TIDMORCH
RNS Number : 1649Q
Orchard Funding Group PLC
26 October 2021
26 October 2021
Orchard Funding Group PLC
("Orchard Funding Group" or the "company" or the "group")
Full Year Results
For the 12 months ended 31 July 2021
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 2021.
Highlights
-- The impact of COVID-19 continued to affect all aspects of the
business in 2020/2021 (lending, revenue and profit)
-- Gross total income in the period decreased by 12.88% to
GBP4.60 million for the 12 months to 31 July 2021 (31 July 2020:
GBP5.28 million)
-- The loan book increased by 9.41% year on year to GBP29.87 million
-- Profit after tax fell by 34.42% from GBP1.27 million (31 July 2020) to GBP0.84 million
-- Earnings Per Share ("EPS") fell in the period by 34.42% to 3.91p (31 July 2020: 5.96p)
-- The group lent GBP61.02 million to clients in the 12 months
to 31 July 2020 a decrease of 6.88% (31 July 2020: GBP65.53
million)
-- Proposed full year dividend per share of 3.0 pence
-- Refinanced existing borrowings at a lower rate and increased
the amount available at GBP20 million compared to GBP19 million in
2020, in addition to a new GBP7.5m facility
Ravi Takhar, Chief Executive Officer of the company, stated:
"In another unprecedented year of global financial crisis, our
business model has again proved resilient. We have successfully
re-financed our bank facilities with Barclays Bank and Conister
Bank. Our new funding partners Toyota Financial Services and
NatWest provide us with a stable and flexible liquidity platform
from which we can lend into the post Covid-19 market. We will
continue to focus on our core markets of insurance and professions,
while pursuing adjacent markets which can provide us with
attractive and safe returns. We are confident that the market will
eventually return to pre-Covid 19 levels and that our lending will
continue to improve over that period."
For further information, please contact:
Orchard Funding Group PLC +44 (0)1582 346 248
Ravi Takhar, Chief Executive Officer
Liberum (Nomad and Broker) +44 (0)20 3100 3222
Investment banking
Neil Patel
Lauren Kettle
For Investor Relations please go to:
www.orchardfundinggroupplc.com
Group financial highlights
The COVID-19 pandemic affected this year even more so than the
previous. Falls in lending and income which happened for the first
time last year have continued into this year.
Comparing lending, income and profit for 2021 with 2020:
Lending volume is down from GBP65.53m in 2020 to GBP61.02m in
2021 (6.88%)
Loan book (post ECL provision) is up from GBP27.30m in 2020 to
GBP29.87m in 2021 (9.42%)
Funding is up from GBP10.98m in 2020 to GBP12.25m in 2021
(11.56%)
Gross total income is down from GBP5.28m in 2020 to GBP4.60m in
2021 (12.88%)
Net total income is down from GBP4.13m in 2020 to GBP3.44m in
2021 (16.71%)
Other operating costs are up from GBP2.44m in 2020 to GBP2.52m
in 2021 (3.28%)
Operating profit is down from GBP1.56m in 2020 to GBP1.05m in
2021 (32.69%)
Further detail on the above is given throughout the Group
strategic report on pages 5 to 15 of the full financial
statements.
Chairman's statement
The economic backdrop has made this another challenging year for
the group. The ongoing COVID-19 restrictions have impacted on
consumer demand and there has been continued aggressive competition
for business from the established players in the market.
This has had an inevitable impact on our results. Our new
lending volumes have fallen by 6.9%, total revenue is down 12.9%,
profit after tax is down 34.4% and EPS has reduced from 5.96p to
3.91p when compared to the full year ending July 2020.
However there are several positives that I take from this year.
Our business has proved to be resilient, and we are in a good
position to grow as the economy recovers and consumer demand
returns post the pandemic. I am very pleased that our core
insurance business has continued to perform, and the majority of
our staff have been able to work from home with no impact on our
customers or partners. We have secured new funding from Toyota
Financial Services PLC and National Westminster Bank PLC replacing
our historical Barclays Bank PLC and Conister Bank facilities. This
is a great show of confidence in our business model. I want to
thank our loyal staff, customers and partners for their continued
support over the last year.
We continue to pilot lending into new markets where we can
compete on the basis of our experienced staff, underwriting
processes and supporting systems. Whilst insurance premium funding
will remain our core activity, we are keen to seek out new markets
to grow our revenue.
The board remains confident of our ability to grow our business
as the impact of the pandemic fades, and we are pleased to propose
that the annual dividend is held at 3p.
Steven Hicks
Chairman
25 October 2021
Chief executive's review
Our business model proved resilient during the global financial
crisis in 2008 and again proved resilient in the Covid-19 Crisis
("the Crisis"), which was even deeper and more-wide ranging than
the 2008 crisis. We supported all our staff and ensured that not a
single employee was put on furlough. We supported all our clients,
who suffered no interruption to their liquidity requirements during
the Crisis. We supported all our borrowers, including those with
payment difficulties throughout the Crisis. We are proud to say
that we have come through the Crisis with all our staff, clients
and customers and our business is in a strong position to service
and benefit from the post Covid-19 market.
We have had to work hard to ensure that there was a constant and
cost-effective supply of liquidity throughout the Crisis for our
business. We re-financed Barclays Bank PLC, with funding from
Toyota Financial Services PLC and Conister Bank with National
Westminster Bank PLC. Against a very difficult backdrop, we were
able to execute re-financing in the Crisis, which is more flexible
and cost effective than our historic facilities. This is a great
achievement by our finance team, puts us in an excellent position
for the future and we thank them for their great efforts to obtain
these new facilities.
As expected, we traded through the Crisis with a lower level of
lending than in the year ending July 20. Despite the market, we
still managed to lend over GBP60m and maintained our lending in the
insurance sector, whilst seeing falls in lending in professional
fee funding and site fee funding. Our sales team is focused on the
recovery of lost lending and will work hard to achieve this as the
market returns to normal levels.
