LIV3 Lendinvest.27

LEI: 213800NWMK3O4UWP9N91

24 July 2024

                          LendInvest plc

FULL YEAR RESULTS FOR THE YEAR TO 31 MARCH 2024

Continued Innovation and Resilience Amid Market Challenges

LendInvest plc (AIM: LINV; the "Company" or the "Group"), the UK's leading platform for mortgages, announces its audited results for the year ended 31 March 2024.

 

Rod Lockhart, Chief Executive of LendInvest, commented:
"Our strategic focus on technology, funding diversification and exceptional customer service has bolstered our resilience during what has undoubtedly been a challenging year, but also a year of important strategic transition. The successful launch of our Mortgages Portal is a testament to our innovative approach and commitment to delivering operational efficiency and growth. We remain confident in and focused on our target of returning to profitability during the current financial year.

"Our team's strategic initiatives have laid a strong foundation for future success, and I am particularly thankful for their dedication over the last 12 months."

Summary Financials

Audited	Year to 31 March 2024	Year to 31 March 2023	Change
Platform Assets under Management (Platform AuM) (£m)1	2,783.3	2,587.0	8%
Funds under management (FuM) (£m)1	4,127.3	3,605.9	14%
New Lending (£m)	886.5	994.8	(11%)
Net Fee Income  (£m)	15.9	11.2	42%
Net operating income (£m)	23.5	54.7	(57%)
Total operating expenses (£m)	(50.8)	(40.4)	26%
Adjusted EBITDA (£m)1	(15.1)	14.3	(206%)
(Loss)/Profit before tax (£m)	(27.3)	14.3	(291%)
(Loss)/Profit after tax (£m)	(20.1)	11.4	(276%)
Diluted earnings per share1	(14.5)p	8.0p	(281%)
Full year dividend per share1	-	4.5p	-

¹ Unaudited

Financial Highlights

●      Platform AuM increased by 8% to £2.8 billion, driven by a 13% increase in Buy-to-Let (BTL) and short-term mortgages

●      FuM grew by 14% to £4.1 billion, driven by £700 million in new Separate Account mandates

●      Debt reduced by £645 million (56%)

●      Net Fee Income up 42%,  primarily a result of a continued strategic shift towards third-party managed assets

●      Adjusted EBITDA decreased to £(15.1) million, reflecting lower originations and higher administrative costs, but H2 EBITDA of £(4.3) million represented a 60% improvement on H1

●      Loss after Tax: £(20.1) million, driven by accelerated recoveries of non-performing assets, disposal of low-margin assets, lower lending volumes, and a higher degree of one-off costs

●      Cash and Cash Equivalents increased by 19% to £55.7 million, enhancing our liquidity position

 

Strategic Highlights

Products and Technology

●      Launched LendInvest Mortgages Portal, a fully integrated platform enhancing broker and customer experience and enhancing cross selling opportunities

●      Strengthened residential mortgages offering, targeting underserved market segments with significant growth potential

●      Implemented a seamless product switch process for brokers to transition to a new loan at maturity, improving customer retention and cross selling

●      Applications can now be completed in under five minutes

 

Diversified funding

●      Welcomed BNP Paribas to a £300 million funding syndicate with HSBC, and Barclays

●      Secured two new Separate Account mandates, providing £500 million to support the Mortgages division in Buy-to-Let and £200 million to support short-term mortgages

●      Extended and enhanced our funding partnership with National Australia Bank

 

Strengthening the balance sheet and de-risking the business

 

●      Reduced borrowing and extended maturity profile

o  Repaid our second £55 million retail-eligible bond and launched a new £39 million retail-eligible bond

o  Strategic reduction in balance sheet loans leading to simplification of funding model

o  Completed our fifth and largest oversubscribed RMBS transaction to securitisation to date at £410 million, reflecting strong market demand for LendInvest assets

o  New three-year strategic funding facility of £42.5 million, reducing mezzanine borrowing by £30 million

o  Total debt reduced by £645 million (56%) with the leverage ratio reducing by 39%

 

●      Accelerated recovery of non-performing assets

o  Sold a £250 million low margin BTL portfolio at a loss of £10.6 million, captured within net gains/(losses) on derecognition of financial assets removing lower net interest margin assets that would dilute future earnings

o  Accelerated recovery of non-performing assets to prioritise cash in our Capital division

 

●      Restructured the cost base

o  Headcount restructured to c.200 employees with payroll costs reduced by c.25% per annum

ESG and People

●      Senior Management: In March 2024, Hugo Davies, our Chief Capital Officer, took on the role of Interim CFO, ensuring business continuity following the departure of predecessor David Broadbent. Stephen Shipley, with over 30 years of financial sector experience, including roles at Barclays and Foundation Home Loans, is now appointed as Chief Financial Officer. Hugo will return to his role as well as now assuming responsibilities as Managing Director of the Mortgages division.

●      Maintained carbon neutrality and achieved a 61% reduction in operating emissions

●      Continued focus on sustainable projects, supporting retrofit and energy-efficient property financing

●      Launch of new Mortgages Academy in Glasgow to develop industry talent and expertise

 

Outlook

●      UK mortgage market showing signs of improvement, giving cause for cautious optimism

●      Leading technology and excellent market reputation providing further support

●      Return to profitability expected during FY2025, as previously forecast

 

 

 

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 24 July 2024. 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 

 

Change of name of nominated adviser and broker

The Company also announces that its Nominated Adviser and Broker has changed its name to Panmure Liberum Limited

following completion of its own corporate merger.

