
decrease in demand for Notice products.
· The higher-rate market environment has demonstrated the
importance of competitive ISA products for those with higher balances looking
to maximise returns, with plans to continue growth of these balances during H2
2023.
· The introduction of six, nine and 18-month fixed-rate terms has
supplemented our existing one-year product, with customer preference remaining
within shorter-dated product terms.
· Savings have continued to deliver improvements to the customer
experience during the year. Confirmation of Payee has been enhanced in H1
2023, with services for inbound payments now included alongside support for
verification of customers' external accounts. This gives customers the
reassurance that they are depositing funds to the correct account and further
simplifies the account opening and funding journey.
· Customers have continued to adopt a more digital-first approach,
with 95% registered for internet banking. We continue to offer customers
paperless communications where this suits their needs, and plan to further
digitalise our account communications during H2 2023. Development of our
digital proposition through the launch of a mobile app will see the customer
testing phase and wider roll out of this service during H2 2023.
Market review
The Group operates exclusively within the UK and its performance is influenced
by the macroeconomic environment in the UK. As the Group's revenue is derived
almost entirely from customers operating in the UK, the Group is particularly
exposed to the condition of the UK economy. Customers' borrowing demands are
variously influenced by, among other things, UK property markets, employment
levels, inflation, interest rates and customer confidence. The economy impacts
demand for the Group's products, margins that can be earned on lending assets
and the levels of loan impairment provisions.
As a financial services firm, the Group is subject to extensive and
comprehensive regulation by governmental and regulatory bodies in the UK. The
Group conducts its business subject to ongoing regulation by the Financial
Conduct Authority ('FCA') and the Prudential Regulation Authority ('PRA'). The
Group must comply with the regulatory regime across many aspects of its
activity, including the training, authorisation and supervision of personnel,
systems, processes and documentation.
Economic review
Economic growth, as measured in quarterly UK Gross Domestic Product ('GDP'),
remained low in the first quarter of 2023, at just 0.1%(1). Economists' base
case forecasts indicate recession will be avoided in 2023 as the UK economy
has so far showed greater resilience than expected. However, growth is
expected to be constrained below 0.5%, with consumer spending being affected
by increasingly tighter fiscal and monetary policy.
Inflation continues to weigh heavily on the UK economy. Whilst falling from
the peak of 11.1%(1) in October 2022 to 7.9%(1) in June 2023, first quarter
inflation data showed unexpected increases in core inflation and services
inflation. The Bank of England has responded with further Base Rate hikes to a
new 15-year high of 5.25%. Financial markets have responded strongly to recent
inflation data, and the Bank of England's likely response, and currently price
in the Base Rate of interest reaching 5.75% in Q1 2024. The compounding
increases in the real cost of living will continue to adversely impact on
consumers' disposable incomes and challenge the affordability of household
bills and consumers' appetite for discretionary spending.
Employment levels remain high at 76.0%(1). Unemployment continues to remain at
a low level of 4.0%(1) with an increase recorded in Q2 2023 ahead of
expectations, and vacancies in the labour market falling to circa 1.0
million(1) as employers hold back on recruitment to control costs in an
uncertain economic environment. Given the continued pressures on employers
from borrowing and energy costs, unemployment may rise further by the end of
2023. Wage growth was 6.9% in March to May 2023, and ahead of expectations,
which has further fuelled inflation.
As anticipated, impacts of tighter credit and higher interest rates has
started to soften transaction volumes and prices in the housing market.
Lenders have reported lower mortgage approvals and negative net lending in
early 2023. Given the increase in swap rates, linked to the latest inflation
figures and monetary policy decisions, the pressure on the housing market is
unabating. 2023 is likely to see a perfect storm of high new borrowing and
refinancing rates and large numbers of customers exiting cheap fixed rate
mortgage deals. Economists therefore continue to predict a peak-to-trough fall
in house prices of circa 10% in the near term.
Outlook
The Base Rate of interest is expected to continue to rise in 2023 and peak at
5.75% in late Q1 2024, albeit recent volatility in the swap markets has at
times implied rates as high as 6.25%. The UK economy is expected to grow only
modestly through 2023. House prices are expected to continue to fall after a
long period of growth, and unemployment is expected to rise a little from its
current low levels. The full impact of high interest rates and inflation has
not yet been seen on consumers' household incomes, therefore the balance of
risks to the UK remains skewed to the downside.
1. Source: Office for National Statistics, latest data as at 30 June 2023,
unless otherwise stated.
Government and regulatory
This has been another eventful period for Government and regulatory
announcements that potentially impact the Group. The key announcements are set
out below.
Prudential regulation
In November 2022, the PRA issued CP16/22 'The PRA consults on proposals for
implementation of the Basel 3.1 standards' setting out its proposed changes to
regulatory requirements, which are expected to become effective on 1 January
2025. The proposals set out changes to the regulatory environment, including
significant changes to the capital requirements for credit risk and
operational risk. The guidance also proposes allowing those firms that are
eligible for the Simpler Regime to apply for a waiver not to adopt Basel 3.1
and instead remain on the current UK Capital Requirements Regulation regime
until the capital rules applicable to the Simpler Regime are launched.
In February 2023, the PRA issued CP4/23 'The Strong and Simple Framework:
Liquidity and Disclosure requirements for Simpler-regime Firms', adding
further proposals for a strong and simple prudential framework. This sets out
the proposed liquidity related rules for the new regime, with a proposed
implementation date of 1 July 2024. The capital rules are the subject of a
further consultation, expected in H1 2024, however the PRA have indicated that
the Basel 3.1 rules will be the starting point for designing the Simpler
Regime requirements. The implementation date for the Simpler Regime capital
requirements is still to be announced but is expected to be after 2025. The
Group has undertaken an impact analysis of the CP16/22 proposals to understand
the potential impact under the proposed full rules and will decide whether it
will adopt the full rules, or defer and adopt the Simpler Regime, when
required to do so.
During May 2023, the PRA issued PS5/23 'Model risk management principles for
banks' setting out stronger governance expectations for model governance to
address observed shortcomings within the industry. A new supervisory
statement, SS1/23, incorporating these revised expectations was also issued
with an effective date of 17 May 2024. Although the final statement issued
applies only to banks adopting the internal model approach to capital, and
therefore does not directly impact the Group, it is aligning to the statement
until the Simpler Regime Supervisory Statement is released, which is expected
to adopt a more proportionate approach.
The UK Countercyclical Capital Buffer ('CCyB') rate increased from 1% to 2% on
5 July 2023, as previously announced by the Financial Policy Committee
('FPC'). The FPC have stated that they will continue to monitor the CCyB rate
due to the current uncertainty around the economic outlook.
Conduct regulation
Through the first half of 2023, the FCA has continued to focus on supporting
consumers who are in vulnerable circumstances struggling with the rising cost
of living and the countdown to the implementation of the Consumer Duty.
In February, the FCA published a Dear CEO letter to Retail Banks (followed by
Dear CEO letters for Retail Finance and Motor Finance providers in March)
intended to help firms embed and implement the Consumer Duty effectively. The
letter outlined key expectations on firms under the Consumer Duty, as well as
provided feedback from a review of firm's implementation plans, containing
observed good practice and areas of improvement. Importantly, the FCA
identified three key areas of focus, including working with other firms, such
as firms involved in the product distribution chain. In May, the FCA provided
further insight for firms by publishing its findings from a review of firm's
fair value assessment frameworks and in June produced a podcast outlining
expectations for firm's outcomes testing and the types of data firms should be
using to assess how customers are treated. The Group satisfied the key 30
April milestone of completing fair value assessments for all current products
and services and sharing the outcomes of those assessments with relevant firms
to assist with their own planning.
Cost of living pressures for consumers remain a key area of focus for the FCA,
with Dear CEO letters relating to the Consumer Duty also referencing the cost
of living crisis as well as focused initiatives, such as podcasts and blogs to
ensure firms remain focused on supporting customers. In May, the FCA published
a consultation on changes to sourcebooks to incorporate aspects of the
Tailored Support Guidance that was introduced during the coronavirus pandemic.
In June, a Dear CEO letter signed by the main UK regulatory bodies, including
the FCA, set out shared expectations of firms in their respective sectors in
supporting customers impacted by the rising cost of living. The Group looks to
ensure customers are supported where experiencing financial difficulties.
More recently, the FCA set out expectations that consumers should be offered
fair and competitive saving rates. The FCA is using the new Consumer Duty
legislation and has set out an action plan to ensure banks and building
societies are passing on interest rate rises to savers appropriately,
communicating with customers more effectively and offering customers better
savings rate deals. The Group is well positioned to meet the FCA's
expectations of deposit-taking firms.
Government and monetary policy
Following a consultation on the optimal structure for UK financial services
post-Brexit, the Financial Services and Markets Act 2023 (the 'FSMA') received
royal assent during June 2023, with the aim of implementing the outcomes of
the Government's future regulatory framework review and to make changes to
update the UK regulatory regime. This allows for sector-wide regulation of
financial services and markets, involving the revocation of EU law and its
replacement with rules-based regulation primarily administered by regulators,
subject to the oversight of Parliament, which is expected to allow for faster
responses to changing conditions.