As well as our core markets, we continue to test adjacent
markets to our current products. Through our site fee lending
product, we have now launched a Hire Purchase product, which
enables customers to acquire static caravans. We are delighted to
confirm that we are now lending in this market and are well placed
to grow our market share due to our existing relationships with
Park Operators. Through our entry into new markets, we continue to
demonstrate our pro-active approach to business, our prudence, by
only lending into markets that share the credit characteristics of
our historic lending and our continual pursuit of growing our
business for the benefit of our staff and shareholders.
We continue to develop our own bespoke IT system, Lend XP. As
well as supporting our own business, Lend XP is now used by all of
our finance company clients. Lend XP enables us to integrate
effectively and efficiently with 3rd party IT systems and has
continued to increase our operational efficiency and our ability to
conduct business with introducers, for whom IT integration is a
pre-condition to doing business. IT development clearly has a cost
and we therefore continue to invest in this fundamental part of our
business. This is a key part of our philosophy of spending and
investing money prudently and only in the best interests of our
business and our stakeholders. In house IT enables us to
efficiently launch products into new markets without significant
infra-structure costs. This year our IT has enabled us to lend into
the Hire Purchase market quickly and on a cost-effective basis.
As reported last year we have made a FinTech investment into an
Open Banking platform, which enables us to analyse a customer's
bank statements on a real time basis. The open-banking solution
will offer benefits to Orchard before it enters new markets as the
real-time solution will ensure that credit offered to borrowers is
supported by effective underwriting. Our Open Banking platform is
now live and has materially improved our ability to quickly and
effectively underwrite borrowers. We are already using open banking
to underwrite borrowers for our new HP static caravan product.
We continue to be supported by our experienced and loyal staff.
Notwithstanding the current market turmoil, we continue to invest
in staff to accommodate the changing nature of our business,
ensuring that our partners and borrowers have the excellent support
that they deserve. Our senior managers have been with us for more
than a decade and this is indicative of the type of business that
we are - caring and supportive to our people. We believe our staff
to be one of our greatest assets and they enable us to continue to
deliver a very high level of service to our clients. We have also
been able to ensure that all staff have worked from home during the
current crisis and thank them for ensuring that our customers have
received the benefit of uninterrupted and excellent service during
this difficult period.
We would again like to thank Toyota Financial Services PLC and
National Westminster Bank PLC for our current liquidity lines. We
have adequate liquidity for our near-term lending aspirations.
In summary, the downward trend in our core lending markets due
to Covid-19 was expected. We have a strong and robust platform,
which is well supported by cost-effective and flexible liquidity
lines, which will support our future lending aspirations and
growth.
We paid a dividend of 2p per share in December 2020 and an
interim of 1p per share in April 2021. I am happy to announce that
the board has proposed a final dividend of 2p per share to be paid
in December 2021, subject to shareholder approval.
Ravi Takhar
Chief executive officer
25 October 2021
Group strategic report
Strategy and objectives
The group's principal objective remains to increase our
profitability in a prudent, sustainable manner, having due regard
for the interests of all stakeholders. The term stakeholders in
this respect is wide ranging and includes employees, shareholders,
our introducing partners, other customers, creditors, regulators,
other parts of government and the local and wider community. Each
of these groups has different, sometimes conflicting, interests,
and it is the responsibility of the board to ensure that all
stakeholders are treated fairly. This concept of fairness to all is
paramount in the decision making process.
We have six strategic drivers behind our objective of increasing
profitability:
-- to differentiate our business from that of our competitors,
based on service excellence, fair pricing and robust underwriting
procedures;
-- to increase lending in a responsible manner;
-- to preserve and, where deemed necessary, increase our sources of liquidity;
-- to innovate;
-- to continually improve our IT systems;
-- to support our excellent staff in their work.
Differentiation covers a number of factors: the ease of transfer
of business from other lenders to us; taking time to fully
understand our introducing partners' businesses; being easily
contactable by all our customers; providing flexible funding
arrangements; reducing our partners costs and giving them regular
training and assistance.
The directors still believe in our two pronged approach to
lending - to 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.
Our approach to innovation is to review markets and product
lines which we believe fit our lending criteria - safe lending and
sensible returns.
Our IT system is fully in-house, providing stability for our
future business, the ability to increase lending in our core
markets where IT system integration is required and the ability to
enter new markets. It gives us much more control over, and thereby
reduces risks in, the development of the system.
Our sales team are our first line in dealing with our partners,
arranging prospect meetings and, where required, making use of
senior personnel to help them close a deal. They are ably supported
by other members of the team who ensure that proper care is taken
of our partners. Care of our partners is of paramount importance in
our business culture and this aspect is a constant part of training
for all staff. Feedback from our partners in this area has been
positive.
Our aim is to continue to build strongly to achieve our
principal objective by maintain and enhancing our strategies listed
above.
Our business model
The group's main business in the past was to provide credit to
businesses and consumers to enable them to spread the cost of their
insurance premiums, professional fees or other service fees over a
period of up to one year. This remains the core of our lending.
However, this year we have begun to make longer term loans, up to
seven years for asset finance. 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 2.6(d) on page
41 of the full financial statements.
Despite the fact that we now have longer term lending, the
nature of our products is so alike in terms of risk, reward and
processes that any segregation would not give meaningful
information to users of the financial statements. Our underwriting
and debt management procedures are so similar that we have not
disaggregated results arising from our several markets. We believe
that to do so would obscure material information and reduce the
understandability of the financial statements. We therefore still
report a single trading segment - lending.
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. Indeed, we
have turned down potential borrowers because they did not achieve
our strict requirements.
During the year the group refinanced its borrowings. The
interest rates charged (excluding associated costs) were lower than
was previously being charged.
The group has borrowing facilities up to up to a maximum of
GBP20m for general lending. In addition Orchard Finance has a
facility of up to GBP7.5m to be used exclusively for lending in
respect of products from the provider of those funds.
Of the general facility, GBP9.83m was unused at the year end, Of
the restricted facility, GBP5.42m was unused.
