TIDMLIV2 TIDMLIV3 TIDMLINV
RNS Number : 3015G
Lendinvest PLC
18 July 2023
LEI: 213800NWMK3O4UWP9N91
18 July 2023
LendInvest plc
FULL YEAR RESULTS FOR THE YEAR TO 31 MARCH 2023
Sustained growth in lending while navigating a challenging
environment
LendInvest plc (AIM: LINV; the "Company" or the "Group"), the
UK's leading platform for mortgages, is pleased to announce its
audited results for the year ended 31 March 2023.
Rod Lockhart, Chief Executive of LendInvest, commented:
"I am pleased with the progress we have made over the past 12
months, despite a challenging market environment. We have continued
to grow Platform Assets under Management, build new funding
relationships, introduce new products and make significant
advancements in technology. Our ability to adapt to changing market
dynamics has been evident through our product offerings and pricing
strategies. Additionally, we have also focused on reducing our
credit risk profile and enhancing our capital efficiency.
"Whilst the economic backdrop remains uncertain, we remain
confident in the resilience of our business model and funding
strategy, the increasingly capital-efficient nature of our lending
and the long-term opportunities for our disruptive, differentiated
offering."
Summary Financials
Audited Year to Year to
31 March 31 March Change
2023 2022
========== ========== =========
Platform Assets under Management
(Platform AuM) (GBPm)(1) 2,587.0 2,146.1 21%
========== ========== =========
Funds under management (FuM)
(GBPm)(1) 3,605.9 2,936.6 23%
========== ========== =========
Net operating income (GBPm) 54.7 50.5 8%
========== ========== =========
Total operating expenses (GBPm) (40.4) (36.3) 11%
========== ========== =========
Adjusted EBITDA (GBPm) (1) 14.3 20.3 (30)%
========== ========== =========
Profit before tax (GBPm) 14.3 14.2 1%
========== ========== =========
Profit after tax (GBPm) 11.4 10.9 5%
========== ========== =========
Diluted earnings per share (1) 8.0p 8.0p -
========== ========== =========
Full year dividend per share
(1) 4.5p 4.4p 2%
========== ========== =========
(1) Unaudited
Financial Highlights:
-- Platform AuM increased by 21% to GBP2.6 billion (2022: GBP2.1
billion), driven by a 21% increase in Buy-to-Let ("BTL") Platform
AuM.
-- FuM increased by 23% to GBP3.6 billion (2022: GBP2.9 billion).
-- Net operating income increased by 8% to GBP54.7 million
(2022: GBP50.5 million), reflecting the increase in Platform AuM
with net interest income increased by 45% and net fee income
reduced by 37%.
-- Adjusted EBITDA decreased by 30% to GBP14.3 million (2022:
GBP20.3 million) primarily driven by expected launch costs for the
new residential mortgage product in addition to an increase in
impairment charges to GBP5.9 million (2022: GBP4.4 million) which
was largely in relation to two legacy defaulted loans.
-- Profit before tax increased by 1% to GBP14.3 million (2022: GBP14.2 million).
-- Diluted earnings per share was stable at 8.3 pence per share (2022: 8.3 pence per share).
-- The Board is recommending a final dividend of 3.2p per share
resulting in a full year dividend of 4.5p per share (2022: 4.4p per
share).
-- Effective interest rate accounting: behaviour patterns of
borrowers on the reversion rate are reviewed regularly.
Strategic highlights:
Products
-- In December 2022, we successfully launched our first
residential mortgage product to underpin our future growth.
-- We completed our first Residential Investment Portfolio Loan
product, launched in partnership with a US-based asset manager.
-- In October 2022, in response to the interest rate volatility
following the mini-budget, we launched a new two year tracker
product range.
Funding
-- Lloyds Bank, as a new source of FuM, committed GBP300 million
to support the growth of our BTL business and our entry into the
residential mortgage market.
-- We secured an upsized commitment from J.P. Morgan from GBP725
million to GBP1 billion and increased the investment period by
three years.
-- HSBC provided up to GBP100 million in funding for our
development finance programme, supported by the British Business
Bank's ENABLE Guarantee scheme.
-- We issued our third listed bond, the LendInvest Secured
Income II plc 6.50% bonds due 2027, raising GBP38 million.
-- We completed our fourth securitisation, which comprised
GBP270 million of prime BTL mortgages with demand drawn from a
broad range of institutional investors.
-- Post year end, we completed a new GBP500 million partnership
with Chetwood Financial to fund residential mortgages.
Strategic transactions
In line with our strategy to increase the proportion of our
Platform AuM managed for third parties we completed the sale of our
residual economic interest in:
-- the Mortimer BTL 2020-1 securitisation for GBP7 million in March 2023.
-- the Mortimer BTL 2022-1 securitisation for GBP5.8 million in August 2022.
ESG, people and culture
-- As previously announced, Michael Evans will step down as CFO
and as an Executive Director on 31 July 2023. David Broadbent
joined the Company on 9 May 2023 and will become our CFO on
Michael's departure in a non-board capacity, with the intention of
joining the Board at a later date to be announced in due
course.
-- Our business operations were declared carbon neutral by third party Climate Care Partners.
-- We launched our first Green Bond Framework aligned with the ICMA green bond principles.
-- We opened our second UK office in Glasgow, providing access
to a pool of talent with great industry expertise.
-- In November, we received the highest possible rating from ARC
Ratings, highlighting our technology creates a seamless application
process.
To facilitate our stakeholders' understanding of our financial
statements and enable easier comparisons with our peer group, we
have redesigned the format of our consolidated statement of profit
and loss. The revised layout now provides a distinct breakdown of
various income components. Specifically, it presents net interest
income recognised under IFRS 9, net fee income recognised under
IFRS 15, net gains on derecognition of financial assets, and net
other income as separate categories. This updated presentation aids
in segregating the income derived from assets held on our balance
sheet from those managed on behalf of third parties.
Presentation and webcast for analysts and investors
A conference call with management including an opportunity to
ask questions will commence at 9.00am (BST) on 18 July 2023. A copy
of the presentation will be available on the investor relations
section of www.lendinvest.com from 8.55am.
To access the webcast, please register here
A playback facility will also be available in due course
here
- Ends -
Enquiries:
LendInvest via Teneo +44 (0)20 7353 4200
Rod Lockhart, Chief Executive Officer
Michael Evans, Chief Financial Officer
Alex Dee, Head of Investor Relations
Leigh Rimmer, Head of External Communications
investorrelations@lendinvest.com
Panmure Gordon (NOMAD and Joint Broker) +44 (0)20 7886 2500
Atholl Tweedie / Stephen Jones / Tom Scrivens / David
Watkins
finnCap Limited (Joint Broker) +44 (0)20 7220 0500
Jonny Franklin-Adams / Tim Redfern / Alice Lane
Teneo (Financial PR) +44 (0)20 7353 4200
Tom Murray / Haya Herbert-Burns / Olivia Lucas
About LendInvest
LendInvest is the UK's leading technology driven platform for
mortgages, and is listed on the London Stock Exchange (AIM: LINV).
LendInvest offers short-term, buy-to-let and homeowner mortgages.
Its proprietary technology and user experience are designed to make
it simpler for both borrowers and investors to access property
finance. LendInvest has lent over GBP6bn of short term, development
and buy-to-let mortgages. Its funders and investors include global
institutions such as J.P. Morgan, HSBC, Citigroup and NAB, and, in
2019, it was the first Fintech to securitise a portfolio of
buy-to-let mortgages.
The company was named Digital Innovation Award Winner at the
Sunday Times Tech Track 100 Awards, Buy-to-Let Lender of the Year
for 2020 at the NACFB awards, and one of FT1000's Fastest Growing
Companies in Europe for 2021.
Important Notices
The information contained within this announcement is deemed by
LendInvest to constitute inside information as stipulated under the
UK Market Abuse Regulation. By the publication of this announcement
via a Regulatory Information Service, this inside information is
now considered to be in the public domain. The person responsible
for arranging for the release of this announcement on behalf of
LendInvest is Rod Lockhart.
The information contained in this announcement is for
information purposes only. This announcement has been prepared in
accordance with English law, the UK Market Abuse Regulation and the
AIM Rules for Companies and information disclosed may not be the
same as that which would have been prepared in accordance with the
laws of jurisdictions outside England. Subject to the requirements
of the UK Market Abuse Regulation and the AIM Rules for Companies,
the delivery of this announcement shall not create any implication
that there has been no change in the affairs of LendInvest since
the date of this announcement or that the information in this
announcement is correct as at any time subsequent to its date.
Forward-looking statements
Certain statements in this announcement are forward-looking
statements. In some cases, these forward looking statements can be
identified by the use of forward looking terminology including the
terms "anticipate", "believe", "intend", "estimate", "expect",
"may", "will", "seek", "continue", "aim", "target", "projected",
"plan", "goal", "achieve" and words of similar meaning or in each
case, their negative, or other variations or comparable
terminology. Forward-looking statements are based on current
expectations and assumptions and are subject to a number of known
and unknown risks, uncertainties and other important factors that
could cause results or events to differ material from what is
expressed or implied by those statements. Many factors may cause
actual results, performance or achievements of LendInvest to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements. Important factors that could cause actual results,
performance or achievements of LendInvest to differ materially from
the expectations of LendInvest, include, among other things,
general business and economic conditions globally, industry trends,
competition, changes in government and changes in regulation and
policy, changes in its business strategy, political and economic
uncertainty and other factors. As such, undue reliance should not
be placed on forward-looking statements. Any forward-looking
statement is based on information available to LendInvest as of the
date of the statement. All written or oral forward-looking
statements attributable to LendInvest are qualified by this
caution. Other than in accordance with legal and regulatory
obligations, LendInvest undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Nothing in this
announcement should be regarded as a profit forecast.
CHIEF EXECUTIVE OFFICER'S REVIEW
Overview
The past year has been one of significant strategic progress for
LendInvest, despite the challenging market backdrop. I am delighted
that we launched our first residential mortgage product range, a
huge milestone in our development. We also achieved record levels
of both Platform AuM and FuM while navigating a highly challenging
macroeconomic backdrop, including rapidly accelerating inflation
and eight increases in the Bank Rate.
The dysfunctional economic environment, in the aftermath of the
mini-budget in September 2022, resulted in a gap in the mortgage
market as rates increased to more than 6%, having been around 2% a
year earlier and many lenders withdrew their products. This
presented an opportunity for us to demonstrate, in real time, the
benefits of our agile working processes and a modern technology
architecture. Unlike many of our competitors, we remained
operational and swiftly launched products that were better suited
for the new environment.
While mortgage rates reduced over the six months that followed,
they have now surpassed the highs reached after the mini-budget as
a result of worse-than-expected inflation data. This combined with
a lack of market confidence in the plans to tackle inflation has
pushed up interest rate swap rates. Until inflation begins to fall
away more rapidly the markets may well continue to price in higher
rates.
Financial progress
Platform AuM increased by 21% to GBP2.6 billion. This was driven
by a 21% increase in BTL Platform AuM to GBP1.8 billion and a 19%
increase in short-term Platform AuM to GBP0.8 billion. I'm pleased
to observe the growing momentum of our market-leading broker portal
for short-term mortgages. There is significant potential to expand
this product, especially as we consolidate all our products into a
single portal and establish seamless transitions between them.
Net operating income increased by 8% to GBP54.7 million as we
benefited from a 21% increase in BTL Platform AuM. This was partly
offset by a 37% reduction in net fee income as we sold fewer loans
to J.P. Morgan, as they no longer met minimum income levels due to
the increase in swap rates.
In December 2022, we entered the residential mortgage market, a
significant driver of our future growth and a demonstration of the
Board's confidence in our ability to deliver value in the long
term. The launch costs drove the 30% decrease in adjusted EBITDA to
GBP14.3 million, followed by higher impairment charges. These also
impacted PBT which increased by 1% to GBP14.3 million.
Strategic progress
This year, despite macro headwinds, we have remained true to our
ethos as an innovative lender by delivering new tailored products
to our customers to meet their changing needs. In October, we
introduced a Tracker product range to provide more options to
borrowers seeking to navigate market volatility and interest rate
fluctuations. Shortly after, we unveiled our Stepped Bridge
product, designed for borrowers seeking shorter term finance with
rate increases at intervals throughout the loan term. Our ability
to swiftly provide new or adapted products based on our customers'
evolving needs is underpinned by our proprietary technology.
We achieved a significant milestone in December 2022. Through a
concerted company-wide effort, we successfully launched into the UK
residential mortgage market.
This strategic move allows us to expand into a market segment
that currently holds over GBP1.1 trillion of mortgages outstanding.
Within this segment, our main focus lies in borrowers who are
typically underserved by traditional lenders, specifically those
with multiple incomes and self-employed individuals.
On the funding side, we continued to grow our capital base and
diversify our FuM which increased by 23% to GBP3.6 billion. Our
strategic priorities include growing FuM from diverse sources and
to manage an increasing proportion of Platform AuM for third
parties (instead of assets held on the Group's balance sheet). This
limits the reliance on our balance sheet to fund our growth and
reduces our credit risk exposure. In the first half of the year we:
secured a new core funding partnership with Lloyds Bank; expanded
our relationship with J.P. Morgan; completed our fourth
securitisation; issued our third listed bond; migrated our Real
Estate Opportunity Fund to a new structure (LendInvest Secured
Income Fund II); called our first securitisation; and sold the
residuals in our fourth securitisation.
In the second half of the year we raised: GBP100 million from
HSBC to support SME house builders aiming to improve both the
supply and quality of new homes in the UK (supported by the British
Business Bank); and approximately GBP125 million from Lloyds
(taking Lloyds' capital commitments to GBP300 million) to support
underserved segments of the residential mortgage market.
An effective ESG strategy
Our ESG values and principles are central to our long-term
success. We recently commissioned a report to better understand our
relative ESG market positioning against other similar
organisations. We were pleased to see that we are well ahead of
peers in terms of Board gender diversity; gender pay gap on most
metrics; and our commitment to Net Zero. There remains more to do
and we will continue to focus on these crucial areas in the months
and years ahead.
We are fully committed to reducing our carbon footprint and I am
proud to report that LendInvest is carbon neutral. In November
2022, we published a Green Bond Framework, aligned with the ICMA
Green Bond Principles. Future proceeds from Green Bonds will be
used exclusively to finance or refinance loans for eligible green
projects including the construction and purchase of assets
compliant with the high energy efficiency standards in the UK
property market, or enhancements to improve the energy performance
of existing properties. Our Green Bond Framework is designed to
accelerate the allocation of capital to eligible retrofit projects
in the UK in an effort to decarbonise the UK's housing stock, which
is responsible for 14% of total UK greenhouse gas emissions.
People and culture
Last year I announced several new senior appointments. I am
pleased to say that the team is working well together and has
focused on delivering our strategic objectives. Michael Evans will
step down as CFO and as an Executive Director on 31 July 2023. I
would like to thank Michael for his incredible contribution to the
firm. We are sad to see him go and we wish him every success for
the future. In his place, we welcome David Broadbent who joined the
Company on 9 May 2023 and will become our CFO on Michael's
departure. The Nomination Committee will consider David's
appointment to the Board at a later date.
I would like to thank all our colleagues for their continued
hard work and commitment to the Group.
Outlook
Looking back at our achievements in what was one of the most
challenging years since the global financial crisis has reinforced
my confidence in our ability to execute successfully on our
strategic objectives, our long-term growth trajectory and the scope
to optimise value for our shareholders.
Looking ahead we still face macro headwinds. Inflation is
showing a slower decline than forecast, so interest rates look like
they have not yet reached their peak. This is not a constructive
backdrop for the UK property market and we expect property prices
to continue to decline. We should acknowledge that, at present, the
rental market is experiencing significant increases in rental
prices, and certain landlords are seeking to seize this opportunity
by expanding their portfolios.
Despite the challenges outlined above, we expect Platform AuM to
maintain its current growth trajectory, primarily driven by the
Mortgages division. In July 2023, we announced a new GBP500 million
partnership with Chetwood Financial to fund residential mortgages.
This new financial partnership will increase the proportion of
Platform AuM managed on behalf of third parties.
We remain confident in the resilience of our business model, our
ability to disrupt, to be agile and quickly respond to changing
market conditions and to win market share. Whilst it is early days,
momentum is building for our new residential mortgage product, a
future contributor to our profitability. Gross income is expected
to increase due to growth in Platform AuM and higher interest
rates, which will also drive higher interest costs which will mute
net operating income. We expect performance in FY 2024 will be
heavily weighted towards the second half of the financial year,
with the recently announced financial partnership underpinning a
stronger competitive position.
We are committed to successfully executing our strategic
initiatives and leveraging our competitive advantages. Our
technology drives operational efficiency, enhances the customer
experience, and differentiates us from competitors. Our talented
and dedicated workforce is a crucial asset, enabling us to
innovate, adapt, and deliver superior service to our customers.
We are confident in our plans and the measures that we have
taken to address the prevailing business environment. While risks
and challenges persist, we believe that our proactive approach,
coupled with our strategic focus and deep industry expertise, will
position us for sustainable growth and success in the coming
years.
CHIEF FINANCIAL OFFICER'S REVIEW
In order to assist our stakeholders in understanding our
financial statements and to be able to more easily compare them to
our peer group, we have updated the layout of our Consolidated
statement of profit and loss. This separately shows net interest
income recognised under IFRS 9, net fee income recognised under
IFRS 15, net gains on derecognition of financial assets, and net
other income. This new presentation helps to split income generated
from assets held on our balance sheet from those managed on behalf
of third parties.
Summary Consolidated statement of profit and loss
Year to Year to
31 March 31 March Change
2023 2022 %
GBP'm GBP'm
------------------------------------------------ ---------- ---------- ---------
Net interest income 38.4 26.4 45
---------- ---------- ---------
Net fee income 11.2 17.8 (37)
---------- ---------- ---------
Net gains on derecognition of financial assets 4.9 6.3 (22)
---------- ---------- ---------
Net other income 0.2 - -
------------------------------------------------ ---------- ---------- ---------
Net operating income 54.7 50.5 8
------------------------------------------------ ---------- ---------- ---------
Administrative expenses (34.5) (31.9) 8
---------- ---------- ---------
Impairment losses on financial assets (5.9) (4.4) 34
------------------------------------------------ ---------- ---------- ---------
Total operating expenses (40.4) (36.3) 11
------------------------------------------------ ---------- ---------- ---------
Profit before tax 14.3 14.2 1
------------------------------------------------ ---------- ---------- ---------
Income tax charge (2.9) (3.3) (12)
------------------------------------------------ ---------- ---------- ---------
Profit after taxation 11.4 10.9 5
------------------------------------------------ ---------- ---------- ---------
Earnings per share for profit attributable
to the ordinary equity holders of the Group:
---------- ---------- ---------
Basic earnings per share (pence/share) 8.3 8.3 0
---------- ---------- ---------
Diluted earnings per share (pence/share) 8.0 8.0 0
------------------------------------------------ ---------- ---------- ---------
Adjusted EBITDA 14.3 20.3 (30)
---------- ---------- ---------
Platform AuM (1) 2,587.0 2,146.1 21
------------------------------------------------ ---------- ---------- ---------
Net interest income increased by 45% to GBP38.4 million (2022:
GBP26.4 million) primarily driven by strong growth in our BTL
Platform AuM which increased by 21% to GBP1.8 billion (2022: GBP1.5
billion) taking total Platform AuM to GBP2.6 billion (2022: GBP2.1
billion). Net interest income is recognised on loans and advances
held on the balance sheet and for BTL it decreased by 22% to GBP0.8
billion (2022: GBP1.0 billion). However, we completed the sale of
the residual economic interest in two of our securitisations, which
led to the derecognition of GBP280 million of BTL loans in August
2022, and an additional GBP212 million of loans in March 2023.
These assets contributed net interest income prior to
derecognition.
Net interest income also benefited from a GBP9.2 million gain
recognised on the exercise of the call option in our first
securitisation, Mortimer BTL 2019-1 plc. The issued securities
(loan notes) designated in a cash flow hedge were settled and
derecognised, resulting in the derivative fair value gains
previously deferred in the cash flow hedge reserve (OCI) being
recycled to the P&L.
Net fee income decreased by 37% to GBP11.2 million (2022:
GBP17.8 million). This was largely driven by a 71% decrease in net
fees on origination of loans to third parties to GBP2.0 million
(2022: GBP6.8 million). The decline in loan sales to J.P. Morgan
was the main factor behind this reduction, as these loans failed to
meet the required minimum income levels due to the increase in swap
rates. Additionally, there has been a 17% decrease to GBP8.0
million (2022: GBP9.6 million) in net fees on asset management due
to performance fees not being received from our Luxembourg-based
real estate funds (2022: GBP0.8 million) as investors did not
receive minimum income levels due to higher levels of impairment
provisions in the fund. Finally, a 12% decrease to GBP2.9 million
(2022: GBP3.3 million) in fees received from the self-select
platform was due to slightly higher rates paid to investors,
reflecting the wider economic backdrop.
Net gains on derecognition of financial assets decreased by 22%
to GBP4.9 million (2022: GBP6.3 million). The volatile market
backdrop resulted in the origination of fewer structured bridging
and development loans which would normally have been sold to our
Luxembourg real estate funds.
Administrative expenses increased by 8% to GBP34.5 million
(2022: GBP31.9 million), or by 14% if the prior year exceptional
costs relating to the listing on the London Stock Exchange are
excluded. This increase reflects the investment we have made in our
people during the year as we have built the infrastructure to
launch our new residential mortgage product.
Impairment losses have increased by 34% to GBP5.9 million (2022:
GBP4.4 million). More than 90% of the charge in the year related to
two legacy defaulted loans as those positions deteriorated
materially given the economic backdrop. We have seen a 25% increase
in loans in stage 2 as some borrowers have shown signs of credit
deterioration reflecting the weaker macroeconomic conditions over
the year. The impairment increases related to this were largely
offset by impairment releases as loans were derecognised from our
balance sheet.
In line with the guidance we provided in October 2022, profit
before tax is consistent with 2022 at GBP14.3 million (2022:
GBP14.2 million). This reflects: lower lending levels; net interest
margin compression, as our funding rates increased more rapidly
than our lending rates, driven by fast-rising interest rates; and
higher administrative expenses, linked to building the headcount
and infrastructure for our new residential mortgage product,
including ongoing costs incurred prior to launch. It has been
partially offset by higher net interest income, which increased 45%
to GBP38.4 million (2022: GBP26.4 million).
Profit after tax increased by 5% to GBP11.4 million (2022:
GBP10.9 million). The effective tax rate in the year was 20% which
is slightly higher than the corporate tax rate of 19% due to an
adjustment for an under-provision of deferred tax in the prior
year.
Adjusted EBITDA decreased by 30% to GBP14.3 million (2022:
GBP20.3 million), primarily driven by higher non-exceptional
administrative expenses and impairment losses.
Basic earnings per share was flat at 8.3p per share (2022: 8.3p
per share) and diluted earnings per share was also flat at 8.0p per
share (2022: 8.0p per share)
Lending product highlights
Year to 31 March 2023 Year to 31 March
2022
------------------------------------------- -------------------------------
Short-term Short-term
lending BTL Central Total lending BTL Total
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
---------------------------- ----------- -------- ---------- -------- ----------- -------- --------
Statement of profit and
loss:
----------- -------- ---------- -------- ----------- -------- --------
Net interest income 8.7 29.7 38.4 9.7 16.7 26.4
----------- -------- ---------- -------- ----------- -------- --------
Net fee income 8.1 3.1 11.2 11.7 6.1 17.8
----------- -------- ---------- -------- ----------- -------- --------
Net gains on derecognition
of financial
assets 1.1 3.8 4.9 2.6 3.7 6.3
----------- -------- ---------- -------- ----------- -------- --------
Net other income - - 0.2 0.2 - - -
---------------------------- ----------- -------- ---------- -------- ----------- -------- --------
Net operating income 17.9 36.6 0.2 54.7 24.0 26.5 50.5
---------------------------- ----------- -------- ---------- -------- ----------- -------- --------
As at 31 March 2023 As at 31 March 2022
--------------------------------- ---------------------------------
Short-term BTL Total Short-term BTL Total
lending GBP'm GBP'm lending GBP'm GBP'm
GBP'm GBP'm
-------------------------- ------------- -------- -------- ------------- -------- --------
Platform AuM (unaudited) 767.7 1,819.3 2,587.0 646.0 1,500.1 2,146.1
------------- -------- -------- ------------- -------- --------
Statement of financial
position
------------- -------- -------- ------------- -------- --------
- Loans and advances 329.9 793.0 1,123.9 186.5 1,022.6 1,209.1
-------------------------- ------------- -------- -------- ------------- -------- --------
Buy-to-Let lending
Platform AuM for BTL products increased by 21% to GBP1.8 billion
(2022: GBP1.5 billion). The interest rate swap curve saw a sharp
rise in H1 FY23, which prompted us to raise our lending rate
accordingly. As previously indicated, this in turn affected demand
in H2 FY23. We continually diversify our partnerships with various
financial institutions and in July 2023, we announced a new GBP500
million partnership with Chetwood Financial to fund our BTL and
residential mortgage origination products. This will strengthen our
proposition and result in future BTL lending being predominantly
sold to third parties. Considering the current market conditions,
we anticipate a rise in demand in H2 FY24 as we expect more
balanced competition between lenders with retail deposits and those
without.
Net operating income from BTL grew by 38% to GBP36.6 million
(2022: GBP26.5 million). The increase was driven by higher net
interest income, increasing by 78% to GBP29.7 million, partly due
to higher gross interest received on loans with interest income
calculated using the effective interest rate increasing by 27% to
GBP42.9 million (2022: GBP33.9 million). Additionally, other
interest and similar income increased by 325% to GBP5.1 million
(2022: GBP1.2 million). This reflects mark-to-market gains from
pipeline hedges generated as swap rates sharply increased during
the year to 31 March 2023.
Interest expense for BTL has remained consistent at GBP18.3
million (2022: GBP18.4 million), this is largely due to a GBP9.2
million gain recognised through interest expense from the exercise
of the call option in our first securitisation, Mortimer 2019-1 BTL
plc. This large gain was linked to the rise in interest rates over
the years and offsets a corresponding increase in interest expense
across the rest of the portfolio.
Loans and advances decreased by 22% to GBP793 million (2022:
GBP1,023 million). During the year, we sold the residual economic
interest in two of our securitisations leading to the assets being
derecognised at that point. These comprised GBP280 million of BTL
loans in August 2022, and an additional GBP212 million of loans in
March 2023.
Short-term lending
Short-term Platform AuM increased by 19%, driven by the
successful launch of the broker portal in December 2021 and an
increase in lending, specifically on short-term mortgages (bridging
loans up to GBP3 million), which the portal is focused on. This is
also reflected in the 77% increase in loans and advances as those
loans are usually funded on our balance sheet.
Net interest income decreased by 10% to GBP8.7 million (2022:
GBP9.7 million). The Group does not hedge its variable funding due
to the short-term nature of the loans. As funding costs rose more
quickly than the commensurate increases in borrower rates during
the year, this resulted in lower net interest income. This is
expected to improve as interest rates stabilise.
Net fee income decreased by 31% to GBP8.1 million (2022: GBP11.7
million). This is largely due to GBP2.8 million lower fees
generated from our Luxembourg funds through lower management and
performance fees, as well as share creation fees due to lower
investment raised into the funds. Net gains on derecognition of
financial assets decreased by 58% to GBP1.1 million (2022: GBP2.6
million) as fewer loans have been sold to the Luxembourg funds
compared to the prior period.
Cash flow
Year Year to
to
31 31 March
March 2022
2023 (restated)
GBP'm GBP'm
---------------------------------- -------- -------------
Net cash outflow from operations 1.3 (147.9)
-------- -------------
Net cash outflow from investing
activities (8.5) (3.4)
-------- -------------
Net cash inflow from financing
activities (64.3) 207.3
-------- -------------
Net increase/(decrease) in
cash and cash equivalents (71.5) 56.0
-------- -------------
Cash and cash equivalents
at beginning of the period 118.2 62.2
-------- -------------
Cash and cash equivalents
at end of the period 46.7 118.2
---------------------------------- -------- -------------
Cash and cash flow
Cash and cash equivalents decreased by 60% to GBP46.7 million
(2022: GBP118.2 million). GBP33.0 million of the GBP71.5 million
reduced balance is restricted for loan funding purposes. The
remaining cash balance decreased 65% to GBP13.7 million (2022:
GBP39.4 million). This decrease is linked to an increase in our
balance sheet lending, whereby we co-invest between 5-8% of our own
cash alongside any of our financial partnerships. This accounts for
GBP18.6 million of this reduction during the year. We completed a
portfolio sale of GBP250.0 million of BTL loans in May 2023, which
released some of this equity back into the business for future
lending. Additionally, we paid GBP7.9 million of dividends during
the year (2022: nil), GBP6.1 million related to the prior full year
dividend and GBP1.8 million as an interim dividend for the year
ended 31 March 2023.
Dividends
The Board remains confident in the growth prospects of the
business and, therefore, will recommend a final dividend of 3.2p
per share resulting in a full year dividend of 4.5p per share
subject to the shareholders' approval at the forthcoming Annual
General Meeting. If approved, the final dividend will be paid on 13
October 2023 to shareholders on the register at close of business
on 15 September 2023. The shares will go ex-dividend on 14
September 2023.
STRATEGY SUMMARY AND PROGRESS
Our Strategy - is to harness technology to disrupt one of the
few remaining verticals in UK financial services
To best tackle this problem, we have redefined our business
operations into two divisions:
LendInvest Mortgages which comprises our mortgage products. This
includes BTL mortgages and residential mortgages and short-term
mortgages.
LendInvest Capita l which comprises our investment products,
(funds and our self-select platform) and more bespoke property
finance solutions such as development and structured property
finance.
The rationale behind dividing our product offering into these
two divisions is to bring together the products that share the same
characteristics. Across LendInvest mortgages we use similar
processes for originations, loan management and technology.
LendInvest Capital brings together our more complex products with
bespoke processes. These usually need expert input and a
people-centric relationship approach. It also allows us to better
communicate with these two different audiences to deliver the
highest quality customer experience for our borrowers,
intermediaries and investors.
Our core strategy is to:
(i) Grow - our global investor base with new major funding
partnerships
We grow our platform investor base (our "FuM") by taking
advantage of prominent, developing trends that include a shift
towards private debt, a growing preference for real assets, and
alternatives with an ESG focus. We match the investment
requirements of bank treasuries, pension funds and insurance
companies with the long-term, secure, stable income-producing asset
class of UK property finance.
We continue to see strong appetite from global financial
institutions to partner with LendInvest as a mortgage originator.
During the year, J.P. Morgan upsized their separate account to GBP1
billion; we partnered with the government's British Business Bank
and HSBC in a GBP100 million deal to fund our development lending;
and we entered into a GBP300 million deal with Lloyds Bank to power
our launch into the residential mortgage market and support our BTL
product.
Diversity of funding remains our differentiator. In the same
time period we issued our third listed retail bond raising GBP38
million in the process, closed our fourth residential mortgages
securitisation, and launched a new Fund to support our development
finance product. These were all organised using the LendInvest Loan
Engine which matches funding sources with loans of the most
appropriate risk profile, ensuring optimal capital allocation.
(ii) Optimise - to power our next stage of growth
We optimise our FuM by continuously seeking the most appropriate
investors and financial partners to match the risk-reward profiles
of our assets, leveraging our loan engine technology which
automates and optimises loan allocation and management.
We perform advanced data analytics to iterate our credit model
and improve the risk-adjusted returns provided to investors and
financial partners. As a fast growing and agile firm we are
constantly reviewing costs to further grow profitability and
optimise shareholder returns.
In September we opened our first office outside of London, in
Glasgow, Scotland, and joined industry body Fintech Scotland. This
marked an important milestone in the company's expansion strategy
to meet increasing borrower demand for our products across the
whole of the UK, and we continue to grow our sales and operations
teams in this office.
We have also continued to invest in, and deliver on, our ESG
Strategy throughout the year. Following the launch of our first
full 'green' mortgage range, developed to incentivise borrowers to
build with the environment in mind offering reduced rates for
environmentally friendly properties, we launched a Green Bond
Framework, with the support of global ratings agency S&P
Global, and can now officially issue green bonds to finance our
lending. This year, third-party ESG analysis company, Kamma,
declared LendInvest carbon neutral for the year FY2023.
(iii) Expand - our product proposition and entering new
markets
We expand our Platform AuM by delivering a superior service,
leveraging our Genesys technology to create a seamless application
and case management process. This leads to increased broker
conversion and higher repeat rates, resulting in a 'flywheel'
effect. Our technology also enables us to launch new products at
scale, and penetrate markets that we do not yet operate in.
Entering the homeowner market with the launch of our Residential
Mortgages range has been a major milestone for the business.
Designed for customers traditionally underserved by incumbent
lenders, our product range targets those with multiple income
streams, the self-employed and those with complex incomes.
The economy has undoubtedly tested all borrowers this year. As a
result the team prioritised designing products that support
borrowers and the unique problems they may be facing at this
time.
In October we launched a Tracker product range to support
borrowers in response to market volatility and interest rate
fluctuations. This was followed by our Stepped Bridge product,
which rate increases at intervals throughout the term of the loan,
for borrowers looking for shorter-term finance at an accessible
initial rate. At the same time we also launched Automated Valuation
Models (AVMs) for a wider product range, increasing accessibility
and flexibility for borrowers.
(iv) Invest - in our platform, to deliver a market-leading
customer experience
We continue to innovate and invest in our technology
infrastructure, further improving the customer experience. Focus on
technology development provides a platform for the launch of new
products and offerings that will provide more growth opportunities
for our business.
