TIDMTRU
RNS Number : 2000O
TruFin PLC
16 May 2018
16 May 2018
TruFin plc
("TruFin" or the "Company" or together with its subsidiaries
"TruFin Group")
FINAL RESULTS FOR THE YEARED 31 DECEMBER 2017
A historic year for the newly formed and listed TruFin plc with
inaugural results demonstrating robust demand from customers in the
niche market segments that the Group is targeting.
TruFin plc, the AIM listed niche lender and payments provider,
is pleased to announce its results for the year ended 31 December
2017.
TruFin's businesses have experienced strong growth throughout
the year. The product suite continues to expand, with more product
offerings in the pipeline, reflecting the needs of customers to
have their finance provider offer flexibility, timeliness and
customer service.
Financial Highlights
-- Combined gross revenues were GBP3.8m for the twelve months ended 31 December 2017
-- Loss before tax and exceptional items for the year was GBP9.7m
-- Consolidated net assets as at 31 December 2017 of GBP91m
-- The investment in Zopa was revalued upwards by GBP2.6m to GBP36.5m
Operational Highlights
-- Combined loans and advances to customers of DFC and Satago
were approximately GBP33m as at 31 December 2017 representing
growth in excess of 185% in the second half of 2017.
-- Oxygen's clients' total procurement spend exceeded GBP11bn at
31 December 2017, representing annualised growth of over 85%.
Trading Update
-- DFC's application for a UK banking licence continues apace in
line with management expectations.
-- For the three months ending 31 March 2018, the combined gross
revenues were not less than GBP1.5m (unaudited), representing
growth of 27% over the last quarter.
-- As at 31 March 2018, the combined loans and advances were not
less than GBP53m (unaudited), representing growth in excess of 60%
compared to the 2017 year end result.
-- Oxygen successfully signed up its first FTSE100 company for
its Early Payment Program Services whilst continuing to grow in the
public sector, thus growing its total procurement spend
meaningfully.
Post Balance Sheet Update
-- TruFin is pleased to announce a strategic partnership with
Vertus Capital Limited ("Vertus").
-- Launched in 2017, Vertus offers succession finance to
Financial Advisers in the UK via an exclusive agreement with
Transact, the leading UK retail investment wrap platform which
looks after c. GBP30 billion assets on behalf of the clients of
more than 5,000 Financial Adviser Firms. Vertus has already built a
portfolio of loans to Financial Advisers and has a significant
pipeline.
-- With TruFin's funding and expertise, Vertus is well
positioned to satisfy this growing demand for finance from
Financial Advisers and the Group will also provide wider
infrastructure services to the Vertus team. TruFin also has the
option to take a majority equity stake in Vertus.
Henry Kenner, Chairman and Chief Executive Officer
commented:
"This has been a momentous period for TruFin Group, beginning
with the formation of the Group during the year and culminating in
the successful stock market listing in February 2018. The
management and their respective teams are to be congratulated for
their extensive efforts in making this happen. Moreover, while
these events were in process, the underlying operations of the
businesses continued in earnest. With robust customer demand, the
Group has seen strong growth across the businesses throughout the
year and this is continuing in 2018."
"TruFin is excited to be partnering with Vertus and delivering
on its strategy stated at IPO of supporting and funding management
teams which can deploy loans in niche markets. We look forward to
working with Vertus as it grows."
For further information, please contact:
TruFin plc
Henry Kenner, Chief Executive Officer 0203 743 1340
James van den Bergh, Deputy Chief Executive Officer
Raxita Kapashi, Chief Financial Officer
Macquarie Capital (Europe) Limited (NOMAD and broker)
Alex Reynolds
Nicholas Harland 0203 037 2000
Blue Pool Communications (PR)
07501 271
Nicholas Lord 083
About TruFin plc:
TruFin plc is the holding company for an operating group of
companies that are niche lenders and early payment providers.
TruFin Group combines the benefits of both the traditional
relationship banking model and developments in the fintech sector.
The Company was admitted to AIM in February 2018. More information
is available on the Company website www.TruFin.com.
ANNUAL REPORT AND ACCOUNTS
For the year ended 31 December 2017
Contents
2 Company Information
3 Chairman's Statement
6 Group Strategic Report
10 Report of the Directors
14 Report of the Independent Auditor
21 Consolidated Statement of Comprehensive Income
22 Consolidated Statement of Financial Position
23 Company Statement of Financial Position
24 Consolidated Statement of Changes in Equity
25 Company Statement of Changes in Equity
26 Consolidated Statement of Cash Flows
27 Company Statement of Cash Flows
28 Notes to the Consolidated Financial Statements
COMPANY INFORMATION
For the year ended 31 December 2017
Directors Simon Henry Kenner (Chairman & Chief Executive
Officer)
James van den Bergh (Deputy Chief Executive
Officer)
Raxita Kapashi (Chief Financial Officer)
Steve Baldwin (Senior Independent Non-Executive
Director)
Peter Whiting (Non-Executive Director)
Penny Judd (Non-Executive Director)
Paul Dentskevich (Non-Executive Director)
Company Secretary Ocorian Secretaries (Jersey) Limited
Registered Office 26 New Street
St Helier
Jersey JE2 3RA
Business Address 4 Bentinck Street
London
W1U 2EF
Registered Number 125245
Auditor Deloitte LLP
2 New Street Square
London EC4A 3BZ
Nominated Advisor and Macquarie Capital (Europe) Limited
Broker Ropemaker Place
28 Ropemaker Street
London EC2Y 9HD
Advisors Travers Smith LLP (Solicitors - UK law)
10 Snow Hill
London EC1A 2AL
Ogier (Solicitors - Jersey law)
44 Esplanade
St Helier
Jersey JE4 9WG
Equiniti (Jersey) Limited (Registrar)
26 New Street
St Helier
Jersey JE2 3RA
TruFin plc ordinary shares were listed on the Alternative
Investment Market of the London Stock Exchange on 21 February
2018.
CHAIRMAN'S STATEMENT
For the year ended 31 December 2017
Welcome to TruFin!
Well what a year and what a future! On behalf of the Board of
Directors I want to welcome you to TruFin.
Given this is our first annual report, I have focused on the
inaugural results for 2017 and also outline our mission and
strategy. And so, while the Group is nascent and the results
reflect this, our focused strategy together with the wealth of
experience and talent that resides within the Group will be the
drivers for our growth going forward.
The Group currently operates under three separate businesses,
each of which has a seasoned operational management team:
-- Distribution Finance Capital Ltd ("DFC"): distribution and supply chain finance
-- Satago Financial Solutions Limited ("Satago"): invoice/receivables and working capital finance
-- Oxygen Finance Group Limited ("Oxygen"): early payment programmes
TruFin Group also holds an investment of c. 15% stake in Zopa, a
leading UK consumer peer-to-peer lender
The Directors believe that each business is set to scale, having
already had significant investment in product, people and routes to
market. The stock market listing was an important step in enabling
us to secure the funding and capital to support the initial balance
sheet growth of these businesses.
Our Performance
Aside from the creation of the Company and preparation for the
stock market listing, 2017 was a year which saw the businesses
develop materially in terms of client penetration. Oxygen continued
its impressive record of customer acquisitions whilst DFC and
Satago began lending to customers in earnest.
Demand in each of our businesses was strong throughout the year
and we have seen this continue post year end.
Oxygen
-- Oxygen continued to make significant progress in the public
sector with several notable wins including that of NHS Wales and
also in the private sector where it signed its first FTSE client in
February 2018
-- Revenue grew to GBP2.4 million for the full year, representing growth of over 65% year-on-year
-- Oxygen secured contracts with significant new clients
resulting in total annual procurement spend under contract moving
to over GBP11 billion annually by the year end representing
annualised growth of over 85%
During the year Oxygen introduced a new client contracting
approach moving from a 'two stage' (assessment then implementation)
approach to a 'straight to contract' model (thereby the assessment
is part of the ongoing contract). Whilst this resulted in a
reduction of assessment fees in the second half, the revised model
results in a shorter sales cycle with transactional revenue
generation being brought forward - the benefits of which should be
seen in 2018 and beyond.
DFC and Satago
-- Combined loans and advances to customers were approaching
GBP33 million at 31 December 2017 representing growth in excess of
185% in the second half
-- Combined revenue grew to GBP1.3 million for the year ended 31
December 2017, highlighting the growth trajectory of these
companies
-- DFC's application for a UK banking licence is progressing well
DFC commercial lending, which provides manufacturers with
finance for their supply chain formally launched in March 2017. The
customer reception was impressive and DFC is now rolling out the
product in a disciplined manner to a wider customer base. As at 31
December 2017, DFC had signed up 26 manufacturers and 246 dealers
onto its programmes, with 163 of those dealers active.
Operating expenses grew over the period, driven by new hires and
professional services costs arising from, inter alia, its banking
application to the regulatory authorities.
There were a minimal amount of actual defaults or credit losses
during the period.
Satago Solutions Limited (renamed TruFin Software Limited), a
provider of financial software, was acquired during the year. Its
state of the art technology powers Satago's invoice finance and
working capital business. The benefits of the acquisition are
beginning to become evident with increased customer acquisitions
and the Directors are confident of further positive developments
during 2018.
Zopa
During the year, the investment in Zopa has continued to perform
in-line with their growth plans and this has resulted in an upward
revaluation of GBP2.6million to GBP36.5million.
Our Strategy
Our strategy is to operate and create a stable of niche lenders
and early payment providers with a primary focus on Europe. TruFin
Group has begun that journey and sees the landscape in which it
operates as one in which the opportunity set is not only wide, but
also deep.
The Directors stated during the stock market listing process
that its key objective for 2018 would be to deliver to shareholders
a roadmap of ambition and a demonstrable record of execution. To
that end the Directors are focused on ensuring that the existing
businesses deliver on their business plans.
Our Outlook
The Directors believe that the short to medium term organic
growth opportunities for all of the businesses are strong. The
Directors are particularly encouraged that demand for the TruFin
Group's services continues to increase, demonstrating that its
customers are keen to find new sources of finance and new ways to
manage their cash flow and treasury functions. Helpfully, the
regulatory backdrop is supportive for new entrants and new products
and TruFin Group's capacity to grow will be significantly enhanced
by DFC and Zopa being awarded bank licences. Whilst this is not
confirmed the application process is in an advanced state and the
Directors are confident of a successful outcome.
So, in summary, I would like to thank all of those who have
embarked on the TruFin journey together with those who helped us to
get to the starting blocks. We look forward to 2018 with optimism
and excitement.
Henry Kenner
Chairman and Chief Executive Officer
15 May 2018
GROUP STRATEGIC REPORT
For the year ended 31 December 2017
Goals and Objectives
The strategic goal is to operate and create a stable of niche
lenders and payment providers whether through organic growth or
acquisition.
The Directors believe that each of the current businesses
operates in attractive niche markets with the commensurate benefits
associated with high sustainable returns. TruFin Group's flexible
product offerings, focus on customer service and the delivery of
extremely effective technology allows it to address challenges of
scalability and increased customer acquisition costs. As such
TruFin Group is committed to continue investing in both its people
and technology.
To achieve the strategic goal, the first deliverable is to
demonstrate to the shareholders and customers that the business
strategy as applied to the existing businesses can deliver for all
interested parties. As such, the focus of the management teams'
efforts is on optimising the performance of the existing
businesses.
At present, the Directors continue to believe that the
individual businesses will flourish optimally through organic
growth. However, the Directors will also continue to monitor
acquisition opportunities that arise in the normal course of
business.
The Directors have the following strategic objectives for each
business:
Oxygen's future objectives and strategy
Oxygen will continue to build new client and supplier
relationships which, given the operational gearing in the business,
are expected to lead in turn to profitability and enhanced
performance.
The Directors believe that Oxygen's product offering is well
developed, robust and scalable. Oxygen's objective is to sign up
more customers, sell more product to existing customers and benefit
from inherent operational gearing. In order to attract more
customers, Oxygen has invested in expanding its sales and
onboarding teams.
In the medium term, Oxygen aims to continue its expansion in the
UK public sector including with smaller councils and through
further expansion into the NHS and Central Government.
Simultaneously, Oxygen will pursue growth in the corporate sector,
initially targeting large corporates with similar characteristics
to the public sector.
Further, Oxygen will aim to sell products from other TruFin
Group companies (for example, invoice financing) to existing
customers, where appropriate and beneficial to customers.
DFC's future objectives and strategy
DFC will continue to build its book of distribution finance
assets via established client relationships and continues to pursue
a banking licence. As specified in its Regulatory Business Plan,
DFC will launch a leasing product suite for the dealer-to-consumer
leg of each business vertical in which it is operates. This will
complement the wider working capital product offering.
DFC is applying for a bank licence in order to quickly scale its
balance sheet and provide a wider range of defined products across
the SME and consumer lending environment. The Directors' current
working assumption is that, if successful, DFC will receive its
bank licence by 1 January 2019.
From the successful stock market listing proceeds, GBP36 million
has been earmarked to enable DFC to execute its business plan.
Satago's future objectives and strategy
Satago will target origination of high yielding short-dated
working capital assets, while managing risk via a superior
understanding of the credit risk of prospective counterparties
provided by its advanced technology and fully integrated customer
business model.
Satago's strategy for effecting this is to focus on building the
right strategic partnerships to drive lead generation and to use
its technology platform to take advantage of any disruptive trends
in the industry.
The Directors recognise that Satago needs to extend its product
range and continue enhancing its proprietary technology. This will
enable Satago to increase its customers' satisfaction and to
explore opportunities presented by, inter alia, regulatory change
and the demand for advanced receivables finance and short-term
working capital loans.
Zopa
Zopa is a technology-led financial services innovator and is
currently a leading UK consumer peer-to-peer lender.
Since inception in 2005, Zopa's platform has originated over
GBP2.6 billion of unsecured loans (of which GBP1.3 billion were
outstanding as at 31 December 2017), connecting over 320,000
customers to 70,000 investors.
Zopa plans to launch Zopa Bank to enable it to lend directly
from its own balance sheet and offer customers a broader set of
products (including deposits, credit cards and auto loans) and
services. In doing so, it will significantly increase its
addressable market and capture the full return from these loans, as
opposed to solely a brokerage fee. Zopa is in the final stages of
its bank licence application which is expected to be completed in
2018.
Through the TruFin Group's investment in Zopa (approximately
15%) the Directors' role is to monitor and give advice to Zopa as
to their future strategy.
As at 31 December 2017, the holding in Zopa which is accounted
for as investment was valued by an external independent valuer, at
GBP36.5 million.
Technologically advanced
The Directors fundamentally believe that technology is the
single biggest component in bringing the TruFin Group as the
provider of finance closer to its current and future customers, the
consumers of finance. As such, the Directors have placed great
emphasis across the TruFin Group on building or utilising the
latest technology to deliver products more effectively to its
customers.
The TruFin Group has built leading edge proprietary technology
that gives it a competitive advantage. The Directors believe that
this will represent an increasingly important part of the TruFin
Group's ability to satisfy the growing expectations of its existing
and future customers. The Directors are therefore committed to
ensuring continued investment in this area.
Key Performance Indicators
Year ended Year ended
31 December 31 December
GBP'000 2017 2016
--------------- ------------- -------------
Gross Revenue 3,774 1,537
As at 31 As at 31
December December
2017 2016
------------------------------------------- ---------- ----------
Loan Book 32,709 870
KPIs (unaudited)
DFC: # of Manufacturers signed up 26 9
DFC: # of Dealers on to programme 246 80
DFC: # of Active Dealers signed up 163 49
Oxygen: Clients' total annual procurement GBP11.3bn GBP6.0bn
spend under contract
Principal Risks and uncertainties
Principal Risks are a risk or combination of risks that, given
the Group's current position, could seriously affect the
performance, future prospects or reputation of the Group. These
risks could potentially threaten the businesses, performance,
solvency or liquidity, or prevent the delivery of the strategic
objectives. The Board has overall responsibility for ensuring that
risk is appropriately managed across the Group.
As well as external reviews and audits from the Group's
statutory auditors, the Group has internal checks and policies.
Initial responsibility rests with the management team of each
business for identifying and managing risks arising in their
business areas. This is augmented by the Group's central compliance
and finance function with responsibility for reporting to the
Board.
