TIDML
RNS Number : 9138U
Sancus Lending Group Limited
31 March 2023
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulation (EU) No. 596/2014 as amended by The Market Abuse
(Amendment) (EU Exit) Regulations 2019. The person responsible for
making this announcement on behalf of the Company is Rory
Mepham.
31 March 2023
Sancus Lending Group Limited
("Sancus", the "Company" or "Group")
Final Results for the year ended 31 December 2022
HIGHLIGHTS
Rory Mepham, Chief Executive Officer of Sancus Lending Group
Limited, commented:
"After 18 months in my post as CEO, the turnaround of the
business is on track and we are confident of our ability to deliver
profitability. The business has undergone considerable
restructuring and simplification during my tenure and we continue
to be exclusively focussed on residential property lending in the
development and bridging space, a market which remains underserved
and offers significant growth possibilities.
During the year, we have carried out various cost optimisation
projects in an effort to ensure that every pound of cost incurred
is geared towards delivering growth. We remain convinced that
technological enablement holds one of the keys to our future and
are pleased with both the progress that has been made to date and
the further enhancements in the pipeline. The robustness of our
credit process, institutional quality of our underwriting, due
diligence and active loan management means that despite recent
inflationary and interest rate pressures we report only a small
increase of 3.14% (GBP0.4m) increase to our previously reported
IFRS9 provisions, all of which relate to loans written in 2019 or
before.
I am excited by the potential in the teams that we have
assembled in the UK, Ireland and Offshore and believe that we have
the basis from which to become "best in class" in each of these
markets.
Financial Highlights
-- Group revenue increased by 11% to GBP10.0m FY22 (FY21: GBP9.0m);
-- Operating losses narrowed to GBP4.7m (FY21: loss GBP10.2m);
-- Group PBT loss for the year of GBP14.1m (FY21: loss GBP10.3m)
impacted by the exceptional write down of goodwill in Gibraltar of
GBP8.6m; and
-- A small increase of 3.14% (GBP0.4m) to IFRS9 provisions in
2022, compared to GBP6.4m charge in 2021, the result of operational
improvements within the business.
Operational Highlights
-- Geographic focus remains unchanged: UK and Ireland the key
areas of growth for the business with UK revenue up 81%, Ireland up
132%;
-- Sancus' Offshore business saw a decline of 64% in revenue
following the repayment of some large loans and insufficient new
loans written to mitigate the reduction in their loan book.
Offshore new loan facilities written in 2022 however increased by
47% on 2021;
-- Impressive growth of 88% on total new facilities written,
from GBP83m to GBP156m year on year with UK up 76% and Ireland up
180%, and a strong pipeline in the Group's key growth markets for
FY23; and
-- Loan book at year end GBP169m (2021: GBP142m) as a result of
continued increase in UK and Irish loan books.
Strategic Highlights
-- Restructuring of the Group's funding facility, extension of
the Zero Dividend Preferences Shares ("ZDPs") and Tender offer, and
new equity and bond subscription from Somerston:
o Increase and extension of the Company's facility arranged by
Pollen Street Plc ("Pollen Street") from GBP75m to up to GBP125m,
not to expire before November 2026, providing additional funding
capacity as the Company seeks to grow its lending book;
o Refinancing and extension of the ZDP shares to December 2027,
accompanied by a 15% tender offer
o Further investment by Somerston through the exercise of
warrants over 94,294,869 ordinary shares, for an aggregate
subscription price of GBP2.1m;
o Somerston subscribed to GBP2.43m bonds in December 2022,
taking the Company's aggregated bond principal to GBP15m, of which
GBP10.13m is now held by Somerston;
-- The Company announced in January 2023 its decision to
rationalise the number of offices from which it operates, from five
to three: London, Dublin and Jersey, providing the Group with a
footprint reflecting its three core areas of geographic focus: UK,
Ireland and Offshore;
-- This rationalisation resulted in the closure of the Company's
office in Guernsey and the decision to cease new business
activities in Gibraltar, having not identified sufficient quality
lending opportunities to merit continued efforts in the region;
and
-- Sancus Gibraltar was subsequently sold for GBP10k, resulting
in closure cost savings of around GBP200k. The departure from the
Gibraltar market will result in cost saving, risk reduction and
allow dedicated resources to focus on the Group's core markets.
Goodwill of GBP8.64m held in respect of Sancus Gibraltar written
down to nil.
For further information, please contact:
Sancus Lending Group Limited
Rory Mepham +44 (0)1534 708 900
Liberum Capital (Nominated Adviser
and Corporate Broker)
Lauren Kettle
Chris Clarke
William King +44 (0) 20 3100 2000
Instinctif Partners (PR Adviser)
Tim Linacre
Victoria Hayns +44 (0)207 457 2020
Sanne Fund Services (Guernsey)
Limited
(Company Secretary)
Matt Falla +44 (0)1481 755530
Introduction
We are now a year into a structured change programme which we
expect to reposition the Group for growth. Demand in our chosen
markets remains firm and the reduced appetite of some traditional
balance sheet lenders, may present an opportunity to write good
quality new business.
The expansion of the business development team has started to
pay dividends with an increase in the volume of new loan facilities
written to GBP156m, versus GBP83m in the previous year.
Last year, as part of a wider review of the business and an
expansion of the credit and recovery teams, we carried out a
detailed review of the Group's loan book which resulted in an
impairment provision of GBP6.4m (FY 2021). We believe that last
year's write down effectively draws a line under recent losses and
we are reporting an IFRS9 impairment of GBP0.4m in 2022, partially
the result of ongoing recovery costs. The provisions made to date
all relate to loans written in 2019 or before.
We have decided to close the Gibraltar office. This will result
in cost savings and improved focus in stronger markets. As a result
of the decision to close the office, Goodwill (GBP8.64m) arising
from the acquisition of Sancus Lending (Gibraltar) Limited ("Sancus
Gibraltar") in 2016, has been written down to nil.
Our People
Following last year's personnel changes, the team has settled in
well and is working hard to deliver our goals of profitability,
growth and shareholder value. The Group has invested in rebuilding
and reinforcing the team and our headcount has increased from 32 at
the end of 2021 to 39 at 31 December 2022. We do not expect to
increase headcount in 2023. The new resource is focussed on
expansion in our growth markets of the UK and Ireland, credit risk
and technology.
As announced on 10 January 2023 Emma Stubbs, CFO, will be
leaving the business at the end of March 2023 and Tracy Clarke will
be appointed as the Group's Interim Chief Financial Officer, for an
initial period of 12 months. Emma leaves as a result of our
continuing commitment to reduce cost and to switch the focus of our
operations to Jersey where we have a significant presence. Emma
leaves with our very best wishes and thanks for her time with the
Group.
Tracy has been a non-executive Director of the Company since
March 2022 and is a Fellow of the Institute of Chartered
Accountants in England and Wales and holds the CISI Investment
Advice Diploma. Tracy is currently Managing Director of Carlton
Management Services Limited ("Carlton"), a licensed Jersey Trust
Company business which provides administration and finance services
to clients including the Somerston Group (the Company's largest
shareholder).
With effect from 31 March 2023, as an interim measure which may
become permanent, Carlton has been appointed to manage and develop
the Group's finance function, including new technology integrations
for forecasting, performance and treasury management. Under its
service agreement with Carlton, which has a three-year term and
covers services including accounts preparation, budgeting and
cashflow forecasting, book-keeping, financial KPI analysis and
various administrative services, Sancus will pay to Carlton an
annual fee of GBP170k (the "Carlton Agreement"). Furthermore, it
has been agreed that Carlton will sub-lease office space from
Sancus in the Group's offices in Jersey, pursuant to a sub-lease
agreement dated 30 March 2023 to which Sancus, Carlton and the
landlord of the Group's Jersey offices are each a party (the
"Carlton Sub-lease"). Pursuant to the Carlton Sub-lease, Carlton
will be charged approximately GBP100k, on the same terms as Sancus
for the proportion of space occupied, which is not currently being
used by Sancus. The Carlton Sub-lease therefore represents cost
savings for the Group, while also facilitating a smoother working
relationship as envisaged by the Carlton Agreement.
Entry by the Company into the Carlton Agreement and the Carlton
Sub-lease each represents a related party transaction, pursuant to
AIM Rule 13. The independent directors (being the Company's
directors except for Tracy Clarke) consider, having consulted with
its nominated adviser, Liberum Capital, that the terms of the
respective transactions are each fair and reasonable insofar as its
independent shareholders are concerned.
The Board intend to appoint a permanent CFO in due course and
will review these arrangements on a regular basis.
Capital Raise and Facility and Debt Restructuring
At the end of 2022 we announced an expansion of the Company's
Funding Facility with Pollen Street from GBP75m to up to GBP125m to
expire no earlier than 23 November 2026. This will provide
additional funding capacity as the Company seeks to grow its loan
book.
We also deferred the maturity of the ZDP shares until 5 December
2027 and completed a tender offer for 15% of ZDP shares, excluding
those held in treasury, that was fully subscribed.
Somerston, the Group's largest shareholder, invested further
equity in the Company on 30 November 2022 by exercising warrants
over 94,294,869 ordinary shares for an aggregate subscription price
of GBP2.1m. On 1 December 2022 Somerston subscribed to GBP2.425m of
bonds taking the Company's aggregated bond exposure to GBP15m (of
which GBP10.13m is held by Somerston).
Dividend and Shareholders
The Group is engaged in a recovery programme and there is no
capacity to declare a dividend this year. The Board will revisit
this policy as soon as the cash flow and profitability permit.
On behalf of the Board, I would like to thank shareholders for
their continuing support and patience. As a result of the
continuing efforts of our team the Group has made good progress
this year and while the Board do not underestimate the scale of the
challenge ahead we believe we have the right strategy, systems and
personnel to return the business to profitability.
I look forward to reporting positive developments in the coming
year.
Steve Smith
Chairman
Date: 30 March 2023
CHIEF EXECUTIVE OFFICER'S REVIEW
Outlook
This year saw a number of achievements and I am pleased with the
progress made. There is still more work to do on the road to
profitability, but the foundation to meet our goals were built upon
during the year.
We saw a significant increase in loans written in the year from
GBP83m written in 2021 to GBP156m in 2022. This will lead to
corresponding growth of loans under management, and revenue
increase, as these loans are drawn over time.
The loan book growth has been prevalent in the UK (129% growth
versus 2021) and Irish markets (22% growth versus 2021) where the
Sancus name and reputation continues to develop. Following the
repayment of several large loans in our Offshore business in the
year, the team are working hard to replenish the book with this new
loan capacity. In the UK we are particularly proud to have been
shortlisted for the award of Development Finance provider of the
year at the Bridging & Commercial awards, a clear demonstration
of our growing reputation as a straightforward and trusted business
partner.
It will take time for the loan writing process to deliver
revenue uplift as there is a time lag between execution and
drawdown, though fees are paid upfront on new deals and we
generally receive exit fees when the loan is repaid. At the end of
2022 the loan book stood at GBP169m, an 11% increase versus FY 2021
when it was GBP142m. We expect growth in the loan book to increase
during 2023 as the newly written loans continue to be drawn.
In addition to growing the revenue side of the Company, during
the year we have been seeking to find opportunities to both
optimise cost and create efficiencies. This has ultimately
culminated in our decisions to close our offices in Gibraltar and
Guernsey, whilst retaining our ability to do business in Guernsey.
Technological enablement of our systems and processes is further
designed to drive efficiency and mitigate cost increases as the
business scales up.
Strategic KPIs
We have seen progress against the Board agreed KPI's:
-- Revenue growth
o 11% up on last year due to modest increase in loan deployment.
Positive upticks in our growth areas of the UK and Ireland, with
the UK revenue up 81% on last year and Ireland up 132%.
-- Growing loans under management
o Loan book increase from GBP142m at 31 December 2021 to GBP169m
at 31 December 2022.
-- Reducing cost of funding
o This remains a focus for the Group, and we continue to seek
cheaper cost of funding. This has been challenging in the
macro-economic environment of the year but remains a strategic
objective. To address the movements in base rates across our
markets, we have implemented variable rate loans with the margin
pegged to the relevant base rate.
-- Become a capital efficient business
o We continue to reduce the amount of own capital within loans,
which at the end of 2022 represented 3.5% of the total loan book,
in comparison to 5.6% at the end of 2021.
-- Increasing operating profits - by increasing gross margin and reducing costs
o Operating loss for 2022 was GBP4.7m against an operating loss
of GBP10.2m in 2021. We have a small increase of GBP0.4m in
relation to IFRS9 losses in the year, whereby GBP6.5m was reported
in 2021.
o Our cost base has increased on prior year as we focus on
growth but in the future, we expect the cost ratio to revenue to
reduce.
-- Return on Equity ("ROE")
o Going forward we plan to become profitable and report a
positive ROE which the management team will be tasked to improve
year-on year.
-- Ensuring a risk-based approach is taken on all decision making
o Embedding institutional credit processes and becoming
increasingly technology enabled has been a focus of the Group over
the last year.
Origination
We have seen growth in new loan facilities written during the
year with GBP156m written during 2022 against GBP83m in 2021, as
the benefits of our investment in the origination teams begin to
deliver.
Maintaining a high-quality credit process whilst scaling the
quantity of new loans is a priority. We expect to see continued
growth in the UK and Ireland as these remain key areas of
investment for the Group. We further anticipate that the Offshore
business will continue to see attractive lending opportunities and
we are confident that the teams in our three core jurisdictions are
well placed to execute against those opportunities as they
arise.
Standardisation of the loan execution process has been
implemented across the Group, including documentation, conditions
precedent, conditions subsequent and closing checklists. We have
also implemented a new workflow process to expediate the time
between the loan credit approval and loan drawdown and are
exploring how we can better utilise technology to manage certain
elements more efficiently. We have now onboarded and integrated
Salesforce (our chosen CRM software) with our Loan Management
System which will create further standardisation and unlock
efficiencies going forward.
Loan Management
The loan book increased from GBP142m at the end of 2021 to
GBP169m at the end of 2022. With the number of new facilities
written and as we see funds deployed, we expect to be reporting a
further increase in our loan book over the coming year. The
increase was driven by the UK loan book increasing by 129% and
Ireland by 22% in the year, with Offshore decreasing by 14%. New
facilities written in total increased by 88% year on year. We have
a strong pipeline and expect to see the loan book continue to
increase. At the year end, the asset backed loan book comprised
Offshore at GBP82m (31 December 2021: GBP96m) UK at GBP66m (31
December 2021: GBP29m) and Ireland at GBP21m (31 December 2021:
GBP17m).
Continued emphasis has been placed on actively managing loans
once the initial drawdown has been made and further investment has
been made in recruiting experienced loan management team members
during the year. This has been particularly important during a time
when various market related pressures such as cost inflation are
impacting our borrowers. Active management is helping us to deal
with issues before they become problems and we are pleased to
report that the percentage of loan book in recovery continues to
reduce.
Funding
We continue to focus on increasing the funding capacity and
diversifying the funding sources of the business, on improved
terms. This is particularly important in the context of the wider
economic climate where we are in a significant inflationary
environment. We are seeking to work with a diversified mix of
funders, both private and institutional, to match funders with
loans meeting their varied risk and reward criteria. Currently, th
e Group is reliant on four funding sources:
-- Co-Funders
-- Loan Note program
-- Institutional funders
-- Proprietary capital
Co Funders remain our largest funding channel, with the majority
of the Offshore loan book being co-funded. The percentage of the
loan book funded by co-funders continues to reduce from 50% at the
end of 2021 to 39% at the end of 2022, as the proportion of
co-funding from institutional funding lines increases. We continue
to nurture relationships with the Co-Funder base, typically being
Offshore private individuals and family offices. In addition to the
large pool of Co-Funders that have been working with Sancus for a
number of years, the business is actively seeking to widen its net
and has recruited team members in its Offshore team to be
exclusively focused on targeting and building relationships with
potential new Co-Funders.
Loan Notes, managed by Amberton Limited, remain an important
funding instrument for the business. Loan Note 8 was launched in
January 2022 and currently stands at GBP2.7m. Loan Note 8 matures
on 1 December 2026 and has a coupon of 5% p.a. (payable quarterly),
with Sancus providing a 20% first loss guarantee. Loan Note 7 was
launched in May 2021 and currently stands at GBP14.8m. Loan Note 7
matures in May 2024 and has a coupon of 7% p.a. (payable
quarterly), with Sancus providing a 10% first loss guarantee. We
are in the process of re-launching Loan Note 8, with an improved
coupon of 8%, to reflect the current interest rate environment.
Sancus has secured an increase and extension to the
institutional funding line arranged by Pollen Street Capital
("Pollen Street") and is designed to be complementary to our
Co-Funder base and Loan Note program. As announced on 24 November
2022 the credit facility was increased to GBP125m from GBP75m and
the term was extended such that it will expire at least four years
from the date of the Agreed Terms, being not before 23 November
2026. At 31 December 2022 the total drawn was GBP67.75m (31
December 2021: GBP49.9m). The Pollen Street facility continues to
be strategic for the business and is generally utilized in relation
to funding development loans.
Sancus also has a forward flow bridge funding arrangement with a
global private equity backed debt acquisition business and
continues to explore additional long term financing lines that
could sit alongside our syndicated lending approach.
The availability, cost and flexibility of funding is key to
achieving our growth ambitions and we are continually reviewing the
capital position of the business with a view to ensuring it is best
placed to grow funding capacity on improved terms. Over the course
of 2022 the loan book funded by institutional funding increased by
69%, with the majority of the UK and Irish loan book funded by this
channel which now makes up 48% of the loan book. We will seek to
increase institutional funding alongside building the loan note
program and co-funder network over time.
Finance & Operations
A focus on operational efficiency within Finance and Operations,
driven by technology wherever possible, commenced during 2022 and
will continue into 2023. Sancus has continued to develop its own
proprietary loan managements system ("LMS") for the administration
of loans and has completed the integration of this system with a
CRM system provided by a third party.
The Executive team continue to improve Corporate Governance and
Compliance and Risk management as these are the bedrock for the
business to achieve future growth targets.
We made some selective hires across the business over the last
year with the focus of bolstering our Funding and Origination
capabilities in our active markets. At the end of 2022, the Group
headcount was 39 (31 December 2021: 32) with the largest increases
in the Origination and Loan Management teams. We believe the
business is now well resourced to meet its objectives and are
focussing on continuous improvement and development of our
people.
As announced on 10 January 2023 Emma Stubbs, CFO, will be
leaving the business at the end of March 2023 and Tracy Clarke will
be appointed as the Group's Interim Chief Financial Officer, for an
initial period of 12 months. Tracy, who has been a non-executive
Director of the Company since March 2022, is a Fellow of the
Institute of Chartered Accountants in England and Wales and holds
the CISI Investment Advice Diploma. Tracy is currently Managing
Director of Carlton Management Services Limited ("Carlton"), a
licensed Jersey Trust Company business which provides
administration and finance services to clients including the
Somerston Group (the Company's largest shareholder). With effect
from 31 March 2023, Carlton has been appointed to augment and
support the development of the Group's finance function, including
new technology integrations for forecasting, performance and
treasury management and reporting, further detail on which is set
out in the Chairman's Statement. It is ultimately the intention of
the Board to appoint a permanent CFO in due course and intends to
review these arrangements in 12 months.
A key milestone at the end of 2022 was the successful increase
and extension of the term of our facility with Pollen Street, as
well as restructuring our ZDPs and raising further capital from an
equity raise as well as restructuring our debt (Bonds and ZDPs).
This transaction had the full support of our largest shareholder
Somerston Group who participated in both the equity raise and new
bond issue. With the ZDP's intended to play a long-term part of the
Group's finance strategy, the extension of the maturity date from 5
December 2022 to 5 December 2027 allows the Group time to focus on
its growth plans.
Realising value from the legacy FinTech Ventures Investments
remains a target for the management team albeit we now only hold
stakes in four platforms. M onitoring and governance of FinTech
Ventures is ongoing and we continue to assist our investee
platforms with their strategy. Unfortunately, the profitability of
many of these companies have failed to meet expectations within an
acceptable timeframe and their ability to raise additional capital
without proving concept is severely constrained and we have fully
written down our portfolio to nil at the end of 2022. It remains a
challenging market for many of the FinTech platforms.
Summary of Financial Performance
Group revenue increased by 11% year on year from GBP9.0m in 2021
to GBP10.0m in 2022. Note 3 Segmental Reporting sets out the
results by Offshore, UK and Ireland and we can start to see revenue
growth in our growth target markets, with the UK revenue up by 81%
and Ireland up 132% over the course of 2022.
We have seen Offshore revenue decrease by 64% in the year,
partly due to some large exit fees received in 2021 and a reduction
in administration and transactional fees as the total loan book in
the region decreased over the last few years. The Offshore team has
seen significant change in senior management personnel in the last
two years, and the new team are focussed on re-building the loan
book over the coming years. Offshore continues to be a core
market.
We have reported an operating loss of GBP4.7m (FY 2021: loss of
GBP10.2m) and a small increase of GBP0.4m of expected credit losses
(IFRS 9) in the year (FY 2021: GBP6.5m loss).
The Group's net assets have reduced in the year from GBP19.1m at
31 December 2021 to GBP7.2m as a result of the operating loss in
the year and the goodwill impairment in Gibraltar of GBP8.6m. We
did see GBP2.1m of new equity come into the Group from Somerston at
the end of November 2022, who exercised the balance of their
existing warrants.
Group cash and cash equivalents was GBP4.1m at 31 December 2022
of which GBP2.5m related to Group operational cash and GBP1.6m was
within Sancus Loans Limited.
As announced on 10 January 2023 in reviewing its operations in
Gibraltar during 2022, the Company has not identified sufficient
quality lending opportunities to merit continued efforts in the
region. Leaving the Gibraltar market will result in cost saving,
risk reduction and allow dedicated resources to focus on the
Group's core markets. As a result, the Goodwill (GBP8.64 million),
held by the Company since the acquisition of Sancus Lending
(Gibraltar) Limited ("Sancus Gibraltar") in 2016, has consequently
been written down to nil in the 2022 results. We announced post
year-end on 15 March 2023 that we have sold Sancus Gibraltar for
GBP10,000.
Goodwill remains on the balance sheet at GBP14.3m. This relates
to t he carrying amount of goodwill arising on the acquisition of
Sancus Jersey. This is assessed by the Board for impairment on an
annual basis (or sooner if there has been any indication of
impairment). A full testing for impairment of the carrying amount
of goodwill was reported in the June 2022 interim accounts. The
resultant value in use calculation indicated that no impairment of
goodwill was required in Sancus Jersey. Following on from this
review the Board have considered whether there have been any
further indicative events of impairment since June 2022, and they
have concluded that there have not. The next full testing
impairment review will take place in the 2023 Interim Report.
We continue to reduce our on balance sheet loans (excluding
those loans in Sancus Loans Limited). These amounted to GBP8.2m
before IFRS9 provisions at 31 December 2022 compared to GBP9.7m at
31 December 2021 (GBP3.0m net of IFRS9 provisions at 31 December
2022 compared to GBP4.7m at 31 December 2021). Sancus Loans Limited
had loans of GBP74.7m at 31 December 2022 (31 December 2021:
GBP49.9m).
The Group's liabilities consist of the Bond instrument which now
stands at GBP15m of principal following a further subscription by
Somerston in 2022. This has a quarterly paid coupon of 7% p.a. and
matures on 31 December 2025; and ZDPs of GBP9.1m with a coupon now
of 9% following the restructure and refinance in the year
(previously 8%) and matures on 5 December 2027 (previous maturity
date was 5 December 2022). The Pollen credit facility which was
increased to GBP125m from GBP75m on 26 November 2022, stood at
GBP67.75m drawn at 31 December 2022.
ESG
At Sancus, we are committed to taking environmental, social and
governance ("ESG") factors seriously. We recognise our
responsibility to incorporate sustainability throughout the
operations of our business, be custodians of the environment and
practice good stewardship of our stakeholders' interests. We are
now taking steps to improve our approach to managing these
factors.
During 2022 we have been focused on defining our ESG strategy.