Delivering innovative products at speed is made possible by our
Genesys platform. Throughout the year the team has developed and
released a range of new additions to the platform and customer
portals, including the launch of the new Residential Mortgages
product within the platform. The team also released an integration
that allows the broker to access a panel of solicitors and exchange
key documents digitally, and implemented AVMs from Rightmove to
speed up the valuation process.
KEY PERFORMANCE INDICATORS
Platform AuM GBP2,587.0 million
What we measure
In simple terms, Platform AuM is the outstanding amount of money
our customers have borrowed from us. The more they borrow, the more
we can earn. In less simple terms, we measure Platform AuM as the
(i) total amount of outstanding loans and advances (1) and (ii)
off-balance sheet assets, which is the total amount of outstanding
loans and advances (2) that we originate but do not hold on our
balance sheet, comprising those loans that are held by third
parties.
How we performed
Platform AuM increased 21% to GBP2.6 billion driven by a 21%
increase in BTL Platform AuM to GBP1.8 billion as we continued to
release new products to help support landlords during a rising
interest rate environment. Additionally, we have seen a 40%
increase to GBP0.3 billion in bridging loans completed through the
new broker portal that was introduced during December 2021.
FuM GBP3,605.9 million
What we measure
In simple terms, FuM is the amount of money our investors have
committed to us to invest into the UK mortgage market on their
behalf. The more money they invest with us, the more we can lend to
our borrowers - ergo, the more we can earn. In less simple terms,
FuM is the aggregate sum available to us under each of our funding
lines. Our FuM is used to originate revenue-generating AuM. We view
the difference between the FuM and Platform AuM as an indication of
headroom for future growth.
How we performed
FuM increased 23% to GBP3.6 billion as we received funding from
Lloyds to support the launch of our homeowner product, extending
the J.P. Morgan Separate Account and completed our fourth RMBS of
GBP270 million BTL loans in May 2022.
Net operating income GBP54.7 million
What we measure
Net Operating Income includes income generated from interest on
loans and advances, origination and loan fees, and asset
management, fund and servicing fees net of the costs associated to
this income. We also generate gains on derecognition of financial
assets when we sell loans, which have previously been held on our
balance sheet, to third party investors.
How we performed
Net operating income increased 8% to GBP54.7 million reflecting
higher fees and interest income generated as a result of the
increase in Platform AuM, partly offset by a reduction in gains on
derecognition of financial assets.
Adjusted EBITDA GBP14.3 million
What we measure
The adjusted EBITDA figure represents our earnings before
interest, tax, depreciation and amortisation, adjusted for any
non-cash income or expense items. Growth in adjusted EBITDA
supports our free cash flow which helps fund our investments for
growth and shareholder returns.
How we performed
Adjusted EBITDA decreased by 30% to GBP14.3 million driven by
higher non-exceptional administrative expenses - largely related to
the launch of the new residential mortgage product, as well as
higher impairment charges.
Profit before tax GBP14.3 million
What we measure
The Group's profits before consideration of taxation.
How we performed
Profit before tax increased by 1% to GBP14.3 million. The
challenging macroeconomic environment resulted in the Group
suffering a reduction in net interest margin as interest costs grew
faster than interest revenue.
Diluted EPS 8.0p
What we measure
Growth in diluted EPS reflects the increase in profitability of
the business, change in the tax rate and is adjusted for the
effects of potentially dilutive share options.
How we performed
Diluted EPS remained flat at 8.0p
1 Includes accrued interest, and gross of impairment provisions
and fair value adjustments, as reported on an IFRS basis in the
notes to the accounts in our financial statements.
2 Includes accrued interest.
Independent auditor's report to the members of LendInvest
Plc
Opinion on the financial statements
In our opinion:
-- the financial statements give a true and fair view of the
state of the Group's and of the Parent Company's affairs as at 31
March 2023 and of the Group's profit for the year then ended;
-- the Group financial statements have been properly prepared in
accordance with UK adopted international accounting standards;
-- the Parent Company financial statements have been properly
prepared in accordance with UK adopted international accounting
standards and as applied in accordance with the provisions of the
Companies Act 2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of LendInvest Plc (the
'Parent Company') and its subsidiaries (the 'Group') for the year
ended 31 March 2023 which comprise the Consolidated statement of
profit and loss, the Consolidated statement of other comprehensive
income, the Consolidated and Company statements of financial
position, the Consolidated and Company statements of cash flows,
the Consolidated and Company statements of changes in equity and
notes to the financial statements, including a summary of
significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and UK
adopted international accounting standards and, as regards the
Parent Company financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC's
Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the Directors' assessment of the Group and the Parent
Company's ability to continue to adopt the going concern basis of
accounting included:
-- reviewing minutes of meetings of those charged with
governance and correspondence with regulators, such as the
Financial Conduct Authority for any factors which could be of
higher risk in relation to going concern;
-- challenging the appropriateness of the Directors' assumptions
and judgements made in their base forecast and stress-tested
forecast. In doing so we agreed key assumptions such as forecast
growth to historic actuals and relevant data and considered the
historical accuracy of the Directors' forecasts by comparing them
to actual results;
-- enquiring with the Directors to determine whether there were
any breaches of borrowing covenants within the year or subsequent
to year end and the ability for the Group to manage any potential
breaches;
-- performing a review of compliance with borrowing covenants
which comprised obtaining and reviewing covenant compliance
statements to verify that no covenant breaches have occurred which
may trigger penalties or repayment of borrowings ahead of the
maturity dates;
-- obtaining and assessing the Directors plans in respect of
funding lines which are approaching maturity within the next 12
months by considering the Groups past experience of extending the
maturity of facilities, their discussions with new providers of
funding and experience of portfolio sales ;
-- enquiring with the Directors and assessing the continued
economic impact of the cost of living crisis and developments in
Ukraine on the business and whether the impact thereof has been
adequately factored into their assessment of going concern; and
-- inspecting the latest post year end management accounts and
reviewing minutes of Board meetings to determine if there were any
significant matters which could affect the going concern of the
Group and Parent Company.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group and the Parent Company's ability to continue as a going
concern for a period of at least twelve months from when the
financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview
100% (2022: 100%) of Group profit
Coverage before tax
100% (2022: 100%) of Group revenue
100% (2022: 100%) of Group total assets
2023 2022
Fraud in Revenue recognition
Determination of expected
credit loss (ECL)
Key audit matters Valuation techniques
of loans and advances
---------------------------------------------
Group financial statements as a whole
Materiality
GBP712,000 (2022: GBP711,000) based
on 5% (2022: 5%) of Profit Before Tax.
---------------------------------------------
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including the Group's system of internal
control, and assessing the risks of material misstatement in the
financial statements. We also addressed the risk of management
override of internal controls, including assessing whether there
was evidence of bias by the Directors that may have represented a
risk of material misstatement.
The Group is made up of the Parent Company, its wholly owned
subsidiaries and entities it consolidates due to its assessed
control. We identified twenty-three components, including the
parent company and all entities requiring a stand alone statutory
audit, which we considered to be significant components and which
were subject to full scope audits performed by the Group audit
team.
In addition, there were nine Group components which were deemed
to be insignificant components, but which individually or
collectively contained balances material to the Group. The material
balances of the insignificant components were audited to component
materiality.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Key audit matter How the scope of our
audit addressed the
key audit matter
Fraud in Revenue The amounts reported Interest income
recognition in relation to revenue
represent information We have reviewed the
The Group's accounting of significant interest revenue recognition
policies are disclosed to many users of policies adopted by
in Note 1.8. the financial statements. the Group, to check
This puts revenue these are in accordance
The effective interest at a greater risk with requirements of
rate adjustment of manipulation, the applicable accounting
for the year is bias and misstatement. standards. This includes
included in Total Having regard to an assessment of the
Interest and Similar the potential for types of fees and costs
Income as disclosed fraud in relation being spread within
in note 6. to revenue recognition, the EIR models to determine
we identified the if these should be recognised
As disclosed in following as areas under IFRS 9 or IFRS
Note 9 the gain of significant risk 15.
on de-recognition of material misstatement:
of securitised We have assessed the
loan portfolios Interest income completeness and accuracy
is GBP4.5m (2022: Interest income of data and key model
Nil). must be recognised inputs feeding into
using the effective the EIR models by selecting
interest rate ("EIR") samples and agreed them
in accordance with back to the system or
IFRS 9 : Financial source documents.
Instruments. The
behavioural life We have challenged the
of loan customers reasonableness of the
is necessary to loan behavioural life
accurately recognise assumptions used by
interest income management considering
but highly subjective historical experience
and involves the of loan behavioural
use of management's lives based on customer
judgement and estimation. behaviour and recent
performance.
Management is also
in a unique position We have performed sensitivity
to manipulate financial analysis on key EIR
results, by recognising management judgments
interest income and estimates such as
on loans that have the behavioural life
been sold and no assumptions applied
longer held by the when assessing future
Group. cashflows.
Using data analytics
Gains on derecognition we have identified those
of financial assets facilities which have
moved off balance sheet
Loans are derecognised and have selected a
by the Group or sample of these and
Company, by way agreed to supporting
of "normal" transfer documents that the interest
off balance sheet recognised within the
in the course of entity in the year has
standard business the contractual rights
operations or via to recognise interest
securitisation income.
transactions.
Gains on derecognition
LendInvest have of financial assets
entered into a number
of transactions We have reviewed the
during the year Regulatory News Service
which either re-financed, ('RNS') announcements
or disposed of, to identify any transactions
the residual interest which relate to de-recognition
in securitisation of financial assets.
arrangements. These
transactions have We have obtained a listing
led to gains either of all financial assets,
through settlement de-recognised during
of the transaction the period and assessed
or through triggering the validity of the
a loss of control de-recognition of these
that crystalises assets, in line with
fee income and expense the supporting contracts.
in respect of the We have assessed the
de-recognised loan application of (loss
portfolios. of) control, in accordance
with IFRS 10: Consolidated
These transactions Financial Statements.
are complex and
have resulted in We have obtained a breakdown
material gains. of the crystallised
fees and tested the
transactions, to check
these are correctly
accounted for, under
the applicable accounting
standards. This was
done by agreeing that
the amount in respect
of crystallised fees
post disposal amounted
to zero.
For the samples selected,
we have verified all
key inputs and journal
entries, which support
the calculation of the
Gain on de-recognition
of financial assets,
with reference to third
party supporting documentation
where possible.
For financial assets
derecognised, we have
obtained assurance by
testing the completeness
of interest income to
the underlying system
and checked that no
income post derecognition
of loans, have been
recorded in the general
ledger.
Key observations:
We have not identified
any indicators that
the assumptions included
in the EIR models are
unreasonable in consideration
of the Group's mortgage
portfolio.
Based on our audit work
performed and the evidence
obtained, we concluded
that that the accuracy
of the gains on derecognition
of assets was appropriate
and accounted for appropriately.
---------------------------- -------------------------------------------------------------
Determination Commensurate with Accuracy of forward-looking
of expected credit the activities of information
loss (ECL) the Group, the total
loan loss provision We have engaged internal
The Group's accounting is a material balance credit and econometric
policies are disclosed subject to management experts to assist in
in note 1 with judgement and estimation. assessing the appropriateness
detail about judgements of the regression models
in applying We have assessed and the source and type
Accounting policies the elements of of macro economic variables
and critical accounting the ECL calculation used such as GDP and
estimates in note which will significantly unemployment data.
1.22. impact the determination
of the ECL as follows: We have challenged management
As disclosed in on the rationalisation
Note 19 the ECL Accuracy of forward-looking of any changes made
Provision at year-end information to information obtained
is GBP9.1m (2022: from external sources
GBP11m). IFRS 9 requires and have checked its
the Group to measure appropriateness to the
the expected credit current lending portfolio.
loss (ECL) on a
forward-looking We have assessed the
basis, incorporating reasonability of multiple
future macro- economic economic scenarios used
variables reflecting and weighting by considering
a range of future the number of scenarios
conditions. The selected based on managements
incorporation of support.
such forward-looking
macroeconomic inputs We have obtained an
and weighting of understanding of management's
the scenarios is process and identified
considered a significant and tested key controls
risk across all relating to post model
three portfolios, adjustments, such as
especially in the approval from appropriate
continued downturn governance committees
of the current economic and completeness and
environment. accuracy of management
overlays.
Moreover, there
is also a risk that We have tested the completeness
management overlays of the data used for
applied to the model management overlays
are not directionally and assessed if other
consistent with overlays are required,
observable macro-economic based on our experience.
variables and We have tested the arithmetical
forward-looking accuracy of the overlay.
information. As
model recalibration
and rebuild options Carrying value (loss
are not always practical, given default) of individually
management implement assessed Stage 3 (credit
post model adjustments impaired) loans.
to bridge the gap
between outdated We have selected a sample
models and recalibrating of individual assessment
them for current cases at 31 March 2023.
events. While the We have challenged management
use of post-model on the key inputs into
adjustments is susceptible these scenarios by obtaining
to management bias, supporting evidence
there is also a for recovery strategies,
risk that these collateral values, exit
are not applied strategies, scenario
at the most granular weighting, expected
level possible. timing of cash flows
As these are adjustments and engaging internal
posted outside of experts as required
the ECL model, management in support of our assessment.
overlays are subject We have assessed the
to management bias accuracy and validity
and significantly of data that feeds into
judgemental area the individual assessment
of audit. cases as well as the
progress on the preferred
recovery scenario being
Carrying value pursued to supporting
(loss given default) documentation. Based
of individually on supporting case evidence
assessed Stage 3 assessed and discussions
(credit impaired) with the credit team
loans we evaluated and challenged
the judgements applied
The carrying value in the individually
of loans and advances assessed Stage 3 loan
to customers may assessments. This included
be materially misstated assessment of the recovery
if individual impairments strategies, recovery
are not appropriately timelines, and the scenario
identified and estimated. weighting applied in
These estimates the individual assessment.
involve complex
recoverability scenarios Key observations:
which involve multiple
differing recovery Based on our audit work
options where the performed, we consider
timing and quantum the estimates made by
of recovery's are management in the calculation
subject to significant of the impairment provision
management judgments for loans and advances
and estimates and to be reasonable, and
the probability in line with the requirements
of scenarios weighting of IFRS 9.
as recovery cashflows
can differ materially
between individual
scenarios.
---------------------------- -------------------------------------------------------------
Valuation techniques The Group's business We have undertaken sensitivity
of loans and advances model requires the analysis on the discount
Group to measure rates and ascertained
The Group's accounting the majority of how susceptible the
policies are disclosed the loan book at fair valuation of the
in note 1 with Fair value through model is to manipulation
detail about judgements Other Comprehensive and material misstatement.
in applying Income which requires
Accounting policies modelling to determine With the use of our
and critical accounting the fair value adjustment internal valuation experts
estimates on note to be applied to we:
1.22. Loans and Advances. * evaluated how the models calculated the fair value of
the loan portfolios.
As disclosed in The measurement
Note 19 the Fair of the loan book
Value Adjustment at fair value requires * evaluated the selection of key estimates and
at year-end is modelling which judgments that feed into the models, in particular
-GBP35.5m (2022: is subject to material the discount rates applied in the models. We also
GBP5.2m). management judgments checked that the calculations of the models are in
and assumptions line with relevant accounting standards.
in the determination
of the discount
rate used to discount * assessed the models to check whether the fair values
future cashflows. determined by management sit within our assessed
acceptable reasonable range.
The Group's models
are materially sensitive
to small changes
in the discount We recalculated the
rate assumption, computations of the
particularly in discount rates, agreeing
the 'Buy-to-let' inputs used to supporting
portfolio and therefore documentation.
this area is considered
a significant risk. With the assistance
of our valuations expert
team we have reviewed
and benchmarked the
discount rates to external
data sources where appropriate.
With the support of
our valuation expert
team, we have assessed
the models to determine
whether the fair values
determined by management
sit within our assessed
acceptable range.
Key observations:
Based on our audit work
performed, we consider
the valuation of loans
and advances is a reasonable
estimate in consideration
of the key assumptions
and judgements made.
---------------------------- -------------------------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability
that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent
of testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole and performance materiality
as follows:
Group financial statements Parent company financial
statements
2023 2022 2023 2022
GBP GBP GBP GBP
-------------- ------------- ------------- ---------------
Materiality 715,000 711,000 421,000 510,000
-------------- ------------- ------------- ---------------
Basis for 5% of profit before tax 5% of profit 7.5% of profit
determining before tax before tax
materiality
----------------------------- ------------- ---------------
Rationale As this is a listed entity, profit before tax
for the is a significant metric and influential to the
benchmark investor group. Therefore, profit before tax
applied is considered to be the most appropriate benchmark.
-------------------------------------------------------------
Performance
materiality 536,000 533,250 315,000 382,500
-------------- ------------- ------------- ---------------
Basis for 75% of Materiality
determining
performance
materiality
-------------------------------------------------------------
Rationale Determined on the basis of our risk assessment
for the together with our assessment of the overall control
benchmark environment.
applied
-------------------------------------------------------------
Component materiality
We set materiality for each component dependent on the size and
our assessment of the risk of material misstatement of that
component. Component materiality ranged from GBP2 to GBP564,000
(2022: GBP34,000 to GBP510,000) based on allocating materiality
using relevant benchmarks . In the audit of each component, we
further applied performance materiality levels of 75% (2022: 75%)
of the component materiality to our testing to ensure that the risk
of errors exceeding component materiality was appropriately
mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them
all individual audit differences in excess of GBP21,000 (2022:
GBP14,220). We also agreed to report differences below this
threshold that, in our view, warranted reporting on qualitative
grounds.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report and accounts other than the financial statements and our
auditor's report thereon. Our opinion on the financial statements
does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and
matters as described below.
Strategic In our opinion, based on the work undertaken
report and in the course of the audit:
Directors' * the information given in the Strategic report and the
report Directors' report for the financial year for which
the financial statements are prepared is consistent
with the financial statements; and
* the Strategic report and the Directors' report have
been prepared in accordance with applicable legal
requirements.
1
2 In the light of the knowledge and understanding
of the Group and Parent Company and its environment
obtained in the course of the audit, we have
not identified material misstatements in the
strategic report or the Directors' report.
Matters We have nothing to report in respect of the following
on which matters in relation to which the Companies Act
we are required 2006 requires us to report to you if, in our
to report opinion:
by exception
* adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit
have not been received from branches not visited by
us; or
* the Parent Company financial statements are not in
agreement with the accounting records and returns; or
* certain disclosures of Directors' remuneration
specified by law are not made; or
* we have not received all the information and
explanations we require for our audit.
------------------------------------------------------------------
Responsibilities of Directors
As explained more fully in Statement of Directors'
Responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group's and the Parent Company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
Non-compliance with laws and regulations
Based on:
-- Our understanding of the Group and the industry in which it operates;
-- Discussion with management and those charged with governance; and
-- Obtaining and understanding of the Group's policies and
procedures regarding compliance with laws and regulations.
We considered the significant laws and regulations to be:
3
-- Companies Act 2006;
-- AIM Listing Rules
-- UK tax legislation
-- UK-adopted International Accounting Standards
The Group is also subject to laws and regulations where the
consequence of non-compliance could have a material effect on the
amount or disclosures in the financial statements, for example
through the imposition of fines or litigations. We identified such
laws and regulations to be Financial Conduct Authority rules and
The General Data Protection Regulation (GDPR).
Our procedures in respect of the above included:
-- obtaining an understanding of the control environment in
monitoring compliance with laws and regulations;
-- reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with the relevant
laws and regulations discussed above;
-- enquiring of management and those charged with governance
about their own identification and assessment of the risks of
irregularities, including fraud;
-- reviewing of legal expenditure accounts to understand the
nature of expenditure incurred; and
-- reviewing of minutes of meetings of those charged with
governance and correspondence with the Financial Conduct
Authority;
Fraud
We assessed the susceptibility of the financial statements to
material misstatement, including fraud. Our risk assessment
procedures included:
-- enquiring with management and those charged with governance,
including the Audit and Risk Committee, regarding any known or
suspected instances of fraud;
-- obtaining an understanding of the Group's policies and procedures relating to:
o Detecting and responding to the risks of fraud; and
o Internal controls established to mitigate risks related to
fraud.
-- reviewing of minutes of meeting of those charged with
governance for any known or suspected instances of fraud;
-- discussion amongst the engagement team as to how and where
fraud might occur in the financial statements;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud; and
-- considering remuneration incentive schemes and performance
targets and the related financial statement areas impacted by
these.
Based on our risk assessment, we considered the areas most
susceptible to fraud to be revenue recognition, management override
of controls, determination of expected credit loss (ECL) and
valuation techniques of loans and advances.
Our procedures in respect of the above included:
-- testing the appropriateness of a sample of journal entries
and other adjustments by agreeing to supporting documentation;
-- involvement of internal credit , econometric experts and
internal valuation experts in the areas of high estimation by
management such as ECL and Loans and Advances Valuation which is
covered in the KAM under 'Determination of ECL and Valuation
Techniques of Loans and Advances';
-- evaluating the business rationale of any significant
transactions that are unusual or outside the normal course of
business; and
-- assessing whether the judgements made in accounting estimates
are indicative of a potential bias which is covered in the KAM
under 'Fraud in Revenue Recognition' and 'Determination of ECL and
Valuation Techniques of Loans and Advances'.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team who were all
deemed to have appropriate competence and capabilities and remained
alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms
part of our auditor's report.
Use of our report
This report is made solely to the Parent Company's members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to
the Parent Company's members those matters we are required to state
to them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the
Parent Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Ariel Grosberg (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, United Kingdom
17 July 2023
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127) .
Consolidated statement of profit and loss
Year ended
31 March
2022 before Year ended
Year ended exceptional 31 March
31 March items (restated(1) Exceptional 2022 (restated(1)
2023 ) listing expenses )
Note GBP'm GBP'm GBP'm GBP'm
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Interest income calculated
using the effective
interest rate 6 68.1 58.6 - 58.6
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Other interest and similar
income 6 5.1 1.2 - 1.2
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Interest expense and similar
charges 7 (34.8) (33.4) - (33.4)
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Net interest income 38.4 26.4 - 26.4
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Fee income 8 13.5 22.7 - 22.7
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Fee expenses 8 (2.3) (4.9) - (4.9)
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Net fee income 11.2 17.8 - 17.8
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Net gains on derecognition
of financial assets 9 4.9 6.3 - 6.3
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Net other operating income 0.2 - - -
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Net operating income 54.7 50.5 - 50.5
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Administrative expenses 10 (34.5) (30.3) (1.6) (31.9)
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Impairment losses on financial
assets (5.9) (4.4) - (4.4)
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Total operating expenses (40.4) (34.7) (1.6) (36.3)
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Profit before tax 14.3 15.8 (1.6) 14.2
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Income tax charges 13 (2.9) (3.3) - (3.3)
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Profit after taxation 11.4 12.5 (1.6) 10.9
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Earnings per share for
profit attributable
to the ordinary equity
holders of the Group:
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Basic earnings per share
(pence/share) 34 8.3 8.3
------------------------------- ---- ---------- ------------------- ----------------- ------------------
Diluted earnings per share
(pence/share) 34 8.0 8.0
------------------------------- ---- ---------- ------------------- ----------------- ------------------
All amounts relate to continuing activities and to owners of the
Group.
1 Refer to note 1.6 for changes to the presentation of the
Consolidated statement of profit and loss. The restatement of
figures in the prior year relates to the change in presentation
only.
Consolidated statement of other comprehensive income
Year ended
Year ended 31 March
31 March 2022 (restated(1)
2023 )
Note GBP'm GBP'm
----------------------------------------------- ---- ---------- ------------------
Profit after taxation 11.4 10.9
----------------------------------------------- ---- ---------- ------------------
Other comprehensive (loss)/income:
----------------------------------------------- ---- ---------- ------------------
Items that will or may be reclassified
to profit or loss
----------------------------------------------- ---- ---------- ------------------
Fair value loss on loans and advances measured
at fair value through other comprehensive
income 19 (35.0) (22.7)
----------------------------------------------- ---- ---------- ------------------
Cash flow hedge adjustment through other
comprehensive income 3 (4.8) 29.2
----------------------------------------------- ---- ---------- ------------------
Deferred tax credit on fair value movement 13 8.8 3.5
----------------------------------------------- ---- ---------- ------------------
Deferred tax credit/(charge) on cash flow
hedge movement 13 1.2 (7.1)
----------------------------------------------- ---- ---------- ------------------
Other comprehensive (loss)/income for
the year (29.8) 2.9
----------------------------------------------- ---- ---------- ------------------
Total comprehensive (loss)/income for
the year (18.4) 13.8
----------------------------------------------- ---- ---------- ------------------
1 Refer to note 1.25
Consolidated statement of financial position
As at
As at 31 March
31 March 2022 (restated(1)
2023 )
Note GBP'm GBP'm
------------------------------------------- ---- --------- ------------------
Assets
------------------------------------------- ---- --------- ------------------
Cash and cash equivalents 18 46.7 118.2
------------------------------------------- ---- --------- ------------------
Trade and other receivables 17 6.1 6.3
------------------------------------------- ---- --------- ------------------
Loans and advances 19 1,122.9 1,209.1
------------------------------------------- ---- --------- ------------------
Fair value adjustment for portfolio hedged
risk asset 3/26 0.1 -
------------------------------------------- ---- --------- ------------------
Investment securities 20 23.9 -
------------------------------------------- ---- --------- ------------------
Derivative financial asset 27 46.0 32.5
------------------------------------------- ---- --------- ------------------
Property, plant and equipment 15 2.2 2.8
------------------------------------------- ---- --------- ------------------
Net investment in sublease 2 1.0 1.2
------------------------------------------- ---- --------- ------------------
Intangible fixed assets 16 10.5 6.1
------------------------------------------- ---- --------- ------------------
Investment in joint venture 29 0.2 -
------------------------------------------- ---- --------- ------------------
Investment in third parties 30 2.0 -
------------------------------------------- ---- --------- ------------------
Deferred taxation 13 1.2 -
------------------------------------------- ---- --------- ------------------
Total assets 1,262.8 1,376.2
------------------------------------------- ---- --------- ------------------
Liabilities
------------------------------------------- ---- --------- ------------------
Trade and other payables 21 (23.7) (45.8)
------------------------------------------- ---- --------- ------------------
Corporation tax payable - (0.4)
------------------------------------------- ---- --------- ------------------
Interest-bearing liabilities 22 (1,159.3) (1,214.1)
------------------------------------------- ---- --------- ------------------
Lease liabilities 2 (3.3) (4.1)
------------------------------------------- ---- --------- ------------------
Deferred taxation 13 - (8.5)
------------------------------------------- ---- --------- ------------------
Total liabilities (1,186.3) (1,272.9)
------------------------------------------- ---- --------- ------------------
Net assets 76.5 103.3
------------------------------------------- ---- --------- ------------------
Equity
------------------------------------------- ---- --------- ------------------
Share capital 23 0.1 0.1
------------------------------------------- ---- --------- ------------------
Share premium 23 55.2 55.2
------------------------------------------- ---- --------- ------------------
Employee share reserve 3.3 2.7
------------------------------------------- ---- --------- ------------------
Own share reserve (0.6) 0.1
------------------------------------------- ---- --------- ------------------
Fair value reserve 24 (16.5) 9.5
------------------------------------------- ---- --------- ------------------
Cash flow hedge reserve 24 16.1 19.8
------------------------------------------- ---- --------- ------------------
Retained earnings 24 18.9 15.9
------------------------------------------- ---- --------- ------------------
Total equity 76.5 103.3
------------------------------------------- ---- --------- ------------------
1 Refer to note 1.25
The financial statements of LendInvest plc (registration number
08146929) on pages [75 to 118] were approved and authorised for
issue by the Board of Directors on [5 July 2023] and were signed on
its behalf by:
Michael Evans
Director
Consolidated statement of cash flows
Year ended Year ended
31 March 31 March
2023 2022 (restated)
Cash flow from operating activities Note GBP'm GBP'm
---------------------------------------------------- ------- ---------- ----------------
Profit after taxation 11.4 10.9
---------------------------------------------------- ------- ---------- ----------------
Adjusted for:
---------------------------------------------------- ------- ---------- ----------------
Depreciation of property, plant and equipment 15 0.2 0.1
---------------------------------------------------- ------- ---------- ----------------
Amortisation of intangible assets 16 1.9 2.6
---------------------------------------------------- ------- ---------- ----------------
Transfer of share option costs (0.6) -
---------------------------------------------------- ------- ---------- ----------------
Income tax expense 13 2.9 3.3
---------------------------------------------------- ------- ---------- ----------------
Derivative, hedge accounting and committed
facility fair value profits 3.3/3.4 ( 35.2) (1.0)
---------------------------------------------------- ------- ---------- ----------------
Funding line costs 7 3.2 0.2
---------------------------------------------------- ------- ---------- ----------------
Impairment provision 5.9 4.6
---------------------------------------------------- ------- ---------- ----------------
Depreciation of right-of-use asset 2/15 0.6 0.9
---------------------------------------------------- ------- ---------- ----------------
Interest expense - lease liability 2 0.5 0.5
---------------------------------------------------- ------- ---------- ----------------
Costs relating to market listing - 1.6
---------------------------------------------------- ------- ---------- ----------------
Equity-settled share-based payments 25 2.0 1.1
---------------------------------------------------- ------- ---------- ----------------
Net gain on derecognition of loans and loan
portfolios 9 (1.1) -
---------------------------------------------------- ------- ---------- ----------------
Gain on disposal of residual interest 20 (3.8) -
---------------------------------------------------- ------- ---------- ----------------
Income from sublease (0.2) -
---------------------------------------------------- ------- ---------- ----------------
Change in working capital
---------------------------------------------------- ------- ---------- ----------------
Decrease/(increase) in gross loans and advances 20.2 (187.6)
---------------------------------------------------- ------- ---------- ----------------
Cash consideration for sold residuals 12.7 -
---------------------------------------------------- ------- ---------- ----------------
Derivative settlements 26.1 -
---------------------------------------------------- ------- ---------- ----------------
Swap initial exchange 27 (18.2) -
---------------------------------------------------- ------- ---------- ----------------
Decrease in trade and other receivables 17 0.2 0.1
---------------------------------------------------- ------- ---------- ----------------
(Decrease)/increase in trade and other payables 21 (24.9) 18.5
---------------------------------------------------- ------- ---------- ----------------
Income taxes paid (2.5) (3.7)
---------------------------------------------------- ------- ---------- ----------------
Cash from / (used in) operating activities 1.3 (147.3)
---------------------------------------------------- ------- ---------- ----------------
Cash flow used in investing activities
---------------------------------------------------- ------- ---------- ----------------
Purchase of property, plant and equipment 15 (0.2) (0.2)
---------------------------------------------------- ------- ---------- ----------------
Capitalised development costs 16 (6.3) (3.2)
---------------------------------------------------- ------- ---------- ----------------
Increase in investment in joint ventures (0.2) -
---------------------------------------------------- ------- ---------- ----------------
Increase in investment in third parties (2.0) -
---------------------------------------------------- ------- ---------- ----------------
Income from sublease 0.2 -
---------------------------------------------------- ------- ---------- ----------------
Net cash used in investing activities (8.5) (3.4)
---------------------------------------------------- ------- ---------- ----------------
Cash flow from financing activities
---------------------------------------------------- ------- ---------- ----------------
Proceeds to fund securitisation repayments 176.1 -
---------------------------------------------------- ------- ---------- ----------------
Redemption of securitisation facilities (188.1) -
---------------------------------------------------- ------- ---------- ----------------
(Decrease)/increase in interest-bearing liabilities (20.3) 173.9
---------------------------------------------------- ------- ---------- ----------------
Proceeds from the issuance of retail bonds 9.3 -
---------------------------------------------------- ------- ---------- ----------------
Repayment of retail bonds (28.1) -
---------------------------------------------------- ------- ---------- ----------------
Cost of bond issuance (0.5) -
---------------------------------------------------- ------- ---------- ----------------
Principal elements of finance lease payments 2 (0.9) (0.9)
---------------------------------------------------- ------- ---------- ----------------
Interest expense - lease liabilities 2 (0.5) (0.5)
---------------------------------------------------- ------- ---------- ----------------
Proceeds from an equity share issue - 40.0
---------------------------------------------------- ------- ---------- ----------------
Cash settlement of derivative losses - (1.2)
---------------------------------------------------- ------- ---------- ----------------
Equity raise costs - (3.9)
---------------------------------------------------- ------- ---------- ----------------
Funding line costs (3.5) (0.1)
---------------------------------------------------- ------- ---------- ----------------
Dividends paid (7.8) -
---------------------------------------------------- ------- ---------- ----------------
Net cash (used in) / from financing activities (64.3) 207.3
---------------------------------------------------- ------- ---------- ----------------
Net (decrease)/increase in cash and cash
equivalents (71.5) 56.0
---------------------------------------------------- ------- ---------- ----------------
Cash and cash equivalents at beginning of
the period 18 118.2 62.2
---------------------------------------------------- ------- ---------- ----------------
Cash and cash equivalents at end of the
period 18 46.7 118.2
---------------------------------------------------- ------- ---------- ----------------
Interest received was GBP58.5 million (2022: GBP56.6 million)
and interest paid was GBP47.4 million (2022: GBP25.6 million).