The Bank of England MPC announced five consecutive increases in the UK Base
Rate over the course of 2023, taking rates up from 3.5% at the end of December
2022 to 5.25% at 3 August 2023. Rising interest rates have had a significant
impact on the Group's funding costs and appropriate action has been taken to
manage new business pricing and overall net interest margin.
In response to current cost of living challenges, on 23 June 2023 the
Chancellor met with the FCA and principal mortgage lenders to agree a support
package for customers struggling with mortgage repayments.
Principal risks and uncertainties
Risk management
The effective management of risk is a key part of the Group's strategy and is
underpinned by our Risk Aware value. This helps to protect the Group's
customers and generate sustainable returns for shareholders. The Group is
focused on ensuring that it maintains sufficient levels of capital, liquidity
and operational control, and acts in a reputable way.
The Group's Chief Risk Officer is responsible for leading the Group's Risk
function, which is independent from the Group's operational and commercial
teams. The Risk function is responsible for designing and embedding
appropriate risk management frameworks, processes and controls, and making
sure that they are sufficiently robust, so that key risks are identified,
assessed, monitored and accepted or mitigated in line with the Group's risk
appetite. The Chief Risk Officer is responsible for reporting to the Board on
the Group's principal risks and how they are being managed against agreed risk
appetite.
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) .
Changes to the Group's risk profile
Changes to the Group's risk profile since the position set out in the 2022
Annual Report and Accounts are detailed below.
Credit risk: Heightened
Description: The risk of loss to the Group from the failure of clients,
customers, or counterparties to honour fully their obligations to the firm,
including the whole and timely payment of principal, interest, collateral, or
other receivables.
Consumer Finance Credit risk
Notwithstanding the cost of living challenges experienced across the UK,
including of high inflation and rising interest rates, the performance of the
Consumer Finance credit portfolios has remained robust in the first half of
the year.
The credit profile of the Vehicle Finance business has improved through the
first half of the year as a result of an increase in Prime business and the
positive impacts of credit tightening within the Near Prime portfolio.
Previous moves to lower risk sectors within Retail Finance continue to show
through in strong performance and whilst, as anticipated, arrears have risen
slightly from historical lows post COVID-19, they remain well below
pre-COVID-19 levels.
Reflective of the high inflation environment, tightening of affordability
metrics has been applied to Consumer Finance businesses to strengthen
affordability assessment at the point of origination.
Business Finance Credit risk
Whilst Business Finance customers have been impacted by inflation, high
interest rates and supply chain challenges credit performance remains robust
across both Business Finance portfolios, notwithstanding a specific credit
loss in Commercial Finance detailed below.
Real Estate Finance at a portfolio level is performing well and continues to
work closely with borrowers experiencing challenges as a result of higher
interest rates. Conservative origination parameters allow the business scope
to work with customers on agreeing revisions to interest cover covenants,
where necessary. Only a very small number of clients are in an active workout
situation.
Commercial Finance is similarly performing strongly at a portfolio level, and
whilst it does have customers who have been materially impacted by high
inflation, particularly in relation to energy costs, the secured and
highly-structured nature of facilities provided means these cases can be
managed down without loss to the Group. One material loss was recorded in the
first half on a long-running problem debt case. The circumstances around the
particular case were unique, with a lessons learned exercise confirming no
similar concerns across the portfolio.
The risk continues to be assessed as heightened, reflecting the challenges
impacting the UK's economic environment, including high rates of inflation and
increasing interest rates.
Liquidity and Funding risk: Stable
Description: Liquidity risk is the risk that the Group is unable to meet its
liquidity obligations as they fall due or can only do so at excessive cost.
Funding risk is the risk that the Group is unable to raise or maintain funds
to support asset growth, or the risk arising from an unstable funding profile
which could result in higher funding costs.
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, principally cash, and there is no material risk that
liabilities cannot be met as they fall due. The Group reviewed the
circumstances with respect to the recent banking failures, with no similar
concerns around liquidity. The vast majority of deposits benefit from FSCS
protection and we have seen no material change in behaviours following recent
sector issues.
Capital risk: Stable
Description: Capital risk is the risk that the Group will have insufficient
capital resources to meet minimum regulatory requirements and to support
levels of growth.
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 Group has continued to ensure through this growth that it
maintains adequate capital and all capital ratio measures have been met
through the period.
The initial IFRS 9 transitional adjustment ended on 1 January 2023, however
the Group continues to benefit from the capital relief that has been provided
by the Prudential Regulation Authority ('PRA') in respect of IFRS 9
transitional provisions relating to the COVID-19 related 'quick-fix' that
tapers off to 31 December 2024.
The Bank of England further increased the Countercyclical Capital Buffer
('CCyB') to 2% in July 2023, following its previous increase of the CCyB to 1%
from December 2022, which will require the Group to hold increased levels of
minimum regulatory capital in Common Equity Tier 1 ('CET 1').
In February 2023, the Group issued £90.0 million of 10.5 year, 13.0% Fixed
Rate Callable Subordinated Notes, which also qualify as Tier 2 regulatory
capital (subject to a cap of 25% of Pillar 1 and 2A requirements). Both £25.0
million issuances of our existing 2018 Notes were repurchased in quarter one
2023, ahead of their first call dates in the second half of 2023.
The Group manages its capital requirements on a forward-looking basis against
minimum regulatory requirements and Board risk appetite. 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.
Market risk: Stable
Description: Market risk is the risk to the Group's earnings and/or economic
value from unfavourable market movements, such as interest rates and foreign
exchange rates.
The Group continues to take a cautious approach to managing interest rate and
foreign exchange risks, with all exposures hedged to minimise the impact of
movements of underlying rates on financial performance.
Despite increasing interest rates through the period, the Group has remained
within all Board agreed Risk Appetite measures governing interest rate and
foreign exchange risk.
Operational risk: Stable
Description: 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/ infrastructure, or from external
factors.
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 continues to enhance and further embed its approach to achieving
Operational Resilience for all of its Important Business Services and is on
track to meet the 2025 regulatory deadline. Strong progress has also been made
in managing and monitoring its third-party suppliers; and the Group has seen
benefits from the additional resource allocated to the management of this
risk, with improved governance and supplier relationships.
Model risk: Stable
Description: Model risk is the potential for adverse consequences from model
errors or the inappropriate use of modelled outputs to inform business
decisions.
Model risk has been a key focus for the Group in the first half of 2023, with
investment in both additional employees and external expertise to strengthen
the Group's approach to model risk management and governance.
The PRA published its supervisory statement (SS1/23) in relation to Model Risk
Management in May 2023. Whilst the Group is not directly captured by this
statement, the principles have been reflected in the ongoing work to
strengthen the approach to model management and governance.
Conduct and Compliance risk: Heightened
Description: The risk that the Group's products and services, and the way they
are delivered, or the Group's failure to be compliant with all relevant
regulatory requirements result in poor outcomes for customers or markets in
which we operate, or harm to the Group. This could be as a direct result of
poor or inappropriate execution of our business activities or behaviour from
our employees.
During the period, the Group has engaged with its regulators on an increased
number of thematic reviews and information requests, reflective of the
regulatory focus on a number of key priority areas across the industry. In
particular, the Group was contacted by the FCA in July 2023 in a follow up to
a review of forbearance outcomes associated with its Borrowers in Financial
Difficulty project. The Group is responding to requests from the FCA to review
and enhance its practices in this area.
The Group had an extensive implementation programme in place during the period
to ensure it met the requirements of the FCA's Consumer Duty. A progress
update confirming work completed and readiness for the Duty coming into force
on 31 July 2023 was approved by the Group's Board Risk Committee. The Group is
now working on fully embedding all activity delivered in the implementation
programme.
Recognising the increasing focus referenced above, and notwithstanding
progress on Consumer Duty implementation, the risk has been assessed as being
heightened for the period.
Financial Crime risk: Stable
Description: The risk that the Group fails to prevent the facilitation of
financial crime by not having effective systems and controls in line with
regulatory requirements.
The Group continues to invest and strengthen its financial crime framework
against a backdrop of an evolving external landscape. The current economic
challenges in the UK will increase the fraud threat across the industry, and
the Group continues to enhance its systems and controls in this regard. There
has been an increase in regulatory and legislative changes, or proposed
changes, for financial crime that will be relevant to our strategic objectives
and are picked up through the Group's horizon-scanning activity.
Climate Change risk: Stable
Description: The risk of exposure to physical and transition risks arising
from climate change.
A detailed report on the key risks the Group faces in relation to climate
change was included in the Task Force on Climate-related Financial Disclosures
in the 2022 Annual Report and Accounts. Since then, the Group has made good
progress in embedding Climate Change risk management into business-as-usual
processes aligned to the Groups wider environmental, social, and governance
strategy.
Plans are in place to further develop emissions reporting, which will be
reflected in enhanced disclosures reporting in our next Annual Report and
Accounts.