Having now established an internal ESG focus group we have also
drawn on external industry experts as required.
It is essential that we understand what ESG factors are most
important to our stakeholders, such that we can focus our strategy
around improving our approach to these issues. We have completed a
materiality assessment and have engaged with stakeholders during
the year.
I am pleased to report these results in detail in our ESG
report.
Going Concern
The Directors have considered the going concern basis in the
preparation of the financial statements as supported by the
Director's assessment of the Company's and Group's ability to pay
its debts as they fall due and have assessed the current position
and the principal risks facing the business with a view to
assessing the prospects of the Company. Following the extension of
the ZDPs at the end of 2022, for a further 5 years to 5 December
2027 and with the Bonds maturity date not until 31 December 2025,
the Company does not have any debt liabilities that fall due within
the next 12 months. Based on this, the Directors are of the opinion
that the Company has adequate financial resources to continue in
operation and meet its liabilities as they fall due for the
foreseeable future.
It is however expected, whereby equity is required to facilitate
an increase in drawdown from institutional funding lines that the
Company will require growth capital to fund the continued growth of
the loan book. The Company's largest shareholder, Somerston has
indicated their willingness to support the Company's growth plans.
The Company will be looking at options available to raise
additional growth capital over the course of the year, which may
include a form of equity raise or sale by the Company of ZDP shares
held in treasury.
The Directors therefore believe it is appropriate to continue to
adopt the going concern basis in preparing the financial
statements.
Outlook
The economic uncertainty is likely to lead to the continued
retrenchment of major Banks from both SME and development financing
and during Q4 we have observed a reduction in the number of active
competitors in both the UK and Ireland, further providing
attractive opportunities for alternative lenders such as Sancus. We
continue to track the economic and geopolitical situation closely
as the potential for supply chain disruption and inflationary risks
continue to be a concern.
We remain optimistic about the outlook for our business and
continue to look forward to delivering both profitability and a
"best in class" offer to our clients.
Rory Mepham
Chief Executive Officer
PRINCIPAL RISKS, UNCERTAINTIES AND RELATED INTERNAL CONTROLS
The Group aims to carefully manage the risks which are inherent
across its business activities in order to deliver an appropriate
risk adjusted commercial return. The principal risks which the
Group has consciously accepted in the pursuit of value creation are
liquidity risk, regulatory and compliance risk, market risk, credit
risk, strategic risk, and investment risk. With regard to the
FinTech activities, exposure to investment risk is a factor of the
strategic, liquidity, credit and operational risks assumed by the
platforms in which the Group is invested.
This section on the Group's Principal Risks should be read
together with the sections on the Group's Governance Framework, the
operation of the Audit and Risk Committee, as well as Note 22 which
describes the sensitivity of the Group's financial results to its
Financial Risk exposures. These sections explain how these risks
are being managed, monitored and governed.
The table below describes the Group's assessment of the
principal risks being those which have the potential to have a
significant impact on the Group's business model, future
performance, solvency or liquidity.
Principal Risks Internal controls mitigating Current Rating of Risks
Risks
Group
------------------------------- --------------------------------
1. Capital and liquidity Medium
Risk
------------------------------- --------------------------------
Sancus's own funding Sancus has a Treasury Completion of the fundraising
is sourced primarily Committee which meets and liability management
from the ZDP shares and once a month to manage exercise over the last
the Corporate Bond (as its capital and liquidity couple of years has
detailed in Note 17). position, and forecasts significantly improved
over several years to the Group's capital
Expansion of lending predict longer term and liquidity position.
and investment activities funding requirements.
will be constrained to Management at Group
the extent of retained Management of each of and subsidiary level
profits unless further the operating companies are focussed on raising
sources of funding are balance their lending additional on and off
secured. and funding and proposals balance sheet funding
to advance lending are in order to grow lending
typically contingent activities and support
on sufficient funding funding commitments.
having been secured
in advance.
The business seeks to
maintain a material
liquidity buffer at
all times.
------------------------------- --------------------------------
2. Regulatory and Compliance Medium
Risk
------------------------------- --------------------------------
As a Financial Services All entities have developed The compliance framework
business, compliance and implemented appropriate as described is considered
with regulation is considered policies and procedures to be operating effectively
paramount within the relating to regulatory and has recently been
Group, particularly with compliance and Anti enhanced to increase
regard to the various Money Laundering. oversight of all risks
regulators in the jurisdictions within the Sancus lending
that Sancus operating The Executive Risk Committee business through the
entities conduct business monitors these risks, Executive Risk Committee
within, the Financial and forthcoming regulations,
Conduct Authority (FCA) with appropriate reporting Measures are in place
Handbook (UK) and the from the Risk and Compliance to monitor clients against
various Anti Money Laundering Director and Money Laundering various databases to
(AML) regulations with Reporting Officers. identify if any sanctions
the regulatory landscape External, independent (including the recent
in all jurisdictions partners complete additional increase in sanctions
continually evolving regulatory horizon scanning relating to the Ukraine/Russia
reviews and conduct conflict).
The Company has chosen periodic reviews of
to comply with the provisions internal compliance
of the QCA Corporate including AML file reviews.
Governance Code.
The Company has an appointed
NOMAD, Liberum, whom
it liaises with regularly,
to ensure compliance
with the AIM rules,
including the Market
Abuse Regulations.
Boards receive quarterly
reports from the Risk
& Compliance Director
and where appropriate,
Money Laundering Reporting
Officers on compliance
monitoring plans and
any breaches identified.
------------------------------- --------------------------------
3. Market risk High
------------------------------- --------------------------------
The primary market risks Exposures to these risks More information on
are considered to be are monitored regularly the sensitivity to these
interest rate and foreign by the Sancus Treasury risks is contained in
exchange risk. Given Committee and reported Note 22.
the nature of the business to the Board on a quarterly
operations, with relatively basis. Macro-economics including
short-term lending and increased inflation
currencies on lending These risks are identified and bank base rate and
opportunities being matched and assessed at the euro margin fluctuations
(or hedged) the exposure time of entering into may have an effect on
is considered to have new transactions. margin. The introduction
limited impact on its of variable base rate
position as a Going Concern. loans and foreign exchange
hedging are having an
Foreign exchange risk impact on mitigating
primarily arises from the risk.
the USD and Euro investments
in the FinTech portfolio With the increase in
and Euro loans held in bank base rate, Co-Funders
the Irish lending book. might look elsewhere
to invest; however,
variable rate Co-Funder
returns should minimise
this risk with investors
continuing to receive
attractive risk adjusted
returns on asset backed
lending.
------------------------------- --------------------------------
4. Credit Risk High
------------------------------- --------------------------------
The Group has direct Each operational entity The IFRS 9 provision
credit exposures through has its own credit policies increased substantially
its on balance sheet and procedures which during 2021 however,
lending and credit support. are the subject of at no further material
Indirect credit risk least annual review provisions were required
(potential losses to by operating entity this year. The credit
Co-Funders) could impact Boards. performance across the
further business development. Group remains resilient
The respective Credit with actual losses incurred
Committees take all being less than 1% of
credit decisions, monitor loans advanced.
credit exposures on
an ongoing basis and See Note 22 (5) for
manage recoveries situations. further details.
Following Covid-19 tighter
lending criteria has Increases in material
been implemented. costs, base rate and
inflation have created
downside risk through
potential delays in
loan repayments and
reduced recoveries.
Increased loan management
oversight will help
mitigate this risk.
------------------------------- --------------------------------
5. Operational Risk Medium
- Execution of the Sancus
strategy
------------------------------- --------------------------------
The majority of Sancus's The Board and Executive By its nature, this
capital has been deployed Committee of Sancus risk remains an on-going
into the Sancus Group. Group recognise the area of focus for the
There is a risk that challenge of building Board, particularly
the planned growth of the business to meet with respect to business
these businesses will the financial targets development in the UK
not be realised primarily and actively manage and Ireland.
as a result of sub optimal all aspects of the business
levels of loan origination on an ongoing basis. The emergence of Covid-19
and funding. Plans and budgets are created downside risk
in place and performance on new loan origination
against these is monitored levels although we believe
regularly by the management this risk has now reduced.
team and the Executive
Committee. IT capabilities for
Sancus were further
There continues to be enhanced during 2021
strong demand from both and 2022, providing
Borrowers and Co-Funders Co-Funders with online
for the lending products interactive services
offered across the business, and creating operational
and the risk adjusted efficiencies.
returns available to
Co-Funders.
------------------------------- --------------------------------
6. Operational Risk High
- Operating entities
------------------------------- --------------------------------
Loan funding is provided The Executive Committee Oversight of these risks
by a blend of institutional of Sancus Group are is completed by the
and co-funding models, in active engagement Executive Risk Committee,
with jurisdictional variations with additional institutional with agreement on the
in the utilisation of funding lines to increase mitigation necessary
these models. The limited diversity and consider to minimise the risks
availability of diverse cost of funds and continue and monitoring to ensure
funding presents an operational to evolve the co-funder these controls are effective.
risk to continued growth model with the view
of the lending model. to increase exposure
across the lending operation.
With the recent focus
on increasing the loan The lending operation
book and resourcing the is mitigating this through
operation effectively, the introduction of
there is a risk that technology improving
management of the existing oversight of key milestones
loan book is under resourced and is actively engaged
and key milestones in in acquiring additional
the loan lifecycle are resource for loan management.
missed.
Introduction of new
With reliance on various technology to compliment
proprietary and third-party the existing operational
IT systems to conduct framework ensures elements
the lending operations, of these risks are mitigated
whilst ensuring these with effective automation
systems remain effective and data resilience.
for the business, enable Continual development
automation, are utilised of the existing technology
to maximum effect, maintain and enhancements to
data integrity and remain the back-office systems
secure from external ensures the systems
factors remains an ongoing remain secure.
challenge and presents
potential risks.
------------------------------- --------------------------------
7. Investment risk - Low
FinTech Ventures Platform
Valuations
------------------------------- --------------------------------
Across the majority of The Group has board As a result of the platforms
the FinTech portfolio, observer rights on most taking longer to reach
the growth rates historically of the remaining investee profitability, and given
have been slower than company boards and thus that several are seeking
originally anticipated is able to participate additional capital,
and the business models in the strategic discussions the Board has valued
have proved more capital and monitor the progress our holding of the FinTech
intensive. on each platform. portfolio at Nil at
the end of 2022 (2021:
Many of the FinTech platforms The Group regularly GBP0.5m).
require additional capital monitors the progress
to fund their ongoing of each business, with The valuations are also
growth to enable them regular review of financial subject to a number
to reach profitability. and KPI reporting. of material estimation
There remains a risk uncertainties, refer
that some platforms may Quarterly valuations to Note 22 (4).
not be successful in are conducted for all
the longer term, either investments in platforms.
as a result of lack of These are based on a
loan funding, lack of variety of factors including
working capital funding the pricing for any
or difficulties in establishing recent relevant capital
a competitive position transactions by the
in their chosen markets respective platform
or using an appropriate
valuation methodology.
------------------------------- --------------------------------
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Introduction
Sancus is pleased to present its first Environmental, Social,
and Governance (ESG) report, marking the start of our journey
towards greater transparency and sustainability. This report
highlights our progress and achievements in the areas of
environmental protection, social responsibility, and governance, as
well as the challenges and opportunities that we have faced.
As a firm, we acknowledge our imperative to act to become a more
responsible and sustainable business. We recognise the impact that
we have on the environment and society, as well as the effect of
our operations and financial performance. We are committed to
continuing our efforts to embed ESG principles into our operations,
investments and build our capability and capacity to respond to
these challenges and create long-term value for our
stakeholders.
ESG is a continuous process of assessment and refinement. At
Sancus, we recognise that we are at the beginning of our ESG
journey and that we still have much to learn and improve upon. This
journey requires a commitment to ongoing education, regular
reflection, and a willingness to adapt and change as needed. We
understand that ESG is not a one-time project or initiative, but
rather an ongoing exercise of improvement.
We believe transparency is essential to this process. It allows
us to be honest and open about our progress, challenges, and
failures. It also enables our stakeholders to hold us accountable
and provide feedback on our ESG efforts to enable us to support the
long-term success and viability of our business.
We hope that this report will provide insight into Sancus'
approach to ESG and our efforts to make a positive impact on the
world around us. We look forward to continuing our journey and to
sharing our progress with our stakeholders.
Our Approach to ESG
At Sancus, we are committed to a data-driven approach to ESG
that is informed by our stakeholders views.
To guide our efforts, we conducted a materiality assessment -
drawing on both qualitative and quantitative insight data - to help
us to identify the most important ESG issues for our business and
our stakeholders.
We have established baseline performance criteria across
material ESG topics, and the assessment has allowed us to set
specific ESG objectives and goals that are aligned with our current
maturity, ambition and stakeholder expectations.
The detail below summarises our ESG roadmap, which outlines the
measures and initiatives we will undertake to close the gap between
the baseline and our objectives and goals. This roadmap includes
key performance indicators (KPIs) that will facilitate monitoring
and reporting of our progress.
A key outcome of this process is that we have an understanding
of where we stand today and where we need to be in the future. This
means we are able to prioritise our ESG efforts in a way that is
relevant, actionable and address the most critical challenges and
opportunities we face.
Our Headline Objectives
1. Environmental
Promote the efficient use of resources by improving our
understanding of the environmental impacts associated with our
operations, including carbon emissions, waste and water use.
2. Social
Enhance our approach to Social Impact and Diversity, Equity and
Inclusion (DE&I) by aligning with relevant measures in the
National Themes, Outcomes and Measures (TOMs) Framework.
3. Governance
Strengthen our data management, internal capability and
reporting maturity to support our internal and external
stakeholders to deliver on our ESG goals.
Best practice guidance and frameworks
-- GHG Protocol : We have established a carbon accounting system
for greenhouse gases (GHGs) following the methodology set out in
the GHG Protocol corporate Standard.
-- National TOMs : We are using the National TOMs Framework to
identify, measure and report on our social value.
-- Sustainable Development Goals (SDG) : We have used the SDGs
framework to inform our materiality assessment to support
identifying priority areas where we can contribute to sustainable
development.
Our Impact
Our strategic ESG priorities are focused on three main areas:
commitment to reducing our environmental impact, focus on improving
our social impact, and enhancing the responsibility of our
governance practices.
We are committed to reducing our carbon emissions and promoting
sustainable practices throughout our operations. We also aim to
improve the communities we operate in through investment in local
economies and delivery of voluntary programmes. Finally, we will
prioritise good governance practices, work towards a more diverse
and inclusive leadership approach and maintain high ethical
standards across all aspects of our business.
We will measure and report our progress against these priorities
on an annual basis. Transparency and honesty will form fundamental
principles of our ESG reporting - we are committed to providing
accurate and comprehensive information about our ESG performance,
both positive and negative, to all of our stakeholders. To make
this possible, we will ensure our reporting is guided by industry
best practices and standards and informed by stakeholder feedback
to guide our decision-making.
Our Plan
This is only the beginning of Sancus's ESG programme. As
outlined above, we have embedded fundamental processes and
frameworks into our operations which will help shape our roadmap.
Firstly, having established a team focused on ESG supported by
external industry experts, Clarasys. The ESG team has direct
reporting responsibilities and the full support of the Executive
team. Producing our first ESG report has been a significant
milestone allowing us to assess our current status and set
realistic targets for the next period and beyond.
A core focus for the next year will be improving our data
collection and reporting processes, so that we can better
understand our capacity to deliver. It has been a challenging year,
so we will be taking steps to make next year's report more detailed
and aligned to our wider and longer ambitions. Employee health and
wellbeing is a focus in the coming period. We have set up a working
group to lead initiatives in this area, which we believe is a
critical part of our company culture and ultimately business
success.
We endeavour to achieve all of our business targets and these
ESG targets are no different, but equally, we understand that ESG
is a continuing journey and not a destination. We will ensure that
sufficient resources will be available to make progress against
each area, commensurate with our overall ESG strategy.
Additionally, our people working on the initiatives will have
targets embedded in their performance management to ensure
accountability.
Beyond 2024
Our overriding ambition is that ESG becomes an integral and
integrated part of Sancus, which runs through the business as a
whole, both in our practices and our people. As we move forward and
mature our ESG approach and capabilities, we will leverage this to
continue to deliver positive impacts for our stakeholders, while
driving long-term value creation and growth for Sancus.
Key enables
-- Data - optimising our systems and processes to ensure we can
capture better quality data to improve confidence in our
measurement, target-setting and reporting.
-- Employee engagement - undertake a follow-up survey to the one
carried out in October 2022; enabling us to monitor progress and
inform our employee wellbeing initiatives.
-- Technology strategy - our focus on integrating technology
will be at a broader, business transformation scale. This will
enhance the delivery of our ESG strategy in data collection and
processing, but also in the business's ability to streamline
operations.
-- Training - providing training to our people to improve
knowledge of ESG generally and Sancus's journey. Focus on building
a centre of excellence within the business to further our
initiatives.
Key milestones
-- Office move - our UK operations will be relocating to a new
office in 2023. This represents an opportunity for us to build ESG
into our contracts and relationship more generally with suppliers.
We envisage this will allow us to navigate some of the challenges
we have faced to date around the collection of data on energy,
waste, and water.
-- Gibraltar business sale and Guernsey office closure - the
consolidation of our Channel Islands businesses to Jersey will
result in greater efficiencies with office spaces and reduced
travel, two key areas of our carbon footprint.
Our ESG Landscape
We are cognizant of the evolving ESG landscape and how this will
continue to influence our ability to bring our ambition into
reality. As part of our initial efforts, we have evaluated key
drivers of ESG, including regulatory, voluntary and broader
stakeholder pressures, to shape our roadmap.
-- PRESENT - Our biggest institutional funding line has become
increasingly focused on ESG over the last few years. A proprietary
scoring matrix now forms part of our access to investment - meaning
improvements in ESG performance are rewarded by reductions in our
cost of funding. We believe that this trend to reward appropriate
behaviours is gathering moment amongst financial institutions and
we see this as a key priority, to remain attractive to current and
potential funders.
-- PRESENT - Section 172 AIM (Alternative Investment Market)
listed companies required to report on the impact of their
operations on communities and the environment.
-- Early 2023 - Updated Modern Slavery Bill (proposing
amendments to the Modern Slavery Act 2015) expected to be published
in early 2023, which is likely to introduce additional criminal
offences designed to encourage businesses to address problem
suppliers and make more accurate and complete statements.
-- April 2023 - Minimum Energy Efficiency Standard (MEES)
Regulation. For commercial properties there will be a prohibition
on continuing to let properties with an EPC rating of "F" or less.
Whilst there is no express obligation to bring relevant properties
up to a compliant standard under the MEES Regulations, local
authorities will have enforcement powers, including the ability to
impose penalties.
-- June 2023 - Consultation on Future Buildings Standard.
Expected date of further consultation on the detailed technical
aspects of the UK Government's Future Buildings Standard which will
set out more stringent efficiency standards, to ensure that new
buildings are 'zero carbon ready' from 2025.
-- November 2023 - UK Biodiversity Net Gain requirement applies
to new developments in UK. The UK's Environment Act 2021 will
require all new real estate developments to deliver a 10%
'biodiversity net gain' from November 2023, which will effectively
become a requirement of its planning permission. This can be
delivered through on-site or off-site measures or a
combination.
-- April 2025 - EPC Rules for rented properties. A move to more
sustainable buildings generally across the real estate sector. We
believe that dwellings and homes being built to be more energy
efficient and sustainable, which will ultimately impact the value
of homes not meeting standards. We have already seen a significant
move towards this in Minimum EPC rating to be raised from E to C.
The plan is to enforce this from 1 April 2025 for new tenancies,
and from 1 April 2028 for existing tenancies.
-- 2025 - UK's Future Buildings Standard implemented. The Future
Buildings Standard, which will set out more stringent efficiency
standards, to ensure that new non-domestic buildings are zero
carbon ready from 2025, is expected to be implemented in 2025 for
all new non-domestic developments.
-- 2025 - Mandatory Task Force on Climate-related Financial
Disclosures (TCFD) compliance will be required.
-- 2025 - EU Corporate Sustainability Reporting Directive (CSRD)
to set sustainability reporting requirements for 'large' (two of
following: >250 employees; >EUR20 million balance sheet;
>EUR40 million net turnover) companies with operations in the
EU. This will impose also mandatory third-party assurance
requirements on ESG disclosure.
ENVIRONMENT
Focus Area 2022 Progress 2023 Commitment Actions
What we have done Where we want to How we will get
so far be there
--------------------------- ----------------------------- ----------------------------
Carbon Emissions Completed our first Identified, prioritised Establish approach
carbon footprint and implementing to office energy
calculation 'low hanging fruit' efficiency
measures to reduce
our footprint. Update systems and
processes to fill
An enhanced view data gaps
of our carbon footprint
through improving
its scope and data
quality.
--------------------------- ----------------------------- ----------------------------
Waste and circularity Captured data on Identified waste Engage property
our waste generation hot spots and opportunities management at our
at our facilities for reduction facilities to enable
detailed waste audit
Establish separate
waste streams
--------------------------- ----------------------------- ----------------------------
Business travel Identified gaps Establish a sustainable Update systems and
in data availability business travel processes to fill
and opportunities policy data gaps
to improve
Gather insight into
employee travel
attitudes and behaviours
--------------------------- ----------------------------- ----------------------------
Climate resilience Undertaken research Deeper understanding Set-up climate resilience
to better understand of what climate audit
climate resilience resilience means
to Sancus Draft a Sancus Climate
Resilience Framework
--------------------------- ----------------------------- ----------------------------
SOCIAL
Focus Area 2022 Progress 2023 Commitment Actions
What we have done Where we want to How we will get
so far be there
--------------------------- ----------------------------- ----------------------------
Community building Evaluated existing A clearly defined Develop a plan to
practices to identify set of social value measure and evaluate
opportunities for measures (using Sancus's performance
social value creation National TOMs) for against National
community building TOMs
--------------------------- ----------------------------- ----------------------------
Diversity, equity Developed an initial An informed view Collect baseline
and inclusion (DE&I) view of how our of our performance performance data
current practices across key DE&I across gender pay
impact DE&I metrics gap, ethnic representation
and social mobility
(quantitative)
Deliver internal
DE&I training and
carry out surveys
(qualitative)
--------------------------- ----------------------------- ----------------------------
Employee health Mental Health First An informed view Continue bi-annual
and wellbeing Aid Training - 2 of our employee employee engagement
people fully trained. health and wellbeing surveys to ensure
to inform future we are providing
First employee engagement initiatives health and wellbeing
survey. initiatives that
are important to
Embedded a wellbeing our staff
awareness email
newsletter to better
educate our people.
--------------------------- ----------------------------- ----------------------------
Local economic Review of existing A clearly defined Develop a plan to
growth practices' impact set of social value measure and evaluate
on local economic measures (using Sancus's performance
growth and identified National TOMs) for against National
data gaps in ability local economic growth TOMs
to measure.
--------------------------- ----------------------------- ----------------------------
GOVERNANCE
Focus Area 2022 Progress 2023 Commitment Actions
What we have done Where we want to How we will get
so far be there
--------------------------- ----------------------------- ----------------------------
Ethical business Developed Anti-Bribery Promote ethical Evaluate enhancements
practices and Corruption and business practices to policy and processes
Modern Slavery policies throughout supply in line with learnings
chain and best practice
Educate our employees
on the identification
and management of
risks on ethical
business topics
--------------------------- ----------------------------- ----------------------------
ESG management Established our Embed ESG into risk Explore ESG risk
ESG strategy, identified and data management frameworks
data and governance approach and have
requirements and grown ESG awareness Integrate carbon
started to build and knowledge accounting software
internal capability in broader processes/
systems
Deliver ESG training
and embed into wider
decision-making
forums
--------------------------- ----------------------------- ----------------------------
Responsible investment Identified responsible ESG is integrated Research enabling
investment as an into our funding standards and frameworks,
ESG priority decisions such as the UN Principles
for Responsible
Investment
Establish ESG Funding
Policy
--------------------------- ----------------------------- ----------------------------
Transparency and Developed an understanding Explore alignment Develop ESG communications
reporting of Sancus's ESG of ESG reporting plan
reporting and disclosure and disclosure with
context relevant industry Explore additional
frameworks ESG reporting frameworks
--------------------------- ----------------------------- ----------------------------
ESG report
This section is an executive summary of Sancus' full ESG report,
which will be made available on the website shortly.