 

 

 

- Ends - 

 

 

 

 

 

Enquiries:

LendInvest via Teneo                                                                                         +44 (0)20 7353 4200
Rod Lockhart, Chief Executive Officer                                       
Hugo Davies, Interim CFO and Chief Capital Officer
Leigh Rimmer, Director of Communications                                                                                       
investorrelations@lendinvest.com                       

 

Panmure Liberum (NOMAD and Broker)                                                       +44 (0)20 7886 2500
Atholl Tweedie / Stephen Jones / / David Watkins

 

Teneo (Financial PR)                                                                                          +44 (0)20 7353 4200
Ed Cropley / Olivia Lucas / Oscar Burnett
                                                                             

 

About LendInvest

LendInvest is the UK's leading 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 £7bn of short term, development, buy-to-let and homeowner 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

 

 

 

Strengthened funding partnerships

 

CHIEF FINANCIAL OFFICER'S REVIEW

The first six to nine months of the 2024 financial year presented significant challenges for our business. In response to soaring inflation, the Bank of England Base Rate rapidly increased from 0.10% to 5.25% in less than two years, reaching its highest level since the Financial Crisis. This increase impacted key markets that drive our revenue growth, such as professional Buy-to-Let and Specialist Residential mortgages, which saw volumes decrease by 50% and 30%, respectively, during 2023. These declines were primarily due to stringent affordability conditions, a weaker housing market outlook, and a reduction in investment confidence fuelled by political and economic uncertainty. Consequently, the mortgage market, and our business, were affected.

However, throughout the year, the business continued to focus on its strategy to simplify operations and transition to a more predictable, fee revenue model. This strategic momentum has been demonstrated through several significant accomplishments:

1.     Deployment of Proprietary Technology: We introduced new, market-leading proprietary technology for mortgage origination and case management, enhancing efficiency and customer experience.

2.     Capital Markets Projects: We successfully completed multiple capital markets projects, optimising our balance sheet and demonstrating the strength of our investor relationships and the attractiveness of our credit performance through the cycle.

3.     Short-Term Mortgages Service Proposition: Despite numerous price adjustments in response to market interest rates, our short-term mortgage service proposition saw completions grow by 14% year-on-year, underscoring its robustness and market relevance.

Our comprehensive suite of property finance solutions enables us to capitalise on counter-cyclical dynamics, expanding our customer base and providing substantial marketing potential for Buy-to-Let (BTL). In the BTL sector, we were pleased to see a resurgence in demand in Q4, which lifted H2 originations by 53% compared to H1. This resurgence was further supported by a 111% increase in signed applications in H2 versus H1, bolstering our pipeline through to the first quarter of FY25, even as markets slowed due to sustained higher interest rates.

Overall, AuM has grown by 8% year-on-year, driven by a 13% increase in the LendInvest Mortgages division, primarily fuelled by AuM growth in Buy-to-Let and short-term mortgages. However, originations were down by 11% due to broader economic factors as described above.

Balance sheet AuM saw a significant reduction of nearly 60% year-on-year, primarily due to an 88% reduction in the size of the Buy-to-Let balance sheet. Balance sheet short-term mortgage AuM grew by less than 1% year-on-year, despite originations growth, highlighting the rapid deployment of new separate account arrangements in this area.

Our Funds under Management (FuM) remained resilient, achieving 14% growth year-on-year, driven by the successful closing of several key transactions:

1.     Refinancing of Retail-Eligible Bonds: We successfully refinanced our 2023 retail-eligible bonds with a new 2026 offer.

2.     Largest Securitisation: We closed the Company's largest securitisation to date at £410 million, which was the tightest-priced Buy-to-Let RMBS in H2 of 2023.

3.     New Separate Account Mandates: We secured two new Separate Account mandates, providing £500 million to support the Mortgages division in Buy-to-Let and £200 million to support short-term mortgages.

4.     Revamped Financial Partnerships: We revamped our Financial Partnership with National Australia Bank, delivering new criteria to support growth and adapt to changing market dynamics in Specialist Residential and Buy-to-Let.

5.     New Partners: We welcomed BNP Paribas as a new partner in our balance sheet-funded short-term mortgage business and post-year end welcomed a further investor to support the growth trajectory in short-term mortgages.

Additionally, we closed several transactions that helped to reduce the business' debt by £645 million over the course of the year, continuing our strategy to a fee led revenue model.

As of the end of the financial year, we maintained significant headroom in our Funds under Management (FuM) relative to our Assets under Management (AuM), ensuring robust support for the business's continued growth and achievement of its objectives. The proportion of AuM held on the balance sheet reduced year-on-year from c.45% to c.17%, with £2.3 billion of our nearly £2.8 billion in assets managed on behalf of third parties.

To provide clarity for our investors on how structural changes in AuM impact revenue generation, we outline our financial performance as follows. Net interest income is recognised in accordance with IFRS 9, while net fee income is recognised under IFRS 15.

Group £m	Year to 31 March 2024	Year to 31 March 2023	Change (%)
Funds under management	4,127.3	3,605.9	14%
Platform assets under management	2,783.3	2,587.0	8%
On balance sheet	477.0	1,122.9	(58)%
Off balance sheet	2,306.3	1,464.1	58%
New Lending	886.5	994.8	(11)%
(Loss)/profit before tax	(27.3)	14.3	(291)%
Basic earnings per share	(14.5)p	8.3p	(275)%
Diluted earnings per share	(14.5)p	8.0p	(281)%
Adjusted EBITDA	(15.1)	14.3	(206)%

Group Financial Performance

 