Interim Financial Statements
Condensed consolidated statement of comprehensive income
For the period ended Note Unaudited Restated¹ Restated¹
30 June
Unaudited
Unaudited
2023
30 June
31 December
£million
2022
2022
£million
£million
Continuing operations:
Income statement
Interest income and similar income 3 138.8 90.6 203.0
Interest expense and similar charges (57.8) (17.5) (50.4)
Net interest income 81.0 73.1 152.6
Fee and commission income 3 8.1 8.1 17.4
Fee and commission expense - (0.2) (0.4)
Net fee and commission income 8.1 7.9 17.0
Operating income 89.1 81.0 169.6
Net impairment charge on loans and advances to customers 10 (23.0) (17.9) (38.2)
Gains on modification of financial assets 0.2 0.7 1.1
Fair value gains/(losses) on financial instruments 4 0.9 (0.5) (0.3)
Operating expenses (50.7) (46.2) (93.2)
Profit before income tax from continuing operations 16.5 17.1 39.0
Income tax expense 5 (4.2) (4.2) (9.4)
Profit for the period from continuing operations 12.3 12.9 29.6
Discontinued operations:
(Loss)/profit before income tax from discontinued operations 6 (1.5) 7.6 5.0
Income tax credit/(expense) 6 0.3 (1.4) (0.9)
(Loss)/profit for the period from discontinued operations 6 (1.2) 6.2 4.1
Profit for the period 11.1 19.1 33.7
Other comprehensive loss
Items that will be reclassified to the income statement
Cash flow hedge - fair value loss taken to reserves (0.3) (0.5) (0.8)
Reclassification to the income statement 0.2 - 0.1
Taxation - - 0.2
Other comprehensive loss for the period, net of income tax (0.1) (0.5) (0.5)
Total comprehensive income for the period 11.0 18.6 33.2
Profit attributable to the equity holders of the Company 11.1 19.1 33.7
Total comprehensive income attributable to the equity holders of the Company 11.0 18.6 33.2
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 59.4 102.4 180.5
Diluted earnings per ordinary share 7 57.9 99.1 174.7
Basic earnings per ordinary share - continuing operations 65.8 69.1 158.5
Diluted earnings per ordinary share - continuing operations 64.1 67.0 153.4
1. The condensed consolidated statement of comprehensive income has been
restated to reflect a change in accounting policy relating to land and
buildings, which are now presented at historical cost. See Note 1.3.1 for
further details.
Condensed consolidated statement of financial position
As at the period ended Note Unaudited Restated¹ Restated¹
30 June
Unaudited
Unaudited
2023
30 June
31 December
£million
2022
2022
£million
£million
ASSETS
Cash and Bank of England reserve account 318.3 253.0 370.1
Loans and advances to banks 33.3 54.2 50.5
Debt securities - 34.9 -
Loans and advances to customers 9 3,158.5 2,751.2 2,919.5
Fair value adjustment for portfolio hedged risk (47.7) (17.0) (32.0)
Derivative financial instruments 50.3 17.7 34.9
Assets held for sale 11 - 3.3 -
Investment property - 1.4 -
Property, plant and equipment 11.4 8.5 9.7
Right-of-use assets 1.9 1.7 1.5
Intangible assets 6.5 6.9 6.6
Current tax assets 1.4 0.5 -
Deferred tax assets 5.0 6.1 5.6
Other assets 12.0 12.4 13.4
Total assets 3,550.9 3,134.8 3,379.8
LIABILITIES AND EQUITY
Liabilities
Due to banks 12 409.3 400.3 400.5
Deposits from customers 13 2,648.9 2,290.9 2,514.6
Fair value adjustment for portfolio hedged risk (33.7) (15.2) (23.0)
Derivative financial instruments 36.1 17.3 26.7
Current tax liabilities - - 0.8
Lease liabilities 2.3 2.5 2.1
Other liabilities 59.1 72.4 78.1
Provisions for liabilities and charges 14 2.8 1.5 2.5
Subordinated liabilities 15 92.9 51.0 51.1
Total liabilities 3,217.7 2,820.7 3,053.4
Equity attributable to owners of the parent
Share capital 7.5 7.5 7.5
Share premium 82.3 82.2 82.2
Other reserves (1.2) (0.8) (1.1)
Retained earnings 244.6 225.2 237.8
Total equity 333.2 314.1 326.4
Total liabilities and equity 3,550.9 3,134.8 3,379.8
1. The condensed consolidated statement of financial position has been
restated to reflect a change in accounting policy relating to land and
buildings, which are now presented at historical cost. See Note 1.3.1 for
further details.
Condensed consolidated statement of changes in equity
Other reserves
Unaudited Share Share Cash flow hedge reserve Revaluation reserve £million Own shares Retained Total
capital
premium
£million
£million
earnings
£million
£million
£million
£million
Balance at 1 January 2023 7.5 82.2 (0.8) 0.8 (0.3) 237.5 326.9
(as originally stated)
Prior year restatement net of tax (see Note 1.3.1) - - - (0.8) - 0.3 (0.5)
Balance at 1 January 2023 (restated) 7.5 82.2 (0.8) - (0.3) 237.8 326.4
Total comprehensive income for the period
Profit for the six months to 30 June 2023 - - - - - 11.1 11.1
--
Other comprehensive income, net of income tax
Cash flow hedge reserve movements - - (0.1) - - - (0.1)
Total other comprehensive income - - (0.1) - - - (0.1)
Total comprehensive income for the period - - (0.1) - - 11.1 11.0
--
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issue of shares - 0.1 - - - - 0.1
Dividends - - - - - (5.4) (5.4)
Share-based payments - - - - - 1.1 1.1
Total contributions by and distributions to owners - 0.1 - - - (4.3) (4.2)
Balance at 30 June 2023 7.5 82.3 (0.9) - (0.3) 244.6 333.2
Other reserves
Unaudited Share Share Cash flow hedge Revaluation Retained Total
capital
premium
reserve
reserve
earnings
£million
£million
£million
£million
£million
£million
Balance at 1 January 2022 (as previously stated) 7.5 82.2 (0.3) 1.3 211.7 302.4
Land and buildings prior year restatement net of tax (see Note 1.3.1) - - - (1.3) 1.1 (0.2)
Balance at 1 January 2022 (restated) 7.5 82.2 (0.3) - 212.8 302.2
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 reserve movements - - (0.5) - - (0.5)
Total other comprehensive income - - (0.5) - - (0.5)
Total comprehensive income for the period - - (0.5) - 19.1 18.6
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) - 225.2 314.1
Other reserves
Unaudited Share Share Cash flow hedge reserve Revaluation reserve £million Own shares Retained Total
capital
premium
£million
£million
earnings
£million
£million
£million
£million
Balance at 1 January 2022 (as originally stated) 7.5 82.2 (0.3) 1.3 - 211.7 302.4
Land and buildings prior year restatement net of tax (see Note 1.3.1) - - - (1.3) - 1.1 (0.2)
Balance at 1 January 2022 (restated) 7.5 82.2 (0.3) - - 212.8 302.2
Total comprehensive income for the period
Profit for the year to 31 December 2022 - - - - - 33.7 33.7
--
Other comprehensive income, net of income tax
Cash flow hedge reserve movements - - (0.7) - - - (0.7)
Tax on cash flow hedge reserve movements - - 0.2 - - - 0.2
Total other comprehensive income - - (0.5) - - - (0.5)
Total comprehensive income for the period - - (0.5) - - 33.7 33.2
--
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Purchase of own shares - - - - (0.3) - (0.3)
Dividends - - - - - (10.7) (10.7)
Share-based payments - - - - - 2.0 2.0
Total contributions by and distributions to owners - - - - (0.3) (8.7) (9.0)
Balance at 31 December 2022 7.5 82.2 (0.8) - (0.3) 237.8 326.4
Condensed consolidated statement of cash flows
For the period ended Note Unaudited Restated¹ Audited
30 June
Unaudited
31 December
2023
30 June
2022
£million
2022
£million
£million
Cash flows from operating activities
Profit for the year 11.1 19.1 33.7
Adjustments for:
Income tax expense 5 3.9 5.6 10.3
Depreciation of property, plant and equipment 0.5 0.6 1.2
Depreciation of right-of-use assets 0.3 0.3 0.7
Amortisation of intangible assets 0.6 0.8 1.4
Loss on disposal of property, plant and equipment, right of use assets and - - 1.4
intangible assets
Impairment charge on loans and advances to customers 10 23.0 18.6 39.0
Share-based compensation 1.1 1.0 2.0
Gain on disposal of loan books 6 - (8.1) (8.9)
Other non-cash items included in profit before tax 1.2 0.3 1.0
Cash flows from operating 41.7 38.2 81.8
profits before changes in operating assets and liabilities
Changes in operating assets and liabilities:
- loans and advances to customers (262.1) (308.8) (497.1)
- loans and advances to banks and balances at central banks (0.6) 2.0 0.6
- other assets 1.4 (0.5) (1.5)
- deposits from customers 134.3 187.7 411.4
- provisions for liabilities and charges (1.6) (0.3) (1.1)
- other liabilities (17.2) 37.7 45.6
Income tax paid (5.5) (4.3) (7.0)
Net cash (outflow)/inflow from operating activities (109.6) (48.3) 32.7
Cash flows from investing activities
Consideration on sale of loan books 6 - 81.9 81.9
Sale of investment property 11 - - 3.3
Maturity and sale of debt securities - 45.0 80.0
Purchase of debt securities - (45.0) (80.0)
Purchase of property, plant and equipment and intangible assets (2.7) (1.0) (2.7)
Net cash (outflow)/inflow from investing activities (2.7) 80.9 82.5
Cash flows from financing activities
Issue of subordinated debt 15 90.0 - -
Redemption of subordinated debt 15 (48.8) - -
Drawdown of amounts due to banks 7.3 8.7 7.0
Purchase of own shares - - (0.3)
Issue of shares 0.1 - -
Dividends paid (5.4) (7.7) (10.7)
Repayment of lease liabilities (0.5) (0.5) (1.0)
Net cash inflow/(outflow) from financing activities 42.7 0.5 (5.0)
Net (decrease)/increase in cash and cash equivalents (69.6) 33.1 110.2
Cash and cash equivalents at 1 January 416.9 306.7 306.7
Cash and cash equivalents at end of period 18 347.3 339.8 416.9
1. Cash and cash equivalents at June 2022 have been restated from £338.3
million to £339.8 million. See Note 1.3.2 for further details.
