TIDMORCH
RNS Number : 3014G
Orchard Funding Group PLC
29 March 2022
Orchard Funding Group PLC
("Orchard Funding Group" or the "company" or the "group")
Half Year Results
For the six months ended 31 January 2022
Orchard Funding Group, the finance group which specialises in
insurance premium finance and the professions funding market, is
pleased to announce its unaudited results for the six months ended
31 January 2022.
Highlights - in the six months to 31 January 2022, compared to
the six months to 31 January 2021:
6 months to 6 months % increase/
All amounts are GBPm unless 31 January to 31 January (decrease)
otherwise stated 2022 2021
Lending volume 38.15 30.04 27.02%
Average interest earning assets 33.45 27.61 21.15%
Total revenue 2.89 2.31 25.26%
Net interest income 2.14 1.64 30.49%
Profit before tax 1.00 0.61 63.93%
Profit after tax 0.81 0.47 72.34%
EPS (pence) (1) 3.78 2.19 72.27%
Operating costs 1.25 1.27 (1.57%)
Average external funding 9.94 10.43 (4.70%)
Cost of external funds 0.22 0.22 -
Cost of funds/funds ratio 4.69% 4.45% 5.47%
Own resources (net current financial
assets) 14.29 15.47 (7.63%)
Towards the end of the previous financial year the group
refinanced its borrowings. Toyota Financial Services (UK) PLC
provided the Group with a facility of GBP15.00m and Natwest Bank
PLC with GBP5.00m, making a total of GBP20m to be used for general
lending. Of this GBP11.42m was in use at the end of the period. The
board is again recommending an interim dividend of 1 pence per
share (31 January 2021: 1 pence).
More detail on the financial highlights is given in the CFO's
summary.
Ravi Takhar, Chief Executive Officer of the company, stated:
"We have started the first half of the year positively and ahead
of our original projections. Our culture continues to be cautious,
prudent and long term and this enables us to manage the difficult
economic and political times the World finds itself in. We continue
to run our own race and support our stakeholders, in particular our
staff, bankers and shareholders by providing fair and consistent
returns for their investment and faith in our business. We look
forward to the next six months cautiously and with some optimism
based on our good start to the financial year."
For further information, please contact:
Orchard Funding Group PLC +44 (0)1582 346 248
Ravi Takhar, Chief Executive Officer
Liberum (Nomad and Broker) +44 (0)20 3100 3222
Investment banking
Neil Patel
Lauren Kettle
For Investor Relations please go to:
www.orchardfundinggroupplc.com
Chairman's statement
As Covid restrictions have eased and the general business
environment has improved we have seen an increase in demand for our
lending products, particularly in our core insurance business. The
geopolitical situation, increasing energy prices and inflationary
pressures still represent headwinds for our business, however we
are cautiously optimistic regarding future business
performance.
I am pleased to report improvements in all the key business
metrics with lending volume up 27%, total revenue up 25% and PBT up
64% on the equivalent period last year. More financial detail is
provided in the CFO summary.
We have a strong capital position and surplus liquidity, and we
remain in a strong position to take advantage of opportunities. We
continue to develop our business organically whilst piloting entry
into new lending markets.
Steven Hicks
Chairman
Chief Financial Officer's summary
This time last year I reported on unprecedented economic
conditions which had existed through the six month period to 31
January 2021, concerning uncertainty surrounding the financial
impact that might have arisen from the COVID-19 pandemic.
We are, again, in unprecedented economic conditions regarding
the situation in Ukraine. So far, and it is still early on, markets
have been bearing up reasonably well.
It does look credible and reasonable to hope that the conflict
will remain contained in Ukraine and although Russia will feel the
full force of global sanctions, there will no doubt be an economic
impact elsewhere. There is already higher inflation than we have
seen in the last 20 years in the UK and there are likely to be some
extra inflationary effects in respect of this conflict. We have
also seen higher interest rates since last year.
Our own results in the six months to 31 January 2022 reflect the
easing of COVID-19 restrictions and performance has been much
better than in the equivalent six months of the previous year.
Lending volume, average loan book, turnover and PBT were all up on
the equivalent period in 2021 (by 27.02%, 21.15%, 25.26% and 63.93%
respectively).
Our lending in most of the markets in which we operate has grown
substantially this period, on average at 27.02%. However, funding
for professional fees, school fees and working capital have all
fallen. As reported in the full year report to 31 July 2021, demand
for professional fee funding was slowing and this has continued
(down 3.96% on the equivalent period in 2021).