Group £m	Year to 31 March 2024	Year to 31 March 2023	Change (%)
Net interest income	8.5	38.4	(78)%
Net fee income	15.9	11.2	42%
Net gains on derecognition of financial assets	(1.0)	4.9	(120)%
Net other operating income	0.1	0.2	(50)%
Net operating income	23.5	54.7	(57)%
Administrative expenses	(42.4)	(34.5)	23%
Impairment losses on financial assets	(8.4)	(5.9)	42%
Total operating expenses	(50.8)	(40.4)	26%
(Loss)/profit before tax	(27.3)	14.3	(291)%
(Gains) from derecognised cash flow hedge	-	(9.2)	-
Losses/(gains) from derivative hedge accounting	4.0	(5.1)	(178)%
Restructuring costs	1.6	-	-
Exceptional professional costs	1.1	-	-
Underlying (loss)/profit before tax	(20.6)	0.0	-

 

Net Interest Income (NII)

Net Interest Income decreased by 78% to £8.5 million (2023: £38.4 million), primarily due to the strategic shift towards managing more assets on behalf of third parties and higher debt costs. In 2023, NII benefited from a £9.2 million gain recognised on the exercise of a call option and the settlement of a designated cash flow hedge.  Net Interest Income is recognised on loans and advances held on the balance sheet.

The business continued to transform the composition of its balance sheet, with the Mortgages division now managing £1.5 billion worth of Separate Account mandates in Buy-to-Let alone. Consequently, the proportion of Buy-to-Let AuM held on the balance sheet reduced by 88% year-on-year, significantly impacting Net Interest Income.

The proportion of AuM held on the balance sheet at any given time can fluctuate as the business utilises three main funding tools to reduce the amount of loans and advances held on the balance sheet:

1.     Separate Account Mandates: These transactions affect front book origination, taking a greater share of what would have ended up on the balance sheet.

2.     Private Portfolio Sales: Mostly used as a tool to seed Separate Account mandates with a mature loan book. These transitions affect the back book.

3.     Transfer of Residual Interest in RMBS Transactions: The business typically seeks to securitise its BTL loans and advances, and place residual certificates once a year, allowing it to recycle lending capital, maintain liquidity, and release impairment adjustments by removing exposure to credit risk.

Net Fee Income (NFI)

Net Fee Income increased by 42% to £15.9 million (2023: £11.2 million). This growth is attributed to our expanding third-party managed account business. NFI is not expected to fully offset the reduction in Net Interest Income (NII) as the  NII is also impacted by credit provisioning in the impairment losses on financial assets line. NII is primarily driven by our stock of loans, while NFI is primarily driven by the flow of loans. Given the challenges faced in 2023, originations would have needed to be higher to compensate for the foregone revenue in NII. Despite this, the business is pleased with the current growth in this predictable and recurring income area.

The Capital division experienced a challenging year, with originations down by 38%, in line with a 36% reduction in enquiries. The difficulty in maintaining a robust pipeline meant that redemptions outpaced originations, causing the division's AuM to fall by approximately 11%, which exerted additional downward pressure on NFI against our plan. Despite these challenges, the Capital division generated £0.3m in net performance fees in FY24.

Impact of derecognition on Financial Performance

Throughout the year, the business closed several transactions that transitioned assets to third-party investors. These transactions successfully raised liquidity and allowed us to reduce our debt by £645 million, despite being generally unfavourable to profitability at the point of derecognition.

Buy-to-Let Portfolio Sale: This project involved the sale of a prime portfolio of Buy-to-Let (BTL) assets worth £250 million, which took place in the first quarter of the financial year. The transaction was economically impacted by wider market forces following the collapse of Credit Suisse. Initially, we had received a bid that would have delivered a more neutral P&L result, but the bidder had to withdraw due to substantial investments in Credit Suisse's AT1 bonds that were written off overnight. As a result, the loss from the transaction amounted to £10.6 million.This sale seeded a new Separate Account funding partnership to fund future mortgage originations.

Mortimer BTL 2023-1 Securitisation: This transaction involved the derecognition of £410 million in BTL assets, resulting in a loss. Despite the loss, the transaction was cash generative and enabled the business to pay down senior debt, repay mezzanine financing, and increase company cash reserves.

Mortimer BTL 2021-1 Securitisation: This transaction involved the derecognition of £236 million in BTL assets, resulting in a net pre-tax profit of £10.8 million.

All gains or losses from such transactions, alongside sales of individual loans to off balance sheet entities, are recorded in the net gains on derecognition of financial assets line above Net Operating Income.

 

Cost Management

During the first eight to 10 months of the year, administrative expenses grew significantly, without the underlying market to support such levels of growth. The business found it challenging to right-size operations given the ongoing volatility of interest rates and inflation expectations, which are natural leading indicators of mortgage market activity. We were concerned that reducing our origination capability too soon or too materially could result in the inability to capitalise on a market recovery, should it occur. This would leave us with the tail risk of having to backfill origination capacity, which is suboptimal as new hires learn new products and processes. However, the anticipated recovery did not materialise in 2023, causing our cost base to reach a peak and ultimately necessitating a material restructuring exercise in November.

Administrative expenses increased by 23% to £42.4 million (2023: £34.5 million), significantly impacting profit. To manage this cost inflation, we have implemented several measures:

1.     People-Related Restructuring: In November, we completed a substantial restructuring exercise, reducing run rate people-related costs by over 25%.

2.     Operational Shift to Glasgow: We pivoted and prioritised lending operations and support functions to our Glasgow office.

3.     Proprietary Technology Rollout: We rolled out new proprietary origination and mortgage processing technology, driving operating leverage and allowing for more careful cost management without compromising origination capacity.

We expect these measures to positively influence long-run operational expense dynamics and right-size the business in the context of smaller addressable markets as soon as FY25, but with more benefits coming through in FY26. In FY25, there will continue to be a slightly suboptimal cost as support and operational roles are migrated. Furthermore, the lease on our London office expires in 2025 providing the potential for cost savings through a smaller presence, which will result in lower lease costs from FY26.

The restructuring cost was £1.6 million and is considered a one-off, booked in the additional item line of the P&L statement.