Notes to the interim financial statements
1. Accounting policies
The principal accounting policies applied in the preparation of these Interim
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 Yorke House,
Arleston Way, Shirley, Solihull, West Midlands B90 4LH. The Interim Financial
Statements, as at and for the period ended 30 June 2023, comprises 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.
1.2. Basis of presentation
The Interim Financial Statements do 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 2022 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
2023 and 30 June 2022 are unaudited. The restated results for the year ending
31 December 2022 are unaudited.
The Interim Financial Statements have been prepared under the historical cost
convention, as modified by the valuation of derivative financial instruments
and investment properties. The Interim Financial Statements are presented in
pounds sterling, which is the functional and presentational currency of the
entities within the Group.
The preparation of the Interim Financial Statements 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 Financial Statements, 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 2022 Annual Report and Accounts (pages 35 and 36), 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 severe, but plausible stresses. 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'). Macroeconomic inputs to the Reforecast reflect
increases in forecast Base Rate of interest, 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 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 2023 Internal Capital Adequacy Assessment Process ('ICAAP') was approved
by the Board in August 2023. Details of the Group's 2022 ICAAP are included in
the 2022 Annual Report and Accounts and there were no major changes in
approach taken for the 2023 ICAAP other than refreshing the macroeconomic
stress scenario to reflect a more typical prolonged economic recession using
the latest scenario published by the Prudential Regulation Authority ('PRA')
for small banks.
The Board approved the Internal Liquidity Adequacy Assessment Process
('ILAAP') in June 2023. 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 2022, other than
the change noted below.
1.3.1 Property, plant and equipment prior year adjustment
IAS 16 Property, plant and equipment offers a choice of two methods of
measuring the carrying amount of land and buildings:
· The cost model or;
· The revaluation model.
The Group's previous accounting policy was to hold land and buildings at its
revalued amount, being its fair value at the date of valuation less any
subsequent accumulated depreciation. Revaluations were carried out annually at
the reporting date, and movements were recognised in Other Comprehensive
Income, net of any applicable deferred tax. External valuations were performed
on a triennial basis.
Following a review, the Directors have concluded that the historical cost
model is a more appropriate and relevant approach due to the nature of the
Group's business. This will reduce volatility in the income statement and
revaluation reserve, allowing for a more appropriate presentation of the
Group's financial performance. Furthermore, the cost model approach is adopted
by the majority of our peer group, which will allow for better comparability.
Therefore under IAS 8.14(b) Accounting Policies, Changes in Accounting
Estimates and Errors, the Group is changing its accounting policy to measure
land and buildings at historical cost less depreciation, less any impairment,
and to adjust the depreciation charge accordingly. The Group's policy to
depreciate buildings over 50 years remains unchanged. This has also resulted
in the removal of the Group's revaluation reserve and associated deferred tax.
Due to the change in accounting policy, the Group is required to restate its
comparatives in accordance with IAS 8.28. A summary of the impact on the
primary statements is as follows:
Statement of financial position As originally stated Prior year adjustment Unaudited Restated
Audited
1 January
Unaudited
1 January
2022
1 January
2022
£million
2022
£million
£million
Property, plant and equipment 9.3 (0.5) 8.8
Deferred tax assets 6.9 0.3 7.2
Other assets 2,869.7 - 2,869.7
Total assets 2,885.9 (0.2) 2,885.7
Total liabilities 2,583.5 - 2,583.5
Retained earnings 211.7 1.1 212.8
Revaluation reserve 1.3 (1.3) -
Other equity/reserves 89.4 - 89.4
Total equity 302.4 (0.2) 302.2
Total liabilities and equity 2,885.9 (0.2) 2,885.7
Statement of financial position As originally stated Prior year adjustment Unaudited Restated
Unaudited
30 June
Unaudited
30 June
2022
30 June
2022
£million
2022
£million
£million
Property, plant and equipment 9.0 (0.5) 8.5
Deferred tax assets 5.9 0.2 6.1
Other assets 3,120.2 - 3,120.2
Total assets 3,135.1 (0.3) 3,134.8
Total liabilities 2,820.7 - 2,820.7
Retained earnings 224.1 1.1 225.2
Revaluation reserve 1.4 (1.4) -
Other equity/reserves 88.9 - 88.9
Total equity 314.4 (0.3) 314.1
Total liabilities and equity 3,135.1 (0.3) 3,134.8
Statement of financial position As originally stated Prior year adjustment Unaudited Restated
Audited
31 December
Unaudited
31 December
2022
31 December
2022
£million
2022
£million
£million
Property, plant and equipment 10.3 (0.6) 9.7
Deferred tax assets 5.5 0.1 5.6
Other assets 3,364.5 - 3,364.5
Total assets 3,380.3 (0.5) 3,379.8
Total liabilities 3,053.4 - 3,053.4
Retained earnings 237.5 0.3 237.8
Revaluation reserve 0.8 (0.8) -
Other equity/reserves 88.6 - 88.6
Total equity 326.9 (0.5) 326.4
Total liabilities and equity 3,380.3 (0.5) 3,379.8
There is negligible impact on the income statement or cash flow statement for
the period ended June 2022 or year ended December 2022.
1.3.2 Cash and cash equivalents prior year adjustment
During 2022, the International Financial Reporting Interpretations Committee
('IFRIC') issued a clarification of IAS 7 Statement of cash flows. IFRIC
clarified that restrictions on use of a demand deposit, arising from a
contract with a third party, does not result in the deposit no longer being
treated as cash, unless those restrictions change the nature of the deposit in
a way that it would no longer meet the definition of cash in IAS 7.
At June 2022, £1.5 million of loans and advances to banks was excluded from
cash and cash equivalents. This comprised amounts over which the Group had a
contractual obligation with a third party to use the cash only for specified
purposes. If the Group were to use these amounts for purposes other than those
agreed with the third party, the Group would have been in breach of its
contractual obligation. However, the terms and conditions did not prevent the
Group from accessing the amounts held. As the Group could still access the
amounts held, these amounts met the definition of cash. Accordingly, as a
result of the IFRIC clarification above, cash and cash equivalents in the
Condensed consolidated statement of cash flows have been restated as follows:
As originally stated Prior year adjustment Unaudited Restated
£million
£million
£million
June 2022
Cash and cash equivalents 338.3 1.5 339.8
Accordingly, Changes in operating assets, loans and advances to banks and net
cash flow from operating activities, have been restated by £2.2 million in
the cash flow statement for the period ended 30 June 2022.
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
A critical judgement relating to Consumer Finance affordability is disclosed
in Note 10.2. No other critical judgements were 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 10.1.
3. Operating segments
The Group is organised into four lending segments, which consists of the
different products available, as disclosed below.
During 2022, the Group disposed of the Debt Management operating segment.
Accordingly, the results of this business is now included in discontinued
operations.
Consumer Finance
· Vehicle Finance: hire purchase lending for used cars 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
Stocking Funding product is also offered whereby funds are advanced and
secured against dealer forecourt used car stock; sourced from auctions, part
exchanges or trade sources.
· Retail Finance: a market-leading online e-commerce service to
retailers, providing unsecured lending products to prime UK customers to
facilitate the purchase of a wide range of consumer products, including
bicycles, music, furniture, outdoor/leisure, electronics, dental, jewellery,
home improvements and football season tickets.
Business Finance
· Real Estate Finance: lending secured against property assets to a
maximum 70% loan-to-value ratio, on fixed or variable rates over a term of up
to five years.
· Commercial Finance: lending is predominantly against receivables,
typically releasing up to 90% of qualifying invoices under invoice discounting
facilities. Other assets can also be funded either long or short-term and for
a range of loan-to-value ratios alongside these services. Additional 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.