The balance of lending is provided from group resources. At 31
July 2021 the group had net current financial assets (receivables
plus cash in hand less current liabilities) amounting to
GBP14.15m.
The group's average cost of finance was 6.03% of funds borrowed
in the financial year to 31 July 2021 (4.86% on the same basis in
the year to 31 July 2020). Cost of funds includes arrangement and
legal fees payable for access to funding and fees for non-use of
the facility. There is some distortion this year as costs were
incurred for a facility which was not used by the year end. If only
interest were included in cost of finance the percentages would be
3.03% for 2021 and 3.63% for 2020.
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. Orchard's sole business is
lending money and therefore the risks apply to this area.
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 remains similar to last year as a result of
in risk the continuing COVID-19 issue. Although we have
passed the major initial economic impact of the
pandemic, we are still unsure as to what will happen
to the economy (for example, unemployment) in the
near future..
Risk appetite In the current climate our aim is to limit reported
credit losses to below 0.2% 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 of the full financial statements
gives further details of mitigation of credit risk.
In addition, our documentation is reviewed by our
legal team to ensure that debts are not subject
to challenge at a later date.
-------------------- -------------------------------------------------------
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 not changed. We refinanced this year during
in risk a turndown in the economy at a lower headline rate
indicating that risk is certainly no greater than
in the past.
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 2022 for Bexhill and June 2022 for Orchard.
Our funders have indicated, so far as they are able,
that they have no wish to withdraw their support.
Excess available credit plus our net current financial
assets amounted to GBP23.98m at 31 July 2021 (excluding
borrowings restricted to Toyota products). Our operating
costs for the year were GBP2.52m (excluding impairment
allowance) 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 In principle, risk has changed insofar as we now
in risk have longer term fixed rate lending. However, at
present this business represents a small proportion
of our lending (6.52% of our 2021 lending). Any
rate changes on our other lending would have a very
little effect.
Risk appetite Our risk appetite is 25% above the interest rate
that we are paying when a loan is made, without
being able to pass this on to our customers.
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.
-------------------- --------------------------------------------------------
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 Our new system has been fully operational for almost
change in risk two years now and we are over the settling down period.
The system is proving robust.
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 of
risk 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 Risk has not changed.
change 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 and by regular interaction with our bankers;
-- 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 30 September 2021, the
latest date of review, the largest nominal exposure was GBP3.82m to
one finance company representing 12.48% of our loans (before
expected credit loss provisions). The highest exposure to a
non-finance company was GBP2.43m and consisted of advances
comprising many smaller loans (the average amount for each loan was
GBP178). The reality, therefore, is that our exposure is low. At 30
September 2021 total outstanding loans were GBP30.60m (at 31 July
2020 GBP27.52m) (before expected credit loss provisions), of which
the highest individual loan (not a block loan to a premium finance
company) was GBP26.80k. This was for asset finance and represented
less than 0.1% of total outstanding loans. This is likely to remain
the situation in the future.
We have experienced late payments in the past. The majority of
these are through our customers changing banking details. Prior to
the year to July 2020, we made a charge for late payments. This
reduced our expected credit losses. Last year and this we have not
made these charges. We intend to do so again in the next financial
year.
During this year, because of COVID-19, some of our borrowers
requested payment holidays and we have accommodated these. Where
they are properly agreed with a borrower, these payment holidays do
not necessarily result in a significant increase in the credit risk
associated with those loans. The "days past due" for these loans is
based on the revised, agreed schedule. That is not to say that
there may be other factors which might impact on credit risk but
these are looked at separately as part of our wider review of the
credit quality of our lending.
We review debts for impairment and make provision where
necessary. As part of this process, we have released GBP131k during
the year to 31 July 2021, net of reversal of previous provisions
and items written off against those provisions (GBP130k was charged
in the year to 31 July 2020). The provision this year is GBP72k
carried forward at 31 July 2021 (GBP217k at 31 July 2020). Part of
the reason for this reversal is that, where we are not paying out
cash until months later, these have been excluded from need to make
provision as there can be no credit loss on these. Note 2.6 on page
40 of the full financial statements outlines the approach to credit
impairments.
There is no doubt that the level of potential bad debt had been
adversely affected by COVID-19 for most of the year, The biggest
consequence of COVID-19 had been cancellations of loans taken out
to pay for discretionary spending. This did not lead to financial
losses but reduced lending (and therefore income) below the level
we had projected in the year before last. The latter part of the
year has seen lending starting to increase again.
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 a good deal of management
judgement. They are detailed in note 3 on page 45 of the full
financial statements.
The business environment
COVID-19 was identified as a pandemic in March 2020 by the World
Health Organisation and our Government took action to control its
spread in this country which resulted in the closing of many
businesses in that month. We suffered in the period up to 31 July
2020. Our financial year began in the same vein. There was an
easing of lockdown in July 2020 but this quickly led to further
out-breaks of the disease resulting in a full lockdown by January
2021. This has effectively remained through most of the rest of the
group's 2020/21 financial year. However, Orchard has seen increases
in lending towards the end of the financial year and our forecasts
indicate that this is likely to continue. This will, of course, be
dependent on the economy remaining open.
One outcome of the restrictions was that Government debt
replaced non-mortgage, personal debt. A research publication by the
Commons Library published in July 21, quotes figures from the Bank
of England showing that unsecured debt fell in each month between
March 2020 and May 2021.
This, again, impacted our lending in that individuals who might
in the past have financed insurance premiums etc. were not
borrowing to do so.
We now have a trade agreement with the EU, although there is
uncertainty attaching to the Northern Ireland Protocol. The board
is of the opinion that the direct effect of this on Orchard will
not be significant in the short to medium term. There are too many
unknown factors to assess the situation in the longer term. The
main issues are still likely to revolve around the value of the
pound against other traded currencies, which will impact on
spending.
Development and performance of the business
Overview
The financial year began for us in the same vein as the year
before had ended, with reductions in lending in every month when
compared to the equivalent month in the previous year.