CORPORATE GOVERNANCE
Board of Directors and Executive Management Team
Introduction
The Board recognises the importance of a strong corporate
governance culture.
The composition of the Board is the subject of ongoing review.
Somerston Group had the right to nominate a candidate for
appointment to the Board and took up this right in 2019 with the
appointment of Nick Wakefield. On the 8 March 2022 it was announced
that Nick Wakefield has been replaced by Tracy Clarke (bio noted
below).
Board of Directors
The Company operates a unitary Board Structure, comprised of
both Executive and Non-Executive Directors. Biographical details of
the Directors can be found below. The terms of Directors'
appointments are available from the Company Secretary.
On joining the Board, any new director will have received an
induction through face to face meetings with existing directors,
senior management and the Company Secretary.
The Chairman leads the Board and is responsible for its overall
effectiveness in directing the Company, its corporate governance
responsibilities, and addressing any training or development needs
of the directors.
Steve Smith - Independent Non-Executive Director
Mr Smith was formerly an Executive Director and the Chief
Investment Officer of The British Land Company plc, the FTSE 100
real estate investment trust, with responsibility for the group's
property and investment strategy, standing down in 2013. Prior to
this, Mr Smith was Global Head of Asset Management and Transactions
at AXA Real Estate Investment Managers, where he was responsible
for the asset management of a portfolio of assets valued at more
than EUR40 billion on behalf of life funds, listed property
vehicles, unit linked and closed end funds. Prior to joining AXA in
1999, Mr Smith was Managing Director at Sun Life Properties for
over five years. Over the last decade, Mr Smith has worked
extensively in governance related roles for a number of real estate
focused organisations. Mr Smith is Chairman of the Board and is a
member of the Audit and Risk Committee and Remuneration and
Nomination Committee. Mr Smith was appointed to the Board on 11 May
2021. He is resident in the UK.
John Whittle - Independent Non-Executive Director
Mr Whittle has a background in large third party Fund
Administration. He has worked extensively in high tech service
industries and has in-depth experience of strategic development and
mergers/acquisitions. He has experience of listed company boards as
well as the private equity, property and fund of funds sectors. He
is currently Chairman of Starwood European Real Estate Finance
Limited and Director and Audit Chair of The Renewable
Infrastructure Group Ltd ("TRIG") (both listed on the main market
of the London Stock Exchange) and Director and Audit Chair of
Chenavari Toro Income Fund Limited (admitted to trading on the
Specialist Fund Segment of the London Stock Exchange). Mr Whittle,
a Chartered Accountant, has also served as Finance Director of
Close Fund Services Limited (responsible for internal finance and
client financial reporting), Managing Director of Hugh Symons Group
PLC and Finance Director and Deputy MD of Talkland International
Limited (now Vodafone Retail).
Mr Whittle was appointed to the Board, the Audit and Risk
Committee and the Remuneration and Nomination Committee on 23
September 2016, after having served as an Alternate Director since
December 2015. He is resident in Guernsey. Mr Whittle is Chairman
of the Audit and Risk Committee, and of the Remuneration and
Nomination Committee.
Tracy Clarke - Non-Executive Director
Ms Clarke is a representative of the Somerston group of
companies ("Somerston"), the Company's largest shareholder which
has the right to nominate one individual for appointment to the
Board. Ms Clarke joined Somerston in 2016 and acts as the group's
Chief Operating Officer. Ms Clarke is also Managing Director of
Carlton Management Services Limited, a licensed Jersey trust
company business. Prior to joining Somerston, Ms Clarke worked for
Deutsche Bank in Jersey and Zurich for over 10 years, specialising
in financial Intermediary and external asset manager business. Ms
Clarke is a Fellow of the Institute of Chartered Accountants in
England and Wales and holds the CISI Investment Advice Diploma. Ms
Clarke was appointed to the Board on 8 March 2022 and is a member
of the Company's Audit and Risk Committee and Remuneration and
Nomination Committee.
Rory Mepham - Executive Director
Rory joined Sancus in January 2021, assuming the role of Interim
CEO on 1 July 2021 and was then confirmed as CEO and board member
on 23 November 2021. Joining Sancus from The Somerston Group where
he managed their European real estate platform which includes
businesses in the hotel, retail, land development, student housing
and PRS sectors. Rory has over 20 years experience in the UK and
European property market. He has spent his career working with
institutional capital and has an extensive track record in M&A,
corporate finance, capital raising, debt finance, investment
management and property development. Rory holds an MBA from the
Cranfield School of Management, a BSc(Hons) in Land Management from
the University of Reading and qualified as a member of the Royal
Institute of Chartered Surveyors (MRICS).
Emma Stubbs - Executive Director
Emma joined the Group in November 2013 as Chief Financial
Officer and was appointed to the Board on 16 September 2014. Emma
is also a Board member of Sancus Group Holdings Limited and a
number of the subsidiary entities. Emma was appointed as a Non
Executive Director on Funding Options Limited on 24 March 2020
until 24 November 2022. Emma is also a Non-Executive Director of
Amberton Limited. Emma is a Fellow member of the Association of
Chartered Certified Accountants and qualified with Deloitte in
2004. She graduated from the University of the West of England with
a BA Hons degree in Accounting and Finance. Emma is resident in
Guernsey.
Executive Management Team
Rory Mepham - Chief Executive Officer
See above.
Emma Stubbs - Chief Financial Officer
See above.
Helen Trott - Chief Operating Officer & Legal Counsel
(joined Executive Management Team on 29 November 2022)
Helen was appointed to the Executive Management Team on 29
November 2022. Helen is a Finance Executive/qualified Lawyer with
over 20 years experience in various aspects of retail financial
services, private banking and insurance law. This includes
regulatory, compliance, governance and company secretariat
activities. She is currently responsible for the legal, risk and
compliance, people, IT and ESG functions within Sancus Group.
Dan Walker - Chief Operating Officer (left Company on 31 January
2022)
James Waghorn - Chief Investment Officer (joined Executive
Management Team on 8 March 2022)
James was appointed to the Executive Management Team on 8 March
2022. James has over 14 years experience in the UK and European
real estate market. James has extensive experience across the
corporate real estate, investment and property development sectors.
For the past 6 years James has led Somerston's land development
business, a strategic land and
development focused business with capacity for in excess of
2,350 units within its strategic portfolio. James holds a BSc in
Investment and Finance in Property from the University of Reading
and is MRICS accredited. James joined Sancus in January 2021.
GOVERNANCE FRAMEWORK
The Board is committed to maintaining high standards of
corporate governance throughout the Company's operations and to
ensuring that all of its practices are conducted transparently,
ethically and efficiently. The Board believes that scrutinising all
aspects of the Company's business and reflecting, analysing and
improving its procedures will minimise the potential for downside
risk and will preserve shareholder value. In compliance with the
AIM Rules for Companies, published March 2018, the Company has
chosen to comply with the provisions of the QCA Corporate
Governance Code (the "QCA Code"). The Company is also mindful of
the provisions of the Finance Sector Code of Corporate Governance,
as amended by the Guernsey Financial Services Commission in
November 2021.
The Board believes that applying the principles and reporting
against the provisions of the QCA Code accurately reflects the
nature, scale and complexity of the business and enables the Board
to provide information to shareholders on its activities in
accordance with the principles set out in a recognised governance
framework. Furthermore, through applying the relevant provisions
the Company is better positioned to mitigate downside risk and in
doing so, preserve long-term shareholder value. The Company's
corporate governance framework has been based on these principles
and is designed to deliver the Group's strategy, and the
application of such principles to the operation of the Board
ensures that its decision-making processes remain focussed on the
long-term sustainable success of the Company.
As at 31 December 2022, the Company complied substantially with
the relevant provisions of the QCA Code and it is the intention of
the Board that the Company will comply with these provisions
throughout the year ending 31 December 2023, save with regard to
the following:
-- The appointment of a Senior Independent Director: Given the
size and composition of the Board, the Board does not consider it
is necessary to appoint a Senior Independent Director. The Board
considers that all the independent Directors have different
qualities and areas of expertise on which they may lead where
issues arise and to whom concerns can be referred.
-- Internal audit function: The Board has considered the need
for an internal audit function and is satisfied that the compliance
policies, procedures and reporting mechanisms in place throughout
the group are sufficient, and that implementing a separate internal
audit function would be unnecessary. This requirement is assessed
annually by the Audit and Risk Committee.
How we apply the QCA Code
The Company has established specific formally constituted
committees and implemented certain policies, to ensure that:
-- It is led by an effective Board which is collectively
responsible for the long-term sustainable success of the Company
and establishes a culture whereby the tone is set from the top
which is consistent with the objectives, strategy and business
model of the Group;
-- the Board and its committees have the appropriate balance of
skills, experience, independence, and knowledge of the Company to
enable them to discharge their respective duties and
responsibilities effectively;
-- the Board establishes a formal and transparent arrangement
for considering how it applies the corporate reporting, risk
management, and internal control principles and for maintaining an
appropriate relationship with the Company's auditors; and
-- there is a dialogue with shareholders based on the mutual
understanding and alignment of objectives, conducted primarily
through the CEO and the Corporate Broker.
Risk management remains a key area of focus during Board
meetings.
Composition and Independence of the Board of Directors
The Board of Directors is responsible for ensuring the affairs
of the Company are properly managed through formulating, reviewing
and approving the Company's strategy, budgets, and corporate
actions and that oversight, scrutiny and challenge is applied to
Executives responsible for the day-to-day activities of the Group.
The Company seeks to deliver long-term growth for shareholders and
maintain a flexible, efficient and effective management framework
within an entrepreneurial environment.
It is important that the Board itself contains the right mix of
skills and experience in order to deliver the strategy of the
Company. As such, the Board is comprised of:
-- Two Independent Non-Executive Directors, one of which serves
as the Chairman, who is responsible for leadership of the Board and
ensuring its effectiveness on all aspects of its role;
-- One Non-Executive Director who, whilst sharing the fiduciary
and statutory duties of the independent directors, is also an
executive director of the Somerston Group, a significant
shareholder of the Company, and therefore not considered
independent under the QCA Code; and
-- Two Executive Directors, who are also members of the Group's
Executive Committee and are therefore not considered independent
under the QCA Code.
The Board is comprised of individuals holding professional
qualifications and experience relevant to the activities of the
Company. The time requirement expected from each of the Directors
is set out in writing in their respective appointment letters.
Liberum Capital has been appointed as the Company's Corporate
Broker and Nominated Adviser under the AIM Rules and advises on
compliance with the AIM Rules, corporate communications and acts as
financial adviser to corporate actions. Additionally, the Company
has appointed a professional Company Secretary who assists the
Board of Directors in preparing for and running effective board
meetings, including the timely dissemination of appropriate
information. The Company Secretary provides guidance to the extent
required by the Board on certain aspects of the legal and
regulatory environment, within which the Company operates.
The Board believes that long serving Directors should not be
prevented from forming part of the Board or from acting as Chairman
and no limit has been imposed on the overall length of service of
the Directors. Each Director will retire and seek reappointment at
every third annual general meeting, with those serving for nine
years or more subject to reappointment annually. The Board meets on
at least a quarterly basis during the financial year.
The Board has appointed several committees to support it in
different areas of the business; each with formal terms of
reference, with specific roles as set out below.
The Board undertakes an annual evaluation of its own
performance, the performance of its formally constituted committees
and that of individual Directors. This includes a formal process of
self-appraisal reviewing the balance of skills, experience,
independence and diversity present on the Board, and individual
director performance, contribution and commitment to the Group to
ensure that the Board and its committees continue to operate
effectively, or to identify areas where action is required. The
remainder of the Board is responsible for evaluating the
performance of the Chairman. The Chairman also has responsibility
for assessing the individual Board members' training requirements.
No significant findings were identified in the 2022 evaluation
which required further action.
The Directors remain mindful of the benefits which can flow from
increasing the level of diversity represented on the Board
including, but not limited to, cultural, gender, experience and
background. Such factors will be taken into consideration by the
Nomination Committee during any selection process.
Executive Management Team
As at the year end, the Company's Executive Management Team
comprised Rory Mepham (Chief Executive Officer), Emma Stubbs (Chief
Financial Officer), James Waghorn (Chief Investment Officer) and
Helen Trott (Chief Operating Officer and Legal Counsel) (together
the "Executive Management Team" or "Management"). Management are
responsible for the day-to-day management of the Company's
operations. The non-executive independent Directors monitor and
evaluate the performance of the Management Team on an ongoing
basis. James Waghorn was appointed to the Executive Management Team
as Chief Investment Officer on 8 March 2022 and Helen Trott was
appointed as Chief Operating Officer and Legal counsel on 29
November 2022.
BOARD COMMITTEE STRUCTURE
Audit and Risk Committee
The Audit and Risk Committee conducts formal meetings at least
twice a year. The Audit and Risk Committee's key duties
include:
-- monitoring the integrity of the financial statements of the
Group, including its annual and half-yearly reports and any other
formal announcement relating to its financial performance,
reviewing, challenging (where necessary) and reporting to the Board
on significant financial reporting issues and judgements which they
contain having regard to matters communicated to it by the auditor,
and how they were addressed;
-- reviewing the Group's internal financial controls and the
Group's internal control and risk management systems;
-- making recommendations to the Board for it to put to the
shareholders for their approval in general meeting in relation to
the appointment, re-appointment or removal of the external auditor
and to recommend the remuneration and terms of engagement of the
external auditor;
-- monitoring the external auditor's independence and
objectivity and the effectiveness of the audit process, taking into
account relevant professional and regulatory requirements;
-- in conjunction with executive management, advise the Board on
the overall risk appetite, tolerance and strategy of the Group,
current risk exposures and future risk strategy; and
-- keep under review the Group's overall risk assessment
processes that inform the Board's decision making, ensuring both
qualitative and quantitative metrics are used.
-- The Audit and Risk Committee has three members, two of whom
are independent, non-executive directors and one of whom is a
non-executive director, and at least one member has recent and
relevant financial experience. The current members of the Committee
are John Whittle as the Chairman, Steve Smith and Tracy Clarke.
-- The Audit and Risk Committee is supported by a risk
management and oversight process employed by the Executive
Management Team and receives reports twice a year on key risks and
developments during the period, or as otherwise required in the
case of a material development.
-- The terms of reference of the Audit and Risk Committee are
available from the Company Secretary.
Remuneration and Nomination Committee
The purpose of the Remuneration and Nomination Committee is to
determine and agree with the Board the framework or broad policy
for the remuneration of the Company's Directors, senior executives,
and any bonus-related arrangements in place by the Company as well
as to consider the structure, size and composition of the Board.
The key duties of the Remuneration and Nomination Committee
include:
-- determining and agreeing with the Board the framework or
broad policy for the remuneration of the Company's Chairman,
executive and non-executive directors and such other members of the
management as it is designated to consider;
-- reviewing the ongoing appropriateness and relevance of the remuneration policy;
-- reviewing the structure, size and composition of the Board;
-- considering the succession planning for Directors and the Executive Management Team;
-- reviewing the leadership needs of the organisation; and
-- identifying candidates for appointment to the Board.
The Remuneration and Nomination Committee has three members, all
of whom are non-executive directors and two are independent. The
current members of the committee are John Whittle as the Chairman,
Steve Smith and Tracy Clarke.
The terms of reference of the Remuneration and Nomination
Committee are available from the Company Secretary.
Please refer to the Remuneration Report for details of fees paid
to the Directors during the year.
Meetings and attendance
The Directors meet on a quarterly basis ('Quarterly' meetings
per the table below) and at other unscheduled times ('Other'
meetings per the table below) when necessary to assess Group
operations and the setting and monitoring of strategy and
performance.
The table below, details the attendance of the Board at eligible
Board and Committee meetings during the year, noting that certain
Directors retired or were appointed during the course of the year
as set out below the table:
Board
Remuneration & Audit and Risk
Quarterly Other Nomination Committee Committee
---------------------- ---------------------- ---------------------- ----------------------
Total number of
meetings held during
the year 4 14 1 3
---------------------- ---------------------- ---------------------- ----------------------
Stephen Smith 4 of 4 9 of 14 1 of 1 3 of 3
(Chairman)
---------------------- ---------------------- ---------------------- ----------------------
John Whittle 4 of 4 14 of 14 1 of 1 3 of 3
---------------------- ---------------------- ---------------------- ----------------------
Nicholas Wakefield 1 of 1 1 of 1 (plus 4 as 1 of 1 N/A
(1) Observer when
resigned)
---------------------- ---------------------- ---------------------- ----------------------
Tracy Clarke (2) 3 of 3 (plus 1 as 9 of 13 N/A 3 of 3
Observer
pre-appointment)
---------------------- ---------------------- ---------------------- ----------------------
Emma Stubbs 4 of 4 13 of 14 N/A N/A
---------------------- ---------------------- ---------------------- ----------------------
Rory Mepham 4 of 4 12 of 14 N/A N/A
---------------------- ---------------------- ---------------------- ----------------------
-- Nicholas Wakefield resigned from the Board on 8 March 2022.
-- Tracy Clarke was appointed to the Board on 8 March 2022.
Relations with Stakeholders
The Board's advisers and the Executive Management Team maintain
regular dialogue with key shareholders, the feedback from which is
reported to the Board and the Chairman. Shareholders who wish to
communicate with the Board should contact the Company Secretary in
the first instance.
The Board also regularly monitors the shareholder profile of the
Company. All shareholders have the opportunity to and are
encouraged to attend the Company's annual general meeting at which
members of the Board are available in person to meet shareholders
and answer questions.
Whilst the primary duty of the Directors is owed to the Company
as a whole, the Board takes into consideration the interests of all
key stakeholder groups as part of its decision-making process and
particular consideration is given to the impact of any decision on
holders of its securities, the Co-Funders to the underlying loan
businesses, and providers of the Group's long-term debt capital.
The Board also recognises the crucial roles played by those
involved throughout the Group's operations who contribute to
delivering strategy, including staff and key service providers, to
ensure a continued alignment of interests between their activities
and those of the Company.
Terms of Reference of Committees
Committee Terms of Reference are available from the Company
Secretary.
AUDIT AND RISK COMMITTEE REPORT
The Audit and Risk Committee
The Audit and Risk Committee has a formal terms of reference
mandate documenting the duties and responsibilities which it has
been delegated by the Board. These are available from the Company
Secretary.
The Audit and Risk Committee has been in operation throughout
the year under review.
Chairman and Membership
The Audit and Risk Committee comprises of John Whittle as
Chairman, Steve Smith and Tracy Clarke. Only Non-Executive
Directors serve on the Audit and Risk Committee and members of the
Audit and Risk Committee have no links with the Company's external
auditor and are independent of the Executive Management Team. The
Audit and Risk Committee meets not less than three times a year in
Guernsey and meets the external auditor at least twice a year in
Guernsey. The identity of the Chairman of the Audit and Risk
Committee is reviewed on an annual basis and the membership of the
Audit and Risk Committee, and its terms of reference are kept under
review. Regular attendees at the Audit and Risk Committee include
the CEO, CFO and CIO.
Duties
The Audit and Risk Committee is responsible for monitoring the
financial reporting process, including the appropriateness of the
Company's accounting policies and the effectiveness of the
Company's risk management and internal control systems. The
Committee continues to spend a considerable amount of time
reviewing significant risks and areas of judgement. In particular,
the Committee conducts detailed reviews and analysis of the
valuations prepared by the Executive Management Team of the FinTech
Ventures investments, the Subsidiary Goodwill value in use models
to assess if any impairment might be required and the Expected
Credit Loss model. These valuations are key elements in the Group's
financial statements and the Audit and Risk Committee questions
these carefully.
External Audit
The Audit and Risk Committee is responsible for overseeing the
relationship with the external auditor, including the ongoing
assessment of the auditor's independence. The Committee makes
recommendations to the Board with regard to the appointment of the
external auditor and approves their terms of engagement and fees.
The Committee discusses and agrees the nature and scope of the
audit as set out in the audit engagement letter, reviews the
results of the audit as described in the auditors' management
letter and the ongoing independence and objectivity of the external
auditor. Following a tender process, Moore Stephens were appointed
as the Company's auditor in 2021, taking over from Deloitte who
held this position since 2016.
Processes are in place to safeguard the independence of the
external auditor, including controls around the use of the external
auditor for non-audit services. The external auditor also provides
the Audit and Risk Committee with further assurance as to the
procedures that it maintains to preserve objectivity and
confirmation that it remains independent. All non-audit services
are pre-approved by the Audit and Risk Committee.
Effectiveness of External Auditor
The Committee assessed the effectiveness of the external auditor
and the external audit process for 2022 through a number of steps,
including:
-- agreement of their engagement letter and fees;
-- review of the external audit plan;
-- meetings with the external auditors;
-- considering the extent of any non-audit services provided by the external auditors;
-- considering the external auditors' fulfilment of the agreed
audit plan and variations from it;
-- considering the report from the auditor highlighting any
major issues that arose during the course of the audit; and
-- conducting interviews to obtain feedback from the Executive
Management Team to evaluate the performance of the audit team.
For the audit for the year ended 31 December 2022, the Audit and
Risk Committee was satisfied that the audit was effective and that
there were no factors which had any bearing on the independence or
effectiveness of the external auditor.
Financial Reporting
The Audit and Risk Committee reviews, considers and, if thought
appropriate, recommends to the Board the approval of the contents
of the half yearly report and annual report and audited financial
statements together with the external auditor's report thereon. It
focuses particularly on compliance with legal requirements,
accounting standards and the relevant Listing Rules. The ultimate
responsibility for reviewing and approving the half year report and
annual report and audited financial statements remains with the
Board.
The Audit and Risk Committee provides a forum through which the
external auditor reports to the Board and the external auditor is
invited to attend Audit and Risk Committee meetings at which annual
and half yearly financial statements are considered. After
discussions with the Executive Management Team and external
auditor, the Audit and Risk Committee determined that the key risks
of misstatement of the Group's financial statements relate to the
valuation of financial assets at fair value through profit or loss,
the valuation and recoverability of goodwill, loan impairments and
revenue.
Freely tradeable market prices are not available for the
majority of the Group's financial assets, including the carrying
value of goodwill arising on consolidation, which are therefore
based on a discounted cash flow basis. Goodwill impairment testing
is carried out annually or sooner where an indicative event of
impairment has been identified. As announced on 10 January 2023 in
reviewing its operations in Gibraltar during 2022, the Company has
not identified sufficient quality lending opportunities to merit
continued efforts in the region. As a result, the Goodwill (GBP8.64
million), held by the Company since the acquisition of Sancus
Lending (Gibraltar) Limited ("Sancus Gibraltar") in 2016, has
consequently been written down to nil in the 2022 results. There
have been no indicative events of impairment for the goodwill held
for Jersey since the last annual review which coincided with the
preparation of the 2022 interim accounts. The next annual review
will coincide with the preparation of the 2023 interim accounts.
Full details can be found in Note 2 (h), Note 3 and Note 12 to the
financial statements.
For the valuations of the FinTech Ventures portfolio, the
Executive Management Team provides a detailed valuation report on a
quarterly basis. The Executive Management Team has confirmed to the
Audit and Risk Committee that the valuation methodology has been
applied consistently during the year. The accounting policies are
described in detail in Note 2 (f) to the financial statements.
The Audit and Risk Committee has assessed the processes around
the expected credit loss provisions recorded in respect of the
Group's loan assets and reviewed the IFRS 9 model adopted at
year-end which had also gone through the credit committee for
approval.
The accounting policies for revenue recognition are described in
detail in Note 2 (o) to the financial statements. The Audit and
Risk Committee has reviewed the revenue recognition policies of the
Group and has determined that they are in accordance with the
accounting standards and have been applied consistently.
After due consideration, the Audit and Risk Committee recommends
to the Board that the Annual Report and Financial Statements, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group and
Company's performance, business model and strategy.
