TIDMORCH
RNS Number : 5381W
Orchard Funding Group PLC
13 December 2023
13 December 2023
Orchard Funding Group PLC
("Orchard Funding Group" or the "company" or the "group")
Full Year Results
For the 12 months ended 31 July 2023
Orchard Funding Group PLC, the finance company which specialises
in insurance premium finance and the professions funding market, is
pleased to announce its audited full year results for the year
ended 31 July 2023.
Highlights
-- Increases in lending, revenue and profit
-- Gross total income in the period increased by 27.14% to
GBP7.86 million for the 12 months to 31 July 2023 (31 July 2022
GBP6.19 million)
-- The loan book increased by 34.87% year on year to GBP58.99 million
-- Profit after tax rose by 12.50% from GBP1.52 million to GBP1.71 million
-- Earnings Per Share ("EPS") rose in the period by 12.82% to 8.03p (31 July 2022 7.11p)
-- The group lent GBP99.87 million to clients in the 12 months
to 31 July 2023 an increase of 24.90% (31 July 2022 GBP79.96
million)
-- We are again proposing a full year dividend per share of 3.0 pence
-- We have increased the amount of funding to which we have
access (from GBP28.70m to GBP30.74m unrestricted funds).
Ravi Takhar, Chief Executive Officer of the company, stated:
" We are delighted to report our robust performance and return
to historic profit levels.
We have grown our business whilst maintaining the historic
credit quality of our lending book. We continue to benefit from
excellent liquidity from Toyota Financial Services and Nat West. We
have also now bolstered our liquidity with access to the listed
retail bond market through Orchard Bond Finance.
We continue to invest in and benefit from our software platform,
which gives us a number of advantages in underwriting, servicing
and marketing our business.
We are very well placed to manage the current difficulties in
the UK economy and will continue to manage and operate our business
carefully and in the best interests of all our stakeholders. "
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
Lauren Kettle
Chris Clarke
For Investor Relations please go to:
www.orchardfundinggroupplc.com
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No. 596/2014 as amended by The
Market Abuse (Amendment) (EU Exit) Regulations 2019. Upon the
publication of this announcement via the Regulatory Information
Service, this inside information is now considered to be in the
public domain.
Group financial highlights
Until 2019, Orchard grew its lending year on year. From August
2019 to July 2021 lending fell primarily due to the impact of
Covid-19. In the last two years this situation has been reversed.
This year overall lending increased.
Comparing lending, income and profit for 2023 with 2022:
2023 2022 Increase
(GBPm) (GBPm) (%)
Lending volume 99.87 79.96 24.90%
Loan book (post ECL provision) 58.99 43.74 34.87%
Borrowing 34.72 25.53 36.00%
Gross total income 7.86 6.19 26.98%
Net total income 5.60 4.84 15.70%
Other operating costs 3.44 2.97 15.82%
Operating profit 2.16 1.88 14.89%
Further detail on the above is given throughout the Group
strategic report on pages 4 to 15 of the full financial
statements.
Chairman's statement
I am very pleased to report that the business continues to grow
despite the ongoing economic headwinds. We have again achieved
record lending volumes of nearly GBP100m and the outstanding loan
book is at an all time high. This growth has been achieved in our
core insurance premium funding markets.
The economic outlook is showing some signs of improvement but
the ongoing uncertainty and significant increase in base lending
rates has impacted our business. Our margins have been compressed,
although despite this we have still delivered higher profits. The
planned expansion into longer term lending in the static caravan
market and the short term bridging loan market has been slowed, as
we proceed with caution in line with our prudent approach to
lending.
I am very proud of what our committed staff have achieved this
year. They have delivered record volumes of business with only a
small increase in numbers. This increase in productivity is a
testament to their hard work and also to the scalability of our
systems and the effectiveness of our flexible hybrid working
arrangements.
We continue to benefit from excellent support from our
introducing partners and funders. In particular, it has been good
to see the relationship with Toyota Financial Services continue to
develop and business volumes increase.
Relatively high base rates will likely endure well into 2024 and
the Bank of England has been clear that a low base rate environment
is not imminent. The macroeconomic and geopolitical situation
remains unstable and this brings ongoing uncertainty for our
business in the short term. Margins will continue to be squeezed
and we will be alert for any increase in arrears and ready to
support our customers as necessary. The medium term outlook remains
positive. We are seeing ongoing growth in our core market and I
remain optimistic that our platform of a highly skilled team and
strong track record will enable us to diversify into aligned
lending markets.
I am pleased to confirm that we are proposing to maintain the
dividend at 3 pence per share enabling us to keep retaining profits
to invest in future growth.
Steven Hicks
Chairman
12 December 2023
Chief executive's review
We are pleased to report record lending of nearly GBP100 million
and record earnings for the year ended 31 July 2023.
Our staff have worked hard and successfully to continue to
increase our lending in our core market of insurance premium
finance. Whilst our professions and leisure lending has remained
solid, safe and stable, the economic back drop has limited our
appetite to lend in the static caravan and property bridging
market.
Another factor that has impacted our earnings significantly is
the rapid rise in base rate, which has a direct and immediate
impact on our cost of funds. We operate in extremely competitive
markets which has limited our ability to pass on base rate rises to
our customers and have therefore suffered an erosion of our net
income.
We continue to carefully manage operational costs and retain a
loyal and hardworking team of staff.
IT is still an important focus of the business. We continue to
develop our lending platform Lend XP and have also developed our
open banking platform to enable fully automated affordability
calculations for our customers.
We operate in highly regulated markets. The regulatory framework
is burdensome and the costs of regulatory compliance continue to
increase. We continue to manage our regulatory obligations and
responsibilities effectively.
As we enter a new financial year there are some obvious
headwinds that the business will be required to navigate.
A significant concern is the increase in cost of funds, which
will more fully impact the business going forward. We will also
have to manage the impact on consumer demand for credit due to the
current difficult economic conditions.
Our business has operated in its markets for over 20 years. We
enter our 8th year as a listed company with the benefit of our
accumulated experience, our loyal staff, excellent funding partners
and market leading and cost effective IT. We are therefore
optimistic and excited about the prospects for the business going
forward.
I would like to thank our staff, Toyota and NatWest, our funding
partners, our shareholders, bond holders and customers for their
continued support and loyalty.
We are pleased to be able to maintain our dividend payment.
Ravi Takhar
Chief executive officer
12 December 2023
Group strategic report
Strategy and objectives
Our strategy has remained the same since we commenced business -
to increase our profitability in a prudent, sustainable manner,
having due regard for the interests of all stakeholders.
Stakeholders are not just our employees and shareholders but also
introducing partners, other customers, creditors, regulators, other
parts of government and the local and wider community. It is the
responsibility of the board of directors to ensure that all
stakeholders are treated in a fair manner, despite the fact that
each group may have conflicting interests. This concept of
even-handedness permeates through the decision making process.
The strategic drivers behind our principal objective are still
to:
-- differentiate our business from that of our competitors,
based on service excellence, fair pricing and robust underwriting
procedures;
-- increase lending in a responsible manner using a two pronged
approach - increase the number of partners who fit in with our
business values (brokers, accountants and other third party
introducers) as well as to increase the volume of business from
each of these partners, while always having regard to the risks
associated with lending and keeping fair treatment of customers at
the heart of our business;
-- preserve and, where deemed necessary, increase our sources of liquidity;
-- innovate by reviewing markets and product lines which we
believe are appropriate for our lending criteria - safe lending and
sensible returns - as well as evaluating other ways of doing
business;
-- continually improve our IT systems by further development to
enable efficient processing of information and to assist in
reducing the various risks attaching to our business;
-- support our excellent staff in their work by providing them
with the means to find lending opportunities, assisting them in
developing those opportunities, offering continuous training and
ensuring, where we are able, that there is a balance between work
and home life.
Our business model
Our core business remains providing credit to businesses and
consumers to enable them to spread the cost of their insurance
premiums, professional fees or other service fees. Until two years
ago this credit was offered over a period of up to one year. Two
years ago we expanded into asset finance (up to seven years) and
gap insurance (up to three years). Last year we introduced a
bridging loan product which, again, is up to one year. These newer
ranges have dovetailed well with our core business. Our business
model is a "hold to collect" model in which financial assets are
held to maturity to collect cash flows of principal and interest,
rather than holding them for sale. More detail on this is given in
note 3.6(d) on page 40 of the full financial statements.