This situation continued until March 2021 after which lending
began to rise again on the same basis. We still believe that most
of our premium finance growth will come from the direct insurance
side rather than from broker premium funding companies, although
these companies still remain our largest market. The demand for
professional fee finance has continued to slow.
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 these are going well. We intend to grow these further.
Details are shown in future developments on page 13 of the full
financial statements.
To summarise: it remains our intention to increase our sales in
existing markets, expand into adjacent markets, maintain good cost
control commensurate with our plans and secure further sources of
funding.
Financial indicators
The function of the business is to lend money safely. The
ability to find borrowers is therefore key to the business. We have
not only added to our introducing partner base but have begun again
to sell more through this base. This continues to work well (albeit
that economic conditions have become more challenging this
year).
Our margin is an important area. Some of our borrowing is fixed
to bank base rate and some to SONIA. As these rates alter so will
our borrowing costs. Given the short term nature of most of our
lending any likely changes would make a small impression on
margins. Our own analysis indicates that the influence on our
business would be negligible and it is for this reason that our
risk appetite is to accept rate increase of up to 25% higher than
we are paying at the time the loan is made to a customer (see
Interest rate risk on page 7 of the full financial statements).
Rates for new lending can, however, be altered to reflect any
changes. There is, however, greater risk with our longer term
products that rate increases would erode margins.
Other operating costs in this business are relatively stable. We
have increases resulting from an increased sales function, staff
costs and enhancements to our IT systems but other overheads have
been reduced. The net result is an overall increase of 3.28%
(excluding provision for expected credit losses).
Financial key performance indicators (KPIs)
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.
Lending, revenue and profit are all lower than last year. During
2020 COVID impacted our business for approximately four months.
This year the impact was for eight months. Given the circumstances,
the directors are satisfied with the performance of the group.
As would be expected, this decrease in lending has led to a
decrease in profitability.
2021 2020 2019 2018 2017
KPIs
Lending volume GBP61.02m GBP65.53m GBP72.99m GBP68.73m GBP63.35m
Average interest earning GBP28.59m
assets(1) GBP29.72m GBP31.54m GBP29.68m GBP25.11m
Total revenue GBP4.60m GBP5.28m GBP5.48m GBP5.17m GBP4.55m
Average external funding GBP9.28m GBP12.82m GBP14.35m GBP13.16m GBP11.49m
Cost of external funds GBP0.56m GBP0.62m GBP0.70m GBP0.63m GBP0.49m
Cost of funds/funds ratio 6.03% 4.84% 4.88% 4.79% 4.26%
Own resources (net current GBP14.15m
financial assets) GBP15.50m GBP14.82m GBP13.94m GBP13.03m
Operating costs GBP2.52m GBP2.44m GBP2.20m GBP1.92m GBP2.01m
Return on average equity 5.35% 8.31% 11.24% 11.10% 10.51%
Other performance indicators
Net interest income GBP3.22m GBP3.94m GBP4.15m GBP3.86m GBP3.49m
Profit before tax GBP1.05m GBP1.55m GBP2.02m GBP1.89m GBP1.64m
Profit after tax GBP0.84m GBP1.27m GBP1.63m GBP1.51m GBP1.34m
EPS (pence) (2) 3.91 5.96 7.66 7.08 6.25
DPS (pence)3 3.00 3.00 3.00 3.00 3.00
Return on capital employed 4.33% 6.74% 7.24% 6.77% 6.69%
1. Average interest earning assets consist of the average of the
opening and closing loan book after taking account of the
impairment provision.
2. There are no factors which would dilute earnings therefore
fully diluted earnings per share are identical.
3. Dividends per share are based on interim dividends paid in
the year and proposed final dividend for the year.
Net total income (as shown in the Consolidated income statement)
was lower than the previous year, mainly as a result of reduced
lending. Operating costs overall are up by GBP80k. Included in
operating costs is commission paid on direct insurance business and
this business has increased this year leading to higher commission
costs of approximately GBP83k than in 2020. Additionally, staff
costs were GBP89k higher. Other operating costs have seen
reductions of GBP92k. In all, the board are happy with the
operating costs in the business.
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 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 16 non-director employees.
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.
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 dropping.
Innovation
A key non-financial strategy is innovation (see Strategy and
objectives on page 5 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. We completed the
initial development of our system and it is now the only system we
use. 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.
Good governance
The role of the board is set out in the Corporate governance
report on pages 21 to 23 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. It 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, even taking account of the effects of COVID-19. However,
it is important to appreciate that the further away in time the
estimate, the less reliable it is. Our forecasts assume a base rate
of 0.10% in the short term, although if this increased further
there would be little impact because of the short term nature of
most of our lending.
The character of our lending is such as to permit us to react to
any changes in base rate within a short period of time (as
mentioned in the section on interest rate risk earlier in this
report ) and with relatively little impact on our margins.
As a result of our estimate of the impact of the post COVID-19
economy, we continue to be cautious in our forecasting.
The key assumptions and bases used in the forecasts are now:
-- Loans through our partners will grow to circa GBP77m in 2023/24;
-- Liquidity will be available to fund those loans;
-- Margins on lending will remain relatively stable throughout the period averaging at 6.08%;
-- 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, they 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
It is the intention of the board to continue and grow our core
markets. In addition, we tested a small amount of longer term asset
lending (static caravans as we mentioned last year) and this seems
to be working well. It is our intention to expand this but only if
our underwriting procedures indicate that it is advantageous for us
to do so. The lending will be fully secured by the introducers. As
mentioned before, given the longer term nature, a more vigorous
approach is taken to lending in this area.
We shall, of course, continue to look at other markets which fit
our risk and return profile. The board has agreed to a pilot test
of bridging finance. This will be short term (less than a year)
and, as usual, subject to our rigorous underwriting procedures.
The group will continue to look at alternative sources of
finance as liquidity 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. Environmental issues are therefore negligible (see SECR
reporting later on in this report).