Consolidated statement of changes in equity
Fair value Cash flow
reserve hedge reserve
Own Employee net of net of
Share Share share share deferred deferred Retained
capital premium reserve reserve tax tax earnings Total
Note GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Balance as at
31 March 2021 (restated
(1) ) - 17.5 - 1.6 28.9 (2.4) 4.4 50.0
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Profit after taxation - - - - - - 10.9 10.9
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Fair value adjustments
on loan and advances
through OCI - - - - (19.4) - - (19.4)
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Employee share
scheme tax - - - - - - 0.6 0.6
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Cash flow hedge
adjustment through
OCI - - - - - 22.2 - 22.2
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Employee share
options schemes - - - 1.1 - - - 1.1
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Bonus issue of
free shares funded
by share premium 0.1 (0.1) - - - - - -
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Issue of new shares
on IPO - 40.0 - - - - - 40.0
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Cost incurred in
issuing new shares - (2.2) - - - - - (2.2)
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Own shares held
in SIP trust - - 0.1 - - - - 0.1
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Balance as at
31 March 2022 (restated
(1) ) 0.1 55.2 0.1 2.7 9.5 19.8 15.9 103.3
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Profit after taxation - - - - - - 11.4 11.4
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Fair value adjustments
on loan and advances
through OCI - - - - (26.0) - - (26.0)
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Employee share
scheme tax - - - - - - 0.2 0.2
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Current tax movement
through equity - - - - - - 0.4 0.4
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Cash flow hedge
adjustment through
OCI - - - - - (3.7) - (3.7)
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Shares issued from
own share reserve - - 2.4 - - - (2.4) -
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Shares purchased
by EBT - - (3.1) - - - - (3.1)
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Reinstatement of
dilapidations provision - - - - - - (0.1) (0.1)
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Transfer of share
option costs - - - (1.4) - - 1.4 -
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Dividends paid - - - - - - (7.9) (7.9)
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Employee share
options schemes 25 - - - 2.0 - - - 2.0
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
Balance as at
31 March 2023 0.1 55.2 (0.6) 3.3 (16.5) 16.1 18.9 76.5
------------------------- ---- -------- -------- -------- -------- ---------- -------------- --------- ------
1 Refer to note 1.25
Notes to the financial statements
1. Basis of preparation and significant accounting policies
1.1 Going concern
The Group's business activities together with the factors likely
to affect its future development and position are set out in the
Strategic Report. The Directors have a reasonable expectation that
the Group will have adequate resources to continue to operate for a
period of at least 12 months from the signing of these accounts and
therefore it is on this basis that the Directors have continued to
prepare the accounts on a going concern basis. The Directors
believe that the Group will be able to refinance these facilities
either with the existing funding provider or with new third parties
to continue its growth trajectory. If these facilities were not to
be refinanced, the Group would be able to sell individual loans or
portfolio of loans to facilitate the repayment of the outstanding
amounts. This strategy is in line with the existing approach of the
Group to both hold assets on its balance sheet and sell to the
third parties. The Directors do not consider that this creates a
material uncertainty in the going concern assessment of the Group.
More information on the Directors' assessment of going concern is
set out in the Directors' Report.
1.2 General information
LendInvest plc (previously LendInvest Limited) is a public
company incorporated and domiciled in the United Kingdom under the
Companies Act 2006. The Group listed on the Alternative Investment
Market ("AIM"), a market operated by the London Stock Exchange, on
14 July 2021. The address of its registered office is given on page
[58]. The Company's registered number is 08146929. The principal
place of business of the Group is the United Kingdom.
1.3 Basis of preparation
The financial statements have been prepared in accordance with
the Companies Act 2006 and the UK-adopted international accounting
standards.
LendInvest plc transitioned to UK-adopted international
accounting standards in its consolidated financial statements on 1
April 2021. This change constitutes a change in accounting
framework. However, there is no impact on recognition, measurement
or disclosure in the period reported as a result of the change in
framework.
The financial statements have been prepared on a historical cost
basis, except as required in the valuation of certain financial
instruments which are carried at fair value. The preparation of
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 financial statements, are disclosed in this
note 1.22. The financial statements have been prepared on a going
concern basis; see note 1.1 for further details.
Items included in the financial statements are measured using
the currency of the primary economic environment in which the Group
operates ("functional currency"). The Group maintains its books and
records in pound sterling ("GBP") and its financial statements are
presented in pounds sterling, which is the Group's and the
Company's functional currency. All amounts have been rounded to the
nearest million, unless otherwise indicated.
Changes in accounting standards and policies since the last
published Annual Report IBOR reform amendments
The IASB issued a Phase 1 Amendments to IAS39, IFRS 9 and IFRS7
for IBOR Reform in September 2019. The amendments provide temporary
relief from applying specific hedge accounting requirements to
hedging relationships directly affected by IBOR reform. The reliefs
have the effect that IBOR reform should not generally cause hedge
accounting to terminate.
In prior periods, the Group adopted specific amendments that
provide temporary relief to the requirements of its fair value
hedge accounting for a portfolio hedge of interest rate risk
("macro hedge"); these are:
-- Risk components - the Group separately identifies an interest
rate risk component only at initial hedge designation and not an
ongoing basis.
-- IAS 39 prospective assessments - the Group assumes that
interest rate cash flows of the hedged item and hedging instrument
do not change as a result of IBOR reform.
-- IAS 39 retrospective effectiveness test - if the effect of
IBOR reform results in fair value changes that cause hedge
effectiveness to fail the prescribed 80%-125% range, hedge
accounting is not discontinued.
The amendments set out triggers for when the reliefs are to end,
which include the uncertainty arising from interest rate benchmark
reform no longer being present.
During the year ended 31 March 2022, the Group had transitioned
the entirety of its interest rate swap portfolio to a SONIA index
and all interest rate swap agreements entered into since are
indexed to SONIA. The newly originated BTL loans with a fixed
interest term that form the hedged item carry a reversion rate
indexed to BBR which is closely aligned to the SONIA. As such, the
uncertainty arising from the interest rate benchmark reform with
respect to hedge accounting no longer applies to the Group. The
Group has not applied the phase 1 amendments for IBOR reform to the
hedge results presented in these financial statements.
For the year ending 31 March 2023, the Group's risk exposure
that is directly affected by the IBOR reform is a portfolio of BTL
fixed-rate mortgages, that revert to a floating rate indexed to
LIBOR after a fixed term, GBP380.4 million (2022: GBP622.6
million). GBP38 million of these loans have entered the reversion
period and further GBP134 million is expected to revert to a LIBOR
floating index before the Group transitions the entirety of this
portfolio of buy-to-let loans to a BBR index by March 2024.
Since 2021 Q1, the Group has originated buy-to-let mortgages
with a BBR reversion index. In September 2021, the FCA announced
that it would permit and support the use of synthetic LIBOR with
respect to legacy contracts that had proved difficult to
transition. The FCA has not set a date for the withdrawal of
synthetic LIBOR, but has compelled the IBA to continue to publish
synthetic three-month LIBOR settings up until 28 March 2024.
Synthetic LIBOR fixing is an aggregate of the risk free rate and
a fixed spread. The fixed spread element of the synthetic LIBOR
rate will generate a maximum additional GBP0.2 million of interest
revenue on the LIBOR indexed BTL portfolio prior to transition to
BBR.
New standards and amendments not yet effective
The IASB has issued a number of amendments to reporting
standards which the Group has determined as being applicable to its
financial reporting. These amendments are effective in future
accounting periods and the Group has not opted for any early
adoption. The following amendments are effective for the period
beginning on or after 1 April 2023 and are not expected to have a
material impact on the Group:
-- IAS 1 (Amendment to classification of liabilities as current
or non-current when settlement date is uncertain).
-- IAS 1 (Amendment regarding disclosures of accounting policies).
-- IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors (Amendment - Definition of an accounting estimate, and
distinction between change in accounting estimate and change in
accounting policy).
-- IAS 12 Income Taxes (Amendments regarding deferred tax on leases).
-- IFRS 16 Leases (Amendments to clarify how a seller-lessee
subsequently measures sale and leaseback transactions).
1.4 Foreign currency
Items included in the financial statements are measured using
the functional currency and are recorded at the rates ruling when
the transactions occur. Foreign currency monetary assets and
liabilities are translated at the rates ruling at the reporting
date. Exchange differences arising on the retranslation of
unsettled monetary assets and liabilities are recognised
immediately in the statement of profit and loss.
1.5 Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term
balances that are highly liquid and are readily convertible to
known amounts of cash and which are subject to an insignificant
risk of changes in value.
1.6 Changes in the presentation of the Consolidated statement of
profit and loss
The purpose of IAS 1 - Presentation of Financial Statements - is
to prescribe the basis of general purpose financial statements, to
ensure comparability both within the entity's financial statements
of previous periods and the financial statements of other entities.
During the year, the composition of the Consolidated statement of
profit and loss has been amended to more clearly reflect the nature
of the profits from operations and to align the Consolidated
statement of profit and loss to wider industry standards to enable
comparability.
The cost of sales and gross profit lines items as reported in
the Consolidated statement of profit and loss in prior periods are
not terms generally associated with financial services entities and
the components of this line item has been reclassified to enhance
comparability to our peers, in the following way:
The interest expense and funding line costs line items are
directly related to the derivation of interest on loans and
advances under IFRS 9 - Financial Instruments, and are reported as
an element of net interest income. Origination fees, and asset
management and fund fees, relate to fee income under IFRS 15 -
Revenue recognition, and are reported as a component of net fee
income. Please refer to notes 6-9 for enhanced disclosure of the
composition of the amended line items.
The revised layout is a truer reflection of these two main
categories of profit drivers:
-- Net interest income: reflective of profits/losses from
interest and similar charges accounted for under the effective
interest rate basis as prescribed by IFRS 9 - Financial
Instruments.
-- Net fee income: reflective of profits from fees and similar
income accounted for under IFRS 15 - Revenue from Contracts with
Customers.
The table below shows the comparative position for those items
which have been reclassified and where those amounts have been
reclassified to in the Consolidated Statement of profit and
loss.
Consolidated statement of profit and loss extract
Year ended
31 March 2022
GBP'm
------------------------------------------------------------- --------------
Gain on derecognition of financial assets 6.5
------------------------------------------------------------- --------------
- Reported as gain on derecognition of financial assets 6.5
------------------------------------------------------------- --------------
Cost of sales (38.1)
------------------------------------------------------------- --------------
- Amounts reclassified to interest expenses and similar
charges (33.2)
------------------------------------------------------------- --------------
- Amounts reclassified to fee expenses (4.9)
------------------------------------------------------------- --------------
Finance income 1.2
------------------------------------------------------------- --------------
- Amounts reclassified to interest and similar income 1.2
------------------------------------------------------------- --------------
Finance expense (0.4)
------------------------------------------------------------- --------------
- Amounts reclassified to interest and similar charges (0.2)
------------------------------------------------------------- --------------
- Amounts reclassified to gain on derecognition of financial
assets (0.2)
------------------------------------------------------------- --------------
This change has no effect on the Group's profits or net
assets.
See note 1.8 for details of the recognition criteria of interest
and fee income. See note 1.9 for details and interest expense
recognition criteria and see note 1.10 for details of fee expense
recognition criteria.
The term 'Gross profit' is not generally associated with
financial services entities and has been removed from the Statement
of Profit and Loss. The line items "Net Interest Income", "Net Fee
Income" and "Net Operating Income" have been added to the restated
Statement of Profit and Loss to enhance comparability with our
peers.
1.7 Basis of consolidation
Subsidiary companies and other controlled entities
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company as
if they were a single entity.
Intra-Group transactions, balances and unrealised gains or
losses are eliminated on consolidation.
The Group operates a Share Incentive Plan ('SIP') trust and an
Employee Benefit Trust ('EBT'). These trusts are accounted for
under IFRS 10 and the assets and liabilities are consolidated into
the Group's balance sheet and shares held by the trusts in the
Group are presented as a deduction from equity.
1.8 Revenue recognition
Revenue represents interest and other income from borrowers and
for the provision of finance. Revenue recognised on loans held by
related and third parties is recognised as follows:
Recognised under IFRS 9:
Interest income calculated using the effective interest rate.
Interest on loans and advances made by the Group is recognised in
the
Consolidated statement of profit and loss using the effective
interest rate method. Under the effective interest rate method,
fees earned from borrowers and transaction costs incurred which are
integral to the creation of a loan such as arrangement, valuation
and broker fees are amortised over the expected life of the loan.
Net gains on derecognition of financial assets are recognised
immediately upon a transfer resulting in derecognition of the loan
and fees earned from borrowers and transaction costs incurred which
were previously deferred under the effective interest rate method
are crystallised. Other interest and similar income represents
income related to derivative gains and bank interest income earned
on cash deposits.
Recognised under IFRS 15:
Fee income recognised in the Consolidated statement of profit
and loss represents the fees and performance obligations shown in
the table below.
Revenue
description
within scope Timing and satisfaction
of IFRS Category per of performance Allocation of transaction
15 note 8 Performance obligation obligation price
-------------- -------------------- ----------------------- ----------------------- -------------------------
Extension Fee income When the tenure of When amended tenure Allocated as % of
fees on the loan and/or terms are outstanding loan
loans and extends its original effective balance or agreed
advances contractual fixed consideration,
term and/or amended based on the nature
loan terms are agreed of the amendment
with the customer
-------------- -------------------- ----------------------- ----------------------- -------------------------
Separate Fee income Originate and transfer Transfer of loans Allocated to each
account on origination BTL loans to customer loan transferred
partnership of loans to customer (and of loan principal)
fees to third
parties
-------------- -------------------- ----------------------- ----------------------- -------------------------
Servicing Fee income Provide administrative Series of distinct Allocated to distinct
fees on loan servicing to services with services transferred
asset management customers a similar pattern forming one performance
of transfer over obligation (accrued
time monthly in arrears)
-------------- -------------------- ----------------------- ----------------------- -------------------------
Share creation Fee income To source and introduce Introduction of Allocated according
fees on asset management new investment capital new funds to customer to value of new
to customer capital (% of new
capital)
-------------- -------------------- ----------------------- ----------------------- -------------------------
Management Fee income To provide management Series of distinct Variable consideration
fees on and administration services on % of NAV (under
asset management of loans held by with a similar management) and
customers pattern of transfer accrued in arrears
over time monthly
-------------- -------------------- ----------------------- ----------------------- -------------------------
Performance Fee income To provide investment Performance obligations Variable consideration
fees on advisory services satisfied when accrued when hurdle
asset management in the interest of increase in NAV rate is exceeded
achieving investment (under management)
objectives exceeds hurdle rate
-------------- -------------------- ----------------------- ----------------------- -------------------------
Revenue comprises the fair value of the consideration received
or receivable in the ordinary course of the Group's activities.
All revenue recorded in the financial statements is sourced from
transactions relating to property loans. Fees on these transactions
are calculated based on the above revenue recognition policy.
1.9 Interest expense and similar charges
Interest expense and similar charges comprise and are recognised
as follows:
-- Interest expenses incurred on interest-bearing liabilities.
These are recognised on an accruals basis.
-- Non-utilisation fees are incurred on any interest-bearing
liabilities that are unutilised. These are recognised on an
accruals basis.
-- Funding line amortisation of initial funding line set-up
costs. These are recognised evenly over the life of the
facility.
-- Realised effective fair value changes of hedging instruments
designated in qualifying hedging accounting relationships.
1.10 Fee expenses
Fee expenses are recognised as follows:
-- Origination costs incurred on loans originated and
immediately transferred to third parties under the separate account
partnership are recognised in full at the point of origination and
transfer in the Consolidated statement of profit and loss.
-- Asset management, fund and servicing fees, representing
introducer fees, and trail commission derived from off balance
sheet funds. These costs are recognised as they occur.
1.11 Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. As well as the purchase price, the cost includes directly
attributable costs and the estimated present value of any future
unavoidable costs of dismantling and removing items. The
corresponding liability is recognised within provisions.
Depreciation is provided on all items of property, plant and
equipment, so as to write off their carrying value over their
expected useful economic life. It is provided at the following
rates and is recognised under administration expenses in the
Consolidated statement of profit and loss:
Computer equipment 33-50% per annum straight line
Furniture and fittings 20-50% per annum straight line
Leasehold improvements lesser of lease period or useful life
1.12 Intangible fixed assets
Where it meets the criteria of IAS 38, internally developed
software expenditure is capitalised as an intangible fixed asset
and is amortised on a straight-line basis over its useful economic
life once the asset is available for use. The useful economic life
of the assets is identified as part of the project planning stage
in line with wider business objectives. The assets are amortised
over their expected useful life at 20% per annum through
administration expenses in the Consolidated statement of profit and
loss.
A change has been made to the accounting estimate for the useful
economic life of intangible fixed assets relating to the
capitalisation of internally developed software expenditure. These
assets have previously been amortised over a three-year period.
This amortisation period has been increased to five years following
a review of the useful economic life of intangible fixed assets
previously created by the Group. This change has been applied on a
prospective basis in the Consolidated statement of profit and loss.
The change in accounting estimate has reduced the amortisation
charge in the 12 month period to 31 March 2023 from GBP3.5m to
GBP1.8m. The impact on future periods is detailed in the table
below.
Future amortisation
---------------- --------- ----------------------------------------------------------
NBV at Year ended Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March 31 March 31 March
Useful economic 2023 2024 2025 2026 2027 2028
life GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
---------------- --------- ---------- ---------- ---------- ---------- ----------
3 years 8.8 (4.1) (3.3) (1.4) - -
---------------- --------- ---------- ---------- ---------- ---------- ----------
5 years 10.5 (2.5) (2.5) (2.4) (2.1) (1.0)
---------------- --------- ---------- ---------- ---------- ---------- ----------
Software licences that meet the definition of an intangible
asset, i.e. identifiable, controlled by the Group and from which
future economic benefits will flow, are initially recognised at
cost. Depreciation is provided, so as to write off their carrying
value over their expected useful economic life at the following
rates:
Computer and telephony software 20-50% per annum straight line
1.13 Deposit interest receivable
Interest receivable on bank deposits is recognised on an
accruals basis within 'Other interest and similar income' in the
Consolidated statement of profit and loss.
1.14 Administrative expenses
Administrative expenses are recognised as an expense in the
Consolidated statement of profit and loss on an accruals basis.
1.15 Provisions, contingent liabilities and contingent
assets
Provisions are liabilities of uncertain timing or amount and
contingent liabilities and contingent assets are dependent on one
or more uncertain future events. Provisions are recognised when the
Group has a present legal or constructive obligation as a result of
a past event, it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation. The
amount recognised as provisions is the best estimate of the
consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and
uncertainties surrounding the obligation.
1.16 Financial instruments
Recognition
Financial instruments are recognised in the Consolidated
Statement of financial position when the Group attains the
right/obligation to receive/deliver cash flows from the instrument
and when the risks and rights associated with ownership are
transferred to the Group.
Classification and measurement
As per IFRS 9, the Group classifies its financial instruments
with reference to both the Group's business model for managing the
assets and the contractual cash flow characteristics of the
instrument.
Financial assets
The Group's financial assets have been classified into the
following categories:
(i) At amortised cost
These are assets for which the business model is to hold the
asset and collect the contractual cash flows. The cash flows are
solely payments of principal and interest and are on specified
dates.
The Group measures drawn loans and advances held under this
business model, cash and cash equivalents and trade and other
receivables at amortised cost. On initial recognition, the asset is
held at its fair value minus any transaction costs. Subsequent
measurement is calculated on the effective interest rate method and
is subject to impairment where the recoverable value falls below
the carrying value. This assessment is performed quarterly.
(ii) At fair value through other comprehensive income
These are assets for which the business model is to collect the
contractual cash flows and to sell the assets. The contractual cash
flows are solely payments of principal and interest and are on
specified dates.
The Group measures drawn loans and advances held under this
business model at fair value through other comprehensive income.
These assets are initially recognised at fair value, plus any
attributable costs. Subsequent changes in fair value are recognised
in equity, except for impairment losses which are recognised in the
Consolidated statement of profit and loss.
For further information on the measurement of impairment losses,
please see note 19.
Upon derecognition, any accumulated movements in fair value
previously recognised in equity (fair value reserve) are
reclassified to profit or loss in the Consolidated statement of
profit and loss.
(iii) At fair value through profit or loss
These are assets for which the business model is neither to hold
nor to hold or sell, or where contractual cash flows are not solely
payments of principal and interest.
The Group designates loan commitments as financial liabilities
at fair value through profit or loss. The assets that result in
origination of the loans are initially recognised at fair value
adjusting for the recorded fair value to date.
Financial liabilities
(i) At amortised cost
All financial liabilities are measured at amortised cost, unless
IFRS 9 specifically determines they should be valued at fair value
through profit or loss.
The Group holds trade and other payables and interest-bearing
liabilities at amortised cost. On initial recognition, the
liability is held at its fair value plus any transaction costs.
Subsequent measurement is based on the effective interest rate
method.
(ii) At fair value through profit or loss
Financial liabilities are measured at fair value through profit
or loss when they meet the definition of held for trading, or when
they are designated as such to eliminate or significantly reduce an
accounting mismatch that would otherwise arise.
The carrying value of each of the categories described is
disclosed in note 26.
Derivatives
The Group holds a portfolio of derivatives for risk management
purposes. The Group's accounting treatment for derivatives that
qualify for hedge accounting is discussed in note 3.
Derivatives that do not qualify for hedge accounting are held at
fair value through profit or loss.
Forbearance
The Group maintains a forbearance policy for the servicing and
management of customers who are in financial difficulty and require
some form of concession to be granted, even if this concession
entails a loss for the Group. A concession may be either of the
following:
-- a modification of the previous terms and conditions of an
agreement, which the borrower is considered unable to comply with
due to its financial difficulties, to allow for sufficient debt
service ability, that would not have been granted had the borrower
not been in financial difficulties; or
-- a total or partial refinancing of an agreement that would not
have been granted had the borrower not been in financial
difficulties.
Forbearance in relation to an exposure can be temporary or
permanent depending on the circumstances, progress on financial
rehabilitation and the detail of the concession(s) agreed. The
Group excludes short-term repayment plans that are up to three
months in duration from its definition of forborne loans.
Modification of financial assets and financial liabilities
When a financial asset or financial liability is modified, a
quantitative and qualitative evaluation is performed to assess
whether or not the new terms are substantially different to the
original terms. For financial assets, the Group considers the
specific circumstances including:
-- if the borrower is in financial difficulty, whether the
modification merely reduces the contractual cash flows to amounts
the borrower is expected to be able to pay;
-- whether any substantial new terms are introduced that
substantially affects the risk profile of the loan;
-- significant extension of the loan term when the borrower is
not in financial difficulty;
-- significant change in the interest rate; and
-- insertion of collateral, other security or credit
enhancements that significantly affect the credit risk associated
with the loan.
The Group specifically, but not exclusively, considers the
outcome of the '10% test'. This involves a comparison of the cash
flows before and after the modification, discounted at the original
EIR, whereby a difference of more than 10% indicates the
modification is substantial.
If the terms and cash flows of the modified financial instrument
are deemed to be substantially different, the derecognition
criteria are met and the original financial instrument is
derecognised and a 'new' financial instrument is recognised at fair
value. The difference between the carrying amount of the
derecognised financial instrument and the new financial instrument
with modified terms is recognised in the statement of profit and
loss.
If the terms and cash flows of the modified financial instrument
are not deemed to be substantially different, the financial
instrument is not derecognised and the Group recalculates the 'new'
gross carrying amount of the financial instrument based on the
revised cash flows of the modified financial instrument discounted
at the original EIR and recognises any associated gain or loss in
the statement of profit and loss. Any costs and fees incurred are
recognised as an adjustment to the carrying amount of the financial
instrument and are amortised over the remaining term of the
modified financial instrument by recalculating the EIR on the
financial instrument.
Derecognition
Financial instruments are only derecognised when the contractual
rights/obligations to receive/deliver cash flows from them have
expired or when the Group has transferred substantially all risks
and rewards of ownership.
1.17 Share capital
Financial instruments issued by the Group are classified as
equity only to the extent that they do not meet the definition of a
financial liability or financial asset.
The costs of equity transactions are accounted for as a
deduction from equity to the extent they are incremental costs
directly attributable to the equity transactions that otherwise
would have been avoided. Transaction costs that relate jointly to
an equity transaction and other transactions are allocated using a
basis of allocation that is rational and consistent with similar
transactions, with the costs allocated to other transactions
reported through the Consolidated statement of profit and loss.
1.18 Share-based payments
Where the issuance of shares or rights to shares are awarded to
employees, the fair value of the options at the date of grant is
charged to the Consolidated statement of profit and loss over the
vesting period. Non-market vesting conditions are considered by
adjusting the number of equity instruments expected to vest at each
reporting date so that, ultimately, the cumulative amount
recognised over the vesting period is based on the number of
options that eventually vest. Non-vesting conditions and market
vesting conditions are factored into the fair value of the options
granted. If all other vesting conditions are satisfied, a charge is
made irrespective of whether the market vesting conditions are
satisfied. The cumulative expense is not adjusted for failure to
achieve a market vesting condition or where a non-vesting condition
is not satisfied.
Where the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to
the Consolidated statement of profit and loss over the remaining
vesting period.
1.19 Current and deferred taxation
The tax expense for the period comprises current and deferred
tax. Current tax is provided at amounts expected to be paid (or
recovered) using the tax rates and laws that have been enacted or
substantively enacted by the year end date.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the financial
statements. However, deferred tax is not accounted for if it arises
from the initial recognition of an asset or liability in a
transaction other than a business combination that, at the time of
the transaction, affects neither accounting nor taxable profit and
loss. Deferred tax is determined using tax rates and laws that have
been enacted or substantially enacted at the year end date and are
expected to apply when the related deferred tax asset is realised
or the deferred tax liability is settled. Deferred tax balances are
not discounted. Deferred tax assets are recognised to the extent
that it is probable that future taxable profit will be available
against which the temporary differences can be utilised.
1.20 Dividends
Dividends are recognised when they become legally payable. In
the case of interim dividends to Ordinary and Preferred share
shareholders, this is when paid by the Group. In the case of final
dividends to Ordinary and Preferred Share shareholders, this is
when declared by Directors and approved by the Shareholders at the
relevant Board meeting.
1.21 Write-offs
Loans and advances are written off (either partially or in full)
when there is no reasonable prospect of recovery. This is generally
the case when the primary security has been realised and the Group
is unable to reach an agreement with the borrower for immediate or
short-term repayment of the amounts subject to the write-off.
Financial assets that are written off can still be subject to
enforcement activities in order to recover amounts due. Amounts
subsequently recovered on assets previously written off are
recognised in impairment losses on financial assets in the
statement of profit and loss.
1.22 Critical accounting estimates and judgements
The preparation of these financial statements in accordance with
IFRS requires the use of estimates. It also requires management to
exercise judgement in applying the accounting policies.
Judgements
Consolidated financial statements
Subsidiary undertakings are all entities (including special
purpose entities) over which the Group has power, exposure or
rights to variable returns, and the ability to affect those returns
through its power over the undertaking. The Group has a number of
associated entities that it considers for consolidation under IFRS
10. Control is reassessed and judgement is used whenever facts and
circumstances indicate that there may be a change in these elements
of control.
Significant increase in credit risk
The determination of how significant an increase in lifetime
probability of default ("PD") should be to trigger a move between
credit risk stages for impairment requires significant judgement.
Management has adopted a test-based approach to derive objective
thresholds such that credit deterioration is recognised at the
appropriate point. See note 19 for further details. Similarly
significant judgement is also applied when assessing the risk of a
default occurring following the modification of a financial asset
that does not result in derecognition.
Fair value measurement
Judgements were applied to determine the unobservable inputs to
the fair value models used to calculate the fair values of loans
and advances. These include the discount rate, prepayment rates,
PDs, loss given default ("LGDs"), recovery costs and cure
probabilities driven from the ECL models.
Estimates and assumptions
Valuation of share-based payments
Estimating the fair value for share-based payment transactions
requires determination of the most appropriate valuation method,
which depends on the terms and conditions of the award. This
estimate also requires determination of the most appropriate inputs
to the valuation model, including the expected life of the share
option, volatility and the dividend yield and making assumptions
about them. The Group uses a Black Scholes option pricing model for
the employee share schemes. The Group estimates the forfeiture rate
of schemes based on the historic evidence of schemes that have been
awarded in previous years. The assumptions for estimating the fair
value for share-based payment transactions are disclosed in note
25.
Level 1: Quoted prices in active markets for identical
items.
Level 2: Observable direct or indirect inputs other than Level 1
inputs.
Level 3: Unobservable inputs (i.e. not derived from market data
and require a level of estimates and judgements within the
model).
Expected credit loss calculation
The accounting estimates with the most significant impact on the
calculation of impairment loss provisions under IFRS 9 are
macroeconomic variables, in particular UK house price inflation and
unemployment, and the probability weightings of the macroeconomic
scenarios used. The Group has used three macroeconomic scenarios,
which are considered to represent a range of possible outcomes over
a normal economic cycle, in determining impairment loss
provisions:
-- a central scenario aligned to the Group's business plan;
-- a downside scenario as modelled in the Group's risk management process; and
-- an upside scenario representing the impact of modest
improvements to assumptions used in the central scenario.
The central scenario represents management's current view of the
most likely economic outturn. In the period ended 31 March 2022,
significant uncertainty around the level and trajectory of UK
inflation and the subsequent impacts on the wider economy led
management to increase the downside weighting. The following
weightings of the different scenarios were used across both
Buy-to-Let and short-term ECL models for the period ended 31 March
2022:
-- 45%/50%/5% to the central, downside and upside scenarios.
Changes to macroeconomic assumptions, as expectations change
over time, are expected to lead to volatility in impairment loss
provisions and may lead to pro-cyclicality in the recognition of
impairment provisions.
For the period ended 31 March 2023, management considers that
the significant uncertainty that led to the increased downside
weighting is adequately represented in the macroeconomic data and
has reverted the scenario weightings to those provided by the
macroeconomic data source across both Buy-to-Let and short-term ECL
models as follows:
-- 40%/40%/20% to the central, downside and upside scenarios.
Sensitivity analysis on ECL models
Sensitivity analyses have been completed on a number of
different scenarios to better assess the impact of changing
variables on the ECL calculation in the current environment:
-- A 100% downside was applied to the models. This would increase the ECL by GBP1.0 million.
-- A 100% upside was applied to the models. This would decrease the ECL by GBP1.1 million
-- A 10% increase in the forced sale discount. This would increase the ECL by GBP0.2 million.
-- A 20% increase in the unemployment rate (peak of 5.2%). This
would increase the ECL by GBP0.1 million
-- A 20% decrease in UK house price inflation would increase the ECL by GBP0.5 million
Fair value measurement
A number of assets and liabilities included in the Group's
financial statements require disclosure of fair value. The fair
value measurement of the Group's financial and non-financial assets
and liabilities utilises market observable inputs and data as far
as possible. Inputs used in determining fair value measurements are
categorised into different levels based on how observable the
inputs used in the valuation technique utilised are (the 'fair
value hierarchy').See note 26 for more detailed information related
to fair value measurement.
Effective interest rate revenue recognition
The effective interest rate is the rate that exactly discounts
estimated future cash receipts through the expected life of the
financial asset.
The expected life of the financial asset is a significant area
of judgement which is estimated using the observed behavioural
performance of the assets over time and the business model under
which they are managed by the Group. Using these metrics a
repayment profile is derived and applied in determining the
performing capital balance used to calculate expected future
interest receipts.
1.23 Impairment of financial assets
Impairment of financial assets is calculated using a forward
looking expected credit loss (ECL) model. ECLs are an unbiased
probability weighted estimate of credit losses determined by
evaluating a range of scenarios and possible outcomes. Further
detail regarding the impairment of financial assets can be found in
note 19.
1.24 Fair value of financial assets
Fair value is defined as the price expected to be received on
sale of an asset in an orderly transaction between market
participants at the measurement date. Where possible, fair value is
determined with reference to quoted prices in an active market. A
market is regarded as active if transactions for the asset take
place with sufficient frequency and volume to provide pricing
information on an ongoing basis. Where quoted prices are not
available, generally accepted valuation techniques such as
discounted cash flow models are used. Where possible these
valuation techniques use independently sourced market parameters
such as asset backed security spreads. Further detail regarding the
fair value of financial assets can be found in note 26.
1.25 Prior period adjustments
(i) The Group has restated its March 2022 Consolidated statement
of financial position, Consolidated statement of other
comprehensive income, and Consolidated statement of changes in
equity, in accordance with IFRS 9. This requires entities which use
fair value hedge accounting where the hedged instrument compromises
assets that are held at fair value through other comprehensive
income to initially recognise the fair value gains or losses of the
asset through other comprehensive income and subsequently
reclassify amounts that relate to changes in the hedged risk from
equity to profit or loss over the hedged period. For the year
ending 31 March 2022, the Group was incorrectly recognising a
separate fair value gain or loss in the Consolidated statement of
financial position instead of reclassifying it through other
comprehensive income. The prior period net assets of the Group have
been increased by GBP5.8 million through this change. This change
does not effect the Consolidated statement of profit and loss, the
retained earnings of the Group or the earnings per share of the
Group.
The comparative prior period opening Consolidated statement of
financial position has not been included as it is not considered to
show a material change to the financial statements. If shown, this
would have reduced net assets and total equity by less than GBP0.1
million. Total assets would have been reduced by GBP2.5 million
being the fair value adjustment for portfolio hedged risk asset.
Instead the hedge accounting adjustment would have been recognised
net of a deferred tax amount of GBP0.6 million through the
Consolidated statement of other comprehensive, resulting in a net
adjustment of GBP1.9 million. Total liabilities would have been
reduced by GBP2.4 million fair value adjustment for portfolio
hedged risk liability. The adjustment would have otherwise been
reported through the Consolidated statement of other comprehensive
net of a deferred tax amount of GBP0.6 million, leaving in a net
adjustment of GBP1.8 million.