Other
This principally includes interest receivable from central banks, interest
receivable on derivatives and property rental income.
Discontinued operations
Debt Management: a credit management services business that primarily invested
in purchased debt portfolios from third parties, as well as fellow group
undertakings. The Debt Management loan book was sold during 2022.
Management review these segments by looking at the income, size and growth
rate of the loan books, impairments and customer numbers.
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. Furthermore, no balance
sheet items are allocated to segments other than loans and advances to
customers.
Unaudited Interest income and similar income Fee and commission income Revenue from external customers Net impairment Loans and advances to customers
30 June 2023
£million
£million
£million
charge on loans and advances to customers
£million
£million
Retail Finance 47.9 1.3 49.2 8.9 1,179.9
Vehicle Finance 28.0 1.0 29.0 4.9 440.4
Consumer Finance 75.9 2.3 78.2 13.8 1,620.3
Real Estate Finance 34.6 0.5 35.1 2.2 1,221.8
Commercial Finance 12.9 5.3 18.2 7.0 316.4
Business Finance 47.5 5.8 53.3 9.2 1,538.2
Other 15.4 - 15.4 - -
Continuing operations 138.8 8.1 146.9 23.0 3,158.5
Discontinued operations - Debt Management - - - - -
138.8 8.1 146.9 23.0 3,158.5
Unaudited Interest income and similar income Fee and commission income Revenue from external customers Net impairment charge/ Loans and advances to customers £million
30 June 2022
£million
£million
£million
(credit) on loans and advances to customers
£million
Retail Finance 34.2 1.7 35.9 5.6 916.2
Vehicle Finance 21.6 0.7 22.3 12.4 332.6
Consumer Finance 55.8 2.4 58.2 18.0 1,248.8
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
Other 0.8 0.2 1.0 - -
Continuing operations 90.6 8.1 98.7 17.9 2,751.2
Discontinued operations - Debt Management 5.3 1.1 6.4 0.7 -
95.9 9.2 105.1 18.6 2,751.2
Audited Net impairment charge
31 December 2022
on loans and advances to customers
£million
Interest income and similar income £million Fee and commission income Revenue from external customers Loans and advances to customers £million
£million
£million
Retail Finance 74.4 3.6 78.0 14.8 1,054.5
Vehicle Finance 46.6 1.4 48.0 21.3 373.1
Consumer Finance 121.0 5.0 126.0 36.1 1,427.6
Real Estate Finance 57.4 0.3 57.7 1.3 1,115.5
Commercial Finance 17.5 11.8 29.3 0.8 376.4
Business Finance 74.9 12.1 87.0 2.1 1,491.9
Other 7.1 0.3 7.4 - -
Continuing operations 203.0 17.4 220.4 38.2 2,919.5
Discontinued operations - Debt Management 5.3 4.1 9.4 0.8 -
208.3 21.5 229.8 39.0 2,919.5
All of the Group's operations are conducted wholly within the United Kingdom
and geographical information is therefore not presented.
4. Fair value gains/(losses) on financial instruments
Unaudited Unaudited Audited
30 June
30 June
31 December 2022
2023
2022
£million
£million £million
Hedge ineffectiveness recognised in the income statement 0.5 (0.5) (0.3)
Losses recognised on derivatives not in hedge relationships (0.8) - -
Extinguishment gain on redemption of subordinated debt 1.2 - -
0.9 (0.5) (0.3)
5. Income tax expense
Unaudited Unaudited Audited
30 June
30 June
31 December 2022
2023
2022
£million
£million
£million
Current taxation
Corporation tax charge - current year 3.2 4.6 8.4
Corporation tax charge - adjustments in respect of prior years - - 0.1
3.2 4.6 8.5
Deferred taxation
Deferred tax charge - current year 0.7 1.0 1.9
Deferred tax credit - adjustments in respect of prior years - - (0.1)
0.7 1.0 1.8
Income tax expense 3.9 5.6 10.3
Of which:
Continuing 4.2 4.2 9.4
Discontinued (Note 6) (0.3) 1.4 0.9
Total 3.9 5.6 10.3
The tax for all of the periods above has been calculated at the current
statutory rate, which is 23.5% for the six months ended 30 June 2023, and 19%
for the six months ended 30 June 2022 and year ended 31 December 2022.
The Corporation Tax rate increased from 19% to 25%, with effect from 1 April
2023, giving a rate of 23.5% for the year to 31 December 2023. At the same
time, the banking surcharge reduced from 8% to 3% and the surcharge allowance
available to a banking group increased from £25 million to £100 million.
These changes were enacted prior to the start of 2023 and so opening and
closing deferred asset values have been calculated from expected future tax
relief based on these enacted rates.
6. Discontinued operations
Discontinued operations includes the Debt Management business, which sold its
loan portfolio in 2022. Employees have been retained for a period of time,
with the eventual aim to wind down the entity in line with regulatory
requirements.
Income statement Unaudited Unaudited Audited
30 June
30 June
31 December 2022
2023
2022
£million
£million
£million
Interest income and similar income - 5.3 5.3
Interest expense and similar charges - (0.8) (0.8)
Net interest income - 4.5 4.5
Fee and commission income - 1.1 4.1
Net fee and commission income - 1.1 4.1
Operating income - 5.6 8.6
Net impairment charge on loans and advances to customers - (0.7) (0.8)
Overall profit on disposal of loan portfolio - 8.1 6.1
Operating expenses (1.5) (5.4) (8.9)
(Loss)/profit before income tax from discontinued operations (1.5) 7.6 5.0
Income tax credit/(charge) 0.3 (1.4) (0.9)
(Loss)/profit for the period from discontinued operations (1.2) 6.2 4.1
Basic earnings per ordinary share - discontinued operations (6.4) 33.2 22.0
Diluted earnings per ordinary share - discontinued operations (6.3) 32.2 21.3
Audited
31 December
2022
£million
Consideration received 81.9
Carrying value of loan books disposed (71.8)
Selling costs (1.2)
Profit on disposal of loan book (including selling costs) 8.9
Other closure costs (2.8)
Overall profit on disposal of loan portfolio(s) 6.1
Net cash flows Unaudited Unaudited Audited
30 June
30 June
31 December 2022
2023
2022
£million
£million
£million
Operating (1.5) (81.2) (82.6)
Investing - 80.7 81.9
Financing - - (0.1)
Net cash outflow (1.5) (0.5) (0.8)
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 2022
2023
2022
Profit attributable to equity holders of the parent (£million) 11.1 19.1 33.7
Weighted average number of ordinary shares (number) 18,699,341 18,658,851 18,672,650
Earnings per share (pence) 59.4 102.4 180.5
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 2022
2023
2022
Weighted average number of ordinary shares 18,699,341 18,658,851 18,672,650
Number of dilutive shares in issue at the period end 485,520 609,051 617,340
Fully diluted weighted average number of ordinary shares 19,184,861 19,267,902 19,289,990
Dilutive shares being based on:
Number of options outstanding at the period end 1,506,219 1,205,610 1,206,639
Weighted average exercise price (pence) 246 297 304
Average share price during the period (pence) 685 1,205 1,040
Diluted earnings per share (pence) 57.9 99.1 174.7
8. Dividends
Unaudited Unaudited Audited
30 June
30 June
31 December 2022
2023
2022
£million
£million
£million
2021 final dividend - 41.1 pence per share (paid May 2022) - 7.7 7.7
2022 interim dividend - 16.0 pence per share (paid September 2022) - - 3.0
2022 final dividend - 29.1 pence per share (paid May 2023) 5.4 - -
5.4 7.7 10.7
The Directors have approved an interim dividend of 16.0 pence per share (2022:
16.0 pence per share). This will be paid on 28 September 2023 with an
associated record date of 1 September 2023.