The group operates out of an office in Luton. Most of our
employees are based in the local area. We therefore contribute to
the economy of the local community and keep our travel carbon
footprint relatively low. We provide health club membership and
childcare vouchers for any staff who wish it.
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 two subsidiaries consist of one male and two
females each. Males make up 68.42% of the employees in total
(68.18% in 2020).
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.
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);
-- 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 under Environmental, social responsibility,
community, human rights issues and gender diversity;
-- what impact it will have on our partners and other customers
(as mentioned under Non-financial indicators). Proper customer
care, particularly in avoiding unfair outcomes, is of paramount
importance to Orchard;
-- our reputation (the impact of loss of reputation is dealt with under Conduct risk);
-- either the CEO and/or CFO meet with major investors at least
twice a year (albeit by Zoom in the last 18 months) to discuss the
group's progress and overall plans, obtaining valuable comments on
how we are perceived. 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. For example, we have increased our investment in Open B
Gateway Limited, a small private company, so that they could have
the benefit of finance to further develop their software
platform;
-- 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 earlier.
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. For example, some years ago decisions were
made both to change our IT system and to apply for a banking
licence. Both decisions were long term in nature and required
resources to be provided. The board agreed to both, seeing the
benefits in the longer term for most of our stakeholders. During
the year it was decided to withdraw the application for the banking
licence.
In deciding on the pilot for bridging finance during the year as
noted on page 13 of the full financial statements, the board took
account of the requirements of 172(1).
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. The de minimis exemption is for companies whose
usage is below 40MWh in the reporting period. According to CLS
Chartered Consultancy this is the equivalent of around nine houses
worth of electricity or four houses worth of gas. The group
operates out of a small office which operates only on electricity
and has had no more than two staff members working there during the
year. Fuel for cars is provided for some staff but the total amount
of fuel used is no more than 8k litres.
Approved by the directors and signed by order of the board
Liam McShane,
Company secretary
25 October 2021
Directors' report
The directors present their annual report together with the
audited accounts of the group and the company for the year ended 31
July 2020.
Results and dividends
The group profit for the year after taxation was GBP0.84m (2020
GBP1.27m). This is shown in the Consolidate income statement. The
directors consider that the going concern basis is appropriate,
supported by the profitability of the group and the significant
cash balances. During the year the group paid dividends amounting
to GBP641k to shareholders (2020 GBP641k) - note 8. The board is
pleased to propose a final dividend of 2 pence per share to be paid
on 17 December 2021 to shareholders on the register on 10 December
2021, with an ex-dividend date of 9 December 2021. The final
dividend is subject to shareholder approval at the company's
upcoming annual general meeting on 9 December 2021.
Future developments
Future developments and a fuller business review are contained
in the Chief executive's review and the Group strategic report.
Directors and their interests
The directors who served during the year and their beneficial
interests in the share capital of the company are shown in the
remuneration report on pages 18 and 19 of the full financial
statements. There is a directors' and officers' indemnity insurance
policy in existence. There were no other third party indemnity
provisions for the directors.
Directors' responsibilities
The directors are responsible for preparing the strategic
report, directors' report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare group and company
financial statements for each financial year. The directors have
elected under company law and the AIM Rules of the London Stock
Exchange to prepare the group financial statements in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006 and have elected under
company law to prepare the company financial statements in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and applicable
law.
The group and company financial statements are required by law
and international accounting standards in conformity with the
requirements of the Companies Act 2006 to present fairly the
financial position of the group and the company and the financial
performance of the group. The Companies Act 2006 provides in
relation to such financial statements that references in the
relevant part of that Act to financial statements giving a true and
fair view are references to their achieving a fair
presentation.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the group and the company and of
the profit or loss of the group for that period.
In preparing each of the group and company financial statements,
the directors are required to:
a) select suitable accounting policies and then apply them consistently;
b) make judgements and accounting estimates that are reasonable and prudent;
c) state whether they have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006;
d) prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and the
company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group's and the
company's transactions and disclose with reasonable accuracy at any
time the financial position of the group and the company and to
enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the
assets of the group and the company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Orchard
Funding Group plc website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Research and development
During the financial year nothing was spent on research and
development (2020 GBPNil).
Financial instruments
Detailed information on the group's financial instruments is
stated in notes 2.6 and 2.7 of the full financial statements.
The group's objectives and policies for managing risk are shown
under Principal risks and uncertainties in the Group strategic
report.
Employees and environmental issues
The group is an equal opportunity employer. Details of the
group's approach to employee and environmental matters are shown in
the Group strategic report under Environmental, social
responsibility, community, human rights issues and gender
diversity.
Statement as to disclosure of information to auditor
The directors who were in office on the date of approval of
these financial statements have confirmed, as far as they are
aware, that there is no relevant audit information of which the
auditor is unaware. Each of the directors have confirmed that they
have taken all of the steps that they ought to have taken as
directors in order to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that
information.
Auditor
A resolution to reappoint RSM UK Audit LLP as auditor for the
ensuing year will be proposed at the forthcoming annual general
meeting.