The key risks identified and which the Board has reasonable
expectation are appropriately mitigated are:
-- Strategic risk - Strategic and business risk is the risk
which can affect the Group's ability to achieve its corporate and
strategic objectives. The risk on the performance of the Group
arising from its strategic decisions, change in the business
conditions, improper implementation of decisions or lack of
responsiveness to industry changes. It is particularly important as
the Group continues its growth strategy. Mitigating factors are:
the Group will not put its core strategic and business objectives
at a level of risk which is beyond its financial resources and
operational capabilities; the Group will monitor, review and
challenge its performance against strategy using key performance
indicators; the Group is undergoing a strategic growth programme
and as such will allocate resources appropriately within its
available capacity.
-- Credit risk - the risk of default, potential write-off, risk
of financial loss arising from a borrower or counterparty failing
to meet its financial obligations. This is mitigated by the Group
adopting prescribed lending policies and adhering to strict credit
and underwriting criteria specifically tailored to each business
area. The loans issued are in most cases collateralised to a large
extent and therefore the risk of loss is mitigated to the extent
the Directors deem appropriate in accordance with the relevant risk
policies.
-- Funding risk - the risk of the Group not being able to meet
its current and future financial obligations over time,
specifically that funding is not available to meet the Group's
growth targets. The Group has recently listed on the Alternative
Investment Market of the London Stock Exchange, the proceeds of
which are sufficient to meet the Group's current funding
requirements. DFC is in the process of obtaining a banking licence
which will enable it to raise funding from customer deposits.
-- Operational risk - which is the risk of financial loss and/or
reputational damage resulting from inadequate or failed internal
processes, people and systems or from external events. Mitigants
are:- the Group reviews its operational infrastructure to ensure
that it is secure and fit for purpose. The Group will maintain a
strong internal control environment.
Strict adherence to managing risk
The TruFin Group manages such risks, among other things, with
robust systems and processes, guidelines and policies which are
forward-looking, clearly articulated, documented and communicated
throughout the businesses and which enable the accurate
identification and control of potentially problematic transactions
and events.
Due to DFC and Satago being lending businesses, they each have
their own risk committees and formal risk procedures in place that
aim to manage risk effectively. The systems and processes,
guidelines and policies are continually reviewed and updated and
effectively communicated to all personnel to ensure that resources,
governance and infrastructure are appropriate for the increasing
size and complexity of the business.
The TruFin Group manages the risks by making complex judgements,
including decisions (based on assumptions about economic factors)
about the level and types of risk that it is willing to accept in
order to achieve its business objectives, the maximum level of risk
the TruFin Group can assume before breaching constraints determined
by liquidity needs and its regulatory and legal obligations,
including, amongst other things, from a conduct and prudential
perspective.
Funding
During the year, the TruFin Group extended credit facilities to
DFC totalling GBP25 million. DFC signed an initial GBP40 million
committed facility with a leading bank, which is expected to extend
to GBP100 million in 2018. The Directors and DFC management intend
that this financing, together with a portion of TruFin Group's
listing proceeds, will fund DFC's loan book growth during 2018. It
is assumed that DFC will raise retail deposits in early 2019, at
which point it can begin to implement the anticipated banking
model.
During the year, the TruFin Group extended facilities to Satago
totalling GBP20 million; this facility is funding the next phase of
Satago's development and loan book growth. The team continues to
invest in the ongoing development of its proprietary technology
platform and in securing strategic partnerships over the coming
year.
The GBP45 million of inter-company facilities extended to DFC
and Satago arise from existing cash assets of the TruFin Group.
Other than the facility provided to DFC of which GBP9 million is
drawn, as at 31 December 2017, no member of the Group had any
external borrowings.
ON BEHALF OF THE BOARD
Henry Kenner
Chairman and Chief Executive Officer
15 May 2018
REPORT OF THE DIRECTORS
For the year ended 31 December 2017
The Directors present their report with the financial statements
of the Company and the TruFin Group for the year ended 31 December
2017.
Principal activity
The principal activities of the TruFin Group in the year under
review were those of providing niche lending and early payment
services.
Dividends
The Directors' current intention is that, for the foreseeable
future, the earnings of the TruFin Group will be reinvested in the
business in order to fund the TruFin Group's oncoming growth
strategy and therefore no dividends have been declared for the year
to 31 December 2017.
Events since the end of the year
TruFin plc ordinary shares were listed on the Alternative
Investment Market of the London Stock Exchange on 21 February 2018.
Other information relating to events since the end of the year is
given in the note 23 to the Financial Statements.
Directors
TruFin plc was incorporated on 29 November 2017.
The Directors who held office during the year and up to the date
of the Directors' report were as follows:
Simon Henry Kenner - appointed 29 November 2017
James van den - appointed 29 November 2017
Bergh
Raxita Kapashi - appointed 22 December 2017
Steve Baldwin - appointed 11 January 2018
Peter Whiting - appointed 11 January 2018
Penny Judd - appointed 11 January 2018
Paul Dentskevich - appointed 11 January 2018
At the year end Arrowgrass Master Fund Ltd ("Arrowgrass") owned
100% of TruFin plc.
Directors insurance and indemnities
Since 31 January 2018, the Company has maintained Directors and
Officers liability insurance for the benefit of the Company, the
Directors and its officers. The Directors consider the level of
cover appropriate for the business and will remain in place for the
foreseeable future.
Significant shareholders
As at 31 December 2017, TruFin plc was 100% owned by Arrowgrass
Master Fund Ltd.
Statement of Directors' responsibility
The Directors are required by the Companies (Jersey) Law 1991 to
prepare financial statements for each financial year which give a
true and fair view of the state of affairs of the Company as at the
end of the financial year. In preparing these financial statements,
the Directors are required to:
-- Select suitable accounting policies and then apply them consistently,
-- Make judgements and estimates that are reasonable and prudent,
-- State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements, and
-- Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping accounting records
that are sufficient to show and explain the Company's transactions.
These records must disclose with reasonable accuracy at any time
the financial position of the Company and enable the Directors to
ensure that any financial statements prepared comply with the
Companies (Jersey) Law 1991. They are also responsible for
safeguarding the assets of the Company and, hence, for taking
reasonable steps for the prevention and detection of fraud, error
and non-compliance with law and regulations.
Statement of Going Concern
The directors have completed a final assessment of the Group's
financial resources, including forecasts. Based on this review, the
directors believe that the Group is well placed to manage its
business risks successfully within the expected economic
outlook.
After making enquiries, the directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the Annual
Report and Financial Statements.
Corporate Governance and Internal Controls
The Directors acknowledge the importance of high standards of
corporate governance and adheres to the principles set out in the
Quoted Companies Alliance ("QCA") Code.
In line with the QCA Code, the Board's performance and that of
its Committees and individual Directors will be evaluated each
year. The first evaluation is due to take place during 2018.
TruFin's Chairman of the Board, Henry Kenner, also fulfils the
role of Chief Executive Officer and consequently participates in
the running of the Company's day-to-day business. It is understood
that this does not comply with the QCA code, but the Directors
believe it is in the best interests of the Company and its
Shareholders for Henry to carry out both of these roles.
The Board comprises three Executive Directors and four
independent Non-Executive Directors.
Brief biographies of the Directors are set out below:
Henry Kenner - Executive Chairman and Chief Executive
Officer
Henry possesses over 30 years of investment banking and capital
markets experience. Henry co-founded Arrowgrass Capital Partners
LLP in 2008 and was CEO until late 2017. Prior to that, Henry
served as a Managing Director at Deutsche Bank. Henry has also
worked as a Managing Director at Swiss Re Capital Management and at
ABN Amro Hoare Govett having started his capital markets career at
NatWest Markets. Henry qualified as a Chartered Accountant.
James van den Bergh - Deputy Chief Executive Officer
James possesses over 16 years of investment banking and capital
markets experience. James led the alternative finance team at
Arrowgrass Capital Partners since its inception in 2013 to its
transfer to TruFin. James began his career at Merrill Lynch before
transitioning into investment management in 2003. James was
formerly a partner at SAC Capital Advisors, Walter Capital
Management LLP and Ivaldi Capital LLP. James is a CFA
Charterholder.
Raxita Kapashi - Chief Financial Officer
Raxita has over 20 years of experience in various senior finance
roles. Most recently she was Head of Finance and Compliance at
Inflexion Private Equity. Prior to that she was Head of Finance at
Oakley Capital Limited. Raxita qualified as a Chartered
Accountant.
Steve Baldwin - Senior Independent Non-Executive Director
Steve has an extensive corporate finance background and is
currently a Non-Executive Director at Plus500 and Elegant Hotels
Group plc and a Trustee at Howard de Walden Estate Limited. Steve
was the Head of European Equity Capital Markets and Corporate
Broking at Macquarie Capital until February 2015. Prior to this,
Steve was a Director at JPMorgan Cazenove for ten years and was a
Vice President of Corporate Finance at UBS from 1995 to 1998. Steve
qualified as a Chartered Accountant.
Penny Judd - Independent Non-Executive Director
Penny has over 30 years of experience in Compliance, Regulation,
Corporate Finance and Audit and is currently Chairman of Plus500.
Penny was until June 2016, a Managing Director and EMEA Head of
Compliance at Nomura International plc, a position she held for
three years. Prior to this, Penny worked at UBS Investment Bank for
nine years and held the position of Managing Director, EMEA Head of
Compliance. Penny qualified as a Chartered Accountant.
Peter Whiting - Independent Non-Executive Director
Peter has over twenty years of experience as an investment
analyst, specialising in the software and IT services sector. Peter
joined UBS in 2000 and led its UK small and mid-cap research team.
Between 2007 and 2011 Peter was Chief Operating Officer of UBS
European Equity Research. Peter is currently the Senior Independent
Director of FDM Group Limited and Microgen plc and a Non-Executive
Director of Keystone Law Group plc.
Paul Dentskevich - Independent Non-Executive Director
Paul has over 30 years of financial services experience,
specialising in risk management, investment management and
corporate governance of hedge and other multi-asset funds. Paul is
currently Risk Director at Crestbridge, having previously been at
Brevan Howard, 2008 to 2015, where he was a member of the Manager's
investment committee and sat on a number of boards. Paul has a PhD
in Economics from Imperial College London.
Senior Management
Jason Rogers - Chief Operating Officer
Jason possesses over 20 years of investment banking and capital
markets experience. Jason was involved with the alternative finance
team at Arrowgrass Capital Partners from 2014. Jason has previously
worked at Bennelong Asset Management, Ruby Capital Partners, Swiss
Re, Deutsche Bank and Bankers Trust.
Our Committees
Subsequent to the year end, the Board established the Audit
Committee, the Remuneration Committee and the Nomination Committee
each with written terms of reference and agreed schedules of
work.
(a) Audit Committee
The Audit Committee is chaired by Penny Judd. Its other member
is Peter Whiting. The Audit Committee has primary responsibility
for monitoring the quality of internal controls and ensuring that
the financial performance of the Company is properly measured and
reported on. It is responsible for monitoring the integrity of the
Group's financial statements and oversight of the external audit.
It will also monitor the effectiveness of the outsourced internal
audit function and oversee this process.
(b) Remuneration Committee
The Remuneration Committee is chaired by Peter Whiting. Its
other member is Steve Baldwin. The Remuneration Committee reviews
the performance of the Company's Executive Directors and makes
recommendations to the Board on matters relating to their
remuneration and terms of employment.
(c) Nomination Committee
The Nomination Committee is chaired by Steve Baldwin. Its other
members are Penny Judd and Henry Kenner. The Nomination Committee
assists the Board in discharging its responsibilities relating to
the composition of the Board, performance of Board members,
induction of new Directors, appointment of committee members and
succession planning for senior management of the Company.
TruFin plc was admitted to the AIM market on 21 February 2018
and as such the Board Committees were established 11 January 2018.
The committee meetings for 2018 have been scheduled and will take
place accordingly.
Statement as to disclosure of information to auditors
So far as the Directors are aware, there is no relevant audit
information of which the Company's auditors are unaware and each
Director has taken all the steps that he or she ought to have taken
as a Director in order to make himself or herself aware of any
relevant audit information and to establish that the Company's
auditors are aware of that information.
Auditor
The auditor, Deloitte LLP, will be proposed for re-appointment
at the forthcoming Annual General Meeting.
ON BEHALF OF THE BOARD
Henry Kenner
Chairman and Chief Executive Officer
15 May 2018
REPORT OF THE INDEPENT AUDITOR
TO THE SHAREHOLDERS OF TRUFIN PLC
For the year ended 31 December 2017
Opinion
In our opinion the financial statements:
-- give a true and fair view of the state of the group's and of
the parent company's affairs as at 31 December 2017 and of the
group's loss for the year then ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union and IFRSs as issued by the International Accounting Standards
Board (IASB)and
-- have been properly prepared in accordance with Companies (Jersey) Law, 1991.
We have audited the financial statements of TruFin plc (the
'parent company') and its subsidiaries (the 'group') which
comprise:
-- the Consolidated Statement of Comprehensive Income;
-- the Consolidated and Company Statements of Financial Position;
-- the Consolidated and Company Statements of Changes in Equity;
-- the Consolidated and Company Statements of Cash Flows; and
-- the Notes 1 to 23 of the Consolidated Financial Statements.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union / as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the group and the parent company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the
Financial Reporting Council's Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Summary of our audit approach
Key Audit Matters The key audit matters that we identified in the current
year were:
* Revenue recognition;
* Loan loss provisioning;
* Recognition of the deferred tax asset in respect of
the unutilised tax losses; and
Valuation of the investment in Zopa Group Limited
("Zopa").
Materiality The materiality that we used for the Group financial
statements was GBP454,000 which was determined on
the basis of 0.5% of shareholders' equity.
------------------------------------------------------------
Scoping The scope of our audit covered substantially all of
the Group, with the following entities in scope in
addition to the Parent Company:
* Oxygen Finance Limited ("Oxygen");
* Distribution Finance Capital Ltd ("DFC"); and
* Satago Financial Solutions Limited ("Satago").
------------------------------------------------------------
Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the
following matters where:
-- the directors' use of the going concern basis of accounting
in preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the group's or the parent company's ability to continue
to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are
authorised for issue.
We have nothing to report in respect of these matters.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Revenue Recognition
Key audit matter The Group recorded total net revenue of GBP3,653,000
description (2016: GBP1,471,000) for the year ended 31 December
2017 and, as detailed in the Principal Accounting
Policies on pages 25 to 27, this comprises interest
and fee income and expenses.
Fee income is predominantly recognised in relation
to payment services provided by Oxygen and accounts
for approximately 65% of total revenue. There is
a risk that fee income has been recorded in the
year in respect of payment services that have not
been performed or were performed after the year
end. This risk increases as a result of client rebates,
which are made in the following month.
------------------------------------------------------------
How the scope We evaluated the design and implementation of key
of our audit controls over the recognition of fee income in Oxygen.
responded to For a sample of clients, we tested the monthly fee
the key audit income recognised with reference to client contracts
matter and performed cut-off testing to assess whether
revenue recognised in the year related to payment
services provided before the year-end.
------------------------------------------------------------
Key observations We concluded that fee income in relation to payment
services was recognised appropriately for the year
ended 31 December 2017.
------------------------------------------------------------
Loan Loss Provisioning
Key audit matter As detailed in the summary of critical accounting
description judgements and estimates, the estimation of impairment
provisions is inherently uncertain and requires
significant management judgement. The key judgement
in the assessment of the loan loss provision under
IFRS 9 is the assessment of the loss given default
for loans originated by DFC, being the estimation
of sale proceeds for collateral held against these
loans. Therefore, we have determined that there
is a potential risk of error in or manipulation
of this balance.
As stated in note 14, the group has total loans
and advances to customers of GBP32,835,000 (2016:
GBP883,000) and a loss allowance of GBP126,000 (2016:
GBP13,000), 0.4% (2016: 1.5%) of the total loans
and advances to customers balance.
------------------------------------------------------------
How the scope We evaluated the design and implementation of key
of our audit controls over the calculation of expected credit
responded to losses for loans originated by DFC in accordance
the key audit with IFRS 9.
matter For a sample of loans, we independently verified
the retail prices of assets held as collateral and
challenged the discount applied to the valuation
by management to reflect a forced sale and selling
costs.