9. Loans and advances to customers
Unaudited Unaudited Audited
30 June
30 June
31 December 2022
2023
2022
Gross loans and advances 3,238.0 2,818.2 2,997.5
Less: allowances for impairment of loans and advances (79.5) (67.0) (78.0)
3,158.5 2,751.2 2,919.5
10. Allowances for impairment of loans and advances
Expected Credit Losses ('ECL') by stage and by business are disclosed below:
Not credit-impaired Credit-impaired
Unaudited Stage 1: Stage 2: Stage 3: Total provision Gross loans and advances to customers Provision cover
30 June 2023
Subject to
Subject to lifetime ECL
Subject to lifetime ECL
£million
£million
%
12-month ECL
£million
£million
£million
Consumer Finance:
Retail Finance 13.8 11.3 6.8 31.9 1,211.8 2.6
Vehicle Finance:
Voluntary termination provision 5.0 - - 5.0
Other impairment 6.7 12.6 17.9 37.2
11.7 12.6 17.9 42.2 482.6 8.7
Business Finance:
Real Estate Finance 0.3 0.5 3.6 4.4 1,226.2 0.4
Commercial Finance 0.2 0.2 0.6 1.0 317.4 0.3
26.0 24.6 28.9 79.5 3,238.0 2.5
Not credit-impaired Credit-impaired
Unaudited Stage 1: Stage 2: Stage 3: Total provision Gross loans and advances 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
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
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
22.0 25.6 19.4 67.0 2,818.2 2.4
Not credit-impaired Credit-impaired
Audited Stage 1: Stage 2: Stage 3: Total provision Gross loans and advances to customers Provision cover
31 December 2022
Subject to
Subject to lifetime ECL
Subject to lifetime ECL
£million
£million
%
12-month ECL
£million
£million
£million
Consumer Finance:
Retail Finance 12.7 9.8 5.7 28.2 1,082.7 2.6
Vehicle Finance:
Voluntary termination provision 3.7 - - 3.7
Other impairment 7.3 16.4 17.0 40.7
11.0 16.4 17.0 44.4 417.5 10.6
Business Finance:
Real Estate Finance 0.3 1.1 2.0 3.4 1,118.9 0.3
Commercial Finance 0.3 1.3 0.4 2.0 378.4 0.5
24.3 28.6 25.1 78.0 2,997.5 2.6
The impairment charge disclosed in the income statement can be analysed as
follows:
Unaudited Unaudited Audited
30 June
30 June
31 December 2022
2023
2022
£million
£million
£million
Expected credit losses: impairment charge 17.1 18.4 38.9
(Credit)/charge in respect of off balance sheet loan commitments (0.4) 0.2 0.2
Loans written off/(recovered) directly to the income statement(1) 6.3 - (0.1)
23.0 18.6 39.0
Of which:
Continuing 23.0 17.9 38.2
Discontinued (Note 6) - 0.7 0.8
Total 23.0 18.6 39.0
1. The impairment charge for the period ending 30 June 2023 includes a £7.2
million charge relating to a single long-running problem debt case, of which
£6.3 million was written off-directly to the income statement.
Total allowance for impairment above include expert credit judgements (post
model adjustments) as follows:
Unaudited Unaudited Audited
30 June
30 June
31 December 2022
2023
2022
£million
£million
£million
Specific (underlays)/overlays held against credit-impaired (2.4) (1.7) 0.7
secured assets held within the Business Finance portfolio
Management judgement in respect of:
Consumer Finance affordability 2.8 5.3 2.5
Vehicle Finance used car valuations 0.9 1.6 1.3
Adjustment of model over-extrapolation of observed defaults - (2.2) -
Other 0.2 (1.0) (1.6)
Expert credit judgements over the IFRS 9 model results 1.5 2.0 2.9
The specific (underlays)/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 10.2.1 and 10.1.4 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 2023 24.3 28.6 25.1 78.0
Increase due to change in credit risk
- Transfer to stage 2 (4.8) 25.7 - 20.9
- Transfer to stage 3 - (13.9) 21.8 7.9
- Transfer to stage 1 4.9 (16.8) - (11.9)
Passage of time (6.6) (0.2) (0.3) (7.1)
New loans originated 11.6 - - 11.6
Matured and derecognised loans (1.4) (2.4) (1.9) (5.7)
Changes to credit risk parameters (1.5) 3.6 (1.0) 1.1
Other adjustments 0.3 - - 0.3
Charge to income statement 2.5 (4.0) 18.6 17.1
Allowance utilised in respect of write-offs (0.8) - (14.8) (15.6)
30 June 2023 26.0 24.6 28.9 79.5
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
(Decrease)/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
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 2022 18.5 20.0 29.0 67.5
(Decrease)/increase due to change in credit risk
- Transfer to stage 2 (8.8) 46.3 - 37.5
- Transfer to stage 3 (0.4) (21.4) 29.5 7.7
- Transfer to stage 1 2.3 (4.6) - (2.3)
Passage of time (6.3) (0.7) (2.5) (9.5)
New loans originated 23.2 - - 23.2
Matured and derecognised loans (2.9) (3.8) (5.2) (11.9)
Changes to credit risk parameters (2.9) (7.2) 1.9 (8.2)
Other adjustments 2.4 - - 2.4
Charge to income statement 6.6 8.6 23.7 38.9
Allowance utilised in respect of write-offs (0.8) - (27.6) (28.4)
31 December 2022 24.3 28.6 25.1 78.0
The tables above have been prepared based on monthly movements in the ECL.
Transfers between stages 1 to 2 or 1 to 3 relate to changes from 12-month ECL
to lifetime ECLs, and vice versa.
Passage of time represents the impact of accounts maturing through their
contractual life and the associated reduction in Probability of Defaults
('PD') and the unwind of the discount applied in calculating the ECL.
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 'Allowance utilised in respect of 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 that 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 potential impact of the current macroeconomic environment has been
considered in determining reasonably possible changes in key sources of
estimation uncertainty, which may occur in the next 12 months.
The determination of both the PD and Loss Given Default ('LGD') require
estimation, which is discussed further below.
10.1.1 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.
The scenarios and weightings applied are summarised below:
Unaudited UK Unemployment Rate - Annual Average UK HPI - movement from H1 2023
30 June 2023
Scenario Weightings Year 1 Year 2 Year 3 5 Yr Average Year 1 Year 2 Year 3 5 Yr Average
%
%
%
%
%
%
%
%
Upside 20% 3.8 3.7 3.7 3.7 (2.7) (3.8) 0.8 2.3
Base 50% 4.0 4.2 3.9 3.9 (6.0) (9.0) (6.7) 0.7
Downside 25% 4.9 6.3 6.9 6.3 (12.3) (19.2) (21.0) (2.3)
Severe 5% 5.2 6.8 7.5 6.8 (17.1) (26.9) (32.0) (4.8)
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)
Audited UK Unemployment Rate - Annual Average UK HPI - movement from December 2022
31 December 2022
Scenario Weightings 2023 2023 2024 5 Yr Average 2023 2023 2024 5 Yr Average
%
%
%
%
%
%
%
%
Upside 20% 4.1 4.0 3.8 3.8 (5.2) (6.3) (2.0) 1.9
Base 50% 4.4 4.4 4.0 4.1 (8.4) (11.4) (9.2) 0.4
Downside 25% 5.4 6.5 7.1 6.5 (14.6) (21.3) (23.5) (2.6)
Severe 5% 5.6 7.0 7.6 6.9 (19.2) (28.8) (34.3) (5.2)
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
2023
2022
2022
2023
2022
2022
£million
£million
£million
£million
£million
£million
Vehicle Finance 0.2 1.1 0.6 0.1 0.8 0.4
Retail Finance 0.3 1.6 0.7 0.2 1.2 0.5
The sensitivity is immaterial for other lending products.
The Group recognised an impairment charge of £23.0 million (30 June 2022:
£18.6 million, 31 December 2022: £39.0 million). 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
30 June 2023
£million
£million
£million
Group
Scenario
£million
Upside (0.9) (1.4) (0.6) (2.9)
Base (0.4) (0.7) (0.3) (1.4)
Downside 1.3 2.0 0.7 4.0
Severe 1.8 2.8 1.7 6.3
Unaudited Vehicle Finance Retail Business Finance Total
30 June 2022
£million
Finance
£million
Group
Scenario
£million
£million
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
Audited Vehicle Finance Retail Business Finance Total
31 December 2022
£million
Finance
£million
Group
Scenario
£million
£million
Upside (1.9) (0.3) (0.7) (2.9)
Base (1.5) 0.4 (0.4) (1.5)
Downside 0.9 3.0 0.9 4.8
Severe 1.6 3.8 1.7 7.1
10.1.2 ECL modelled output: 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 15% change in the PD for Vehicle Finance would immediately impact the ECL
allowance by £4.4 million (30 June 2022: 50% change impacted ECL allowance by
£7.2 million, 31 December 2022: a 15% change impacted the ECL allowance by
£3.1 million).
A 15% change in the PD for Retail Finance would immediately impact the ECL
allowance by £5.8 million (30 June 2022: 10% change impacted ECL allowance by
£1.3 million, 31 December 2022: a 15% change impacted the ECL allowance by
£2.5 million).
The above sensitivities reflect the levels of defaults observed during the
period.
Due to the relatively low levels of provisions in the Business Finance books,
sensitivity to reasonably possible changes in PD are not considered material.
10.1.3. ECL modelled output: 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, that could crystallise, depending on
whether the Group is able to recover the vehicle as security. For the Vehicle
Finance portfolio a 20% (June 2022: 20%, December 2022: 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 £1.5 million (30 June
2022: £1.4 million, 31 December 2022 £1.9 million). There has been no change
in the vehicle recovery rate assumption in the ECL model, in either the
current or prior periods.
10.1.4 Vehicle Finance used car values
Since used car values first started to increase following the COVID-19
pandemic in March 2021, we have observed an increase in used car prices of 18%
(30 June 2022: 26%, 31 December 2022: 17%). This increase in used car prices,
if incorporated into the modelled LGD, would have reduced the ECL provision by
£1.2 million (30 June 2022: £2.1 million, 31 December 2022: £2.0 million).
However, the Directors believe that the used car prices will drop by 9% (30
June 2022: 14%, 31 December 2022: 9%) and have applied an overlay for lower
recoveries, with an increased provision of £0.7 million (30 June 2022: £1.6
million, 31 December 2022: £1.0 million).