Approved by the directors and signed by order of the board
Liam McShane,
Company secretary
25 October 2021
Consolidated income statement
2021 2020
Notes GBP000 GBP000
---------------------------------------- ------ -------- --------
Continuing operations
Interest receivable and similar income 4 3,783 4,558
Interest payable and similar charges 5 (559) (624)
Net interest income 3,224 3,934
--------
Other trading income 4 817 722
Other direct costs 5 (603) (533)
Net other income 214 189
--------
Net total income 3,438 4,123
--------
Other operating costs 5 (2,516) (2,436)
Net impairment gains/(losses) on
financial assets 5 131 (130)
Net gain on financial assets at fair
value through consolidated income 5 - -
Operating profit 1,053 1,557
Interest receivable 6 - 6
Interest payable 6 (3) (2)
Profit before tax 1,050 1,561
Tax 7 (211) (288)
Profit for the year from continuing
operations attributable to the owners
of the parent 839 1,273
--------
Earnings per share attributable to
the owners of the parent during the
year (pence)
Basic and diluted 9 3.91 5.96
---------------------------------------- ------ -------- --------
Consolidated statement of other comprehensive income
2021 2020
Notes GBP000 GBP000
---------------------------------------- ------- ------- -------
Profit for the year from continuing
operations attributable to the owners
of the parent 839 1,273
Items that will not be reclassified
to profit or loss:
Changes in the fair value of equity
investments at fair value through
other comprehensive income:
Changes in fair value of investments - -
Total comprehensive income for the
year from continuing operations
attributable to the owners of the
parent 839 1,273
Consolidated statement of financial position
2021 2020
Notes GBP000 GBP000
----------------------------------------- ------ ------- -------
Non-current assets
Property, plant and equipment 23 39
Right of use assets 56 96
Intangible assets 4 16
Deferred tax asset - 6
Investment at fair value through profit
and loss 81 6
Loans to customers 10 2,257 -
Other receivables 10 - 7
2,421 170
----------------------------------------- ------ ------- -------
Current assets
Loans to customers 10 27,616 27,300
Other receivables and prepayments 10 233 120
Cash and cash equivalents:
Bank balances 2,170 2,300
30,019 29,720
----------------------------------------- ------ ------- -------
Total assets 32,440 29,890
Liabilities
Current liabilities
Trade and other payables 12 4,182 2,939
Borrowings 11 11,439 11,004
Tax payable 138 273
15,759 14,216
----------------------------------------- ------ ------- -------
Non-current liabilities
----------------------------------------- ------ ------- -------
Borrowings 11 878 72
----------------------------------------- ------ ------- -------
Deferred tax liabilities 3 -
----------------------------------------- ------ ------- -------
881 72
----------------------------------------- ------ ------- -------
Total liabilities 16,640 14,288
----------------------------------------- ------ ------- -------
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 6,003 5,805
Total equity 15,800 15,602
----------------------------------------- ------ ------- -------
Total equity and liabilities 32,440 29,890
----------------------------------------- ------ ------- -------
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 2019 214 5,173 8,692 891 14,970
Profit and total comprehensive
income - 1,273 - - 1,273
Transactions with owners:
Dividends paid - (641) - - (641)
Balance at 31 July 2020 214 5,805 8,692 891 15,602
--------------------------------- -------- --------- -------- -------- -------
Profit and total comprehensive
income - 839 - - 839
Transactions with owners:
Dividends paid - (641) - - (641)
Balance at 31 July 2021 214 6,003 8,692 891 15,800
--------------------------------- -------- --------- -------- -------- -------
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
2021 2020
GBP000 GBP000
Cash flows from operating activities:
Operating profit 1,053 1,557
Depreciation and amortisation 71 86
1,124 1,643
(Increase)/decrease in loans to customers,
other receivables and prepayments (2,679) 4,882
Increase/(decrease) in trade and other
payables 1,243 (76)
---------------------------------------------
(312) 6,449
Tax paid (337) (387)
Net cash (absorbed)/generated by operating
activities (649) 6,062
Cash flows from investing activities
Interest received - 6
Purchases of property, plant and equipment (3) (29)
Purchase of investment (75) -
Proceeds of sale of assets - 9
Net cash absorbed by investing activities (78) (14)
Cash flows from financing activities
Dividends paid (641) (641)
Net receipts from borrowings 12,245 1,000
Net borrowings repaid (10,977) (6,207)
Lease repayments (30) (39)
Net cash generated/(absorbed) by financing
activities 597 (5,887)
Net (decrease)/increase in cash and cash
equivalents (130) 161
Cash and cash equivalents at the beginning
of the year 2,300 2,139
---------------------------------------------
Cash and cash equivalents at the end of
year 2,170 2,300
---------------------------------------------
Notes to the consolidated financial statements
1. Preliminary announcement
Orchard Funding Group plc ("Orchard") is a public limited
company incorporated and domiciled in England and Wales, whose
shares are publicly traded on the AIM market of the London Stock
Exchange. The registered office is 721 Capability Green, Luton,
Bedfordshire LU1 3LU and the principal place of business is the
United Kingdom.
The preliminary announcement set out above does not constitute
Orchard's statutory financial statements for the years ended 31
July 2021 or 2020 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 2021 and 2020 is unqualified
and does not contain statements under s498(2) or (3) of the
Companies Act 2006.
Subject to the disclosures in note 2 below, the accounting
policies used for the year ended 31 July 2021 are unchanged from
those used for the statutory financial statements for the year
ended 31 July 2020. The 2021 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 International
Accounting Standards in conformity with the Companies Act 2006,
this announcement does not itself contain sufficient information to
comply with International Accounting Standards in conformity with
the Companies Act 2006.
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 just almost four years
from the date of signing of the statutory financial statements.
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 GBP17.62m 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. Orchard Funding
Group plc ("the company") and its subsidiaries (together "the
group") provide funding and funding support systems to insurance
brokers and professional firms through the trading subsidiaries.
The group operates in the United Kingdom.
4. Segment information
The group operates wholly within the United Kingdom therefore
there is no meaningful information that could be given on a
geographical basis. Since 2017 the board has only recognised one
segment - lending. This is because the risks, rewards and
management of the debt are so similar, or that certain other
lending is immaterial in terms of income, assets or lending, that
any segregation (other than central costs) would not give
meaningful information to users of the financial statements.
The board therefore assesses the entire business based on
operating profit (before tax and exceptional items, but after
finance costs which are a cost of sale). 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. Income from
approximately 6.52% of lending is receivable in more than one
year.