The nature of most of our lending is similar in terms of risk,
reward and processes. However, we have a significant amount of
lending which is no risk and offers lower returns than other types
of lending. This is lending for Toyota products. Our lending in
this area has grown by almost 20% over the previous year. We have
therefore applied segregation to the results of the group. This is
shown in note 6 . The divisions are described in the note as
"Toyota products" and "Standard lending". In most other cases our
Standard lending is covered by recourse to a guaranteeing partner.
Our underwriting and debt management procedures are similar enough
that we have not found it necessary to disaggregate results arising
from our several other markets.
All of our lending is within the UK.
Lending limits to our customers are set by reference to
financial information (credit reports, regulatory and other
requirements) and by reference to other qualitative information for
both our introducing partners and for the end borrowers. In
addition, an annual review process, including regulatory
permissions and credit checks, is conducted for each introducing
partner and each partner is monitored monthly for the group's
financial exposure to that entity. The majority of our lending
gives us recourse to the introducing partner, is through regulated
introducers and no cash is passed over until at least the first
repayment is received. In the case of insurance, the customer can
have their cover withdrawn for non-payment with any refunds being
paid to Orchard. In the case of longer term lending, the procedure
is more vigorous, making use of open banking technology (as
mentioned earlier) to further mitigate the risk of default. In
terms of bridging finance, our maximum loan compared to the value
of the property ("LTV") is 75%, with no loan this year being more
than 70% LTV.
A retail listed bond was issued on 2 March 2022. Full details
plus the prospectus are on the company's website at
https://www.orchardfundinggroupplc.com/bonds. This raised GBP3.90m
and has given us further secure liquidity.
Excluding the bond, the group has borrowing facilities up to up
to a maximum of GBP27.00m (2022 GBP25.00m) for general lending. In
addition Orchard Finance has a facility of up to GBP20.00m (2022
GBP10.00m) to be used exclusively for lending in respect of
products from the provider of those funds.
Of the general facility, GBP6.28m was unused at the year end
(2022 GBP8.58m), Of the restricted facility, GBP9.76m was unused
(2022 GBP4.64m). We send regular reports to our funders to indicate
that we are complying with covenants and the loans are subject to
an external audit by those funders where they require it.
The balance of lending is provided from group resources. At 31
July 2023 the group had net financial assets (financial assets less
financial liabilities) amounting to GBP19.20m (2022 GBP17.62m).
The group's average cost of finance (calculated by interest
payments over borrowings in the year) was 6.64% (3.57% on the same
basis in the year to 31 July 2022). Cost of finance includes
arrangement and legal fees payable for access to funding and fees
for non-use of the facility. If only interest and no charges were
included in the cost of finance, the percentages would be 6.03% for
2023 and 2.95% for 2022.
Principal risks and uncertainties
The group's activities expose it to a variety of risks.
The board has identified the following principal risks, their
potential impact on Orchard, an assessment of change in risk
year-on-year, our risk appetite and how we mitigate risk. Principal
risks are those which could have most impact on our ability to
continue in business. Indicators of those risks (key risk
indicators or KRIs) are shown below.
Credit risk
Explanation of The risk that debtors or guarantors will default
the risk
Impact on the A major loss could have a serious effect on group
group profits - the whole of the capital loss will impact
on profit.
Year-on-year change Risk has changed in that the economy has worsened
in risk with higher inflation and higher interest rates.
There is still a risk of business collapses and
higher unemployment although commentators are not
now forecasting a recession.
Risk appetite Our aim is to limit reported credit losses to below
0.5% of income generating assets.
Mitigation of In most cases, money is only lent for periods up
risk to one year predominantly through introducers who
guarantee the loans and who are regulated businesses
themselves. Borrowing limits are set based on prudent
underwriting principles. Impairment reviews are
regularly conducted to identify potential problems
early. Note 17 gives further details of mitigation
of credit risk.
In addition, our documentation is reviewed regularly
by our legal team to ensure that debts are not subject
to challenge at a later date.
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Liquidity risk
Explanation of A lack of funding to finance our business.
the risk
Impact on the Without adequate funding we cannot conduct our business.
group
Year-on-year change Risk has fallen since last year. The providers of
in risk our funds have increased our facilities and we still
have cash from issuing the five year retail bond.
Risk appetite We aim to have 5% more funds than would be sufficient
to enable our plans to be met.
Mitigation of Our borrowing facilities are due for renewal in
risk April 2024 for Bexhill, May 2024 for Orchard Finance
and June 2024 for Orchard Funding. There has been
no indication from the providers of our funds that
they will withdraw their support. Excess available
credit plus our net financial assets amounted to
GBP19.208m at 31 July 2023. Our total operating
costs for the year were GBP3.44m giving more than
sufficient headroom to operate well into the future.
-------------------- ---------------------------------------------------------
Interest rate risk
Explanation of The risk that we lend at one rate and borrow at
the risk a rate higher than anticipated.
Impact on the Reduced margins mean reduced profit.
group
Year-on-year change Risk has changed substantially. Our lending is all
in risk at fixed rates. In the past this has not been a
major problem as base rates remained stable. However,
we have seen eight rate rises since August 2022
until July 2023 with another in August meaning that
the cost of servicing our lending has risen while
the income has remained stable. We continue to look
closely at all new lending to ensure that our margins
are sufficient for us still to remain profitable.
Most of our lending is within twelve months but
we do have longer term fixed rate lending. This
is still a small proportion of our total lending
(3.26% of our 2023 lending).
Risk appetite Our risk appetite in the past was 25% above the
interest rate that we were paying when a loan was
made, without being able to pass this on to our
customers. Clearly this is unsustainable in the
current climate when rates are rising to counter
high levels of inflation. Our appetite now is to
ensure that the net interest margin on new lending
remains above 7.50%. Last year we used 10.00% but
the level of interest rate increases this year has
shown that this is not possible. At 7.50% we are
still profitable.
Mitigation of Management is in regular contact with its funders
risk and routinely reviews the financial situation in
the economy. The majority of loans made are relatively
short term (no more than twelve months with the
average at ten) so any increase is likely to have
a fairly short-term impact. Longer term loans are
still a very small percentage of the business.
-------------------- --------------------------------------------------------
Non-repayment risk
Explanation of The retail bond is a five year bond. At the end
the risk of that term the money will need to be repaid to
the bond holders. This is the risk that there will
be insufficient cash in the system to make those
repayments.
Impact on the The amount raised on the market was approx. GBP3.90m.
group Should the company which raised the money not be
able to repay this it would lead to the group having
to find GBP0.39m under a guarantee but, more importantly,
lead to reputational risk which might cause other
funders to consider not renewing facilities.
Year-on-year change Again, there is no change in risk since last year.
in risk
Risk appetite There is no risk appetite for non-repayment. The
costs to the group could be significant.
Mitigation of This risk is mitigated by the fact that the amounts
risk involved could easily be covered by the likely cash
position at the time that repayment is due.
-------------------- -----------------------------------------------------------
Systems risk
Explanation of Disruption to or failure of our IT systems.
the risk Cyber threats - data being accessed illegally.
Impact on the Persistent or serious failures could lead to lack
group of confidence in our system and reduce our operational
capabilities.
Penalties for allowing data breaches are severe
and could lead to us not being able to operate at
all.
Year-on-year change Our system is proving robust and risk has therefore
in risk remained as last year.
The risk of cyber-crime has not increased.
Risk appetite There is no risk appetite for either failure or
cyber-crime.
Mitigation of Remote support access enables prompt resolution
risk of incidents. Internet connection provides guaranteed
access.
We have commissioned a risk assessment of our system
by external IT specialists.
Our controls are such that even a minor disruption
is very quickly picked up and action taken. Systems
are covered by a support contract which enables
quick identification of any problems.
The group continues to develop its processes for
prevention of cyber threats. If prevention is not
guaranteed, the systems in place give us the capability
to detect, respond and recover from those attacks.