------------------------------------------------------------
Key observations Overall, we concluded that the loan loss provision
is reasonable.
------------------------------------------------------------
Deferred Tax Asset Measurement
Key audit matter The group has recognised a deferred tax asset of
description GBP5,189,000 (2016: GBP4,322,000), as shown in Note
9, relating solely to Oxygen.
The deferred tax asset is recognised in line with
IAS 12 which requires that deferred tax assets,
in the context of a history of recent losses, should
only be recognised to the extent that there is convincing
evidence of sufficient future taxable profits against
which the tax losses can be utilised.
There is considerable judgement in the assessment
of whether sufficient taxable profit will be available
in the future and, therefore, this is considered
to be a key audit matter.
------------------------------------------------------------
How the scope We evaluated the design and implementation of key
of our audit controls over the production, and subsequent review
responded to of, forecasts used to determine the recoverability
the key audit of the deferred tax asset.
matter We challenged management's forecasts by only considering
the pipeline of clients that had already signed
engagement letters and applying revenue growth rate
observed in Oxygen's current client portfolio.
------------------------------------------------------------
Key observations We concluded that convincing evidence existed such
that the deferred tax asset recognised in the Consolidated
Statement of Financial Position is appropriate.
------------------------------------------------------------
Zopa Investment Valuation
Key audit matter The Group holds an investment in Zopa, an unlisted
description peer-to-peer lending business, which is valued at
GBP36.5m (2016: GBP33.9m) and, therefore, constitutes
35% of the Group's total assets at the balance sheet
date.
Due to the inherent uncertainty and judgement required
to estimate the fair value of a business whose shares
are not actively traded, in addition to the size
of the balance, there is a risk that valuation of
the investment at the year-end date is materially
misstated.
------------------------------------------------------------
How the scope We evaluated the design and implementation of key
of our audit controls over the estimation of the investment in
responded to Zopa, including management's review of the valuation
the key audit model prepared by their expert.
matter We reviewed the competence, capabilities, and objectivity
of management's experts used in the valuation of
the investment as well as testing the accuracy and
completeness of data inputs into the valuation model.
We also challenged the valuation recorded with reference
to other publicly available information.
------------------------------------------------------------
Key observations Having considered all the evidence, we concluded
that the valuation was within a reasonable range.
------------------------------------------------------------
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Group Financial statements Parent company financial
statements
Materiality GBP454,000 GBP227,000
---------------------------- ------------------------------
Basis for determining 0.5% of shareholders' Parent company materiality
materiality equity. equates to less than 0.5%
of shareholders' equity
of the parent and is capped
at 50% of group materiality.
---------------------------- ------------------------------
Rationale for Financial performance to date is not a key metric
the benchmark as a result of the fact that this is an emerging
applied growth company. Accordingly, we identified shareholders'
equity as the most appropriate benchmark as it
represents the capital structure of the entity
and focus on balance sheet growth.
------------------------------------------------------------
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP22,700 for the
group and GBP30,800 for the parent company, as well as differences
below that threshold that, in our view, warranted reporting on
qualitative grounds. We also report to the Audit Committee on
disclosure matters that we identified when assessing the overall
presentation of the financial statements.
An overview of the scope of our audit
The group consists of TruFin Plc itself, its sole direct
subsidiary TruFin Holdings Ltd, a holding company, and seven
subsidiaries as detailed within Note 1. In addition there is one
associate, one joint venture, and one financial investment.
Three of the subsidiaries are determined to be financially
significant to the group based on chosen benchmarks being in excess
of 15% of the group aggregated balance. These subsidiaries are:
-- Oxygen Finance Limited;
-- Distribution Finance Capital Ltd; and
-- Satago Financial Solutions Limited.
These subsidiaries have been subject to a full scope audit.
Distribution Finance Capital Ltd was audited by Deloitte LLP,
Oxygen Finance Ltd was audited by Haysmacintyre LLP, and Satago
Financial Solutions was audited by Mazars LLP. In conducting the
group audit we have communicated clearly with the component
auditors about the scope and timing of their work on the financial
information related to components, discuss their risk assessment,
and review documentation of their findings.
All other subsidiaries as well as the associate and joint
venture have been subject to analytical procedures at the group
level with the exception of AltLending UK which has been subject to
an audit of two of the component's account balances, the loans and
advances to customers and cash and cash equivalents balances.
Lastly, the financial investment has been subject to specified
audit procedures as detailed in the Zopa Investment Valuation key
audit matter.
Our group audit scope, including components subject to full
scope audit and audit of specified account balances, achieved
coverage over significantly all of revenue across the group, 76% of
the group's loss before tax, and 100% of the net assets of the
group
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report including Chairman's Statement, Group Strategic Report, and
Report of the Directors, other than the financial statements and
our auditor's report thereon.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
We have nothing to report in respect of these matters.
Responsibilities of directors
As explained more fully in the statement of directors'
responsibilities, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the parent company's
ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Article 113A of the Companies (Jersey) Law,
1991. Our audit work has been undertaken so that we might state to
the company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Report on other legal and regulatory requirements
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies (Jersey) Law, 1991 we are required to report
to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- proper accounting records have not been kept by the parent
company, or proper returns adequate for our audit have not been
received from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
Alastair Morley
For and on behalf of Deloitte LLP
London, UK
15 May 2018
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year
ended 31 December 2017
2017 2016
Notes GBP'000 GBP'000
---------------------------------------------------------------------- ------ --------- ---------
Interest and similar income 1,136 85
Interest and similar expenses (68) -
--------- ---------
Net interest income 1,068 85
Fee income 3 2,638 1,452
Fee expenses (53) (66)
--------- ---------
Net fee income 2,585 1,386
--------- ---------
Revenue 3,653 1,471
--------- ---------
Staff costs 5 (8,188) (3,962)
Other operating expenses (4,251) (2,338)
Depreciation & amortisation (146) (30)
Operating loss before share of loss from joint venture (8,932) (4,859)
Share of loss of joint venture accounted for using the equity method (582) (1,732)
Operating loss (9,514) (6,591)
Provisions for commitments and other liabilities 6 - (214)
Net impairment loss on financial assets (158) -
Exceptional expenses 7 (330) (1,164)
--------- ---------
Loss before tax (10,002) (7,969)
--------- ---------
Taxation 9 867 4,348
--------- ---------
Loss after tax (9,135) (3,621)
--------- ---------
Other comprehensive income
Exchange differences on translating foreign operations (357) (39)
Gains/(losses) on FVTOCI investments 2,600 (9,740)
--------- ---------
Other comprehensive income/(loss) for the year, net of tax 2,243 (9,779)
--------- ---------
Total comprehensive loss for the year (6,892) (13,400)
--------- ---------
Loss after tax attributable to:
Owners of TruFin plc (8,103) (3,507)
Non-controlling interests (1,032) (114)
--------- ---------
(9,135) (3,621)
--------- ---------
Total comprehensive loss for the year attributable to:
Owners of TruFin plc (5,860) (13,286)
Non-controlling interests (1,032) (114)
--------- ---------
(6,892) (13,400)
--------- ---------
The activities of the Group relate entirely to continuing
operations. The notes on pages 29 to 69 are an integral part of
these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
2017 2016
Notes GBP'000 GBP'000
------------------------------------------------- ------ --------- ---------
Assets
Non-current, non-financial assets
Intangible assets 10 649 -
Property, plant and equipment 11 131 67
Deferred tax asset 9 5,189 4,322
--------- ---------
Total non-current, non-financial assets 5,969 4,389
--------- ---------
Financial assets
Cash and cash equivalents 26,049 6,690
Loan and advances to customers 14 32,709 870
Other investments 13 36,500 33,900
Investment in joint venture 12 - 582
--------- ---------
Total financial assets 95,258 42,042
--------- ---------
Other current assets
Trade and other receivables 15 487 445
Other receivables 15 1,821 649
--------- ---------
Total other current assets 2,308 1,094
--------- ---------
Total assets 103,535 47,525
--------- ---------
Equity and liabilities
Equity
Issued share capital 16 123,966 2,202
Share premium - 31,249
Retained earnings (4,962) 541
Foreign exchange reserve (396) (39)
Non-controlling interest 20 (293) 547
Merger reserve (26,919) -
--------- ---------
Total equity 91,396 34,500
--------- ---------
Liabilities
Current liabilities
Borrowings 17 9,035 11,900
Trade and other payables 18 2,805 826
Provision for commitments and other liabilities 6 299 299
--------- ---------
Total current liabilities 12,139 13,025
--------- ---------
Total liabilities 12,139 13,025
--------- ---------
Total equity and liabilities 103,535 47,525
--------- ---------
The notes on pages 29 to 69 are an integral part of these
financial statements.
The financial statements were approved by the Board of Directors
and authorised for issue on 15 May 2018. They were signed on its
behalf by:
Henry Kenner
Chairman and Chief Executive Officer
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2017
2017 2016
Notes GBP'000 GBP'000
------------------------------ ------ --------- ---------
Assets
Financial assets
Investments 13 123,966 -
Total financial assets 123,966 -
--------- ---------
Other current assets
Other receivables 15 81 -
--------- ---------
Total other current assets 81 -
--------- ---------
Total assets 124,047 -
--------- ---------
Equity and liabilities
Equity
Issued share capital 16 123,966 -
Retained earnings (720) -
Total equity 123,246 -
--------- ---------
Liabilities
Current liabilities
Trade and other payables 18 801 -
Total current liabilities 801 -
--------- ---------
Total liabilities 801 -
--------- ---------
Total equity and liabilities 124,047 -
--------- ---------
The Company's comprehensive loss for the period to 31 December
2017 was GBP720,000.
The notes on pages 29 to 69 are an integral part of these
financial statements.
The financial statements were approved by the Board of Directors
and authorised for issue on 15 May 2018. They were signed on its
behalf by:
Henry Kenner
Chairman and Chief Executive Officer
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
Foreign
Share Share Retained exchange Merger Non-controlling Total
capital premium Earnings reserve reserve Total interest Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ---------- ----------- ---------- ---------- ---------- --------- ---------------- -----------
Balance at 1
January 2017 2,202 31,249 541 (39) - 33,953 547 34,500
Loss for the
year - - (8,103) - - (8,103) (1,032) (9,135)
Gains on
FVTOCI
investments - - 2,600 - - 2,600 2,600
Exchange
differences
on
translating
foreign
operations - - - (357) - (357) - (357)
Capital
contribution
in relation
to the issue
of preference
shares - - - - - - 192 192
New issue of
shares 123,966 - - - - 123,966 - 123,966
Arising on
consolidation (2,202) (31,249) - - (26,919) (60,370) - (60,370)
---------- ----------- ---------- ---------- ---------- --------- ---------------- -----------
Balance at 31
December 2017 123,966 - (4,962) (396) (26,919) 91,689 (293) 91,396
---------- ----------- ---------- ---------- ---------- --------- ---------------- -----------
Foreign
Share Share Retained exchange Merger Non-controlling Total
capital premium Earnings reserve reserve Total interest Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ---------- ----------- ---------- ---------- ---------- --------- ---------------- -----------
Balance at 1
January 2016 - - 40,357 - - 40,357 - 40,357
Loss for the
year - - (3,507) - - (3,507) (114) (3,621)
Losses on
FVTOCI
investments - - (9,740) - - (9,740) - (9,740)
Exchange
differences
on
translating
foreign
operations - - - (39) - (39) - (39)
Arising on
consolidation 2,202 31,249 (26,569) - - 6,882 661 7,543
---------- ----------- ---------- ---------- ---------- --------- ---------------- -----------
Balance at 31
December 2016 2,202 31,249 541 (39) - 33,953 547 34,500
---------- ----------- ---------- ---------- ---------- --------- ---------------- -----------
The notes on pages 29 to 69 are an integral part of these
financial statements.
Share capital
Share capital represents the nominal value of equity share
capital issued.
Share premium
The share premium account is used to record the aggregate amount
or value of premiums paid when the company's shares are issued at a
premium, net of associated share issue costs.
Retained earnings
The retained earnings reserve represents cumulative net gains
and losses recognised in the consolidated statement of
comprehensive income.
Foreign exchange reserve
The foreign exchange reserve represents exchange differences
which arise on consolidation from the translation of the financial
statements of foreign subsidiaries.
Merger reserve
The merger reserve in 2017 arises as a result of applying
Section 19 of FRS 102 - Group Reconstruction to businesses that are
under common control.
Non Controlling Interest
The non controlling interest relates to the minority interest
held in DFC.
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
Retained
Share capital Earnings Total Equity
GBP'000 GBP'000 GBP'000
------------------------------- -------------- ---------- -------------
Balance at 1 January 2017 - - -
Total comprehensive loss - (720) (720)
Shares issued during the year 123,966 - 123,966
-------------- ---------- -------------
Balance at 31 December 2017 123,966 (720) 123,246
-------------- ---------- -------------
The Company was incorporated on 29 November 2017.
The notes on pages 29 to 69 are an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2017
2017 2016
Notes GBP'000 GBP'000
-------------------------------------------------------- ------- --------- ---------
Cash flows from operating activities
Loss before income tax (10,002) (7,969)
Adjustments for
Depreciation of property, plant and equipment 43 30
Amortisation of intangible fixed assets 156 -
Profit on disposal of property, plant and equipment - 18
Finance costs 27 -
Foreign exchange gains - (39)
Share in joint venture 582 1,732
--------- ---------
(9,194) (6,228)
Working capital adjustments
Loans to customers (62,512) (58)
Loans repaid by customers 30,673 1,050
Increase in trade and other receivables (1,214) (613)
Increase/(decrease) in trade and other payables 1,979 (911)
--------- ---------
(31,074) (532)
Tax paid - -
--------- ---------
Net cash used in operating activities (40,268) (6,760)
--------- ---------
Cash flows from investing activities:
Cash inflows arising on combination - 126
Additions to intangible assets (805) -
Additions to property, plant and equipment (107) (60)
--------- ---------
Net cash (used in)/generated from investing activities (912) 66
Cash flows from financing activities:
Issue of ordinary share capital 2,000 3,309
Issue of preference share capital 3,500 -
Net borrowings from Group undertakings 46,000 7,900
New borrowings 9,000 -
Net interest received 38 -
--------- ---------
Net cash generated from financing activities 60,538 11,209
--------- ---------
Net increase in cash and cash equivalents 19,358 4,515
--------- ---------
Cash and cash equivalents at beginning of the year 6,690 2,175
Effect of exchange rate fluctuations on cash held 1 -
--------- ---------
Cash and cash equivalents at end of the year 26,049 6,690
--------- ---------
The notes on pages 29 to 69 are an integral part of these
financial statements.
COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2017
2017 2016
GBP'000 GBP'000
--------------------------------------------------- --------- ---------
Cash flows from operating activities
Loss before income tax (720) -
(720) -
Working capital adjustments
Increase in trade and other receivables (81) -
Increase in trade and other payables 801 -
--------- ---------
720 -
--------- ---------
Net cash used in operating activities - -
--------- ---------
Net increase in cash and cash equivalents - -
--------- ---------
Cash and cash equivalents at beginning of the year - -
--------- ---------
Cash and cash equivalents at end of the year - -
--------- ---------
The notes on pages 29 to 69 are an integral part of these
financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2017
Statutory information
TruFin plc is a Company registered in Jersey and incorporated
under Companies (Jersey) Law 1991. The Company's ordinary shares
were listed on the Alternative Investment Market of the London
Stock Exchange on 21 February 2018, raising gross proceeds of GBP70
million from the IPO. The Company issued 36,842,106 Capital Raising
Shares at a price of 190p per share to raise a total of GBP70
million and approx. GBP66 million net of expenses.
1. Accounting policies
General information
The TruFin Group is the consolidation of TruFin plc, TruFin
Holdings Limited, Oxygen Finance Limited, Oxygen Finance Americas
Inc., Satago Solutions Limited, Satago Financial Solutions Limited,
Distribution Finance Capital Limited, AltLending (UK) Limited and
additionally, a 50% interest in a joint venture - Clear Funding
Limited, a 40% interest in an associate - PlayIgnite Ltd and a
minority interest investment in Zopa Group Limited (as set out in
"Basis of consolidation" below).