The group has no single major customer. All income is from
financing. Revenue can be analysed as follows:
2021 2020
GBP000 GBP000
-------------------------------------------------------- ------------------ ------------------
Revenue
-------------------------------------------------------- ------------------ ------------------
Interest revenue 3,783 4,558
Other revenue 817 722
-------------------------------------------------------- ------------------ ------------------
4,600 5,280
-------------------------------------------------------- ------------------ ------------------
Timing of revenue recognition:
At a point in time - direct debit charges 573 505
At a point in time - non utilisation
fees 189 357
Over time - loan administrative fees 101 33
At a point in time - default and settlement
fees - 81
Over time - licence fees 143 103
Over time - interest revenue outside
the scope of IFRS 15 3,594 4,201
-------------------------------------------------------- ------------------ ------------------
4,600 5,280
-------------------------------------------------------- ------------------ ------------------
5. Expenses by nature
2021 2020
GBP000 GBP000
Interest payable in direct costs 281 466
Bank fees in direct costs 870 646
Other direct costs 11 45
Employee costs (including directors) 1,267 1,178
Advertising and selling costs 518 443
Professional and legal fees 194 229
Impairment (gains)/losses (note10) (131) 130
IT costs 152 149
Cost of listing 84 85
Depreciation and amortisation 71 86
Interest payable on right-of-use
assets 3 2
Other net expenses 230 262
3,550 3,719
-------------------------------------- ------- -------
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 GBP281k (2020
GBP466k).
The group receives a small amount of interest from its bank
balances. This year it amounted to GBPNil (2020 GBP6k).
Interest payable is in respect of right-of-use assets and
amounted to GBP3k (2020 GBP2k).
7. Tax expense
7.1 Current year tax charge
2021 2020
GBP000 GBP000
Current tax expense 202 299
Adjustment re previous year tax expense 12 (10)
Deferred tax expense relating to the origination
and reversal of temporary differences (3) (1)
211 288
-------------------------------------------------- ----------------- -----------------
7.2 Tax reconciliation
The tax assessed for the year differs from the main corporation
tax rates in the UK (19%, 2019 - 19%).
The differences are explained below.
2021 2020
GBP000 GBP000
------------------------------------------
Profit before tax for the financial year 1,050 1,561
------------------------------------------ ----------------- -----------------
Applicable rate - 19.00% (2020 19.00%) 19.00% 19.00%
------------------------------------------ ----------------- -----------------
Tax at the applicable rate 199 297
Effects of:
Expenses not deductible for tax - 1
Adjustment re previous year tax expense 12 (10)
Reduced rate of tax on reversing timing - -
differences
Tax charge for the year 211 288
------------------------------------------ ----------------- -----------------
8. Dividends
2020 2019
GBP000 GBP000
-------------------------------------------- ------- -------
Amounts recognised as distributions to
equity holders in the period:
Final dividend for the year ended 31 July
2020 of 2p (2019 2p) per share 427 427
Interim dividend for the year ended 31
July 2021 0of 1p (2020 1p) per share 214 214
641 641
-------------------------------------------- ------- -------
Proposed final dividend for the year ended
31 July 2021 of 2p (2020 2p) per share 427 427
-------------------------------------------- ------- -------
9. Earnings per share
Earnings per share is based on the profit for the year of
GBP0.84m (2020 GBP1.27m) and the weighted average number of the
ordinary shares in issue during the year of 21.35m(2020 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
2021 2020
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Non-current
Financial assets at amortised
cost
Loans to customers:
Gross 2,259 - - -
Impairment provision (2) - - -
------------------------------- ------- -------- ------- --------
2,257 - - -
------------------------------- ------- -------- ------- --------
Other receivables - - 7 -
2,257 - 7 -
------------------------------- ------- -------- ------- --------
Current
Financial assets at amortised
cost
Loans to customers:
Gross 27,686 27,517 -
Impairment provision (70) (217) -
------------------------------- ------- -------- ------- --------
27,616 27,300 -
------------------------------- ------- -------- ------- --------
Financial assets at amortised
cost
Intercompany receivables - 9,888 - 10,362
Other receivables 124 - 104 -
------------------------------- ------- -------- ------- --------
124 9,888 104 10,362
------------------------------- ------- -------- ------- --------
27,740 9,888 27,404 10,362
------------------------------- ------- -------- ------- --------
Prepayments 109 25 16 7
------------------------------- ------- -------- ------- --------
27,849 9,913 27,420 10,369
------------------------------- ------- -------- ------- --------
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 2.6 of the full
financial statements.
The expected credit losses on receivables not past due have been
assessed as very low, because of the following factors:
-- 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 receivables, the Financial Services
Compensation Scheme provides additional cover to the group;
-- For insurance 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 2.6 of the
full financial statements.
The figures refer to the group as the company has no loans to
customers.
2021 2020
Impairment Impairment
Gross allowance Net Gross allowance Net
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------
Amount receivable
- stage 1 29,882 (29) 29,853 27,186 (34) 27,152
Amount receivable
- stage 2 18 - 18 120 (1) 119
Amount receivable
- stage 3 45 (43) 2 211 (182) 29
29,945 (72) 29,873 27,517 (217) 27,300
------------------- ------- ----------- ------- ------- ----------- -------
Included in amounts receivable above are stage 1 receivables due
after more than one year amounting to GBP2,309k on which the
impairment allowance was GBP2k (2020 GBPNil and GBPNil
respectively).
An amount of GBP31k is due after more than five years. There is
no impairment allowance on this amount.
The holding company is owed a substantial amount by its two
largest subsidiaries. These debts are interest free and due on
demand. Neither subsidiary has the cash to repay these immediately
and therefore, under the requirements of IFRS 9, provision may need
to be made in the financial statements of the holding company.
However, the board does not see any need for a provision
because:
-- the loans to customers which each subsidiary has made will
generate sufficient cash to repay these loans (after payment of
other liabilities) on a "run off" basis (as cash is collected it
could be paid across to the parent). The majority of loans to
customers in the subsidiaries are all repayable within 12 months;
and
-- any risk of loss is considered remote (not expected) and
therefore no impairment provision is necessary.
11. Borrowings
2021 2020
GBP000 GBP000
Non-current:
Borrowings 834 -
Borrowings arising from right-of-use
assets 44 72
878 72
Current:
Bank loans 11,411 10,977
Borrowings arising from right-of-use
assets 28 27
--------------------------------------
11,439 11,004
--------------------------------------
All borrowings are secured. The parent company has no external
borrowings.