All our staff are well trained in the use of our
systems and are well placed to notice and unusual
activity.
-------------------- ---------------------------------------------------------
Conduct risk
Explanation of Any action that leads to unfair customer outcomes.
the risk Any action that has an adverse effect on market
stability or effective competition.
Fraud.
Impact on the Failing to deal effectively with conduct risk faces
group regulatory action, fines, and reputational damage.
Year-on-year change Risk has not changed.
in risk
Risk appetite The board has no appetite for non-compliance with
regulation or for any instance of fraud within or
on the organisation.
Mitigation of The board sets standards which comply with regulation
risk and best practice. The CEO monitors staff compliance
with those standards, reports deficiencies to the
board and provides staff with advice on the interpretation
of the standards.
Controls are in place to prevent internal fraud
with day to day supervision by the CEO.
Regular monitoring of introducing partners is conducted
including a review of sources of loan repayments.
Our documentation is reviewed by our legal team
to ensure that it is meets the requirements of the
FCA.
-------------------- ------------------------------------------------------------
The group's overall risk management programme focuses on
reducing the effect of these risks on its financial performance. A
risk appetite (the level at which risk is accepted by the group
before action needs to be taken) is established for the key risk
areas. A regular assessment of the principal risks affecting the
group, based on a traffic light classification, is carried out by
the executive directors who then pass this on to the full board of
directors. The board identifies, evaluates and mitigates financial
risks and there are written policies for all major risk areas at
subsidiary company level (where the activity takes place). The
tables above show the group's principal risk appetite and how risk
is mitigated. A risk register is maintained in which any instances
of any of the aforementioned risks are recorded and, where
necessary, acted upon.
We are committed to maintaining the highest standards of ethics
and integrity in the way we do business. We adopt a zero tolerance
approach to bribery and fraud and expect our business partners to
do the same. Our staff are encouraged to contact the board if they
have any concerns in this regard. We are committed to behaviour
that results in fair outcomes for our customers (both introducers
and end borrowers).
In summary:
-- credit risk is reduced by a robust system of checks on
introducers, borrowers and by third party guarantees;
-- liquidity risk is alleviated by borrowing facilities from our funders;
-- interest rate risk is mitigated by the fact that most loans
are short term, by regular interaction with our bankers and by
reviewing the net interest margin;
-- non-repayment risk is alleviated by our normal business
processes of finding markets which can give a profitable return and
generate sufficient cash to make the repayments on the bonds;
-- risk from disruption to the IT system and cyber-crime is
avoided by thorough business continuity procedures and procedures
designed to prevent, detect, respond and recover from malicious
attacks; and
-- conduct risk is mitigated by staff training, board oversight
and monitoring of introducing partners.
The nature of the business is that loans are made either to
finance companies or to clients of our introducing partners.
Although there is some significant lending to individual finance
companies, the underlying debts making up these loans are collected
by Orchard and assigned to Orchard. At 31 July 2023, the largest
nominal exposure was GBP8.29m (2022 GBP6.69m) to one finance
company representing 13.98% (2022 15.25%) of our loans before
expected credit loss provisions ("ECL"). The highest exposure to a
non-finance company was GBP3.19m (2022 GBP2.15m) and consisted of
advances comprising many smaller loans (the average amount for each
loan was GBP223). At 31 July 2023 total outstanding loans were
GBP59.29m before ECL (2022 GBP43.87m), of which the highest
individual loan (not a block loan to a premium finance company) was
GBP321k. This was for property bridging and represented less than
0.54% (2022 0.43%) of total outstanding loans.
We review debts for impairment and expected credit losses and
make provision where necessary. As part of this process, we have
increased the provision by GBP64k during the year to 31 July 2023
(2022 GBP63k), net of reversal of previous provisions and items
written off against those provisions. This has been charged to the
income statement below operating costs. The provision this year is
GBP305k carried forward at 31 July 2023 (GBP135k at 31 July 2022).
As our loan book grows so does the provision. Note 3.6 outlines the
approach to credit impairments.
The main uncertainties in these financial statements are those
connected with the level of expected credit losses. Although
objective evidence is obtained where possible (macroeconomic
factors etc.), these still require management judgement. They are
detailed in note 4 .
The business environment
Businesses are still in a period of instability. The ongoing
problems in Ukraine and the conflict in the Middle East have led to
further unrest in the markets.
As a result of the above we have seen rates of inflation not
seen for many years, with the Bank of England increasing interest
rates to combat these high inflation rates. Bank of England base
rate has increased nine times since our last year end. Although
inflation fell in October to its lowest level in two years,
interest rate decreases are not likely until the Bank of England
sees inflation under control.
In this environment, individuals and businesses are more likely
to try to conserve cash and spread expenditure over a period of
time. Insurance is one type of expenditure which lends itself to
this approach. It is also a purchase which is a necessity either
for legal reasons or for security. Orchard's core business is
exactly that - providing funds for the spreading of insurance
payment. We are in an ideal position to provide help to our
introducers and their customers in these difficult times by
providing this service.
Development and performance of the business
Overview
We have continued to grow our lending, continuing the trend seen
in the last financial year with growth in every month this year
except December. Overall growth in lending was 24.91% over the
previous year.
Most of our premium finance growth continues to come from the
direct insurance side (this was up 45.56% compared to the previous
year) rather than from broker premium funding companies ("PFC"'s).
PFCs still remain our largest market and has grown to GBP46.68m in
this financial year (2022 GBP37.03m). After some stabilising of the
market for professional fee funding last year, demand has fallen
this year to GBP3.73m (2022 GBP4.38m).
Product lines already introduced are reviewed regularly to
evaluate the impact they are having on the business. To date that
impact has been encouraging. We continue to use the same
disciplined approach when evaluating potential new markets.
We began lending into longer term markets, as mentioned last
year, and this has slowed this year due to the economic
environment. We still intend to grow these further once the
economic conditions improve.
To summarise: it remains our intention to increase our sales in
existing markets and expand into adjacent markets, always having
regard to returns that are needed to keep the business financially
healthy. We shall continue to control costs, only spending where we
believe it will increase our profitability. We have sufficient
liquidity at present but this is always kept under review.
Financial indicators
The function of the group remains to lend money safely. Good
quality customers are therefore central to the development of the
business. We have continued to add to our introducing partner base
and have continued to sell more through this base. Despite hard
economic conditions, this continues to work well.
Our margin is an important area. Some of our borrowing is fixed
to bank base rate and some to the Sterling Overnight Index Average,
"SONIA." As these rates alter so will our borrowing costs. Given
the short term nature of most of our lending any likely changes
would only have an impact on our margins in the short term. We
continue to ensure, where possible given the current economic
conditions, that as base rate or SONIA rise, we are faster to
readjust our pricing. There remains greater risk with our longer
term products that rate increases would erode margins.
Most other operating costs in this business are relatively
stable. We have increased our staffing levels this year and we have
increases resulting from growing sales. The other main increase is
the amortisation of costs incurred in issuing the bond. Overall,
operating costs (including ECL and impairment of an investment) are
15.94% higher than in 2022. Details of these costs are shown in
note 6 .
Financial key performance (KPIs) and other performance
indicators
The table below gives a breakdown of group KPIs as well as
indicators not considered KPIs but which give a better
understanding of the figures.
Group profit before tax was 15.43% higher than in 2022. The
board are satisfied with the results this year.