Non-Audit and audit related fees paid to the External
Auditors
During 2022 no non-audit fees were paid to Moore Stephens, the
external auditors. GBP15,000 was paid to Moore Stephens for audit
related services, being the half year review. There is no perceived
threat to auditor independence given the nature of the services
provided and the safeguards in place.
Risk Management and Internal Control Systems
During 2022, management continued to enhance its reporting on
risk management to the Board and the Audit and Risk Committee,
which cover the operation of the Company and its wholly owned
subsidiaries. The Audit and Risk Committee has received and
considered these reports on three occasions, which has been the
basis for its conclusion below.
In addition to the review of risk management reports, and in
accordance with the guidance published in the Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting by the Financial Reporting Council (the "FRC"), the Audit
and Risk Committee has reviewed the Company's internal control
procedures and concluded that these are adequate to manage the
current risk profile.
A robust, ongoing process of Risk Management and Internal
Control
The Board and Executive Management Team are responsible for
safeguarding the assets of the Group through establishing effective
systems of risk management and internal control. This
responsibility is shared by the Directors of subsidiary companies,
who are similarly responsible for safeguarding the assets of these
companies.
The Board is also responsible for deciding on whether the nature
and extent of risks taken within the Group are within its risk
appetite. Such risks have been formally defined, setting the basis
for the design and implementation of the Group's internal control
framework.
On behalf of the Board, the Audit and Risk Committee oversees
the Group's risk management and internal control systems. These
systems are designed to ensure proper accounting records are
maintained and that internal and published financial information is
reliable, and that the assets of the Group are safeguarded. Such a
system of internal controls can only provide reasonable and not
absolute assurance against misstatement or loss.
Critical components of the Group's internal control framework
include the documented policies which describe how each risk is to
be managed and governed and the governance committees established
in terms of such policies, which have mandates describing how they
should operate, what reports they should receive and how they
should govern the management of principal risks. Such policies have
been implemented at Company as well as subsidiary levels.
On a semi-annual basis, the Executive Management Team review the
key risks across the Group to ensure they are being managed within
the Company's risk appetite. Action plans are drawn up if any risks
are considered to be outside of the Company's risk appetite and
these are monitored on a regular basis until they return to levels
back within the risk appetite.
On a semi-annual basis, the Board and/or Audit and Risk
Committee receive reports on risk management, the key risks and the
exposures outstanding. Also included in these reports are the
results of the Executive Management Team's risk and issue
identification discussions noted above. These meetings also provide
the Directors with the opportunity to consider any other issues
which management may not have identified and give direction on any
additional risk management actions which might be required.
Insurance
The Sancus and subsidiaries insurance programme is subject to
annual review each year, with cover generally renewed in April of
the following year. A significant amount of Insurance cover is held
for Public Indemnity, Directors' and Officers' liability, Cyber,
and Crime. Appropriate office and travel insurance is also in
place.
During 2022, the Committee did not receive any reports relating
to whistleblowing across the Group.
On behalf of the Audit and Risk Committee
John Whittle
Chairman
Audit and Risk Committee
REMUNERATION REPORT
Introduction
An ordinary resolution for the approval of the annual
remuneration report will be put to the shareholders at the annual
general meeting to be held in 2023.
Remuneration and Nomination Committee
The Remuneration and Nomination Committee comprises of John
Whittle as Chairman, Steve Smith and Tracy Clarke. The key duties
include, but are not limited to, agreeing a framework for Director
remuneration, ensuring management staff are appropriately
incentivised to enhance performance, and reviewing the
effectiveness of the remuneration policy on an on-going basis. No
Director is involved in determining their own remuneration.
Remuneration Policy
In February 2020 the Remuneration Policy was last approved and
adopted. The Company is committed to the objective of maximising
shareholder return in the longer term. The remuneration policy aims
to be competitive, aligned with shareholder interests and
relatively simple and transparent. The Board takes into
consideration the views of significant shareholders when
determining the remuneration of directors.
The objective is to put in place a remuneration package that, as
a whole:
-- aligns the interests of employees with that of shareholders and the success of the Company;
-- is appropriately benchmarked, such that it aids retention and recruitment; and
-- meets applicable legal or regulatory requirements, is tax
efficient and simple to implement and administer.
The Board is reviewing the Remuneration Policy against these
objectives.
The Policy is divided into two parts; the first part in relation
to the remuneration of the Non-Executive directors of the Company,
and the second part in relation to the remuneration of the
Executive Directors of the Company.
Part 1 - Remuneration Policy of Non-Executive Directors
Each Non-Executive Director receives a xed fee per annum based
on their role and responsibility within the Company and the time
commitment required. It is not considered appropriate that
Non-Executive Directors' remuneration should be performance related
and none of the Non-Executive Directors are eligible for pension
bene ts, share options, long-term incentive schemes or other bene
ts in respect of their services as Non-Executive directors of the
Company. Shares held by the Non-Executive Directors are disclosed
in the Annual Report.
Pursuant to Article 30.3 of the Company's Articles of
Incorporation (the "Articles") the Board may award additional
remuneration to any Director engaged in exceptional work at the
request of the Board on a time spent basis to compensate for the
additional time spent over their expected time commitment.
The total remuneration of the Non--Executive Directors has not
exceeded the GBP300,000 per annum limit (excluding amounts payable
in respect of any out-of-pocket expenses pursuant to Article 30.2
or any additional remuneration awarded pursuant to Article 30.3)
pursuant to an ordinary resolution passed at the Annual General
Meeting of the Company held on 19 May 2016.
The Articles provide that Non-Executive Directors retire and
offer themselves for re--election at the rst annual general meeting
after their appointment and at least every three years thereafter.
A Non-Executive Director's appointment may at any time be
terminated by and at the discretion of either party upon three
months' written notice. A Non-Executive Director's appointment will
terminate immediately without notice (or payment in lieu of notice)
if such director is not re-appointed at a General Meeting of the
Company (if required under the Articles), if such director is
removed as a director at a General Meeting of the Company, or if
such director resigns or ceases to be a director in accordance with
the provisions of the Articles.
The terms and conditions of appointment of each Non-Executive
Director are available for inspection at the Company's registered
of ce.
The last independent remuneration review was carried out in July
2014. The Directors intend to put in place a Long-Term Incentive
Plan for Senior Management during the course of 2023 which will
also include a remuneration review.
For comparative purposes the table below sets out the
Non-Executive Directors' remuneration approved and actually paid
for the year to 31 December 2021 as well as that proposed for the
year ending 31 December 2022 (to be approved at the 2023 AGM).
Director Role Base for Additional Total fees Base for Additional Total fees
2022 fees for for 2022 2021 fees for for 2021
2022 2021
Patrick Non-Executive - - - GBP23,333 GBP10,000 GBP33,333
Firth* Director and for Chairman
Chairman of of the Board
the Board
-------------- ------------- ------------ ------------- ------------- ------------- -------------
Steve Non-Executive GBP35,000 GBP15,000 GBP50,000 GBP22,446 GBP5,000 for GBP27,446
Smith** Director and for Chairman of
Chairman of Chairman of the Board
the Board the Board
-------------- ------------- ------------ ------------- ------------- ------------- -------------
John Whittle Non-Executive GBP35,000 GBP5,000 GBP42,500 GBP35,000 GBP5,000 for GBP42,500
Director, for Chairman of
Chairman of Chairman of the ARC and
the Audit and the ARC and GBP2,500 for
Risk GBP2,500 Chairman of
Committee and for Rem & Nom Co
Chairman of Chairman of
the Rem & Nom
Remuneration Co
Committee
-------------- ------------- ------------ ------------- ------------- ------------- -------------
Nicholas Non-Executive GBP6,329 - GBP6,329 GBP35,000 Nil GBP35,000
Wakefield*** Director
-------------- ------------- ------------ ------------- ------------- ------------- -------------
Tracy Non-Executive GBP28,671 Nil GBP28,671 - - -
Clarke*** Director
-------------- ------------- ------------ ------------- ------------- ------------- -------------
Total GBP105,000 GBP22,500 GBP127,500 GBP115,779 GBP22,500 GBP138,279
-------------- ------------- ------------ ------------- ------------- ------------- -------------
* Pro rata for 2021 as Mr Firth resigned as a Non-Executive
Director and Chairman of the Board on 31 August 2021.
** Pro rata for 2021 as Mr Smith was appointed to the Board on
11 May 2021 and succeeded Mr Firth as Board Chairman following his
resignation.
*** Pro rata for 2022 as Mr Wakefield was succeeded by Ms Clark
on 8 March 2022.
Part 2 - Remuneration Policy of Executive Directors
Base Remuneration
For the year ended 31 December 2022, the Executive Directors'
base salary from the Company, excluding all reasonable expenses
incurred in the course of their duties which were reimbursed by the
Company, were as detailed in the table below:
31 December 2022 31 December 2021
Andrew Whelan(1) - GBP260,981
----------------- -----------------
Rory Mepham(2) GBP220,000 GBP220,000
----------------- -----------------
Emma Stubbs GBP170,000 GBP170,000
----------------- -----------------
Dan Walker(3) - GBP200,000
----------------- -----------------
James Waghorn(4) GBP135,000 -
----------------- -----------------
Helen Trott(5) GBP135,000 -
----------------- -----------------
(1) Mr Whelan resigned on 30 June 2021, and his contract ended
on 28 February 2022.
(2) Mr Mepham was appointed Interim CEO on 30 June 2021 and
permanent CEO on 23 November 2022.
(3) Mr Walker resigned on 31 January 2022.
(4) Mr Waghorn was appointed CIO on 8 March 2022. In addition to
his Sancus salary Mr Waghorn also receives GBP35k p.a. from
Somerston Capital Limited as Managing Director of Healthcare &
Development for Somerston.
(5) Mrs Trott was appointed COO and Legal Counsel on 29 November
2022 and is on a 4 day a week contract.
In addition to fixed salary payments, in 2022 the Executive
Management Team members received pension contributions of GBP11,000
Rory Mepham, GBP8,500 Emma Stubbs, GBP1,076 James Waghorn and
GBP117 Helen Trott. (2021: GBP3,278 Andrew Whelan, GBP7,045 Rory
Mepham, GBP6,299 Emma Stubbs and GBP7,581 Dan Walker).
Long Term Incentives
The Board intends to introduce a Long Term Incentive Plan for
Senior Management during 2023 and an external advisor will be
engaged to assist with this.
Discretionary Executive Bonus
There was one discretionary bonus awarded to James Waghorn of
GBP50,000 relating to 2022. (In the year to 2021: GBP125,000,
GBP50,000, GBP75,000 and GBP75,000 were paid to Andrew Whelan, Rory
Mepham, Emma Stubbs and Dan Walker respectively).
On behalf of the Remuneration Committee
John Whittle
Remuneration Committee Chairman
DIRECTORS' REPORT
The Directors submit their Report together with the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of
Financial Position, the Consolidated Statement of Changes in
Shareholders' Equity, the Consolidated Statement of Cash Flows and
the related Notes for the year ended 31 December 2022, which have
been prepared in accordance with International Financial Reporting
Standards as adopted by the UK, in accordance with any relevant
enactment for the time being in force, and are in agreement with
the accounting records, which comply with Section 238 of The
Companies (Guernsey) Law, 2008.
Principal Activities
The Company was incorporated and domiciled in Guernsey, as a
company limited by shares and with limited liability on 9 June 2005
in accordance with The Companies (Guernsey) Law, 1994 (since
superseded by The Companies (Guernsey) Law, 2008). From January
2023 the Company changed its management and control from Guernsey
to Jersey. Until 25 March 2015, the Company was Authorised as a
Closed-ended Investment Scheme and was subject to the Authorised
Closed-ended Investment Scheme Rules 2008 issued by the Guernsey
Financial Services Commission ("GFSC"). On 25 March 2015, the
Company was registered with the GFSC as a Non-Regulated Financial
Services Business, at which point the Company's authorised fund
status was revoked. The Company's Ordinary Shares were admitted to
the AIM market of the London Stock Exchange on 5 August 2005. The
ZDPs were listed and traded on the main market of the London Stock
Exchange with effect from 5 October 2015 and following shareholder
approval now have a maturity date of 5 December 2027. The Company's
2021 bonds were repaid on 21 December 2021 and a total of
GBP12.575m principal of new bonds (the "New Bonds") were issued on
22 December 2021. Somerston subscribed to a further GBP2.425m bonds
on 1 December 2022 taking the Company's aggregated bond principal
to GBP15m of which GBP10.13m is now held by Somerston. The New
Bonds are not listed and have an interest rate of 7%.
The Company does not have a fixed life and the Articles do not
contain any trigger events for a voluntary liquidation of the
Company.
Following the approval by Shareholders at the Company AGM on 19
May 2016, the Company changed its status from being an investing
company for the purpose of the AIM rules to a trading Company.
The Executive Management Team is responsible for the day-to-day
management of the Company.
The Group
As at 31 December 2022, the Group comprises the Company and the
entities disclosed in Note 20 to the financial statements.
Directors and Executive Management Team of the Company
A list of the Directors and the Executive Management Team who
served the Company during the year and as at the date of this
report is shown in the Corporate Governance report.
Results and Dividends
The Group results for the year are set out in the consolidated
statement of comprehensive income. No Dividends were paid during
the year (31 December 2021: Nil).
Substantial Shareholdings
As at 31 December 2022, the Company was aware of the following
substantial shareholders who held 3% or more of issued share
capital of the Company:
Number of Percentage of total
Ordinary Shares ordinary shares
held issued held
Somerston Group 294,644,553 50.44%
----------------- --------------------
Philip J Milton & Company plc 94,215,644 16.13%
----------------- --------------------
Directors' Interests
As at 31 December 2022, the Directors had the following
beneficial interests in the Ordinary Shares of the Company:
31 December 2022 31 December 2021
No. of Ordinary % of Ordinary No. of Ordinary % of Ordinary
Shares Held Shares Held Shares Held Shares Held
---------------- -------------- ---------------- --------------
John Whittle 138,052 0.03 138,052 0.03
---------------- -------------- ---------------- --------------
Nick Wakefield - - - -
---------------- -------------- ---------------- --------------
Emma Stubbs 1,380,940 0.28 1,380,940 0.28
---------------- -------------- ---------------- --------------
Steve Smith (Chairman) - - -
---------------- -------------- ---------------- --------------
Rory Mepham - - - -
---------------- -------------- ---------------- --------------
Tracy Clarke - - - -
---------------- -------------- ---------------- --------------
Statement of Directors' Responsibilities
The Directors are responsible for preparing the financial
statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the United Kingdom (UK), and The
Companies (Guernsey) Law, 2008 for each financial period to give a
true and fair view of the state of affairs of the Group as at the
end of the financial year and of the profit or loss for that
period. International Accounting Standard 1 requires that financial
statements present fairly for each financial period the Group's
financial position, financial performance and cash flows. This
requires faithful representation of the effects of transactions,
other events and conditions in accordance with the definitions and
recognition criteria for assets, liabilities, income and expenses
set out in the International Accounting Standards Board's
"Framework for the preparation and presentation of financial
statements". In virtually all circumstances a fair presentation
will be achieved by compliance with all IFRSs as adopted by the
UK.
In preparing these financial statements, the Directors are
required to:
-- Ensure that the financial statements comply with the
Memorandum and Articles of Incorporation and IFRSs, as adopted by
the United Kingdom;
-- Select suitable accounting policies and apply them consistently;
-- Present information including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- Make judgements and estimates that are reasonable and prudent; and
-- Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company and the
Group will continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements have been properly prepared in
accordance with The Companies (Guernsey) Law, 2008. They are also
responsible for safeguarding the assets of the Company and the
Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors also confirm that the annual report and financial
statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group and Company's performance, business model and
strategy.
Internal Controls Review
Taking into account the ongoing work of the Audit and Risk
Committee in monitoring the risk management and internal control
systems on behalf of the Board the Directors, the latter has
conducted a robust assessment of the principal risks and
uncertainties faced by the Group as set out in the risk table and
is satisfied that each of these has been properly identified and is
being effectively managed through the operation of appropriate
internal controls and risk management systems, within the
constraints of the resources of the Group.
Statement as to Disclosure of Information to Auditor
The Directors who held office at the date of approval of this
Directors' Report confirm that:
-- There is no relevant audit information of which the Company's
auditors are unaware; and
-- The Directors have taken all steps that they ought to have
taken to make themselves aware of any relevant audit information
and to establish that the auditors are aware of that
information.
Auditor
Moore Stephens have indicated their willingness to continue in
office and a resolution to re-appoint Moore Stephens will be tabled
at the forthcoming AGM.
Going Concern
The Directors have considered the going concern basis in the
preparation of the financial statements as supported by the
Director's assessment of the Company's and Group's ability to pay
its debts as they fall due and have assessed the current position
and the principal risks facing the business with a view to
assessing the prospects of the Company. Following the extension of
the ZDPs at the end of 2022, for a further 5 years to 5 December
2027 and with the Bonds maturity date not until 31 December 2025,
the Company does not have any debt liabilities that fall due within
the next 12 months. Based on this, the Directors are of the opinion
that the Company has adequate financial resources to continue in
operation and meet its liabilities as they fall due for the
foreseeable future.
It is however expected, whereby equity is required to facilitate
an increase in drawdown from institutional funding lines that the
Company will require growth capital to fund the continued growth of
the loan book. The Company's largest shareholder, Somerston has
indicated their willingness to support the Company's growth plans.
The Company will be looking at options available to raise
additional growth capital over the course of the year, which may
include a form of equity raise or sale by Company of ZDP shares
held in treasury.
The Directors therefore believe it is appropriate to continue to
adopt the going concern basis in preparing the financial
statements.
Board Succession
The Directors remain focussed on ensuring the Board is comprised
of individuals with the requisite skills, knowledge, experience and
diversity to operate effectively and to meet the future leadership
needs of the Company. The Board welcomed the appointment of Ms
Tracy Clarke who succeeded Mr Nick Wakefield in March 2022 as the
Somerston appointed Board representative. It is noted that Emma
Stubbs will resign on 30 March 2023 and will be replaced by Tracy
Clarke, who will become an executive Director and cease to be
Somerston's appointed Board representative. At this time no
replacement is deemed necessary for Tracy Clarke's Non Executive
position, but this will be kept under review.
Approved and signed on behalf of the Board of Directors on 30
March 2023.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF SANCUS LING GROUP
LIMITED
Opinion
We have audited the financial statements of Sancus Lending Group
Limited (the 'company' or the 'parent company and its subsidiaries
together as the 'group') for the year ended 31 December 2022 which
comprise of the Consolidated Statement of Comprehensive Income,
Consolidated Statement of Financial Position, Consolidated
Statement of Cash Flows, the Consolidated Statement of Changes in
Equity and notes to the financial statements, including a summary
of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as
adopted by the United Kingdom and, as regards the parent company
financial statements, as applied in accordance with the provisions
of the Companies Act 2006.
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 2022 and of the group's loss for the year then ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the United Kingdom; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies (Guernsey) Law, 2008.
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,
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in Guernsey, including the
FRC'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.
Conclusions relating to Going Concern
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors' assessment of the company's
ability to continue to adopt the going concern
basis of accounting included:
-- comprehensive analysis of the Entity's financial position; and
-- cash flows, including the key assumptions underlying the Entity's forecasted cash flows.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group's ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Group's ability to continue as a going concern.
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) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
The key audit matters that we identified in the current year
are:
Audit Matter Procedures
Impairment of Goodwill We obtained our understanding of how
the discounted cash flow forecasts are
As at 31 December 2022, the Group modelled as part of the Board's processes
has recorded goodwill of GBP14.3m to identify and recognise impairment.
(2021: GBP22.9m) representing With regards to valuation, we performed
22.64% (2021: 23.1%) of group the following procedures:
total assets at year end. Discounted
cash flow models are prepared
by management to assist the Board We obtained an understanding of the
and Audit Committee in determining relevant controls over the impairment
whether indicators of impairment assessment process;
exist and estimating the recoverable
amount of goodwill, based on information We have reviewed and checked the key
available at 30 June 2022. The assumptions to the cash flows including
management believes that there revenue growth rates, discount rates,
is no further change till 31 December and future income and expenditure cash
2022. flows, and tested for any
inconsistencies with our understanding
The risk is explained further of the group's business model;
in the Strategic report where
this is included as a key risk We internally performed stress testing
of misstatement. Note on the key assumptions to determine
2(h) and Note 3 set out the associated the impact on the recoverable amount
accounting policy and disclosure of goodwill and whether this would lead
in respect of critical judgements to any impairment;
and key sources of estimation
uncertainty, with Note 12 setting We checked the critical model assumptions
out details of the impairment related to the cash flow and growth
tests and goodwill rate assumptions, which were used in
valuation sensitivities. the forecast to model the recovery to
pre-Covid-19 levels of loan origination,
by assessing trends in external sector
reports, evaluating the expected cash
flows from the loan pipeline and loans
originated post impairment test date;
We agreed inputs to supporting evidence
where appropriate;
We reviewed the models prepared by management
for consistency with the requirements
of IAS 36;
We challenged management's assertion
that no further impairment triggers
exist at the balance sheet date, considering
the sources of information to identify
such indicators as listed in IAS 36
Impairment of Assets; and
We reviewed the disclosures made per
requirements of IAS 36.
Based on our audit work, we concur with
management that the goodwill balance
was not impaired as at 31 December 2022.
As described in Note 12 to the financial
statements, we noted that management
have assumed that Sancus Lending (Jersey)
does not require impairment as of 31
December 2022.
Note 12 to the financial statements
describes the underlying sensitivity
of the key inputs used.
-------------------------------------------------------------
Impairment and recoverability We have performed the following procedures:
of loans receivable
As at 31 December 2022. the aggregate We have obtained an understanding of
value of loans and loan equivalents significant controls over the loans
amounted to GBP76.13m (2021: GBP53.24m) impairment process;
representing 74.97% of total assets
(2021: 54.89%). The loan portfolio Performed a walkthrough of relevant
comprises of property-backed loans controls in the valuation process to
(Sancus). Through Sancus, the confirm they were appropriately designed
group has direct exposure to loans and implemented;
through co-investment alongside
third-party lenders. We have tested, on a sample basis, inputs
used in the 'Loans Monitoring Report',
The group has also provided a including the accuracy of covenant calculations,
first loss guarantee as part of such as loan to value ratios, collateral
the Sancus Loan Note structures. values, and other financial and non-financial
The value of these assets are information;
also supported by the underlying
loan book. Management is required We have checked the reasonableness of
to assess loans for impairment, management's significant judgments relating
including the application of the to the categorisation of loans into
expected credit loss ('ECL') model the various credit stages required under
under IFRS 9. IFRS 9. We have considered this in relevance
to management's definition of a significant
In making this assessment, management increase in credit risk ('SICR') and
makes several significant judgements. the definition of default
These include determining appropriate and performed a review of the Loan
assumptions for calculating the Monitoring Report to assess evidence
loss allowance under IFRS 9 (including of changes in credit risk resulting
probability of default and loss from factors such as:
given default), as well as loan-specific - exceedances in LTV;
matters including cash flow forecasts - covenant breaches;
and covenant compliance, specifically - delinquencies in payments; or
related to loan to value (LTV) - other signs of financial stress.
ratio. As a result, errors or
deliberate manipulation of these We also checked the reasonableness of
determining factors could result management's assumptions related to
in material misstatement of the the recoverable value of any non-performing
financial statements, as such loans in light of available evidence
it is considered as a fraud key and the underlying collateral;
audit matter.
We have checked the reasonableness of
The risk is explained further management's assumptions relating to
in the strategic report where their capital market expectations, such
this is included as a key risk as Covid-19, including any overlays
of misstatement. Note required to compensate for the change
2(f) and Note 3 set out the associated in the market environment not reflected
accounting policy and disclosure in the ECL model;
in respect of critical judgements
and key sources of estimation We have evaluated the reasonableness
uncertainty, with Note 23 setting of management's judgements and estimates
out details of the associated in deriving the probability of default
risk factors, including (PD), determining the loss given default
credit risk. (LGD) and exposure at default (EAD)
for each stage within which loans are
classified and their compliance with
IFRS 9 requirements;
We tested the numerical accuracy of
the ECL calculation based on the above
inputs; and
We evaluated the adequacy of disclosures
made in the financial statements in
light of the requirements of IFRS 7
and IFRS 9.