(ii) The Group has restated its March 2022 Consolidated
statement of financial position and Consolidated statement of cash
flows in accordance with IFRS 9. This requires accrued interest
expense on interest-bearing liabilities to be included in the
carrying value of the liability. For the year ended 31 March 2022,
the Group was incorrectly recognising accrued interest expense on
interest-bearing liabilities in trade and other payables instead of
in interest-bearing liabilities. The trade of other payables of the
Group have reduced by GBP2.8 million with a commensurate increase
in the Group's interest-bearing liabilities on the Consolidated
statement of financial position. An equivalent change has been made
to the Consolidated statement of cash flows from the movements in
these accounts.
This change does not impact the Consolidated statement of profit
and loss, Consolidated statement of other comprehensive income or
Consolidated statement of other changes in equity. There is no
change to the earnings per share of the Group resulting from this
change.
The comparative prior period opening Consolidated statement of
financial position has not been included as it is not considered to
show a material change to the financial statements. If shown, this
would have reduced trade and other payables by GBP2.3 million and
increased interest-bearing liabilities by GBP2.3 million.There
would be no change to total liabilities, net assets or total
equity.
Restated Consolidated statement of other comprehensive
income
Year ended
31 March
2022 Year ended
31 March
(reported) Restatement 2022 (restated)
GBP'm GBP'm GBP'm
------------------------------------------------ ----------- ----------- -----------------
Profit after taxation 10.9 - 10.9
------------------------------------------------ ----------- ----------- -----------------
Other comprehensive (loss)/income:
------------------------------------------------ ----------- ----------- -----------------
Items that will or may be reclassified to
profit or loss
------------------------------------------------ ----------- ----------- -----------------
Fair value loss on loans and advances measured
at fair value through other comprehensive
income (30.4) 7.7 (22.7)
------------------------------------------------ ----------- ----------- -----------------
Cash flow hedge adjustment through other
comprehensive income 29.2 - 29.2
------------------------------------------------ ----------- ----------- -----------------
Deferred tax credit on fair value movement 5.4 (1.9) 3.5
------------------------------------------------ ----------- ----------- -----------------
Deferred tax charge on cash flow hedge movement (7.1) - (7.1)
------------------------------------------------ ----------- ----------- -----------------
Other comprehensive (loss)/income for the
year (2.9) 5.8 2.9
------------------------------------------------ ----------- ----------- -----------------
Total comprehensive income for the year 8.0 5.8 13.8
------------------------------------------------ ----------- ----------- -----------------
Restated Consolidated statement of changes in equity
Fair value Cash flow
reserve hedge reserve
Employee net of net of
Share Share Own share share deferred deferred Retained
capital premium reserve reserve tax tax earnings Total
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
----------------------- -------- -------- --------- -------- ---------- -------------- --------- ------
Balance as at 31 March
2021 (reported) - 17.5 - 1.6 28.8 (2.4) 4.4 49.9
----------------------- -------- -------- --------- -------- ---------- -------------- --------- ------
Restatement - - - - 0.1 - - 0.1
----------------------- -------- -------- --------- -------- ---------- -------------- --------- ------
Balance as at 31 March
2021 (restated) - 17.5 - 1.6 28.9 (2.4) 4.4 50.0
----------------------- -------- -------- --------- -------- ---------- -------------- --------- ------
Restated Consolidated statement of cash flows (extract)
As at As at
31 March Adjustment Adjustment 31 March
2022 (reported) (i) (ii) 2022 (restated)
GBP'm GBP'm GBP'm GBP'm
---------------------------------- ---------------- ---------- ---------- ----------------
Cash used in operating activities
---------------------------------- ---------------- ---------- ---------- ----------------
Increase in trade and other
payables 21.3 - (2.8) 18.5
---------------------------------- ---------------- ---------- ---------- ----------------
Cash used in operating activities (145.1) - (2.8) (147.9)
---------------------------------- ---------------- ---------- ---------- ----------------
Cash generated from financing
activities
---------------------------------- ---------------- ---------- ---------- ----------------
Increase in interest-bearing
liabilities 171.1 - 2.8 173.9
---------------------------------- ---------------- ---------- ---------- ----------------
Cash generated from financing
activities 204.5 - 2.8 207.3
---------------------------------- ---------------- ---------- ---------- ----------------
Restated Consolidated statement of financial position
(extract)
As at As at
31 March Adjustment Adjustment 31 March
2022 (reported) (i) (ii) 2022 (restated)
GBP'm GBP'm GBP'm GBP'm
------------------------------------ ---------------- ---------- ---------- ----------------
Assets
------------------------------------ ---------------- ---------- ---------- ----------------
Fair value adjustment for portfolio
hedged risk asset 1.7 (1.7) - -
------------------------------------ ---------------- ---------- ---------- ----------------
Total assets 1,377.9 (1.7) - 1,376.2
------------------------------------ ---------------- ---------- ---------- ----------------
Liabilities
------------------------------------ ---------------- ---------- ---------- ----------------
Trade and other payables (48.6) - 2.8 (45.8)
------------------------------------ ---------------- ---------- ---------- ----------------
Interest-bearing liabilities (1,211.3) - (2.8) (1,214.1)
------------------------------------ ---------------- ---------- ---------- ----------------
Fair value adjustment for portfolio
hedged risk liability (9.4) 9.4 - -
------------------------------------ ---------------- ---------- ---------- ----------------
Deferred taxation (6.6) (1.9) - (8.5)
------------------------------------ ---------------- ---------- ---------- ----------------
Total liabilities (1,280.4) 7.5 - (1,272.9)
------------------------------------ ---------------- ---------- ---------- ----------------
Net assets 97.5 5.8 - 103.3
------------------------------------ ---------------- ---------- ---------- ----------------
Equity
------------------------------------ ---------------- ---------- ---------- ----------------
Own share reserve - 0.1 - 0.1
------------------------------------ ---------------- ---------- ---------- ----------------
Fair value hedge reserve - 5.7 - 5.7
------------------------------------ ---------------- ---------- ---------- ----------------
Total equity 97.5 5.8 - 103.3
------------------------------------ ---------------- ---------- ---------- ----------------
2. Leases
The Group reports its leases as prescribed by IFRS 16. The Group
is a lessee in a property lease arrangement in which treatment of
the lease components are as follows:
Right-of-use assets
The Group recognises a right-of-use asset at the lease
commencement date. The right-of-use asset is measured at cost, less
any accumulated depreciation and impairment losses, and is adjusted
for any remeasurement of the lease liability. The cost of the
right-of-use asset includes the amount of the lease liability
recognised, initial direct costs incurred, costs of removal and
restoration, and lease payments made at or before the commencement
date less any lease incentives received.
The Group presents right-of-use assets under property, plant and
equipment in the statement of financial position.
Right-of-use assets are depreciated on a straight-line basis
over the shorter of the estimated useful life and the lease term.
Right-of-use assets are subject to impairment. Depreciation and
impairment losses are charged to administrative expenses in the
Consolidated statement of profit and loss.
Lease liabilities
At the lease commencement date, the Group recognises a lease
liability measured at the present value of the lease payments to be
made over the lease term. The lease payments include fixed payments
less any lease incentives receivable, variable lease payments that
depend on an index or a rate, and amounts expected to be paid under
residual value guarantees. The lease payments also include the
exercise price of a purchase option reasonably certain to be
exercised by the Group and payments of penalties for terminating a
lease, if the lease term reflects the Group exercising the option
to terminate. The variable lease payments that do not depend on an
index or a rate are recognised as an administrative expense in the
Consolidated statement of profit and loss in the period in which
the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date,
unless the interest rate implicit in the lease is readily
determinable. After the commencement date, the lease liability is
increased to reflect the accretion of interest and reduced for the
lease payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in
the lease term, a change in the in-substance fixed-lease payments,
or a change in the assessment to purchase the underlying asset.
Lease term
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease if it is
reasonably certain not to be exercised.
Sublease
In December 2021, the Group entered into an arrangement to
sublet a proportion of its property lease.
The sublease is classified as a finance lease with reference to
the right-of-use asset from the head lease. The lease liability
relating to the head lease is unchanged by the new sublease
arrangement. The Group's net investment in the sublease is included
in the Consolidated statement of financial position as a separate
line item.
Right-of-use
Net investment leasehold
in sublease property Lease liabilities
GBP'm GBP'm GBP'm
--------------------------------------------------- -------------- ------------ -----------------
As at 1 April 2021 - 4.3 5.0
--------------------------------------------------- -------------- ------------ -----------------
Additions - 0.2 -
--------------------------------------------------- -------------- ------------ -----------------
Derecognition of ROU asset transferred to sublease 1.2 (1.2) -
--------------------------------------------------- -------------- ------------ -----------------
Depreciation expense - (0.9) -
--------------------------------------------------- -------------- ------------ -----------------
Interest expense - - 0.5
--------------------------------------------------- -------------- ------------ -----------------
Payments - Interest - - (0.5)
--------------------------------------------------- -------------- ------------ -----------------
Payments - Principal - - (0.9)
--------------------------------------------------- -------------- ------------ -----------------
As at 1 April 2022 1.2 2.4 4.1
--------------------------------------------------- -------------- ------------ -----------------
Depreciation expense - (0.6) -
--------------------------------------------------- -------------- ------------ -----------------
Interest expense 0.1 - 0.5
--------------------------------------------------- -------------- ------------ -----------------
Payments - interest - - (0.5)
--------------------------------------------------- -------------- ------------ -----------------
Payments - principal (0.3) - (0.9)
--------------------------------------------------- -------------- ------------ -----------------
Dilapidations provision - - 0.1
--------------------------------------------------- -------------- ------------ -----------------
As at 31 March 2023 1.0 1.8 3.3
--------------------------------------------------- -------------- ------------ -----------------
The below table sets out the amounts recognised in the
Consolidated statement of profit and loss:
Administrative Interest
expenses expense Total
Year ended 31 March 2023 GBP'm GBP'm GBP'm
----------------------------------------------- -------------- -------- ------
Depreciation expense of right-of-use asset 0.7 - 0.7
----------------------------------------------- -------------- -------- ------
Interest expense on lease liabilities - 0.5 0.5
----------------------------------------------- -------------- -------- ------
Total recognised in the Consolidated statement
of profit and loss 0.7 0.5 1.2
----------------------------------------------- -------------- -------- ------
Administrative Interest
expenses expense Total
Year ended 31 March 2022 GBP'm GBP'm GBP'm
----------------------------------------------- -------------- -------- ------
Depreciation expense of right-of-use asset 0.9 - 0.9
----------------------------------------------- -------------- -------- ------
Interest expense on lease liabilities - 0.5 0.5
----------------------------------------------- -------------- -------- ------
Total recognised in the Consolidated statement
of profit and loss 0.9 0.5 1.4
----------------------------------------------- -------------- -------- ------
3. Derivatives and hedge accounting
3.1 Hedge accounting
The Group uses interest rate swaps to manage its exposure to
fluctuations in interest rates and not for speculative
purposes.
When transactions meet the criteria of the applicable
standard:
The Group applies the requirements of IFRS 9 when hedge
accounting for variability in cash flows of a financial asset or
liability (cash flow hedge accounting).
The Group applies the requirements of IAS 39 for its fair value
hedge of interest rate risk of a portfolio of financial assets or
liabilities (macro fair value hedge accounting).
The financial statement note for derivative financial
instruments separates the derivative portfolio between the two
types of hedges in place at the balance sheet date.
At the inception of each hedge relationship, a formal hedge
documentation is prepared, describing:
-- the hedged item, a financial asset or liability which is being economically hedged;
-- the hedging instrument, a derivative financial instrument
with economic characteristics that appropriately mitigate the risk
being hedged; and
-- the methods that will be used to determine the effectiveness
of the designated hedge relationship.
IAS 39 and IFRS 9 both require that an effectiveness criterion
be met for an entity to qualify for hedge accounting. Both
accounting standards also require that hedge effectiveness be
assessed prospectively at inception and retrospectively at each
reporting date. Hedge effectiveness is the degree to which changes
in the fair value of the hedged item and hedging instrument offset.
IAS 39 specifies that the offset ratio be within the range 80%-125%
for its highly effective requirement to be met. IFRS 9 does not
require a specific offset ratio to meet hedge accounting
requirements, but instead requires that there is an economic
relationship between the hedged item and hedging instrument.
Fair value and cash flow hedges may have residual
ineffectiveness. Ineffectiveness is the extent to which changes in
the fair value of the hedging instrument fail to offset changes in
the fair value of the hedged item. Ineffectiveness is recognised in
the Consolidated statement of profit and loss as it occurs. Sources
of ineffectiveness include:
-- differences in the size and timing of future expected cash
flow of the hedging instruments and hedged item;
-- differences in the curves used to value the hedging instrument and hedged item;
-- unexpected changes to the hedged item; and
-- the designation of off-market derivatives.
The Group discontinues hedge accounting when:
-- the hedge relationship matures;
-- effectiveness testing indicates that a designated hedge
relationship ceases to meet the effectiveness requirements;
-- the hedging instrument is derecognised upon a sale, transfer or termination; or
-- the hedged item is derecognised upon sale or transfer.
3.1.1 Fair value hedge accounting
Fair value hedge accounting results in the carrying value of the
hedged item being adjusted to reflect changes in fair value
attributable to the risk being hedged, creating an offset to the
change in the fair value of the hedging instrument. The fair value
movement of both the hedged item and hedging instruments are
reported in the Consolidated statement of profit and loss through
the other interest and similar income line item.
The Group designates a portfolio of financial assets with
similar interest rate risk exposure in a portfolio (macro) hedge.
The risk item is sorted into repricing time buckets based on
expected repricing periods and hedged accordingly using interest
rate swaps with matching tenors. The fair value movements are
measured using a SONIA benchmark. For portfolio hedges that are
highly effective, the Group records fair value adjustment movements
through other comprehensive income if the hedged item is measured
at fair value through other comprehensive income and then recycles
immediately the amount of fair value movements due to the hedge
risk into the statement of profit or loss. If the hedged item is
measured at amortised costs the carrying amount will be adjusted
for fair value movements due to the hedged risks and recorded
through the statement of profit or loss. The portfolio hedges are
rebalanced regularly to include newly originated financial
assets.
If portfolio hedge accounting no longer meets the criteria for
hedge accounting, the cumulative fair value hedge adjustment is
amortised over the period to maturity of the previously designated
hedge relationship. If the hedged item is sold or repaid, the
unamortised fair value adjustment is immediately recognised in the
income statement.
3.1.2 Cash flow hedge accounting
Cash flow hedge accounting allows for the portion of the change
in the fair value of the hedging instrument that is deemed to be
effective to be deferred to the cash flow hedge reserve instead of
being immediately recognised in the Consolidate statement of profit
and loss. The ineffective portion of the hedging instrument fair
value movement is immediately recognised in the Consolidated
statement of profit and loss.
The fair value movement deferred in the cash flow hedge reserve
is subsequently 'recycled' to the Consolidated statement of profit
and loss in the period when the underlying hedged risk item impacts
the Consolidated statement of profit and loss. If the cash flow
hedge relationship ceases to meet the effectiveness criterion
required for hedge accounting and the hedged cash flows are still
expected to occur, the deferred derivative fair value movement is
held in other comprehensive income until the underlying hedged item
is recognised in the Consolidated statement of profit and loss,
through the interest expense and similar charges line item. If the
hedged item is derecognised, the cumulative gain or loss in other
comprehensive income is immediately recognised in the Consolidated
statement of profit and loss through the other interest expense and
similar charges line item.
3.2 Gains or losses from derivatives and hedge accounting
As part of its risk management strategy, the Group uses
derivatives to economically hedge the interest rate exposure of
financial assets and liabilities. The Group applies hedge
accounting to minimise the income statement volatility resulting
from changes in the fair value of derivative financial instruments
that will ordinarily be measured at fair value through profit or
loss. Such volatility does not reflect the economic reality of the
Group's hedging activities; however, volatility can arise from
hedge accounting ineffectiveness, hedge accounting not being
applied, or not being achievable at the present time.
Note 3.1 discusses the effect of fair value and cash flow hedge
accounting on the Group's financial statements, including
accounting treatment of hedge accounting ineffectiveness.
Year ended Year ended
31 March 31 March
2023 2022
(Losses)/gains from derivatives hedge accounting GBP'm GBP'm
--------------------------------------------------- ---------- ----------
(Losses)/gains from fair value hedge accounting(1) (0.7) 0.1
--------------------------------------------------- ---------- ----------
Fair value gains from other derivatives(2) 5.8 1.1
--------------------------------------------------- ---------- ----------
Total gains included in other interest and similar
income 5.1 1.2
--------------------------------------------------- ---------- ----------
1 All fair value hedges in place are portfolio hedges of
interest rate risk exposure on originated financial assets.
2 This category includes the fair value losses of hedging
instruments prior to designation to a hedge accounting
relationship.
3.3 Fair value hedge accounting
The Group manages interest rate risk using interest rate swaps
that exchange fixed cash flows for floating cash flows indexed to
market SONIA rates. These derivative instruments are designated in
a fair value hedge of the interest rate exposure of a portfolio of
financial assets. The table below provides information on the
Group's fair value hedges.
Year ended 31 March 2023
Hedged item Hedged Item(1) Instrument(1) Ineffectiveness
balance sheet Hedging Instrument Risk category GBP'm GBP'm GBP'm
------------------- ------------------- --------------- -------------- ------------- ---------------
Interest rate Interest rate:
Loans to customers swaps SONIA (14.6) 13.9 (0.7)
------------------- ------------------- --------------- -------------- ------------- ---------------
The fair value hedge ineffectiveness is reported through the
interest and similar income line item of the consolidated statement
of profit and loss.
Year ended 31 March 2022
Hedged item Hedged Item(1) Instrument(1) Ineffectiveness
balance sheet Hedging Instrument Risk category GBP'm GBP'm GBP'm
------------------- ------------------- --------------- -------------- ------------- ---------------
Interest rate Interest rate:
Loans to customers swaps SONIA (8.7) 8.8 0.1
------------------- ------------------- --------------- -------------- ------------- ---------------
1 Change in fair value used in determining hedge ineffectiveness.
3.4 Cash flow hedge accounting
The Group manages interest rate risk associated with cash flows
using interest rate swaps with floating legs benchmarked to SONIA.
The cash flows hedged are fully indexed SONIA interest payments due
on issued debt securities. The hedging instrument effectively fixes
the interest payments on the issued debt securities.
Year ended 31 March 2023
Net amounts
Hedge ineffectiveness deferred
recognised to other
Hedged item in comprehensive
balance sheet Hedging Risk Hedged Item(1) Instrument(1) income statement income
classification Instrument category GBP'm GBP'm GBP'm GBP'm
----------------- ------------ ---------- -------------- ------------- --------------------- --------------
Interest Interest
Interest-bearing rate rate:
liabilities swaps SONIA (12.9) 12.9 - 12.9
----------------- ------------ ---------- -------------- ------------- --------------------- --------------
Year ended 31 March 2022
Net amounts
Hedge ineffectiveness deferred
recognised to other
Hedged item in comprehensive
balance sheet Hedging Risk Hedged Item(1) Instrument(1) income statement income
classification Instrument category GBP'm GBP'm GBP'm GBP'm
----------------- ------------ ---------- -------------- ------------- --------------------- --------------
Interest Interest
Interest-bearing rate rate:
liabilities swaps SONIA (27.0) 27.0 - 27.0
----------------- ------------ ---------- -------------- ------------- --------------------- --------------
1 Change in fair value used in determining hedge ineffectiveness.
GBP6.6 million of derivative fair value gains designated in a
cash flow hedge relationship with loan note interest payments and
deferred through the cash flow hedge reserve in prior periods were
recycled through interest in the consolidated statement of profit
and loss. A further GBP22.9 million of derivative fair value gains
held in the cash flow hedge reserve was recycled to interest
expense on derecognition of the hedged item (loan note securities)
which were redeemed upon recall of the associated securitised
assets.
3.5 Derivatives by instrument and hedge type
All the Group's derivative financial instruments are used to
manage economic risk, although not all the derivatives are subject
to hedge accounting. The table below provides an analysis of the
notional amount and fair value of derivatives by both hedge
accounting type and instrument type. Notional amount is the amount
on which payment flows are derived and does not represent amounts
at risk.
As at 31 March 2023 As at 31 March 2022
------------------------ ----------------------------------- -----------------------------------
Notional Fair value Fair value Notional Fair value Fair value
amount -assets -liabilities amount -assets -liabilities
Macro fair value hedge: GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
------------------------ -------- ---------- ------------- -------- ---------- -------------
SONIA indexed interest
rate swaps 527.8 13.9 - 289.0 9.3 -
------------------------ -------- ---------- ------------- -------- ---------- -------------
Cash flow hedge:
------------------------ -------- ---------- ------------- -------- ---------- -------------
SONIA indexed interest
rate swaps 236.3 21.8 - 714.9 23.2 -
------------------------ -------- ---------- ------------- -------- ---------- -------------
Not subject to hedge
accounting:
------------------------ -------- ---------- ------------- -------- ---------- -------------
SONIA indexed interest
rate swaps(1) 15.0 10.3 - - - -
------------------------ -------- ---------- ------------- -------- ---------- -------------
Total 779.1 46.0 - 1,003.9 32.5 -
------------------------ -------- ---------- ------------- -------- ---------- -------------
1 Includes FV gains on forward starting swaps now designated in FVH.
3.6 Contractual maturity of hedging instruments notional
amounts
Between
Less than one and Over
As at 31 March 2023 one year five years five years Total
Macro fair value hedge: GBP'm GBP'm GBP'm GBP'm
---------------------------------- --------- ----------- ----------- ------
SONIA indexed interest rate swaps 138.9 241.7 147.2 527.8
---------------------------------- --------- ----------- ----------- ------
Cash flow hedge:
---------------------------------- --------- ----------- ----------- ------
SONIA indexed interest rate swaps 25.1 211.2 - 236.3
---------------------------------- --------- ----------- ----------- ------
Other:
---------------------------------- --------- ----------- ----------- ------
SONIA indexed interest rate swaps - 12.5 2.5 15.0
---------------------------------- --------- ----------- ----------- ------
Total 164.0 465.4 149.7 779.1
---------------------------------- --------- ----------- ----------- ------
Between
Less than one and
As at 31 March 2022 one year five years Total
Macro fair value hedge: GBP'm GBP'm GBP'm
---------------------------------- --------- ----------- -------
SONIA indexed interest rate swaps - 289.0 289.0
---------------------------------- --------- ----------- -------
Cash flow hedge:
---------------------------------- --------- ----------- -------
SONIA indexed interest rate swaps 45.2 670.5 715.7
---------------------------------- --------- ----------- -------
Total 45.2 959.5 1,004.7
---------------------------------- --------- ----------- -------
3.7 Carrying amount of hedged items
As at 31 March As at 31 March
2023 2022
---------------------------------- -------------------- --------------------
Fair value Fair value
change change
Notional of hedged Notional of hedged
amount risk amount risk
Macro fair value hedge: GBP'm GBP'm GBP'm GBP'm
---------------------------------- -------- ---------- -------- ----------
Buy-to-let mortgage loans 501.3 14.6 289.0 9.3
---------------------------------- -------- ---------- -------- ----------
Cash flow hedge:
---------------------------------- -------- ---------- -------- ----------
Interest-bearing securities (loan
notes) 236.3 21.8 714.9 23.2
---------------------------------- -------- ---------- -------- ----------
Total 737.6 36.4 1,003.9 32.5
---------------------------------- -------- ---------- -------- ----------
For the fair value hedges GBP0.1m has been recorded as a fair
value hedge adjustment to the carrying amount in the statement of
financial position for hedged items carried at amortised cost. For
all other fair value hedges the fair value movements due to the
hedged risk has been recycled from other comprehensive income to
profit or loss.
4. Financial risk management
General objectives, policies and processes
The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
framework. The risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and ensure any limits are
adhered to. The Group's activities are reviewed regularly, and
potential risks are considered. The overall objective of the Board
is to set policies that seek to reduce risk as far as possible
without unduly affecting the Group's competitiveness and
flexibility.
Risk factors
The Group has exposure to the following risks from its use of
financial instruments: credit risk, liquidity risk, and interest
rate risk.
Further details regarding these policies are set out below:
(i) Credit risk management
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations and arises principally from the Group's
loans and advances and cash and cash equivalents held at banks.
The Group's maximum exposure to credit risk by class of
financial asset is as follows:
31 March 31 March
2023 2022
Assets GBP'm GBP'm
---------------------------- -------- --------
Loans and advances 1,122.9 1,209.1
---------------------------- -------- --------
Investment securities 23.9 -
---------------------------- -------- --------
Derivative financial asset 46.0 -
---------------------------- -------- --------
Trade and other receivables 4.2 3.6
---------------------------- -------- --------
Cash and cash equivalents 46.7 118.2
---------------------------- -------- --------
1,243.7 1,330.9
---------------------------- -------- --------
The Group manages its exposure to credit losses on loans and
advances by assessing borrowers' affordability of loan repayments,
risk profile, and stability during the underwriting process.
Impairments are monitored and provided for under IFRS 9. The credit
policy is designed to ensure that the credit process is efficient
for the applicant while providing the Group with the necessary
details to make an informed credit decision.
Investment securities held by the Group relate to a 5% retained
position in structured securitisation entities that are no longer
consolidated. Recoverability of these amounts is linked to the
underlying loan portfolios within the structured securitisation
entities and is assessed with reference to publicly available
information on the underlying securitisation vehicles.
Additionally, credit enhancement measures within the securitisation
structure reduce the Group's exposure to credit losses.
Derivative financial assets are held by the Group for the
purpose of hedging interest rate risk. Credit risk is mitigated on
these assets as the derivative counterparties are with reputable
institutions. The counterparties have a Fitch credit rating of at
least A+ (stable), denoting high credit quality.
Trade and other receivables principally comprise amounts due
from related companies. The recoverability of these amounts is
reviewed on an ongoing basis, at least annually.
The fair value of cash and cash equivalents at 31 March 2023 and
31 March 2022 approximates the carrying value. Further details
regarding cash and cash equivalents can be found in note 18. Credit
risk relating to cash and cash equivalents is mitigated as cash and
cash equivalents are held with reputable institutions. These
institutions have a Moody's credit rating of Prime-1 (superior
ability to repay short-term debt obligations).
The risk of movements in the price of the underlying collateral
secured by the Group against loans to borrowers is actively managed
by the Group. Security over loan collateral is registered with the
Land Registry, and only properties within England, Wales and
Scotland are suitable for security. New loans are capped at 85% of
the open market value of the property against which security is
held, and minimum loan period interest is retained on completion
for some short-term loans. There is elevated risk of collateral
price movements given the volatility caused by the COVID-19
pandemic and the Group continues to monitor this closely and will
take proactive action to protect its position, where required.
(ii) Liquidity risk management
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group's
approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the
Group's position. The Group's liquidity position is monitored and
reviewed on an ongoing basis by the Board and the Assets and
Liabilities Committee. A key component of liquidity risk is the
Group's funding for the purpose of its long-term buy-to-let
lending. Once the facility is utilised or the term is reached, the
Buy-to-Let portfolio will be refinanced via securitisation, or sale
to third party purchasers.
The tables below analyse the Group's contractual undiscounted
cash flows of its financial assets and liabilities:
Amount
due Amount due Amount
in less Amount between due
As at 31 March Carrying Gross nominal than due within one and after five
2023 amount inflow/(outflow) six months one year five years years
Financial assets GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
Cash and cash equivalents 46.7 46.7 46.7 - - -
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
Trade and other
receivables 4.2 4.2 3.0 - 1.2 -
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
Loans and advances 1,122.9 1,927.1 205.3 164.6 203.9 1,353.3
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
Derivative financial
asset 46.0 46.0 9.1 7.9 26.4 2.6
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
Investment securities 23.9 25.6 11.1 0.4 14.1 -
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
1,243.7 2,049.6 275.2 172.9 245.6 1,355.9
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
Financial liabilities
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
Trade and other
payables (22.3) (22.3) (22.3) - - -
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
Interest-bearing
liabilities (1,159.3) (1,371.6) (257.8) (305.9) (415.9) (392.0)
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
Derivative financial
liability - - - - - -
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
Lease liability (3.3) (3.8) (0.7) (0.7) (2.4) -
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
(1,184.9) (1,397.7) (280.8) (306.6) (418.3) (392.0)
-------------------------- --------- ----------------- ----------- ----------- ----------- -----------
Loans and advances greater than five years are partly funded
through the Group's securitisation vehicle (Mortimer 2021-1 BTL
Plc) which has a final maturity of June 2053, in line with the
corresponding loan maturities. The maturity profile of the loan
notes presented above within interest bearing liabilities is based
on the contractual maturity. Subsequent to the financial year end
the Group sold its residual interest in Mortimer 2021-1 BTL Plc and
prior to this it was the Group's expectation to exercise the option
to repurchase the underlying loan portfolios to redeem the
liabilities, and to refinance them by June 2026.
Amount Amount
due due Amount due Amount
in less within between due
As at 31 March Carrying Gross nominal than one one and after five
2022 (restated) amount inflow/(outflow) six months year five years years
Financial assets GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
Cash and cash equivalents 118.2 118.2 118.2 - - -
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
Trade and other
receivables 3.6 3.6 2.4 - 1.2 -
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
Loans and advances 1,209.1 1,892.0 96.0 99.4 188.3 1,508.3
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
Derivative financial
asset 32.5 32.5 1.6 4.5 26.4 -
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
1,363.4 2,046.3 218.2 103.9 215.9 1,508.3
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
Financial liabilities
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
Trade and other
payables (45.3) (45.3) (45.3) - - -
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
Interest-bearing
liabilities (1,214.1) (1,658.1) (58.8) (3.8) (443.8) (1,151.7)
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
Derivative financial
liability - - - - - -
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
Lease liability (4.1) (5.1) (0.7) (0.7) (3.7) -
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
(1,263.5) (1,708.5) (104.8) (4.5) (447.5) (1,151.7)
-------------------------- --------- ----------------- ----------- ------- ----------- -----------
(iii) Interest rate risk management
Interest rate risk arises on fixed-rate Buy-to-Let fixed loans
where the funding of these loans is variable based on three-month
LIBOR or three-month SONIA. The risk is managed on a continuous
basis through the use of interest rate swaps.
The Group monitors exposure to repricing risk through an
interest rate gap report and matches the repricing characteristics
of its assets with its liabilities naturally where it can. The
Group uses derivatives to manage any risk above tolerable levels.
Derivatives are only used for economic hedging purposes and not as
speculative investments.
See notes 3 and 27 for further details on the derivatives held
by the Group.
(iv) Interest rate sensitivity
The sensitivity analysis below has been determined based on the
exposure to interest rates as at the reporting date. This analysis
assumes a 100 basis point change which represents the Board's
assessment of a reasonable change in interest rates. All other
variables are held constant.
Equity (net of
Profit and loss tax)
----------------------------- -------------------- --------------------
100 bp 100 bp 100 bp 100 bp
increase decrease increase decrease
31 March 2023 GBP'm GBP'm GBP'm GBP'm
----------------------------- --------- --------- --------- ---------
Interest rate swaps 41.5 5.7 19.8 12.7
----------------------------- --------- --------- --------- ---------
Cash and cash equivalents 0.5 (0.5) - -
----------------------------- --------- --------- --------- ---------
Loans and advances 0.8 (0.8) (19.0) 20.0
----------------------------- --------- --------- --------- ---------
Investment securities 0.3 (0.3) 0.2 (0.2)
----------------------------- --------- --------- --------- ---------
Interest-bearing liabilities (10.1) 10.1 - -
----------------------------- --------- --------- --------- ---------
31 March 2022
----------------------------- --------- --------- --------- ---------
Interest rate swaps 20.7 (2.7) 29.7 4.6
----------------------------- --------- --------- --------- ---------
Cash and cash equivalents 1.2 (1.2) - -
----------------------------- --------- --------- --------- ---------
Loans and advances 0.4 (0.4) (22.5) 23.6
----------------------------- --------- --------- --------- ---------
Interest-bearing liabilities (10.6) 10.6 - -
----------------------------- --------- --------- --------- ---------
The profit and loss figures for cash and cash equivalents, loan
and advances, investment securities and interest bearing
liabilities represent the effect on interest receipts and payments
recorded through profit and loss resulting from changes in interest
rates. The figures shown under the equity columns for loans and
advances reflect the expected change to fair value measured through
other comprehensive income.
The Group designates its portfolio of interest rate swaps in a
fair value or cash flow hedge. The indicative figures in the above
profit and loss columns represent a fair value change in interest
rate swaps designated in a fair value hedge; these changes are
mostly offset in the Group's statement of profit or loss by an
equivalent change in fair value of the hedged items. Figures in the
equity columns represent fair value changes in interest rate swaps
designated in a cash flow hedge relationship. In the event of such
a change, the Group will benefit from offsetting lower interest
payments on the indexed liabilities hedged by the swaps.
The sensitivity analysis of the Group's loan assets with
interest rate exposure is disclosed in note 26 (d).
(v) Capital management
The Group considers its capital to comprise its share capital,
share premium, retained earnings and the employee share reserve.
The Group's objectives when maintaining capital are:
-- to safeguard the Group's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders, and;
-- to provide an adequate return to shareholders by pricing
products and services commensurately with the level of risk.
The Group sets the amount of capital it requires in proportion
to risk. The Group manages its capital structure and makes
adjustments to it in light of changes in economic conditions and
the risk characteristics of the underlying assets. The Group uses
external debt to fund its principal activity and sets the amount of
debt that it requires in proportion to risk and lending
requirements.