All GBPm unless otherwise stated
2023 2022 2021 2020 2019
KPIs
Lending volume GBP99.87 GBP79.96 GBP61.02 GBP65.53 GBP72.99
Average interest earning GBP51.36 GBP36.81 GBP28.59 GBP29.72 GBP31.54
assets(1)
Total revenue GBP7.86 GBP6.19 GBP4.60 GBP5.28 GBP5.49
Average external funding(2) GBP20.32 GBP15.77 GBP9.28 GBP12.82 GBP14.35
Cost of external funds GBP1.35 GBP0.59 GBP0.56 GBP0.62 GBP0.70
Cost of funds/funds ratio(3) 6.64% 3.57% 6.03% 4.84% 4.88%
Own resources (net financial GBP19.20 GBP17.61 GBP15.88 GBP15.74 GBP15.23
assets)(4)
Operating costs (including GBP3.44 GBP2.91 GBP2.52 GBP2.44 GBP2.20
impairments)
Net interest margin(5) 9.48% 11.98% 11.26% 13.26% 13.19%
ROAE (Return on average
equity)(6) 9.94% 9.36% 5.35% 8.31% 10.90%
Other performance indicators
Net interest income GBP4.87 GBP4.41 GBP3.22 GBP3.94 GBP4.16
Profit before tax GBP2.17 GBP1.88 GBP1.05 GBP1.56 GBP1.97
Profit after tax GBP1.71 GBP1.52 GBP0.84 GBP1.27 GBP1.58
Gross interest margin(7) 12.11% 13.58% 13.22% 15.34% 15.41%
EPS (pence)(8) 8.03 7.11 3.91 5.96 7.67
DPS (pence)(9) 3.00 3.00 3.00 3.00 3.00
Return on capital employed
(ROCE)(10) 4.42% 5.19% 4.33% 6.74% 7.24%
1. Average interest earning assets consist of the average of the
opening and closing loan book after taking account of the
impairment provision.
2. Average external funding comprises amounts borrowed on a daily basis net of repayments.
3. Cost of funds/funds ratio is the cost of external funds divided by average external funding.
4. The method of calculating own resources available has changed
from using net current financial assets to net financial assets to
take account of long term financial assets and liabilities as this
reflects better the resources available over the longer term.
Comparatives have been recalculated on this basis.
5. Net interest margin is net interest income divided by the average loan book.
6. ROAE consists of profit after tax divided by average equity.
Average equity is the average of opening and closing equity.
7. Gross interest margin is gross interest income divided by the average loan book.
8. There are no factors which would dilute earnings therefore
fully diluted earnings per share are identical.
9. Dividends per share are based on interim dividends paid in
the year and proposed final dividend for the year.
10. ROCE consists of earnings before interest, tax, depreciation
and amortisation divided by capital employed. Capital employed
comprises capital and reserves together with borrowings, less cash
held.
Net total income (as shown in the Consolidated statement of
comprehensive income) continues to grow. Operating costs before ECL
and impairment of investment are up by GBP397k. Included in
interest payable and similar charges are costs associated with the
bond issue which have the first full years amortisation amounting
to GBP46k. Staff costs were GBP277k higher, reflecting the fact
that we have taken on additional staff and increased pay.
Commission has grown by GBP126k this year as sales have increased.
The impairment allowance this year was GBP64k. In addition we
carried out a review on our investment in Open B Gateway Limited
and concluded that this was severely impaired. The fair value of
this investment has been estimated at GBPNil resulting in an
impairment of GBP75k. This is detailed in note 16 .
Non-financial indicators
Staffing
The most important non-financial indicator remains quality of
management and staff.
Our senior members of staff are all fully trained in every facet
of the business and have good relationships with more junior staff
members whom they are able and willing to assist when required.
They have been with us for many years.
Customer care is of paramount importance in our business culture
and this aspect is a constant part of training for everyone in the
organisation. Feedback from our partners in this area has been very
positive. Non-financial performance targets set for our staff have
all been met. These include, but are not limited to, ensuring that
our partners and end-user customers receive prompt responses to any
queries they raise.
Orchard is a small group with 18 employees excluding the main
board directors. Although no employee is on the main board, there
is no formal workforce advisory panel, nor is there a designated
workforce non-executive director, all employees have access to the
executive directors at any time and can raise any issues with them.
They are also able to contact the Chairman should they wish to
discuss a matter which they feel may not be appropriate for the
executive. There are two non-main board directors as directors of
the subsidiaries.
Partner retention
Partner retention is another significant area in our business.
This couples well with another non-financial indicator, brand
preference. As our partner base grows, so does awareness of who we
are and what we do. We review our partner base regularly to
establish whether they are increasing or decreasing the amount of
business they do with us. Action is taken if business from one
source is unexpectedly dropping.
Innovation
A key non-financial strategy is innovation (see Strategy and
objectives on page 4 of the full financial statements). Innovation
is the ability to continually evolve and grow our business in our
chosen markets. When looking at new products we stay within our
risk parameters and examine whether the returns justify the
resources expended. If new products fit our return and risk
expectations, we proceed to the testing stage - relatively small
amounts of lending. We believe that innovation is fundamental to
growth.
IT systems
A robust, reliable and secure IT system is crucial to the
business. We work closely with external outsource partners to
continually review and develop our IT systems. Our system and has
been tried and tested for a number of years. We began two years ago
to take advantage of the open banking system as part of our risk
strategy and this has been invaluable. Our customers have seen
advantages of this, making it easier to manage their agreements. We
continue to upgrade the system in response to customer
requirements.
Quality of lending
Our lending has been based on sound underwriting since we began
- we carefully assess any person or body to whom we lend. In
addition, we receive at least one instalment before we pay out
(eliminating first payment default); the direct debit establishes
timely collection and an electronic link to our borrowers; in most
cases our partners guarantee the payment should the end borrower
default; and, if the partner fails, many of our end borrowers are
protected by the financial services compensation scheme thereby
ensuring that we are paid. In addition, the open banking system has
helped ensure quality of lending.
Good governance
The role of the board is set out in the Corporate governance
report on pages 19 to 21 of the full financial statements. Among
its objectives is to protect and enhance long-term value for all
stakeholders. It sets the overall strategy for the group and
supervises executive management. The non-executive directors are
there to challenge the executives. The board also ensures that good
corporate governance policies and practices are implemented within
the group. In the course of discharging its duties, the board acts
in good faith, with due diligence and care, and in the best
interests of the group and its shareholders.
Going concern
The financial statements have been prepared on a going concern
basis which assumes that the group will be able to continue its
operations for the foreseeable future.
The directors continually assess the prospects of the group.
Forecasts are prepared for a four year period, on a rolling basis.
These are also subject to stress testing, the main aspects of which
are the value of loans made, the return on those loans and the
level of expected credit losses. In these scenarios, there is no
indication that there will be a problem in continuing as a going
concern. It is important to appreciate that the further away in
time the estimate, the less reliable it is.
The character of our lending is such as to permit us to react to
any changes in base rate within a relatively short period of time
other than with those loans that can be up to three or seven years
ahead. These amount to 3.26% (2022 5.10%) of which 2.81% (2022
4.38%) are three years or less. Not included in these figures are
loans made by Orchard Finance where, although longer term, the risk
is taken by the provider of the funds.
The key assumptions and bases used in the forecasts are that for
the year ending by 31 July 2026:
-- Loans through our partners will grow to circa GBP133m;
-- Liquidity will be available to fund those loans;
-- Net interest margins on lending will fall to an average for the year of 8.15%;
-- Overheads will increase at the rate of inflation with stepped
increases at certain points, e.g. when capacity constraints are hit
or when project spending is required;
-- The funding system will be able to accommodate the increased business.
The directors have prepared and reviewed the financial
projections covering a period of almost four years from the date of
signing of these financial statements. In each year, and in
particular in the 12 to 18 month period from signing, there is
sufficient cash and there are sufficient reserves to enable the
group to pay its debts as they fall due. In addition, management
have further stress tested these projections to a point which they
believe is unlikely to happen (reducing lending, reducing margins
and increasing bad debt) to give a confidence buffer. Even in this
scenario, based on the level of existing cash, the projected income
and expenditure and the excess of our loan book over external debt,
the directors have a reasonable expectation that the company and
group have adequate resources to continue in business for the
foreseeable future. Accordingly, the going concern basis has been
used in preparing the financial statements.
Future developments
There has been little change in how we wish to grow the business
in the future. Fee funding, site fee and school fee income have
fallen this year and it is expected that they will fall further.
Against that, we have seen growth in PFC, insurance premium
funding, asset financing and bridging finance. We are still
exploring complementary markets but will only sell into these if
they fit our risk and return profile.
We took an investment in Open B Banking in 2020 and increased
our investment in that company in 2021. Although the supplier is
not actively engaged in developing the system further (hence the
reason for the impairment of our investment detailed in note 16 to
the full financial statements) we have the rights to further
develop this ourselves and we are doing so as part of our own IT
development.