TruFin plc and TruFin Holdings Limited were both incorporated on
29 November 2017. As at 31 December 2017, the TruFin plc was 100%
owned by Arrowgrass Master Fund Ltd ("Arrowgrass"). TruFin plc owns
100% of TruFin Holdings Limited. On 29 December 2017, a
reorganisation took place such that all the companies comprising
the TruFin Group were brought under TruFin Holdings Limited.
Post balance sheet, on 21 February 2018, the Company's ordinary
shares were listed on the Alternative Investment Market of the
London Stock Exchange resulting in Arrowgrass Master Fund's
ownership being 73.1%.
The principal activities of the TruFin Group are the provision
of niche lending and early payment services.
The financial statements are presented in Pounds Sterling, which
is the currency of the primary economic environment in which the
TruFin Group operates. Amounts are rounded to the nearest
thousand.
Basis of accounting
Prior to 29 November 2017 and before the incorporation of TruFin
plc and TruFin Holdings, the entities named above were under common
control and therefore, have been accounted for as a common control
transaction - that is a business combination in which all the
combining entities or businesses are ultimately controlled by the
same company both before and after the combination. IFRS 3 provides
no specific guidance on accounting for entities under common
control and therefore other relevant standards have been
considered. These standards refer to pooling of assets and merger
accounting and this is the methodology that has been used to
consolidate the TruFin Group.
After 29 December 2017, post the reorganisation, the entities
constitute a legal group and accordingly the consolidated financial
statements have been prepared by applying relevant principles
underlying the consolidation procedures of IFRS. The assets,
liabilities and the statement of comprehensive income of the
entities comprising the TruFin Group have been consolidated,
eliminating transactions and balances between entities included
within the Financial Statements.
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union ("IFRS") that are effective for
financial periods beginning on or after 1 January 2018.
The prior year comparatives have been prepared on a combined
basis so as to show a meaningful comparison with the accounts for
2017.
Basis of preparation
The results of the TruFin Group companies have been included in
the consolidated statement of comprehensive income from the
effective date of acquisition by Arrowgrass. Where necessary,
adjustments have been made to the underlying financial information
of the companies to bring the accounting policies used into line
with those used by the TruFin Group. All intra-group transactions,
balances, income and expenses are eliminated on consolidation.
The consolidated financial statements contained in this document
consolidates the statements of total comprehensive income,
statements of financial position, cash flow statements, statements
of changes in equity and related notes for each of the companies
listed in the "Basis of consolidation" below, which have been
prepared in accordance with IFRS.
Non-controlling interests, presented as part of equity,
represent the portion of a subsidiary's profit or loss and net
assets that is not held by the TruFin Group. The TruFin Group
attributes total comprehensive income or loss of subsidiaries
between the owners of the parent and the non-controlling interests
based on their respective ownership interests.
Basis of consolidation
The consolidated financial statements include all of the
companies controlled by the TruFin Group, which are as
follows:-
Entities Country Registered address Nature of % voting
of incorporation the business rights and
shares held
Satago Financial UK 4 Bentinck Street, London, Provision 100% of ordinary
Solutions Limited England, W1U 2EF of short shares
("SFSL") term finance
Distribution UK 2nd Floor, City House, Provision 80% of ordinary
Finance Capital Sutton Park Road, Sutton, of short shares
Ltd ("DFC") England, SM1 2AE term finance
Oxygen Group UK Cathedral Place, 42-44 Holding Company 100% of ordinary
Finance Limited Waterloo Street, Birmingham, shares
(together with United Kingdom, B2 5QB
OFL and OFAI)
("Oxygen")
Oxygen Finance UK Cathedral Place, 42-44 Provision 100% of ordinary
Limited ("OFL") Waterloo Street, Birmingham, of payment shares
United Kingdom, B2 5QB services
Oxygen Finance USA Corporation Trust Center, Provision 99.99%* of
Americas, Inc 1209 Orange Street, of early ordinary
("OFAI") City of Wilmington, payment services shares
County of New Castle,
Delaware 19801, USA
Satago Solutions UK Cathedral Place, 42-44 Provision 100% of ordinary
Limited ("Satago Waterloo Street, Birmingham, of technology shares
Solutions") United Kingdom, B2 5QB services
AltLending UK 4 Bentinck Street, London, Provision 100% of ordinary
UK Limited England, W1U 2EF of short shares
("AltLending") term finance
* The TruFin Group holds 9.3 billion shares in Oxygen Finance
Americas Inc. with minority interests holding 11 shares.
The consolidated financial information also includes three
further investments, as follows:
-- The TruFin Group has a 50% interest in a joint venture, Clear
Funding Limited ("Clear Funding"), which is accounted for using the
equity method,
-- The TruFin Group has a 40% interest in an associate,
PlayIgnite Ltd ("PlayIgnite"), which is accounted for using the
equity method and
-- an undiluted economic interest of 17.7% in Zopa Group Limited
("Zopa") (15.7% fully diluted), as at 31 December 2017, which is
measured at fair value with changes in value recognised through
other comprehensive income.
All three investments are incorporated in the UK.
Under the equity method of accounting the TruFin Group's
investment in Clear Funding is initially recognised at cost and
adjusted thereafter for the post acquisition change in the TruFin
Group's share of Clear Funding's net assets. The TruFin Group's
profit or loss includes its share of Clear Funding's profit or loss
and the TruFin Group's other comprehensive income includes its
share of Clear Funding's other comprehensive income, save that
after the TruFin Group's interest is reduced to zero, additional
losses are provided for and a liability is recognised, only to the
extent that the TruFin Group has incurred legal or constructive
obligations or made payments on behalf of Clear Funding.
Principal accounting policies
The principal accounting policies adopted in the preparation of
the financial statements are set out below. These policies have
been applied consistently to all the financial periods
presented.
Other than for the treatment of business combinations, as
described above, the consolidated financial statements have been
prepared in accordance with European Union Endorsed International
Financial Reporting Standards (IFRSs) and the IFRS Interpretations
Committee (formerly the International Financial Reporting
Interpretations Committee (IFRIC)) interpretations. These
statements have been prepared on a going concern basis and under
the historical cost convention except for the treatment of certain
financial instruments.
The TruFin Group has applied IFRS 9 Financial Instruments and
IFRS 15 Revenue from Contracts with Customers as well as the
related consequential amendments to other IFRSs in advance of their
effective dates.
Going concern
The TruFin Group's forecasts and projections, taking into
account reasonable possible changes in trading performance, show
that the TruFin Group should be able to operate in the foreseeable
future. As a consequence, the Directors have a reasonable
expectation that the TruFin Group will have adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, the Directors have adopted the going concern basis in
preparing these financial statements.
Revenue recognition
Net interest income
Interest income and expense for all financial instruments except
for those classified as held for trading or measured or designated
as at Fair Value Through Profit and Loss ("FVTPL") are recognised
in "Net interest income" as "Interest income" and "Interest
expense" in the profit or loss account using the effective interest
method.
The Effective Interest Rate ("EIR") is the rate that exactly
discounts estimated future cash flows of the financial instrument
through the expected life of the financial instrument or, where
appropriate, a shorter period, to the net carrying amount of the
financial asset or financial liability. The future cash flows are
estimated taking into account all the contractual terms of the
instrument.
The calculation of the EIR includes all fees and points paid or
received between parties to the contract that are incremental and
directly attributable to the specific lending arrangement,
transaction costs and all other premiums or discounts.
The interest income/expense is calculated by applying the EIR to
the gross carrying amount of non-credit impaired financial assets
(that is, to the amortised cost of the financial asset before
adjusting for any expected credit loss allowance), or to the
amortised cost of financial liabilities.
For credit-impaired financial assets, as defined in the
financial instruments accounting policy, the interest income is
calculated by applying the EIR to the amortised cost of the
credit-impaired financial assets (that is, to the gross carrying
amount less the allowance for Expected Credit Losses ("ECLs").
Other income from financial instruments
Dividends from equity investments measured at Fair Value Through
Other Comprehensive Income ("FVTOCI") are recognised in profit and
loss when the TruFin Group becomes entitled to them.
For financial instruments that are classified as FVTPL, any
interest or fee income is included in the profit and loss account
within the fair value gain or loss.
The TruFin Group presently holds no financial instruments for
trading or hedging purposes, nor has it designated any other items
as FVTPL.
Other expense from financial instruments
Any interest or fees incurred in servicing liabilities carried
at FVTPL are included in the profit and loss account within
"Gains/(losses) from FVTOCI investments".
Fee income
Fee income for the TruFin Group is earned from payments services
fees provided by Oxygen and facility fees provided by DFC.
Payment services provided by Oxygen and DFC comprises the
following elements:
Early Payment Programme Services ("EPPS") contracts
Oxygen's Early Payment Programme Services generate rebates (i.e.
discounts on invoice value) for its clients by facilitating the
early payment of supplier invoices. Oxygen's single performance
obligation is to make its intellectual property and software
platform available to its clients for the duration of their
contracts.
Oxygen bills its clients monthly for a contractually agreed
share of supplier rebates generated by their respective Early
Payment Programmes during the previous month. This revenue is
recognised in the month the rebates are generated.
Assessment Fees
Assessment fees include Oxygen consultants reviewing the
client's internal processes and technology and analysing the
financial business case for setting up an Early Payment Programme.
The assessment is a self-contained consultancy project which is not
contingent on any future Early Payment Programme being entered into
by the client and accordingly Oxygen's single performance
obligation is to deliver a report that summarises the assessment
findings. Revenue from assessment fees is deferred and is accrued
over the period of the assessment.
Implementation Fees
Implementation fees are charged to some clients to cover
Oxygen's costs in establishing a client's technological access to
the Early Payment Programme Services and in otherwise readying a
client to benefit from the Services. Establishing access to the
company's intellectual property and software platform does not
amount to a distinct service as the client cannot benefit from the
initial access except by the company continuing to provide access
for the contract period. Where an implementation fee is charged, it
is therefore a component of the aggregate transaction price of the
Early Payment Programme Services. Accordingly, such revenue is
initially deferred and then recognised in the statement of
comprehensive income over the life of the related Early Payment
Programme Services contract.
Consultancy Fees
Oxygen provides stand-alone advisory services to clients.
Revenue is accrued as the underlying services are provided to the
client.
Facility fees
Facility fees provided by DFC comprise fees for servicing
loans.
Fee Expenses
Fee expenses are directly attributable costs, such as staff
costs, associated with the Oxygen's Early Payment Programme
Services. The expenses include amortisation arising from
capitalised contract costs incurred directly through activities
which generate fee income. Amortisation arising from other
intangible assets is recognised in depreciation and amortisation of
non-financial assets before operating profit/(loss).
Foreign currencies
The results and financial position of each group company are
expressed in Pounds Sterling, which is the functional currency of
the UK based members of the TruFin Group and the presentation
currency for the consolidated financial statements.
Transactions in foreign currencies are translated to the TruFin
Group companies' functional currency at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet
date are retranslated to the functional currency at the foreign
exchange rate ruling at that date. Non-monetary assets and
liabilities that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate at the date
of the transaction. Foreign exchange differences arising on
translation are recognised in the consolidated statement of
comprehensive income.
Property, plant and equipment
All property, plant and equipment is stated at historical cost
(or deemed historical cost) less accumulated depreciation and less
any identified impairment. Cost includes the original purchase
price of the asset and the costs attributable to bringing the asset
to its working condition for its intended use.
Depreciation is provided on all property, plant and equipment at
rates calculated to write each asset down to its estimated residual
value on a straight line basis at the following annual rates:
Leasehold land and buildings - 5 years
Office equipment - 3 years
Computer equipment - 3-5 years
Useful economic lives and estimated residual values are reviewed
annually and adjusted as appropriate.
Intangible and contract assets
Identifiable intangible assets are recognised when the TruFin
Group controls the asset, it is probable that future economic
benefits attributed to the asset will flow to the TruFin Group and
the cost of the asset can be reliably measured.
Intangible assets with finite lives are stated at acquisition or
development cost less accumulated amortisation and less any
identified impairment. The amortisation period and method is
reviewed at least annually. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits
embodied in the asset are accounted for by changing the
amortisation period or method, as appropriate and are treated as
changes in accounting estimates.
Computer software comprises an internally developed platform.
Costs that are directly associated with the production of
identifiable and unique software products controlled by the TruFin
Group and are probable of producing future economic benefits are
recognised as intangible assets. Direct costs of software
development include employee costs and directly attributable
overheads.
Contract assets comprise the directly attributable costs
incurred at the beginning of an Early Payment Scheme Service
contract to revise a client's existing payment systems and provide
access to the TruFin Group's software and other intellectual
property. These implementation (or "set up") costs are comprised
primarily of employee costs.
Amortisation is charged to the statement of comprehensive income
over the estimated useful lives of intangible assets from the date
they are available for use, on a straight-line basis. The
amortisation basis adopted for each class of intangible asset
reflects the TruFin Group's consumption of the economic benefit
from that asset.
Estimated useful lives
The estimated useful lives of finite intangible assets are as
follows:
Computer software - 3-5 years
Contract assets - Life of underlying contract (typically
5 years)
Financial instruments
Initial recognition
Financial assets and financial liabilities are recognised in the
TruFin Group's balance sheet when the TruFin Group becomes a party
to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of the financial assets
and financial liabilities (other than financial assets and
financial liabilities at FVTPL are respectively added to or
deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction
costs that are directly attributable to the acquisition of
financial assets and financial liabilities at FVTPL are recognised
immediately in profit or loss.
Financial assets
Classification and reclassification of financial assets
Recognised financial assets within the scope of IFRS 9 are
required to be classified as subsequently measured at amortised
cost, FVTOCI or FVTPL on the basis of both the TruFin Group's
business model for managing the financial assets and the
contractual cash flow characteristics of the financial assets.
Financial assets are reclassified if and only if, the business
model under which they are held is changed. There has been no such
change in the allocation of assets to business models in the
periods under review.
Loans and advances to customers
Loans and advances to customers are held within a business model
whose objective is to hold those financial assets in order to
collect contractual cash flows. Further, the contractual terms of
the loan agreements give rise on specified dates to cash flows that
are solely payments of principal and interest or fees on the
principal amount outstanding.
After initial measurement, loans and advance to customers are
subsequently measured at amortised cost using the Effective
Interest Rate method (EIR) less impairment. Amortised cost is
calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR.
The EIR amortisation is included in interest and similar income in
the statement of comprehensive income. The losses arising from
impairment are recognised in the statement of comprehensive income
and disclosed with any other similar losses within the line item
"Net impairment losses on financial assets".
Trade and other receivables
Trade receivables do not contain any significant financing
component and accordingly are recognised initially at transaction
price, and subsequently measured at cost less any loss
allowance.
Investments in equity shares
The TruFin Group's investment in the equity shares of Zopa is
not held for trading. The TruFin Group has made an irrevocable
election to classify and subsequently measure the investment at
FVTOCI. Unrealised movements in the fair value of the investment
are recognised in the statement of other comprehensive income. Any
realised gains or losses arising from the sale of the investment
will be accounted for in the income statement as realised gains or
losses.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and demand
deposits and short term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject (save
for the effects of changes in foreign exchange rates) to an
insignificant risk of changes in value.
Impairment
The TruFin Group recognises loss allowances for Expected Credit
Losses ("ECLs") on the following financial instruments that are not
measured at FVTPL:
-- Loans and advances to customers
-- Other receivables
-- Trade receivables and
-- Loan commitments
With the exception of Purchased or Originated Credit Impaired
("POCI") financial assets (which are considered separately below),
ECLs are measured through loss allowances calculated on the
following bases:-
ECLs are a probability-weighted estimate of the present value of
credit losses. These are measured as the present value of the
difference between the cash flows due to the TruFin Group under the
contract and the cash flows that the TruFin Group expects to
receive arising from the weighting of future economic scenarios,
discounted at the asset's EIR within the current performing
book.
The TruFin Group measures ECL on an individual basis, or on a
collective basis for portfolios of loans that share similar
economic risk characteristics. The loss allowance is measured as
the difference between the contractual cash flows and the present
value of the asset's expected cash flows using the asset's original
EIR, regardless of whether it is measured on an individual basis or
a collective basis.