We have concluded that the overall carrying
value of loans is reasonable.
As described in note 3 to the financial
statements, IFRS 9 requires the application
of a probability-weighted unbiased estimate
in determining the ECL on loans. There
are therefore certain loans where the
amounts recovered could be materially
different to the
estimate at 31 December 2022.
Note 23 to the financial statements
describes the underlying sensitivity
of the key inputs used.
-------------------------------------------------------------
Revenue recognition We have performed the following procedures:
The Group's revenue for the year
ended 31 December 2022 was GBP9.98m We have obtained reports from LMS, related
(2021: GBP9.02m) of which GBP5.48m to interest income and tested on sample
(2021: GBP5.39m) sourced from basis by recalculating interest income
interest income and fees enforced and comparing it with the amounts accounted
as per lending agreements and in the general ledger.
GBP4.5m (2021: GBP3.62m) was from
interest on loans. We also performed analytical review
to test the reasonableness of interest
We consider revenue as a presumed income.
fraud risk and have directed our
tests towards this risk For fee income, we have verified on
sample basis, fee from various contracts
and tested for accuracy.
We have concluded that the reported
revenue is presented fairly.
-------------------------------------------------------------
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 Materiality GBP393k
Basis 2% of net assets
-----------------------------------------------------------------
Rationale considered as most appropriate based
on the significance of the on balance
sheet lending and goodwill balances.
-----------------------------------------------------------------
In determining performance materiality,
we considered the following significant
judgements:
* Our risk assessment, including our assessment of the
Group's overall control environment; and
* No past audit experience with the Group.
-----------------------------------------------------------------
We have also adopted a lower level of materiality for revenue
balances consistent with the prior year audit. We consider revenue
to be a critical performance measure for the group as it is
expected to be a key driver for future distributions from profits
now the group has further developed its SME and property backed
lending business.
The lower-level materiality applied was GBP199.6k (2021:
GBP180k), being approximately 2% (2021: 2%) of total revenue. We
agreed with the Audit Committee that this was appropriate as
revenue balances are relatively low compared to our overall group
materiality set out above, yet there is an increasing focus on
these as performance measures.
Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Group performance materiality was set at 60%
of group materiality for the 2022 audit (2021: 60%). In determining
performance materiality, we considered the following factors:
-- Our risk assessment, including our assessment of the group's
overall control environment and that we consider it appropriate to
rely on controls on a key business process;
-- Our past experience of the audit, which has indicated a low
number of uncorrected misstatements identified in prior periods;
and
Error reporting threshold
We would report to the Committee all audit differences in excess
of GBP19.6k (2021: GBP23k), 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
Our audit was scoped by obtaining an understanding of the group
and its environment, including internal control, and assessing the
risks of material misstatement for the company and its
subsidiaries. Audit work to respond to the risks of material
misstatement was performed directly by the group audit team for
both the parent entity and its subsidiaries.
Audit work performed for the subsidiaries was executed by the
group audit team at levels of materiality applicable to each
subsidiary, which in all instances was lower than group materiality
and ranged between GBP53k and GBP184k (2021: between GBP4.4k and
GBP1,006k).
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
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 this regard.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and
the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the consolidated financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement set out in the Directors' Report, 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
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.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
The objectives of our audit in respect of fraud, are; to
identify and assess the risks of material misstatement of the
financial statements due to fraud; to obtain sufficient appropriate
audit evidence regarding the assessed risks of material
misstatement due to fraud, through designing and implementing
appropriate responses to those assessed risks; and to respond
appropriately to instances of fraud or suspected fraud identified
during the audit. However, the primary responsibility for the
prevention and detection of fraud rests with both management and
those charged with governance of the company.
Our approach was as follows:
-- We obtained an understanding of the legal and regulatory
requirements applicable to the company and considered that the most
significant are the Companies (Guernsey) Law, 2008, International
Financial Reporting Standards as adopted by the UK, and taxation
legislation.
-- We obtained an understanding of how the company complies with
these requirements by discussions with management and those charged
with governance.
-- We assessed the risk of material misstatement of the
financial statements, including the risk of material misstatement
due to fraud and how it might occur, by holding discussions with
management and those charged with governance.
-- We inquired of management and those charged with governance
as to any known instances of non-compliance or suspected
non-compliance with laws and regulations.
-- Based on this understanding, we designed specific appropriate
audit procedures to identify instances of non-compliance with laws
and regulations. This included making enquiries of management and
those charged with governance and obtaining additional
corroborative evidence as required.
As part of an audit in accordance with ISAs (UK) we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
-- Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the group's or the
parent company's ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to
draw attention in our auditor's report to the related disclosures
in the financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor's report. However,
future events or conditions may cause the group or the parent
company to cease to continue as a going concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. 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.
Jeff Vincent (Senior Statutory Auditor)
for and on behalf of Moore Stephens Audit and Assurance
(Guernsey) Limited
Level 2 Park Place
Park Street
St Peter Port
Guernsey
GY1 3HZ
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes 2022 2021
GBP'000 GBP'000
Revenue 5 9,989 9,022
Cost of sales 6 (7,609) (6,537)
Gross profit 2,380 2,485
Operating expenses 7 (6,674) (6,231)
Operating loss before credit losses (4,294) (3,746)
Changes in expected credit losses 22 (418) (6,399)
Incurred losses on financial assets - (90)
Operating Loss (4,712) (10,235)
FinTech Ventures fair value movement 22 (894) 434
Other net gains/(losses) 8 233 (557)
Goodwill impairment (8,639) -
Loss for the year before tax (14,012) (10,358)
Income tax 18 (50) 19
Loss for the year after tax (14,062) (10,339)
-------- --------
Items that may be reclassified subsequently to profit and loss
Foreign exchange gain arising on consolidation 20 12
-------- --------
Other comprehensive income for the year after
tax 20 12
-------- --------
Total comprehensive loss for the year (14,042) (10,327)
======== ========
Loss for the year after tax attributable to equity
holders of the company (14,062) (10,339)
======== ========
Total comprehensive loss attributable to equity
holders of the company (14,042) (10,327)
======== ========
Basic Loss per Ordinary Share 10 (2.89)p (2.16)p
Diluted Loss per Ordinary Share 10 (2.89)p (2.09)p
-------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 31 December
2022 2021
ASSETS Notes GBP'000 GBP'000
Non-current assets
Fixed assets 11 425 660
Goodwill 12 14,255 22,894
Other intangible assets 13 - 53
Sancus loans and loan equivalents 22 23,864 6,643
FinTech Ventures investments 22 - 500
Other investments 100 100
Investments in joint ventures and associates 9 - 500
----------- -----------
Total non-current assets 38,644 31,350
----------- -----------
Current assets
Other assets 14 706 496
Sancus loans and loan equivalents 22 52,261 46,602
Trade and other receivables 15 5,806 6,075
Cash and cash equivalents 4,134 12,436
----------- -----------
Total current assets 62,907 65,609
----------- -----------
Total assets 101,551 96,959
----------- -----------
EQUITY
Share premium 16 118,340 116,218
Treasury shares 16 (1,172) (1,172)
Other reserves (109,994) (95,952)
----------- -----------
Capital and reserves attributable to equity
holders of the Group 7,174 19,094
----------- -----------
Total equity 7,174 19,094
----------- -----------
LIABILITIES
Non-current liabilities
Borrowings 90,868 64,677
Lease liabilities 152 364
----------- -----------
Total non-current liabilities 17 91,020 65,041
----------- -----------
Current liabilities
Borrowings - 10,532
Trade and other payables 1,708 1,628
Hedging contracts 398 -
Tax liabilities 145 86
Provisions 413 -
Lease liabilities 212 212
Interest payable 481 366
Total current liabilities 17 3,357 12,824
----------- -----------
Total liabilities 94,377 77,865
----------- -----------
Total equity and liabilities 101,551 96,959
=========== ===========
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Note Share Premium Treasury Warrants Foreign Retained Capital
Shares Outstanding Exchange Earnings/ and reserves
Reserve (Losses) attributable
to
equity holders
of
the Company
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2022 116,218 (1,172) 385 11 (96,348) 19,094
Exercise of warrants 16 2,122 - - - - 2,122
Movement in fair value of
warrants 16 - - (385) - 385 -
Transactions with owners 2,122 - (385) - 385 2,122
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Total comprehensive
income/(loss)
for the year - - - 20 (14,062) (14,042)
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Balance at 31 December
2022 118,340 (1,172) - 31 (110,025) 7,174
========================== ===== ============== ========= ============= ========== =========== ================
Balance at 1 January 2021 116,218 (1,099) 847 (1) (86,471) 29,494
Acquired on sale of BMS 16 - (73) - - - (73)
Movement in fair value of
warrants - - (462) - 462 -
Transactions with owners - (73) (462) - 462 (73)
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Total comprehensive
income/(loss)
for the year - - - 12 (10,339) (10,327)
-------------------------- ----- -------------- --------- ------------- ---------- ----------- ----------------
Balance at 31 December
2021 116,218 (1,172) 385 11 (96,348) 19,094
========================== ===== ============== ========= ============= ========== =========== ================
CONSOLIDATED STATEMENT OF CASH FLOWS
31 December 31 December
2022 2021
Notes GBP'000 GBP'000
Cash flow from operations, excluding
loan movements 19 (3,548) (4,121)
Increase in Sancus loans (140) (1,340)
Decrease in loans through platforms - 8
Increase in Sancus Loans Limited loans (21,450) (4,564)
Decrease in loans re: UK SARL - 1,808
Investment in Sancus Loan Notes - (100)
----------- -----------
Net Cash flows used in operating
activities (25,138) (8,309)
----------- -----------
Investing activities
Net investments in FinTech Ventures (394) (66)
Divestment/(Investment) in Sancus
(IOM) Holdings Limited 516 (16)
Investment in joint venture (50) (91)
Expenditure on SPL Properties (210) (157)
Sale of SPL Properties - 743
Property, equipment and other intangibles
acquired (17) (14)
----------- -----------
Net cash (outflow) / inflow from
investing activities (155) 399
----------- -----------
Financing activities
Drawdown of Pollen facility 19 15,250 7,500
Capital element of lease payments 19 (212) (193)
Exercise of warrants 2,122 -
Issue of bonds 19 2,425 -
Debt issue costs 19 (577) (3)
Repayment of ZDPs 19 (2,037) (2,756)
----------- -----------
Net cash generated by financing activities 16,971 4,548
----------- -----------
Effects of foreign exchange 20 12
Net decrease in cash and cash equivalents (8,302) (3,350)
Cash and cash equivalents at beginning
of year 12,436 15,786
Cash and cash equivalents at end
of year 4,134 12,436
=========== ===========
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Sancus Lending Group Limited, (the "Company"), and together with
its subsidiaries, ("the Group") was incorporated, and domiciled in
Guernsey, Offshore, as a company limited by shares and with limited
liability, on 9 June 2005 in accordance with The Companies
(Guernsey) Law, 1994 (since superseded by The Companies (Guernsey)
Law, 2008). Until 25 March 2015, the Company was an Authorised
Closed-ended Investment Scheme and was subject to the Authorised
Closed-ended Investment Scheme Rules 2008 issued by the Guernsey
Financial Services Commission ("GFSC"). On 25 March 2015, the
Company was registered with the GFSC as a Non-Regulated Financial
Services Business, at which point the Company's authorised fund
status was revoked. The Company's Ordinary Shares were admitted to
trading on the AIM market of the London Stock Exchange on 5 August
2005 and its issued ZDPs were listed and traded on the Standard
listing Segment of the main market of the London Stock Exchange
with effect from 5 October 2015.
The Company does not have a fixed life and the Articles do not
contain any trigger events for a voluntary liquidation of the
Company. The Company is an operating company for the purpose of the
AIM rules. The Executive Management Team is responsible for the
management of the Company.
As at 31 December 2022, the Group comprises the Company and its
subsidiaries (Note 20).
The Company has taken advantage of the exemption conferred by
the Companies (Guernsey) Law, 2008, Section 244, not to prepare
company only financial statements.
2. ACCOUNTING POLICIES
(a) Basis of preparation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS"), as adopted by the UK, and all applicable requirements of
Guernsey Company Law. The financial statements have been prepared
under the historical cost convention, as modified for the
measurement of investments at fair value through profit or loss.
With the exception of any new and amended accounting standards
which require policy changes, detailed in Note 2 (v), the principal
accounting policies of the Group have remained unchanged from the
previous year and are set out below. Comparative information in the
primary statements is given for the year ended 31 December
2022.
The Group does not operate in an industry where significant or
cyclical variations, as a result of seasonal activity, are
experienced during any particular financial period.
Going Concern
The Directors have considered the going concern basis in the
preparation of the financial statements as supported by the
Director's assessment of the Company's and Group's ability to pay
its debts as they fall due and have assessed the current position
and the principal risks facing the business with a view to
assessing the prospects of the Company. Following the extension of
the ZDPs at the end of 2022, for a further 5 years to 5 December
2027 and with the Bonds maturity date not until 31 December 2025,
the Company does not have any liabilities that fall due within the
next 12 months. Based on this, the Directors are of the opinion
that the Company has adequate financial resources to continue in
operation and meet its liabilities as they fall due for the
foreseeable future.
It is however expected, whereby equity is required to facilitate
an increase in drawdown from institutional funding lines that the
Company will require growth capital to fund the continued growth of
the loan book. The Company's largest shareholder, Somerston has
indicated their willingness to support the Company's growth plans.
The Company will be looking at options available to raise
additional growth capital over the course of the year, which may
include a form of equity raise or sale by Company of ZDP shares
held in treasury.
The Directors therefore believe it is appropriate to continue to
adopt the going concern basis in preparing the financial
statements.
(b) Basis of consolidation
The financial statements comprise the results of Sancus Lending
Group and its subsidiaries for the year ended 31 December 2022. The
subsidiaries are all entities where the Company has the power to
control the investee, is exposed, or has rights to variable returns
and has the ability to use its power to affect these returns.
Subsidiaries are fully consolidated from the date on which control
is transferred to the Company. They are deconsolidated from the
date that control ceases. Profit or loss and other comprehensive
income of subsidiaries acquired or disposed of during the year is
recognised from the effective date of acquisition, or up to the
effective date of disposal, as applicable. Intercompany
transactions, balances and unrealised gains on transactions between
Group companies are eliminated in full on consolidation.
(c) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held on
call with banks and other short term highly liquid investments that
are readily convertible into known amounts of cash and which are
subject to an insignificant risk of changes in value.
(d) Dividends
Dividend distributions are made at the discretion of the
Company. A dividend distribution to shareholders is accounted for
as a reduction in retained earnings. A proposed dividend is
recognised as a liability in the period in which it has been
approved and declared by the Directors.
(e) Expenditure
All expenses are accounted for on an accruals basis. Management
fees, administration fees, finance costs and all other expenses
(excluding share issue expenses which are offset against share
premium) are charged through the Consolidated Statement of
Comprehensive Income.
(f) Financial assets and liabilities
Classifica tion, recognition and initial measurement
Classification and measurement of debt assets is driven by the
business model for managing the financial assets and the
contractual cash flow characteristics of those financial assets.
There are three principal classification categories for financial
assets that are debt instruments: (i) amortised cost, (ii) fair
value through other comprehensive income and (iii) fair value
through profit and loss. Equity investments in the scope of IFRS 9
are measured at fair value with gains and losses recognised in
profit and loss unless an irrevocable election is made to recognise
gains or losses in other comprehensive income.
We are a lending business, which participates in financing to
borrowers, Sancus loans, loan equivalents and loans through
platforms. As a result all of these loans/loan equivalents are held
solely for the collection of contractual cash flows, being
interest, fees and payment of principal. These assets are held at
amortised cost using the effective interest rate method, adjusted
for any credit loss allowance.
FinTech Ventures investments relate to equity, preference shares
and some working capital loans. Whilst some of these investments
attract interest, the assets are held primarily to assist the
development of the entities involved. These investments are held at
fair value with charges recognised in profit and loss.
(g) Financial assets and liabilities (continued)
Trade payables, financial liabilities and trade receivables are
held solely for the collection and payment of contractual cash
flows, being payments of principal and interest where applicable.
Trade receivables are held at amortised cost using the effective
interest rate method, adjusted for any credit loss allowance. Trade
payables and financial liabilities are held at amortised cost with
any interest cost calculated in accordance with the effective
interest rate.
Financial assets and financial liabilities are initially
recognised on the trade date, which is the date on which the Group
becomes party to the contractual provisions of the instrument.
Financial assets and financial liabilities at fair value through
profit or loss are initially recognised at fair value, with
transaction costs recognised in the Consolidated Statement of
Comprehensive Income. Financial assets and financial liabilities
not at fair value through profit or loss are initially recognised
at fair value plus transaction costs that are directly attributable
to their acquisition or issue.
Subsequent to initial recognition, financial assets are either
measured at fair value or amortised cost as noted above. Realised
gains and losses arising on the derecognition of financial assets
and liabilities are recognised in the period in which they arise.
The effect of discounting on trade and other receivables is not
considered to be material.
Fair value measurement
"Fair value" is the price that would be received to sell an
asset or be paid to transfer a liability in an orderly transaction
between market participants at the measurement date in the
principal or, in its absence, the most advantageous market to which
the Group has access at that date. The fair value of a liability
reflects its non-performance risk.
When available, the Group measures the fair value of an
instrument using quoted price in an active market for that
instrument. A market is regarded as "active" if transactions of the
asset or liability take place with sufficient frequency and volume
to provide pricing information on an on-going basis. The Group
measures financial instruments quoted in an active market at a mid
price.
If there is no quoted price in an active market, the Group uses
valuation techniques that maximise the use of relevant observable
inputs and minimise the use of unobservable inputs. The chosen
valuation technique incorporates all of the factors that market
participants would take into account in pricing a transaction.
Please refer to Note 22.
The Group recognises transfers between levels of the fair value
hierarchy as at the end of the reporting period during which the
change has occurred. If in the case of any investment the Directors
at any time consider that the above basis of valuation is
inappropriate or that the value determined in accordance with the
foregoing principles is unfair, they are entitled to substitute
what in their opinion, is a fair value. Gains and losses arising
from changes in the fair value of the financial assets and
liabilities at fair value through profit or loss are included in
the Consolidated Statement of Comprehensive Income in the period in
which they arise.
Debt and Equity Instruments
Debt and equity instruments issued by a group entity are
classified as either financial liabilities or as equity in
accordance with the substance of the contractual arrangements and
the definitions of a financial liability and an equity instrument.
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 are recorded at the proceeds received less
any direct costs of issue.
Derecognition
Sales of all financial assets are recognised on trade date - the
date on which the Group disposes of the economic benefits of the
asset. Financial assets are derecognised when the rights to receive
cash flows from the asset have expired or the Group has transferred
substantially all risks and rewards of ownership.
On derecognition of a financial asset, the difference between
the carrying amount of the asset (or the carrying amount allocated
to the portion of the asset derecognised) and the consideration
received (including any new asset obtained less any new liability
assumed) is recognised in the Consolidated Statement of
Comprehensive Income. Any interest in such transferred financial
assets that is created or retained by the Company is recognised as
a separate asset or liability.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
Derivative financial instruments
The Group enters into foreign exchange forward contracts in
order to manage its exposure to foreign exchange rate movements.
Further details can be found in Note 22.
Forward contracts are initially recognised at fair value at the
date the contract is entered into and are subsequently remeasured
to their fair value at each balance sheet date. Resulting
gains/losses are recognised in profit or loss immediately. Forward
contracts with positive fair value are recognised as financial
assets whereas forward contracts with negative fair value are
recognised as financial liabilities. Contracts are presented as
non-current assets or liabilities if the remaining maturity of the
instrument is more than 12 months and is not expected to be settled
within 12 months. Other contracts are presented as current
assets.
Expected credit losses
Credit risk is assessed at initial recognition of each financial
asset and subsequently re-assessed at each reporting period-end.
For each category of Credit risk loans have been categorized into
Stage 1, Stage 2 and Stage 3 with Stage 1 being to recognise 12
month Expected Credit Losses (ECL), Stage 2 being to recognise
Lifetime ECL not credit impaired and Stage 3 being to recognise
Lifetime ECL credit impaired. When for example LTV exceeds 65% or
amounts become 30 days past due judgement will be used to reassess
whether Credit risk has increased significantly enough to move the
loan from one stage to another. A loan is considered to be in
default when there is a failure to meet the legal obligation of the
loan agreement. This would include provisions against loans that
are considered by management as unlikely to pay their obligations
in full without realisation of collateral. Refer to Note 22 for
further details.
Sancus loans and loan equivalents are assessed for credit risk
based on information available at initial recognition,
predominantly (but not solely) using Loan to Value (LTV). For trade
and other receivables, the Group has applied the simplified
approach to recognise lifetime expected credit losses although loan
interest receivable is included in the gross carrying value when
determining ECL.
Provision for ECL is calculated using the credit risk, the
probability of default and the probability of loss given default,
all underpinned by the LTV, historical position, forward looking
considerations and on occasion subsequent events, and the
subjective judgement of the Board. ECL assumes the life of the loan
is consistent with contractual term.
Financial guarantee contracts
Financial guarantee contracts are only recognised as a financial
liability when it becomes probable that the guarantee will be
called upon in the future. The liability is measured at fair value
and subsequently in accordance with the expected credit loss model
under IFRS 9. The fair value of financial guarantees is determined
based on the present value of the difference in cash flows between
contracted payments required under the debt instrument and the
payments that would be required without the guarantee, or the
estimated amount that would be payable to a third party for
assuming the obligations.
(h) Foreign currency translation
Functional and presentation currency
The financial statements of the Group are presented in the
currency of the primary economic environment in which the Company
operates (its functional currency). The Directors have considered
the primary economic environment of the Company and considered the
currency in which finance is raised, distributions made, and
ultimately what currency would be returned if the Company was wound
up. The Directors have also considered the currency to which the
underlying investments are exposed. On balance, the Directors
believe Sterling best represents the functional currency of the
Company. Therefore, the books and records are maintained in
Sterling and for the purpose of the financial statements, the
results and financial position of the Group are presented in
Sterling, which is also the presentation currency of the Group.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the Consolidated Statement
of Comprehensive Income. Non-monetary items measured at historical
cost are translated using the exchange rates at the date of the
transaction (not retranslated). Non-monetary items measured at fair
value are translated using the exchange rates at the date when fair
value was determined.
All subsidiaries are presented in Sterling, which is the primary
currency in which they operate with the exception of Sancus Lending
(Ireland) Limited whose primary currency is the Euro. Translation
differences on non-monetary items are reported as part of the fair
value gain or loss reported in the Consolidated Statement of
Comprehensive Income.
Foreign exchange differences arising on consolidation of the
Group's foreign operations are taken direct to reserves. The rates
of exchange as at the year-end are GBP1: USD1.2101 (31 December
2021 USD1.3527) and GBP1: EUR1.1284 (31 December 2021
EUR1.1898)
(i) Goodwill
Goodwill represents the future economic benefits arising from a
business combination that are not individually identified and
separately recognised. Goodwill is measured as the excess of (a)
the aggregate of: (i) the consideration transferred measured in
accordance with IFRS 3, which generally requires acquisition-date
fair value; (ii) the amount of any non-controlling interest in the
acquiree measured in accordance with IFRS 3; and (iii) in a
business combination achieved in stages, the acquisition-date fair
value of the acquirer's previously held equity interest in the
acquiree; over (b) the net of the acquisition-date amounts of the
identifiable assets acquired and the liabilities assumed measured
in accordance with IFRS 3. Goodwill is carried at cost less
accumulated impairment losses. Refer to Note 2 (k) for a
description of impairment testing procedures and Note 12 for
details on impairment testing.