Our lending in the direct insurance market has risen to the
point that it has now overtaken lending to broker premium funding
companies. Growth here has been significant (59.99% over the six
months to 31 January 2022).
Our operational cost base is already lean and we have continued
to keep this so. Further information on costs is given later
on.
Last year, as a result of COVID-19, our employees began working
from home. This worked so well and was so popular among our staff
that we have continued to operate in this manner. As always, the
safety and wellbeing of our team, including their mental health, is
of the utmost importance to us. We are still in regular contact
with our staff and ensure that if anyone is feeling any sort of
pressure from home-working, they report it to us. Should this
happen we would endeavour to assist them with advice and other
support. Our systems have proved robust enough to be able to manage
this home-working in a seamless manner.
Throughout the period of the pandemic, we allowed payment
holidays and waived charges for late payment where applicable.
Charges for late payment have now been re-introduced.
We are in a strong financial position. At 31 January 2022 we had
net current financial assets of GBP14.29m (31January 2021
GBP15.47m) and GBP8.58m of unused borrowing facility (31 January
2021 GBP9.14m). Together, these show a strong capital, funding and
liquidity position. The main reason that we have a lower net
current financial position is that there are more financial assets
the repayment terms of which exceed one year.
Impairment reviews are carried out at each reporting period on
all financial assets. The method employed is shown in the audited
accounts to 31 July 2021 and is based on expected credit losses
(ECLs). Until the last financial year all our lending was within
one year. Last year we had loans to customers outstanding at the
balance sheet date which were due after more than one year. This is
therefore the first reporting period that
we have had to review these debts to establish whether they have
moved from one ECL stage to another. There have been no changes. At
31 January 2022 the provision was GBP493k (31 January 2021
GBP444k).
Our principal risks, as shown in the full year financial
statements to 31 July 2021, are credit risk, liquidity risk,
interest rate risk, IT disruption risk and conduct risk. A full
explanation of each of them together with their impact and
mitigation are detailed in those financial statements.
Interest rate risk may very well increase during the next six
months as a result of the invasion of Ukraine. We have already seen
energy prices rise significantly and interest rates rose at the end
of 2021 from 0.10% to 0.25%. There were other increases in February
and March 2022 taking rates to 0.75%. There may be more to come. As
already stated, most of Orchard's lending is short term (one year
or less) so we can react fairly quickly to rate changes. We do not
believe that credit risk is an issue. The type of products that we
finance are mostly necessary purchases (e.g. insurances). Based on
our past experience when there were other significant, detrimental
impacts on the economy (e.g. the credit crisis from 2008 and the
recent pandemic) actual losses have been exceptionally low.
During the six month period to 31 January 2022, we acquired two
companies - Cherry Orchard Funding Limited ("COF") and Orchard Bond
Finance plc ("OBF").
In the annual financial statements to 31 July 2021, we indicated
in the section on future developments that the board had agreed to
a pilot test of bridging finance. This was what COF was acquired to
do. In addition, we signalled that we were continuing to look at
alternative sources of finance to protect our liquidity. OBF is the
vehicle through which a retail bond issue was made. On 1 March
2022, this company issued GBP7.80m of GBP100 bonds at a rate of
6.25%. Details are shown on the company's website at
"https://www.orchardfundinggroupplc.com/orchardnews".
Key Performance Indicators (KPIs)
Our KPIs are set so that fluctuations outside a certain
tolerance would trigger an examination of our operations to
establish why they have occurred and, if necessary, take any
remedial action deemed necessary. This half-year our KPIs have
exceeded expectations.
Our KPIs are based on lending, the cost of lending and, to some
extent, operating costs. We try to ensure that risk is mitigated
when lending but, unfortunately, no lending is risk free.
All our lending is managed on a similar basis, carry similar
risks and rewards and need to comply with similar regulations. They
are therefore combined for reporting purposes.
The table below gives a breakdown of group KPIs. There is also a
table showing those items not considered KPIs but which give a
better understanding of the figures.
Return on average equity is based on PAT divided by the average
of equity at the end of the previous reporting period and that of
the current period. We believe that this measure is seen as more
useful than simply looking at equity at the end of the period.
Average external funding is based on the amount borrowed for the
exact number of days for which the advance was made.