Despite the fact that we have secure sources of funding at
present, we shall continue to look at alternative sources of
liquidity as this is of key importance to what we do.
Environmental, social responsibility, community, human rights
issues and gender diversity
The impact of the group on the environment consists of power
used in an office environment and fuel used for getting to and from
work.
Although the group operates out of an office in Luton, most of
our employees work from home at least 3 days a week. This has
proved to be worthwhile for both employee and employer. It is
envisaged that this method of working will continue. It has meant
that our carbon footprint as a business in the area has fallen
(although there is some impact on the environment from home
working).
We provide health club membership and childcare vouchers for any
staff who wish them.
We provide equal opportunities for all applicants and members of
staff, irrespective of race, colour, sex, disability or marital
status.
The composition of the main board of directors is currently all
male. The board of the subsidiaries consist of two females and one
male each (although one subsidiary has two male directors). Males
make up 56.52% of the employees in total (61.90% in 2022).
We are a small entity in terms of staffing and our CEO is always
available for staff to discuss any matters with him. Although many
of our staff continue to operate from home, he is able to be
contacted by telephone, e-mail or face to face if necessary. In
this way our staff have communication lines to the board via the
CEO. If they would prefer to discuss a matter with the Chairman, he
is also available.
We review the background of our suppliers and will not use any
supplier which, as far as we are aware, breaches our own high
standards as regards human rights.
Environmental issues are therefore negligible (see SECR
reporting on page 13 of the full financial statements).
Section 172(1) Statement
Section 172(1) requires a director of a company to act in the
way he considers, in good faith, would be most likely to promote
the success of the company for the benefit of its members as a
whole, and in doing so have regard to:
(a) the likely consequences of any decision in the long
term,
(b) the interests of the company's employees,
(c) the need to foster the company's business relationships with
suppliers, customers and others,
(d) the impact of the company's operations on the community and
the environment,
(e) the desirability of the company maintaining a reputation for
high standards of business conduct, and
(f) the need to act fairly as between members of the
company.
All matters brought to the board for consideration are reviewed
in the light of how they will impact on stakeholders.
This review involves balancing the interests of all stakeholders
and includes having regard to:
-- profitability;
-- risk associated with the proposal (see Principal risks and
uncertainties on page 5 of the full financial statements);
-- how the decision will impact on our employees (both in
financial terms and how the quality of their work life and outside
life will be affected). Further detail on how we engage with our
workforce is shown on page 12 of the full financial statements;
-- what impact it will have on our partners and other customers
(as mentioned under Non-financial indicators on page 10 of the full
financial statements). Proper customer care, particularly in
avoiding unfair outcomes, is of overriding importance to
Orchard;
-- our reputation (the impact of loss of reputation is dealt
with under Conduct risk on page 7 of the full financial
statements);
-- either the CEO and/or CFO are in contact with major investors
at least twice a year (albeit by Teams or telephone) to discuss the
group's progress and overall plans. This gives us an insight into
how our investors perceive us. All reports and other documents are
on our website and any investor may request a meeting with any
member of the board.
In a wider sense:
-- Orchard does not deal unfairly with its suppliers and
business associates and ensures that payment terms are adhered to.
In fact, in many cases it assists those associates to expand their
business;
-- it behaves as a good neighbour, helping the local community
where it is able and employing people from the locality - which
also assists in reducing our carbon footprint;
-- in its dealings with government, particularly the revenue
authorities, it is completely open, paying what it owes on
time;
-- it has had no instances from the FCA of non-compliance with regulations;
-- Environmental, social responsibility, community, human rights
issues and gender diversity are discussed above.
The board considers whether proposals put to it have long-term
outcomes which affect its stakeholders. In most cases the proposals
have no material long-term consequences. However, where there are
potential consequences, the board takes account of the long-term
nature of its decisions.
Streamlined Energy and Carbon Reporting (SECR)
The directors believe that the company is exempt from reporting
under the SECR framework as its energy use is below the threshold
for reporting.
Approved by the directors and signed by order of the board
Liam McShane,
Company secretary
12 December 2023
Consolidated statement of comprehensive income
2023 2022
Notes GBP000 GBP000
---------------------------------------- ------ -------- --------
Continuing operations
Interest receivable and similar income 5 6,215 5,003
Interest payable and similar charges 5 (1,349) (587)
Net interest income 4,866 4,416
--------
Other trading income 5 1,649 1,187
Other direct costs 5 (911) (756)
Net other income 738 431
--------
Net total income 5,604 4,847
--------
Other operating costs 5 (3,302) (2,905)
Net impairment losses on financial
assets 5 (64) (63)
Impairment loss on investment at
fair value through profit and loss (75) -
Operating profit 2,163 1,879
Interest receivable 5 9 1
Interest payable 6 (1) (2)
---------------------------------------- ------ -------- --------
Profit before tax 2,171 1,878
Tax 7 (458) (360)
Profit for the year from continuing
operations attributable to the owners
of the parent 1,713 1,518
--------
Earnings per share attributable
to the owners of the parent during
the year (pence)
Basic and diluted 9 8.03 7.11
---------------------------------------- ------ -------- --------
Consolidated statement of financial position
2023 2022
Notes GBP000 GBP000
----------------------------------------- ------ ------- -------
Non-current assets
Property, plant and equipment 7 13
Right of use assets 6 16
Intangible assets 41 7
Investment at fair value through profit
and loss 6 81
Loans to customers 10 7,967 6,594
8,027 6,711
----------------------------------------- ------ ------- -------
Current assets
Loans to customers 10 51,021 37,143
Other receivables and prepayments 10 279 189
Cash and cash equivalents:
Bank balances 2,550 4,796
53,850 42,128
----------------------------------------- ------ ------- -------
Total assets 61,877 48,839
Liabilities
Current liabilities
Trade and other payables 12 8,955 6,337
Borrowings 11 26,079 19,468
Tax payable 449 299
35,483 26,104
----------------------------------- --- ------- -------
Non-current liabilities
----------------------------------- --- ------- -------
Borrowings 11 8,643 6,057
----------------------------------- --- ------- -------
Deferred tax liabilities 2 1
----------------------------------- --- ------- -------
8,645 6,058
----------------------------------- --- ------- -------
Total liabilities 44,128 32,162
----------------------------------- --- ------- -------
Equity attributable to the owners
of the parent
Called up share capital 214 214
Share premium 8,692 8,692
Merger reserve 891 891
Retained earnings 7,952 6,880
Total equity 17,749 16,677
----------------------------------- --- ------- -------
Total equity and liabilities 61,877 48,839
----------------------------------- --- ------- -------
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 2021 214 6,003 8,692 891 15,800
Profit and total comprehensive
income - 1,518 - - 1,518
Transactions with owners:
Dividends paid - (641) - - (641)
Balance at 31 July 2022 214 6,880 8,692 891 16,677
--------------------------------- -------- --------- -------- -------- -------
Profit and total comprehensive
income - 1,713 - - 1,713
Transactions with owners:
Dividends paid - (641) - - (641)
Balance at 31 July 2023 214 7,952 8,692 891 17,749
--------------------------------- -------- --------- -------- -------- -------
Retained earnings consist of accumulated profits less losses of
the group. They represent the amounts available for further
investment in group activities. Only the element which constitutes
profits of the parent company are available for distribution. There
are no restrictions on payment of dividends by the subsidiaries to
the parent or by the parent to shareholders.
The share premium account arose on the IPO on 1 July 2015 at a
premium of 95p per share. Costs of the IPO have been deducted from
the account as permitted by IFRS.