5. Segmental analysis
The Group's operations are carried out solely in the UK with two
main lending products: short-term lending and Buy-to-Let mortgages.
The results and net assets of the Group are derived from the
provision of property-related loans only. Within the Group, the
Chief Operating Decision Maker ('CODM') is determined to be the
Executive Committee and it uses revenue, interest expense, and
loans and advances to manage and make decisions on the reportable
operating segments. The following summary describes the operations
of the two reportable segments:
Short-term lending
Provides finance for borrowers who need to quickly secure
property, generate cash flow or fund works through the Group's
bridging products, and provides property developers with funding to
start or exit a project through development products. The term of
these loans is generally up to 24 months.
Buy-to-Let lending
Provides finance for professional portfolio landlords looking to
purchase or remortgage buy-to-let investment properties in England,
Wales and Scotland. The mortgages are available to both individual
and corporate borrowers, and funds are lent against standard
properties as well as houses in multiple occupation and multi-unit
freehold blocks. The term of these loans is up to 30 years.
Year ended 31 March 2023 Short-term Buy-to-let
Consolidated statement of profit lending lending Central Total
and loss information GBP'm GBP'm GBP'm GBP'm
---------------------------------- ---------- ---------- ------- ------
Interest income calculated using
the effective interest rate 25.2 42.9 - 68.1
---------------------------------- ---------- ---------- ------- ------
Other interest and similar income - 5.1 - 5.1
---------------------------------- ---------- ---------- ------- ------
Interest expense and similar
charges (16.5) (18.3) - (34.8)
---------------------------------- ---------- ---------- ------- ------
Net interest income 8.7 29.7 - 38.4
---------------------------------- ---------- ---------- ------- ------
Fee income 9.1 4.4 - 13.5
---------------------------------- ---------- ---------- ------- ------
Fee expenses (1.0) (1.3) - (2.3)
---------------------------------- ---------- ---------- ------- ------
Net fee income 8.1 3.1 - 11.2
---------------------------------- ---------- ---------- ------- ------
Net gains on derecognition of
financial assets 1.1 3.8 - 4.9
---------------------------------- ---------- ---------- ------- ------
Net other operating income - - 0.2 0.2
---------------------------------- ---------- ---------- ------- ------
Net operating income 17.9 36.6 0.2 54.7
---------------------------------- ---------- ---------- ------- ------
Administrative expenses - - (34.5) (34.5)
---------------------------------- ---------- ---------- ------- ------
Impairment losses on financial
assets (5.5) (0.4) - (5.9)
---------------------------------- ---------- ---------- ------- ------
Total operating expenses (5.5) (0.4) (34.5) (40.4)
---------------------------------- ---------- ---------- ------- ------
Profit before tax 12.4 36.2 (34.3) 14.3
---------------------------------- ---------- ---------- ------- ------
Year ended 31 March 2022 (restated) Short-term Buy-to-let
Consolidated statement of profit lending lending Central Total
and loss information GBP'm GBP'm GBP'm GBP'm
------------------------------------ ---------- ---------- ------- ------
Interest income calculated using
the effective interest rate 24.7 33.9 - 58.6
------------------------------------ ---------- ---------- ------- ------
Other interest and similar income - 1.2 - 1.2
------------------------------------ ---------- ---------- ------- ------
Interest expense and similar
charges (15.0) (18.4) - (33.4)
------------------------------------ ---------- ---------- ------- ------
Net interest income 9.7 16.7 - 26.4
------------------------------------ ---------- ---------- ------- ------
Fee income 13.5 9.2 - 22.7
------------------------------------ ---------- ---------- ------- ------
Fee expenses (1.8) (3.1) - (4.9)
------------------------------------ ---------- ---------- ------- ------
Net fee income 11.7 6.1 - 17.8
------------------------------------ ---------- ---------- ------- ------
Net gains on derecognition of
financial assets 2.6 3.7 - 6.3
------------------------------------ ---------- ---------- ------- ------
Net operating income 24.0 26.5 - 50.5
------------------------------------ ---------- ---------- ------- ------
Administrative expenses - - (31.9) (31.9)
------------------------------------ ---------- ---------- ------- ------
Impairment losses on financial
assets - - (4.4) (4.4)
------------------------------------ ---------- ---------- ------- ------
Total operating expenses - - (36.3) (36.3)
------------------------------------ ---------- ---------- ------- ------
Profit before tax 24.0 26.5 (36.3) 14.2
------------------------------------ ---------- ---------- ------- ------
As at 31 March 2023 Short-term Buy-to-let
Consolidated statement of financial lending lending Central Total
position information GBP'm GBP'm GBP'm GBP'm
------------------------------------- ---------- ---------- ------- ---------
Assets
------------------------------------- ---------- ---------- ------- ---------
Loans and advances 329.9 793.0 - 1,122.9
------------------------------------- ---------- ---------- ------- ---------
Fair value adjustment for portfolio
hedged risk asset - 0.1 - 0.1
------------------------------------- ---------- ---------- ------- ---------
Derivative financial asset - 46.0 - 46.0
------------------------------------- ---------- ---------- ------- ---------
Total segment assets 329.9 839.1 - 1,169.0
------------------------------------- ---------- ---------- ------- ---------
Cash and cash equivalents - - 46.7 46.7
------------------------------------- ---------- ---------- ------- ---------
Trade and other receivables - - 6.1 6.1
------------------------------------- ---------- ---------- ------- ---------
Property, plant and equipment - - 2.2 2.2
------------------------------------- ---------- ---------- ------- ---------
Investment in securities - - 23.9 23.9
------------------------------------- ---------- ---------- ------- ---------
Net investment in sublease - - 1.0 1.0
------------------------------------- ---------- ---------- ------- ---------
Intangible fixed assets - - 10.5 10.5
------------------------------------- ---------- ---------- ------- ---------
Investment in joint venture - - 0.2 0.2
------------------------------------- ---------- ---------- ------- ---------
Investment in third parties - - 2.0 2.0
------------------------------------- ---------- ---------- ------- ---------
Deferred taxation - - 1.2 1.2
------------------------------------- ---------- ---------- ------- ---------
Total assets 329.9 839.1 93.8 1,262.8
------------------------------------- ---------- ---------- ------- ---------
Liabilities
------------------------------------- ---------- ---------- ------- ---------
Interest-bearing liabilities (331.5) (827.8) - (1,159.3)
------------------------------------- ---------- ---------- ------- ---------
Total segment liabilities (331.5) (827.8) - (1.159.3)
------------------------------------- ---------- ---------- ------- ---------
Trade and other payables - - (23.7) (23.7)
------------------------------------- ---------- ---------- ------- ---------
Lease liabilities - - (3.3) (3.3)
------------------------------------- ---------- ---------- ------- ---------
Total liabilities (331.5) (827.8) (27.0) (1,186.3)
------------------------------------- ---------- ---------- ------- ---------
As at 31 March 2022 (restated) Short-term Buy-to-let
Consolidated statement of financial lending lending Central Total
position information GBP'm GBP'm GBP'm GBP'm
------------------------------------- ---------- ---------- ------- ---------
Assets
------------------------------------- ---------- ---------- ------- ---------
Loans and advances 186.5 1,022.6 - 1,209.1
------------------------------------- ---------- ---------- ------- ---------
Derivative financial asset - 32.5 - 32.5
------------------------------------- ---------- ---------- ------- ---------
Total segment assets 186.5 1,055.1 - 1,241.6
------------------------------------- ---------- ---------- ------- ---------
Cash and cash equivalents - - 118.2 118.2
------------------------------------- ---------- ---------- ------- ---------
Trade and other receivables - - 6.3 6.3
------------------------------------- ---------- ---------- ------- ---------
Property, plant and equipment - - 2.8 2.8
------------------------------------- ---------- ---------- ------- ---------
Net investment in sublease - - 1.2 1.2
------------------------------------- ---------- ---------- ------- ---------
Intangible fixed assets - - 6.1 6.1
------------------------------------- ---------- ---------- ------- ---------
Total assets 186.5 1,055.1 134.6 1,376.2
------------------------------------- ---------- ---------- ------- ---------
Liabilities
------------------------------------- ---------- ---------- ------- ---------
Interest-bearing liabilities (195.3) (1,018.8) - (1,214.1)
------------------------------------- ---------- ---------- ------- ---------
Total segment liabilities (195.3) (1,018.8) - (1,214.1)
------------------------------------- ---------- ---------- ------- ---------
Trade and other payables - - (45.8) (45.8)
------------------------------------- ---------- ---------- ------- ---------
Corporation tax payable - - (0.4) (0.4)
------------------------------------- ---------- ---------- ------- ---------
Lease liabilities - - (4.1) (4.1)
------------------------------------- ---------- ---------- ------- ---------
Deferred taxation - - (8.5) (8.5)
------------------------------------- ---------- ---------- ------- ---------
Total liabilities (195.3) (1,018.8) (58.8) (1,272.9)
------------------------------------- ---------- ---------- ------- ---------
6. Interest and similar income
Year ended
Year ended 31 March
31 March 2022 (restated(1)
2023 )
GBP'm GBP'm
--------------------------------------------------------- ---------- ------------------
Interest income calculated using the effective
interest rate method
--------------------------------------------------------- ---------- ------------------
On loans and advances to customers 66.5 58.6
--------------------------------------------------------- ---------- ------------------
On investment securities 0.6 -
--------------------------------------------------------- ---------- ------------------
On cash deposits 1.0 -
--------------------------------------------------------- ---------- ------------------
Total interest income calculated using the effective
interest rate method 68.1 58.6
--------------------------------------------------------- ---------- ------------------
Other interest and similar income
--------------------------------------------------------- ---------- ------------------
On derivative financial instruments and hedge accounting 5.1 1.2
--------------------------------------------------------- ---------- ------------------
Total other interest and similar income 5.1 1.2
--------------------------------------------------------- ---------- ------------------
Total interest and similar income 73.2 59.8
--------------------------------------------------------- ---------- ------------------
Revenue is recognised with reference to the accounting policy
detailed in note 1.8.
7. Interest expense and similar expense
Year ended
Year ended 31 March
31 March 2022 (restated(1)
2023 )
GBP'm GBP'm
------------------------------------------- ---------- ------------------
On amounts due to funding partners ( 21.6) (12.0)
------------------------------------------- ---------- ------------------
On debt securities in issue ( 10.0) (18.0)
------------------------------------------- ---------- ------------------
Funding line cost amortisation (3.2) (3.4)
------------------------------------------- ---------- ------------------
Total interest expense and similar charges (34.8) (33.4)
------------------------------------------- ---------- ------------------
1 See note 1.6 for details of the change in presentation of the
Consolidated statement of profit and loss.
Interest expense is recognised with reference to the accounting
policy detailed in note 1.9.
8. Net fee income
Year ended
Year ended 31 March
31 March 2022 (restated(1)
2023 )
GBP'm GBP'm
----------------------------------------------------- ---------- ------------------
Fee income on loans and advances 1.9 2.9
----------------------------------------------------- ---------- ------------------
Fee income on asset management 8.8 11.3
----------------------------------------------------- ---------- ------------------
Fee income on origination of loans to third parties 2.8 8.5
----------------------------------------------------- ---------- ------------------
Fee income 13.5 22.7
----------------------------------------------------- ---------- ------------------
Fee expense on origination of loans to third parties (1.5) (3.2)
----------------------------------------------------- ---------- ------------------
Fee expense on asset management (0.8) (1.7)
----------------------------------------------------- ---------- ------------------
Fee expense (2.3) (4.9)
----------------------------------------------------- ---------- ------------------
Net fee and commission income 11.2 17.8
----------------------------------------------------- ---------- ------------------
1 See note 1.6 for details of the change in presentation of the
Consolidated statement of profit and loss.
Fee income and expense are recognised with reference to the
accounting policy detailed in notes 1.8 and 1.10.
9. Derecognition of financial assets
Year ended
31 March
Year ended 2022
31 March (restated(1)
2023 )
GBP'm GBP'm
----------------------------------------------- ---------- -------------
Net gains on sale of loans and loan portfolios 1.1 6.3
----------------------------------------------- ---------- -------------
Net gains on derecognition of securitised loan
portfolios 3.8 -
----------------------------------------------- ---------- -------------
Net gains on derecognition of financial assets 4.9 6.3
----------------------------------------------- ---------- -------------
1 See note 1.6 for details of the change in presentation of the
Consolidated statement of profit and loss.
10. Profit from operations
Profit from operations has been stated after charging:
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
-------------------------------------------------- ---------- ----------
Wages and salaries 18.0 15.8
-------------------------------------------------- ---------- ----------
Depreciation and amortisation 2.1 2.8
-------------------------------------------------- ---------- ----------
Depreciation of right-of-use asset 0.7 0.8
-------------------------------------------------- ---------- ----------
Interest expense - lease liabilities 0.5 0.5
-------------------------------------------------- ---------- ----------
Fees payable to the auditors for the audit of the
financial statements 1.0 0.5
-------------------------------------------------- ---------- ----------
Audit-related assurance services 0.1 0.1
-------------------------------------------------- ---------- ----------
Fees payable to the auditors for other assurance
services - -
-------------------------------------------------- ---------- ----------
Share-based payment charge 1.9 1.2
-------------------------------------------------- ---------- ----------
IPO Costs - 1.6
-------------------------------------------------- ---------- ----------
Other administrative expenses are incurred in the ordinary
course of the business and do not require further disclosure under
IAS 1.Included within the GBP1.0 million of fees payable to the
auditors for the audit of the financial statements, includes fees
payable to the auditors for the audit of the financial statements
of the subsidiaries, amounting to GBP323,000 (FY22: 116,000).
Non-recurring items
The Group recorded GBP1.6 million of non-recurring costs in the
consolidated statement of profit and loss for the prior period, the
year ended 31 March 2022, relating to the listing onto the London
Stock Exchange. This is aggregated as part of administrative
expenses but is deemed as infrequent or non-recurring items by
management. It has been highlighted in the Consolidated statement
of profit and loss and recognised as exceptional operational
expenditure to aid users in making an informed assessment of the
Group's revenue-generating unit.
11. Employee benefit expense
Employee benefit expense (including Directors) comprises:
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
------------------------------------------------ ---------- ----------
Wages and salaries 18.0 15.6
------------------------------------------------ ---------- ----------
Defined contribution pension cost 0.6 0.5
------------------------------------------------ ---------- ----------
Share-based payment charge 1.9 1.2
------------------------------------------------ ---------- ----------
Social security contributions and similar taxes 2.2 1.9
------------------------------------------------ ---------- ----------
22.7 19.2
------------------------------------------------ ---------- ----------
During the year, share options and Ordinary Shares were issued
to employees of the Company, see note 25 for further details.
12. Number of employees and key management compensation
The average monthly number of employees during the year was:
Year ended Year ended
31 March 31 March
2023 2022
Number Number
------------------------------ ---------- ----------
Technology and product 60 45
------------------------------ ---------- ----------
Operations and administration 134 112
------------------------------ ---------- ----------
Sales and marketing 35 30
------------------------------ ---------- ----------
229 187
------------------------------ ---------- ----------
Key management personnel compensation
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Group. Key management is defined as the Directors
of the Company listed on page [34 to 35].
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
---------------------------------------- ---------- ----------
Salary, short-term benefits and pension 1.5 1.3
---------------------------------------- ---------- ----------
Equity-based compensation 0.1 0.1
---------------------------------------- ---------- ----------
1.6 1.4
---------------------------------------- ---------- ----------
The highest paid Director in the year was paid GBP437,424 (2022:
GBP413,129). Further details on Directors' remuneration are
disclosed in the Remuneration Report in the Corporate Governance
section of the Annual Report and Accounts on pages [49 to 57].
13. Taxation on profit on ordinary activities
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
-------------------------------------------------------- ---------- ----------
Tax expense
-------------------------------------------------------- ---------- ----------
Current tax:
-------------------------------------------------------- ---------- ----------
Current tax on profit for the year 2.5 3.0
-------------------------------------------------------- ---------- ----------
Adjustments in respect of prior periods (0.3) 0.6
-------------------------------------------------------- ---------- ----------
Foreign taxes 0.1 -
-------------------------------------------------------- ---------- ----------
Total current tax charge 2.3 3.6
-------------------------------------------------------- ---------- ----------
Deferred tax:
-------------------------------------------------------- ---------- ----------
Origination and reversal of temporary differences 0.2 (0.2)
-------------------------------------------------------- ---------- ----------
Adjustments in respect of prior periods 0.4 (0.1)
-------------------------------------------------------- ---------- ----------
Total deferred tax charge/(credit) 0.6 (0.3)
-------------------------------------------------------- ---------- ----------
Total tax charge 2.9 3.3
-------------------------------------------------------- ---------- ----------
The tax charge on the profit for the year is different
to the notional tax charge calculated
at the UK corporation tax rate of 19%. The differences
are explained below:
-------------------------------------------------------- ---------- ----------
Profit before tax 14.3 14.2
-------------------------------------------------------- ---------- ----------
Profit before tax multiplied by the standard rate
of corporation tax of 19% 2.7 2.7
-------------------------------------------------------- ---------- ----------
Tax effects of:
-------------------------------------------------------- ---------- ----------
Research and development tax credit(1) - (0.1)
-------------------------------------------------------- ---------- ----------
IPO costs not deductible - 0.2
-------------------------------------------------------- ---------- ----------
Foreign taxes charged 0.1 -
-------------------------------------------------------- ---------- ----------
(Over)/under provision of current tax (0.3) 0.6
-------------------------------------------------------- ---------- ----------
(Under)/over provision of deferred tax 0.4 (0.1)
-------------------------------------------------------- ---------- ----------
Total tax charge 2.9 3.3
-------------------------------------------------------- ---------- ----------
Factors that may affect future tax charges
In March 2021, it was announced in the 2021 Budget that the main
rate of UK corporation tax would rise to 25% from 1 April 2023. The
proposal to increase the rate to 25% was substantively enacted in
May 2021.
Deferred taxation
Deferred tax is presented in the statement of financial position
as follows:
Year ended Year ended
31 March 31 March
2023 2022 (restated)
GBP'm GBP'm
-------------------------------------- ---------- ----------------
Deferred tax assets 10.8 1.3
-------------------------------------- ---------- ----------------
Deferred tax liabilities (9.6) (9.8)
-------------------------------------- ---------- ----------------
Net deferred tax assets/(liabilities) 1.2 (8.5)
-------------------------------------- ---------- ----------------
Given the corporate tax rate change to 25%, which came into
effect from 1 April 2023, in the previous financial year the Group
had previously valued its deferred tax liability in respect of fair
value gains through OCI at 25%. However, as there was uncertainty
over when the remainder of the net deferred tax asset would be
reclassified to current tax, the Group took the prudent position to
minimise the value of the asset and hold the remainder at 19%. Now
the rate change has taken effect, the remainder of the deferred tax
asset has been subject to a deferred tax rate change adjustment
through the Consolidate statement of profit and loss to increase
the value to 25%.
The movements during the year are analysed as follows:
Year ended
31 March
Year ended 2022
31 March
2023 (restated)
GBP'm GBP'm
------------------------------------------------- ---------- -----------
Net deferred tax liabilities at the beginning
of the year (8.5) (5.8)
------------------------------------------------- ---------- -----------
(Charge)/credit to the statement of profit and
loss for the year (0.2) 0.2
------------------------------------------------- ---------- -----------
Credit to other comprehensive income 10.0 (1.3)
------------------------------------------------- ---------- -----------
Rate change through other comprehensive income - (2.3)
------------------------------------------------- ---------- -----------
Rate change through equity 0.2 -
------------------------------------------------- ---------- -----------
Credit to equity 0.1 0.6
------------------------------------------------- ---------- -----------
(Under)/over provision of deferred tax (0.4) 0.1
------------------------------------------------- ---------- -----------
Net deferred tax assets/(liabilities) at the end
of the year 1.2 (8.5)
------------------------------------------------- ---------- -----------
Category of deferred tax
Charge Charge
to the to the
statement Credit/(charge) statement Rate change Rate
Opening of profit through of profit through change
balance Credit and loss OCI - and loss profit through Closing
(restated) to equity - CY CY - PY and loss equity balance
2023 GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
------------------- ----------- ---------- ---------- --------------- ---------- ----------- -------- --------
Share and share
option schemes 1.1 0.1 - - (0.1) 0.1 0.2 1.4
------------------- ----------- ---------- ---------- --------------- ---------- ----------- -------- --------
IFRS 16
transitional
adjustment 0.1 - - - - - - 0.1
------------------- ----------- ---------- ---------- --------------- ---------- ----------- -------- --------
Fair value on loans
and advances (3.2) - - 8.8 - - - 5.6
------------------- ----------- ---------- ---------- --------------- ---------- ----------- -------- --------
Cash flow hedge
adjustment (6.6) - - 1.2 - - - (5.4)
------------------- ----------- ---------- ---------- --------------- ---------- ----------- -------- --------
Research &
development - - (0.2) - (0.3) (0.1) - (0.6)
------------------- ----------- ---------- ---------- --------------- ---------- ----------- -------- --------
IFRS 9 ECL
provision 0.1 - - - - - - 0.1
------------------- ----------- ---------- ---------- --------------- ---------- ----------- -------- --------
(8.5) 0.1 (0.2) 10.0 (0.4) - 0.2 1.2
------------------- ----------- ---------- ---------- --------------- ---------- ----------- -------- --------
Credit Credit
to the to the
statement Credit/(charge) statement Rate change
of profit through of profit through
Opening Credit and loss OCI - and loss OCI - Closing
balance to equity - CY CY - PY CY balance
2022 (restated) GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
--------------------------- -------- ---------- ---------- --------------- ---------- ----------- --------
Property, plant and
equipment (0.1) - - - 0.1 - -
--------------------------- -------- ---------- ---------- --------------- ---------- ----------- --------
Share and share option
schemes 0.3 0.6 0.2 - - - 1.1
--------------------------- -------- ---------- ---------- --------------- ---------- ----------- --------
IFRS 16 transitional
adjustment 0.1 - - - - - 0.1
--------------------------- -------- ---------- ---------- --------------- ---------- ----------- --------
Fair value on loans
and advances (restated) (6.8) - - 4.3 - (0.7) (1.2)
--------------------------- -------- ---------- ---------- --------------- ---------- ----------- --------
Cash flow hedge adjustment 0.6 - - (5.6) - (1.6) (6.6)
--------------------------- -------- ---------- ---------- --------------- ---------- ----------- --------
IFRS 9 ECL provision 0.1 - - - - - 0.1
--------------------------- -------- ---------- ---------- --------------- ---------- ----------- --------
(5.8) 0.6 0.2 (1.3) 0.1 (2.3) (8.5)
--------------------------- -------- ---------- ---------- --------------- ---------- ----------- --------
14. Dividends
The Company paid GBP7.9m of dividends during the year. Of the
GBP7.9m paid, GBP6.1m relates to the final dividend for the year
ended 31 March 2022, and GBP1.8m relates to the interim dividend
for the year ended 31 March 2023 (2022: GBPnil).
15. Property, plant and equipment
The Group and Company
Computer Furniture Leasehold Right-of-use
equipment and fittings improvements asset
Cost GBP'm GBP'm GBP'm GBP'm Total
--------------------------- ---------- ------------- ------------- ------------ -----
Balance as at 31 March
2021 0.6 0.4 0.3 6.4 7.7
--------------------------- ---------- ------------- ------------- ------------ -----
Additions 0.1 - 0.1 - 0.2
--------------------------- ---------- ------------- ------------- ------------ -----
Disposals (0.4) (0.3) - - (0.7)
--------------------------- ---------- ------------- ------------- ------------ -----
Derecognition of ROU asset - - - (1.2) (1.2)
--------------------------- ---------- ------------- ------------- ------------ -----
Balance as at 31 March
2022 0.3 0.1 0.4 5.2 6.0
--------------------------- ---------- ------------- ------------- ------------ -----
Additions 0.2 - - - 0.2
--------------------------- ---------- ------------- ------------- ------------ -----
Disposals (0.1) - - - (0.1)
--------------------------- ---------- ------------- ------------- ------------ -----
Balance as at 31 March
2023 0.4 0.1 0.4 5.2 6.1
--------------------------- ---------- ------------- ------------- ------------ -----
Computer Furniture Leasehold Right-of-use
Accumulated depreciation equipment and fittings improvements asset
and impairment GBP'm GBP'm GBP'm GBP'm Total
------------------------- ---------- ------------- ------------- ------------ -----
Balance as at 31 March
2021 0.5 0.4 0.1 1.9 2.9
------------------------- ---------- ------------- ------------- ------------ -----
Charge for the year 0.1 - - 0.9 1.0
------------------------- ---------- ------------- ------------- ------------ -----
Disposals (0.4) (0.3) - - (0.7)
------------------------- ---------- ------------- ------------- ------------ -----
Balance as at 31 March
2022 0.2 0.1 0.1 2.8 3.2
------------------------- ---------- ------------- ------------- ------------ -----
Charge for the year 0.1 - 0.1 0.6 0.8
------------------------- ---------- ------------- ------------- ------------ -----
Disposals (0.1) - - - (0.1)
------------------------- ---------- ------------- ------------- ------------ -----
Balance as at 31 March
2023 0.2 0.1 0.2 3.4 3.9
------------------------- ---------- ------------- ------------- ------------ -----
Net carrying value as
at 31 March 2023 0.2 - 0.2 1.8 2.2
------------------------- ---------- ------------- ------------- ------------ -----
Net carrying value as
at 31 March 2022 0.1 - 0.3 2.4 2.8
------------------------- ---------- ------------- ------------- ------------ -----
Lease commitment
Future minimum payments under non-cancellable leases:
Year ended Year ended
31 March 31 March
2023 2022
Premises GBP'm GBP'm
------------------------------- ---------- ----------
Due within a year 1.1 1.0
------------------------------- ---------- ----------
Due between one and five years 2.2 3.1
------------------------------- ---------- ----------
Due later than five years - -
------------------------------- ---------- ----------
3.3 4.1
------------------------------- ---------- ----------
The Group has a dilapidation requirement to return the leased
office to the specification as per the lease agreement. The total
dilapidation is expected to be GBP0.1 million (2022: GBP0.1
million). The Group and the Company have no significant contingent
liabilities at year end.
16. Intangibles
Internally
Software developed
licences software Total
Premises GBP'm GBP'm GBP'm
---------------------------- --------- ---------- ------
Balance as at 31 March 2021 0.7 8.8 9.5
---------------------------- --------- ---------- ------
Additions - 3.2 3.2
---------------------------- --------- ---------- ------
Balance as at 31 March 2022 0.7 12.0 12.7
---------------------------- --------- ---------- ------
Additions - 6.3 6.3
---------------------------- --------- ---------- ------
Balance as at 31 March 2023 0.7 18.3 19.0
---------------------------- --------- ---------- ------
Internally
Software developed
licences software Total
Accumulated amortisation and impairment GBP'm GBP'm GBP'm
---------------------------------------- --------- ---------- ------
Balance as at 31 March 2021 0.4 3.6 4.0
---------------------------------------- --------- ---------- ------
Charge for the year 0.2 2.4 2.6
---------------------------------------- --------- ---------- ------
Balance as at 31 March 2022 0.6 6.0 6.6
---------------------------------------- --------- ---------- ------
Charge for the year 0.1 1.8 1.9
---------------------------------------- --------- ---------- ------
Balance as at 31 March 2023 0.7 7.8 8.5
---------------------------------------- --------- ---------- ------
Net carrying value as at 31 March 2023 - 10.5 10.5
---------------------------------------- --------- ---------- ------
Net carrying value as at 31 March 2022 0.1 6.0 6.1
---------------------------------------- --------- ---------- ------
Internally developed software development has been capitalised
as an intangible asset and is being amortised over five years. This
amortisation period has been increased from three years in the
previous reporting period. See note 1.12 for more details,
including the impact on future periods. Significant projects
include development of the Loan Engine, website lead generation and
an automated borrower/broker portal for loan applications.
Intangible assets are reviewed for indicators of impairment
annually.
17. Trade and other receivables
Year ended
31 March Year ended
2023 1 March 2022
Due within one year GBP'm GBP'm
--------------------------------- ---------- -------------
Trade receivables 0.5 1.3
--------------------------------- ---------- -------------
Other receivables:
--------------------------------- ---------- -------------
- Prepayments and accrued income 1.9 2.7
--------------------------------- ---------- -------------
- Corporate tax receivable - -
--------------------------------- ---------- -------------
- Other receivables 2.5 1.1
--------------------------------- ---------- -------------
Due after one year
--------------------------------- ---------- -------------
Rent deposit 1.2 1.2
--------------------------------- ---------- -------------
6.1 6.3
--------------------------------- ---------- -------------
The carrying value of trade and other receivables approximates
fair value and represents the maximum exposure to credit losses.
Expected credit losses on trade receivables are immaterial.
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivables mentioned above. During
the current year (and prior period) the Company had no trade
receivables that are past due, but not impaired.
18. Cash and cash equivalents
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
------------------------- ---------- ----------
Cash at bank and in hand 40.4 99.3
------------------------- ---------- ----------
Trustees' account 6.3 18.9
------------------------- ---------- ----------
46.7 118.2
------------------------- ---------- ----------
Trustees' account relates to monies held on account for the
benefit of our investors in the Self-Select Platform, prior to them
either investing in loans or withdrawing their capital.
Operationally, the Company does not treat the Trustees' balances as
available funds. An equal and opposite payable amount is included
within the trade payables balance (see note 20).
19. Loans and advances
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
------------------------- ---------- ----------
Gross loans and advances 1,168.5 1,214.9
------------------------- ---------- ----------
ECL provision (9.1) (11.0)
------------------------- ---------- ----------
Fair value adjustment(1) (36.5) 5.2
------------------------- ---------- ----------
Loans and advances 1,122.9 1,209.1
------------------------- ---------- ----------
1 Fair value adjustment to gross loans and advances due to
classification as FVOCI, based on the Group's business model for
managing these financial assets. The significant year-on-year
decrease is due to an increase between reporting dates in market
discount rates used in calculating the fair value of the Group's
Buy-to-Let loans. Key inputs into the market discount rates used in
the Group's buy-to-let fair value calculation are forward-looking
SONIA rates and market buy-to-let asset backed security spreads
which both increased steeply in the latter part of the financial
year causing the increased discount rates and a lower fair value
adjustment. This has been offset by mark-to-market increases in the
Group's interest rate swaps.
ECL provision
Movement in the period GBP'm
------------------------------------------------ ------
Under IFRS 9 at 1 April 2022 (11.0)
------------------------------------------------ ------
Additional provisions made during the period(1) (7.7)
------------------------------------------------ ------
Utilised in the period(2) 9.6
------------------------------------------------ ------
Under IFRS 9 at 31 March 2023 (9.1)
------------------------------------------------ ------
1 The ECL provision of GBP9.1 million is stated including the
expected credit losses incurred on the interest income recognised
on stage 3 loans and advances. The net ECL impact on the income
statement for the year is GBP7.7 million (2022: GBP5.5 million).
This includes the GBP6.0 million (2022: GBP4.4 million) of
impairment provisions shown in the income statement and the total
impact of expected credit losses on income recognised on stage 3
loans and advances using the effective interest rate of GBP1.7
million (2022: GBP1.1 million).
2 Loans that are written off can still be subject to enforcement
activities in order to comply with the Group's procedures for
recovery of amounts due. The contractual amount outstanding on
loans and advances that have previously been written off and are
still subject to enforcement activity is GBP8.4 million (2022:
GBP9.0 million).
Movement in the period GBP'm
------------------------------------------------ ------
Under IFRS 9 at 1 April 2021 (8.5)
------------------------------------------------ ------
Additional provisions made during the period(1) (5.5)
------------------------------------------------ ------
Utilised in the period(2) 3.0
------------------------------------------------ ------
Under IFRS 9 at 31 March 2022 (11.0)
------------------------------------------------ ------
1 The ECL provision of GBP11.0 million is stated including the
expected credit losses incurred on the interest income recognised
on stage 3 loans and advances. The net ECL impact on the income
statement for the year is GBP5.5 million (2021: GBP5.3 million).
This includes the GBP4.4 million (2021: GBP4.6 million) of
impairment provisions shown in the income statement and the total
impact of expected credit losses on income recognised on stage 3
loans and advances using the effective interest rate of GBP1.1
million (2021: GBP0.7 million).
2 Loans that are written off can still be subject to enforcement
activities in order to comply with the Group's procedures for
recovery of amounts due. The contractual amount outstanding on
loans and advances that have previously been written off and are
still subject to enforcement activity is GBP9.0 million (2021:
GBP12.2 million).
Analysis of loans and advances by stage
Stage 1 Stage 2 Stage 3 Total
Year ended 31 March 2023 GBP'm GBP'm GBP'm GBP'm
------------------------- ------- ------- ------- -------
Gross loans and advances 935.7 196.7 36.1 1,168.5
------------------------- ------- ------- ------- -------
ECL provision (0.5) (1.3) (7.3) (9.1)
------------------------- ------- ------- ------- -------
Fair value adjustment (32.9) (3.6) - (36.5)
------------------------- ------- ------- ------- -------
Loans and advances 902.3 191.8 28.8 1,122.9
------------------------- ------- ------- ------- -------
The maximum loan-to-value ("LTV") on stage 1 loans is 82%. The
maximum LTV on stage 2 loans is 87%. The maximum LTV on stage 3
loans is 247% and the total value of collateral (capped at the
gross loan value) held on stage 3 loans is GBP34.3 million.