Key performance indicators
6 months 6 months Year to
All amounts are GBPm unless otherwise to 31 January to 31 January 31 July
stated 2022 2021 2021
Lending volume 38.15 30.04 61.02
Average interest earning assets
(1) 33.45 27.61 28.59
Total revenue 2.89 2.31 4.60
Average external funding 9.94 10.43 9.28
Cost of external funds 0.22 0.22 0.56
Cost of funds/funds ratio 4.69% 4.45% 6.03%
Own resources (net current financial
assets) 14.29 15.47 14.15
Operating costs 1.25 1.27 2.52
Return on average equity 9.94% 5.97% 5.35%
Financial summary - other performance indicators
6 months 6 months Year to
All amounts are GBPm unless otherwise to 31 January to 31 January 31 July
stated 2022 2021 2021
Net interest income 2.14 1.64 3.22
Net interest margin (%) 12.80% 11.88% 9.30%
Profit before tax 1.00 0.61 1.05
Profit after tax 0.81 0.47 0.84
EPS (pence)(2) 3.78 2.19 3.91
DPS (pence) 2.00 2.00 3.00
Return on capital employed 7.16% 5.86% 4.33%
1. Average interest earning assets consist of the average of the
opening and closing loan book after taking account of the
impairment provision.
2. There are no factors which would dilute earnings therefore
fully diluted earnings per share are identical.
Although lending volume, average interest earning assets and
total revenue are all up by between 20% and 30%, PBT, PAT and EPS
are substantially higher. The increases in these areas were to be
expected although the upturn in PBT has been a mix of increased
income and reduced operating costs.
Staff costs last year reflected costs associated with obtaining
the banking licence. With the withdrawal of the licence
application, we were able to reduce our costs in this area and we
have seen an 11.27% reduction over the equivalent period in the
previous year. We have also seen an increase in professional fees
in developing the bridging market but, overall, our operating costs
have reduced by 1.57%. We operate in regulated markets and there is
a certain level of cost base that we have to maintain. As always,
however, the situation will be kept under review.
The board is pleased to maintain the dividend at the same rates
as this time last year. Therefore it is declaring an interim
dividend of 1 pence per share to be paid on 24 June 2022 to
shareholders on the register at 10 June 2022, with an associated
ex-dividend date of 9 June 2022.
In summary, the next six months will be challenging as a result
of international issues, but the board feels that no further
provisions or estimates (based on our forecasts) are needed.
Liam McShane
Chief Financial Officer
Consolidated statement of comprehensive income
6 Months 6 Months
to to
31 January 31 January Year to
2022 2021 31 July 2021
Notes GBP000 GBP000 GBP000
Continuing operations
Interest receivable and similar
income 2 2,355 1,883 3,783
Interest payable and similar
charges (219) (243) (559)
---------------------------------------- --- --------- -------- --------
Net interest income 2,136 1,640 3,224
---------------------------------------- --- --------- -------- --------
Other trading income 2 536 425 817
Other direct costs (343) (300) (603)
---------------------------------------- --- --------- -------- --------
Net other income 193 125 214
---------------------------------------- --- --------- -------- --------
Net total income 2,329 1,765 3,438
---------------------------------------- --- --------- -------- --------
Other operating costs (1,245) (1,267) (2,516)
Net impairment (losses)/gains
on financial assets (86) 109 131
Operating profit 998 607 1,053
Interest receivable - - -
Interest payable (1) (2) (3)
---------------------------------------- --- --------- -------- --------
Profit before tax 997 605 1,050
Tax 4 (190) (134) (211)
---------------------------------------- --- --------- -------- --------
Profit and total comprehensive
income for the period from
continuing operations attributable
to the owners of the parent 807 471 839
---------------------------------------- --- --------- -------- --------
Earnings per share attributable to the owners of the parent during
the period (pence)
Basic and diluted 5 3.78 2.19 3.91
---------------------------------------- --- --------- -------- --------
Consolidated statement of financial position
At 31 January At 31 January At 31 July
2022 2021 2021
GBP000 GBP000 GBP000
------------------------------- -------------- -------------- -----------
Assets
Non-current assets
Property, plant and equipment 15 30 23
Right of use assets 36 76 56
Intangible assets - 11 4
Deferred tax asset - - -
Investment at fair value
through profit and loss
consolidated income 81 6 81
Loans to customers 3,124 22 2,257
Other receivables - 4 -
------------------------------- -------------- -------------- -----------
3,256 149 2,421
------------------------------- -------------- -------------- -----------
Current assets
Loans to customers 33,896 27,898 27,616
Other receivables and
prepayments 268 199 233
Cash and cash equivalents:
Bank balances and cash
in hand 3,188 4,146 2,170
-------------------------------- -------------- -------------- -----------
37,352 32,243 30,019
------------------------------- -------------- -------------- -----------