A financial asset that gives rise to credit risk, is referred to
(and analysed in the notes to this financial information) as being
in "Stage 1" provided that since initial recognition (or since the
previous reporting date) there has not been a significant increase
in credit risk nor has it has become credit impaired.
For a Stage 1 asset, the loss allowance is the "12-month ECL",
that is, the ECL that results from those default events on the
financial instrument that are possible within 12 months from the
reporting date.
A financial asset that gives rise to credit risk is referred to
(and analysed in the notes to this financial information) as being
in "Stage 2" if since initial recognition there has been a
significant increase in credit risk but it is not credit
impaired.
For a Stage 2 asset, the loss allowance is the "lifetime ECL",
that is, the ECL that results from all possible default events over
the life of the financial instrument.
A financial asset that gives rise to credit risk is referred to
(and analysed in the notes to this financial information) as being
in "Stage 3" if since initial recognition it has become credit
impaired.
For a Stage 3 asset, the loss allowance is the difference
between the asset's gross carrying amount and the present value of
estimated future cash flows discounted at the EIR. Further, the
recognition of interest income is constrained relative to the
amounts that are recognised in Stage 1 and Stage 2 assets, as
described in the revenue recognition policy set out above.
If circumstances change sufficiently at subsequent reporting
dates, an asset is referred to by its newly appropriate Stage and
is re-analysed in the notes to the financial information.
Where an asset is expected to mature in 12 months or less, the
"12 month ECL" and the "lifetime ECL" have the same effective
meaning and accordingly for such assets the calculated loss
allowance will be the same whether such an asset is at Stage 1 or
Stage 2. In order to determine the loss allowance for assets with a
maturity of 12 months or more and disclose significant increases in
credit risk, the TruFin Group nonetheless determines which of its
financial assets are in Stages 1 and 2 at each reporting date.
Significant increase in credit risk - policies and procedures
for identifying Stage 2 assets
The TruFin Group compares the risk of a default occurring on the
financial instrument as at the reporting date with the risk of a
default occurring on the financial instrument as at the date of
initial recognition in order to determine whether credit risk has
increased significantly.
See note 19 for further details about how the TruFin Group
assesses increases in significant credit risk.
Definition of a default
Critical to the determination of significant increases in credit
risk (and to the determination of ECLs) is the definition of
default. Default is a component of the Probability of Default
("PD"), changes in which lead to the identification of a
significant increase in credit risk and PD is then a factor in the
measurement of ECLs.
The TruFin Group's definition of default for this purpose
is:
-- A counterparty defaults on a payment due under a loan
agreement and that payment is more than 30 days overdue, or
-- Within the core invoice finance proposition, where one or
more individual finance repayments are beyond 30 days overdue,
management judgement is applied in considering default status of
the client.
-- The collateral that secures, all or in part, the loan
agreement has been sold or is otherwise not available for sale and
the proceeds have not been paid to the lending company; or
-- A counterparty commits an event of default under the terms
and conditions of the loan agreement which leads the lending
company to believe that the borrower's ability to meet its credit
obligations to the lending company is in doubt.
The definition of default is similarly critical in the
determination of whether an asset is credit-impaired (as explained
below).
Credit-impaired financial assets - policies and procedures for
identifying Stage 3 assets
A financial asset is credit-impaired when one or more events
that have a detrimental impact on the estimated future cash flows
of the financial asset have occurred. IFRS 9 states that evidence
of credit-impairment includes observable data about the following
events:
-- Significant financial difficulty of the borrower or issuer;
-- A breach of contract such as a default (as defined above) or past due event, or
-- The TruFin Group, for economic or contractual reasons
relating to the borrower's financial difficulty, having granted to
the borrower a concession that the TruFin Group would not otherwise
consider.
The TruFin Group assesses whether debt instruments that are
financial assets measured at amortised cost or at FVTOCI are
credit-impaired at each reporting date. When assessing whether
there is evidence of credit-impairment, the TruFin Group takes into
account both qualitative and quantitative indicators relating to
both the borrower and to the asset. The information assessed
depends on the borrower and the type of the asset. It may not be
possible to identify a single discrete event - instead, the
combined effect of several events may have caused financial assets
to become credit-impaired.
See note 19 for further details about how the TruFin Group
identifies credit-impaired assets.
Purchased or originated credit-impaired ("POCI") financial
assets
POCI financial assets are treated differently because they are
in Stage 3 from the point of original recognition. It is not in the
nature of the TruFin Group's business to purchase financial assets
originated by other lenders, nor has the TruFin Group to date
originated any loans or advances to borrowers that it would define
as credit impaired.
Presentation of allowance for ECL in the statement of financial
position
Loss allowances for ECL are presented in the statement of
financial position as follows:
-- For financial assets measured at amortised cost: as a
deduction from the gross carrying amount of the assets; and
-- For loan commitments: as a provision.
Revisions to estimated cash flows
Where cash flows are significantly different from the original
expectations used to determine EIR, but where this difference does
not arise from a modification of the terms of the financial
instrument, the TruFin Group revises its estimates of receipts and
adjusts the gross carrying amount of the financial asset to reflect
actual and revised estimated contractual cash flows. The TruFin
Group recalculates the gross carrying amount of the financial asset
as the present value of the estimated future contractual cash flows
discounted at the financial instrument's original EIR.
The adjustment is recognised in statement of comprehensive
income as income or expense.
Modification of financial assets
A modification of a financial asset occurs when the contractual
terms governing a financial asset are renegotiated without the
original contract being replaced and derecognised. A modification
is accounted for in the same way as a revision to estimated cash
flows and in addition;
-- Any fees charged are added to the asset and amortised over
the new expected life of the asset; and
-- The asset is individually assessed to determine whether there
has been a significant increase in credit risk.
Derecognition of financial assets
The TruFin Group derecognises a financial asset only when the
contractual rights to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks
and rewards of ownership of the asset to another entity. If the
TruFin Group neither transfers nor retains substantially all the
risks and rewards of ownership and continues to control the
transferred asset, the TruFin Group recognises its retained
interest in the asset and an associated liability for amounts it
may have to pay. If the TruFin Group retains substantially all the
risks and rewards of ownership of a transferred financial asset,
the TruFin Group continues to recognise the financial asset and
also recognises a collateralised borrowing for the proceeds
received.
On derecognition of a financial asset in its entirety, the
difference between the asset's carrying amount and the sum of the
consideration received and receivable and the cumulative gain or
loss that had been recognised in other comprehensive income and
accumulated in equity is recognised in profit or loss.
On derecognition of a financial asset other than in its entirety
(e.g. when the TruFin Group retains an option to repurchase part of
a transferred asset), the TruFin Group allocates the previous
carrying amount of the financial asset between the part it
continues to recognise under continuing involvement and the part it
no longer recognises on the basis of the relative fair values of
those parts on the date of the transfer. The difference between the
carrying amount allocated to the part that is no longer recognised
and the sum of the consideration received for the part no longer
recognised and any cumulative gain or loss allocated to it that had
been recognised in other comprehensive income is recognised in
profit or loss. A cumulative gain or loss that had been recognised
in other comprehensive income is allocated between the part that
continues to be recognised and the part that is no longer
recognised on the basis of the relative fair values of those
parts.
Write offs
Loans and advances are written off when the TruFin Group has no
reasonable expectation of recovering the financial asset (either in
its entirety or a portion of it). This is the case when the TruFin
Group determines that the borrower does not have assets or sources
of income that could generate sufficient cash flows to repay the
amounts subject to the write-off. A write-off constitutes a
derecognition event. The TruFin Group may apply enforcement
activities to financial assets written off. Recoveries resulting
from the TruFin Group's enforcement activities will result in
impairment gains.
Financial liabilities
Financial liabilities and equity
Debt and equity instruments that are issued are classified as
either financial liabilities or as equity in accordance with the
substance of the contractual arrangement.
A financial liability is a contractual obligation to deliver
cash or another financial asset or to exchange financial assets or
financial liabilities with another entity under conditions that are
potentially unfavourable to the TruFin Group or a contract that
will or may be settled in the TruFin Group's own equity
instruments, or a derivative contract over own equity that will or
may be settled other than by the exchange of a fixed amount of cash
(or another financial asset) for a fixed number of the TruFin
Group's own equity instruments. Gains or losses on financial
liabilities are recognised in the income statement.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the TruFin Group are
recognised as at the proceeds received, net of direct issue costs.
Distributions on equity instruments are recognised directly in
equity.
Financial liabilities
Financial liabilities are classified as either financial
liabilities at FVTPL or other financial liabilities.
Financial liabilities at Fair Value Through Profit or Loss
Financial liabilities at FVTPL may include financial liabilities
held for trading. Financial liabilities are classified as held for
trading if they are acquired for the purpose of selling in the near
term.
During the period under review the TruFin Group has held no
financial liabilities for trading, nor designated any financial
liabilities upon initial recognition as at fair value through
profit or loss.
Other financial liabilities - loans and borrowings
The TruFin Group obtained funding from Arrowgrass, these loans
formed part of the Group on the reorganisation on 29 November
2018.
Any external borrowing is valued at the carrying value of the
loan plus any accrued interest. Fees relating to the borrowing are
amortised over the life of the loan.
Derecognition of financial liabilities
The TruFin Group derecognises financial liabilities when and
only when, the TruFin Group's obligations are discharged, cancelled
or they expire.
Impairment of non-financial assets
The carrying amounts of the entity's non-financial assets, other
than goodwill and deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the asset's
recoverable amount is estimated. The recoverable amount of an asset
or cash-generating unit is the greater of its value in use and its
fair value less costs to sell. In assessing value in use, the
estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset. For the purposes of impairment testing, assets that
cannot be tested individually are grouped together into the
smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of
other assets or groups of assets (the Cash-Generating Unit or
"CGU").
Contract assets are reviewed for impairment based on the
performance of the underlying contract.
Goodwill is tested annually for impairment in accordance with
IFRS. The goodwill acquired in a business combination, for the
purpose of impairment testing is allocated to CGU that are expected
to benefit from the synergies of the combination. For the purpose
of goodwill impairment testing, if goodwill cannot be allocated to
individual CGUs or groups of CGUs on a non-arbitrary basis, the
impairment of goodwill is determined using the recoverable amount
of the acquired entity in its entirety, or if the acquired entity
has been integrated then the entire group of entities into which it
has been integrated.
An impairment loss is recognised if the carrying amount of an
asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in the statement of comprehensive
income. Impairment losses recognised in respect of CGUs are
allocated first to reduce the carrying amount of any goodwill
allocated to the units and then to reduce the carrying amounts of
other assets in the unit (or group of units) on a pro rata
basis.
An impairment loss is reversed if and only if the reasons for
the impairment have ceased to apply. An impairment loss recognised
for goodwill is not reversed.
Impairment losses recognised in prior periods are assessed at
each reporting date for any indication that the loss has decreased
or no longer exists. An impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been
recognised.
Current and deferred income tax
Income tax on the result for the period comprises current and
deferred income tax. Income tax is recognised in the consolidated
statement of comprehensive income except to the extent that it
relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable or receivable on the
taxable income for the period, using tax rates enacted or
substantively enacted at the balance sheet date and any adjustment
to tax payable in respect of previous periods.
Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The amount of deferred
tax provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using
tax rates enacted or substantively enacted at the balance sheet
date.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered. Deferred tax assets and
liabilities are offset when there is a legally enforceable right to
set off current tax assets against current tax liabilities and when
they relate to income taxes levied by the same taxation authority
and the TruFin Group intends to settle its current tax assets and
liabilities on a net basis.
Employee benefits - pension costs
A defined contribution plan is a post-employment benefit plan
under which the TruFin Group pays fixed contributions into a
separate entity and will have a legal or constructive obligation to
pay further amounts. Contributions to defined contribution schemes
are charged to the statement of comprehensive income as they become
payable in accordance with the rules of the scheme. Differences
between contributions payable in the year and contributions
actually paid are shown as either accruals or prepayments in the
statement of financial position.
Leasing
Rentals paid under operating leases are charged to the
consolidated statement of comprehensive income on a straight line
basis over the period of the lease.
Benefits received and receivable as an incentive to sign an
operating lease are recognised on a straight line basis over the
period of the lease.
The TruFin Group does not currently hold any assets under
finance leases.
Provisions for commitments and other liabilities
Provisions are recognised when the TruFin Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the TruFin Group will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the
cash flows estimated to settle the present obligation, its carrying
amount is the present value of those cash flows (discounted at the
TruFin Group's weighted average cost of capital when the effect of
the time value of money is material).
When some or all of the economic benefits required to settle a
provision are expected to be recovered from a third party, a
receivable is recognised as an asset only if it is virtually
certain that reimbursement will be received and the amount of the
receivable can be measured reliably.
Merger Reserve
Prior to 29 December 2017, the entities within the TruFin Group
were held by Arrowgrass Master Fund Limited. On 29 December 2017,
these entities were acquired by TruFin plc via TruFin Holdings
Limited. The consideration provided to Arrowgrass for the companies
acquired was in exchange for shares of TruFin plc based on the fair
value of the underlying companies. Upon consolidation of the group,
the difference between the book value of the entities and the
amount of the consideration paid was accounted through a merger
reserve, in accordance with relevant accounting standards relating
businesses under common control.
Segmental reporting
An operating segment is a component of the TruFin Group that
engages in business activities from which it may earn revenues and
incur expenses (including revenues and expenses relating to
transactions with other components of the same entity) and whose
operating results are regularly reviewed by the Board of Directors
in order to make decisions about resources to be allocated to that
component and assess its performance and for which discrete
financial information is available.
For the purposes of the financial statements, the Directors
consider the TruFin Group's operations to be made up of three
operating segments:- the provision of short term finance, payment
services and other operations.
The accounting policies of the reportable segments are
consistent with the accounting policies of the TruFin Group as a
whole. Segment profit represents the profit earned by each segment
without allocation of depreciation, amortisation, foreign exchange
gains or losses, investment income, interest payable and tax. This
is the measure of profit that is reported to the Board of Directors
for the purpose of resource allocation and the assessment of
segment performance.
Further details are provided in note 4.
New standards and interpretations - in issue but not yet
effective/adopted
IFRS 16 Leases
IFRS 16, which has not yet been endorsed by the EU, introduces a
comprehensive model for the identification of lease arrangements
and accounting treatments for both lessors and lessees. IFRS 16
will supersede the current lease guidance including IAS 17 Leases
and the related interpretations when it becomes effective for
accounting periods beginning on or after 1 January 2019. The TruFin
Group currently expects to adopt IFRS 16 for the year ending 31
December 2019. No decision has been made about whether to use any
of the transitional options in IFRS 16.
2. Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial information in accordance with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and reported
amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apart from other sources. Actual
results may differ from these estimates.
The judgements and estimates that have a significant effect on
the amounts recognised in the financial statements noted below.
Critical accounting judgements
-- Impairment reviews of intangible assets: the TruFin Group
performs impairment reviews at the year end to identify any
goodwill or intangible assets that have a carrying value that is in
excess of its recoverable value. Determining the recoverability of
goodwill and intangible assets requires judgement in both the
methodology applied and the key variables within that methodology.
Where it is determined that an asset is impaired, its carrying
value will be reduced to its recoverable value with the difference
recorded as an impairment charge in the income statement.
The goodwill and intangible asset impairment reviews are
disclosed in note 10.
-- Early Payment Programme Services set up costs: The TruFin
Group capitalises the direct costs of implementing Early Payment
Programme Services contracts for clients. These costs are essential
to the satisfaction of the TruFin Group's performance obligation
under that contract and accordingly the TruFin Group considers that
these costs meet the applicable criteria for recognition as
contract assets.
The amount capitalised is disclosed in note 10.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting period that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below:
Loan impairment
-- Where an asset has a maturity of 12 months or less, the "12
month ECL" and the "lifetime ECL" have the same effective meaning
and accordingly for such assets the calculated loss allowance will
be the same whether such an asset is at Stage 1 or Stage 2. Given
the preponderance of short term lending, the TruFin Group's
consolidated loss allowance is not materially affected by the
allocation of assets between Stages 1 and 2, nor by any significant
subjectivity in the forward looking estimates that are applied.