Stage 1 Stage 2 Stage 3 Total
Year ended 31 March 2022 GBP'm GBP'm GBP'm GBP'm
------------------------- ------- ------- ------- -------
Gross loans and advances 1,025.7 153.4 35.8 1,214.9
------------------------- ------- ------- ------- -------
ECL provision (0.2) (0.9) (9.9) (11.0)
------------------------- ------- ------- ------- -------
Fair value adjustment 3.6 1.0 0.6 5.2
------------------------- ------- ------- ------- -------
Loans and advances 1,029.1 153.5 26.5 1,209.1
------------------------- ------- ------- ------- -------
The maximum LTV on stage 1 loans is 82%. The maximum LTV on
stage 2 loans is 119%. The maximum LTV on stage 3 loans is 168% and
the total value of collateral (capped at the gross loan value) held
on stage 3 loans is GBP31.4 million.
Impairment provisions are calculated on an expected credit loss
('ECL') basis. Financial assets are classified individually into
one of the categories below:
-- Stage 1 - assets are allocated to this stage on initial
recognition and remain in this stage if there is no significant
increase in credit risk since initial recognition. Impairment
provisions are recognised to cover 12-month ECL, being the
proportion of lifetime ECL arising from default events expected
within 12 months of the reporting date.
-- Stage 2 - assets where it is determined that there has been a
significant increase in credit risk since initial recognition, but
where there is no objective evidence of impairment. Impairment
provisions are recognised to cover lifetime probability of default.
An asset is deemed to have a significant increase in credit risk
where:
-- The creditworthiness of the borrower deteriorates such that
their risk grade increases by at least one grade compared with that
at origination
-- The borrower falls more than one month in arrears
-- LTV exceeds 85% for Buy-to-Let and Bridging
-- For Development assets, where a development will not meet
practical completion by the date anticipated at origination.
-- Stage 3 - assets where there is objective evidence of
impairment, i.e. they are considered to be in default. Impairment
provisions are recognised against lifetime ECL. For assets
allocated to stage 3, interest income is recognised on the balance
net of impairment provision.
-- Purchased or originated credit impaired ('POCI') - POCI
assets are financial assets that are credit impaired on initial
recognition. On initial recognition, they are recorded at fair
value. ECLs are only recognised or released to the extent that
there is a subsequent change in the ECLs. Their ECLs are always
measured on a lifetime basis.
Where there is objective evidence that asset quality has
improved, assets will be allocated to a lower risk category. For
example, loans no longer in default (stage 3) will be allocated to
either stage 2 or stage 1.
Evidence that asset quality has improved will include:
-- repayment of arrears;
-- improved credit worthiness; and
-- term extensions and the ability to service outstanding debt.
If a loss is ultimately realised, it is written off against the
provision previously provided for with any excess charged to the
impairment provision in the statement of profit and loss.
Critical accounting estimates relating to the impairment of
financial assets:
The calculation of ECLs requires the Group to make a number of
assumptions and estimates. The accuracy of the ECL calculation
would be impacted by movements in the forward-looking economic
scenarios used, or the probability weightings applied to these
scenarios and by unanticipated changes to model assumptions that
differ from actual outcomes.
The key assumptions and estimates that, depending on a range of
factors, could result in a material adjustment in the next
financial year relate to the use of forward-looking information in
the calculation of ECLs and the inputs and assumptions used in the
ECL models.
Additional information about both of these areas is set out
below.
Forward-looking information
The Group incorporates forward-looking information into the
calculation of ECLs and the assessment of whether there has been a
significant increase in credit risk ('SICR'). The use of
forward-looking information represents a key source of estimation
uncertainty.
The Group uses three forward-looking economic scenarios:
-- a central scenario aligned to the Group's business plan;
-- a downside scenario as modelled in the Group's risk management process; and
-- an upside scenario representing the impact of modest
improvements to assumptions used in the central scenario.
The macroeconomic data inputs applied in determining the Group's
expected credit losses are sourced from Oxford Economics (a
third-party provider of global economic forecasting and
analysis).
Oxford Economics combines two decades of forecast errors with
its quantitative assessment of the current risks facing the global
and domestic economy to produce robust forward-looking
distributions for the economy.
Using specific percentile points in the distribution of several
key metrics such as GDP, unemployment, house prices and commercial
real estate prices, we receive three alternative scenarios relating
to a base case (most likely), downside (broadly equivalent to a
one-in-ten year event) and a moderate upside scenario. Our
assumptions on the likely out-turn represents a weighted average of
these three scenarios provided by Oxford Economics, and are
detailed below:
Macro assumptions 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Real GDP growth
(% growth YoY)
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Base 0.01% 0.60% 2.40% 2.62% 1.43% 1.44% 1.33% 1.36% 1.37% 1.38%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Upside 0.00% 5.90% 3.80% 3.80% 1.30% 1.30% 1.20% 1.20% 1.20% 1.20%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Downside 0.01% -3.84% 1.70% 2.25% 1.54% 1.56% 1.44% 1.47% 1.49% 1.49%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Unemployment
%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Base 3.87% 4.26% 4.04% 3.76% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Upside 3.87% 3.22% 2.40% 2.12% 2.16% 2.27% 2.39% 2.50% 2.61% 2.73%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Downside 3.87% 5.58% 6.60% 6.93% 6.71% 6.50% 6.29% 6.08% 5.88% 5.67%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
House price
inflation
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Base 1.16% -7.15% -2.06% 2.68% 5.93% 5.07% 3.70% 3.39% 3.37% 3.40%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Upside 1.16% -1.45% 1.59% 6.38% 5.68% 4.82% 3.45% 3.14% 3.11% 3.15%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Downside 1.16% -13.37% -6.72% -2.58% 6.32% 5.45% 4.07% 3.77% 3.74% 3.77%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Commercial real
estate
(% growth YoY)
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Base -10.08% 3.34% 2.16% 3.11% 1.80% 1.68% 1.29% 1.22% 1.11% 1.02%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Upside -10.08% 15.50% 4.08% 3.83% -0.48% -0.15% -0.17% 0.04% 0.16% 0.25%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
Downside -10.08% -6.39% 1.63% 3.44% 3.56% 3.09% 2.42% 2.12% 1.83% 1.60%
------------------ ------- ------- ------ ------ ------ ------ ------ ----- ----- -----
GDP, unemployment rates and HPI are key metrics that indicate
the appetite for credit within the economy, the ability of
borrowers to service debt and value of underlying securities that
underpin credit risk management; all of which directly impact the
Group's operational activities and success.
The probability weightings applied to the above scenarios are
another area of estimation uncertainty. They are generally set to
ensure that there is an asymmetry in the ECL. The probability
weightings applied to the three economic scenarios used are as
follows:
Year ended Year ended
31 March 31 March
2023 2022
--------- ---------- ----------
Base 40% 45%
--------- ---------- ----------
Upside 40% 50%
--------- ---------- ----------
Downside 20% 5%
--------- ---------- ----------
In the period ended 31 March 2022, significant uncertainty
around the level and trajectory of UK inflation and the subsequent
impacts on the wider economy led management to increase the
downside weighting (as per the table above).
For the period ended 31 March 2023, management considered that
the significant uncertainty that led to the increased downside
weighting is adequately represented in the macroeconomic data and
have reverted the scenario weightings to those provided by the
macroeconomic data source across both buy-to-let and short-term ECL
models.
The Group undertakes a review of its economic scenarios and the
probability weightings applied at least quarterly, and more
frequently if required.
The results of this review are recommended to the Audit &
Risk Committee and the Board prior to any changes being
implemented.
ECL
Scenario GBP'm
------------------------------------------- ------
Expected credit losses under 100% upside 7.9
------------------------------------------- ------
Expected credit losses under 100% downside 10.0
------------------------------------------- ------
Model estimations
ECL calculations are outputs of complex models with a number of
underlying assumptions regarding the choice of variable inputs and
their interdependencies. The Group considers the key assumptions
impacting the ECL calculation to be within the PD and LGD.
Sensitivity analysis is performed by the Group to assess the impact
of changes in these key assumptions on the loss allowance
recognised on loans and advances.
A summary of the key assumptions and sensitivity analysis as at
31 March 2023 is provided in the following table:
Assumption Sensitivity analysis
-------------------- ------------------------------------------------------
Unemployment A 20% increase in the unemployment rate would increase
the total loss allowance by GBP0.1m
-------------------- ------------------------------------------------------
Forced sale discount A 10% absolute increase in the forced sale discount
would increase the loss allowance cost on loans and
advances by GBP0.2m
-------------------- ------------------------------------------------------
Movement analysis of net loans by stage
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
------------------------------------- ------- ------- ------- -------
As at 1 April 2022 1,029.1 153.5 26.5 1,209.1
------------------------------------- ------- ------- ------- -------
Transfer to stage 1 40.5 (40.5) - -
------------------------------------- ------- ------- ------- -------
Transfer to stage 2 (103.8) 104.7 (0.9) -
------------------------------------- ------- ------- ------- -------
Transfer to stage 3 (10.5) (5.3) 15.8 -
------------------------------------- ------- ------- ------- -------
New financial assets originated 621.6 - - 621.6
------------------------------------- ------- ------- ------- -------
New financial assets originated and
transferred to stage 2 or stage 3 (102.7) 99.1 3.6 -
------------------------------------- ------- ------- ------- -------
Financial assets which have repaid (149.4) (58.7) (12.6) (220.7)
------------------------------------- ------- ------- ------- -------
Balance movements in loans (422.6) (61.0) (3.5) (487.1)
------------------------------------- ------- ------- ------- -------
Total movement in loans and advances (126.9) 38.3 2.4 (86.2)
------------------------------------- ------- ------- ------- -------
As at 31 March 2023 902.2 191.8 28.9 1,122.9
------------------------------------- ------- ------- ------- -------
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
------------------------------------- ------- ------- ------- -------
As at 1 April 2021 804.3 225.7 26.6 1,056.6
------------------------------------- ------- ------- ------- -------
Transfer to stage 1 62.3 (61.4) (0.9) -
------------------------------------- ------- ------- ------- -------
Transfer to stage 2 (78.8) 79.5 (0.7) -
------------------------------------- ------- ------- ------- -------
Transfer to stage 3 (10.5) (9.2) 19.7 -
------------------------------------- ------- ------- ------- -------
New financial assets originated 491.7 - - 491.7
------------------------------------- ------- ------- ------- -------
New financial assets originated and
transferred to
stage 2 or stage 3 (50.8) 50.2 0.6 -
------------------------------------- ------- ------- ------- -------
Financial assets which have repaid (165.0) (89.8) (7.2) (262.0)
------------------------------------- ------- ------- ------- -------
Balance movements in loans (24.1) (41.5) (11.6) (77.2)
------------------------------------- ------- ------- ------- -------
Total movement in loans and advances 224.8 (72.2) (0.1) 152.5
------------------------------------- ------- ------- ------- -------
As at 31 March 2022 1,029.1 153.5 26.5 1,209.1
------------------------------------- ------- ------- ------- -------
Movement analysis of gross loans by stage
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
------------------------------------- ------- ------- ------- -------
As at 1 April 2022 1,025.7 153.4 35.8 1,214.9
------------------------------------- ------- ------- ------- -------
Transfer to stage 1 40.3 (40.3) - -
------------------------------------- ------- ------- ------- -------
Transfer to stage 2 (103.6) 104.5 (0.9) -
------------------------------------- ------- ------- ------- -------
Transfer to stage 3 (10.5) (5.4) 15.9 -
------------------------------------- ------- ------- ------- -------
New financial assets originated 645.2 - - 645.2
------------------------------------- ------- ------- ------- -------
New financial assets originated and
transferred to stage 2 or stage 3 (106.1) 102.4 3.7 -
------------------------------------- ------- ------- ------- -------
Financial assets which have repaid (147.7) (59.1) (13.4) (220.2)
------------------------------------- ------- ------- ------- -------
Balance movements in loans (407.6) (58.8) (2.0) (468.4)
------------------------------------- ------- ------- ------- -------
Write-offs - - (3.0) (3.0)
------------------------------------- ------- ------- ------- -------
Total movement in loans and advances (90.0) 43.3 0.3 (46.4)
------------------------------------- ------- ------- ------- -------
As at 31 March 2023 935.7 196.7 36.1 1,168.5
------------------------------------- ------- ------- ------- -------
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
------------------------------------- ------- ------- ------- -------
As at 1 April 2021 775.9 221.1 32.3 1,029.3
------------------------------------- ------- ------- ------- -------
Transfer to stage 1 59.8 (58.8) (1.0) -
------------------------------------- ------- ------- ------- -------
Transfer to stage 2 (76.3) 77.0 (0.7) -
------------------------------------- ------- ------- ------- -------
Transfer to stage 3 (10.4) (9.2) 19.6 -
------------------------------------- ------- ------- ------- -------
New financial assets originated 492.6 - - 492.6
------------------------------------- ------- ------- ------- -------
New financial assets originated and
transferred to stage 2 or stage 3 (50.8) 50.2 0.6 -
------------------------------------- ------- ------- ------- -------
Financial assets which have repaid (161.7) (89.4) (7.9) (259.0)
------------------------------------- ------- ------- ------- -------
Balance movements in loans (3.4) (37.5) (4.1) (45.0)
------------------------------------- ------- ------- ------- -------
Write-offs - - (3.0) (3.0)
------------------------------------- ------- ------- ------- -------
Total movement in loans and advances 249.8 (67.7) 3.5 185.6
------------------------------------- ------- ------- ------- -------
As at 31 March 2022 1,025.7 153.4 35.8 1,214.9
------------------------------------- ------- ------- ------- -------
Movement analysis of ECL by stage
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
--------------------------------------- ------- ------- ------- ------
As at 1 April 2022 0.2 0.9 9.9 11.0
--------------------------------------- ------- ------- ------- ------
Transfer to stage 1 0.3 (0.3) - -
--------------------------------------- ------- ------- ------- ------
Transfer to stage 2 - 0.1 (0.1) -
--------------------------------------- ------- ------- ------- ------
Transfer to stage 3 - (0.1) 0.1 -
--------------------------------------- ------- ------- ------- ------
New financial assets originated 1.2 - - 1.2
--------------------------------------- ------- ------- ------- ------
New financial assets originated and
transferred to stage 2 or stage 3 (0.9) 0.7 0.2 -
--------------------------------------- ------- ------- ------- ------
Financial assets which have repaid - (0.3) (1.0) (1.3)
--------------------------------------- ------- ------- ------- ------
Changes in models/risk parameters (0.3) 0.2 6.1 6.0
--------------------------------------- ------- ------- ------- ------
Adjustments for interest on impaired
loans - - 1.8 1.8
--------------------------------------- ------- ------- ------- ------
Write-offs - - (9.6) (9.6)
--------------------------------------- ------- ------- ------- ------
Total movement in impairment provision 0.3 0.3 (2.5) (1.9)
--------------------------------------- ------- ------- ------- ------
As at 31 March 2023 0.5 1.2 7.4 9.1
--------------------------------------- ------- ------- ------- ------
No POCI loans were originated during the year to 31 March 2023
and none are held at 31 March 2023.
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
--------------------------------------- ------- ------- ------- ------
As at 1 April 2021 0.7 1.7 6.1 8.5
--------------------------------------- ------- ------- ------- ------
Transfer to stage 1 0.7 (0.6) (0.1) -
--------------------------------------- ------- ------- ------- ------
Transfer to stage 2 (0.1) 0.1 - -
--------------------------------------- ------- ------- ------- ------
Transfer to stage 3 - - - -
--------------------------------------- ------- ------- ------- ------
New financial assets originated 0.4 - - 0.4
--------------------------------------- ------- ------- ------- ------
New financial assets originated and
transferred to stage 2 or stage 3 (0.3) 0.3 - -
--------------------------------------- ------- ------- ------- ------
Financial assets which have repaid (0.3) (0.4) (1.0) (1.7)
--------------------------------------- ------- ------- ------- ------
Changes in models/risk parameters (0.9) (0.2) 6.9 5.8
--------------------------------------- ------- ------- ------- ------
Adjustments for interest on impaired
loans - - 1.1 1.1
--------------------------------------- ------- ------- ------- ------
Write-offs - - (3.1) (3.1)
--------------------------------------- ------- ------- ------- ------
Total movement in impairment provision (0.5) (0.8) 3.8 2.5
--------------------------------------- ------- ------- ------- ------
As at 31 March 2022 0.2 0.9 9.9 11.0
--------------------------------------- ------- ------- ------- ------
No POCI loans were originated during the year to 31 March 2022
and none are held at 31 March 2022.
Credit risk on gross loans and advances
The table below provides information on the Group's loans and
advances by stage and risk grade.
In the year to 31 March 2022, the underlying methodology was
changed to better align loss forecasting with portfolio risk. A
ten-point risk grading has been implemented that is derived from
the behavioural score of the borrower.
Risk grades detailed in the table range from 1 to 10 with a risk
grade of 1 being assigned to cases with the lowest credit risk and
10 representing cases in default. Equifax Risk Navigator ('RN')
scores are used to assign the initial Risk Grade score with
additional SICR rules used to generate the final Risk Grade.
Stage 1 Stage 2 Stage 3 Total
Year ended 31 March 2023 GBP'm GBP'm GBP'm GBP'm
------------------------- ------- ------- ------- -------
Risk Grades 1-5 934.2 170.2 - 1,104.4
------------------------- ------- ------- ------- -------
Risk Grades 6-9 1.5 26.5 - 28.0
------------------------- ------- ------- ------- -------
Default - - 36.1 36.1
------------------------- ------- ------- ------- -------
Total 935.7 196.7 36.1 1,168.5
------------------------- ------- ------- ------- -------
Stage 1 Stage 2 Stage 3 Total
Year ended 31 March 2022 GBP'm GBP'm GBP'm GBP'm
------------------------- ------- ------- ------- -------
Risk Grades 1-5 1,024.2 147.5 - 1,171.7
------------------------- ------- ------- ------- -------
Risk Grades 6-9 1.5 5.9 3.3 10.7
------------------------- ------- ------- ------- -------
Default - - 32.5 32.5
------------------------- ------- ------- ------- -------
Total 1,025.7 153.4 35.8 1,214.9
------------------------- ------- ------- ------- -------
Critical judgements relating to the impairment of financial
assets
The Group reviews and updates the key judgements relating to
impairment of financial assets bi-annually, in advance of the
Interim Financial Report and the Annual Report and Accounts. All
key judgements are reviewed and recommended to the Audit & Risk
Committee for approval prior to implementation.
Assessing whether there has been a significant increase in
credit risk ('SICR')
If a financial asset shows a SICR, it is transferred to Stage 2
and the ECL recognised changes from a 12-month ECL to a lifetime
ECL. The assessment of whether there has been a SICR requires a
high level of judgement as detailed below. The assessment of
whether there has been a SICR also incorporates forward-looking
information.
The Group considers that a SICR has occurred when any of the
following have occurred:
1. The overall credit worthiness of the borrower has materially
worsened, indicated by a migration to a higher risk grade (see
below for risk grades and probability of default ("PDs") by
product).
2. Where a borrower is currently a month or more in arrears.
3. Where a borrower has sought some form of forbearance.
4. Where the overall leverage of the account has surpassed a
predetermined level. 75% Loan to Gross Development Value for
bridging loans and 85% for all other products.
5. Where a short-term bridging loan has less than one month
before maturity.
6. Where there is a material risk that a development loan will
not reach practical completion on time.
These factors reflect the credit lifecycle for each product and
are based on prior experience as well as insight gained from the
development of risk ratings models (probability of default).
Stage 2 criteria are designed to be effective indicators of a
SICR. As part of the bi-annual review of key impairment judgements,
the Group undertakes detailed analysis to confirm that the Stage 2
criteria remain effective. This includes (but is not limited
to):
-- Criteria effectiveness: this includes the emergence to
default for each Stage 2 criterion when compared to Stage 1, Stage
2 outflow as a percentage of Stage 2, percentage of new defaults
that were in Stage 2 in the months prior to default, time in Stage
2 prior to default and percentage of the book in Stage 2 that are
not progressing to default or curing.
-- Stage 2 stability: this includes stability of inflows and outflows from Stage 2 and 3.
-- Portfolio analysis: this includes the percentage of the
portfolio that is in Stage 2 and not defaulted, the percentage of
the Stage 2 transfer driven by Stage 2 criterion other than the
backstops and back-testing of the defaulted accounts.
For low credit risk exposures, the Group is permitted to assume,
without further analysis, that the credit risk on a financial asset
has not increased significantly since initial recognition if the
financial asset is determined to have low credit risk at the
reporting date. The Group has opted not to apply this low credit
risk exemption.
A summary of the Risk grade distribution is provided in the
table below. As the Group utilises three different risk rating
models, three separate PDs have been provided for each
portfolio.
Risk Grades 1-9 are for non-defaulted accounts with 10
indicating default. Therefore, all Stage 3 loans are assigned to
this grade.
As stated previously, degradation in a borrower's
creditworthiness is an indication of SICR. Therefore, as shown in
the table below, Stage 2 loan distributions are in the main
assigned to risk grades higher than Risk Grade 1.
Balances (GBP'm) ECL (GBP'm) Probability of default
----------- -------------------- ------------------- ---------------------------------
Stage Stage Stage Stage Stage Stage
Risk Grade 1 2 3 1 2 3 Bridging Buy-to-let Development
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
RG1 882.1 0.9 - (0.4) - - 7% 0% 0%
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
RG2 34.1 93.9 - (0.1) (0.4) - 12% 0% 1%
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
RG3 7.3 37.7 - - (0.3) - 19% 1% 2%
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
RG4 4.3 24.7 - - (0.2) - 30% 1% 3%
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
RG5 6.4 13.0 - - (0.1) - 45% 2% 4%
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
RG6 1.2 21.1 - - (0.1) - 69% 4% 6%
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
RG7 0.3 1.5 - - (0.1) - 79% 7% 8%
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
RG8 - 0.5 - - - - 88% 12% 11%
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
RG9 - 3.4 - - (0.1) - 93% 19% 15%
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
RG10 - - 36.1 - - (7.3) 100% 100% 100%
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
Total 935.7 196.7 36.1 (0.5) (1.3) (7.3) - - -
----------- ------ ----- ----- ----- ----- ----- -------- ---------- -----------
Determining whether a financial asset is in default or credit
impaired
When there is objective evidence of impairment and the financial
asset is considered to be in default, or otherwise credit-impaired,
it is transferred to Stage 3. The Group's definition of default
follows product-specific characteristics allowing for the provision
to reflect operational management of the portfolio. Below we set
out a short description of each product type and the Group's
definition of default as specific to each product.
Bridging Loans - Bridging loans are short-term loans designed
for customers requiring timely access to funds to facilitate
property purchases. Typically, loans involve residential
securities, however, commercial, semi-commercial and land is also
taken as security.
A bridging loan is considered to be in default if:
a) A borrower fails to repay their loan after 30 days and does
not seek an authorised extension.
b) It is structured and the loan is two months in arrears.
Buy-To-Let Loans - Buy-to-Let loans constitute LendInvest's
long-term lending proposition. Loans are extended to borrowers
looking to purchase a new rental property or refinance an existing
rental property. All loans carry structured repayments of interest,
with the principal paid at the end of the term.
The default definition for Buy-to-Let loans is:
a) An account that reaches an arrears balance equivalent to, or
greater than, three contractual monthly subscription payments,
b) The property is taken into receivership, or the borrower has
been declared bankrupt.
Development Loan - Development loans support borrowers looking
to undertake a significant property or site development. The
resulting site should be for residential purposes only. Loan terms
are typically for the short term (less than three years) with no
structured repayments. A development loan is defined as being in
default if it has not been redeemed 60 days after the maturity of
the loan.
The Group does not apply the rebuttable presumption that default
does not occur later when a financial asset is 90 days past
due.
Improvement in credit risk or cure - There is no cure period
assumed for loans showing improvement in credit risk. This means
that any loan that does not meet the SICR criteria is assigned to
Stage 1.
20. Investment securities
During the year, the Group obtained investment securities of
GBP23.9 million (2022: GBPnil). The investment securities relate to
a 5% retained position in structured securitisation entities that
are no longer consolidated.
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
------------------------ ---------- ----------
Retained interest in:
------------------------ ---------- ----------
Mortimer BTL 2020-1 PLC 10.7 -
------------------------ ---------- ----------
Mortimer BTL 2022-1 PLC 13.2 -
------------------------ ---------- ----------
Total 23.9 -
------------------------ ---------- ----------
Lendinvest BTL Limited sold its residual interest it held in
Mortimer BTL 2020-1 Plc . It also sold its residual interest it
held in Mortimer BTL 2022-1 Plc. The gain on sale of the residual
interests amounted to GBP4.6 million. It was assessed that with the
sale control and exposure to variable return was transferred to the
purchaser which related to the deconsolidation of Mortimer BTL
2020-1 Plc and Mortimer BTL 2022-1 Plc. The investment securities
are carried at amortised cost.
21. Trade and other payables
Year ended
31 March
Year ended 2022
31 March
2023 (restated)
GBP'm GBP'm
---------------------------------- ---------- -----------
Trade payables 15.1 26.4
---------------------------------- ---------- -----------
Other payables:
---------------------------------- ---------- -----------
- Taxes and social security costs 1.4 0.7
---------------------------------- ---------- -----------
- Accruals and deferred income 7.0 18.5
---------------------------------- ---------- -----------
- Sublease deposit rent payable 0.2 0.2
---------------------------------- ---------- -----------
23.7 45.8
---------------------------------- ---------- -----------
The trade payables balance includes Trustees' balances of GBP6.3
million (2022: GBP18.9 million) in respect of uninvested cash held
on the self-select platform, which may be withdrawn by investors at
any time.
The Company has no non-current trade and other payables. The
carrying value of trade and other payables approximates fair
value.
22. Interest-bearing liabilities
Year ended
Year ended March 2022
March 2023 (restated)
GBP'm GBP'm
---------------------------------- ------------ ------------
Funds from investors and partners 1,159.6 1,215.6
---------------------------------- ------------ ------------
Accrued interest 4.3 2.8
---------------------------------- ------------ ------------
Unamortised funding line costs (4.6) (4.3)
---------------------------------- ------------ ------------
1,159.3 1,214.1
---------------------------------- ------------ ------------
For an analysis of contractual maturity and liquidity risk,
refer to note 4. The Group is not in breach or default of any
provisions of the terms or conditions of the agreements governing
borrowings. Interest-bearing liabilities of the Group are a
combination of both fixed and floating rate liabilities and the
Group's annualised interest cost on funding has ranged between 1%
to 8% in the current financial year. Interest-bearing liabilities
have decreased in line with the decrease in loans and advances at
the financial year end.
Funding line costs are amortised on an effective interest rate
basis. Interest-bearing liabilities are secured by charges over the
assets and operations of the Group.
Net debt represents interest-bearing liabilities (as above),
less cash at bank and in hand (excluding cash held for clients) and
excluding unamortised funding line costs but including accrued
interest relating to the Group's third-party indebtedness.
A reconciliation of net debt is:
As at As at
31 March 31 March
2023 2022 (restated)
GBP'm GBP'm
------------------------------------------------- --------- ----------------
Interest-bearing liabilities 1,159.3 1,214.1
------------------------------------------------- --------- ----------------
Deduct: cash as reported in financial statements (46.7) (118.2)
------------------------------------------------- --------- ----------------
Net debt: borrowings less cash as reported in
the financial statements 1,112.6 1,095.9
------------------------------------------------- --------- ----------------
Add back: unamortised funding line costs 4.6 4.3
------------------------------------------------- --------- ----------------
Add back: Trustees' account balances 6.3 18.9
------------------------------------------------- --------- ----------------
Add back: accrued interest 4.3 2.8
------------------------------------------------- --------- ----------------
Deduct: retained interest (5.9) (2.6)
------------------------------------------------- --------- ----------------
Net debt 1,121.9 1,119.3
------------------------------------------------- --------- ----------------
Interest-bearing
liabilities Leases Derivatives
GBP'm GBP'm GBP'm
----------------------------------------- ---------------- ------ -----------
31 March 2022 (restated) (1,214.1) (4.1) 32.5
----------------------------------------- ---------------- ------ -----------
Cash flows 54.8 1.4 (8.4)
----------------------------------------- ---------------- ------ -----------
Fair value changes - - 21.9
----------------------------------------- ---------------- ------ -----------
Reinstatement of dilapidations provision - (0.1)
----------------------------------------- ---------------- ------ -----------
Lease liability interest - (0.5)
----------------------------------------- ---------------- ------ -----------
31 March 2023 (1,159.3) (3.3) 46.0
----------------------------------------- ---------------- ------ -----------
Interest-bearing
liabilities Leases Derivatives
GBP'm GBP'm GBP'm
------------------------- ---------------- ------ -----------
31 March 2021 (restated) (1,043.0) (5.0) (6.8)
------------------------- ---------------- ------ -----------
Cash flows (171.1) 1.4 2.9
------------------------- ---------------- ------ -----------
Fair value changes - - 36.4
------------------------- ---------------- ------ -----------
Lease liability interest - (0.5) -
------------------------- ---------------- ------ -----------
31 March 2022 (restated) (1,214.1) (4.1) 32.5
------------------------- ---------------- ------ -----------
23. Share capital
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2023 2023 2022 2022
Issued and fully paid up Number GBP Number GBP
-------------------------------------- ----------- ---------- ----------- ----------
Ordinary Shares 139,631,046 69,816 137,698,910 68,849
-------------------------------------- ----------- ---------- ----------- ----------
Total number of shares issued 139,631,046 69,816 137,698,910 68,849
-------------------------------------- ----------- ---------- ----------- ----------
Ordinary Shares held in EBT
Trust (1,626,705) (813) (861,000) (430)
-------------------------------------- ----------- ---------- ----------- ----------
Forfeited Ordinary Shares held
in SIP Trust (48,056) (24) (3,344) (2)
-------------------------------------- ----------- ---------- ----------- ----------
Total number of shares in circulation 137,956,285 68,979 136,834,566 68,417
-------------------------------------- ----------- ---------- ----------- ----------
Year ended Year ended
March 2023 March 2022
Share premium GBP'm GBP'm
------------------------------------- ----------- -----------
1 April 55.2 17.5
------------------------------------- ----------- -----------
Issue of new equity - 40.0
------------------------------------- ----------- -----------
Costs incurred in issuing new equity - (2.3)
------------------------------------- ----------- -----------
31 March 55.2 55.2
------------------------------------- ----------- -----------
On 14 July 2021, the Group completed a listing onto the London
Stock Exchange and all existing share classes were converted to
Ordinary Shares.
The balance on the share capital account represents the
aggregate nominal value of all Ordinary Shares in issue. There is
no maximum number of shares authorised by the Articles of
Association.
LendInvest plc has one class of ordinary share, the shares have
attached to them full voting, dividend and capital distribution
rights.
They do not confer any rights of redemption.
The balance on the share premium account represents the amounts
received in excess of the nominal value of the Ordinary and
Preferred Shares. All Ordinary Shares have a nominal value of
GBP0.0005.
Reconciliation of movements during the period
Ord Shares
-------------------------------------------------- -----------
As at 1 April 2022 137,698,910
-------------------------------------------------- -----------
Issue of shares into the Employment Benefit Trust 1,932,136
-------------------------------------------------- -----------
As at 31 March 2023 139,631,046
-------------------------------------------------- -----------
On 13 July 2022, the Group issued 682,136 shares into its
Employee Benefit Trust so it could issue shares to employees
exercising share options. On 23 March 2023, the Group issued a
further 1,250,000 shares into the Employee Benefit Trust to ensure
there were sufficient shares to issue to employees for future
option exercises.
In accordance with UITF 38, all shares held by employee trusts
are deducted from shareholders' funds and are not classified as
assets. The Group operates a SIP trust and an Employee Benefit
Trust. Shares held by these trusts are treated as a deduction from
shareholders' funds in the financial statements. Other assets and
liabilities of the trusts are consolidated in the Group's financial
statements as if they were assets and liabilities of the Group.
Included in the total number of Ordinary Shares outstanding above
are 1,626,705 (year ended 31 March 2022: 861,000) shares held by
the Group's Employee Benefit Trust, the entirety of which is
excluded from the total number of shares in circulation. 477,902
(year ended 31 March 2022: 282,408) shares held by the Group's
Share Incentive Plan Trust form part of the number of Ordinary
Shares issued; 48,056 of these shares are excluded from the total
number of shares in circulation.
24. Reserves
Reserves comprise retained earnings, own share reserve, the
employee share reserve, fair value reserves, and cash flow hedge
reserves. Retained earnings represent all net gains and losses of
the Group less directly attributable costs associated with the
issue of new equity and the employee share reserve represents the
fair value of share options issued to employees but not
exercised.
The fair value reserve represents movements in the fair value of
the financial assets classified as FVOCI and the deferred portion
of the change in the fair value of the hedging instrument that is
deemed to be effective. For the year ended 31 March 2023, the Group
recognised GBP35.0 million of fair value losses through other
comprehensive income (GBP41.8 million losses due to higher interest
curves on which the Group measures its loans and advances). For the
comparative period, a loss of GBP22.7 million was recognised
(GBP30.4 million losses due to a rising interet rate environment on
the Group's loans and advances and GBP7.7 million derivative fair
value gains).
The cash flow hedge reserve is the deferred portion of the
change in the fair value of the hedging instrument that is deemed
to be effective. During the year under review, GBP4.8 million of
derivative fair value losses were recorded through the cash flow
hedge reserve (2022: GBP29.4 million gain). A net GBP29.6 million
of deferred gains were reclassified to profit and loss and
recognised through interest expense (2022: GBP2.8 million
loss).
25. Share-based payments
Company share option plan
During the prior financial years, the Company issued share
options to employees under a Company Share Option Plan ('CSOP').