(j) Interest costs
Interest costs are recognised when economic benefits are due to
debt holders. Interest costs are accrued on a time basis, by
reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts
estimated future cash payments through the expected life of the
financial liability to the liability's net carrying amount on
initial recognition.
(k) Other intangible assets
Intangible assets with finite useful lives are amortised to
profit or loss on a straight-line basis over their estimated useful
lives. Useful lives and amortisation methods are reviewed at the
end of each annual reporting period, or more frequently when there
is an indication that the intangible asset may be impaired, with
the effect of any changes accounted for on a prospective basis.
Amortisation commences when the intangible asset is available for
use. The residual value of intangible assets is assumed to be
zero.
Computer software
Costs associated with maintaining computer software programmes
are recognised as an expense as incurred. Development costs that
are directly attributable to the design and testing of identifiable
and unique software products controlled by the Group are recognised
as intangible assets when the following criteria are met:
-- it is technically feasible to complete the software product
so that it will be available of use;
-- management intends to complete the software product and use
or sell it;
-- there is an ability to use or sell the software product;
-- it can be demonstrated how the software product will generate
probable future economic benefits;
-- adequate technical, financial and other resources to complete
the development and to use or sell the software product are
available; and
-- the expenditure attributable to the software product during
its development can be reliably measured.
Directly attributable costs that are capitalised as part of the
software product include the software development employee costs
and third party contractor costs. Other development expenditures
that do not meet these criteria are recognised as an expense as
incurred. Development costs previously recognised as an expense are
not recognised as an asset in a subsequent period. Capitalised
development costs are recorded as intangible assets and amortised
from the point at which the asset is ready for use over their
estimated useful lives, which does not exceed four years.
(l) Impairment testing of goodwill, intangible assets and property and equipment
An impairment loss is recognised for the amount by which the
asset's or cash-generating unit's carrying amount exceeds its
recoverable amount, which is the higher of fair value less costs of
disposal and value-in-use. To determine the value-in-use,
management estimates expected future cash flows from each
cash-generating unit and determines a suitable discount rate in
order to calculate the present value of those cash flows. The data
used for impairment testing procedures are directly linked to the
Group's latest approved budget, adjusted as necessary to exclude
the effects of future reorganisations and asset enhancements.
Discount factors are determined individually for each
cash-generating unit and reflect management's assessment of
respective risk profiles, such as market and asset-specific risk
factors.
Impairment losses for cash-generating units reduce first the
carrying amount of any goodwill allocated to that cash-generating
unit. Any remaining impairment loss is charged pro rata to the
other assets in the cash-generating unit. With the exception of
goodwill, all assets are subsequently reassessed for indications
that an impairment loss previously recognised may no longer exist.
An impairment loss is reversed if the asset's or cash-generating
unit's recoverable amount exceeds its carrying amount.
All impairments or subsequent reversals of impairments are
recognised in the Consolidated Statement of Comprehensive
Income.
(m) Investment in Joint Venture and associates
A joint venture is a joint arrangement over which the Group has
joint control. An associate is an entity over which the Group has
significant influence but is not a subsidiary.
An investment in a joint venture or associate is accounted for
by the Group using the equity method except for certain FinTech
Ventures associates as described in Note 3. These are measured at
fair value through profit or loss in accordance with policy Note 2
(f).
Any goodwill or fair value adjustment attributable to the
Group's share in the joint venture or associate is not recognised
separately and is included in the amount recognised as an
investment.
The carrying amount of the investment in a joint venture or
associate is increased or decreased to recognise the Group's share
of the profit or loss and other comprehensive income of the joint
venture or associate and adjusted where necessary to ensure
consistency with the accounting policies of the Group.
Unrealised gains and losses on transactions between the Group
and its joint venture or associate are eliminated to the extent of
the Group's interest in the entity. Where unrealised losses are
eliminated, the underlying asset is also tested for impairment.
(n) Non-Current Liabilities
Loans payable are recognised initially at fair value less
directly attributable transaction costs. Subsequent to initial
recognition, loans payable are stated at amortised cost using the
effective interest rate method.
The ZDPs are contractually required to be redeemed on their
maturity date and they will be settled in cash, thus, ZDP shares
are classified as liabilities (refer to Note 17) in accordance with
IAS 32 Financial Instruments: Presentation. After initial
recognition, these liabilities are measured at amortised cost,
which represents the initial proceeds of the issuance plus the
accrued entitlement to the reporting date. Any ZDPs acquired by the
group, as noted in Note 17, are held in Treasury and shown as a
reduction in carrying value.
(o) Property and equipment
Tangible fixed assets include computer equipment, furniture and
fittings stated at cost less accumulated depreciation. Depreciation
is provided at rates calculated to write off the cost of tangible
property and computer equipment on a straight-line basis over its
expected useful economic life as follows:
Furniture and fittings 3 to 5 years
Computer equipment 2 to 4 years
(p) Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for
services provided in the normal course of business, net of
discounts, VAT and other sales-related taxes where applicable in
the Group. Revenue is reduced for estimated rebates and other
similar allowances. The Group has five principal sources of revenue
and related accounting policies are outlined below:
Interest on loans
Interest income is recognised in accordance with IFRS 9.
Interest income is accrued over the contractual life of the loan,
by reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the
financial asset to that asset's net carrying amount on initial
recognition.
Dividend income
Dividend income from investments is recognised when the
shareholders' rights to receive payment have been established
(provided that it is probable that the economic benefits will flow
to the Group and the amount of revenue can be measured
reliably).
Fee income on syndicated and non-syndicated loans
In accordance with the guidance in IFRS 15 Revenue, the Group
distinguishes between fees that are an integral part of the
effective interest rate of a financial instrument, fees that are
earned as services are provided, and fees that are earned on the
execution of a significant act.
i) Commitment and arrangement fees
Commitment and arrangement fees earned for syndicated loans are
recognised on origination of the loan as compensation for the
service of syndication. This is a reflection of the commercial
reality of the operations of the business to arrange and administer
loans for other parties i.e. the execution of a significant act and
satisfying the Group's performance obligation at the point of
arranging the loan.
Consistent with the policy outlined above, commitment and
arrangement fees earned on loans originated for the sole benefit of
the Group are also recorded in revenue on completion of the service
of analysing or originating the loan. Whilst this is not in
accordance with the requirements of the effective interest rate
method outlined in IFRS 9 Financial Instruments, this is not
considered to have a material impact on the financial performance
or financial position of the Group.
ii) Exit fees
Where a loan is syndicated and has standard terms the exit fee
is recognised as part of the arrangement fee, reflecting the costs
of syndication at the start of the loan. Where a loan is syndicated
and has milestones or conditions which determine if the fee becomes
payable and/or the magnitude of the fee the exit fee is treated as
variable consideration in line with IFRS 15 and is only recognised
when the relevant milestones/conditions are met. Where loans are
not syndicated the exit fee is deemed to be part of the effective
interest rate and recognised over the term of the loan.
iii) Fee income earned by peer-to-peer subsidiary platforms
Fee income earned by subsidiaries whose principal business is to
operate online lending platforms that arrange financing between Co-
Funders and Borrowers includes arrangement fees, trading
transaction fees, repayment fees and other lender related fees.
Revenue earned from the arrangement of financing is classified as a
transaction fee and is recognised immediately upon acceptance of
the arrangement by borrowers. Other transaction fees, including
revenue from Co- Funders in relation to the sale of their loan
participations in platform secondary markets is also recognised
immediately.
Loan repayment fees are charged on a straight-line basis over
the repayments of the borrower's financing arrangement.
iv) Advisory fees
Advisory fee income is invoiced and recognised on an accruals
basis in accordance with the relevant investment advisory
agreement.
(q) Share based payments
As explained in the Remuneration Report, the Company provides a
discretionary bonus, part of which may be satisfied through the
issuance of the Company's own shares, to certain senior management.
The cost of such bonuses is taken to the Consolidated Statement of
Comprehensive Income with a corresponding credit to Shareholders'
Equity. The fair value of any share options granted is determined
at the grant date and the expense is spread over the vesting period
in accordance with IFRS 2.
(r) Taxation
Current tax, including corporation tax in relevant jurisdictions
that the Group operates in, is provided at amounts expected to be
paid (or recovered) using the tax rates and laws that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences
that have originated but not reversed at the balance sheet date
where transactions or events that result in an obligation to pay
more tax in the future or a right to pay less tax in the future
have occurred at the balance sheet date. Timing differences are
differences between the Group's taxable profits, and its results as
stated in the financial statements, that arise from the inclusion
of gains and losses in tax assessments in periods different from
those in which they are recognised in the financial statements.
(s) Treasury shares
Where the Company purchases its own Share Capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from Share Premium.
When such shares are subsequently sold or reissued to the
market, any consideration received, net of any directly
attributable incremental transaction costs, is recognised as an
increase in Share Premium. Where the Company cancels treasury
shares, no further action is required to the Share Premium account
at the time of cancellation.
(t) Warrants
Warrants are accounted for as either equity or liabilities based
upon the characteristics and provisions of each instrument and are
recorded at fair value as of the date of issuance. In subsequent
periods an amount representing the difference between the warrant
exercise price and the prevailing market price of the company's
shares is transferred from/to retained earnings to/from warrants
outstanding.
(u) Inventories - Development properties
Inventories are stated at the lower of cost and net realisable
value. Cost comprises initial outlay and, where applicable,
additional costs that have been incurred in bringing the
inventories to their present location and condition. Net realisable
value represents the estimated selling price less all estimated
costs of completion and costs to be incurred in marketing and
selling. Repossessed assets are accounted for under IAS 2:
Inventories because the Group will either immediately seek to
dispose of those assets which are readily marketable or pursue the
original development plans to sell for those that are not readily
marketable. Such assets are classed as "Other Assets" within
current assets on the balance sheet.
(v) Leases
The Group assesses whether a contract is or contains a lease, at
inception of the contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less)
and leases of low value assets. For these leases, the Group
recognises the lease payments as an operating expense on a
straight-line basis over the term of the lease unless another
systematic basis is more representative of the time pattern in
which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted by using the incremental borrowing rate.
Lease payments included in the measurement of the lease
liability comprise fixed lease payments (including in-substance
fixed payments) less any lease incentives receivable, variable
lease payments that depend on an index or rate (initially measured
using the index or rate at the commencement date), the amount
expected to be payable by the lessee under residual value
guarantees, the exercise price of purchase options (if the lessee
is reasonably certain to exercise the options) and payments of
penalties for terminating the lease if the lease term reflects the
exercise of an option to terminate the lease.
The lease liability is presented within current and non-current
liabilities in the consolidated statement of financial position. It
is subsequently measured by increasing the carrying amount to
reflect interest on the lease liability ( using the effective
interest method) and by reducing the carrying amount to reflect the
lease payments made. The Group remeasures this liability ( and
makes a corresponding adjustment to the related right-of-use asset
) whenever the lease term has changed or there is a change in the
lease payments used on inception to measure the liability as
described above.
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or before the
commencement day, less any lease incentives received and any
initial direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of
lease term and useful life of the underlying asset. If a lease
transfers ownership of the underlying asset or the cost of the
right-of-use asset reflects that the Group expects to exercise a
purchase option, the related right-of-use asset is depreciated over
the useful life of the underlying asset. The depreciation starts at
the commencement date of the lease.
The Group applies IAS 36 to determine whether a right-of-use
asset is impaired and accounts for any identified impairment loss
as described in the 'Property, Plant and Equipment' policy.
Variable rents that do not depend on an index or rate are not
included in the measurement of the lease liability and the
right-of-use asset. The related payments are recognised as an
expense in the period in which the event or condition that triggers
those payments occurs and are included in 'Operating expenses' in
profit or loss.
(w) Adoption of new and revised Standards
Amendments to IFRSs and IASs that are mandatorily effective for
the current year
In the current year, the Group has applied a number of
amendments to IFRSs and IASs issued by the International Accounting
Standards Board (IASB) that are mandatorily effective for an
accounting period that begins on or after 1 January 2022. These
have been listed below. Their adoption has not had any material
impact on the disclosures or on the amounts reported in these
financial statements.
Amendments to IFRS 1: Amendments resulting from Annual
Improvements to IFRS Standards 2018-2020
Amendments to IFRS 3: Amendments updating a reference to the
Conceptual Framework
Amendments to IFRS 9: Amendments resulting from Annual
Improvements to IFRS Standards 2018-2020
Amendments to IAS 16: Amendments prohibiting a company from
deducting from the cost of property, plant and equipment amounts
received from selling items produced while the company is preparing
the asset for its intended use
Amendments to IAS 37: Amendments regarding the costs to include
when assessing whether a contract is onerous
(x) Adoption of new and revised Standards (continued)
IFRSs, IASs and amendments that are in issue but not yet
effective
At the date of approval of these Consolidated Financial
Statements, the following IFRSs, IASs and amendments, which have
not been applied in these Consolidated Financial Statements and are
not envisaged to have a material impact on the financial statements
when they are applied, were in issue but not yet effective:
Amendments to IFRS 4: Amendments regarding the expiry date of
the deferral approach
Amendments to IFRS 16: Amendments to clarify how a seller-lessee
subsequently measures sale and leaseback transactions
IFRS 17: Insurance Contracts
Amendments to IFRS 17: Amendments to address concerns and
implementation challenges that were identified after IFRS 17 was
published
Amendments to IFRS 17: Amendments regarding the initial
application of IFRS 17 and IFRS 9
Amendments to IAS 1: Amendments regarding the classification of
liabilities
Amendments to IAS 1: Amendments to defer the effective date of
the January 2020 amendments
Amendments to IAS 1: Amendments regarding the disclosure of
Accounting Policies
Amendments to IAS 1: Amendments regarding the classification of
debt with covenants
Amendments to IAS 8: Amendments regarding the definition of
accounting estimates
Amendments to IAS 12: Amendments regarding deferred tax on
leases and decommissioning obligations
Amendments to IAS 28: Amendments regarding the sale or
contribution of assets between an investor and its associate or
joint venture
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
In the application of the Group's accounting policies, which are
described in Note 2, the directors are required to make judgements
(other than those involving estimations) that have a significant
impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates. There is no change
in applying accounting policies for critical accounting estimates
and judgments from the prior year. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision
affects both current and future periods.
Critical judgements in applying the group's accounting
policies
The following are the critical judgements, apart from those
involving estimations (which are dealt with separately below), that
the directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements.
Fair value accounting for FinTech Ventures investments
Some of the Group's FinTech Ventures investments meet the
definition of an associate. However, the Group has applied the
exemption available under IAS 28.18 which states that when an
investment in an associate is held by, or is held indirectly
through, an entity that is a venture capital organisation, the
entity may elect to measure investments in those associates at fair
value through profit or loss in accordance with IFRS 9 - Financial
Instruments.
The Directors consider that the Group is of a nature similar to
a venture capital organisation on the basis that FinTech Ventures
investments form part of a portfolio which is monitored and managed
without distinguishing between investments that qualify as
associate undertakings. Furthermore, the most appropriate point in
time for exit from such investments is being actively monitored as
part of the Group's investment strategy.
The Group therefore designates those investments in associates
which qualify for this exemption as fair value through profit or
loss. Refer to Note 22 for fair value techniques used. If the Group
had not applied this exemption the investments would be accounted
for using the equity method of accounting. This would have the
impact of taking a share of each investment's profit or loss for
the year and would also affect the carrying value of the
investments.
The Directors consider that equity and loan stock share the same
investment characteristics and risks and they are therefore treated
as a single unit of account for valuation purposes and a single
class for disclosure purposes.
Critical judgements in applying the group's accounting policies
(continued)
Exit fees
The Directors consider that the economic measurement of fee
revenues that arise and become due on the completion of a loan
(exit fees and warrants) should be accounted for as variable
consideration and the exit fee constrained to the extent that it is
highly probable that a significant reversal in the amount of
cumulative revenue recognised will not occur. Variable
consideration is included based on the expected value or most
likely amount, with the estimated transaction price associated with
syndication services (being the performance obligation to which
these fees are attributable) due on collection of the loan, updated
at the end of each reporting period to represent the circumstances
present and any changes in circumstances during the reporting
period. This includes factors such as timing risk, liquidity risk,
quantum uncertainty and conditions precedent in the syndicated
finance contract. The Directors consider that this treatment best
reflects the commercial operations of the Group as an administrator
of loan arrangements.
IFRS 10 Control Judgements
Judgement is sometimes required to determine whether after
considering all relevant factors, the Group has control, joint
control or significant influence over an entity or arrangement.
Other companies may make different judgements regarding the same
entity or arrangement. The Directors have assessed whether or not
the Group has control over Sancus Loan Notes 7 and 8 based on
whether the Group has the practical ability to direct the relevant
activities unilaterally. In making their judgement, the directors
considered the rights associated with its investment in preference
shares. After assessment, the directors concluded that the Group
does not have the ability to affect returns through voting rights
(the preference shares do not have voting rights) or other
arrangements such as direct management of these entities (the Group
does not have control over the investment manager). If the
Directors had concluded that the ownership of preference shares was
sufficient to give the Group control, these entities would instead
have been consolidated with the results of the Group.
IFRS 9 Credit Risk
Credit risk and determining when a significant increase in
credit risk has occurred are critical accounting judgements and are
assessed at each reporting period end. Credit risk is used to
calculate estimated credit losses (ECL). Further details on credit
risk can be found in Note 22.
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.
Impairment of goodwill
As detailed in Note 12, the Directors carry out an impairment
review annually to assess whether goodwill is impaired. In doing
so, the Directors assess the value in use of each cash generating
unit through an internal discounted cash flow analysis. The last
impairment review was carried out for the June 2022 interim
reporting.
Given the nature of the Group's operations, the calculation of
value in use is sensitive to the estimation of future cash flows
and the discount rates applied, the impact of which is also
disclosed in Note 12. Refer Notes 2(h) and 2(k) for accounting
policies relating to the valuation and impairment of goodwill.
Key sources of estimation uncertainty (continued)
IFRS 9 ECL
Key areas of estimation and uncertainty are the probabilities of
default (PD) and the probabilities of loss given default (PL) which
are used along with the credit risk in the calculation of ECL.
Further details on ECLs, PD and PL can be found in Note 22. Should
the estimates of PD or PL prove to be different from what actually
happens in the future, then the recoverability of loans could be
higher or lower than the accounts currently suggest, although this
should be mitigated by the levels of LTV which are, in the main,
less than 70%. Where loans are in default and classified within
stage 3, the Directors estimate of the present value of amounts
recoverable through enforcement or other repayment plans could be
materially different to the actual proceeds received to settle the
balances due. In respect of certain loans held by the Group, the
range of outcomes is significant and has a material impact on the
calculation of ECL.
Fair Value of the FinTech Ventures investments
The Group invests in financial instruments which are not quoted
in active markets and measures their fair values as detailed in
Note 22.
All of the FinTech Ventures investments are categorised as Level
3 in the fair value hierarchy. In the past the Directors have
estimated the fair value of financial instruments using discounted
cash flow methodology, comparable market transactions, recent
capital raises and other transactional data including the
performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held
by the Group in the FinTech Ventures investments, the Board's
estimate of liquidation value of these assets is GBPNil at 31
December 2022 (31 December 2021: GBP0.5m) following a further
GBP0.6m deployed into an existing investment during the year and
then subsequently written down to GBPNil. Changes in the
performance of these businesses and access to future returns via
its current holdings could affect the amounts ultimately realised
on the disposal of these investments, which may be greater or less
than GBPnil. There have been no transfers between levels in the
period (2021: None).
4. SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the
manner in which the Executive Management Team reports to the Board,
which is regarded to be the Chief Operating Decision Maker (CODM)
as defined under IFRS 8. The main focus of the Group is Sancus.
Bearing this in mind the Executive Management Team have identified
4 segments based on operations and geography.
Finance costs and Head Office costs are not allocated to
segments as such costs are driven by central teams who provide,
amongst other services, finance, treasury, secretarial and other
administrative functions based on need. The Group's borrowings are
not allocated to segments as these are managed by the Central team.
Segment assets and liabilities are measured in the same way as in
these financial statements and are allocated to segments based on
the operations of the segment and the physical location of those
assets and liabilities.
The four segments based on geography, whose operations are
identical (within reason), are listed below. Note that Sancus Loans
Limited, although based in the UK, is reported separately as a
stand-alone entity to the Board and as such is considered to be a
segment in its own right.
1. Offshore
Contains the operations of Sancus Lending (Jersey) Limited,
Sancus Lending (Guernsey) Limited, Sancus Lending (Gibraltar)
Limited, Sancus Properties Limited and Sancus Group Holdings
Limited.
2. United Kingdom (UK)
Contains the operations of Sancus Lending (UK) Limited and
Sancus Holdings (UK) Limited.
3. Ireland
Contains the operations of Sancus Lending (Ireland) Limited.
4. Sancus Loans Limited
Contains the operations of Sancus Loans Limited.
Reconciliation to Consolidated Financial
Statements
Year to 31 Fintech
December Sancus Ventures
2022 Loans Sancus SLL Fair Consolidated
Limited Debt Total Head Debt Value Financial
Offshore UK Ireland (SLL) Costs Sancus Office Costs & Forex Other Statements
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 1,372 2,679 1,547 (725) - 4,873 - 5,116 - - 9,989
--------- -------- -------- -------- -------- --------- -------- -------- --------- -------- -------------
Operating
(Loss)/profit
* (943) (446) 647 (744) - (1,486) (1,026) - - (31) (2,543)
Credit Losses (244) - - (174) - (418) - - - - (418)
Debt Costs - - - - (1,751) (1,751) - - - - (1,751)
Other
(Losses)/gains (8,630) - 10 191 - (8,429) - - (894) 57 (9,266)
Loss on JVs and
associates - - - - - - - - - (34) (34)
Taxation 18 - (68) - - (50) - - - - (50)
(Loss)/Profit
After
Tax (9,799) (446) 589 (727) (1,751) (12,134) (1,026) - (894) (8) (14,062)
========= ======== ======== ======== ======== ========= ======== ======== ========= ======== =============
Year to 31
December
2021
Revenue 3,810 1,480 667 (1,149) - 4,808 - 4,137 - 77 9,022
-------- ------ ----- -------- -------- -------- -------- ------ ---- ------ ---------
Operating
Profit/(loss)
* 1,207 (462) 88 (1,170) - (337) (1,601) - - 67 (1,871)
Credit Losses (3,892) - - (2,579) - (6,471) - - - (18) (6,489)
Debt Costs - - - - (1,875) (1,875) - - - - (1,875)
Other
Gains/(losses) 56 2 (38) (100) - (80) - - 420 10 350
Loss on JVs and
associates - - - - - - - - - (473) (473)
Taxation 19 - - - - 19 - - - - 19
(Loss)/Profit
After
Tax (2,610) (460) 50 (3,849) (1,875) (8,744) (1,601) - 420 (414) (10,339)
======== ====== ===== ======== ======== ======== ======== ====== ==== ====== =========
* Operating Profit/(loss) before credit losses and debt
costs
Sancus Loans Limited is consolidated into the Group's results as
it is 100% owned by Sancus Group. However, the reality is that
Sancus Loans Limited is a Co-Funder the same as any other
Co-Funder. As a result the Board reviews the economic performance
of Sancus Loans Limited in the same way as any other Co-Funder,
with revenue being stated net of debt costs. Operating expenses
include recharges from UK to Offshore GBP466,000, Offshore to
Ireland GBP127,000, Head Office to Offshore GBP125,000 and Offshore
to Head Office GBP8,000.