Total assets 40,608 32,392 32,440
--------------------------------
Liabilities and equity
Current liabilities
Trade and other payables 8,893 6,512 4,182
Borrowings 13,822 10,112 11,439
Tax payable 329 60 138
-------------------------------- -------------- -------------- -----------
23,044 16,684 15,759
------------------------------- -------------- -------------- -----------
Non-current liabilities
Borrowings 1,382 58 878
Deferred tax 2 4 3
-------------------------------- -------------- -------------- -----------
1,384 62 881
------------------------------- -------------- -------------- -----------
Total liabilities 24,428 16,746 16,640
-------------------------------- -------------- -------------- -----------
Equity attributable to
the owners of the parent
Called up share capital 214 214 214
Share premium 8,692 8,692 8,692
Merger reserve 891 891 891
Retained earnings 6,383 5,849 6,003
-------------------------------- -------------- -------------- -----------
Total equity 16,180 15,646 15,800
-------------------------------- -------------- -------------- -----------
Total equity and liabilities 40,608 32,392 32,440
-------------------------------- -------------- -------------- -----------
Consolidated statement of changes in equity
Called
up
Share Retained Share Merger Total
Capital earnings premium reserve Equity
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- -------- --------- -------- -------- -------
Balance at 1 August
2020 214 5,805 8,692 891 15,602
-------------------------------- -------- --------- -------- -------- -------
Changes in equity
Profit and total comprehensive
income - 471 - - 471
Transactions with
owners:
Dividends paid - (427) - - (427)
--------------------------------
Balance at 31 January
2021 214 5,849 8,692 891 15,646
-------------------------------- -------- --------- -------- -------- -------
Changes in equity
Profit and total comprehensive
income - 368 - - 368
Transactions with
owners:
Dividends paid - (214) - - (214)
--------------------------------
Balance at 31 July
2021 214 6,003 8,692 891 15,800
-------------------------------- -------- --------- -------- -------- -------
Changes in equity
Profit and total comprehensive
income - 807 - - 807
Transactions with
owners:
Dividends paid - (427) - - (427)
--------------------------------
Balance at 31 January
2022 214 6,383 8,692 891 16,180
-------------------------------- -------- --------- -------- -------- -------
The merger reserve arose through the formation of the group on
23 June 2015 using the consolidation method which treats the merged
companies as if they had been combined throughout the current and
comparative accounting periods. The accounting principles for these
combinations gave rise to a merger reserve in the consolidated
statement of financial position, being the difference between the
nominal value of new shares issued by the company for the
acquisition of the shares of the subsidiaries and each subsidiary's
own share capital.
The share premium account arose on the issue of shares on the
IPO on 1 July 2015 at a premium of 95p per share. Costs directly
attributable to the issue of shares have been deducted from the
account.
Consolidated statement of cash flows
6 Months 6 Months
to to Year to
31 January 31 January 31 July
2022 2021 2021
GBP000 GBP000 GBP000
----------------------------------------- ------------ ----------
Cash flows from operating activities:
Operating profit 998 607 1,053
Adjustment for depreciation and
amortisation 32 36 71
1,030 643 1,124
Increase in trade and other receivables (7,182) (646) (2,679)
Increase in trade and other payables 4,711 3,598 1,243
-----------------------------------------
(1,441) 3,595 (312)
Income tax paid - (339) (337)
-----------------------------------------
Net cash (absorbed)/generated
by operating activities (1,441) 3,256 (649)
-----------------------------------------
Cash flows from investing activities
Interest received - - -
Purchases of property, plant
and equipment - (1) (3)
Purchase of right of use assets - (75) -
Sales of property, plant and
equipment - - (75)
Net cash absorbed by investing
activities - (76) (78)
-----------------------------------------
Cash flows from financing activities
Dividends paid (427) (427) (641)
Net proceeds from borrowings 2,901 224 12,245
Borrowings repaid - (1,116) (10,977)
Lease repayments (15) (15) (30)
-----------------------------------------
Net cash generated/(absorbed)
by financing activities 2,459 (1,334) 597
-----------------------------------------
Net increase/(decrease) in cash
and cash equivalents 1,018 1,846 (130)
Cash and cash equivalents at
the beginning of the period 2,170 2,300 2,300
-----------------------------------------
Cash and cash equivalents at
the end of period 3,188 4,146 2,170
-----------------------------------------
Cash and cash equivalents consists of bank balances.
Notes to the financial statements
1. General information
Orchard Funding Group PLC ("the company") and its subsidiaries
(together "the group") provide funding and funding support systems
for insurance premiums, professional and equivalent fees and other
leisure activities. The group operates in the United Kingdom.