More broadly, the business has significantly tightened its approach to cost management, implementing new processes to govern contracts and discretionary expenditure. Further cost optimisation has been targeted towards technology and group central cost areas in order to maintain lending capacity. As market activity picks up once interest rates fall, we will be able to capitalise on opportunities afforded by our newly deployed proprietary technology from a position of relative strength.

Impairments

Impairment losses grew 42% to £8.4 million  (2023: £5.9 million ), but improved in H2 vs H1. This primarily reflects accelerated management of recoveries coupled with an increase in expected credit losses on a small number of larger stage 3 Capital division loans in H1 (stage 3 grew by 140%, whereas stage 2 grew by 6%). The majority (£7.6 million) of the charge in the year, exacerbated by the market backdrop, can be attributed to loans from our Capital division. The increase in impairment losses for our Capital division was isolated, as loans to three borrowers made up 50% (£3.2 million) of the total Capital impairment charge.

Profit

As per our RNS released on 17  June, we announced that the sale of residual economic interest in the Mortimer BTL 2023-1 PLC securitisation was no longer expected to generate a net pre-tax gain. Consequently, the Loss before Tax for FY24 is £(27.3) million (FY23: £14.3 million). We had previously guided the market to expect a Loss before Tax in line with average consensus expectations of £(15.9) million including a net pre-tax gain of approximately £12 million from the sale of residual economic interest in Mortimer BTL 2023-1 PLC securitisation.

The negative adjustment stems from swap and hedge accounting assumptions based on technical advice received concerning the derecognition calculation for the Mortimer 2023-1 BTL PLC securitisation. The wider loss for the year can be attributed to several factors:

●      Materially lower lending volumes against a higher administrative cost base.

●      Transactional losses, including hedge accounting ineffectiveness  exacerbated by the challenging market backdrop.

●      Increased impairment losses.

●      Tighter lending margins impacting Net Fee Income (NFI) and Net Interest Income (NII).

●      Higher audit costs, that should reduce as the business model is simplified

The underlying loss before tax for H2, before exceptional items, was £(6.7) million, which represents a 52% improvement versus H1. Similarly, adjusted EBITDA was £(4.3) million  in H2, a 60% improvement on H1. Exceptional professional costs contain £0.5m of technology-related research and consultancy work and £0.6m of finance transformation support from professional services firms.

Profit after Tax decreased by 276% to £(20.1) million (FY23: £11.4 million). The effective tax rate in the year was 26%, a small variance to the corporate tax rate of 25%.

Adjusted EBITDA decreased by 206% to £(15.1) million (FY23: £14.3 million), basic earnings per share was (14.5)p per share (FY23: 8.3p per share) and diluted earnings per share was (14.5)p per share pence (FY23: 8.0p per share).

Outlook and dividend

Guidance for FY25 remains unchanged, with respect to our expectation of returning to profitability during the course of the financial year. We will not be declaring a dividend given the scale of negative reserves, but remain committed to pursuing a progressive dividend policy as soon as it is prudent to do so.

Group Balance Sheet/Financial position/Net assets

 

	31 March 2024	31 March 2023	Change (%)
Assets
Cash and cash equivalents	55.7	46.7	19%
Trade and other receivables	11.9	6.1	95%
Loans and advances	477.0	1,122.9	(58)%
Investment securities	41.1	23.9	72%
Derivative financial asset	0.0	46.0	(100)%
Other assets	15.9	17.2	(8)%
Total assets	601.6	1,262.8	(52)%
Liabilities
Trade and other payables	(23.4)	(23.7)	(1)%
Other liabilities	(2.3)	(3.3)	(30)%
Derivative financial liability	(2.0)	0.0	-
Interest bearing liabilities	(514.6)	(1,159.3)	(56)%
Total liabilities	(542.3)	(1,186.3)	(54)%
Net Assets	59.3	76.5	(22)%
Equity
Other reserves	10.1	2.3	339%
Share capital	0.1	0.1	0%
Share premium	55.2	55.2	0%
Retained earnings/(losses)	(6.1)	18.9	(132)%
Total Equity	59.3	76.5	(22)%

 

AUM held on balance sheet (represented as Loans and advances) equalled £477 million, down 58% from 2023 (£1.123 billion). The reduction was driven by a £250 million portfolio sale and two RMBS derecognition transactions, which were partially offset by balance sheet activity primarily in the Mortgages division.

Cash and cash equivalents grew 19% to £55.7 million  (FY23: 46.7 million). The growth is attributed to a £6.5 million  increase in cash restricted for loan funding purposes. Trade and other receivables increased by 95% to £11.9.million  (2023: £6.1 million) due to corporation tax receivable from carry back of losses. Investment securities increased by 72% to £41.1 million  (2023: £23.9 million) due to risk retention in our fifth Securitisation in November 2023. The derivative financial asset reduced to nil in the period (2023: £46.0 million) as we recognised a £2 million derivative financial liability (2023: £0 million) and other assets reduced by 8% to £15.9 million (2023: £17.2 million).

Interest bearing liabilities reduced by 56% to £514.6 million (2023: £1.159 billion) as a result of various transactions to pay down debt  and two residual sales during the year.

Total equity reduced by 22% to £59.3 million (2023: £76.5 million), primarily as a result of 132% reduction in retained earnings/(losses), from £18.9 million in 2023 to £(6.1) million. Other reserves increased by 339% to £10.1 million (2023: £2.3 million) largely due to positive movements in the fair value reserve.