Reconciliation to Financial Statements
At 31 December Sancus
2022 Loans Inter Consolidated
Limited Total Head Investment Fintech Segment Financial
Offshore UK Ireland (SLL) Sancus Office in IOM Portfolio Other Balances Statements
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Total Assets 37,724 14,855 1,133 78,952 132,664 44,214 - - 93 (75,420) 101,551
--------- --------- -------- --------- ---------- --------- ----------- ---------- -------- --------- ---------------------
Total Liabilities (44,250) (16,528) (653) (83,205) (144,636) (25,068) - - (93) 75,420 (94,377)
--------- --------- -------- --------- ---------- --------- ----------- ---------- -------- --------- ---------------------
Net
(Liabilities)/Assets (6,526) (1,673) 480 (4,253) (11,972) 19,146 - - - - 7,174
========= ========= ======== ========= ========== ========= =========== ========== ======== ========= =====================
At 31 December
2021
Total Assets 45,397 11,127 586 60,504 117,614 43,129 500 500 793 (65,577) 96,959
--------- --------- ------ --------- ---------- ----------- ------- ------ -------- --------- ---------------
Total Liabilities (40,503) (12,599) (714) (64,355) (118,171) (23,978) - - (1,293) 65,577 (77,865)
--------- --------- ------ --------- ---------- ----------- ------- ------ -------- --------- ---------------
Net
Assets/(liabilities) 4,894 (1,472) (128) (3,851) (557) 19,151 500 500 (500) - 19,094
========= ========= ====== ========= ========== =========== ======= ====== ======== ========= ===============
Head Office liabilities include borrowings GBP24,042,000 (2021:
GBP23,007,000).
5. REVENUE
2022 2021
GBP'000 GBP'000
Co-Funder fees 1,733 1,574
Earn out (exit) fees 677 962
Transaction fees 3,063 2,862
--------- ---------
Total revenue from contracts with customers 5,473 5,398
Interest on loans 83 168
Pollen Interest income 4,390 2,989
Sundry income 43 467
--------- ---------
Total Revenue 9,989 9,022
========= =========
The disaggregation of revenue reflects the different performance
obligations in contracts with customers as described in the
accounting policy Note 2(o) and the typical timing of payment for
those relevant revenue streams.
6. COST OF SALES
2022 2021
GBP'000 GBP'000
Interest costs 1,789 1,911
Pollen interest costs 5,116 4,137
Other cost of sales 704 489
Total cost of sales 7,609 6,537
======== ========
7. OPERATING EXPENSES
2022 2021
GBP'000 GBP'000
Amortisation and depreciation 305 356
Audit fees 140 155
Company secretarial 112 124
Corporate insurance (16) 96
Employment costs 4,858 4,363
Investor relations expenses 63 81
Legal & professional (141) 251
Marketing expenses 255 93
NOMAD fees 75 76
Other office and administration costs 901 514
Pension costs 101 87
Registrar fees 16 31
Sundry 5 4
-------- --------
6,674 6,231
======== ========
8. OTHER NET GAINS/(LOSSES)
The GBP233,000 other net gains is made up of gains on foreign
exchange GBP267,000 and loss on joint ventures and associates of
GBP34,000. (2021 GBP557,000 other net losses: predominantly made up
of losses on foreign exchange GBP143,000 and loss on joint ventures
and associates of GBP473,000 offset by the profit on the sale of
Sancus Property Limited properties of GBP59,000).
9. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
31 December 31 December
2022 2021
GBP'000 GBP'000
At beginning of year 500 866
Additions - 107
Share of profit of associate - 161
Share of loss in joint venture - (91)
Write down joint venture/associate - (543)
Disposals (500) -
------------ ------------
At end of year - 500
============ ============
The GBP500,000 investment in associate related to a 29.32%
investment in Sancus (Isle of Man) Holdings Limited. This
investment was disposed of on 31 January 2022 at book value.
The group has a 50% share in Amberton Limited. This investment
is held at GBPNil. Amberton Limited, which is a Jersey registered
entity, was incorporated in January 2021 and has been established
as a joint venture to manage the loan note programme going
forward.
10. LOSS PER ORDINARY SHARE
Consolidated loss per Ordinary Share has been calculated by
dividing the consolidated loss for the year after tax attributable
to Ordinary Shareholders of GBP14,062,000 (31 December 2021: loss
of GBP10,339,000) by the weighted average number of Ordinary Shares
(excluding treasury shares) outstanding during the period o f
485,999,406 (31 December 2021: 478,141,413).
Note 16 describes the warrants in issue, which are currently out
of the money. As such the warrants have not been considered to have
a dilutive effect on the loss per Ordinary Share in the current
year.
31 December 31 December 2021
2022
Number of shares 584,138,346 489,843,477
Weighted average no. of shares in issue
throughout the year 485,999,406 478,141,413
Basic Loss per share (2.89)p (2.16)p
Diluted Loss per share (2.89)p (2.09)p
11. FIXED ASSETS
Right-of-use Property Total
assets & Equipment
Cost GBP'000 GBP'000 GBP'000
At 31 December 2020 1,267 462 1,729
Additions in the year 128 15 143
Disposals - (14) (14)
Leases expired (132) - (132)
Lease variations (16) - (16)
------------- ------------- ---------
At 31 December 2021 1,247 463 1,710
Additions in the year - 17 17
Disposals - (20) (20)
At 31 December 2022 1,247 460 1,707
============= ============= =========
Right-of-use Property Total
assets & Equipment
Accumulated depreciation GBP'000 GBP'000 GBP'000
At 31 December 2020 628 327 955
Charge in the year 190 51 241
Disposals - (14) (14)
Leases expired (132) - (132)
At 31 December 2021 686 364 1,050
Charge for the year 197 55 252
Disposals - (20) (20)
At 31 December 2022 883 399 1,282
============= ============= =========
Net book value 31 December 2022 364 61 425
============= ============= =========
Net book value 31 December 2021 561 99 660
============= ============= =========
12. GOODWILL
GBP'000
At 31 December 2021 22,894
Impairment of Goodwill (8,639)
At 31 December 2022 14,255
=============
The impairment of goodwill relates to that associated with
Gibraltar. As a result of poor trading a decision was made to close
the Gibraltar office and hence write-off the goodwill associated
with that office. The remaining goodwill of GBP14,255,000 relates
solely to Jersey.
Impairment tests
The carrying amount of goodwill arising on the acquisition of
certain subsidiaries is assessed by the Board for impairment on an
annual basis or sooner if there has been any indication of
impairment. The Board last assessed the Goodwill for impairment on
the preparation of the 2022 interim accounts, with the next
assessment due on the preparation of the 2023 interim accounts,
assuming that there having been no indicators of impairment in the
interim period. However, the poor trading in Gibraltar and closing
of the Gibraltar office are indicators of impairment, and as such
the entire goodwill relating to Gibraltar has been written off.
There have been no indicators of impairment relating to the Jersey
goodwill so this will next be assessed for impairment in June
2023.
At 30 June 2022 the value in use of Sancus Jersey was based on
an internal Discounted Cash Flow ("DCF") value-in-use analysis
using cash flow forecasts for the years 2022/23 to 2026/27. The
starting point for each of the cash flows was the revised forecast
for 2022 produced by Sancus Lending Jersey management. Management's
revenue forecasts applied a compound annual growth rate (CAGR) to
revenue of 25.5% and a cost of equity discount rate of 13.5%. The
resultant valuation indicated that no impairment of goodwill was
required.
Goodwill valuation sensitivities
When the discounted cash flow valuation methodology is utilised
as the primary goodwill impairment test, the variables which
influence the results most significantly are the discount rates
applied to the future cash flows and the revenue forecasts. The
table below shows the impact on the Consolidated Statement of
Comprehensive Income of stress testing the period end goodwill
valuation with a decrease in revenues of 10% and an increase in
cost of equity discount rate of 3%. These potential changes in key
assumptions fall within historic variations experienced by the
business (taking other factors into account) and are therefore
deemed reasonable. The current model reveals that a sustained
decrease in revenue of circa 13% or a sustained increase of circa
9% in the cost of Equity discount rate would remove the
headroom.
Sensitivity Applied Reduction in headroom implied
by sensitivity
GBP'000
10% decrease in revenue
per annum 5,026
3% increase in cost of
equity discount rate 2,490
13. OTHER INTANGIBLE ASSETS
Cost GBP'000
At 31 December 2022, 31 December 2021 and
31 December 2020 1,584
=======
Amortisation GBP'000
At 31 December 2020 1,416
Charge for the year 115
-------
At 31 December 2021 1,531
Charge for the year 53
At 31 December 2022 1,584
=======
Net book value 31 December 2022 -
Net book value 31 December 2021 53
Other Intangible assets comprise capitalised contractors' costs
and other costs related to core systems development. No impairment
provision has been recorded. The amortisation charge has been
recorded in Operating expenses.
14. OTHER ASSETS
Development
properties
GBP'000
At 31 December 2020 1,015
Additions 157
Disposals (676)
At 31 December 2021 496
Additions 210
At 31 December 2022 706
====
Other assets comprise of a development property which was
previously held as security against a loan which had defaulted. The
property is held at cost (cost being lower than its estimated net
realisable value).
15. TRADE AND OTHER RECEIVABLES
31 December 31 December
2022 2021
GBP'000 GBP'000
Loan fees, interest and similar receivables 4,673 4,146
Receivable from associated companies 5 10
Taxation 58 40
Derivative contracts (Note 22) - 759
Other trade receivables and prepaid expenses 1,070 1,120
----------- -------------
5,806 6,075
=========== =============
Loan fees, interest and similar receivables amounted to
GBP11,166,000 at 31 December 2022 (31 December 2021: GBP11,201,000)
before provisions against receivables of GBP6,493,000 (31 December
2021: GBP7,055,000).
16. SHARE CAPITAL, SHARE PREMIUM & DISTRIBUTABLE RESERVE
Sancus has the power under its articles of association to issue
an unlimited number of Ordinary Shares of no par value.
94,294,869 Ordinary shares were issued as a result of warrants
that have been exercised during the year (see warrants section
below. (2021: Nil).
Share Capital - ordinary shares of nil par
value
31 December 31 December
2022 2021
Number of shares Number of shares
At beginning of the year 489,843,477 489,843,477
Issued during the year 94,294,869 -
At end of the year 584,138,346 489,843,477
================ ================
Share Premium - Ordinary shares of nil par
value
31 December 31 December
2022 2021
GBP'000 GBP'000
At beginning of the year 116,218 116,218
Exercise of warrants 2,122 -
At end of the year 118,340 116,218
=========== ===========
Ordinary shareholders have the right to attend and vote at
Annual General Meetings and the right to any dividends or other
distributions which the company may make in relation to that class
of share.
Treasury Shares
31 December 31 December
2022 Number 2021 Number
of shares of shares
At beginning of the year 11,852,676 7,925,999
Sancus shares acquired on sale of BMS
Finance AB Limited - 3,926,677
------------ ------------
At end of the year 11,852,676 11,852,676
============ ============
Treasury Shares (Continued)
31 December 31 December
2022 2021
GBP'000 GBP'000
At beginning of the year 1,172 1,099
Sancus shares acquired on sale of BMS
Finance AB Limited - 73
----------- -----------
At end of the year 1,172 1,172
=========== ===========
Warrants in Issue
On 22 December 2020, in connection with the issue of the New
Bonds, the Company issued 153,994,543 Warrants to subscribe in cash
for new Ordinary Shares at a subscription price of 2.25 pence per
Ordinary Share. The Warrants will be exercisable on at least 30
days notice in the period to 31 December 2025.
On 30 November 2022 Somerston Fintech (the Group's major
shareholder) exercised 94,294,869 warrants at an aggregate
subscription price of GBP2,122,635. No other warrants have been
exercised in the year (year to 31 December 2021: Nil
exercised).
The warrants in issue are classified as equity instruments
because a fixed amount of cash is exchangeable for a fixed amount
of equity, there being no other features which could justify a
financial liability classification. The fair value of the warrants
at 31 December 2022 is GBPNil (31 December 2021: GBP385,000).
17. LIABILITIES
31 December 31 December
2022 2021
Non-current liabilities GBP'000 GBP'000
ZDP shares (1) 9,117 -
Corporate Bond (2) 14,925 12,474
Pollen Facility (3) 66,826 52,203
Lease creditors (Notes 2(u), 2(v) & 24) 152 364
91,020 65,041
=========== ===========
31 December 31 December
2022 2021
Current liabilities GBP'000 GBP'000
ZDP shares (1) - 10,532
Accounts payable 224 93
Payable to associated companies 12 16
Interest payable 481 366
Accruals and other payables 1,472 1,519
Hedging Contracts 398 -
Taxation 145 86
Provisions for financial guarantees 413 -
Lease creditors (Notes 2(u), 2(v) & 24) 212 212
3,357 12,824
=========== ===========
Provisions for financial guarantees are recognised in relation
to ECLs on off-balance sheet loans and debtors where the company
has provided a subordinated position or other guarantee (Note 25).
No such provision was required in the prior year. The fair value is
determined using the exact same methodology as that used in
determining ECLs (Note 2(f) and Note 22).
31 December 31 December
2022 2021
Interest costs on debt facilities GBP'000 GBP'000
ZDP shares (1) 831 969
Corporate Bond (2) 920 906
Pollen Facility (3) 5,116 4,137
Lease Interest 38 36
6,905 6,048
=========== ===========
(1) ZDP shares
The ZDP Shares have a maturity date of 5 December 2027 following
a 5 year extension on 5 December 2022. The final capital
entitlement will be GBP2.5332 per ZDP Share.
Under the Companies (Guernsey) Law, 2008 shares in the Company
can only be redeemed if the Company can satisfy the solvency test
prescribed under that law. Refer to the Company's Memorandum and
Articles of Incorporation for full detail of the rights attached to
the ZDP Shares. This document can be accessed via the Company's
website www.sancus.com .
The ZDP shares bore interest at an average rate of 8% until 5
December 2022 (2021: 8%). As part of the extension agreement noted
above the interest rate has increased to an average of 9% per annum
through to 5 December 2027. In accordance with article 7.5.5 of the
Company's Memorandum and Articles of Incorporation, the Company may
not incur more than GBP30m of long term debt without the prior
approval from the ZDP shareholders. The Memorandum and Articles
(section 7.6) also specify that two debt cover tests must be met in
relation to the ZDPs. At 31 December 2022 the Company was in
compliance with these covenants as Cover Test A was 2.57 (minimum
of 1.7) and the adjusted Cover Test B was 4.23 (minimum of 2.05).
At 31 December 2022 senior debt borrowing capacity amounted to
GBP15m. The Pollen facility does not impact on this capacity as it
is non-recourse to Sancus.
In addition to a tender offer on 5 December 2022, whereby the
company acquired, and subsequently cancelled 931,923 ZDP shares,
the company purchased a further 338,957 ZDP shares in the period 19
July 2022 to 19 August 2022. At 31 December 2022 the Company held
12,574,705 shares (31 December 2021: 12,235,748) with an aggregate
value of GBP20,861,686 (31 December 2021: GBP18,810,266).
(2) Corporate Bond
The GBP15m (31 December 2021: GBP12.575m) Corporate bonds bear
interest at 7% (2021: 7%). The bonds have a maturity date of 31
December 2025.
(3) Pollen Facility (previously HIT Facility)
On 28 January 2018, Sancus signed a funding facility with
Honeycomb Investment Trust plc (HIT), now Pollen Street PLC
("Pollen"). The funding line initially had a term of 3 years and
comprised of a GBP45m accordion and revolving credit facility. On 3
December 2020 this facility was extended to a 6 year term to end on
28 January 2024 and on 23 November 2022 this was extended further
to 23 November 2026. In addition to the extension the facility was
increased to GBP75m in December 2020 and to GBP125m in November
2022.
The Pollen facility has portfolio performance covenants
including that actual loss rates are not to exceed 4% in any twelve
month period and underperforming loans are not to exceed 10% of the
portfolio. Sancus Group has a 10% (GBP7.5m) first loss position on
the Pollen facility. Sancus has also provided Pollen with a
guarantee, capped at GBP4m that will continue to ensure the orderly
wind down of the loan book, in the event of the insolvency of
Sancus Group, given its position as facility and security agent.
Refer to Note 25 Commitments and Guarantees.
18. TAXATION
The Company is exempt from Guernsey taxation under the Income
Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed annual fee
of GBP1,200 (31 December 2020: GBP1,200) is payable to the States
of Guernsey in respect of this exemption.
Reconciliation of tax charge
2022 2021
GBP'000 GBP'000
Accounting loss before tax (13,819) (10,358)
Gibraltar Corporation Tax at 10% (2021: 10%) - -
Jersey Corporation Tax at 10% (2021: 10%) - -
Ireland Corporation Tax at 12.5% (2021: 12.5%) 68 -
Adjustments in respect of prior years (18) (19)
Tax expense/(credit) 50 (19)
======== ========
Certain of the Group's subsidiaries have an estimated GBP24m of
losses between them available to carry forward to offset against
qualifying future trading profits. The Group does not recognise
deferred tax assets in respect of losses arising because in the
opinion of the directors the quantum and timing of any suitable
profits which can utilise these losses is unknown.
19. NOTES TO THE CASH FLOW STATEMENT
Cash generated from operations (excluding loan movements)
2022 2021
GBP'000 GBP'000
Loss for the year (14,062) (10,339)
Adjustments for:
Net losses on FinTech Ventures 894 -
Other net (gains)/losses (86) 9
ZDP finance costs 807 874
Fair Value joint ventures and associates 34 473
Changes in expected credit losses 418 6,489
Amortisation/depreciation of fixed assets 305 356
Write off of goodwill 8,639 -
Amortisation of debt issue costs 225 202
SPL Properties - (59)
Changes in working capital:
Trade and other receivables (392) (1,995)
Trade and other payables (330) (131)
Cash outflow from operations (excluding loan
movements) (3,548) (4,121)
======== ========
Changes in liabilities arising from financing activities
The tables below detail changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be classified
in the Group's consolidated cash flow statement as cash flows from
financing activities.
Amortisation
Debt of debt
1 issue issue 31
January Payments Receipts costs Additions costs Other December
2022 (1) (1) (1) Non-cash Non-cash Non-cash 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ZDP Shares 10,532 (2,037)(1) - (167) - 25 764(2) 9,117
Corporate
Bond 12,474 (-) 2,425 - - 26 - 14,925
Pollen
Facility 52,203 - 15,250 (410) - 177 (394)(2) 66,826
Lease
Liability 576 (212)(1) - - - - (-) 364
--------- ----------- ---------- --------- ----------- ------------- ---------- ----------
Total
liabilities 75,785 (2,249) 17,675 (577) - 228 370 91,232
========= =========== ========== ========= =========== ============= ========== ==========
Amortisation
Debt of debt
1 issue issue 31
January Payments Receipts costs Additions costs Other December
2021 (1) (1) (1) Non-cash Non-cash Non-cash 2021
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ZDP Shares 12,424 (2,756)(1) - - - 24 840(3) 10,532
Corporate
Bond 12,473 (24)(4) - - - 25 - 12,474
Pollen
Facility 44,553 - 7,500 (3) - 153 - 52,203
Lease
Liability 657 (193)(1) - - 128 - (16)(3) 576
--------- ----------- ---------- --------- ----------- ------------- ---------- ----------
Total
liabilities 70,107 (2,973) 7,500 (3) 128 202 824 75,785
========= =========== ========== ========= =========== ============= ========== ==========
(1) These amounts can be found under financing cash flows in the
cash flow statement.
(2) Comprises interest accruals and unpaid debt issue costs
where applicable.
(3) Lease variations.
(4) Interest within operating cash flows.
20. CONSOLIDATED SUBSIDIARIES
The Directors consider the following entities as wholly owned
subsidiaries of the Group as at 31 December 2022. Their results
and financial positions are included within its consolidated results.
Subsidiary entity Date of Country Nature of Holding %
Incorporation of held
Incorporation
---------------- ---------------- --------------------- ------
Sancus Group Directly held
Holdings 27 December -Equity
Limited 2013 Guernsey Shares 100%
---------------- ---------------- --------------------- ------
Sancus Lending
(Jersey) Indirectly held
Limited 1 July 2013 Jersey - Equity Shares 100%
---------------- ---------------- --------------------- ------
Sancus Lending
(Guernsey) Indirectly held
Limited 18 June 2014 Guernsey - Equity Shares 100%
---------------- ---------------- --------------------- ------
Sancus Lending
(Gibraltar) 10 March Indirectly held
Limited 2015 Gibraltar - Equity Shares 100%
---------------- ---------------- --------------------- ------
Sancus Lending
(Ireland) 10 April Indirectly held
Limited 2017 Ireland - Equity Shares 100%
---------------- ---------------- --------------------- ------
Sancus Lending (UK) 17 February Indirectly held
Limited 2011 UK - Equity Shares 100%
---------------- ---------------- --------------------- ------
Sancus Holdings (UK) 7 January Indirectly held
Limited 2011 UK - Equity Shares 100%
---------------- ---------------- --------------------- ------
FinTech Ventures 9 December Directly held -
Limited 2015 Guernsey Equity Shares 100%
---------------- ---------------- --------------------- ------
Sancus Properties 21 August Indirectly held
Limited 2018 Guernsey - Equity Shares 100%
---------------- ---------------- --------------------- ------
Indirectly held
Sancus Loans Limited 3 July 2017 UK - Equity Shares 100%
---------------- ---------------- --------------------- ------
Sancus Group Holdings Limited and Sancus Holdings (UK) Limited
act as holding companies. Sancus Properties Limited engages in
property development. Fintech Ventures Limited is an investment
company, investing in Fintech companies. The activities of the
remaining companies named above relate to the core business of
lending.
21. FINTECH VENTURES AND OTHER INVESTMENTS
The Directors consider the following entities as associated
undertakings of the Group as at 31 December 2022.
Name of Investment: Nature of holding Country of incorporation Percentage Measurement
holding
FinTech Ventures:
------------------ ------------------------- ----------- ------------
LiftForward Inc Indirectly held United States 18.81% Fair Value
- Equity of America
------------------ ------------------------- ----------- ------------
Finexkap Indirectly held France 10.76% Fair Value
- Equity
------------------ ------------------------- ----------- ------------
Ovamba Solutions Indirectly held United States 20.18% Fair Value
Inc - Equity of America
------------------ ------------------------- ----------- ------------
Open Energy Group Indirectly held United States 22.71% Fair Value
Inc - Equity of America
------------------ ------------------------- ----------- ------------
The percentage holdings in the above table are on a fully
diluted basis, assuming any warrants and management options all
vest.
22. FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT
Sancus loans and loan equivalents 31 December 31 December
2022 2021
GBP'000 GBP'000
Non-current
Sancus loans 171 447
Sancus Loans Limited loans 23,693 6,196
------------ ------------
Total non-current Sancus loans and loan
equivalents 23,864 6,643
------------ ------------
Current
Sancus loans 2,790 4,269
Sancus Loans Limited loans 49,471 42,333
------------ ------------
Total current Sancus loans and loan equivalents 52,261 46,602
------------ ------------
Total Sancus loans and loan equivalents 76,125 53,245
============ ============
Fair Value Estimation
The financial assets and liabilities measured at fair value in
the Consolidated Statement of Financial Position are grouped into
the fair value hierarchy as follows:
31 December 2022 31 December 2021
Level 2 Level 3 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000
FinTech Ventures investments - - - 500
Derivative contracts (398) - 759 -
Total assets at Fair Value (398) - 759 500
========= =========== ========= ==========
All of the FinTech Ventures investments are categorised as Level
3 in the fair value hierarchy. In the past the Directors have
estimated the fair value of financial instruments using discounted
cash flow methodology, comparable market transactions, recent
capital raises and other transactional data including the
performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held
by the Group in the FinTech Ventures investments, the Board's
estimate of liquidation value of these assets is GBPNil at 31
December 2022 (31 December 2021: GBP0.5m) following a further
GBP0.6m deployed into an existing investment during the year and
then subsequently being written down to GBPNil. Changes in the
performance of these businesses and access to future returns via
its current holdings could affect the amounts ultimately realised
on the disposal of these investments, which may be greater or less
than GBPNil. There have been no transfers between levels in the
period (2021: None).