-- The Probability of Default ("PD") is an estimate of the
likelihood of default over a given time horizon and is a key input
to the ECL calculation. The TruFin Group primarily uses credit
scores from credit reference agencies to calculate the PD for loans
and advances to customers. The score is a 12-month predictor of
credit failure and, in the absence of internally generated loss
history, the TruFin Group believes that it provides the best proxy
for the credit quality of the loan portfolio.
-- Exposure At Default ("EAD") is an estimate of the exposure at
a future default date, taking into account expected changes in the
exposure after the reporting date, including repayments of
principal and interest, whether scheduled by contract or otherwise,
expected drawdowns on committed facilities and accrued interest
from missed payments.
-- Loss Given Default ("LGD") is an estimate of the loss arising
on default. It is based on the difference between the contractual
cash flows due and those that the lender would expect to receive,
in particular taking into account wholesale collateral values and
certain buy back options.
Measurement of fair values
In estimating the fair value of a financial asset or liability,
the TruFin Group uses market observable data to the extent that it
is available. Where such Level 1 inputs are not available, the
Group uses valuation models to estimate the fair value of its
financial instruments.
Refer to note 13 for more information on fair value
measurement.
Deferred tax asset
There is inherent uncertainty in forecasting beyond the
immediate future and significant judgement is required to estimate
whether future taxable profits are probable in order to utilise the
carried forward tax losses. However, the TruFin Group has
determined that convincing evidence exists to support the
recognition of a deferred tax asset in respect of carried forward
losses for Oxygen.
For Oxygen, a high proportion of the forecast revenue is
expected to be generated from clients that are either already
"live" or have already signed contracts with Oxygen. Oxygen's fixed
cost base is already scaled for continued business growth and
variable cost growth is not expected to be significant.
Refer to note 9 for more information on the deferred tax
asset.
Provision for commitments and other liabilities
The TruFin Group's provision of GBP299,000 relates to uncertain
tax positions prior to 31 December 2016. Although advice has been
taken, the legislation is complex and could result in different
interpretations. Due to the uncertainty associated with such tax
items, there is a possibility that, on conclusion of the tax
matters at a future date, the final outcome may differ from the
amount provided.
3. Fee income
2017 2016
GBP'000 GBP'000
------------------ --------- ---------
Revenue from
EPPS* contracts 2,153 1,361
Assessment fees 219 84
Consultancy fees 78 -
Facility fees 188 7
--------- ---------
Total revenue 2,638 1,452
--------- ---------
*Early Payment Programme Services
4. Segmental reporting
The results of the TruFin Group are broken down into segments
based on the products and services from which it derives its
revenue:
Short term finance:
Provision of distribution finance products and invoice
discounting. For results during the reporting period, this
corresponds to the results of DFC, SFSL and AltLending.
Payment services:
Provision of Early Payment Programme Services. For results
during the reporting period, this corresponds to the results of
Oxygen.
Other:
Revenue and costs arising from investment activities and
peer-to-peer lending. For results during the reporting period, this
corresponds to the results of Satago Solutions, the TruFin Group's
investment in Zopa and joint venture in Clear Funding, and TruFin
plc.
The results of each segment, prepared using accounting policies
consistent with those of the TruFin Group as a whole, are as
follows:
Short term Payment
Year ended 31 December finance services Other Total
2017 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----------- ---------- --------- ---------
External revenue 1,324 2,444 6 3,774
Expenses (68) (53) - (121)
----------- ---------- --------- ---------
Total revenue 1,256 2,391 6 3,653
----------- ---------- --------- ---------
Operating loss (3,737) (3,630) (2,147) (9,514)
Loss before tax (3,896) (3,959) (2,147) (10,002)
Taxation - 867 - 867
----------- ---------- --------- ---------
Loss for the year (3,896) (3,092) (2,147) (9,135)
----------- ---------- --------- ---------
Total assets 59,493 7,051 36,991 103,535
Total liabilities (10,098) (1,333) (708) (12,139)
----------- ---------- --------- ---------
Net assets 49,395 5,718 36,283 91,396
----------- ---------- --------- ---------
Short term Payment
Year ended 31 December finance services Other Total
2016 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----------- ---------- --------- ---------
External revenue 92 1,445 - 1,537
Expenses - (66) - (66)
----------- ---------- --------- ---------
Total revenue 92 1,379 - 1,471
----------- ---------- --------- ---------
Operating loss (479) (4,350) (1,732) (6,561)
Loss before tax (585) (5,652) (1,732) (7,969)
Taxation - 4,348 - 4,348
----------- ---------- --------- ---------
Loss for the year (585) (1,304) (1,732) (3,621)
----------- ---------- --------- ---------
Total assets 5,944 7,099 34,482 47,525
Total liabilities (3,241) (9,784) - (13,025)
----------- ---------- --------- ---------
Net assets 2,703 (2,685) 34,482 34,500
----------- ---------- --------- ---------
5. Staff costs
Analysis of staff costs:
2017 2016
GBP'000 GBP'000
------------------------------------------------------- --------- ---------
Wages and Salaries 6,111 2,510
Consulting costs 1,262 1,227
Social security costs 710 225
Pension costs arising on defined contribution schemes 105 -
--------- ---------
8,188 3,962
--------- ---------
Consulting costs are recognised within personnel costs where the
work performed would otherwise have been performed by employees.
Consulting costs arising from the performance of other services is
included within other operating expenses.
Average monthly number of persons (including Executive
Directors) employed:
2017 2016
Number Number
------------------- -------- --------
Management 10 2
Finance 4 2
Sales & Marketing 12 8
Operations 35 22
Technology 8 3
-------- --------
69 37
-------- --------
Directors' Emoluments
TruFin plc was incorporated 29 November 2017 and therefore the
Directors' emoluments of TruFin plc were GBPNil in 2017 and
2016.
Key management compensation:
The Directors consider that key management personnel are those
persons who are the Executive Committee of TruFin plc. These
individuals have the authority and responsibility for planning,
directing and controlling the activities of the TruFin Group.
Key management emoluments were GBPNil during 2017 and 2016:
6. Provision for commitments and other liabilities
Management has recognised a provision in relation to uncertain
tax positions prior to 31 December 2016. Although advice has been
taken, the legislation is complex and could result in different
interpretations. The amount recognised is the best estimate of the
consideration required to settle the present obligation at the
balance sheet date.
Group GBP'000
-------------------------------------- --------
At 1 January 2017 299
Additional provision during the year -
--------
At 31 December 2017 299
--------
The Company had no provisions at the year end.
7. Exceptional expenses
Loss before income tax is stated after charging the following
material items:
2017 2016
GBP'000 GBP'000
------------------------------------ --------- ---------
Oxygen partner settlement payments - 418
Oxygen IT platform transition 330 746
--------- ---------
330 1,164
--------- ---------
Items of income or expense are disclosed separately when they
are material to an understanding of the financial statements. These
are one-off items which are not expected to be repeated.
Under previous owners, Oxygen's business strategy included the
outsourcing of delivery and implementation services to parties that
were rewarded with a proportion of ensuing revenues. Oxygen
subsequently incurred material costs in terminating these partner
contracts.
Oxygen's legacy business strategy had also been based around a
technology platform operated by a third-party provider on Oxygen's
behalf. Oxygen incurred material costs to transfer the platform to
a cloud based environment under its own control.
8. Loss before income tax
Loss before income tax is stated after charging:
2017 2016
GBP'000 GBP'000
----------------------------------------------- --------- ---------
Depreciation of property, plant and equipment 43 30
Amortisation of intangible assets 156 -
Staff costs 8,188 3,962
Operating lease rentals 258 382
2017 2016
Fees payable to the Group's auditor (Deloitte LLP) GBP'000 GBP'000
------------------------------------------------------------------------------------- --------- ---------
Fees payable to the company's auditor for the audit of the company's annual accounts 70 -
Fees payable to the company's auditor for the audit of the company's subsidiaries 37 -
--------- ---------
Total audit fees 107 -
--------- ---------
Non audit services
Other taxation advisory services 187 -
Other assurance services 665 -
Corporate finance services 42 -
--------- ---------
Total non audit fees 894 -
--------- ---------
Non audit services include work carried out in relation to the
listing of TruFin plc's shares on the Alternative Investment Market
in February 2018. The total non audit fees were c.86% of the total
fees paid to Deloitte LLP.
9. Taxation
Analysis of tax credit recognised in the period
2017 2016
GBP'000 GBP'000
--------------------- --------- ---------
Current tax credit - (26)
Deferred tax credit (867) (4,322)
--------- ---------
Total tax credit (867) (4,348)
--------- ---------
Reconciliation of loss before tax to total tax credit
recognised
2017 2016
GBP'000 GBP'000
-------------------------------------------------------------------------------- --------- ---------
Loss before tax (10,002) (7,969)
--------- ---------
Loss before tax multiplied by the standard rate of corporation tax in the UK of
19.25%/20% (1,925) (1,594)
Tax effect of:
Expenses not deductible 42 525
Depreciation in excess of capital allowances 2 78
R&D expenditure credits (6) -
Capital allowances (8) -
Other short term timing differences 8 (3)
Capitalised revenue expenditure - (113)
Deferred tax on brought forward assets (87) (3,706)
Adjust closing deferred tax to rate at which losses expect to be utilised (17%) 129 -
Adjust closing deferred tax to average rate of 19.25%/20% (271) 105
Adjust opening deferred tax to average rate of 19.25%/20% - (24)
Deferred tax not recognised 1,249 384
--------- ---------
Total tax credit (867) (4,348)
--------- ---------
Reductions in the UK corporation tax rate from 19% (effective
from 1 April 2017) and to 18% (effective 1 April 2020) were
substantively enacted on 26 October 2015. An additional reduction
to 17% (effective from 1 April 2020) was substantively enacted on 6
September 2016. This will reduce the TruFin Group's future current
tax charge accordingly. The deferred tax assets and liabilities at
31 December 2017 have been based on the rates substantively enacted
at the balance sheet date.
Deferred tax asset
2017 2016
Group GBP'000 GBP'000
------------------------------------------------- --------- ---------
Balance at start of the year 4,322 -
Credit to the statement of comprehensive income 867 4,322
--------- ---------
Balance at end of the year 5,189 4,322
--------- ---------
Comprised of:
Losses 5,189 4,322
--------- ---------
Total deferred tax asset 5,189 4,322
--------- ---------
A deferred tax asset has been recognised in respect of Oxygen.
It is considered probable that future taxable profits will be
available to be realised against Oxygen's historical losses. This
determination is based on Oxygen's forecasts. A high proportion of
the revenue forecast is expected to be generated from clients which
have either already onboarded or which have already signed
contracts with Oxygen. Oxygen's fixed cost base is already scaled
for continued business growth, whilst variable costs are not
expected to be material. Deferred tax assets in DFC and Satago of
GBP928,000 and GBP164,000 have not been recognised given
uncertainty in future profits.
10. Other intangible assets
Software,
licenses
and
Client similar
Contracts assets Total
Group GBP'000 GBP'000 GBP'000
----------------------- ----------- ---------- ---------
Cost
At 1 January 2017 - - -
Additions 305 500 805
Disposals - - -
Impairment - - -
----------- ---------- ---------
At 31 December 2017 305 500 805
----------- ---------- ---------
Amortisation
At 1 January 2017 - - -
Charge for the period (52) (104) (156)
Impairment - - -
----------- ---------- ---------
At 31 December 2017 (52) (104) (156)
----------- ---------- ---------
Net book value
At 31 December 2017 253 396 649
At 31 December 2016 - - -
Client Contracts comprise the directly attributable costs
incurred at the beginning of an Early Payment Scheme Service
contract to revise a client's existing payment systems and provide
access to the TruFin Group's software and other intellectual
property. These implementation (or "set up") costs are comprised
primarily of employee costs.
The useful economic life for each individual asset is deemed to
be the term of the underlying Client Contract (generally 5 years)
which has been deemed appropriate and for impairment review
purposes, projected cash flows have been discounted over this
period.
The amortisation charge is recognised in depreciation and
amortisation on non-financial assets within the statement of
comprehensive income.
Computer software comprises an internally developed platform.
Costs that are directly associated with the production of
identifiable and unique software products controlled by the TruFin
Group and are probable of producing future economic benefits, are
recognised as intangible assets. Direct costs of software
development include employee costs and directly attributable
overheads.
A useful economic life of 3-5 years has been deemed appropriate
and for impairment review purposes, projected cash flows have been
discounted over this period.
The amortisation charge is recognised in depreciation and
amortisation on non-financial assets within the statement of
comprehensive income.
The Company had no intangible assets at the year end.
11. Property, plant and equipment
Fixtures
Leasehold & Computer
improvements fittings equipment Total
Group GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------------- ---------- ----------- ---------
Cost
At 1 January 2017 - 188 5 193
Arising on combination - - - -
Additions 44 33 30 107
Disposals - - - -
-------------- ---------- ----------- ---------
At 31 December 2017 44 221 35 300
-------------- ---------- ----------- ---------
Depreciation
At 1 January 2017 - (126) - (126)
Arising on combination - - - -
Charge (6) (31) (6) (43)
Disposals - - - -
-------------- ---------- ----------- ---------
At 31 December 2017 (6) (157) (6) (169)
-------------- ---------- ----------- ---------
Net book value
At 31 December 2017 38 64 29 131
At 31 December 2016 - 62 5 67
The TruFin Group holds no assets under finance leases.
The Company held no Property, plant and equipment at the year
end.
12. Investment in Joint Venture
Joint ventures
The summarised financial information for Clear Funding Limited,
prepared in accordance with IFRS, is set out below. The TruFin
Group equity accounts for its 50% share in the Joint Venture.
2017 2016
Group GBP'000 GBP'000
--------------------------------- --------- ---------
Income Statement
Cost of Sales (59) (521)
Administrative Expenses (1,777) (2,943)
Loss from continuing operations (1,836) (3,464)
2017 2016
GBP'000 GBP'000
--------------------------------- --------- ---------
Statement of financial position
Non-current assets 5 206
Cash 88 1,624
Other current assets 91 163
Current liabilities (855) (829)
Equity shareholders' funds (671) 1,164
There are no restrictions in the ability of Clear Funding to
transfer funds to the investor in the form of cash dividends, or
repayment of loans or advances. The TruFin Group did not receive a
dividend in the year to 31 December 2017 (Year to 31 December 2016:
GBPNil). There is no unrecognised share of losses in Clear Funding
for the years ended 31 December 2017 or 31 December 2016.
Clear Funding has been loss making and had a net liability
position. Clear Funding is to be wound up post the balance sheet
date and as such, the investment in the joint venture has been
recognised as GBPNil.
13. Other investments
Group
Level 3
valuation Company
GBP'000 GBP'000
----------------------------------------- ----------- ---------
Fair value at 31 December 2016 33,900 -
Gain on revaluation at 31 December 2017 2,600 -
Investment in subsidiaries - 123,966
----------- ---------
Fair value at 31 December 2017 36,500 123,966
----------- ---------
Group
Level 3
valuation Company
GBP'000 GBP'000
---------------------------------------- ----------- ---------
Fair value at 31 December 2015 43,640 -
Loss on revaluation at 31 December 2016 (9,740) -
Investment in subsidiaries - -
----------- ---------
Fair value at 31 December 2016 33,900 -
----------- ---------
At 31 December 2017, the TruFin Group had an economic interest
in Zopa Group Limited (the ultimate owner of the UK-based Zopa
peer-to-peer lending business). During the first half of 2017, Zopa
underwent a corporate restructuring. Prior to this, the ultimate
owner of the Zopa business was Zopa Holdings Inc, a Delaware (USA)
company. The below table represents the economic ownership both on
an undiluted basis and a fully diluted basis (i.e. assuming that
all holders of options, warrants and preferred shares were to have
exercised their subscription and conversion rights).
Group 2017 2016 2015
--------------- ------ ------ ------
Undiluted 17.7% 18.3% 18.5%
Fully diluted 15.7% 16.2% 16.5%
A level 3 valuation is one that relies on unobservable inputs to
the valuation process.
The shares are not quoted in any market and off-market
transactions are infrequent. The TruFin Group's owners nevertheless
adopt a market based approach to valuation, which it carries out on
a monthly basis in conjunction with a company that provides
independent valuation services. The TruFin Group applies judgement
in adjusting valuations that are otherwise determined by reference
to the prices of previous and anticipated transactions. Adjustments
are required in respect of the exercise of stock options and the
valuation of warrants over Zopa's equity, which are held by other
investors in Zopa. The TruFin Group also regards the valuations of
comparable businesses and recent transactions in the sector. The
valuations do not include any adjustment to reflect the size of the
TruFin Group's holding.
