1PM PLC IFRS 9 Guidance: No material impact expected (7732Z)
September 05 2018 - 2:01AM
UK Regulatory
TIDMOPM
RNS Number : 7732Z
1PM PLC
05 September 2018
5 September 2018
1pm plc
(the "Group" or the "Company")
IFRS 9 guidance: no material impact expected upon adoption
1pm plc, the AIM listed alternative finance provider, is pleased
to provide guidance on adoption of the accounting standard, IFRS 9
'Financial Instruments' ("IFRS 9" or the "Standard").
The Group is extremely well progressed with both the methodology
and accounting that it intends to apply to its lending portfolio
under IFRS 9 and is pleased to report, for illustration, that had
the Standard applied to the financial year ended 31 May 2018, the
estimated impact on the Group's financial results would have been
negligible at 0.25% of net assets. The directors believe this
reflects the cautious approach to provisioning against receivables
already adopted across the Group.
IFRS 9 and IAS 39
IFRS 9 is effective for accounting periods commencing from 1
January 2018 and will replace the existing IAS 39 'Financial
Instruments: Recognition and measurement' ("IAS 39").
Whilst there are a number of detailed technical differences
between IFRS 9 and IAS 39, at a high level, under IFRS 9 impairment
provisions will be recognised on the inception of any lending based
on the probability of expected default and the typical loss arising
on defaults. In effect, IFRS 9 requires the recognition of
impairment on client receivables through an expected loss model.
This differs from IAS 39 which follows an incurred loss model with
specific provisions only being reflected when there is 'objective
evidence of impairment'.
Potential impact on 1pm
As the Group's financial year end is 31 May, the first year in
which adoption of IFRS 9 will be applicable is for the current
financial year, which began on 1 June 2018. This adoption will mean
that the financial year recently ended on 31 May 2018 will become
the prior year comparative. As such, the directors considered it
prudent to advance the work on IFRS 9 to ascertain any potential
impact on the results for the year ended 31 May 2018.
1pm welcomes the implementation of IFRS 9, since IAS 39 can be
challenging to apply, particularly in respect of the lease and loan
portfolios where borrowers may be delayed in making, or even miss,
a payment for a variety of often understandable and acceptable
reasons. It can therefore be far from clear-cut to classify arrears
as being an 'objective evidence of impairment', as an occasional
delayed or missed payment does not necessarily indicate that
recovery of the receivable is at risk. The Group's historical data
indicates that receivables with sporadic delayed or missed payments
can, and often do, perform well over the full life of the borrowing
term.
As a result, under IAS 39, provisioning is assessed on a case by
case basis with any expected income and cash shortfall provided for
on a specific basis. The Group also currently adopts a cautious
policy of maintaining and, where deemed appropriate, increasing an
additional provision factoring in historical industry wide-data for
potential future loss.
It is this approach to provisioning that enables the directors
to be confident that the result of adopting IFRS 9 will be
immaterial to the Group's financial results. Furthermore, the
detailed work and analysis undertaken confirms that the impact of
moving to a position of recognising a likely impairment at the
initiation of any lending transaction is materially equal to both
the sensible provisioning policy already adopted in the Group's
balance sheet and the charge for impairments being incurred in the
Group's profit and loss account.
For illustration, as at 31 May 2018, the Group held impairment
provisions equal to 1.5% of the entire lending portfolio. The
detailed IFRS 9 work indicates that, had IFRS 9 been adopted a
provision of 1.6% of the portfolio would have been required,
derived from a range of scenarios between 1.3% and 2.8% in the
Group's best and worst case scenario and probability modelling.
James Roberts, Chief Financial Officer, commented:
"I am very pleased that on the back of very detailed and
thorough work undertaken internally and with the help of
appropriate external advisers, the Group is not expected to be
materially impacted by the adoption of IFRS 9. This reflects the
careful approach to provisioning the Group has already
implemented.
It is also worth highlighting that the adoption of the Standard
will have no impact either on the Group's ability to declare and
pay dividends or on meeting its asset-based lending covenants with
wholesale finance providers where there is, and will remain,
significant headroom. Additionally, as an accounting adjustment
only, the adoption of IFRS 9, will have no impact on revenue
recognition, the underlying profitability of the Group's lending,
or on cash flows."
For further information,
please contact:
1pm plc
Ian Smith, Chief Executive
Officer 01225 474230
James Roberts, Chief Financial
Officer 01225 474230
Cenkos (NOMAD)
Max Hartley (Corporate Finance),
Julian Morse (Sales) 0207 397 8900
Walbrook PR 0117 985 8989
Paul Vann 07768 807631
paul.vann@walbrookpr.com
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END
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