10.1.5 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.
10.2. Critical judgments
10.2.1. ECJ: Consumer Finance customer affordability
An additional PD estimate was applied at June 2022 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.
At 31 December 2022, the methodology was changed to a new Exogenous Maturity
Vintage model, which used inflation as the driver of defaults, with the
difference between this model and our base models informing the expert credit
judgement. The resulting expert credit judgement relating to Consumer Finance
affordability was £2.8 million at 30 June 2023 (31 December 2022: £2.5
million). The Directors have deemed this a critical judgement, given the
uncertainty of the current economic environment and the effect that this could
have on customer affordability. The Group is satisfied that it is reasonably
estimating the level of provisioning required to capture expected defaults,
including the impacts of costs of living.
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 £3.3 million.
12. Due to banks
Unaudited Unaudited Audited
30 June
30 June
31 December 2022
2023
2022
£million
£million
£million
Amounts due under the Bank of England's liquidity support operations (Term 390.0 390.0 390.0
Funding Scheme with additional incentives for SMEs)
Amounts due to other credit institutions 15.0 9.4 7.7
Accrued interest 4.3 0.9 2.8
409.3 400.3 400.5
13. Deposits from customers
Unaudited Unaudited Audited
30 June
30 June
31 December 2022
2023
2022
£million
£million
£million
Fixed term bonds 1,410.0 1,182.4 1,414.0
Notice accounts 324.3 696.8 500.7
ISAs 505.2 310.8 421.8
Access accounts 409.4 100.9 178.1
2,648.9 2,290.9 2,514.6
14. Provisions for liabilities and charges
ECL allowance on loan commitments Other Total
£million
£million
£million
Balance at 1 January 2022 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
Charge to income statement - 1.6 1.6
Utilised - (0.6) (0.6)
Balance at 31 December 2022 (Audited) 1.1 1.4 2.5
(Release)/charge to income statement (0.4) 2.6 2.2
Utilised - (1.9) (1.9)
Balance at 30 June 2023 (Unaudited) 0.7 2.1 2.8
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 2023, 30 June 2022, 31 December 2022, 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;
· restructuring provision; and
· customer remediation.
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 2022
2023
2022
£million
£million
£million
Notes at face value 90.0 50.0 50.0
Unamortised issue costs (1.0) (0.2) (0.1)
Accrued interest 3.9 1.2 1.2
92.9 51.0 51.1
On 28 February 2023, the Group issued £90.0 million 13.0% Fixed Rate Reset
Callable Subordinated Notes due August 2033 (the 'New Notes'). The New Notes
are treated as Tier 2 regulatory capital and are listed on the International
Securities Market of the London Stock Exchange. This issuance is in line with
the Group's funding strategy and supports the Group's stated medium-term
growth ambitions.
The Group redeemed all of its existing 6.75% Fixed Rate Reset Callable
Subordinated Notes due in 2028, with first call dates in 2023, in two
tranches: £25.0 million on 28 February 2023; and £25.0 million on 20 March
2023.
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 continuing areas of failure
to comply with these laws and regulations, other than noted below, there can
be no guarantee that all issues have been identified.
In July 2023, the Group was contacted by the Financial Conduct Authority
('FCA') in a follow up to a review of forbearance outcomes associated with its
Borrowers in Financial Difficulty project. The Group is responding to requests
from the FCA to review its practices in this area. It is not possible to
estimate or reliably predict the outcome of this review and its financial
effect on the Group.
16.2 Credit commitments
Commitments to extend credit to customers were as follows:
Unaudited Unaudited Audited
30 June
30 June
31 December 2022
2023
2022
£million
£million
£million
Consumer Finance
Retail Finance 72.5 100.8 97.2
Vehicle Finance 2.0 1.6 1.2
Business Finance
Real Estate Finance 54.2 77.3 53.1
Commercial Finance 165.3 152.6 146.5
294.0 332.3 298.0
17. Share-based payments
Movements in the share options outstanding during the period are set out
below:
Outstanding at 1 January 2023 Granted Number Forfeited, lapsed and cancelled Number Exercised Number Outstanding at 30 June 2023
Number
Number
Long term incentive plan 611,353 281,282 (36,723) (3,249) 852,663
Deferred bonus plan 49,807 39,953 - (1,227) 88,533
Sharesave plan 545,479 - - (17,179) 528,300
1,206,639 321,235 (36,723) (21,655) 1,469,496
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 2022 Granted Number Forfeited, lapsed and cancelled Number Exercised Number Outstanding at 31 December 2022
Number
Number
Long term incentive plan 408,043 230,789 - (27,479) 611,353
Deferred bonus plan 19,686 38,344 - (8,223) 49,807
Sharesave plan 542,446 111,833 (100,873) (7,927) 545,479
970,175 380,966 (100,873) (43,629) 1,206,639
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 Restated Audited
30 June
Unaudited
31 December 2022
2023
30 June
£million
£million
2022
£million
Cash and Bank of England reserve account 318.3 253.0 370.1
Loans and advances to banks 33.3 54.2 50.5
Debt securities - 34.9 -
Less:
Cash ratio deposit (4.3) (2.3) (3.7)
347.3 339.8 416.9
Cash and cash equivalents at June 2022 have been restated from £338.3 million
to £339.8 million. See Note 1.3.2 for further details.
The Group has no access to the cash ratio deposit, so this amount does not
meet the definition of cash and cash equivalents and accordingly it is
excluded from cash and cash equivalents.
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 £nil (June 2022: £0.1 million, December
2022: £0.1 million) of lease liabilities interest expense.
19. Related party transactions
There were no changes to the nature of the related party transactions during
the period to June 2023 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 2023 in
comparison to the year ended 31 December 2022. Details of the transactions for
the year ended December 2022 can be found in the 2022 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 2022 Annual Report and Accounts.
Stage 1 Stage 2 Stage 3 Total
Unaudited £million <= 30 days > 30 days Total Total £million
30 June 2023
past due
past due
£million
£million
£million
£million
Consumer Finance
Retail Finance 1,111.5 89.0 4.0 93.0 7.3 1,211.8
Vehicle Finance 385.1 68.7 3.4 72.1 25.4 482.6
Business Finance
Real Estate Finance 1,023.1 142.1 20.8 162.9 40.2 1,226.2
Commercial Finance 276.9 19.9 - 19.9 20.6 317.4
Total drawn exposure 2,796.6 319.7 28.2 347.9 93.5 3,238.0
Off balance sheet
Loan commitments 260.9 32.8 - 32.8 0.3 294.0
Total gross exposure 3,057.5 352.5 28.2 380.7 93.8 3,532.0
Less:
Impairment allowance (26.0) (19.5) (5.1) (24.6) (28.9) (79.5)
Provision for loan commitments (0.7) - - - - (0.7)
Total net exposure 3,030.8 333.0 23.1 356.1 64.9 3,451.8
Stage 1 Stage 2 Stage 3 Total
Unaudited £million <= 30 days > 30 days Total Total £million
30 June 2022
past due
past due
£million
£million
£million
£million
Consumer Finance
Retail Finance 827.2 105.0 2.7 107.7 5.8 940.7
Vehicle Finance 253.6 97.6 2.8 100.4 17.7 371.7
Business Finance
Real Estate Finance 969.7 143.7 - 143.7 31.4 1,144.8
Commercial Finance 344.5 14.5 - 14.5 2.0 361.0
Total drawn exposure 2,395.0 360.8 5.5 366.3 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 3,150.5
Less:
Impairment allowance (22.0) (21.7) (3.9) (25.6) (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 3,082.4
Stage 1 Stage 2 Stage 3 Total
Audited £million <= 30 days > 30 days Total Total £million
31 December 2022
past due
past due
£million
£million
£million
£million
Consumer Finance
Retail Finance 987.4 85.4 3.8 89.2 6.1 1,082.7
Vehicle Finance 306.8 83.3 3.8 87.1 23.6 417.5
Business Finance
Real Estate Finance 957.9 122.9 21.3 144.2 16.8 1,118.9
Commercial Finance 327.7 50.2 - 50.2 0.5 378.4
Total drawn exposure 2,579.8 341.8 28.9 370.7 47.0 2,997.5
Off balance sheet
Loan commitments 298.0 - - - - 298.0
Total gross exposure 2,877.8 341.8 28.9 370.7 47.0 3,295.5
Less:
Impairment allowance (24.3) (23.9) (4.7) (28.6) (25.1) (78.0)
Provision for loan commitments (1.1) - - - - (1.1)
Total net exposure 2,852.4 317.9 24.2 342.1 21.9 3,216.4
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 2022
2023
2022
£million
£million
£million
Central England 100.4 95.1 101.9
Greater London 749.6 696.7 689.7
Northern England 66.3 61.5 68.7
South East England (excl. Greater London) 194.9 225.7 189.5
South West England 41.0 22.2 20.4
Scotland, Wales and Northern Ireland 74.0 43.6 48.7
Gross loans and advances to customers 1,226.2 1,144.8 1,118.9
Allowance for impairment (4.4) (2.2) (3.4)
Total 1,221.8 1,142.6 1,115.5
Loan-to-value 56% 57% 58%
Under its credit policy, the Real Estate Finance business lends to a maximum
loan-to-value of:
· 70% for investment loans;
· 60% for residential development loans*;
· 65% for certain residential higher leveraged development loans*,
which is subject to an overall cap on such lending agreed by management
according to risk appetite; and
· 65% for 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 Restated(1) Unaudited Restated(1) Unaudited
30 June
30 June
31 December 2022
2023
2022
£million
£million
£million
Tier 1
Share capital 7.5 7.5 7.5
Share premium 82.3 82.2 82.2
Retained earnings 244.6 225.2 237.8
Own shares (0.3) - (0.3)
IFRS 9 transition adjustment (See below for further details) 2.4 8.5 11.7
Goodwill (1.0) (1.0) (1.0)
Intangible assets net of attributable deferred tax (5.5) (5.9) (5.6)
Prudential adjustments (0.2) - -
Common Equity Tier 1 ('CET 1') capital before foreseeable dividend 329.8 316.5 332.3
Foreseeable dividend (3.0) (3.0) (5.4)
CET 1 capital 326.8 313.5 326.9
Tier 2
Subordinated liabilities 89.0 49.8 49.9
Less ineligible portion (32.3) - -
Total Tier 2 capital 56.7 49.8 49.9
Total own funds/Total capital 383.5 363.3 376.8
Reconciliation to total equity:
IFRS 9 transition adjustment (2.4) (8.5) (11.7)
Prudential adjustments 0.2 - -
Eligible subordinated liabilities (56.7) (49.8) (49.9)
Cash flow hedge reserve (0.9) (0.8) (0.8)
Goodwill and other intangible assets net of attributable deferred tax 6.5 6.9 6.6
Foreseeable dividend 3.0 3.0 5.4
Total equity 333.2 314.1 326.4
1. Restated to reflect a change in accounting policy relating to land and
buildings, which are now presented at historical cost. See Note 1.3.1 for
further details.