The merger reserve arose through the formation of the group on
23 June 2015 using the capital reorganisation method.
Consolidated statement of cash flows
2023 2022
GBP000 GBP000
Cash flows from operating activities:
Operating profit 2,163 1,879
Depreciation and amortisation 45 63
Impairment loss on investment at 75
fair value through profit and loss -
2,283 1,942
Increase in loans to customers,
other receivables and prepayments (15,256) (13,820)
Increase in trade and other payables 2,618 2,155
----------------------------------------
(10,355) (9,723)
Tax paid (307) (201)
Net cash absorbed by operating
activities (10,662) (9,924)
Cash flows from investing activities
Interest received 9 1
Purchases of property, plant and
equipment (8) (4)
Deposit paid on property (43) -
Purchase of intangible assets (57) (12)
Sale of property, plant and equipment 2 -
Net cash absorbed by investing
activities (97) (15)
Cash flows from financing activities
Dividends paid (641) (641)
Net receipts from borrowings 9,184 13,236
Lease repayments (30) (30)
Net cash generated by financing
activities 8,513 12,565
Net (decrease)/increase in cash
and cash equivalents (2,246) 2,626
Cash and cash equivalents at the
beginning of the year 4,796 2,170
----------------------------------------
Cash and cash equivalents at the
end of year 2,550 4,796
----------------------------------------
Notes to the consolidated financial statements
1. Preliminary announcement
The preliminary announcement set out above does not constitute
Orchard's statutory financial statements for the years ended 31
July 2023 or 2022 within the meaning of section 434 of the
Companies Act 2006 but is derived from those audited financial
statements. The auditor's report on the consolidated financial
statements for the years ended 31 July 2023 and 2022 is unqualified
and does not contain statements under s498(2) or (3) of the
Companies Act 2006.
The preliminary announcement was approved by the board and
authorised for release on 12 December 2023.
The accounting policies used for the year ended 31 July 2023 are
unchanged from those used for the statutory financial statements
for the year ended 31 July 2022. The 2023 statutory accounts will
be delivered to the Registrar of Companies following the Company's
Annual General Meeting.
2. Compliance with accounting standards
While the financial information included in this preliminary
announcement has been computed in accordance with UK adopted
International Accounting Standards, this announcement does not
itself contain sufficient information to comply with UK adopted
International Accounting Standards.
Effect of new, or changes to financial reporting standards
At the date of authorisation of these financial statements, all
of the new or amended Accounting Standards and Interpretations
issued by the International Accounting Standards Board ('IASB')
that are mandatory for the current reporting period and are
relevant to the group's operations have been applied.
There are a number of new standards, amendments and
interpretations that 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.
3. Going concern
The financial statements have been prepared on a going concern
basis which assumes that the group will be able to continue its
operations for the foreseeable future.
The directors have prepared and reviewed financial projections,
on an annual basis, covering a period of almost four years from the
date of signing of these financial statements, with a particular
focus on the period of 12 to 18 months from the date of signing.
Based on the level of existing cash, the projected income and
expenditure and the excess of our loan book over external debt
(amounting to approximately GBP24.28m at the year end), the
directors have a reasonable expectation that the company and group
have adequate resources to continue in business for the foreseeable
future. Accordingly, the going concern basis has been used in
preparing the financial statements. This is discussed more fully in
the Group strategic report under Going concern.
4. Restatement
There is a requirement to present amounts owed from subsidiary
undertakings as current only where they are expected to be received
within 12 months or within the company's normal operating cycle.
Previously amounts owed by subsidiaries have been shown as current
assets. It has now been concluded that, although these amounts are
repayable on demand, there is no expectation to receive them within
12 months. The amounts owed by subsidiaries have therefore been
reclassified as non-current and the comparative and pre-comparative
Company statement of financial position, Company statement of cash
flows and associated notes have been restated accordingly in the
full financial statements.
In addition, there was an amount owing to one subsidiary which
had been set against amounts owing by other subsidiaries. This has
now been separately disclosed and the comparative and
pre-comparative Company statement of financial position, Company
statement of cash flows and associated notes restated in respect of
this in the full financial statements..
The restatements have not impacted the net assets of the company
(total assets less total liabilities) or its profit for the year.
The change in presentation has no impact on the results of the
group.
5. Segment information
As noted on page 4 of the full financial statements, the group
now reports to the board of directors (the Chief Operating Decision
Makers ("CODM")) in terms of two segments - lending for Toyota
products (shown as "Toyota products" in these financial statements)
which carry no credit risk and have a lower return, and other
lending (shown as "Standard lending" in these financial
statements), the nature of which is similar in terms of risk,
reward and processes.
The CODM reviews monthly management information including our
KPIs (see page 9 of the full financial statements for these).
Revenue (which for these purposes includes interest income,
which is outside the scope of IFRS 15) consists of income which is
recognised at a single point in time and that which occurs over a
given period There is a small amount of income falling within the
scope of IFRS 15 which is recognisable over more than one year. Any
discounting would be immaterial.
The group has no single major customer. All income is from
financing. Revenue can be analysed as follows:
Revenue
2023 2022
Standard Toyota Standard Toyota
Total lending products Total lending products
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------- ------- --------- --------- ------- --------- ---------
Timing of revenue recognition:
Over time - interest revenue
outside the scope of IFRS
15 5,328 5,328 - 4,163 4,163 -
At a point in time - non
utilisation fees 769 769 - 794 794 -
At a point in time - default
and settlement fees 118 118 - 46 46 -
--------------------------------- ------- --------- --------- ------- --------- ---------
Interest receivable and
similar income 6,215 6,215 - 5,003 5,003 -
--------------------------------- ------- --------- --------- ------- --------- ---------
At a point in time - direct
debit charges 787 787 - 672 672 -
Over time - loan administrative
fees 717 376 341 374 207 167
Over time - licence fees 145 145 - 141 141 -
--------------------------------- ------- --------- --------- ------- --------- ---------
Other trading income 1,649 1,308 341 1,187 1,020 167
--------------------------------- ------- --------- --------- ------- --------- ---------
Total revenue 7,864 7,523 341 6,190 6,023 167
--------------------------------- ------- --------- --------- ------- --------- ---------
2023
Central Standard Toyota
Total costs lending products
GBP000 GBP000 GBP000 GBP000
-------- -------- --------- ---------
Revenue
Interest revenue 6,215 - 6,215 -
Other revenue 1,649 - 1,308 341
7,864 - 7,523 341
------------------ ------ ------ ----
Expenses by nature
Interest payable and similar
charges
Interest payable 1,270 - 1,270 -
Bank fees 79 - 79 -
1,349 - 1,349 -
------------------------------- ------ -------- ------ ----
Other direct costs
Bank fees 911 - 855 56
Net total income 5,604 - 5,319 285
------------------------------- ------ -------- ------ ----
Other operating costs
Employee costs 1,659 786 873 -
Advertising and selling costs 672 - 672 -
Professional and legal fees 401 118 279 4
IT costs 176 2 174 -
Cost of listing 80 80 - -
Depreciation and amortisation 45 - 45 -
Other net expenses 269 1 267 1
------------------------------- ------ -------- ------ ----
3,302 987 2,310 5
Impairment losses 139 75 64 -
------------------------------- ------ -------- ------ ----
3,441 1,062 2,374 5
------------------------------- ------ -------- ------ ----
Operating profit 2,163 (1,062) 2,945 280
------------------------------- ------ -------- ------ ----
Interest receivable 9 - 9 -
Interest payable (1) - (1) -
Profit before tax 2,171 (1,062) 2,953 280
------------------------------- ------ -------- ------ ----
2022
Central Standard Toyota
Total costs lending products
GBP000 GBP000 GBP000 GBP000
-------- -------- --------- ---------
Revenue
Interest revenue 5,003 - 5,003 -
Other revenue 1,187 - 1,020 167
6,190 - 6,023 167
------------------ ------ ------ ----
Expenses by nature
Interest payable and similar
charges
Interest payable 464 - 464 -
Bank fees 123 - 123 -
587 - 587 -
------------------------------- ------ ------ ------ ----
Other direct costs
Bank fees 756 - 726 30
Net total income 4,847 - 4,710 137
------------------------------- ------ ------ ------ ----
Other operating costs
Employee costs 1,382 627 755 -
Advertising and selling costs 544 - 544 -
Professional and legal fees 418 45 361 12
IT costs 165 2 163 -
Cost of listing 79 79 - -
Depreciation and amortisation 63 - 63 -
Other net expenses 254 1 252 1
------------------------------- ------ ------ ------ ----
2,905 754 2,138 13
Impairment losses 63 - 63 -
------------------------------- ------ ------ ------ ----
2,968 754 2,201 13
------------------------------- ------ ------ ------ ----
Operating profit/(loss) 1,879 (754) 2,509 124
------------------------------- ------ ------ ------ ----
Interest receivable 1 - 1 -
Interest payable (2) - (2) -
Profit/(loss) before tax 1,878 (754) 2,508 124
------------------------------- ------ ------ ------ ----
Set out below are assets and liabilities by segment.