The company is a public company listed on AIM, a market operated
by the London Stock Exchange, incorporated and domiciled in the
United Kingdom. The address of its registered office is 721
Capability Green, Luton, Bedfordshire LU1 3LU.
The condensed consolidated interim financial information for the
six months ended 31 January 2022 has been prepared in accordance
with the presentation, recognition and measurement requirements of
applicable International Accounting Standards in conformity with
the requirements of the Companies Act 2006 ('IFRS') except that the
group has not applied IAS 34, Interim Financial Reporting, which is
not mandatory for UK groups listed on AIM, in the preparation of
the condensed consolidated interim financial information.
The financial information does not include all of the
information required for full annual financial statements and
should be read in conjunction with the financial statements of the
group for the year ended 31 July 2021 which are prepared in
accordance with IFRS.
The accounting policies used in the preparation of condensed
consolidated interim financial information for the six months ended
31 January 2022 are in accordance with the presentation,
recognition and measurement criteria of IFRS and are consistent
with those which are expected to be adopted in the annual statutory
financial statements for the year ending 31 July 2022. There are a
number of new standards, amendments and interpretations that have
been issued but are not effective for these financial statements.
They are not expected to impact the financial statements as either
they are not relevant to the group's activities or are consistent
with accounting policies already followed by the group.
Under the expected credit loss (ECL) model required in IFRS 9,
there has a further GBP86k charged to consolidated income (31
January 2021 recovery of GBP109k). The main area of assessment is
debt arrears as based on past performance this is the best
indicator of default. The main reason for the increase is that
gross loans to customers (before impairment provisions) have risen
from GBP28.36m at the end of January 2021 to GBP37.51m at the end
of January 2022. In assessing potential provisions, the group has
adopted the simplified approach which requires the entity to
recognise a loss allowance based on lifetime ECLs at each reporting
date, right from origination. Part of this process has been to
examine the impact of the situation in Ukraine.
The group's 2021 annual report provides full details of
significant judgements and estimates used in the application of the
group's accounting policies. There have been no significant changes
to these judgements and estimates during the period.
The financial information included in this document is unaudited
and does not comprise statutory accounts within the meaning of
section 434 of the Companies Act 2006. The comparative figures for
the financial year ended 31 July 2021 are the group's statutory
accounts for that financial year. Those accounts have been reported
on by the company's auditor and delivered to the registrar of
companies. The report of the auditor was (i) unqualified, (ii) did
not include a reference to matters to which the auditor drew
attention by way of emphasis without qualifying their report, and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
2. Segmental reporting
The group's activities are providing funding for insurance
premiums, professional fees, school fees, leisure activities and
asset financing wholly within the UK.
Our lending meets the criteria for aggregation as the
underwriting process, management of the loans, distribution
channels, risks and rewards are all similar. The customer base does
differ (insurance brokers, professional firms, schools and leisure)
but our lending is still subject to strict underwriting processes.
Therefore, there is no meaningful information that could be given
on a geographical or segmental basis. Revenue by type is shown
below.
Notes to the financial statements
Revenue
6 Months 6 Months
to to
31 January 31 January Year to
2022 2021 31 July 2021
-------------------------------------- ------------- ------------ ---------------
GBP000 GBP000 GBP000
-------------------------------------- ------------- ------------ ---------------
Revenue
-------------------------------------- ------------- ------------ ---------------
Interest revenue using the effective
interest rate method 2,355 1,883 3,783
Other revenue 536 425 817
--------------------------------------
2,891 2,308 4,600
-------------------------------------- ------------- ------------ ---------------
Timing of revenue recognition:
At a point in time - direct
debit charges 323 352 573
At a point in time - non utilisation
fees 399 101 189
Over time - loan administrative
fees 143 - 101
At a point in time - default
and settlement fees 32 1 -
Over time - licence fees 70 73 143
Over time - interest revenue
outside the scope of IFRS 15 1,924 1,781 3,594
--------------------------------------
2,891 2,308 4,600
-------------------------------------- ------------- ------------ ---------------
4. Taxation
The tax assessed for the period differs from the main
corporation tax rates in the UK (19% for the half years to 31
January 2022 and 2021 and for the full year to 31 July 2021)
because of the effect of items disallowed for tax and accelerated
capital allowances.
5. Earnings per share
Earnings per share are based on the total comprehensive income
shown above, for each relevant period, and the weighted average
number of ordinary shares in issue during each period. For all
three periods, this was 21,354,167. There are no options or other
factors which would dilute these, therefore the fully diluted
earnings per share is identical.
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