The following information is relevant in the determination of the
fair value of options granted during the year under the
equity-settled share-based remuneration schemes operated by the
Group. These options vest annually on a straight-line basis
according to the amortisation period of each award.
Year ended Year ended Year ended Year ended Year ended
31 March 2017 31 March 2018 31 March 2019 31 March 2020 31 March 2021
-------------- -------------- -------------- -------------- -------------- --------------
Option pricing Black Scholes Black Scholes Black Scholes Black Scholes Black Scholes
model used model model model model model
-------------- -------------- -------------- -------------- -------------- --------------
Valuation of
share options GBP0.15 per GBP0.30 per GBP0.6 per GBP0.6 per GBP0.9 per
at grant date share share share share share
-------------- -------------- -------------- -------------- -------------- --------------
Amortisation
period three years four years four years four years four years
-------------- -------------- -------------- -------------- -------------- --------------
Strike price GBP0.0125 GBP0.0005 GBP0.0005 GBP0.0005 GBP0.0005
-------------- -------------- -------------- -------------- -------------- --------------
September September
Expiry date 2026 November 2027 2028 August 2029 January 2031
-------------- -------------- -------------- -------------- -------------- --------------
September September
Grant date 2016 November 2017 2018 August 2019 January 2021
-------------- -------------- -------------- -------------- -------------- --------------
The movement in options is as follows:
Year ended Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March 31 March
2017 2018 2019 2020 2021
----------------------- ---------- ---------- ---------- ---------- ----------
Balance at 1 April
2021 154,197 107,375 242,650 189,250 561,500
----------------------- ---------- ---------- ---------- ---------- ----------
4:1 share/option split 462,591 322,125 727,950 567,750 1,684,500
----------------------- ---------- ---------- ---------- ---------- ----------
Granted during the
year - - - - -
----------------------- ---------- ---------- ---------- ---------- ----------
Options exercised
during the year - (16,000) (22,052) (10,000) (19,500)
----------------------- ---------- ---------- ---------- ---------- ----------
Cancelled during the
year - (12,000) (36,348) (60,000) (269,500)
----------------------- ---------- ---------- ---------- ---------- ----------
Balance at 31 March
2022 616,788 401,500 912,200 687,000 1,957,000
----------------------- ---------- ---------- ---------- ---------- ----------
Granted during the
year - - - - -
----------------------- ---------- ---------- ---------- ---------- ----------
Options exercised
during the year (616,788) (401,500) (838,800) (508,250) (202,169)
----------------------- ---------- ---------- ---------- ---------- ----------
Cancelled during the
year - - (8,750) (22,000) (91,000)
----------------------- ---------- ---------- ---------- ---------- ----------
Balance at 31 March
2023 - - 64,650 156,750 1,663,831
----------------------- ---------- ---------- ---------- ---------- ----------
The weighted average share price at the time of exercise for all
of the options exercised in the year was GBP1.38.
Awards granted in the year to 31 March 2023
During the period ended 31 March 2023, the Company operated the
following share-based payment plans, all of which are equity
settled.
a) Executive share option plans
Under the LendInvest plc 2021 Long Term Incentive Plan
('LTIP')
During the year ending 31 March 2023, conditional nil-cost
option awards were granted, consisting of deferred bonus shares and
LTIP share awards made to the Directors and a limited number of the
Senior Management team. These awards vest over a three year period
and are subject to performance conditions. For the LTIPs awarded in
2021, the performance conditions are based solely on total
shareholder return over the three year period. The LTIPs awarded in
2022 are based solely on a measure of cumulative earnings per share
over the three year period.
b) Deferred bonus plan ('DBP')
The DBP is awarded as part of the company bonus scheme which is
eligible to all employees not part of a separate commission
schemes. The DBP vests 12 months after the award date and are
forfeited by employees if they leave the business during this
period.
Movements in the number of options outstanding and their
exercise prices are set out below:
Number of
Number of shares
shares for for which
Exercise which awards Awards Awards Awards awards
Share price Date outstanding granted vested lapsed outstanding
Year of price per of at during during during at March
introduction Scheme per award award vesting March 2022 period period period 2023
-------------- ------- ---------- -------- -------- ------------- --------- ------- --------- ---------------
2021 LTIP 2.185 Nil Aug 2024 2,144,410 - - (242,560) 1,901,850
-------------- ------- ---------- -------- -------- ------------- --------- ------- --------- ---------------
2021 LTIP 2.010 Nil Dec 2024 212,120 - - (50,505) 161,615
-------------- ------- ---------- -------- -------- ------------- --------- ------- --------- ---------------
2022 LTIP 1.535 Nil Jul 2025 - 2,942,309 - (296,410) 2,645,899
-------------- ------- ---------- -------- -------- ------------- --------- ------- --------- ---------------
2022 DBP 1.535 Nil Jul 2023 - 209,160 - (20,480) 188,680
-------------- ------- ---------- -------- -------- ------------- --------- ------- --------- ---------------
The weighted average fair value of these awards granted during
the period was GBP1.535 per award.
c) Other Share Plans
Share Incentive Plan ('SIP')
An award of shares was made to employees in August 2022. The
shares awarded are held in trust for three years on the employee's
behalf, during which period the employee is entitled to any
dividends paid on such shares. The award is subject to a non-market
based condition. If an employee leaves the Group within this
three-year period for other than a 'good' reason, all of the shares
awarded will be forfeited.
On 16 August 2022, an award of free shares was made to all
eligible employees. The number of shares awarded was 296,900, with
a fair value of GBP1.495 based on the market price at the date of
award.
Movements in the number of SIP shares outstanding are set out
below:
Year ended
31 March 2023
Number of
shares
-------------------------- --------------
Outstanding at March 2022 272,076
-------------------------- --------------
Granted 296,900
-------------------------- --------------
Forfeited (91,074)
-------------------------- --------------
Outstanding at March 2023 477,902
-------------------------- --------------
Share-based payment charge recognised
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
------------------------------------------------ ---------- ----------
Executive Share Option Plans:
------------------------------------------------ ---------- ----------
Long Term Incentive Plan:
------------------------------------------------ ---------- ----------
Options granted in the year 0.4 0.3
------------------------------------------------ ---------- ----------
Options granted in prior years 0.4 -
------------------------------------------------ ---------- ----------
Other Share Plans:
------------------------------------------------ ---------- ----------
Deferred bonus plan
------------------------------------------------ ---------- ----------
Options granted in the year 0.1 -
------------------------------------------------ ---------- ----------
Options to be granted as part of Company bonus
scheme 0.4 -
------------------------------------------------ ---------- ----------
Share Incentive Plan
------------------------------------------------ ---------- ----------
Shares granted in the year 0.1 0.1
------------------------------------------------ ---------- ----------
Options granted in prior years 0.2 -
------------------------------------------------ ---------- ----------
Company Share Options Plan 0.3 0.7
------------------------------------------------ ---------- ----------
Total all plans 1.9 1.1
------------------------------------------------ ---------- ----------
Social security expense 0.1 0.1
------------------------------------------------ ---------- ----------
Total charge to the income statement (note 10) 2.0 1.2
------------------------------------------------ ---------- ----------
Weighted average exercise price
GBP
----------------- ----
At 1 April 2022 0.01
----------------- ----
At 31 March 2023 0.01
----------------- ----
Weighted average remaining contractual life
Number of
Years options
------------- ----- ---------
2018 CSOP 4.6 64,650
------------- ----- ---------
2019 CSOP 5.4 156,750
------------- ----- ---------
2020 CSOP 6.3 1,663,831
------------- ----- ---------
2021.1 LTIPs 1.4 1,901,850
------------- ----- ---------
2021.2 LTIPs 1.7 161,615
------------- ----- ---------
2022 DBP 0.3 2,645,899
------------- ----- ---------
2022 LTIPs 2.3 209,160
------------- ----- ---------
All schemes 3.4 6,803,755
------------- ----- ---------
26. Financial instruments
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are: loans and advances,
interest-bearing liabilities, trade and other receivables, cash and
cash equivalents, loans and borrowings, derivatives, and trade and
other payables.
Categorisation of financial assets and financial liabilities
The financial assets of the Group are carried at amortised cost,
fair value through other comprehensive income, or fair value
through profit and loss as at 31 March 2023 and 31 March 2022
according to the nature of the asset. All financial liabilities of
the Group are carried at amortised cost as at 31 March 2023 and 31
March 2022 due to the nature of the liability.
Financial instruments measured at amortised costs
Financial instruments measured at amortised cost, rather than
fair value, include cash and cash equivalents, trade and other
receivables, trade and other payables and interest-bearing
liabilities. Due to their short-term nature, the carrying value of
cash and cash equivalents, trade and other receivables, and trade
and other payables approximates their fair value.
(a) Carrying amount of financial instruments
A summary of the financial instruments held by category is
provided below:
As at As at
31 March 31 March
2023 2022
Financial assets at amortised cost GBP'm GBP'm
----------------------------------------------------------- --------- ---------
Cash and cash equivalents 46.7 118.2
----------------------------------------------------------- --------- ---------
Trade and other receivables 4.2 3.6
----------------------------------------------------------- --------- ---------
Loans and advances(1) 174.2 16.1
----------------------------------------------------------- --------- ---------
Investment securities 23.9 -
----------------------------------------------------------- --------- ---------
Financial assets at fair value through other comprehensive
income
----------------------------------------------------------- --------- ---------
Loans and advances 948.7 1,193.0
----------------------------------------------------------- --------- ---------
Financial assets at fair value through profit
and loss
----------------------------------------------------------- --------- ---------
Derivative financial asset 46.0 32.5
----------------------------------------------------------- --------- ---------
Loans and advances - -
----------------------------------------------------------- --------- ---------
Fair value adjustment for hedged risk asset 0.1 -
----------------------------------------------------------- --------- ---------
Total financial assets 1,243.8 1,363.4
----------------------------------------------------------- --------- ---------
1 As at 31 March 2023, the Group held loans originated under the
Government's CBILs scheme. These loans are valued at amortised cost
within the accounts. In addition, a portfolio of BTL loans that had
previously been held at fair value through other comprehensive
income as at 31 March 2022 are now being held under amortised costs
as at 31 March 2023 as a result of a change in classification to
'hold to collect'.
As at As at
31 March 31 March
2023 2022 (restated)
Financial liabilities at amortised cost GBP'm GBP'm
--------------------------------------------------- --------- ----------------
Trade and other payables (22.3) (45.3)
--------------------------------------------------- --------- ----------------
Interest-bearing liabilities (1,159.3) (1,214.1)
--------------------------------------------------- --------- ----------------
Lease liability (3.3) (4.3)
--------------------------------------------------- --------- ----------------
Financial liabilities at fair value through profit
and loss
--------------------------------------------------- --------- ----------------
Derivative financial liability - -
--------------------------------------------------- --------- ----------------
Total financial liabilities (1,184.9) (1,263.7)
--------------------------------------------------- --------- ----------------
(b) Carrying amount versus fair value
The following table compares the carrying amounts and fair
values of the Group's financial assets and financial liabilities as
at 31 March 2023 and the comparative figures:
As at 31 March As at 31 March
As at 31 March As at 31 March 2022 2022
2023 2023 carrying amount fair value
carrying amount fair value (restated) (restated)
Financial assets GBP'm GBP'm GBP'm GBP'm
----------------------------- ---------------- -------------- ---------------- --------------
Cash and cash equivalents 46.7 46.7 118.2 118.2
----------------------------- ---------------- -------------- ---------------- --------------
Trade and other receivables 4.2 4.2 3.6 3.6
----------------------------- ---------------- -------------- ---------------- --------------
Loans and advances 1,122.9 1,122.9 1,209.1 1,209.1
----------------------------- ---------------- -------------- ---------------- --------------
Derivative financial
asset 46.0 46.0 32.5 32.5
----------------------------- ---------------- -------------- ---------------- --------------
Investment securities 23.9 23.9 - -
----------------------------- ---------------- -------------- ---------------- --------------
Fair value adjustment
for portfolio hedged
risk asset 0.1 0.1 - -
----------------------------- ---------------- -------------- ---------------- --------------
Total financial assets 1,243.8 1,243.8 1,363.4 1,363.4
----------------------------- ---------------- -------------- ---------------- --------------
Financial liabilities
----------------------------- ---------------- -------------- ---------------- --------------
Trade and other payables (22.3) (22.3) (45.3) (45.3)
----------------------------- ---------------- -------------- ---------------- --------------
Interest-bearing liabilities (1,159.3) (1,157.9) (1,214.1) (1,215.0)
----------------------------- ---------------- -------------- ---------------- --------------
Derivative financial
liability - - - -
----------------------------- ---------------- -------------- ---------------- --------------
Lease liability (3.3) (3.3) (4.3) (4.3)
----------------------------- ---------------- -------------- ---------------- --------------
Total financial liabilities (1,184.9) (1,183.5) (1,263.7) (1,264.6)
----------------------------- ---------------- -------------- ---------------- --------------
The fair value of Retail Bond 2 interest-bearing liabilities is
calculated based on the mid-market price of 98.1 on 31 March 2023
(price of 100.7 on 31 March 2022).
The fair value of Retail Bond 3 interest-bearing liabilities is
calculated based on the mid-market price of 98.7 on 31 March
2023.
As per IFRS 9, loans and advances are classified as fair value
through other comprehensive income and any changes to fair value
are calculated based on the fair value model and are recognised
through the statement of other comprehensive income.
Interest-bearing liabilities continue to be classified at
amortised cost and the fair value in the table above is for
disclosure purposes only.
(c) Fair value hierarchy
The level in the fair value hierarchy within which the financial
asset or financial liability is categorised is determined on the
basis of the lowest level input that is relevant to the fair value
measurement. Financial assets and liabilities are classified in
their entirety into only one of the three levels. The fair value
hierarchy has the following levels:
Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2 - inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The objective of valuation techniques is to arrive at a fair
value measurement that reflects the price that would be received to
sell the asset or paid to transfer the liability in an orderly
transaction between market participants at the measurement
date.
As at 31 March
Financial instruments measured 2023 Level 1 Level 2 Level 3
or disclosed at fair value GBP'm GBP'm GBP'm GBP'm
-------------------------------- -------------- ------- ------- ---------
Interest rate swap 46.0 - 46.0 -
-------------------------------- -------------- ------- ------- ---------
Loans and advances 948.7 - - 948.7
-------------------------------- -------------- ------- ------- ---------
Financial instruments
measured or disclosed at
amortised cost
-------------------------------- -------------- ------- ------- ---------
Loans and advances 174.2 - - 174.2
-------------------------------- -------------- ------- ------- ---------
Interest-bearing liabilities(1) (1,157.9) (94.6) - (1,063.3)
-------------------------------- -------------- ------- ------- ---------
For all other financial instruments, the fair value is equal to
the carrying value and has not been included in the table
above.
As at 31 March
Financial instruments measured 2022 Level 1 Level 2 Level 3
or disclosed at fair value GBP'm GBP'm GBP'm GBP'm
-------------------------------- -------------- ------- ------- -------
Interest rate swap 32.5 - 32.5 -
-------------------------------- -------------- ------- ------- -------
Loans and advances 1,193.0 - - 1,193.0
-------------------------------- -------------- ------- ------- -------
Financial instruments
measured or disclosed at
amortised cost
-------------------------------- -------------- ------- ------- -------
Interest-bearing liabilities(1)
(restated) (1,215.0) (114.2) - (1,)
-------------------------------- -------------- ------- ------- -------
1 Interest-bearing liabilities are held at amortised cost on the
statement of financial position. Level 1 financial instruments
includes the Group's listed retail bond notes.
Level 2 instruments include interest rate swaps which are either
two, three or five years in length. These lengths are aligned with
the fixed interest periods of the underlying loan book. These
interest rates swaps are valued using models used to calculate the
present value of expected future cash flows and may be employed
when there are no quoted prices available for similar instruments
in active markets.
Level 3 instruments include loans and advances. The valuation of
the asset is not based on observable market data (unobservable
inputs). Valuation techniques include net present value and
discounted cash flow methods. The assumptions used in such models
include benchmark interest rates and borrower risk profile. The
objective of the valuation technique is to determine a fair value
that reflects the price of the financial instrument that would have
been used by two counterparties in an arm's length transaction.
For the year ended 31 March 2023 the Group opted to engage a
third party expert to perform the valuation of Buy-to-Let assets
held at fair value. The discount rate used in this valuation
consists of three components:
-- A risk-free rate implied from the one-month SONIA forward curve
-- Credit spread based on a comparable market deal which is
adjusted for movements in UK BTL indices
-- Illiquidity premium
Year ended
31 March
2023
Level 3 financial instruments GBP'm
----------------------------------------------------------- ----------
Level 3 assets at beginning of the period 1,193.0
----------------------------------------------------------- ----------
Additional impairment provisions made during the period(1) (7.3)
----------------------------------------------------------- ----------
Impairment provision utilised in the period 9.6
----------------------------------------------------------- ----------
Fair value adjustments on loan & advances through OCI (40.8)
----------------------------------------------------------- ----------
New level 3 assets originated 645.2
----------------------------------------------------------- ----------
Level 3 assets that have repaid (206.7)
----------------------------------------------------------- ----------
Balance movements in level 3 assets (644.3)
----------------------------------------------------------- ----------
Level 3 assets at the end of the period 948.7
----------------------------------------------------------- ----------
1 The net ECL impact on the income statement for the year is
GBP7.3m (2022: GBP5.5m). This includes the GBP5.6m (2022: GBP4.4m)
of impairment provisions shown in the income statement, and the
total impact of expected credit losses on income recognised on
stage 3 loans and advances using the effective interest rate of
GBP1.7m (2022: GBP1.1m).
Significant unobservable
Financial instrument Valuation technique used inputs Range
--------------------- ------------------------------- ------------------------- --------
Loans and advances Discounted cash flow valuation Prepayment rate 2%-12.4%
--------------------- ------------------------------- ------------------------- --------
Probability of default 16%-84%
------------------------------------------------------------------------------- --------
Discount rate 2.5%-10%
------------------------------------------------------------------------------- --------
(d) Fair value and cash flow hedge reserves
Financial Deferred Fair value
assets tax reserve
GBP'm GBP'm GBP'm
--------------------------------------------- --------- -------- ----------
Fair value and cash flow reserves at
1 April 2022 (restated) 39.2 (9.9) 29.3
--------------------------------------------- --------- -------- ----------
Movement in fair value of loans and advances
at fair value through other comprehensive
income (35.0) 8.8 (26.2)
--------------------------------------------- --------- -------- ----------
Cash flow hedge adjustment through other
comprehensive income (4.8) 1.2 (3.6)
--------------------------------------------- --------- -------- ----------
Fair value and cash flow reserves at
31 March 2023 (0.6) 0.1 (0.5)
--------------------------------------------- --------- -------- ----------
Information about sensitivity to change in significant
unobservable inputs
The significant unobservable inputs used in the fair value
measurement of the reporting entity's loans and advances are
prepayment rates and discount rates. Significant
increase/(decrease) in any of those inputs in isolation would
result in a lower/(higher) fair value measurement. A change in the
assumption of these inputs will not correlate to a change in the
other inputs. The impact of changes in observable inputs shown in
the sensitivity analysis below will be reported through other
comprehensive income.
Sensitivity analysis
Impact of changes in unobservable inputs at 31 March +100bps -100bps
2023 GBP'm GBP'm
----------------------------------------------------- ------- -------
Prepayment rates 0.6 (0.6)
----------------------------------------------------- ------- -------
Discount rate (25.3) 26.6
----------------------------------------------------- ------- -------
Probability of default - -
----------------------------------------------------- ------- -------
Impact of changes in unobservable inputs at 31 March +100bps -100bps
2022 GBP'm GBP'm
----------------------------------------------------- ------- -------
Prepayment rates (0.3) 0.3
----------------------------------------------------- ------- -------
Discount rate (30.0) 31.5
----------------------------------------------------- ------- -------
Probability of default (0.4) 0.8
----------------------------------------------------- ------- -------
The fair value of the Buy-to-Let portfolio significantly
decreased during the financial year under review and is largely
driven by a rise in market SONIA rates and inflated securitisation
rates compared to prior year end.
The fair value movement of loan and advances primarily consist
of movements in the fair value of the Buy-to-Let portfolio. The
Buy-to-Let fair value is most sensitive to discount rate movements.
The movements in the Buy-to-Let discount rate are directly linked
to changes in interest rates which the Group hedges through
interest rate swaps. Any increase or decrease in the fair value of
Buy-to-Let loans and advances will be offset by a corresponding
decrease or increase in the fair value of the derivative on the
Group's balance sheet.
27 Derivatives held for risk management
Year ended 31 March Year ended 31 March
2023 2022
---------------------------------- --------------------- ---------------------
Asset Liability Asset Liability
Instrument type GBP'm GBP'm GBP'm GBP'm
---------------------------------- -------- ----------- -------- -----------
SONIA indexed interest rate swaps 46.0 - 32.5 -
---------------------------------- -------- ----------- -------- -----------
Total 46.0 - 32.5 -
---------------------------------- -------- ----------- -------- -----------
All derivatives are held at fair value for the purpose of
managing risk exposures arising on the Group's business activities,
assets and liabilities - although not all the derivatives are
subject to hedge accounting.
There was a net increase of GBP13.5 million on the derivative
asset position during the year (2022: gain of GBP39.3 million).
The Group received GBP17.9 million in cash on termination of
in-the-money derivatives and a further GBP8.7m in quarterly
interest receipts during the year. The Group paid an initial amount
on two swaps of GBP11.9m and GBP6.3m to set the fixed leg of below
market as part of the capital structure of two special purpose
vehicles formed during the year.
A net fair value gain of GBP21.9 million of fair value gain is
recognised through the derivative asset line item in the
consolidated statement of financial position. The net notional
principal amount of the outstanding interest rate swap contracts at
31 March 2022 was GBP779.1 million (2022: GBP1,004.7 million).
28. Dividends
Year ended 31 March Year ended 31 March
2023 2022
---------------------------------- --------------------- ---------------------
Pence per Pence per
GBP'm share GBP'm share
---------------------------------- ------- ------------ ------- ------------
Final dividend for the prior year 6.1 4.4 - -
---------------------------------- ------- ------------ ------- ------------
Interim dividend for the current
year 1.8 1.3 - -
---------------------------------- ------- ------------ ------- ------------
Total 7.9 - - -
---------------------------------- ------- ------------ ------- ------------
The Directors propose that a final dividend in respect of the
year ended 31 March 2023 of 3.2p per share will be paid on the 13
October 2023 to all shareholders on the Register of Members on the
15 September 2023. This dividend is subject to approval by
shareholders at the AGM and has not been accrued as a liability in
these financial statements in accordance with IAS 10 'Events after
the reporting period'.
29. Investment in joint ventures
During the year the Lendinvest Loan Holdings Limited entered
into a Joint Venture Agreement to establish a private company
limited by shares, Tradelend Limited. Under the joint venture
agreement, Tradelend Limited is a private company limited by shares
and incorporated in England under the Companies Act 2006.
Lendinvest Loan Holdings Limited beneficially owns 51% of the paid
up capital of the company. The company is set up to carry out the
business of making available development finance, bridging loans,
and any other finance loans to intermediaries, landlords and
developers across the United Kingdom.
Tradelend Limited is accounted for as a joint venture under IFRS
11 - Joint Arrangements, using the equity method under IAS 28 -
Investments in Associates and Joint Ventures, and subject to the
disclosure requirements for joint ventures under IFRS 12 -
Disclosure of Interest in Other Entities.
Tradelend Limited did not trade during the year.
30. Investment in third parties
In December 2022, LendInvest Capital GP II S.a.r.l. invested
GBP2.0m into LendInvest SCA SICAV-RAIF (the Fund) - LendInvest
Secured Credit Fund II (the sub-fund). The investment was made into
Share Class II which is an accumulating GBP share class. The share
class provides a targeted net return of between 6-8% a year based
on the profits generated from the property loans which the fund has
invested. It provides no control over the fund and represents less
than 2% of the total invested by all investors into the fund.
31. Related-party transactions
See note 12 for analysis of director compensation. In March
2023, the Group engaged with Nina Spencer, one of the non-executive
directors, via Addidat Limited, to provide ESG benchmarking
services against other AIM listed companies. The total cost of the
services was GBP26,000, of which half of this amount was recognised
in the year ended 31 March 2023. There were no other related-party
transactions during the period to 31 March 2023 that would
materially affect the position or performance of the Group.
32. Controlling party
In the opinion of the Directors, the Group does not have a
single controlling party.
33. Events after the reporting date
On 14 April 2023 the Group sold its residual economic interest
in its third securitisation Mortimer 2021-1 BTL plc and
derecognised the loans from its balance sheet, resulting in a
derecognition of financial assets of GBP226.5 million.
On 26 May 2023, the Group sold a portfolio of GBP250m of
Buy-to-Let loans for a total consideration of GBP243 million
inclusive of the proceeds from cancelled interest rate
derivatives.
On 30 June 2023, the Group agreed terms for a forward flow
arrangement allowing for the origination and immediate sale of
GBP500m of Buy-to-let and residential mortgages that will not be
funded on the Group's balance sheet.
34. Earnings per share
Year ended Year ended
31 March 31 March
2023 2022
Basic earnings per share Pence/share Pence/share
----------------------------------------------- ------------ ------------
Total basic earnings per share attributable to
the ordinary equity holders of the Group 8.3p 8.3p
----------------------------------------------- ------------ ------------
Year ended Year ended
31 March 31 March
2023 2022
Diluted earnings per share Pence/share Pence/share
----------------------------------------------- ------------ ------------
Total basic earnings per share attributable to
the ordinary equity holders of the Group 8.0p 8.0p
----------------------------------------------- ------------ ------------
Year ended Year ended
31 March 31 March
Number of shares used as denominator 2023 2022
--------------------------------------------------- ----------- -----------
Number of Ordinary Shares used as the denominator
in calculating basic earnings per share 137,437,395 130,578,156
--------------------------------------------------- ----------- -----------
Adjustment for calculations of diluted earnings
per share: options 4,602,267 4,776,225
--------------------------------------------------- ----------- -----------
Number of Ordinary Shares and potential Ordinary
Shares used as denominator in calculating diluted
earnings per share 142,039,662 135,354,381
--------------------------------------------------- ----------- -----------
The profit after tax reported in the Consolidated statement of
profit and loss, GBP11.4 million (31 March 2022: GBP10.9 million),
is the numerator (earnings) used in calculating earnings per
share.
Company statement of financial position
As at As at
31 March 31 March
2023 2022
Note GBP'm GBP'm
------------------------------ ---- --------- ---------
Assets
------------------------------ ---- --------- ---------
Cash and cash equivalents 8 19.6 52.4
------------------------------ ---- --------- ---------
Trade and other receivables 7 31.4 16.5
------------------------------ ---- --------- ---------
Corporate tax receivable - 2.0
------------------------------ ---- --------- ---------
Loans and advances 9 63.8 44.6
------------------------------ ---- --------- ---------
Property, plant and equipment 4 2.2 2.8
------------------------------ ---- --------- ---------
Net investment in sublease 2 1.0 1.2
------------------------------ ---- --------- ---------
Intangible assets 5 10.5 6.1
------------------------------ ---- --------- ---------
Deferred taxation 3 0.8 1.2
------------------------------ ---- --------- ---------
Total assets 129.3 126.8
------------------------------ ---- --------- ---------
Liabilities
------------------------------ ---- --------- ---------
Trade and other payables 10 (22.8) (28.7)
------------------------------ ---- --------- ---------
Interest-bearing liabilities 11 (34.9) (22.3)
------------------------------ ---- --------- ---------
Lease liabilities 2 (3.3) (4.1)
------------------------------ ---- --------- ---------
Total liabilities (61.0) (55.1)
------------------------------ ---- --------- ---------
Net assets 68.3 71.7
------------------------------ ---- --------- ---------
Equity
------------------------------ ---- --------- ---------
Share capital 12 0.1 0.1
------------------------------ ---- --------- ---------
Share premium 12 55.2 55.2
------------------------------ ---- --------- ---------
Own share reserve 12 (0.6) -
------------------------------ ---- --------- ---------
Employee share reserve 3.3 2.6
------------------------------ ---- --------- ---------
Retained earnings 13 10.3 13.8
------------------------------ ---- --------- ---------
Total equity 68.3 71.7
------------------------------ ---- --------- ---------
The Company has elected to take the exemption under section 408
of the Companies Act 2006 not to present its statement of profit
and loss and other comprehensive income.
The profit after tax of the Parent Company for the year was
GBP4.9 million (2022: GBP1.8 million).
The financial statements on pages [122 to 132] were approved and
authorised for issue by the Board of Directors on 5 July 2023 and
were signed on its behalf by:
Michael Evans
Director
Company statement of cash flows
Year ended Year ended
March 2023 March 2022
Cash flow from operating activities Note GBP'm GBP'm
---------------------------------------------- ---- ----------- -----------
Profit after taxation 4.9 1.8
---------------------------------------------- ---- ----------- -----------
Adjusted for:
---------------------------------------------- ---- ----------- -----------
Depreciation of property, plant and equipment 4 0.2 0.1
---------------------------------------------- ---- ----------- -----------
Amortisation of intangible assets 5 1.9 2.6
---------------------------------------------- ---- ----------- -----------
Company share and share option schemes (1.0) 1.2
---------------------------------------------- ---- ----------- -----------
Income tax expense 3.0 0.7
---------------------------------------------- ---- ----------- -----------
Impairment provision 9 7.6 0.5
---------------------------------------------- ---- ----------- -----------
Depreciation of right-of-use asset 2 0.6 0.9
---------------------------------------------- ---- ----------- -----------
Interest expense - lease liabilities 2 0.5 0.5
---------------------------------------------- ---- ----------- -----------
Income from sublease (0.2) -
---------------------------------------------- ---- ----------- -----------
Costs relating to market listing - 1.6
---------------------------------------------- ---- ----------- -----------
Change in working capital
---------------------------------------------- ---- ----------- -----------
Increase in gross loans and advances 9 (26.8) (23.1)
---------------------------------------------- ---- ----------- -----------
(Increase)/decrease in trade and other
receivables 7 (14.8) 21.2
---------------------------------------------- ---- ----------- -----------
(Decrease)/increase in trade and other
payables 10 (5.8) 8.9
---------------------------------------------- ---- ----------- -----------
Income taxes paid 3 - (3.7)
---------------------------------------------- ---- ----------- -----------
Cash used in / generated from operations (29.9) 13.2
---------------------------------------------- ---- ----------- -----------
Cash flow from investing activities
--------------------------------------------- ------ ------
Purchase of property, plant and equipment 4 (0.2) (0.4)
--------------------------------------------- ------ ------
Capitalised development costs 5 (6.3) (3.2)
--------------------------------------------- ------ ------
Income from sublease 0.2 -
--------------------------------------------- ------ ------
Net cash used in investing activities (6.3) (3.6)
--------------------------------------------- ------ ------
Cash flow from financing activities
--------------------------------------------- ------ ------
Decrease in interest-bearing liabilities 11 12.6 (19.8)
--------------------------------------------- ------ ------
Principal elements of finance lease payments (0.9) (0.9)
--------------------------------------------- ------ ------
Interest expense - lease liabilities (0.5) (0.5)
--------------------------------------------- ------ ------
Proceeds from an equity share raise - 40.0
--------------------------------------------- ------ ------
Equity raise costs - (3.9)
--------------------------------------------- ------ ------
Dividends paid (7.8) -
--------------------------------------------- ------ ------
Net cash generated from financing activities 3.4 14.9
--------------------------------------------- ------ ------
Net decrease in cash and cash equivalents (32.8) 24.5
--------------------------------------------- ------ ------
Cash and cash equivalents at beginning
of the period 8 52.4 27.9
--------------------------------------------- ------ ------
Cash and cash equivalents at end of
the period 8 19.6 52.4
--------------------------------------------- ------ ------
Interest received was GBP0.2m (2022: GBP0.2m) and interest paid
was GBP3.0m (2022: GBP3.2m).
Company statement of changes in equity
Employee
Share Share Own share share Retained
capital premium reserve reserve earnings Total
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
------------------------------------- -------- -------- --------- -------- --------- ------
Balance as at 31 March 2021 - 17.5 - 1.6 11.4 30.5
------------------------------------- -------- -------- --------- -------- --------- ------
Profit after taxation - - - - 1.8 1.8
------------------------------------- -------- -------- --------- -------- --------- ------
Employee share scheme tax - - - - 0.6 0.6
------------------------------------- -------- -------- --------- -------- --------- ------
Employee share option schemes - - - 1.0 - 1.0
------------------------------------- -------- -------- --------- -------- --------- ------
Bonus issue of free shares funded
by share premium 0.1 (0.1) - - - -
------------------------------------- -------- -------- --------- -------- --------- ------
Issue of new shares at IPO - 40.1 - - - 40.1
------------------------------------- -------- -------- --------- -------- --------- ------
Cost incurred in issuing new shares - (2.3) - - - (2.3)
------------------------------------- -------- -------- --------- -------- --------- ------
Balance as at 31 March 2022 0.1 55.2 - 2.6 13.8 71.7
------------------------------------- -------- -------- --------- -------- --------- ------
Profit after taxation - - - - 4.9 4.9
------------------------------------- -------- -------- --------- -------- --------- ------
Employee share scheme tax - - - - 0.3 0.3
------------------------------------- -------- -------- --------- -------- --------- ------
Current tax movement through equity - - - - 0.4 0.4
------------------------------------- -------- -------- --------- -------- --------- ------
Shares purchased by the EBT - - (3.0) - - (3.0)
------------------------------------- -------- -------- --------- -------- --------- ------
Shares issued from own share reserve - - 2.4 - (2.4) -
------------------------------------- -------- -------- --------- -------- --------- ------
Reinstatement of dilapidations
provision - - - - (0.1) (0.1)
------------------------------------- -------- -------- --------- -------- --------- ------
Transfer of share option costs - - - (1.3) 1.3 -
------------------------------------- -------- -------- --------- -------- --------- ------
Dividends paid - - - - (7.9) (7.9)
------------------------------------- -------- -------- --------- -------- --------- ------
Employee share option schemes - - - 2.0 - 2.0
------------------------------------- -------- -------- --------- -------- --------- ------
Balance as at 31 March 2023 0.1 55.2 (0.6) 3.3 10.3 68.3
------------------------------------- -------- -------- --------- -------- --------- ------
Notes forming part of the Company financial statements
1. Basis of preparation and significant accounting policies
1.1 Basis of preparation and going concern
The separate financial statements of the Company are presented
as required by the Companies Act 2006. As permitted by that Act,
the separate financial statements have been prepared in accordance
with UK-adopted international accounting standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards. LendInvest plc (previously
LendInvest Limited) is a public company incorporated and domiciled
in the United Kingdom under the Companies Act 2006. The Group
listed on AIM, a market operated by the London Stock Exchange, on
14 July 2021. The address of its registered office is given on page
[58]. The Company's registered number is 08146929. The principal
place of business of the subsidiaries is the UK.