As at 31 December 2017, TruFin plc had investments in
subsidiaries that were valued at GBP123.9 million reflecting the
value of the underlying subsidiaries as at the date of the
re-organisation. The values were from an independent valuation
service using a combination of income and market based approach to
the valuations.
14. Loans and advances to customers
2017 2016
Group GBP'000 GBP'000
--------------------------------------- --------- ---------
Total loans and advances to customers 32,835 883
Less: loss allowance (126) (13)
--------- ---------
32,709 870
--------- ---------
Past due receivables relating to loans and advances are analysed
as follows:
2017 2016
GBP'000 GBP'000
------------------------------- --------- ---------
Neither past due nor impaired 32,402 867
Past due: 0-30 days 254 -
Past due: 31-60 days 16
Past due 61-90 days 1 3
Past due: More than 91 days 32 -
Impaired 4 -
--------- ---------
32,709 870
--------- ---------
The Company had no loans and advances to customers at the year
end.
15. Trade and other receivables
Group Company
-------------------- --------------------
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------
Trade and receivables 487 445 - -
Prepayments 1,062 38 37 -
Accrued Income 354 - - -
VAT 29 18 - -
Other debtors 376 588 44 -
Unpaid share capital - 5 - -
--------- --------- --------- ---------
2,308 1,094 81 -
--------- --------- --------- ---------
Trade receivables above are stated net of a loss allowance of
GBPNil (Dec 2016: GBPNil). All receivables are due within one
year.
Unimpaired, past due trade receivables are analysed as
follows:
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------- --------- --------- ---------
Not yet due 328 243 - -
Past due: 0-30 days 10 41 - -
Past due: 31-60 days 8 78 - -
Past due: 61-90 days - - - -
Past due: More than 91 days 141 83 - -
--------- --------- --------- ---------
487 445 - -
--------- --------- --------- ---------
16. Share capital
During the year ended 31 December 2017, the following new
ordinary shares were issued:
Share Capital Total
Group and Company GBP'000 GBP'000
--------------------------------- -------------- ---------
123,965,703 Shares at GBP1 each 123,966 123,966
At 31 December 2017, 123,965,702 shares were issued and fully
paid. 1 share was issued and unpaid.
All ordinary shares carry equal entitlements to any
distributions by the company. No dividends were proposed by the
Directors for the year ended 31 December 2017.
17. Borrowings
2017 2016
Group GBP'000 GBP'000
--------------------------- --------- ---------
Loans due within one year 35 11,900
Loans due in over a year 9,000 -
--------- ---------
9,035 11,900
--------- ---------
On 12 December 2017, DFC entered into a two year senior debt
facility with a leading bank which is secured on a floating pool of
underlying assets. Interest is payable at 3 month LIBOR + 4%. As
part of the agreement, DFC established a special purpose vehicle
called DFC Funding No 1 Limited (SPV). SPV is the borrower under
the facility agreements. As part of the arrangement, DFC assigns
its current and future receivables to SPV and the SPV in turn
assigned these receivables to the bank as security for the
facility.
Funding of GBP11,900,000 was received over the course of 2016 by
Oxygen Finance Limited from Arrowgrass in the form of Promissory
notes. The notes were all repayable on demand, but carried no
interest coupon if not called. The entire balance was converted to
ordinary shares in Oxygen Finance Limited on 28 June 2017.
18. Trade and other payables
Group Company
-------------------- --------------------
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------
Trade payables 212 - - -
Accruals 1,430 101 801 -
Other payables 652 722 - -
Other taxation and social security 511 3 - -
--------- --------- --------- ---------
2,805 826 801 -
--------- --------- --------- ---------
19. Financial instruments
The Directors have performed an assessment of the risks
affecting the TruFin Group through its use of financial instruments
and believe the principal risks to be: capital risk; credit risk;
market risk, including interest rate risk and foreign exchange
risk.
This note describes the TruFin Group's objectives, policies and
processes for managing the material risks and the methods used to
measure them. The significant accounting policies regarding
financial instruments are disclosed in note 1.
Capital risk management
The TruFin Group manages its capital to ensure that entities in
the TruFin Group will be able to continue as going concerns while
providing an adequate return to shareholders.
The capital structure of the TruFin Group consists of net debt
(borrowings disclosed in note 17) and equity of the TruFin Group
(comprising issued capital, reserves, retained earnings and
non-controlling interests as disclosed in note 16 and note 20).
The TruFin Group is not subject to any externally imposed
capital requirements.
Principal financial instruments
The principal financial instruments to which the TruFin Group is
party and from which financial instrument risk arises, are as
follows:
-- Loans and advances to customers, primarily credit risk and liquidity risk;
-- Trade receivables, primarily credit risk and liquidity risk;
-- Investments, primarily fair value or market price risk;
-- Cash and cash equivalents, which can be a source of credit
risk but are primarily liquid assets available to further business
objectives or to settle liabilities as necessary;
-- Trade and other payables;
-- Borrowings which are used as sources of funds and to manage liquidity risk.
Analysis of financial instruments by valuation model
Financial assets included in the balance sheet at fair
value:
2017 2016
Group GBP'000 GBP'000
----------------------- --------- ---------
Investments (level 3) 36,500 33,900
A level 3 valuation is one that relies on unobservable inputs to
the valuation process. The valuation is calculated by reference to
the price of previous transactions involving the issuance of shares
in Zopa and warrants over shares in Zopa and any other relevant
information such as future funding rounds.
The calculation takes into consideration the valuation of shares
and warrants over Zopa's equity, which were issued in connection
with a fund raise by Zopa in 2017. This is performed using the
Black-Scholes model, which requires inputs for spot equity price,
strike price, expiry date and risk-free interest rate, which are
observable inputs (from the warrant agreements and UK Gilt rate
markets respectively). The Black-Scholes model also requires a
significant unobservable input for the volatility of the Zopa
equity price, which is determined by comparison with annual
volatilities of comparable listed companies. A 1% increase in the
volatility of the Zopa equity price would produce a 0.45%
(GBP155,000) decrease in the calculation of the implied fund raise
valuation and as other factors are considered in reaching the fair
value of the Zopa Investment this volatility move would only
contribute to a 0.225% (GBP77,500) decrease in the fair value
measurement.
There are no financial liabilities included in the balance sheet
at fair value.
31 December 2017
Financial assets and financial liabilities included in the
balance sheet that are not measured at fair value:
Carrying Fair
amount value Level 1 Level 2 Level 3
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- --------- --------- --------- ---------
Financial assets
not measured
at fair value
Loans and advances
to customers 32,709 32,709 - - 32,709
Trade receivables 487 487 - - 487
Other receivables 1,821 1,821 - - 1,821
Cash and cash equivalents 26,049 26,049 26,049 - -
--------- --------- --------- --------- ---------
61,066 61,066 26,049 - 35,017
--------- --------- --------- --------- ---------
Financial liabilities
not measured at
fair value
Other borrowings 9,035 9,035 - - 9,035
Other liabilities 2,805 2,805 - 27 2,778
--------- --------- --------- --------- ---------
11,840 11,840 - 27 11,813
--------- --------- --------- --------- ---------
31 December 2016
Carrying Fair
amount value Level 1 Level 2 Level 3
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- --------- --------- --------- ---------
Financial assets
not measured
at fair value
Loans and advances
to customers 870 870 - - 870
Trade receivables 445 445 - - 445
Other receivables 649 649 - - 649
Cash and cash equivalents 6,690 6,690 6,690 - -
--------- --------- --------- --------- ---------
8,654 8,654 6,690 - 1,964
--------- --------- --------- --------- ---------
Financial liabilities
not measured at
fair value
Other borrowings 11,900 11,900 - - 11,900
Other liabilities 826 826 - - 826
--------- --------- --------- --------- ---------
12,726 12,726 - - 12,726
--------- --------- --------- --------- ---------
31 December 2017
Carrying Fair
amount value Level 1 Level 2 Level 3
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------- --------- --------- --------- ---------
Financial assets
not measured
at fair value
Other receivables 81 81 - - 81
--------- --------- --------- --------- ---------
81 81 - - 81
--------- --------- --------- --------- ---------
Financial liabilities
not measured at
fair value
Other liabilities 801 801 - - 801
--------- --------- --------- --------- ---------
801 801 - - 801
--------- --------- --------- --------- ---------
Fair values for level 3 assets were calculated using a
discounted cash flow model and the Directors consider that the
carrying amounts of financial assets and liabilities recorded at
amortised cost in the financial statements approximate to their
fair values.
Loans and advances to customers
Due to the short-term nature of loans and advances to customers,
their carrying value is considered to be approximately equal to
their fair value. These items are short term in nature such that
the impact of the choice of discount rate would not make a material
difference to the calculations.
Trade and other receivables, other borrowings and other
liabilities
These represent short-term receivables and payables and as such
their carrying value is considered to be equal to their fair
value.
Financial risk management
The TruFin Group's activities and the existence of the above
financial instruments expose it to a variety of financial
risks.
The Board of Directors has overall responsibility for the
determination of the TruFin Group's risk management objectives and
policies. The overall objective of the Board of Directors is to set
policies that seek to reduce ongoing risk as far as possible
without unduly affecting the TruFin Group's competitiveness and
flexibility.
The TruFin Group is exposed to the following financial
risks:
-- Credit risk
-- Liquidity risk
-- Market risk
-- Interest rate risk
-- Foreign exchange risk
Further details regarding these policies are set out below.
Credit risk
Credit risk is the risk that a customer or counterparty will
default on its contractual obligations resulting in financial loss
to the TruFin Group. One of the TruFin Group's main income
generating activities is lending to customers and therefore credit
risk is a principal risk. Credit risk mainly arises from loans and
advances to customers. The TruFin Group considers all elements of
credit risk exposure such as counterparty default risk,
geographical risk and sector risk for risk management purposes.
Credit risk management
The credit committees within the wider TruFin Group is
responsible for managing the credit risk by:
-- Ensuring that it has appropriate credit risk practices,
including an effective system of internal control;
-- Identifying, assessing and measuring credit risks across the
TruFin Group from an individual instrument to a portfolio
level;
-- Creating credit policies to protect the TruFin Group against
the identified risks including the requirements to obtain
collateral from borrowers, to perform robust ongoing credit
assessment of borrowers and to continually monitor exposures
against internal risk limits;
-- Limiting concentrations of exposure by type of asset,
counterparty, industry, credit rating, geographical location;
-- Establishing a robust control framework regarding the
authorisation structure for the approval and renewal of credit
facilities;
-- Developing and maintaining the risk grading to categorise
exposures according to the degree of risk of default. Risk grades
are subject to regular reviews; and
-- Developing and maintaining the processes for measuring
Expected Credit Loss (ECL) including monitoring of credit risk,
incorporation of forward looking information and the method used to
measure ECL.
Significant increase in credit risk
The Group continuously monitors all assets subject to Expected
Credit Loss as to whether there has been a significant increase in
credit risk since initial recognition, either through a significant
increase in Probability of Default ("PD") or in Loss Given Default
("LGD").
The following is based on the procedures adopted by the TruFin
Group:
Granting of credit
The Business Development Team prepare a Credit Application which
sets out the rationale and the pricing for the proposed loan
facility and confirms that it meets the TruFin Group's product risk
and pricing policies. The Application will include the proposed
counterparty's latest financial information and any other relevant
information but as a minimum:
-- Details of the limit requirement e.g. product, amount, tenor, repayment plan etc.,
-- Facility purpose or reason for increase,
-- Counterparty details, background, management, financials and ratios (actuals and forecast),
-- Key risks and mitigants for the application,
-- Conditions, covenants & information (and monitoring
proposals) and security (including comments on valuation),
-- Pricing,
-- Confirmation that the proposed exposure falls within risk appetite,
-- Clear indication where the application falls outside of risk appetite.
The Credit Risk Department will analyse the financial
information, obtain reports from credit reference agencies,
allocate a risk rating and make a decision on the application. The
process may require further dialogue with the Business Development
Team to ascertain additional information or clarification.
Each mandate holder and Committee is authorised to approve loans
up to agreed financial limits provided that the risk rating of the
counterparty is within agreed parameters. If the financial limit
requested is higher than the credit authority of the first reviewer
of the loan facility request, the application is sent to the next
credit authority level with a recommendation.
The Executive Risk Committee reviews all applications that are
outside the credit approval mandate of the mandate holder due to
the financial limit requested or if the risk rating is outside of
policy but there is a rationale and/or mitigation for considering
the loan on an exceptional basis.
Applications where the counterparty has a high risk rating are
sent to the Executive Risk Committee for a decision based on a
positive recommendation from the Credit Risk department. Where a
limited company has such a risk rating, the Executive Risk
Committee will consider the following mitigants:
-- Existing counterparty which has met all obligations in time
and in accordance with loan agreements,
-- Counterparty known to TruFin Group personnel who can confirm positive experience,
-- Additional security, either tangible or personal guarantees
where there is verifiable evidence of personal net worth,
-- A commercial rationale for approving the application,
although this mitigant will generally be in addition to at least
one of the other mitigants.
Identifying significant increases in credit risk
The short tenor of the current loan facilities reduces the
possible adverse effect of changes in economic conditions and/or
the credit risk profile of the counterparty.
The TruFin Group nonetheless measures a change in a
counterparty's credit risk mainly on payment and end of contract
repayment behaviour and the collateral audit process. Although
regular and interim reviews may highlight other changes in a
counterparty's risk profile, such as the security asset no longer
being under the control of the borrower. The TruFin Group views a
significant increase in credit risk as:
-- A two-notch reduction in the TruFin Group's counterparty's
risk rating, as notified through the credit rating agency,
-- A counterparty defaults on a payment due under a loan agreement,
-- Late contractual payments which although cured, re-occur on a regular basis,
-- Counterparty confirmation that it has sold TruFin Group
assets but delays in processing payments,
-- Evidence of a reduction in a counterparty's working capital
facilities which has had an adverse effect on its liquidity,
-- Evidence of actual or attempted sales out of trust or of
double financing of assets funded by the TruFin Group.
An increase in significant credit risk is identified when any of
the above events happen after the date of initial recognition.
Default
Identifying loans and advances in default and credit
impaired
The TruFin Group's definition of default for this purpose
is:
-- A counterparty defaults on a payment due under a loan
agreement and that payment is more than 30 days overdue, or
-- The collateral that secures, all or in part, the loan
agreement has been sold or is otherwise not available for sale and
the proceeds have not been paid to the lending company, or
-- A counterparty commits an event of default under the terms
and conditions of the loan agreement which leads the lending
company to believe that the borrower's ability to meet its credit
obligations to the lending company is in doubt.
The short tenor of the loans extended by the TruFin Group means
that significant economic events are unlikely to influence
counterparties' ability to meet their obligations to the TruFin
Group.
At 31 December 2017 a very small amount of assets are considered
credit impaired and no forbearance had been granted.
Exposure at default
Exposure at default ("EAD") is the expected loan balance at the
point of default and, for the purpose of calculating the Expected
Credit Losses ("ECL"), management have assumed this to be the
balance at the reporting date.
Expected Credit Losses
The ECL on an individual loan is based on the credit losses
expected to arise over the life of the loan, being defined as the
difference between all the contractual cash flows that are due to
the TruFin Group and the cash flows that it actually expects to
receive.
This difference is then discounted at the original effective
interest rate on the loan to reflect the disposal period of such
assets underlying the original contract.
Regardless of the loan status stage, the aggregated ECL is the
value that the TruFin Group expects to lose on its current loan
book having assessed each loan individually.
To calculate the ECL on a loan, the TruFin Group considers:
1. Counterparty PD; and
2. LGD on the asset
whereby: ECL = EAD x PD x LGD
Forward looking information
In its ECL models, the TruFin Group applies the following
sensitivity analysis of forward-looking economic inputs:
-- GDP growth
-- Central Bank base rates expressed as LIBOR
-- Retail Price Index ("RPI")
However, in making its assessment of the impact of these key,
forward looking economic assumptions, the TruFin Group has placed
reliance on the short-dated nature of its loans which do not extend
beyond 12 months. Given the current loan book has an average tenor
of less than 4 months, the forward looking economic inputs above do
not affect the ECL significantly.