2023 2022
Standard Toyota Standard Toyota
Total lending products Total lending Products
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- ------- --------- --------- ------- --------- ---------
Assets:
----------------------- ------- --------- --------- ------- --------- ---------
Segment assets 61,785 48,823 12,962 48,692 41,990 6,702
----------------------- ------- --------- --------- ------- --------- ---------
Unallocated assets:
-----------------------
Investments 6 81
Land and buildings 6 16
Other fixed assets 48 20
Current assets 32 30
Total assets 61,877 48,839
----------------------- ------- --------- --------- ------- --------- ---------
Liabilities:
-------------------------- ------- ------- ------- ------- ------- ------
Segment liabilities 43,305 30,755 12,550 31,526 24,967 6,559
-------------------------- ------- ------- ------- ------- ------- ------
Unallocated liabilities:
--------------------------
Current liabilities 357 292
Borrowings for right of
use assets 15 44
Taxation 449 299
Deferred taxation 2 1
Total liabilities 44,128 32,162
-------------------------- ------- ------- ------- ------- ------- ------
6. Finance income and costs
The group's income comes from making loans.
Interest payable on borrowings to finance these loans is
therefore included as a cost of sale under interest payable and
similar charges. The amount included was GBP1,270k (2022
GBP464k).
The group receives a small amount of interest from its bank
balances. This year it amounted to GBP9k (2022 GBP1k).
Interest payable is in respect of right-of-use assets and
amounted to GBP1k (2022 GBP2k).
7. Tax expense
7.1 Current year tax charge:
2023 2022
GBP000 GBP000
-------------------------------------------------- ----------------- -----------------
Current tax expense 458 360
Adjustment re previous year tax expense - 2
Deferred tax expense relating to the origination
and reversal of temporary differences - (2)
-------------------------------------------------- ----------------- -----------------
458 360
-------------------------------------------------- ----------------- -----------------
7.2 Tax reconciliation
The tax assessed for the year differs from the applicable
corporation tax rate in the UK -21.01% for 2023 and 19.00% for
2022. The tax rate for 2023 is the blended rate for the period as a
result of the corporate tax rate increasing from 19% to 25% on 1
April 2023.
The differences are explained below.
2023 2022
GBP000 GBP000
------------------------------------------ ----------------- -------
Profit before tax for the financial year 2,171 1,878
------------------------------------------ ----------------- -------
Applicable rate - 21.01% (2022 19.00%) 21.01% 19.00%
------------------------------------------ ----------------- -------
Tax at the applicable rate 456 357
Effects of:
Expenses not deductible for tax 2 1
Adjustment re previous year tax expense - 2
------------------------------------------ ----------------- -------
Tax charge for the year 458 360
------------------------------------------ ----------------- -------
8. Dividends
2023 2022
GBP000 GBP000
-------------------------------------------- ----------------- -----------------
Amounts recognised as distributions to
equity holders in the period:
Final dividend for the year ended 31 July
2022 of 2p (2021 2p) per share 427 427
Interim dividend for the year ended 31
July 2023 of 1p (2022 1p) per share 214 214
641 641
-------------------------------------------- ----------------- -----------------
Proposed final dividend for the year ended
31 July 2023 of 2p (2022 2p) per share 427 427
-------------------------------------------- ----------------- -----------------
9. Earnings per share
Earnings per share is based on the profit for the year of
GBP1.71m (2022 GBP2.52m) and the weighted average number of the
ordinary shares in issue during the year of 21.35m (2022 21.35m).
There are no options or other factors which would dilute these
therefore the fully diluted earnings per share is identical.
10. Loans to customers and other receivables
2023 2022
Group Group
GBP000 GBP000
Non-current
Financial assets at amortised cost
Loans to customers:
Gross 7,972 6,595
Impairment provision (5) (1)
------------------------------------ ------- -------
7,967 6,594
------------------------------------ ------- -------
Current
Financial assets at amortised cost
Loans to customers:
Gross 51,320 37,277
Impairment provision (299) (134)
------------------------------------ ------- -------
51,021 37,143
Financial assets at amortised cost
Other receivables 151 127
------------------------------------ ------- -------
151 127
------------------------------------ ------- -------
Total current financial assets 51,172 37,270
------------------------------------ ------- -------
Prepayments 128 62
------------------------------------ ------- -------
51,300 37,332
------------------------------------ ------- -------
Loans to customers
Standard credit terms for loans to customers are based on the
length of the loan but repayments are due on a monthly basis.
Detail of impairment reviews are shown in note 3.6 to the full
financial statements.
The expected credit losses on receivables not past due have been
assessed as very low, because of the following factors:
-- With the majority of our lending no loan is made until the
first repayment has been received by the group;
-- In the event of default, the group has recourse to the underlying borrower;
-- In the case of insurance premium receivables, the Financial
Services Compensation Scheme provides additional cover to the
group;
-- For insurance premium receivables, the cover ceases, premiums
paid are refunded, and the group has access to these refunds.
Loans to customers can be analysed as follows. The reference to
stage 1, 2 and 3 refer to those stages explained in note 3.6 to the
full financial statements.
The figures refer to the group as the company has no loans to
customers.
Total loans to customers:
2023 2022
Impairment Impairment
Gross allowance Net Gross allowance Net
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------
Amount receivable
- stage 1 58,820 (65) 58,755 43,652 (39) 43,613
Amount receivable
- stage 2 266 (35) 231 126 (9) 117
Amount receivable
- stage 3 206 (204) 2 94 (87) 7
59,292 (304) 58,988 43,872 (135) 43,737
------------------- ------- ----------- ------- ------- ----------- -------
Included in amounts receivable above are stage 1 receivables due
after more than one year amounting to GBP7,972k on which the
impairment allowance was GBP5k (2022 GBP6,587k and GBP1k
respectively). There are no stage 2 debts due after more than one
year this year (2022 GBP8k). There was no impairment allowance on
these.
An amount of GBP128k is due after more than five years (2022
GBP86k). It is stage 1 debt and there is no impairment allowance on
the amount this year or last.
Over 98% of customer receivables are subject to recourse to the
introducing partner in the event of default by the borrower.
There are debts included in the table where a third party takes
the credit risk and on which no impairment allowance is needed.
These amount to GBP11,588k (2022 GBP6.078k).
11. Borrowings
2023 2022
GBP000 GBP000
-------------------------------------- ------- -------
Non-current:
Retail bond 3,744 3,702
Borrowings arising from right-of-use
assets - 15
Other borrowings 4,899 2,340
-------------------------------------- ------- -------
8,643 6,057
-------------------------------------- ------- -------
Current:
Borrowings arising from right-of-use
assets 15 29
Other borrowings 26,064 19,439
-------------------------------------- ------- -------
26,079 19,468
-------------------------------------- ------- -------
Borrowings other than those arising from right-of-use are
secured. The parent company has no external borrowings.
11.1 Terms and debt repayment schedule
Bexhill's current facility was increased during the year from
GBP20.00m to GBP22.00m and is renewable in April 2024. Orchard
Funding's facility is renewable in June 2024 with the renewal date
for Orchard Finance being May 2024. There is no indication that
these facilities will not be renewed. Average interest is
calculated by the interest paid in the year divided by average
borrowings in the year.
Borrowings by Bexhill of GBP19.23m (2022 GBP14.92m) are secured
by a fixed and floating charge over all the assets of Bexhill, bear
interest at an average rate of 6.04% excluding associated costs
(2022 3.10% on the same basis) and are repayable within one year of
the advance. The rate is variable and is 2.50% above bank base
rate. At the year end the rate payable by Bexhill was 7.50%. The
maximum drawdown on the facility is currently GBP22.00m (2022
GBP20.00m) of which GBP2.78m was undrawn at the year-end (2022
GBP5.08m). The outstanding amount of GBP19.22m (2022 GBP14.92m) is
repayable otherwise than by instalments by the renewal date.