Cash and cash flow

	Year to 31 March 2024 £'m	Year to 31 March 2023 £'m (restated)
Net cash outflow from operations	28.6	(192.7)
Net cash outflow from investing activities	(16.9)	(24.9)
Net cash inflow from financing activities	(2.7)	146.1
Net increase/(decrease) in cash and cash equivalents	9.0	(71.5)
Cash and cash equivalents at beginning of the period	46.7	118.2
Cash and cash equivalents at end of the period	55.7	46.7

 

Cash and cash equivalents grew 19% to £55.7 million (2023: £46.7 million). £38.5 million of the total balance is restricted for loan funding purposes (2023: £31.9 million).

The remaining cash balance increased by 17% to £17.2 million from £14.7 million in FY23. The growth is due to capital generated from residual sales, portfolio sales and securitisations, which are then recycled at a slower pace given the growth in Separate Accounts, further evidence that the business has taken tough decisions to fortify its balance sheet, especially when coupled with £645 million of debt reduction over the year.

 

▪              

Segmental analysis - LendInvest Mortgages & LendInvest Capital

	Year to 31 March 2024	Year to 31 March 2024	Year to 31 March 2024	Year to 31 March 2024
	Mortgages (£'m)	Capital (£'m)	Central (£'m)	Group (£'m)
Net interest income	(1.7)	10.2	-	8.5
Net fee income	7.9	8.0	-	15.9
Net gains on derecognition of financial assets	(1.6)	0.6	-	(1.0)
Net other income	0.1	-	-	0.1
Net operating income	4.7	18.8	0.0	23.5
Administrative expenses	(11.6)	(5.1)	(25.7)	(42.4)
Impairment losses on financial assets	(0.8)	(7.6)	-	(8.4)
Total operating expenses	(12.4)	(12.7)	(25.7)	(50.8)
(Loss)/profit before tax	(7.7)	6.1	(25.7)	(27.3)

 

LendInvest Mortgages

The Mortgages division differentiates itself through a strategic combination of competitive pricing and exceptional service. Given the high price elasticity of the mortgage market segments we address, it is crucial to offer pricing that keeps our products competitive, particularly under current affordability constraints. In contrast, the short-term mortgages segment is less price-sensitive, with borrowers prioritising speed and certainty over price, making our performance more dependent on our capabilities than on market dynamics.

With banks, especially challenger banks in specialist lending, needing to reprice savings deposits in line with the base rate, non-bank lenders have narrowed the pricing gap. This shift has been bolstered by favourable conditions in securitisation markets. Securitisation pricing serves not only as a reference for our balance sheet lending but also for our Separate Account mandates, even when it is not the primary funding tool of our partners.

We continuously refine our funding base across the Mortgages division to maximise margins against the risks we are exposed to, while ensuring our products remain competitively positioned. Funding arrangements are reviewed at least annually, and we nurture strong relationships with a broad network of institutional investors. Our commitment to professional service, underpinned by a 15-year legacy of finding ways to say yes, further distinguishes us in the market. This strategic approach, supported by a diverse funding base and a wide suite of products, is enhanced by our proprietary technology.

The Mortgages division is ideally suited for technological automation to maximise operating leverage. Homogenous products are highly scalable, and our proprietary technology can automate workflows and enable streamlined processing across a range of specialist lending products. This eliminates the need for extensive manual intervention, ensuring seamless product development and iteration, in stark contrast to the restrictive scorecard approach often seen in banks.

The past year for the Mortgages division was marked by significant challenges. The first half of the year involved a high cost base, substantial deleveraging, and a reduced addressable market due to record interest rates and high inflation. Despite these challenges, we have fortified our balance sheet by prioritising liquidity, reducing debt, reducing costs, and deploying advanced technology. This positions us more resiliently for future growth.

The Mortgages division incurred a loss before tax of £7.7 million for the year. This includes £4 million attributable to non-hedge accounted swap movements and hedge accounting ineffectiveness which led to negative NII of £1.7 million, a net loss of £1.7 million from three derecognition projects and individual sale of loans off balance sheet, and challenges in aligning origination capacity with origination potential. We look forward to leveraging our strengthened position to drive future success and make up for this disappointing year, given we started to see the greenshoots of our actions emerge in Q4.

LendInvest Capital

The Capital division focuses on complex lending that benefits from an expert, human-centric approach. While the average loan size is larger, which offsets the fewer opportunities available, these loans often come with more favourable risk-reward profiles. The division is active in Development Finance, Structured Bridging, Lending Joint Ventures, and other forms of large commercial property lending.

Due to the complexity of these products and the potential for larger impairment provisions, they are primarily funded through third-party sources of capital. This includes our funds platform, syndications, online investment platform, private securitisation, separate accounts, and joint ventures with our funds.

The Capital division has faced a challenging capital-raising environment for some time, with core milestones being delayed due to sentiment in global commercial real estate markets. The success of our capital-raising efforts is influenced by global trends, as capital is sourced from around the world.

Looking ahead, the outlook is more positive. We expect capital-raising activity to pick up, enabling us to be more active in these markets once again and driving recurring fee revenue over time. Furthermore, from our vantage point, there continues to be a healthy deal supply that we can capitalise on.

The Capital division posted a £6.1 million profit for FY24.

 

 

 

 

 

 

 

STRATEGY SUMMARY AND PROGRESS

LendInvest Mortgages Strategy

LendInvest Mortgages provides fast, flexible, and simple mortgages to homeowners, experienced property investors, and portfolio landlords across the UK. Our strategy is built on three pillars: Service, Technology, and People.

1. Service: We distinguish ourselves through the quality of our service. Our commitment to professional service, underpinned by a 15-year legacy of finding ways to say yes, sets us apart in the market. We focus on delivering exceptional customer experiences, ensuring that our products and services meet the needs of our borrowers and brokers.