The Group has elected to adopt the IFRS 9 transitional rules. In 2022, this
allowed for 25% of the initial IFRS 9 transitional adjustment, net of
attributable deferred tax, and for increases in provisions between 1 January
2018 to 31 December 2019, except where these provisions relate to defaulted
accounts, to be added back to eligible capital. This part of the relief has
now ended. The relief for increases in provisions since 1 January 2020.
however continues to apply at 50% in 2023 (2022: 75%). This 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.
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
2022
value
2023
30 June
2022
2022
£million
31 December
£million
2023
£million
£million
2022
£million
£million
Total loans and advances to customers 3,158.5 3,077.4 2,751.2 2,771.7 2,919.5 2,895.6
Deposits from customers 2,648.9 2,631.7 2,290.9 2,297.3 2,514.6 2,494.0
Investment properties and derivatives are carried at fair value. All other
assets and liabilities are carried at amortised cost.
Appendix to the Interim Report (unaudited)
Key performance indicators and other alternative performance measures
All key performance indicators are based on continuing operations and
continuing loans and advances to customers, unless otherwise stated.
(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 2023 and
June 2022 are multiplied by 365/181 to give an annual equivalent comparable to
the annual results:
June June December
2023
2022
2022
£million
£million
£million
Interest income and similar income 138.8 90.6 203.0
Interest expense and similar charges (57.8) (17.5) (50.4)
Net interest income 81.0 73.1 152.6
Opening loan book 2,919.5 2,451.0 2,451.0
Closing loan book 3,158.5 2,751.2 2,919.5
Average loan book 3,005.6 2,584.2 2,699.3
Net interest margin 5.4% 5.7% 5.7%
The net interest margin ratio measures the return net of funding costs on the
loan book.
(ii) Yield
Yield is calculated as interest income and similar income 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 2023 and June 2022 are multiplied by 365/181 to give an annual
equivalent comparable to the annual results:
June June December
2023
2022
2022
£million
£million
£million
Interest income and similar income 138.8 90.6 203.0
Average loan book 3,005.6 2,584.2 2,699.3
Yield 9.3% 7.1% 7.5%
The yield measures the gross return on the loan book.
(iii) 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
2023 and June 2022 are multiplied by 365/181 to give an annual equivalent
comparable to the annual results:
June June December
2023
2022
2022
£million
£million
£million
Interest expense and similar charges 57.8 17.5 50.4
Average loan book 3,005.6 2,584.2 2,699.3
Cost of funds 3.9% 1.4% 1.9%
The cost of funds measures the cost of money being lent to customers.
(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.
June June December
2023
2022
2022
£million
£million
£million
Operating expenses 50.7 46.2 93.2
Operating income 89.1 81.0 169.6
Total cost to income ratio 56.9% 57.0% 55.0%
The cost to income ratio measures how efficiently the Group is utilising its
cost base to produce income.
(v) Cost of risk
Cost of risk is calculated as 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 2023 and June 2022 are multiplied by 365/181 to give an annual
equivalent comparable to the annual results:
June June December
2023
2022
2022
£million
£million
£million
Net impairment charge on loans and advances to customers 23.0 17.9 38.2
Gains on modification of financial assets (0.2) (0.7) (1.1)
Total 22.8 17.2 37.1
Average loan book 3,005.6 2,584.2 2,699.3
Cost of risk 1.5% 1.3% 1.4%
The cost of risk measures how effective the Group has been in managing the
credit risk of its lending portfolios.
(vi) Total annualised return on average equity
Total annualised return on average equity is calculated as the total profit
after tax for the financial period as a percentage of average equity. Average
equity is calculated as the average of the monthly equity balances. The
resulting ratios for June 2023 and June 2022 are multiplied by 365/181 to give
an annual equivalent comparable to the annual results:
June Restated(1) Restated(1) December
2023
June
2022
£million
2022
£million
£million
Total profit after tax 11.1 19.1 33.7
Opening equity 326.4 302.2 302.2
Closing equity 333.2 314.1 326.4
Average equity 331.4 307.9 313.4
Total annualised return on average equity 6.8% 12.5% 10.8%
1. Restated to reflect a change in accounting policy relating to land and
buildings, which are now presented at historical cost. See Note 1.3.1 for
further details.
Return on average equity is a measure of the Group's ability to generate
profit from the equity available to it.
(vii) Loans and advances to customers compound annual growth rate
Annual growth rate is calculated as the annualised growth in loans and
advances to customers based on the number of days in the period since 31
December 2020:
June June December
2023
2022
2022
£million
£million
£million
Loans and advances to customers at period end 3,158.5 2,751.2 2,919.5
Loans and advances to customers at December 2020 2,184.9 2,184.9 2,184.9
Annual growth rate (since 31 December 2020) 15.9% 16.7% 15.6%
(viii) 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 and the Term Funding Scheme with additional
incentives for SMEs, Tier 2 capital and equity, divided by the loan book at
the year end:
June Restated(1) June Restated(1) December
2023
2022
2022
£million
£million
£million
Deposits from customers 2,648.9 2,290.9 2,514.6
Borrowings under the Bank of England's liquidity support operations (Term 394.3 390.9 392.8
Funding Scheme with additional incentives for SMEs (including accrued
interest))
Tier 2 capital (including accrued interest) 92.9 51.0 51.1
Equity 333.2 314.1 326.4
3,469.3 3,046.9 3,284.9
Loans and advances to customers 3,158.5 2,751.2 2,919.5
Funding ratio 109.8% 110.7% 112.5%
Loan to deposit ratio 119.2% 120.1% 116.1%
1. Restated to reflect a change in accounting policy relating to land and
buildings, which are now presented at historical cost. See Note 1.3.1 for
further details.
The funding ratio measures the Group's liquidity.
(ix) Profit before tax pre impairments
Profit before tax pre impairments is profit before tax, excluding impairment
charges and gains on modification of financial assets.
June June December
2023
2022
2022
£million
£million
£million
Profit before income tax 16.5 17.1 39.0
Excluding:
Net impairment charge on loans and advances to customers 23.0 17.9 38.2
Gains on modification of financial assets (0.2) (0.7) (1.1)
Profit before tax pre impairments 39.3 34.3 76.1
Profit before tax pre impairments measures the operational performance of the
business.
(x) Tangible book value per share
Tangible book value per share is calculated as the total equity less
intangible assets divided by the number of shares in issue at the end of the
period:
June June December
2023
2022
2022
£million
£million
£million
Total equity 333.2 314.1 326.4
Less: Intangible assets (6.5) (6.9) (6.6)
Tangible book value 326.7 307.2 319.8
Number of shares in issue at the end of the period 18,713,089 18,675,260 18,691,434
Tangible book value per share £17.46 £16.45 £17.11
Tangible book value is a measure of the Group's value per share.
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
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 2023 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 2023 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 ('ISRE (UK) 2410'). 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 are
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) 2410; 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
statements in the Interim Financial Statements. Our conclusion, including our
conclusion 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 ISRE (UK) 2410.
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
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