Orchard Funding borrowings are secured by a fixed and floating
charge over all the assets of Orchard Funding, bear interest at an
average rate of 6.31% pa excluding associated costs (2022 3.53% on
the same basis) and are repayable within one year of the advance.
The rate is variable and is 2.75% above the Sterling Overnight
Index Average (SONIA) rate. At the year end the rate payable by
Orchard Funding was 7.95%. The maximum drawdown facility is
currently GBP5.00m (2022 GBP5.00m) of which GBP3.50m was undrawn at
the year-end (2022 GBP3.50m). The outstanding amount of GBP1.5m
(2022 GBP1.5m) is repayable otherwise than by instalments by the
renewal date.
Orchard Finance has access to a maximum drawdown borrowing
facility of GBP20.00m (2022 GBP7.50m) of which GBP9.76m was undrawn
at the year end (2022 GBP2.14m). This facility can only be used for
products of the lender, bears no interest, is secured by a fixed
and floating charge and is repayable as monies are received by
Orchard Finance from loans made by it. Non-current borrowings of
GBP4.90m (2022 GBP2.34m) and current borrowings of GBP5.34m (2022
GBP3.02m) are matched with receipts from loans to customers and are
repayable on that basis up to 36 months after the loan is made.
On 3 March 2022 a five year, retail bond was issued. The bond
raised GBP3.90m in 5 tranches. These were issued at between 0.9965
discount and 1.006 premium. The total amount issued was also
GBP3.90m. Costs of the issue amounting to GBP0.21m were offset
against the proceeds and are being amortised over five years. The
market value of the bonds was GBP3.90m at 31 July 2023 (GBP3.99m at
29 July 2022, the last trading day of the financial year). The
interest payable is fixed at 6.5% for the life of the bonds. They
are wholly repayable in March 2027.
The directors consider that the terms of these facilities
closely match the maturity dates of the group's receivables.
No amounts are due after five years on any of the
facilities.
11.2 Retail Bond
2023 2022
Group Group
GBP000 GBP000
---------------------------------
Redemption amount 3,897 3,897
Amortised costs carried forward (153) (195)
--------------------------------- ------- -------
Carrying value 3,744 3,702
--------------------------------- ------- -------
11.3 Right-of-use assets
Liabilities in respect of right-of-use assets are unsecured,
bear interest at the group's marginal cost of borrowing on
inception of the lease. This was 3.60%.
The minimum payments under lease liabilities are as follows:
2023 2022
Group Group
GBP000 GBP000
-------------------------------------
Within 1 year 15 30
Later than 1 year but no later than
5 - 15
15 45
Future finance charges - (1)
------------------------------------- -----------------
15 44
------------------------------------- ----------------- -----------------
The present value of lease liabilities are as follows:
Within 1 year 15 29
Later than 1 year but no later than
5 - 15
------------------------------------- -------------- --------------
15 44
11.4 Reconciliation of liabilities arising from financing activities
The information given below relates to the group. The parent has
no cash-flows from financing activities as all its costs are paid
for by its subsidiaries.
At 31 At 31
At 1 August Cash July Non-cash Cash July
2021 flows 2022 movement flows 2023
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Non-current:
Retail bond - 3,702 3,702 42 - 3,744
Borrowings arising
from right-of-use
assets - leases 44 (29) 15 - (15) -
Other borrowings 834 1,506 2,340 - 2,559 4,899
-------------------------- ------------
878 5,179 6,057 42 2,544 8,643
-------------------------- ------------ ------- ------- ----------- ------- -------
Current:
Bank loans 11,411 8,028 19,439 - 6,625 26,064
Borrowings arising
from right-of-use
assets - leases 28 1 29 - (14) 15
11,439 8,029 19,468 - 6,611 26,079
-------------------------- ------------ ------- ------- ----------- ------- -------
Total liabilities
from financing
activities 12,317 13,208 25,525 42 9,155 34,722
-------------------------- ------------ ------- ----------- -------
Interest on right-of-use
assets included
in liabilities (2) (1)
------- -------
Cashflows from
financing activities 13,206 9,154
------- -------
Comprising:
Net receipts from
borrowings 13,236 9,184
Lease repayments (30) (30)
13,206 9,154
------- -------
The non-cash movement was in respect of the element of amortised
costs for the bond which were charged in the year to comprehensive
income.
12. Trade and other payables
Current liabilities 2023 2022
Group Group
GBP000 GBP000
Trade payables 6,565 4,522
Intercompany payables - -
Other payables 59 55
Other tax and social security costs 40 33
Accruals and deferred income 2,291 1,727
-------------------------------------
8,955 6,337
------------------------------------- ------- -------
Trade payables are unsecured and are usually paid within 30 days
of recognition. Included within accruals and deferred income is
deferred income of GBP1.13m (2022: GBP0.70m) relating to income
received in advance for loan administration services. The majority
of this balance is expected to reverse within the next 12
months.
Intercompany payables are interest free and repayable on demand
.
13. Financial instruments
The company is exposed to the risks that arise from its use of
financial instruments. The objectives, policies and processes of
the company for managing those risks and the methods used to
measure them are detailed in note 5 to the full financial
statements.
13.1 Principal financial instruments
The principal financial instruments used by the group and
company, from which financial instrument risk arises, are as
follows:
-- Loans to customers and other receivables
-- Cash and cash equivalents
-- Trade payables
-- Borrowings including financing for right-of-use assets
13.2 Financial instruments by category
The group held the following financial assets at the reporting
date:
2023 2022
Group Group
GBP000 GBP000
Non-current assets
Financial assets at fair value through
profit and loss:
Investments 6 81
Financial assets at amortised cost:
Investments - -
Intercompany receivables - -
Loans to customers 7,967 6,594
Current assets
Financial assets at amortised cost:
Loans to customers 51,021 37,143
Other receivables: current 151 127
Cash and cash equivalents:
Bank balances and cash in hand 2,550 4,796
----------------------------------------
61,695 48,741
---------------------------------------- ------- -------
The group held the following financial liabilities at the
reporting date:
2023 2022
Group Group
GBP000 GBP000
Financial liabilities at amortised cost:
Interest bearing loans and borrowings:
Borrowings payable: non-current 8,643 6,057
Borrowings payable: current 26,079 19,468
Trade and other payables 7,775 5,605
Intercompany payables - -
------------------------------------------
42,497 31,130
------------------------------------------ ------- -------
13.3 Fair value of financial instruments
The board does not consider the fair value of financial assets
and liabilities to be materially different to their carrying
values.
13.4 Financial risk management
The group's activities expose it to a variety of financial
risks. These risks are dealt with in detail in the Group strategic
report under Principal risks and uncertainties.
14. Treatment of borrowings
The group borrows money and lends this on, together with its own
funds, to its customers.
Any increase in activity leads to an increase in debtors and an
associated increase in borrowings. If the company was one which
bought and sold goods or services the money borrowed would be
similar to the company's stock in trade and the change in creditors
would be shown as part of operating cash flows. However, accounting
standards require cash flows from financing to be shown separately
and this means that there appears to be a large inflow or outflow
of cash from the company's operations (depending on whether lending
to customers decreases or increases in the year) which is then
covered by borrowings. For reasons stated above this is not the
case.
15. Capital commitments and post balance sheet events
The group paid a deposit of GBP42.65k in April 2023 for a
property to be used as the office as the current lease is to expire
early next year. The full cost of the property was GBP444.00k and
was a cash purchase. Completion was on 29 September 2023. The
deposit has been carried forward at present as a prepayment.
With the exception of that transaction, there were no post
balance sheet events which fall to be disclosed in these financial
statements.
16. Availability of annual report and accounts and notice of AGM
A copy of the report and accounts for the year ended 31 July
2023 will shortly be posted to shareholders and a copy will be
available to download from the company's website at
www.orchardfundinggroupplc.com. Accompanying the report and
accounts is a notice convening the company's annual general
meeting, to be held at 10.00am on Thursday 11 January 2024, at 222
Armstrong Road, Luton, Bedfordshire LU2 0FY. A copy of the notice
of AGM will also be available to download from the company's
website.
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END
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