2. Technology: Our proprietary technology platform powers our innovative mortgage products. We have invested over £60 million in developing a market-leading platform that enables seamless integration with third-party data sources, automating underwriting processes, and ensuring reliability and scalability. This year, we launched the latest iteration of our Mortgages Portal, which centralises the mortgage process, offering brokers and their clients real-time access to our entire product range.

3. People: Our talented team is at the core of our success. We invest in continuous professional development, fostering a culture of innovation and responsibility. This year, we launched the Mortgages Academy in Glasgow, reflecting our commitment to developing talent and ensuring that new entrants into the mortgage industry are well-equipped with the necessary skills and insights.

Key Mortgage Products:

●      Buy-to-Let Mortgages: Tailored for investors and landlords seeking to expand their portfolios.

●      Residential Mortgages: Designed for complex homeowner customers, including the self-employed and those with diverse income sources.

●      Short-term Mortgages: Flexible borrowing solutions with terms ranging from 12 to 24 months.

Strategic Achievements:

1.     Launch of the LendInvest Mortgages Portal: A significant operational leap forward, providing seamless access to our entire product range and facilitating easier transitions for brokers and clients.

2.     New Product Transfer Process: Introduced a streamlined process allowing brokers to easily switch products at maturity, enhancing customer retention and satisfaction.

3.     Expansion of Funding Partnerships: Welcomed BNP Paribas to our financing syndicate, bolstering our financial foundations and supporting our growth strategy.

LendInvest Capital Strategy

LendInvest Capital focuses on complex lending that benefits from an expert, human-centric approach. Our strategy is to draw on our deep industry expertise and in-house real estate finance knowledge to match institutional and individual investors with secure, income-producing UK property finance assets.

1. Diverse Funding Lines: We utilise a range of funding sources, including institutional investors, funds, syndications, and joint ventures. This diversity ensures a resilient and sustainable lending ecosystem, enabling us to provide bespoke solutions that meet the evolving needs of our clients.

2. Product Innovation: We continuously innovate to address market dynamics and customer requirements. Our product offerings include Development Finance, Structured Property Finance, and Residential Investment Portfolio Loans, tailored to meet the needs of property developers, investors, and other stakeholders.

3. Strategic Partnerships: Our strong relationships with global financial institutions support our growth and expansion. This year, we secured a new £500 million Separate Account mandate and revamped our partnership with National Australia Bank, enhancing our ability to fund short-term mortgages and adapt to market changes.

Key Funding Lines:

●      Luxembourg Funds: Offering access to secured credit funds.

●      Self-Select Platform: Providing flexible loan syndication and co-investment opportunities through Alternative Investment Fund structures.

●      Co-Investors: Collaborating with third-party lenders to expand our lending footprint.

KEY PERFORMANCE INDICATORS

Platform Assets Under Management (AuM)

Definition:

Platform Assets Under Management (AuM) represents the total loan balance we have provided to our customers, encompassing both the LendInvest Mortgages and Capital divisions. This balance reflects the outstanding amount that has not been repaid by a diverse clientele, including homeowners, property investors, SME developers, and landlords.

Revenue from our AuM is generated through fee and interest income. Fees associated with the origination process, such as product, application, valuation, and legal fees, are charged to the customer. Additional fees, including servicing, asset management, and performance fees, are charged to our investors and funding partners. For intermediated loans, expenses such as procuration fees are paid to brokers, and these costs can vary by product.

AuM can be held either on the Group's balance sheet or off balance sheet. On-balance sheet AuM generates interest income, partially offset by funding costs, including interest and hedging expenses. Strategically, we aim to grow the proportion of off-balance sheet AuM, where assets are managed on behalf of investors, generating recurring fee income without associated liquidity and credit risk.

Platform Funds Under Management (FuM)

Definition:

Platform Funds Under Management (FuM) is the total funding available for lending from our investors and funding partners. This includes both the funds already utilised against our Platform AuM and the funding that is either drawn but unutilised or committed but not yet drawn. FuM excludes any pipeline capital or ongoing fundraising projects.

We raise funding from a diverse array of financial institutions, institutional investors, and individuals. Our funding partners, including BNP Paribas, HSBC, Barclays, National Australia Bank, and Lloyds, primarily support our LendInvest Mortgages products via the Group's balance sheet. Additionally, we manage third party accounts on behalf of JP Morgan, Chetwood Financial, and other institutional investors, and serve as the servicer and mortgage originator for various securitisation programmes. In the LendInvest Capital division, we raise capital through funds, separate accounts, syndications, and strategic partnerships.

The funding provided through these investment solutions is used to originate larger and more complex property finance opportunities. The difference between FuM and AuM indicates the remaining lending capacity before the need to raise additional funds or capital for lending.

How we measure value for our shareholders

Net Operating Income (NOI)

Definition:

Net Operating Income (NOI) aggregates all revenue from fees and interest income, subtracting the total interest and fee expenses associated with our AuM and FuM.

While NOI typically grows in line with AuM, certain capital markets transactions can impact this. For instance, disposing of residual economic interests in a securitisation accelerates the recognition of revenue and costs, which would otherwise be spread over several years. This approach optimises our balance sheet, enabling the business to extract more value from its capital and release further liquidity.

 

 

Adjusted EBITDA

Definition:

Earnings before Interest, Tax, Depreciation, and Amortisation (EBITDA) is a key measure of underlying profitability. We use an Adjusted EBITDA figure to exclude non-cash income or expenses. This KPI is important as it supports s our cash flow, supporting reinvestment opportunities or potential distributions. Our Earnings line, which includes Net Operating Income, already accounts for directly attributable financing and funding costs against the AuM and FuM.

Profit Before Tax (PBT)

Definition:

Profit Before Tax (PBT) represents the Group's profits before the deduction of corporation tax, which is the net of NOI and total operating expenses. In a loss-making year, we may benefit from tax relief.