FinTech Ventures investments
31 December 2022 Equity Loans Total
GBP'000 GBP'000 GBP'000
Opening fair value - 500 500
New investments/divestments - 394 394
Realised losses recognised in
profit and loss - (894) (894)
Closing fair value - - -
========= ======== ========
FinTech Ventures investments
(continued)
31 December 2021 Equity Loans Total
GBP'000 GBP'000 GBP'000
Opening fair value - - -
New investments/divestments (8) 74 66
Realised gains recognised in
profit and loss 8 426 434
Closing fair value - 500 500
======== ======== ========
Assets at Amortised Cost
31 December 31 December
2022 2021
GBP'000 GBP'000
Sancus loans and loan equivalents 76,125 53,245
Trade and other receivables 4,736 4,196
Cash and cash equivalents 4,134 12,436
Total assets at amortised cost 84,995 69,877
============ ============
Due to the relatively short-term nature of the above assets,
their carrying amount is considered to be the same as their fair
value.
Liabilities at Amortised Cost
31 December 31 December
2022 2021
GBP'000 GBP'000
ZDP Shares 9,117 10,532
Corporate Bond 14,925 12,474
Pollen Facility 66,826 52,203
Trade and other payables 2,698 2,656
Provisions in respect of guarantees 413 -
Total liabilities at amortised cost 93,979 77,865
============ ============
Refer to Note 17 for further information on liabilities.
Risk Management
The Group is exposed to financial risk through its investment in
a range of financial instruments, ie. in the equity and debt of
investee companies and through the use of debt instruments to fund
its investment in loans. Such risks are categorised as capital
risk, liquidity risk, investment risk, credit risk, and market risk
(market price risk, interest rate risk and foreign currency
risk).
Comments supplementary to those on risk management in the
Corporate Governance section of this report are included below.
(1) Capital Risk Management
The Group's capital comprises ordinary shares as well as a
number of debt instruments. Its objective when managing this
capital is to enable the Group to continue as a going concern in
order to provide a consistent appropriate risk-adjusted return to
shareholders, and to support the continued development of its
investment activities. Details of the Group's equity is disclosed
in Note 16 and of its debt in Note 17.
The Group and its subsidiaries (with the exception of Sancus
Lending (UK) Limited, which is regulated by the FCA) are not
subject to regulatory or industry specific requirements to hold a
minimum level of capital, other than the legal requirements for
Guernsey incorporated entities. The Group considers the amount and
composition of its capital is currently in proportion to its risk
profile.
(2) Liquidity risk
Prudent liquidity risk management implies maintaining sufficient
cash and the availability of funding through an adequate amount of
committed credit facilities to meet obligations when due. At the
end of the reporting period the group held cash of GBP4,134,000.
The Group Treasury Committee monitors rolling forecasts of the
group's cash position in relation to its obligations as they become
due on a monthly basis. In addition, the group's liquidity
management involves projecting cash flows and considering the level
of liquid assets necessary to meet obligations. Where necessary
contingency plans are made to realise assets which are reasonably
liquid in the short term.
The following table analyses the Group's financial liabilities
into relevant maturity groupings based on the period to the
contractual maturity date. The amounts in the table are the
contractual undiscounted cash flows.
Contractual maturities of financial Between Between
liabilities Within 1 and 2 2 and 5
12 months years years Total
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2022
ZDP shares - - 9,117 9,117
Corporate bond - - 14,925 14,925
Sancus Loans Limited - - 66,826 66,826
Trade and other payables 3,357 85 67 3,509
-----------
Total liabilities 3,357 85 90,935 94,377
=========== ========= ========= ========
Contractual maturities of financial Between Between
liabilities Within 1 and 2 2 and 5
12 months years years Total
GBP'000 GBP'000 GBP'000 GBP'000
31 December 2021
ZDP shares 10,532 - - 10,532
Corporate bond - - 12,474 12,474
Sancus Loans Limited - - 52,203 52,203
Trade and other payables 2,292 212 152 2,656
-----------
Total liabilities 12,824 212 64,829 77,865
=========== ========= ========= ========
(3) Interest rate risk
Interest rate risk is the risk that the value of financial
instruments will fluctuate due to changes in market interest rates
and that mismatches in the interest rates applying to assets and
liabilities will impact on the Group's earnings.
The Group's cash balances, debt instruments and loan notes are
exposed to interest rate risk.
The Group did not enter into any interest rate risk hedging
transactions during the current or prior years.
The table below summarises the Group's exposure to interest rate
risk:
Floating Fixed Rate
rate Financial Financial
Instruments Instruments Total
31 December 2022 GBP'000 GBP'000 GBP'000
Assets
Sancus loans and loan equivalents 7,194 68,931 76,125
Cash and cash equivalents 4,134 - 4,134
Total assets 11,328 68,931 80,259
================ ============= ==========
Liabilities
ZDP shares - 9,117 9,117
Corporate Bond - 14,925 14,925
Sancus Loans Limited - 66,826 66,826
--------- ---------
Total liabilities - 90,868 90,868
------- --------- ---------
Total interest sensitivity gap 11,328 (21,937) (10,609)
======= ========= =========
Floating Fixed Rate
rate Financial Financial
Instruments Instruments Total
31 December 2021 GBP'000 GBP'000 GBP'000
Assets
Sancus loans and loan equivalents - 53,245 53,245
Cash and cash equivalents 12,436 - 12,436
Total assets 12,436 53,245 65,681
================ ============= ==========
Liabilities
ZDP shares - 10,532 10,532
Corporate Bond - 12,474 12,474
Sancus Loans Limited - 52,203 52,203
--------- --------
Total liabilities - 75,209 75,209
------- --------- --------
Total interest sensitivity gap 12,436 (21,964) (9,528)
======= ========= ========
Interest rate sensitivities
The Group currently holds GBP4,134,000 in cash deposits,
predominantly in sterling. Whilst interest rates are currently
positive they have, in the recent past, gone negative in certain
jurisdictions. At the current level of cash deposits this could
cost the group GBP41,000 per annum for every 1% decrease in
interest rates. The Group does not hold significant amounts in
foreign currencies for any period of time.
The Treasury Committee reviews interest rate risk on an ongoing
basis, and the exposure is reported quarterly to the Board and/or
Audit and Risk Committee.
(4) Investment risk
Investment risk is defined as the risk that an investment's
actual return will be different to that expected. Historically
investment risk primarily arose from the Group's investment in its
FinTech Ventures portfolio (see Note 3). This risk was in turn
driven by the underlying risks taken by the platforms themselves -
their own strategic, liquidity, credit and operational risks. Given
that the Fintech portfolio is now held at GBPNil the Group has no
further exposure to investment risk, but does still retain
investments in a number of Fintech companies.
The Group measures fair values of the Fintech Portfolio using
the following fair value hierarchy that reflects the significance
of the inputs used in making the measurements.
-- Level 1 - Inputs that are quoted market prices (unadjusted)
in active markets for identical instruments. A market is regarded
as "active" if transactions of the asset or liability take place
with sufficient frequency and volume to provide pricing information
on an on-going basis. The Group measures financial instruments
quoted in an active market at a bid price.
-- Level 2 - Inputs other than quoted prices included within
Level 1 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category includes
instruments valued using: quoted market prices in active markets
for similar instruments; quoted prices for identical or similar
instruments in markets that are considered less than active; or
other valuation techniques in which all significant inputs are
directly or indirectly observable from market data. The chosen
valuation technique incorporates all of the factors that market
participants would take into account in pricing a transaction.
-- Level 3 - Inputs that are unobservable. This category
includes all instruments for which the valuation technique includes
inputs not based on observable data and the unobservable inputs
have a significant effect on the instrument's valuation. This
category includes instruments that are valued based on quoted
prices for similar instruments but for which significant
unobservable adjustments or assumptions are required to reflect
differences between the instruments. If in the case of any
investment the Directors at any time consider that the above basis
of valuation is inappropriate or that the value determined in
accordance with the foregoing principles is unfair, they are
entitled to substitute what in their opinion, is a fair value. In
this case, the fair value is estimated with care and in good faith
by the Directors in consultation with the Executive Management Team
with a view to establishing the probable realisation value for such
shares as at close of business on the relevant valuation day.
All of the FinTech Ventures investments are categorised as Level
3 in the fair value hierarchy. In the past the Directors have
estimated the fair value of financial instruments using discounted
cash flow methodology, comparable market transactions, recent
capital raises and other transactional data including the
performance of the respective businesses. Having considered the
terms, rights and characteristics of the equity and loan stock held
by the Group in the FinTech Ventures investments, the Board's
estimate of liquidation value of these assets is GBPNil at 31
December 2022 (31 December 2020: GBP0.5m) following a further
GBP0.6m investment into an existing investment during the year and
subsequently written down to GBPNil. Changes in the performance of
these businesses and access to future returns via its current
holdings could affect the amounts ultimately realised on the
disposal of these investments, which may be greater or less than
GBPNil. There have been no transfers between levels in the period
(2021: None).
(5) Credit risk
Credit risk is defined as the risk that a borrower/debtor may
fail to make required repayments within the contracted time scale.
The Group invests in senior debt, senior subordinated debt, junior
subordinated debt and secured loans. Credit risk is taken in direct
lending to third party borrowers , investing in loan funds ,
lending to associated platforms and loans arranged by associated
platforms.
The Group mitigates credit risk by only entering into agreements
related to loan instruments in which there is sufficient security
held against the loans or where the operating strength of the
investee companies is considered sufficient to support the loan
amounts outstanding.
Credit risk is determined on initial recognition of each loan
and re-assessed at each reporting date. The risk assessment is
undertaken by the Executive Management Team at the time of the
agreements, and the Executive Management Team continues to evaluate
the loan instruments in the context of these agreements. Credit
risk is categorised into Stage 1, Stage 2 and Stage 3 with Stage 1
being to recognise 12 month Expected Credit Losses (ECL), Stage 2
being to recognise Lifetime ECL not credit impaired and Stage 3
being to recognise Lifetime ECL credit impaired.
Credit risk is initially evaluated using the LTV, (LTGDV and LTF
where relevant) and the circumstances of the individual borrower.
For the majority of loans security takes the form of real estate.
There has been no significant change in the quality of this
security over the prior year. When determining credit risk
macro-economic factors such as GDP, unemployment rates, the impact
of Covid19 on real estate and other relevant factors including the
war in Ukraine are also taken into account. A loan is considered to
be in default when there is a failure to meet the legal obligation
of the loan agreement. Having regards to the principles of IFRS 9
this would also include provisions against loans that are
considered by management as unlikely to pay their obligations in
full without realisation of collateral. Once identified as being in
default a re-assessment of the credit risk of that loan will be
undertaken using the factors as noted above. A decision will then
be made as to whether to credit impair that asset.
In some instances borrowers will request loan modifications,
extensions or renegotiation of terms. Any such event will trigger a
reassessment of the credit risk of that loan where the reasons for
the modification, extension or renegotiation will be carefully
assessed and may result in that asset being credit impaired.
The entities in the Sancus Lending Group operate Credit
Committees which are responsible for evaluating and deciding upon
loan proposals, as well as monitoring the recoverability of loans,
and taking action on any doubtful accounts. All lending undertaken
by Sancus Lending is secured. The credit committee reports to the
Sancus Lending Board on a quarterly basis.
Provision for ECL
A probability of default is assigned to each loan. This
probability of default is arrived at by reference to historical
data and the ongoing status of each loan which is reviewed on a
regular basis. The loss given default is deemed to be nil where LTV
is equal to or less than 65%, as it is assumed that the asset can
be sold and full recovery made.
Provision for ECL is made using the credit risk, the probability
of default (PD) and the loss given default (PL) all of which are
underpinned by the Loan to Value (LTV), historical position,
forward looking considerations and on occasion, subsequent events
and the subjective judgement of the Board. Preliminary calculations
for ECL are performed on a loan by loan basis using the simple
formula Outstanding Loan Value (exposure at default) x PD x PL and
are then amended as necessary according to the more subjective
measures as noted above.
To reflect the time value of money ECL is discounted back to the
reporting date using the effective interest rate of the asset (or
an approximation thereof) that was determined at initial
recognition.
The following tables provide information on amounts reserved for
ECL on loans and loan equivalents as at 31 December 2022 and 31
December 2021 based on the model adopted by management.
Sancus loans and loan Stage Stage Stage Total
equivalents at 31 December 1 2 3 GBP'000
2022 GBP'000 GBP'000 GBP'000
Closing loans at 31 December
2021 30,060 5,743 17,441 53,244
New Loans 48,986 - 421 49,407
Loans Repaid (17,109) (2,776) (6,215) (26,100)
Transfers from Stage 1 to Stage
3 (5) - 5 -
Transfers from Stage 2 to Stage
3 - (2,967) 2,967 -
Movement in ECL - (426) (426)
--------- --------- --------- ---------
Closing loans at 31 December
2022 61,932 - 14,193 76,125
========= ========= ========= =========
Loss allowance Stage Stage Stage Total
at 31 December 2022 1 2 3 GBP'000
GBP'000 GBP'000 GBP'000
Closing loss allowance at 31
December 2021 - - 6,409 6,409
Increase in provision - - 426 426
Closing loss allowance at 31
December 2022 - - 6,835 6,835
========== ========== ========= =========
For certain loans the range of outcomes for loss given default
considered by the Directors is significant and therefore has a
material impact on the calculation of ECL.
Sancus loans and loan Stage Stage Stage Total
equivalents at 31 December 1 2 3 GBP'000
2021 GBP'000 GBP'000 GBP'000
Closing loans at 31 December
2020 41,972 4,047 7,213 53,232
New Loans 27,794 - - 27,794
Loans Repaid (17,640) (4,578) (3,273) (25,491)
Transfers from Stage 1 to Stage
2 (5,739) 5,739 - -
Transfers from Stage 1 to Stage
3 (16,247) - 16,247 -
Transfers from Stage 2 to Stage
3 - (368) 368 -
Loans written off (80) - - (80)
Movement in ECL - 903 (3,113) (2,210)
--------- --------- --------- ---------
Closing loans at 31 December
2021 30,060 5,743 17,442 53,245
========= ========= ========= =========
Loss allowance Stage Stage Stage Total
at 31 December 2021 1 2 3 GBP'000
GBP'000 GBP'000 GBP'000
Closing loss allowance at 31
December 2020 - 903 3,296 4,199
Transfers from Stage 2 to Stage
3 - (37) 37 -
Increase in provision - - 3,076 3,076
Utilisations - (866) - (866)
Closing loss allowance at 31
December 2021 - - 6,409 6,409
========== ========= ========= =========
Reconciliation of Provision for ECLs to charge in the statement
of comprehensive income
Loans Trade Guarantees Total
Debtors
Loss allowance at 31 December
2021 6,409 7,055 - 13,464
Charge/(credit) for the year
2022 426 (421) 413 418
Utilisations - (141) - (141)
------ --------- ----------- -------
Loss allowance at 31 December
2022 6,835 6,493 413 13,741
====== ========= =========== =======
For certain loans the range of outcomes for loss given default
considered by the Directors is significant and therefore has a
material impact on the calculation of ECL.
(6) Market price risk
The Group has no exposure to market price risk of financial
assets valued on a Level 1 basis as disclosed earlier in this
note.
(7) Foreign exchange risk
Foreign exchange risk is the risk that the value of financial
instruments will fluctuate due to changes in foreign exchange
rates. Investments made in currencies other than Sterling are
currently valued at GBPNil and therefore there is no exposure.
The exchange rates used by the Group to translate foreign
currency balances are as follows:
Currency 31 December 31 December 31 December
2022 2021 2020
EUR 1.1284 1.1898 1.1202
------------ ------------ ------------
USD 1.2101 1.3527 1.3664
------------ ------------ ------------
The Treasury Committee monitors the Group's currency position on
a regular basis, and the Board of Directors reviews it on a
quarterly basis. Loans denominated in Euros which are taken out
through the Pollen facility are hedged. Forward contracts to sell
Euros at loan maturity dates are entered into when loans are drawn
in Euros. The following forward foreign exchange contracts were
open at the respective dates:
At 31 December 2022
Counterparty Settlement Buy Buy Amount Sell Sell Unrealised
date Currency GBP'000 currency amount loss GBP'000
EUR'000
EWealthGlobal January 2023
Group Limited to May 2023 GBP 3,565 Euro 4,187 (144)
January 2023
Liberum Wealth to February
Limited 2023 GBP 3,202 Euro 3,650 (35)
Lumon Risk January 2023
Management to May 2023 GBP 9,259 Euro 10,676 (219)
--------------
Unrealised loss on forward foreign contracts (398)
==============
At 31 December 2021
Counterparty Settlement Buy Buy Amount Sell Sell Unrealised
date Currency GBP'000 currency amount gain GBP'000
EUR'000
February
EWealthGlobal 2022 to
Group Limited May 2023 GBP 14,769 Euro 16,817 623
Liberum Wealth February
Limited 2022 GBP 1,183 Euro 1,299 92
April 2022
Lumon Risk to
Management May 2023 GBP 5,148 Euro 6,046 44
--------------
Unrealised gain on forward foreign contracts 759
==============
23. RELATED PARTY TRANSACTIONS
Transactions with the Directors/Executive Management Team
Non-executive Directors
As at 31 December 2022, the non-executive Directors' annualised
fees, excluding all reasonable expenses incurred in the course of
their duties which were reimbursed by the Company, were as detailed
in the table below:
31 December 31 December
2022 2021
GBP GBP
Tracy Clarke (appointed 8 March 2022) 35,000 -
Steven Smith 50,000 50,000
John Whittle 42,500 42,500
Nick Wakefield (resigned 8 March 2022) - 35,000
On 9 March 2022 Tracy Clarke was appointed as a non-executive
Director to the Board. Tracy's directorships were listed in the RNS
issued on 9 March 2022.
Tracy Clarke is a director of a number of Somerston Group
companies. The Somerston Group of companies collectively holds
294,644,553 ordinary shares in the Company, representing 50.44 per
cent of the current issued share capital. From time to time, the
Somerston Group may participate as a Co-Funder in Sancus loans.
Other than this and the Directors' fees and expenses in relation to
Tracy's (and previously Nick's) appointment as a Director of the
Group, the Group has not recorded any transactions with any
Somerston Group companies for the period ended 31 December 2022 (31
December 2021: none).
Total Directors' fees charged to the Company for the year ended
31 December 2022 were GBP127,500 (31 December 2021: GBP138,279)
with GBPNil (31 December 2021: GBPNil) remaining unpaid at the
year-end.
Executive Management Team
The Executive Management Team consisted of Rory Mepham, Emma
Stubbs, James Waghorn (appointed 8 March 2022) and Helen Trott
(appointed 29 November 2022). The Executive Management Team
members' remuneration from the Company, excluding all reasonable
expenses incurred in the course of their duties which were
reimbursed by the Company, was as detailed in the table below:
2022 2021
GBP'000 GBP'000
-------- --------
Aggregate remuneration in respect of qualifying
service - fixed salary 512 598
-------- --------
Aggregate amounts contributed to Money Purchase
pension schemes 21 24
-------- --------
Aggregate bonus paid (cash) 50 325
-------- --------
See remuneration report for further details. All amounts have
been charged to Operating Expenses.
Directors' and Persons Discharging Managerial Responsibilities
("PDMR") shareholdings in the Company
The Directors and PDMRs had the following beneficial interests
in the Ordinary Shares of the Company:
31 December 2022 31 December 2021
No. of Ordinary % of Ordinary No. of Ordinary % of Ordinary
Shares Held Shares Shares Held Shares
---------------- -------------- ---------------- --------------
John Whittle 138,052 0.03 138,052 0.03
---------------- -------------- ---------------- --------------
Emma Stubbs 1,380,940 0.28 1,380,940 0.28
---------------- -------------- ---------------- --------------
Dan Walker N/A N/A 911,300 0.19
---------------- -------------- ---------------- --------------
During the year and prior year no directors received dividends
on their Ordinary Share holdings in the Company.
Mr Walker had an outstanding unsecured loan from Sancus Holdings
(UK) Limited in the amount of GBP31,053 at 31 December 2021 and 31
December 2020. This was waived in January 2022. The loan was
interest free and repayable on demand.
In addition to his Sancus salary Mr Waghorn also receives
GBP35,000 p.a. from Somerston Capital Limited as Managing Director
of Healthcare & Development for Somerston.
From time to time members of key management personnel
participate as co-funders in loans originated by the Group.
Transactions with connected entities
The following transactions with connected entities took place
during the year:
31 December
31 December 2021
2022 GBP'000 GBP'000
Net receivable from/(payable to) related
parties
Sancus (IOM) Holdings Limited(1) N/A (16)
Amberton Limited (7) 10
Office and staff costs recharges
Amberton Asset Management Limited(2) N/A 18
Amberton Limited 47 9
(1) Sancus Group sold its interest in Sancus Isle of Man during
the year
(2) Amberton Asset Management Limited was liquidated in 2021
(being replaced by Amberton Limited)
There is no ultimate controlling party of the Company.
24. LEASES
The Group as Lessee
Maturity Analysis - contracted undiscounted cash flows
31 December
31 December 2021
2022 GBP'000 GBP'000
Within one year 247 247
In the second to fifth years inclusive 166 413
After five years - -
-------------- ------------
413 660
============== ============
All lease commitments relate to office space.
Lease liabilities included in the statement of financial
position
31 December 31 December
2022 GBP'000 2021 GBP'000
Current 212 212
Non-current 152 364
364 576
============== ==============
Amounts recognised in the statement of comprehensive income
2022 2021
GBP'000 GBP'000
Depreciation expense on right-of-use assets 197 190
Interest expense on lease liabilities 38 36
Expense related to short term leases 149 78
Income received from sub-leasing right-of-use
assets 33 60
--------- ---------
25. COMMITMENTS AND GUARANTEES
The Group's commitments and guarantees are described below.
Pollen Facility
Sancus Group has invested GBP13.2m (2021: GBP9.5m) of its own
capital in Sancus Loans Limited which sits in a 10% (GBP7.5m) first
loss position as part of the Pollen facility. Sancus has also
provided Pollen with a guarantee capped at GBP4m following the
restructure of the facility in the year (previously was capped at
GBP2m) that it will continue to ensure the orderly wind down of the
Pollen related loan book, in the event of the insolvency of Sancus
Group, given its position as facility and security agent. Nothing
has been provided in the accounts for this (2021: GBPNil).
Sancus Loan Notes
Loan Note 7 was launched in May 2021 and currently stands at
GBP17.3m. Loan Note 7 matures in May 2024 and has a coupon of 7%
p.a. (payable quarterly), with Sancus providing a 10% first loss
guarantee.
Loan Note 8 was launched in January 2022 and currently stands at
GBP3.0m. Loan Note 8 matures on 1 December 2026 and has a coupon of
5% p.a. (payable quarterly), with Sancus providing a 20% first loss
guarantee.
Unfunded Commitments
As at 31 December 2022 the Group has unfunded commitments of
GBP73.9m (31 December 2021: GBP47.3m). These unfunded commitments
primarily represent the undrawn portion of development finance
facilities. Drawdowns are conditional on satisfaction of specified
conditions precedent, including that the borrower is not in breach
of its representations or covenants under the loan or security
documents. The figure quoted is the maximum exposure assuming that
all such conditions for drawdown are met. Directors expect the
majority of these commitments to be filled by Co-Funders.
26. EVENTS AFTER THE REPORTING DATE
Sale of Sancus Lending (Gibraltar) Limited
On 15 March 2023, the Company announced the sale of Sancus
Lending (Gibraltar) Limited for GBP10,000 to Mr John Davey (the
"Disposal"). As noted on 10 January 2023, in reviewing its
operations in Gibraltar during 2022, the Company did not identify
sufficient quality lending opportunities to merit continued efforts
in the region and as a result the Goodwill (GBP8.64 million) was
consequently written down to nil. The Disposal will result in cost
savings of around GBP200,000 in relation to run-off costs, plus the
avoidance of redundancies and associated expenses. In addition, it
will allow the Company to focus on its core markets of the UK,
Ireland and Channel Islands.
27. AVAILABILITY OF REPORT AND ACCOUNTS
The Company's annual report and accounts for the year ended 31
December 2022 is available to download from the Company's website
at www.sancus.com . A copy of the report and accounts, together
with a notice for the Company's 2023 annual general meeting (the
"AGM Notice"), is expected to be posted to shareholders who have
elected to receive hard copies in April. The AGM Notice will also
be available to download from the Company's website in due
course.
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END
FR EASDFDASDEEA
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