11.1 Terms and debt repayment schedule
The group refinanced its borrowings during the year. This
resulted in Bexhill repaying GBP9.48m to its previous funder and
Orchard Funding repaying GBP1.5m to its previous funder. The total
amount of GBP10.98m is shown as being repaid in the Consolidated
statement of cashflows.
The Bexhill facility is renewable in April 2022, Orchard Funding
in June 2022 and November 2022 for Orchard Finance. There is no
indication that these facilities will not be renewed.
Borrowings by Bexhill of GBP10.17m are secured by a fixed and
floating charge over all the assets of Bexhill, bear interest at an
average rate of 2.92% excluding associated costs (2020 3.49% on the
same basis) and are repayable within one year of the advance. The
maximum drawdown on the facility is currently GBP15.00m (2020
GBP17.00m) of which GBP4.83m was undrawn at the year-end (2020
GBP7.52m).
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 5.28% pa excluding associated costs (2020 5.11% on
the same basis) and are repayable within one year of the advance.
The maximum drawdown facility is currently GBP5.00m (2020 GBP2.00m)
of which GBP5.00m was undrawn at the year-end (2020 GBP0.50m).
Orchard Finance has access to a maximum drawdown borrowing
facility of GBP7.50m (2020 GBPNil) of which GBP5.43m was undrawn at
the year end. This facility can only be used for products of the
lender, bears no interest, is secured by a fixed and floating
charge over all the assets of the company and is repayable as
monies are received by Orchard Finance from loans made by it.
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.
The minimum payments under lease liabilities are as follows:
2021 2020
Group Group
GBP000 GBP000
-------------------------------------
Within 1 year 30 30
Later than 1 year but no later than
5 45 76
75 106
Future finance charges (3) (7)
------------------------------------- -----------------
72 99
------------------------------------- ----------------- -----------------
The present value of hire purchase and finance lease liabilities
are as follows:
Within 1 year 28 27
Later than 1 year but no later than
5 44 72
------------------------------------- ------------- -------------
72 99
Liabilities in respect of right-of-use assets are unsecured and
bear interest at the group's marginal cost of borrowing on
inception of the lease. This is 3.60%.
.
11.2 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 1 At 31 At 31
August Non-cash Cash July Cash July
2019 movements flows 2020 flows 2021
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Non-current:
Other loans - - - - 834 834
Borrowings arising
from right-of-use
assets - leases 15 88 (31) 72 (28) 44
--------
15 88 (31) 72 806 878
---------------------------- -------- ----------- -------- ------- --------- -------
Current:
Bank loans 16,184 - (5,207) 10,977 434 11,411
Borrowings arising
from right-of-use
assets - leases 34 - (7) 27 1 28
--------
16,218 - (5,214) 11,004 435 11,439
---------------------------- -------- ----------- -------- ------- --------- -------
Total liabilities
from financing activities 16,233 88 (5,245) 11,076 1,241 12,317
---------------------------- -------- ----------- ------- -------
Interest on right-of-use
assets included in
liabilities (1) (3)
-------- ---------
Cashflows from financing
activities (5,246) 1,238
-------- ---------
Comprising:
Net receipts from
borrowings 1,000 12,245
Borrowings repaid (6,207) (10,977)
Lease repayments (39) (30)
(5,246) 1,238
-------- ---------
11.3 Non-cash financing activities
The group extended the term of its lease in May 2020 which was a
modification of the existing lease. This led to a non-cash
financing transaction of GBP88k in the previous year.
12. Trade and other payables
Current liabilities 2021 2020
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Trade payables 3,274 - 2,487 -
Other payables 32 - 26 -
Other tax and social security
costs 31 15 36 20
Accruals and deferred income 845 100 390 46
-------------------------------
4,182 115 2,939 66
------------------------------- ------- -------- ------- --------
Trade payables are unsecured and are usually paid within 30 days
of recognition. Included within accruals and deferred income is
deferred income of GBP104k (2020: GBPnil) related to income
received in advance for loan administration services. The majority
of this balance is expected to reverse within the next 12
months.
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 4 of the full financial
statements.
13.1 Principal financial instruments
The principal financial instruments used by the company, from
which financial instrument risk arises, are as follows:
-- Loans to customers
-- Other receivables
-- Cash and cash equivalents
-- Trade payables
-- Borrowings
-- Financing for right-of-use assets
13.2 Financial instruments by category
The group held the following financial assets at the reporting
date:
2021 2020
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Non-current assets
Financial assets at fair value
through consolidated income
statement:
Investments 81 81 6 6
Financial assets at amortised
cost:
Investments - 2,807 - 2,807
Loans to customers 2,257 - - -
Other non-current receivables - - 7 -
Current assets
Financial assets at amortised
cost:
Loans to customers 27,616 - 27,300 -
Other receivables: current 124 9,888 104 10,362
Cash and cash equivalents:
Bank balances and cash in
hand 2,170 - 2,300 -
--------------------------------
32,248 12,775 29,717 13,175
-------------------------------- ------- -------- ------- --------
The group held the following financial liabilities at the
reporting date:
2021 2020
Group Company Group Company
GBP000 GBP000 GBP000 GBP000
Financial liabilities at amortised
cost:
Interest bearing loans and borrowings:
Borrowings payable: non-current 878 - 72 -
Borrowings payable: current 11,439 - 11,004 -
Trade and other payables 4,151 100 2,903 46
----------------------------------------
16,468 100 13,979 46
---------------------------------------- ------- -------- ------- --------
13.3 Fair value of financial instruments
The fair values of the financial assets and liabilities are not
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 outflow of cash
from the company's operations which is then covered by borrowings.
For reasons stated above this is not the case.
15. Post balance sheet events
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
2021will 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 9 December 2021, at 1st
Floor, 721 Capability Green Luton, Bedfordshire LU1 3LU.
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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