Diluted Earnings Per Share (EPS)

Definition:

Diluted Earnings Per Share (EPS) measures our Profit After Tax (PAT) earnings per share, considering all issued share capital plus outstanding options and equity grants across the Group's share plans. This metric assumes the conversion of all outstanding equity, providing a comprehensive view of shareholder value.

 

 

 

 

 

 

 

 

 

 

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 2024 and of the Group's loss 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 2024 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 material 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 Group's past experience of extending the maturity of facilities, their discussions with new providers of funding and experience of portfolio sales; 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

 

Coverage	100% (2023: 100%) of Group profit before tax 100% (2023: 100%) of Group revenue 100% (2023: 100%) of Group total assets
Key audit matters (KAM)	2024 2023 Revenue recognition - Behavioural life within the Effective Interest Rate Model* P P Loss/gain on derecognition of financial assets* P P Determination of expected credit loss (ECL) P P Valuation techniques of loans and advances P P     * In the current year, we have split the Fraud in Revenue recognition Key Audit Matter to disclose the Interest Income under the effective interest rate method and loss/gains on derecognition of financial assets as two Key Audit Matters.
Materiality	Group financial statements as a whole   £836,000 (2023: £715,000) based on 1% of Revenue (2023: 5% 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-two components (2023 : 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. The location of the significant components are all in the United Kingdom.

 