Maximum exposure to credit risk
Group Company
-------------------- --------------------
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------
Cash and cash equivalents 26,049 6,690 - -
Loans and advances to customers 32,709 870 - -
Trade and other receivables 2,308 1,094 81 -
--------- --------- --------- ---------
Maximum exposure to credit risk 61,066 8,654 81 -
--------- --------- --------- ---------
Loans and advances to customers:
Collateral held as security
Group Company
-------------------- --------------------
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------
Fully collateralised
Loan-to-value* ratio:
Less than 50% 6 - - -
50% to 70% 5 - - -
71% to 80% 3,893 - - -
81% to 90% 5,161 5 - -
91% to 100% 23,311 23 - -
--------- --------- --------- ---------
32,376 28 - -
--------- --------- --------- ---------
Partially collateralised
Collateral value relating to loans over 100%
loan-to-value - - - -
--------- --------- --------- ---------
Unsecured lending 459 855 - -
--------- --------- --------- ---------
* Calculated using wholesale collateral values
The majority of the TruFin Group's lending activities are
asset-backed and the TruFin Group expects that the majority of its
exposure is secured by the collateral value of the asset that has
been funded under the loan agreement. The TruFin Group has title to
the collateral which is funded under loan agreements. The
collateral comprises boats, motorcycles, recreational vehicles,
caravans and industrial and agricultural equipment. The collateral
has low depreciation and is not subject to rapid technological
changes or redundancy. There has been no change in the TruFin
Group's assessment of collateral and its underlying value in the
reporting period.
The assets are generally in the counterparty's possession, but
this is controlled and managed by the asset audit process. The
audit process checks on an agreed periodic basis that the asset is
in the counterparty's possession and has not been sold out of trust
or is otherwise not in the counterparty's control. The frequency of
the audits is determined by the risk rating assessed at the time
that the borrowing facility is first approved.
Additional security may also be taken to further secure the
counterparty's obligations and further mitigate risk. Further to
this, in many cases the TruFin Group is often granted by the
counterparty, an option to sell-back the underlying collateral.
Based on the TruFin Group's current principal products, the
counterparty repays its obligation under a loan agreement with the
TruFin Group at or before the point that it sells the asset. If the
asset is not sold and the loan agreement reaches maturity, the
counterparty is required to pay the amount due under the loan
agreement plus any other amounts due. In the event that the
counterparty does not pay on the due date, the TruFin Group's
customer management process will maintain frequent contact with the
counterparty to establish the reason for the delay and agree a
timescale for payment. Senior Management will review actions on a
regular basis to ensure that the TruFin Group's position is not
being prejudiced by delays.
In the event that the TruFin Group determines that payment will
not be made voluntarily, it will enforce the terms of its loan
agreement and recover the asset, instituting legal proceedings for
delivery, if necessary. If there is a shortfall between the net
sales proceeds from the sale of the asset and the counterparty's
obligations under the loan agreement, the shortfall is payable by
the counterparty on demand.
Concentration of credit risk
The TruFin Group maintains policies and procedures to manage
concentrations of credit at the counterparty level and industry
level to achieve a diversified loan portfolio. As at 31 December
2017, the largest counterparty exposure was 6% of the total loan
portfolio and the largest industry sector exposure was 41% of the
total loan portfolio.
Credit quality
An analysis of the TruFin Group's credit risk exposure for loan
and advances per class of financial asset, internal rating and
"stage" is provided in the following tables. A description of the
meanings of Stages 1, 2 and 3 is given in the accounting policies
set out in note 1.
2017 2016
Stage 1 Stage 2 Stage 3 Total Total
Risk rating GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------- --------- --------- --------- ---------
Above Average (Risk
rating 1-2) 14,305 - - 14,305 22
Average (Risk rating
3-4) 15,849 - - 15,849 -
Below Average (Risk
rating 5+) 2,681 - - 2,681 228
Gross carrying amount 32,835 - - 32,835 250
Loss allowance (126) - - (126) (13)
--------- --------- --------- --------- ---------
Carrying amount 32,709 - - 32,709 237
--------- --------- --------- --------- ---------
At 31 December 2016, all loans and advances to customers were in
Stage 1.
Trade receivables
Group Company
-------------------- --------------------
2017 2016 2017 2016
Status at balance sheet date GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ --------- --------- --------- ---------
Not past due, nor impaired 328 243 - -
Past due but not impaired 159 202 - -
Impaired - - - -
--------- --------- --------- ---------
Total gross carrying amount 487 445 - -
loss allowance - - - -
--------- --------- --------- ---------
Carrying amount 487 445 - -
--------- --------- --------- ---------
Net trade receivables 487 445 - -
--------- --------- --------- ---------
The TruFin Group has determined that all trade receivables are
Stage 1. They all relate to amounts outstanding from public sector
bodies in the UK and US. As such there is no expectation of
material future credit losses relating to these financial
assets.
The Company had no trade receivables during the year and
therefore there was a GBPNil balance as at 31 December 2017 (31
December 2016: GBPNil)
The contractual amount outstanding on financial assets that were
written off during the reporting period and are still subject to
enforcement activity is GBPNil at 31 December 2017 (31 December
2016: GBPNil).
Liquidity risk
Liquidity risk is the risk that the TruFin Group does not have
sufficient financial resources to meet its obligations as they fall
due or will have to do so at an excessive cost. This risk arises
from mismatches in the timing of cash flows which is inherent in
all banking operations and can be affected by a range of
Group-specific and market-wide events.
Liquidity risk management
The TruFin Group delegates liquidity risk management to its
subsidiary, DFC, which has in place a policy and control framework
for managing liquidity risk. DFC's Asset and Liability Management
Committee (ALCO) is responsible for managing the liquidity risk via
a combination of policy formation, review and governance, analysis,
stress testing, limit setting and monitoring. The ALCO meets on a
monthly basis to review the liquidity position and risks. Daily
liquidity reports are produced and reviewed by the management team
to track liquidity and pipeline.
DFC is in the process of applying for a Bank Licence. One of the
key requirements is to a have a comprehensive liquidity management
process & documentation which is submitted to the Prudential
Regulation Authority (PRA) for approval. These documents have been
approved by DFC's Board of Directors and submitted to the PRA.
Group Finance performs treasury management for the TruFin Group,
with responsibility for the treasury for each business entity being
delegated to the individual subsidiaries. However, in line with the
wider Group governance structure, Group Finance performs an
important oversight role in the wider treasury considerations of
the TruFin Group. The primary mechanism for maintaining this
oversight is a formal requirement that subsidiaries' Finance teams
notify all material Treasury matters to Group Finance.
The main Group responsibilities are to maintain banking
relationships, manage and maximise the efficiency of the TruFin
Group's working capital and long term funding and ensure ongoing
compliance with banking arrangements. TruFin Group current does not
have any offsetting arrangements.
Liquidity stress testing
DFC has assessed its liquidity adequacy and viability for the
first 12 months of operations, based on its 5 year business plan
projections. Under this analysis, DFC is confident that it will be
able to meet all of its liabilities as they fall due, even in a
stress scenario.
A range of liquidity stress scenarios has been conducted (as
detailed in the capital and liquidity requirements), which
demonstrates that DFC's liquidity profile at the end of this 12
month period will be sufficient to withstand a severe stress at
this time.
Maturity analysis for financial assets and financial
liabilities
The following maturity analysis is based on expected gross cash
flows.
As at 31 December 2017
Carrying Less than 3 months
Group amount 1 months 1 - 3 months to 1 year 1 - 5 years
--------------------------- --------- ---------- ------------- ----------- ------------
Financial assets
Cash and cash equivalents 26,049 26,049 - - -
Trade receivables 487 340 7 140 -
Loans and advances
to customers 32,709 6,769 21,584 3,653 1,258
Investment securities 36,500 - - - 36,500
--------- ---------- ------------- ----------- ------------
95,745 33,158 21,591 3,793 37,758
--------- ---------- ------------- ----------- ------------
Financial liabilities
Trade and similar
payables 2,805 2,805 - - -
Borrowings 9,035 35 65 305 9,386
--------- ---------- ------------- ----------- ------------
11,840 2,840 65 305 9,386
--------- ---------- ------------- ----------- ------------
Market risk
Market risk is the risk that movements in market factors, such
as foreign exchange rates, interest rates, credit spreads, equity
prices and commodity prices will reduce the TruFin Group's income
or the value of its portfolios.
Market risk management
The TruFin Group's management objective is to manage and control
market risk exposures in order to optimise return on risk while
ensuring solvency.
The core market risk management activities are:
-- The identification of all key market risk and their drivers,
-- The independent measurement and evaluation of key market risks and their drivers,
-- The use of results and estimates as the basis for the TruFin
Group's risk/return-oriented management, and
-- Monitoring risks and reporting on them.
Interest rate risk management
The TruFin Group is exposed to the risk of loss from
fluctuations in the future cash flows or fair values of financial
instruments because of the change in market interest rates.
Interest rate risk
The TruFin Group's borrowings are at 3m LIBOR plus a margin. The
borrowing that is currently in place is a short term measure until
DFC is granted its banking licence and hence there is little cash
flow interest rate risk. Conversely there is little interest rate
price risk because market interest rates are currently very
low.
Foreign exchange risk
Foreign exchange risk is the risk that movements in exchange
rates affect the profitability of the business.
The TruFin Group's policy is, where possible, to allow Group
entities to settle liabilities denominated in their local
functional currency (primarily Pound Sterling or US Dollars) with
the cash generated from their own operations in that currency.
Where Group entities have liabilities denominated in a currency
other than their functional currency (and have insufficient
reserves of that currency to settle them), cash already denominated
in that currency will, where possible, be transferred from
elsewhere within the TruFin Group.
The TruFin Group earns revenue and incurs costs in local
currencies and is able to manage foreign exchange risk by matching
the currency in which revenue is generated and expenses are
incurred.
The majority of the TruFin Group's financial assets are held in
Pound Sterling but movements in the exchange rate of the US Dollar
against Pound Sterling may have an impact on both the result for
the year and equity.
The carrying amounts of the TruFin Group's foreign currency
denominated monetary assets and liabilities at the end of the year
were as follows:
Assets and
liabilities
denominated
in
US Dollars
31 December 2017 GBP'000
----------------------- -------------
Financial assets 21
-------------
Financial liabilities -
31 December 2016
----------------------- -------------
Financial assets 108
-------------
Financial liabilities -
-------------
20. Non-controlling interests
Distribution Finance Capital Ltd, an 80% owned subsidiary of the
Company, has material non-controlling interests (NCI).
The summarised financial information below represents amounts
before intragroup eliminations.
2017 2016
GBP'000 GBP'000
---------------------------------------------- --------- ---------
Current Assets 37,858 2,891
Non-current assets 37 5
Current liabilities (2,795) (163)
Non-current liabilities (36,560) -
Equity attributable to owners of the Company (1,168) 2,186
Non-controlling interests (291) 547
2017 2016
GBP'000 GBP'000
---------------------------------------------------- --------- ---------
Revenue 1,116 -
Expenses (5,327) (571)
Loss after tax (5,157) (551)
Loss after tax attributable to owners of the
Company (4,125) (114)
Loss after tax attributable to the non-controlling
interests (1,032) (457)
Net cash used in operating activities (33,727) (484)
Net cash used in investing activities (42) (5)
Net cash generated from financing activities 37,416 3,300
Net increase in cash and cash equivalents 3,647 2,811
GBP'000
---------------------------------------------------- ---------
Balance at 1 January 2016 -
On combination 661
Share of loss for the year (114)
Payment of dividends -
---------
Balance at 1 January 2017 547
Share of loss for the year (1,032)
Capital contribution 192
Payment of dividends -
---------
Balance at 31 December 2017 (293)
21. Leasing commitments
At the year-end date the TruFin Group has lease agreements in
respect of properties and equipment for which the payments extend
over a number of years. The future minimum lease payments under
non-cancellable leases are as follows:
2017 2016
GBP'000 GBP'000
--------------------------------------- --------- ---------
Due in less than one year 391 40
Due between one and five years 450 145
--------- ---------
Total future lease payments committed 841 185
--------- ---------
22. Related party disclosures
As at 31 December 2017, The TruFin Group was 100% owned by
Arrowgrass Master Fund Ltd.
Transactions with Directors
Transactions with Directors, or entities in which a Director is
also a Director or partner:
2017 2016
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Consultancy services provided by a director 13 738
Key management personnel disclosures are provided in note 5.
Transactions with shareholders
AltLending had a GBP250,000,000 borrowing facility with
AltLending Ireland, of which certain amounts have been drawn down
and repaid and as at 29 December 2017, all loans between the two
companies have been cancelled.
On 20 May 2016 a GBP1,000,000 loan facility, with a variable fee
based upon 75% of related receivables income received, was extended
by Arrowgrass to SFSL. This loan was repaid in full in August
2017.
On 13 March 2017 a GBP3,000,000 loan, with 2% interest coupon,
maturing on 9 September 2017, was extended by Arrowgrass to SFSL.
This loan was also repaid in full during August 2017.
Funding of GBP3,500,000 was received by DFC on 3 March 2017 from
Arrowgrass in the form of preference shares, paying a fixed
cumulative preferential dividend at an annual rate of 5% compounded
annually on 31 December each year.
Funding of GBP11,900,000 was received over the course of 2016 by
Oxygen Finance Limited from Arrowgrass in the form of Promissory
notes. The notes were all repayable on demand but carried no
interest coupon. The entire balance was converted to ordinary
shares in Oxygen Finance Limited on 28 June 2017.
23. Post balance sheet events
TruFin plc ordinary shares were listed on the Alternative
Investment Market of the London Stock Exchange on 21 February 2018,
raising gross proceeds of GBP70 million from the IPO. The Company
issued 36,842,106 Capital Raising Shares at a price of 190p per
share to raise a total of GBP70 million and approx. GBP66 million
net of expenses.
The Company issued 36,765,791 Placing Shares with institutional
and other investors and 76,315 Subscription Shares at a price of
190p per share. The Placing Shares and Subscription Shares
represent approx. 37.9% of the Enlarged Ordinary Share Capital.
Arrowgrass subscribed for 14,010,324 Capital Raising Shares at a
price of 190 pence per share, following which it held approx. 73.1%
of the Enlarged Ordinary Share Capital. The total Enlarged Share
Capital following the IPO was 97,368,421 shares.
On Admission, the trustee of the Employee Benefit Trust ("EBT")
and relevant Joint Share Ownership Plan ("JSOP") Award holder
jointly subscribed for the EBT Shares equal to 3.5% of the issued
share capital of the Company in consideration of the continued
employment by the relevant employee with the Company and in
connection with the Company's share incentive arrangements.
Significant Shareholdings following IPO
Arrowgrass Master Fund 73.1%
Credit Suisse 5.4%
Liontrust 3.6%
Dalton 3.5%
Employee Benefit Trust 3.5%
On 16 March 2018, TruFin Holdings Limited (TFH) converted the
mezzanine loan of GBP25m plus accrued interest of GBP2.27m that it
has owed to it by DFC to equity. In exchange, DFC issued to TFH
6,002 ordinary shares (with a nominal value of GBP1) at a
consideration of GBP4,544.59 per share. This resulted in an
increase in the ordinary shares held by TFH and an increase in
share premium of GBP27.27m, bringing the total share premium to
GBP30.57m. DFC on the same day cancelled the share premium in full
and credited its Retained Earnings account, thereby creating
distributable reserves. This reduction of capital was carried out
by way of the solvency statement procedure under section 641(1)(a)
of the CA 2006. The issue of additional shares to TFH resulted in
the management of DFC being diluted. Before the issue of these
shares DFC management owned 20% and TFH 80%, post the issuance of
the new shares, DFC management owns approx. 9% and TFH 91%.
On 27 April 2018, SFSL has granted to Vertus, a provider of
succession finance for Financial Advisers, a senior loan facility
of GBP5m with an interest charge of 5% per annum plus BoE base rate
and a GBP3.65m convertible loan with an interest charge of 8% per
annum.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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