The financial statements have been prepared on the historical
cost basis except as required in the valuation of certain financial
instruments which are carried at fair value. The principal
accounting policies adopted are the same as those set out in note 1
to the consolidated financial statements except as noted below.
These policies have been consistently applied to all the years
presented, unless otherwise stated. The principal activities of the
Company and the nature of the Company's operations are as a holding
company for a global SME loan platform.
The financial statements are prepared on a going concern basis
as the Directors are satisfied that the Group has the resources to
continue in business for the foreseeable future (which has been
taken as 12 months from the date of approval of the financial
statements). The Group's business activities, including those of
the Company, together with the factors likely to affect its future
development and position, are set out in the Strategic Report.
Estimates and assumptions
Fair value measurement
A number of assets and liabilities included in the Group's
financial statements require disclosure of fair value. The fair
value measurement of the Group's financial and non-financial assets
and liabilities utilises market observable inputs and data as far
as possible. Inputs used in determining fair value measurements are
categorised into different levels based on how observable the
inputs used in the valuation technique utilised are (the "fair
value hierarchy").
Level 1: Quoted prices in active markets for identical
items.
Level 2: Observable direct or indirect inputs other than Level 1
inputs.
Level 3: Unobservable inputs (i.e. not derived from market data
and require a level of estimates and judgements within the model).
See Group note 26 for more detailed information related to fair
value measurement.
Expected credit loss calculation
The accounting estimates with the most significant impact on the
calculation of impairment loss provisions under IFRS 9 are
macroeconomic variables, in particular UK house price inflation and
unemployment, and the probability weightings of the macroeconomic
scenarios used. The Group has used three macroeconomic scenarios,
which are considered to represent a range of possible outcomes over
a normal economic cycle, in determining impairment loss
provisions:
-- a central scenario aligned to the Group's business plan;
-- a downside scenario as modelled in the Group's risk management process; and
-- an upside scenario representing the impact of modest
improvements to assumptions used in the central scenario.
The central scenario represents management's current view of the
most likely economic outturn. In the period ended 31 March 2022,
significant uncertainty around the level and trajectory of UK
inflation and the subsequent impacts on the wider economy led
management to increase the downside weighting. The following
weightings of the different scenarios were used across both
Buy-to-Let and short-term ECL models for the period:
-- 45%/50%/5% to the central, downside and upside scenarios.
For the period ended 31 March 2023 management consider that the
significant uncertainty that led to the increased downside
weighting is adequately represented in the macroeconomic data and
has reverted the scenario weightings to those provided by the
macroeconomic data source across both Buy-to-Let and short-term ECL
models as follows:
-- 40%/40%/20% to the central, downside and upside scenarios.
Changes to macroeconomic assumptions, as expectations change
over time, are expected to lead to volatility in impairment loss
provisions and may lead to pro-cyclicality in the recognition of
impairment provisions.
Sensitivity analysis on ECL models
Sensitivity analyses have been completed on a number of
different scenarios to better assess the impact of changing
variables on the ECL calculation in the current environment:
-- A 100% downside was applied to all the models. This would increase the ECL by GBP0.01 million.
-- A 100% upside was applied to all the models. This would decrease the ECL by GBP0.01 million.
-- A 10% increase in the forced sale discount. This would increase the ECL by GBPnil million.
-- A 20% increase in the unemployment rate (peak of 5.2%). This
would increase the ECL by GBPnil million.
2. Leases
Please refer to Group financial statements, note 2.
3. Taxation on profit on ordinary activities
Factors that may affect future tax charges
In March 2021, it was announced in the 2021 Budget that the main
rate of UK corporation tax would rise to 25% from 1 April 2023. The
proposal to increase the rate to 25% was substantively enacted in
May 2021.
Deferred taxation
Deferred tax is presented in the statement of financial position
as follows:
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
------------------------- ---------- ----------
Deferred tax assets 1.5 1.2
------------------------- ---------- ----------
Deferred tax liabilities (0.7) -
------------------------- ---------- ----------
Net deferred tax assets 0.8 1.2
------------------------- ---------- ----------
The movements during the year are analysed as follows:
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
------------------------------------------------ ---------- ----------
Net deferred tax assets at the beginning of the
year 1.2 0.3
------------------------------------------------ ---------- ----------
(Charge)/credit to the statement of profit and
loss for the year (0.7) 0.2
------------------------------------------------ ---------- ----------
Credit to equity 0.3 0.6
------------------------------------------------ ---------- ----------
Over provision of deferred tax - 0.1
------------------------------------------------ ---------- ----------
Net deferred tax assets at the end of the year 0.8 1.2
------------------------------------------------ ---------- ----------
Category of deferred tax
(Charge)/credit (Charge)/credit
to the statement Credit to the statement
of profit through of profit
Opening Opening and loss equity and loss Closing
balance balance - CY - CY - PY balance
2023 GBP'm adjustment GBP'm GBP'm GBP'm GBP'm
------------------------- -------- ----------- ----------------- -------- ----------------- --------
Share and share option
schemes 1.1 - - 0.3 (0.1) 1.3
------------------------- -------- ----------- ----------------- -------- ----------------- --------
IFRS 16 transitional
adjustment 0.1 - - - - 0.1
------------------------- -------- ----------- ----------------- -------- ----------------- --------
Research and development - - (0.3) - (0.3) (0.6)
------------------------- -------- ----------- ----------------- -------- ----------------- --------
1.2 - (0.3) 0.3 (0.4) 0.8
------------------------- -------- ----------- ----------------- -------- ----------------- --------
2022
------------------------- -------- ----------- ----------------- -------- ----------------- --------
Property, plant and
equipment (0.1) - - - 0.1 -
------------------------- -------- ----------- ----------------- -------- ----------------- --------
Share and share option
schemes 0.3 - 0.2 0.6 - 1.1
------------------------- -------- ----------- ----------------- -------- ----------------- --------
IFRS 16 transitional
adjustment 0.1 - - - - 0.1
------------------------- -------- ----------- ----------------- -------- ----------------- --------
0.3 - 0.2 0.6 0.1 1.2
------------------------- -------- ----------- ----------------- -------- ----------------- --------
At 31 March 2023, the Company had no unrecognised deferred
taxation assets (2022: GBPnil).
4. Property, plant and equipment
Refer to consolidated financial statements, note 15.
5. Intangibles
Internally
Software developed
licences software Total
Premises GBP'm GBP'm GBP'm
---------------------------- --------- ---------- ------
Balance as at 31 March 2021 0.4 8.8 9.2
---------------------------- --------- ---------- ------
Additions - 3.2 3.2
---------------------------- --------- ---------- ------
Balance as at 31 March 2022 0.4 12.0 12.4
---------------------------- --------- ---------- ------
Additions - 6.3 6.3
---------------------------- --------- ---------- ------
Balance as at 31 March 2023 0.4 18.3 18.7
---------------------------- --------- ---------- ------
Internally
Software developed
licences software Total
Accumulated amortisation and impairment GBP'm GBP'm GBP'm
---------------------------------------- --------- ---------- ------
Balance as at 31 March 2021 0.1 3.6 3.7
---------------------------------------- --------- ---------- ------
Charge for the year 0.2 2.4 2.6
---------------------------------------- --------- ---------- ------
Balance as at 31 March 2022 0.3 6.0 6.3
---------------------------------------- --------- ---------- ------
Charge for the year 0.1 1.8 1.9
---------------------------------------- --------- ---------- ------
Balance as at 31 March 2023 0.4 7.8 8.2
---------------------------------------- --------- ---------- ------
Net carrying value as at 31 March 2023 - 10.5 10.5
---------------------------------------- --------- ---------- ------
Net carrying value as at 31 March 2022 0.1 6.0 6.1
---------------------------------------- --------- ---------- ------
Internally developed software development has been capitalised
as an intangible asset and is being amortised over five years. This
amortisation period has been increased from three years in the
previous reporting period. See Group note 1.12 for more details,
including the impact on future periods. Significant projects
include development of the Loan Engine, website lead generation and
an automated borrower/broker portal for loan applications.
Intangible assets are reviewed for indicators of impairment
annually.
6. Investment in subsidiaries
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
-------------------------------------- ---------- ----------
As at 1 April - -
-------------------------------------- ---------- ----------
Additional investment in subisidiaries - -
-------------------------------------- ---------- ----------
As at 31 March - -
-------------------------------------- ---------- ----------
The Company owned either directly or indirectly, 100% of the
share capital of the following subsidiaries as at 31 March 2023.
All entities, other than those marked with *, were also in place
during the prior year:
Entity name Principal activities Direct holding
--------------------------- ----------------------------------- -----------------------------
LendInvest Loan Holdings Intermediary holding company Company
Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Capital Intermediary holding company Company
Management Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Capital Intermediary holding company LendInvest Capital Management
Advisors Limited Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Finance Provides secured lending to LendInvest Capital Management
No. 2 Limited third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Finance Provides secured lending to LendInvest Loan Holdings
No. 4 Limited third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Funds Management Fund management company Company
Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Private Dormant Company
Finance General Partners
Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Development Provides secured lending to LendInvest Loan Holdings
Limited third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Warehouse Intermediate holding company Company
Limited and secured lending to third-party
borrowers
--------------------------- ----------------------------------- -----------------------------
LendInvest Finance Dormant LendInvest Loan Holding
No. 3 Limited Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Security Holds securities Company
Trustees Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Finance Provides secured lending to LendInvest Loan Holdings
No. 5 Limited third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Finance Provides secured lending to LendInvest Loan Holdings
No. 6 Limited third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Secured Provides secured lending to LendInvest Loan Holdings
Income Plc third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Secured Provides secured lending to LendInvest Loan Holdings
Income II Plc* third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Limited Provides secured lending to LendInvest Loan Holdings
third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Platform Provides secured lending to LendInvest Loan Holdings
Limited third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Bridge Provides secured lending to LendInvest Loan Holdings
Limited third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Loans Limited Provides secured lending to LendInvest Loan Holdings
third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Capital Managing partner of an alternative LendInvest Funds Management
GP Sarl investment fund Limited
--------------------------- ----------------------------------- -----------------------------
LendInvest Capital Provides secured lending to LendInvest Loan Holdings
GP II Sarl* third-party borrowers Limited
--------------------------- ----------------------------------- -----------------------------
The registered address of all subsidiaries is: Two Fitzroy
Place, 8 Mortimer Street, London W1T 3JJ.
Management has also assessed the Company as being in control of
the investee's listed below, based on judgements with regard to the
control criteria prescribed in paragraph 7 of IFRS 10.
Direct
Entity name Principal activities holding
--------------------------- -------------------------------------------- --------
BTL No. 1 Limited Warehousing vehicle for Buy-to-Let mortgages NA
--------------------------- -------------------------------------------- --------
BTL No. 2 Limited Warehousing vehicle for Buy-to-Let mortgages NA
--------------------------- -------------------------------------------- --------
BTL No. 3 Limited* Warehousing vehicle for Buy-to-Let mortgages NA
--------------------------- -------------------------------------------- --------
Warehousing vehicle for Buy-to-Let &
Titan No.1 Limited bridging loans NA
--------------------------- -------------------------------------------- --------
Securitisation loan note repurchasing
Puma BTL Limited vehicle NA
--------------------------- -------------------------------------------- --------
Securitisation vehicle for Buy-to-Let
Mortimer BTL 2021-1 Limited mortgages NA
--------------------------- -------------------------------------------- --------
LendInvest Employee Benefit Issues shares to staff under the Group's
Trust CSOP and LTIPs schemes NA
--------------------------- -------------------------------------------- --------
LendInvest Share Incentive Issues shares to staff under the Group's
Plan SIP scheme NA
--------------------------- -------------------------------------------- --------
7. Trade and other receivables
Year ended Year ended
31 March 31 March
2023 2022
Due within one year GBP'm GBP'm
--------------------------------- ---------- ----------
Trade receivables 22.0 12.4
--------------------------------- ---------- ----------
Other receivables:
--------------------------------- ---------- ----------
- Prepayments and accrued income 3.1 2.4
--------------------------------- ---------- ----------
- Other receivables 1.9 0.5
--------------------------------- ---------- ----------
Corporate tax receivable 3.2 -
--------------------------------- ---------- ----------
Due after one year
--------------------------------- ---------- ----------
Rent deposit 1.2 1.2
--------------------------------- ---------- ----------
31.4 16.5
--------------------------------- ---------- ----------
The carrying value of trade and other receivables approximates
fair value and represents the maximum exposure to credit losses.
Expected credit losses on trade receivables are immaterial.
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivables mentioned above. During
the current year (and prior period) the Company had no trade
receivables that are past due, but not impaired.
8. Cash at bank and in hand
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
-------------------------- ---------- ----------
Cash and cash equivalents 16.0 33.5
-------------------------- ---------- ----------
Trustees' account 3.6 18.9
-------------------------- ---------- ----------
19.6 52.4
-------------------------- ---------- ----------
Trustees' account relates to monies held on account for the
benefit of our investors in the Self-Select Platform, prior to them
either investing in loans or withdrawing their capital. This amount
excludes GBP2.6 million due to timing differences, which sits as a
receivable. Operationally, the Company does not treat the Trustees'
balances as available funds. An equal and opposite payable amount
is included within the trade payables balance (see note 10).
9. Loans and advances
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
---------------------------- ---------- ----------
Gross loans and advances(1) 72.8 46.0
---------------------------- ---------- ----------
ECL provision (9.0) (1.4)
---------------------------- ---------- ----------
Fair value adjustment(2) - -
---------------------------- ---------- ----------
Loans and advances 63.8 44.6
---------------------------- ---------- ----------
1 Included in gross loans and advances is GBP70.3 million (2022:
GBP43.1 million) of loans made to Group entities. The ECL provision
has been calculated on these loans.
2 Fair value adjustment to gross loans and advances due to classification as FVOCI.
ECL provision
Movement in the period GBP'm
--------------------------------------------- -----
Under IFRS 9 at 1 April 2022 (1.4)
--------------------------------------------- -----
Additional provisions made during the period (7.6)
--------------------------------------------- -----
Utilised in the period -
--------------------------------------------- -----
Under IFRS 9 at 31 March 2023 (9.0)
--------------------------------------------- -----
Movement in the period GBP'm
--------------------------------------------- -----
Under IFRS 9 at 1 April 2021 (0.9)
--------------------------------------------- -----
Additional provisions made during the period (0.4)
--------------------------------------------- -----
Utilised in the period (0.1)
--------------------------------------------- -----
Under IFRS 9 at 31 March 2022 (1.4)
--------------------------------------------- -----
Analysis of loans and advances by stage
Stage 1 Stage 2 Stage 3 Total
Year ended 31 March 2023 GBP'm GBP'm GBP'm GBP'm
------------------------- ------- ------- ------- ------
Gross loans and advances 70.9 0.6 1.3 72.8
------------------------- ------- ------- ------- ------
ECL provision (8.6) - (0.4) (9.0)
------------------------- ------- ------- ------- ------
Fair value adjustment - - - -
------------------------- ------- ------- ------- ------
Loans and advances 62.3 0.6 0.9 63.8
------------------------- ------- ------- ------- ------
The maximum LTV on stage 1 loans is 66%. The maximum LTV on
stage 2 loans is 77%. The maximum LTV on stage 3 loans is 247% and
the total value of collateral held on stage 3 loans is GBP1.1
million.
Movement analysis of net loans by stage
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
------------------------------------- ------- ------- ------- ------
As at 1 April 2022 42.2 1.3 1.1 44.6
------------------------------------- ------- ------- ------- ------
Transfer to stage 1 0.2 (0.2) - -
------------------------------------- ------- ------- ------- ------
Transfer to stage 2 - - - -
------------------------------------- ------- ------- ------- ------
Transfer to stage 3 - (0.2) 0.2 -
------------------------------------- ------- ------- ------- ------
New financial assets originated 0.1 - - 0.1
------------------------------------- ------- ------- ------- ------
New financial assets originated and
transferred to stage 2 or stage 3 - - - -
------------------------------------- ------- ------- ------- ------
Financial assets which have repaid - (0.5) (0.3) (0.8)
------------------------------------- ------- ------- ------- ------
Balance movements in loans 19.8 0.2 (0.1) 19.9
------------------------------------- ------- ------- ------- ------
Write-offs - - - -
------------------------------------- ------- ------- ------- ------
Total movement in loans and advances 20.1 (0.7) (0.2) 19.2
------------------------------------- ------- ------- ------- ------
As at 31 March 2023 62.3 0.6 0.9 63.8
------------------------------------- ------- ------- ------- ------
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
------------------------------------- ------- ------- ------- ------
As at 1 April 2021 20.5 0.9 0.6 22.0
------------------------------------- ------- ------- ------- ------
Transfer to stage 1 - - - -
------------------------------------- ------- ------- ------- ------
Transfer to stage 2 - - - -
------------------------------------- ------- ------- ------- ------
Transfer to stage 3 - - - -
------------------------------------- ------- ------- ------- ------
New financial assets originated 0.1 - - 0.1
------------------------------------- ------- ------- ------- ------
New financial assets originated and
transferred to stage 2 or stage 3 (0.1) 0.1 - -
------------------------------------- ------- ------- ------- ------
Financial assets which have repaid (0.1) (0.7) (0.3) (1.1)
------------------------------------- ------- ------- ------- ------
Balance movements in loans 21.8 1.0 0.8 23.6
------------------------------------- ------- ------- ------- ------
Write-offs - - - -
------------------------------------- ------- ------- ------- ------
Total movement in loans and advances 21.7 0.4 0.5 22.6
------------------------------------- ------- ------- ------- ------
As at 31 March 2022 42.2 1.3 1.1 44.6
------------------------------------- ------- ------- ------- ------
Movement analysis of gross loans by stage
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
------------------------------------- ------- ------- ------- ------
As at 1 April 2022 43.3 1.3 1.4 46.0
------------------------------------- ------- ------- ------- ------
Transfer to stage 1 0.2 (0.2) - -
------------------------------------- ------- ------- ------- ------
Transfer to stage 2 - - - -
------------------------------------- ------- ------- ------- ------
Transfer to stage 3 - (0.2) 0.2 -
------------------------------------- ------- ------- ------- ------
New financial assets originated 0.1 - - 0.1
------------------------------------- ------- ------- ------- ------
New financial assets originated and
transferred to stage 2 or stage 3 (0.1) - - (0.1)
------------------------------------- ------- ------- ------- ------
Financial assets which have repaid 0.2 (0.5) (0.3) (0.6)
------------------------------------- ------- ------- ------- ------
Balance movements in loans 27.2 0.2 (0.1) 27.3
------------------------------------- ------- ------- ------- ------
Write-offs - - 0.1 0.1
------------------------------------- ------- ------- ------- ------
Total movement in loans and advances 27.6 (0.7) (0.1) 26.8
------------------------------------- ------- ------- ------- ------
As at 31 March 2023 70.9 0.6 1.3 72.8
------------------------------------- ------- ------- ------- ------
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
------------------------------------- ------- ------- ------- ------
As at 1 April 2021 21.2 0.9 0.8 22.9
------------------------------------- ------- ------- ------- ------
Transfer to stage 1 - - - -
------------------------------------- ------- ------- ------- ------
Transfer to stage 2 - - - -
------------------------------------- ------- ------- ------- ------
Transfer to stage 3 - - - -
------------------------------------- ------- ------- ------- ------
New financial assets originated 0.1 - - 0.1
------------------------------------- ------- ------- ------- ------
New financial assets originated and
transferred to stage 2 or stage 3 (0.1) 0.1 - -
------------------------------------- ------- ------- ------- ------
Financial assets which have repaid (0.1) (0.7) (0.3) (1.1)
------------------------------------- ------- ------- ------- ------
Balance movements in loans 22.2 1.0 0.8 24.0
------------------------------------- ------- ------- ------- ------
Write-offs - - 0.1 0.1
------------------------------------- ------- ------- ------- ------
Total movement in loans and advances 22.1 0.4 0.6 23.1
------------------------------------- ------- ------- ------- ------
As at 31 March 2022 43.3 1.3 1.4 46.0
------------------------------------- ------- ------- ------- ------
Movement analysis of ECL by stage
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
--------------------------------------- ------- ------- ------- ------
As at 1 April 2022 1.1 - 0.3 1.4
--------------------------------------- ------- ------- ------- ------
Transfer to stage 1 - - - -
--------------------------------------- ------- ------- ------- ------
Transfer to stage 2 - - - -
--------------------------------------- ------- ------- ------- ------
Transfer to stage 3 - - - -
--------------------------------------- ------- ------- ------- ------
New financial assets originated - - - -
--------------------------------------- ------- ------- ------- ------
New financial assets originated and
transferred to stage 2 or stage 3 - - - -
--------------------------------------- ------- ------- ------- ------
Financial assets which have repaid - - - -
--------------------------------------- ------- ------- ------- ------
Changes in models/risk parameters 7.5 - - 7.5
--------------------------------------- ------- ------- ------- ------
Adjustments for interest on impaired
loans - - 0.1 0.1
--------------------------------------- ------- ------- ------- ------
Write-offs - - - -
--------------------------------------- ------- ------- ------- ------
Total movement in impairment provision 7.5 - 0.1 7.6
--------------------------------------- ------- ------- ------- ------
As at 31 March 2023 8.6 - 0.4 9.0
--------------------------------------- ------- ------- ------- ------
The Company held no POCI loans during the year to 31 March
2023.
Stage 1 Stage 2 Stage 3 Total
GBP'm GBP'm GBP'm GBP'm
--------------------------------------- ------- ------- ------- ------
As at 1 April 2021 0.7 - 0.2 0.9
--------------------------------------- ------- ------- ------- ------
Transfer to stage 1 - - - -
--------------------------------------- ------- ------- ------- ------
Transfer to stage 2 - - - -
--------------------------------------- ------- ------- ------- ------
Transfer to stage 3 - - - -
--------------------------------------- ------- ------- ------- ------
New financial assets originated - - - -
--------------------------------------- ------- ------- ------- ------
New financial assets originated and
transferred to stage 2 or stage 3 - - - -
--------------------------------------- ------- ------- ------- ------
Financial assets which have repaid - - - -
--------------------------------------- ------- ------- ------- ------
Changes in models/risk parameters 0.4 - 0.1 0.5
--------------------------------------- ------- ------- ------- ------
Adjustments for interest on impaired
loans - - - -
--------------------------------------- ------- ------- ------- ------
Write-offs - - - -
--------------------------------------- ------- ------- ------- ------
Total movement in impairment provision 0.4 - 0.1 0.5
--------------------------------------- ------- ------- ------- ------
As at 31 March 2022 1.1 - 0.3 1.4
--------------------------------------- ------- ------- ------- ------
The Company held no POCI loans during the year to 31 March
2022.
Credit risk on gross loans and advances
The table below provides information on the Company's loans and
advances by stage and risk grade. See note 19 of the Group's
accounts for details of the change of the calculation of risk
grades during the current year.
Stage 1 Stage 2 Stage 3 Total
Year ended 31 March 2023 GBP'm GBP'm GBP'm GBP'm
------------------------- ------- ------- ------- ------
Risk Grades 1-5 70.9 0.2 - 71.1
------------------------- ------- ------- ------- ------
Risk Grades 6-9 - 0.4 - 0.4
------------------------- ------- ------- ------- ------
Default - - 1.3 1.3
------------------------- ------- ------- ------- ------
Total 70.9 0.6 1.3 72.8
------------------------- ------- ------- ------- ------
Stage 1 Stage 2 Stage 3 Total
Year ended 31 March 2022 GBP'm GBP'm GBP'm GBP'm
------------------------- ------- ------- ------- ------
Risk Grades 1-5 42.2 1.0 - 43.2
------------------------- ------- ------- ------- ------
Risk Grades 6-9 - 0.3 - 0.3
------------------------- ------- ------- ------- ------
Default - - 1.1 1.1
------------------------- ------- ------- ------- ------
Total 42.2 1.3 1.1 44.6
------------------------- ------- ------- ------- ------
10. Trade and other payables
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
---------------------------------- ---------- ----------
Trade payables 14.9 22.6
---------------------------------- ---------- ----------
Other payables:
---------------------------------- ---------- ----------
- Taxes and social security costs 1.3 0.7
---------------------------------- ---------- ----------
- Accruals and deferred income 6.3 5.1
---------------------------------- ---------- ----------
- Sublease deposit repayable 0.2 0.2
---------------------------------- ---------- ----------
- Employee free share award 0.1 0.1
---------------------------------- ---------- ----------
22.8 28.7
---------------------------------- ---------- ----------
The trade payables balance includes Trustees' balances of GBP3.6
million in respect of uninvested cash held on the self-select
platform, which may be withdrawn by investors at any time.
The Company has no non-current trade and other payables.
The carrying value of trade and other payables approximates fair
value.
11. Interest-bearing liabilities
Year ended Year ended
March 2023 March 2022
GBP'm GBP'm
---------------------------------- ----------- -----------
Funds from investors and partners 34.9 22.3
---------------------------------- ----------- -----------
34.9 22.3
---------------------------------- ----------- -----------
For an analysis of contractual maturity and liquidity risk,
refer to note 4 in the Group accounts. The Company is not in breach
or default of any provisions of the terms or conditions of the
agreements governing borrowings. The Company's annualised interest
cost on funding was 8% in the current financial year.
12. Share capital
Refer to Group financial statements, note 23.
13. Reserves
Reserves comprise of retained earnings and the employee share
reserve, and fair value reserves. Retained earnings represent all
net gains and losses of the Group less directly attributable costs
associated with the issue of new equity and the employee share
reserve represents the fair value of share options issued to
employees but not exercised.
The fair value reserve represents movements in the fair value of
the financial assets classified as FVOCI.
14. Share-based payments
Refer to Group financial statements, note 25.
15. Financial instruments
Principal financial instruments
The principal financial instruments used by the Company, from
which financial instrument risk arises, are: loans and advances,
trade and other receivables, cash and cash equivalents, loans and
borrowings, and trade and other payables.
Categorisation of financial assets and financial liabilities
The financial assets of the Company are carried at amortised
cost, fair value through other comprehensive income or fair value
through profit and loss as at 31 March 2023 and 31 March 2022
according to the nature of the asset. All financial liabilities of
the Company are carried at amortised cost as at 31 March 2023 and
31 March 2022 due to the nature of the liability.
Financial instruments measured at amortised costs
Financial instruments measured at amortised cost, rather than
fair value, include cash and cash equivalents, trade and other
receivables, trade and other payables and interest-bearing
liabilities. Due to their short-term nature, the carrying value of
cash and cash equivalents, trade and other receivables, and trade
and other payables approximates their fair value.
Carrying amount of financial instruments
A summary of the financial instruments held by category is
provided below:
Year ended Year ended
31 March 31 March
2023 2022
Financial assets at amortised cost GBP'm GBP'm
----------------------------------------------------------- ---------- ----------
Cash and cash equivalents 19.6 52.4
----------------------------------------------------------- ---------- ----------
Trade and other receivables 30.7 26.8
----------------------------------------------------------- ---------- ----------
Financial assets at fair value through other comprehensive
income
----------------------------------------------------------- ---------- ----------
Loans and advances 63.9 44.6
----------------------------------------------------------- ---------- ----------
Total financial assets 114.2 123.8
----------------------------------------------------------- ---------- ----------
Financial liabilities at amortised cost
----------------------------------------------------------- ---------- ----------
Trade and other payables (22.8) (28.0)
----------------------------------------------------------- ---------- ----------
Interest-bearing liabilities (34.9) (22.3)
----------------------------------------------------------- ---------- ----------
Lease liability (3.3) (4.1)
----------------------------------------------------------- ---------- ----------
Total financial liabilities (61.0) (54.4)
----------------------------------------------------------- ---------- ----------
Fair value hierarchy
The level in the fair value hierarchy within which the financial
asset or financial liability is categorised is determined on the
basis of the lowest level input that is relevant to the fair value
measurement. Financial assets and liabilities are classified in
their entirety into only one of the three levels. The fair value
hierarchy has the following levels:
Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2 - inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The objective of valuation techniques is to arrive at a fair
value measurement that reflects the price that would be received to
sell the asset or paid to transfer the liability in an orderly
transaction between market participants at the measurement
date.
As at
31 March
Financial instruments measured or 2023 Level 1 Level 2 Level 3
disclosed at fair value GBP'm GBP'm GBP'm GBP'm
---------------------------------- --------- ------- ------- -------
Loans and advances 63.9 - - 63.9
---------------------------------- --------- ------- ------- -------
Financial Instruments measured or
disclosed at amortised cost - - - -
---------------------------------- --------- ------- ------- -------
Interest-bearing liabilities(1) (34.9) (34.9) - -
---------------------------------- --------- ------- ------- -------
For all other financial instruments, the fair value is equal to
the carrying value and has not been included in the table
above.
As at
31 March
Financial instruments measured or 2022 Level 1 Level 2 Level 3
disclosed at fair value GBP'm GBP'm GBP'm GBP'm
---------------------------------- --------- ------- ------- -------
Loans and advances 44.6 - - 44.6
---------------------------------- --------- ------- ------- -------
Financial Instruments measured or
disclosed at amortised cost - - - -
---------------------------------- --------- ------- ------- -------
Interest-bearing liabilities(1) (22.3) (22.3) - -
---------------------------------- --------- ------- ------- -------
1 Interest-bearing liabilities are held at amortised cost on the
statement of financial position.
For all other financial instruments, the fair value is equal to
the carrying value and has not been included in the table
above.
Level 2 instruments include interest rate swaps which are either
two, three or five years in length. These lengths are aligned with
the fixed interest periods of the underlying loan book. Level 3
instruments include loans and advances. The valuation of the asset
is not based on observable market data (unobservable inputs).
Valuation techniques include net present value and discounted cash
flow methods. The assumptions used in such models include benchmark
interest rates and borrower risk profile. The objective of the
valuation technique is to determine a fair value that reflects the
price of the financial instrument that would have been used by two
counterparties in an arm's length transaction.
16. Reconciliation of liabilities arising from financing
activities
Interest-bearing
liabilities Leases
GBP'm GBP'm
------------------------- ---------------- ------
31 March 2022 (22.3) (4.1)
------------------------- ---------------- ------
Cash flows (12.6) 1.4
------------------------- ---------------- ------
Lease liability interest - (0.6)
------------------------- ---------------- ------
31 March 2023 (34.9) (3.3)
------------------------- ---------------- ------
31 March 2021 (42.1) (5.0)
------------------------- ---------------- ------
Cash flows 19.8 1.4
------------------------- ---------------- ------
Lease liability interest - (0.5)
------------------------- ---------------- ------
31 March 2022 (22.3) (4.1)
------------------------- ---------------- ------
17. Related-party transactions
In March 2023, the Company engaged with Nina Spencer, one of the
non-executive directors, via Addidat Limited, to provide ESG
benchmarking services against other AIM listed companies. The total
cost of the services was GBP26,000, of which half of this amount
was recognised in the year ended 31 March 2023.
The Company has made loans to LendInvest Warehouse Limited to
fund a portfolio of loans. During the year to 31 March 2023, the
Company made loans of GBP4.0 million (2022: GBP7.1 million) and
received repayments in respect of loans of GBP0.1 million (2022:
GBP2.7 million). The balance as at 31 March 2023 was GBP11.1
million (2022: GBP7.2 million). These loans are interest-bearing at
8% per annum.
GBP21.8 million (2022: GBP12.0 million) of the Company's trade
receivables (see note 19) are unsecured intercompany receivables
owed by Company's subsidiaries.
The Company also received the following fees from related-party
subsidiaries:
Year ended Year ended
31 March 31 March
2023 2022
GBP'm GBP'm
-------------------------------------- ---------- ----------
LendInvest Funds Management Limited 2.8 4.6
-------------------------------------- ---------- ----------
LendInvest Capital Management Limited - -
-------------------------------------- ---------- ----------
18. Controlling party
In the opinion of the Directors, the Company does not have a
single controlling party.
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END
FR NKOBPBBKBDOD
(END) Dow Jones Newswires
July 18, 2023 02:00 ET (06:00 GMT)
Lendinvest (LSE:LINV)
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부터 4월(4) 2024 으로 5월(5) 2024
Lendinvest (LSE:LINV)
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부터 5월(5) 2023 으로 5월(5) 2024