In addition, there were six Group components (2023 : 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
Revenue recognition - Behavioural lives within the Effective Interest Rate Model   The Group's accounting policies are disclosed in Note 1.6, and critical accounting estimates and judgements are disclosed in Note 1.22.   The interest income calculated using the effective interest rate method is included in Total interest and similar income as disclosed in note 6.	The amounts reported in relation to revenue represent information of significant interest to many users of the financial statements. This puts revenue at a greater risk of manipulation, bias and misstatement.    The behavioural life of loan customers is necessary to accurately recognise interest income but highly subjective and involves the use of management's judgement and estimation.    For these reasons, we determined Revenue recognition - Behavioural lives within the Effective Interest Rate (EIR) Model to be a Key Audit Matter to be communicated in our report.	We tested the operating effectiveness of management's control over the estimates and assumptions including behavioural lives of loan customers, that are used to calculate the EIR adjustments.   We assessed and challenged the appropriateness of key assumptions around the behavioural lives within the EIR model used by management by considering the historical experience of loan behavioural lives based on customer behaviour , and also performed the following sensitivity analysis:   1.   Re-assessed the EIR adjustment of prior year portfolio using the new EIR Model developed during the year. 2.   Flexed the behavioural life of the loan to the weighted average post reversion period.   We assessed whether management has appropriately segmented the loan book. On a sample basis, we reviewed the product types included within each loan segment and checked if these are within the respective behavioural life based on our knowledge of the business, and we challenged any exception noted by assessing the vintage and fixed rate term of the loan.   Using data analytics we have recalculated the behavioural life curve based on the historic performance of the loan book and approved assumption by management.   Key Observations: We determine the judgement applied by management to be reasonable.
Loss/gain on de-recognition of financial assets   The Group's accounting policies are disclosed in Note 1.6   The net loss on de-recognition of financial assets is £0.9m (2023: gain of £4.9m) as disclosed in Note 9.	Loans are de-recognised by the Group or Company, by way of 'one-off transactions' whereby a loan portfolio is sold to a third party, or a 'normal' transfer off-balance sheet, which constitutes of individual loans, in the course of standard business operations.   These transactions have led to gains or losses either through settlement of the transaction (outright sale of the loan) or through triggering a loss of control of an entity that holds the loans which results in the crystallisation of fee income and expense in respect of the de-recognised securitised loan portfolios.   These transactions are complex and have individually resulted in material gains and/or losses which is subject to a risk of material misstatement due to error.   For these reasons, we determined derecognition of financial assets to be a Key Audit Matter to be communicated in our report.	For the one-off transactions, we have reviewed the Regulatory News Service ('RNS') announcements and the minutes of meetings held by the ALCO ("Asset and Liability Committee") to identify any additional transactions which relate to de-recognition of financial assets in order to assess completeness of transactions.   We have obtained and reviewed the schedule of recognised fees and performed a recalculation of the amount for mathematical accuracy.   We have obtained a list of all financial assets derecognised during the year and assessed the validity of the de-recognition of these assets, in line with the supporting contract. We have assessed the application of loss of control in accordance with IFRS 10,  and the assessment of de-recognition of loans under IFRS 9.   For the portfolios de-recognised and the corresponding fees crystallised during the year, we have obtained a breakdown of the fees recognised from deferred income and checked that these were crystallised in full, to the income statement.   For the samples selected, we have assessed all key inputs and journal entries, which support the calculation of the loss/gain on de-recognition of financial assets, with reference to relevant supporting documentation.   For all portfolios derecognised, we  assessed the deferred income and expenses schedule, and checked that no transaction post crystallisation was recorded.   We have assessed managements technical paper on the accounting for the de-recognition of financial assets and checked if this is in accordance with the requirements of the applicable standard.   Key Observations: Based on our audit work performed and the evidence obtained, we have not identified any indicators that suggests that the derecognition of financial assets were not calculated and accounted for appropriately.
Determination of expected credit loss (ECL)   The Group's accounting policies are disclosed in note 1 with detail about judgements in applying accounting policies and critical accounting estimates in note 1.22.   As disclosed in Note 18 the ECL Provision at year-end is £8.6m (2023: £9.1m).	Commensurate with the activities of the Group, the total expected credit loss provision is a material balance subject to management judgement and estimation.   We have assessed the elements of the ECL calculation which will significantly impact the determination of the ECL as follows:   Accuracy of forward-looking information IFRS 9 requires the Group to measure the expected credit loss (ECL) on a forward-looking basis, incorporating future macro- economic variables reflecting a range of future conditions. The incorporation of such forward-looking macroeconomic inputs and weighting of the scenarios is considered a significant risk across all three portfolios, especially in the continued downturn of the current economic environment.                       Carrying value (loss given default) of individually assessed Stage 3 (credit impaired) loans The carrying value of loans and advances to customers may be materially misstated if individual impairments are not appropriately identified and estimated. These estimates involve complex recoverability scenarios which involve multiple differing recovery options where the timing and quantum of recovery's are subject to significant management judgments and estimates and the probability of scenarios weighting as recovery cashflows can differ materially between individual scenarios.	Accuracy of forward-looking information We have engaged internal credit and econometric experts to assist in assessing the appropriateness of the regression models and the source and type of macro-economic variables used such as GDP and unemployment data.    We have challenged management on the rationalisation of any changes made to information obtained from external sources and have considered its appropriateness to the current lending portfolio.   We have assessed the reasonability of the economic scenarios used and the weighting applied by considering the number of scenarios selected based on management's support.   We have tested the completeness of the data used for management overlays and assessed if other overlays are required, based on our experience. We have tested the arithmetical accuracy of the overlays.   We have performed sensitivity analysis on the macro-economic variables and assessed the severity of changes in the macro-economic variables to the overall Expected Credit Loss. We also benchmarked the Macro-economic variables applied in the models to independent third party industry data     Carrying value (loss given default) of individually assessed Stage 3 (credit impaired) loans. We have selected a sample of individual assessment cases as at 31 March 2024. We have challenged management on the key inputs into these scenarios by obtaining supporting evidence for recovery strategies, collateral values, exit strategies, scenario weighting, expected timing of cash flows and engaging internal experts as required in support of our assessment.   We have assessed the accuracy and validity of data that feeds into the individual assessment cases as well as the progress on the preferred recovery scenario being pursued to supporting documentation. Based on supporting evidence assessed and discussions with the credit team, we evaluated and challenged the judgements applied in the individually assessed Stage 3 loan assessments. This included assessment of the recovery strategies, recovery timelines, and the scenario weighting applied in the individual assessments.   Key observations: Based on our audit work performed, we consider the estimates and judgements made by management in the calculation of the impairment provision for loans and advances to be reasonable, and in line with the requirements of IFRS 9.
Valuation techniques of loans and advances   The Group's accounting policies are disclosed in note 1 with detail about judgements in applying accounting policies and critical accounting estimates on note 1.22.   As disclosed in Note 19 the Fair Value Adjustment at year-end is £0.3m (2023: -£3.6m).	The Group's business model requires the Group to measure the majority of the loan book at Fair value through Other Comprehensive Income which requires modelling to determine the fair value adjustment to be applied to Loans and Advances.   The measurement of the loan book at fair value requires modelling which is subject to material management judgments and estimates in the determination of the discount rate used to discount future cashflows.   The Group's models are materially sensitive to small changes in the discount rate assumption, particularly in the 'Buy-to-let' portfolio and therefore this area is considered a significant risk.	We have undertaken sensitivity analysis on the discount rates and ascertained how susceptible the fair valuation of the model is to manipulation and material misstatement.   With the use of our internal valuation experts we: ·   evaluated how the models calculated the fair value of the loan portfolios. ·   evaluated the selection of key estimates and judgments that feed into the models, in particular the discount rates applied in the models, contractual cashflows and capital repayments. We also reviewed the calculations of the models to ensure that these are in line with IFRS 9. ·   assessed the models to verify whether the fair values determined by management sit within our assessed acceptable reasonable range.   We recalculated the computations of the discount rates independently verifying rates offered by competitors used in benchmarking calculation.    We have reviewed and benchmarked the discount rates to external data sources where appropriate.   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
	2024 £	2023 £	2024 £	2023 £
Materiality	836,000	715,000	545,000	419,000
Basis for determining materiality	1% of Revenue	5% of profit before tax	1.5% of Revenue	6.5% of profit before tax
Rationale for the benchmark applied	Profit before tax is no longer considered an appropriate benchmark as the Group reported a loss in the period.   Revenue is therefore deemed the next best appropriate benchmark as it is a relevant measure of performance for the key stakeholders.	As this is a listed entity, profit before tax was a significant metric and influential to the investor group. Therefore, profit before tax was considered to be the most appropriate benchmark.	Profit before tax is no longer considered an appropriate benchmark as the Group reported a loss in the period.   Revenue is therefore deemed the next best appropriate benchmark as it is a relevant measure of performance for the key stakeholders.	As this is a listed entity, profit before tax was a significant metric and influential to the investor group. Therefore, profit before tax was considered to be the most appropriate benchmark.
Performance materiality	627,000	536,000	408,000	314,000
Basis for determining performance materiality	75% of Materiality
Rationale for the benchmark applied	Determined on the basis of our risk assessment together with our assessment of the overall control environment.

 

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 £1 to £545,000 (2023: £2 to £564,000) based on allocating materiality using relevant benchmarks . In the audit of each component, we further applied performance materiality levels of 75% (2023: 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 £41,000 (2023:£21,000) according to the Group Materiality.  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 report and Directors' report

In our opinion, based on the work undertaken in the course of the audit: ·    the information given in the Strategic report and the 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.   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 on which we are required to report by exception

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:   ·    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 the 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:

 

·    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 and in relation to accounting estimates within the expected credit loss fair value of loans.

 

 

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.

 

 

 

Stefan Beyers (Senior Statutory Auditor)

For and on behalf of BDO LLP, Statutory Auditor

London, United Kingdom

22 July 2024

 

 

 

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).