TIDMTRU TIDMTRU
RNS Number : 5286W
TruFin PLC
17 April 2019
17 April 2019
TruFin plc
("TruFin" or the "Company" or together with its subsidiaries
"TruFin Group" or "the Group")
FINAL RESULTS FOR THE YEARED 31 DECEMBER 2018,
Full year results demonstrate robust demand from customers in
the niche market segments that the Group is targeting.
Financial Highlights
-- Combined gross revenues were GBP9.5m for the twelve months
ended 31 December 2018, representing growth in excess of over 150%
over the same twelve-month period to 31 December 2017
-- Operating loss excluding the share-based payment charge for the year was GBP12.8m
-- Consolidated net assets as at 31 December 2018 of GBP153m
-- The investment in Zopa was revalued upwards by GBP8m to GBP44.5m
Operational Highlights
-- Combined loans and advances to customers of DFC and Satago
were approximately GBP129m as at 31 December 2018, representing
growth of 290% over 31 December 2017
-- Oxygen's clients total procurement spend was GBP19.7bn as at
31 December 2018, representing growth of 74% over the previous
year
-- Satago gained market traction, won several industry awards
and saw a marked increase in general activity levels albeit from
nascent levels
-- Satago saw revenues grow in excess of 400% during 2018 compared to 2017
Current trading and prospects
TruFin
-- 2019 has commenced well with revenues (including DFC) for the
first quarter ended 31 March 2019 of GBP3.9m (unaudited)
-- Oxygen continues to win customers and the sales pipeline for 2019 remains robust
-- Satago is experiencing strong demand year-to-date from the
partnerships it has formed, with capital being the constraining
factor
-- The proposed sale of TruFin's investment in Zopa will release
further financial resources to the Group
DFC
-- DFC's application for a UK banking licence continues. The
TruFin Board believes that the proposal to demerge DFC from TruFin
will maximise the opportunity for DFC to obtain a bank licence in
the short to medium term
-- As at 31 March 2019, the combined loans and advances from DFC
were not less than GBP142 million (unaudited), representing growth
in excess of 25% since 31 December 2018
-- DFC has proved itself as an exceptional 'origination engine'
and the pipeline is ahead of expectations. DFC is in advanced
discussions with a debt provider regarding a mezzanine debt
facility of GBP40 million. This, if signed, will help to enable DFC
to continue to service its ever-growing demand
-- DFC's client base of 26 manufacturers and 246 dealers at the
time of TruFin's IPO has expanded rapidly to 58 active
manufacturers and 616 dealers as at 31 March 2019, with proposals
signed with a further 48 manufacturers
For further information, please contact:
TruFin plc
Henry Kenner, Chief Executive Officer
James van den Bergh, Deputy Chief Executive Officer 0203 743 1340
Macquarie Capital (Europe) Limited (NOMAD and joint
broker)
Alex Reynolds
Nicholas Harland 0203 037 2000
Liberum Capital Limited (Joint broker)
Chris Clarke
Trystan Cullen
Louis Davies 0203 100 2000
Blue Pool Communications (PR)
Nicholas Lord 07501 271 083
The information contained within this Announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No.596/2014. By the publication of
this Announcement via a Regulatory Information Service, this inside
information is now considered to be in the public domain. The
person responsible for arranging for the release of this
Announcement on behalf of the Company is Jason Rogers.
About TruFin plc:
TruFin plc is the holding company for an operating group of
companies that are niche lenders and early payment providers.
TruFin Group combines the benefits of both the traditional
relationship banking model and developments in the fintech sector.
The Company was admitted to AIM in February 2018 and trades under
the ticker symbol: TRU. More information is available on the
Company website www.TruFin.com
COMPANY INFORMATION
Directors Simon Henry Kenner (Chairman & Chief Executive
Officer) James van den Bergh (Deputy Chief
Executive Officer) Raxita Kapashi (Chief
Financial Officer)
Steve Baldwin (Senior Independent Non-Executive
Director) Peter Whiting (Non-Executive Director)
Penny Judd (Non-Executive Director)
Paul Dentskevich (Non-Executive Director)
Company Secretary Ocorian Secretaries (Jersey) Limited
Registered Office 26 New Street St Helier Jersey JE2 3RA
Business Address 4 Bentinck Street London
W1U 2EF
Registered Number 125245
Auditor Deloitte LLP
2 New Street Square London EC4A 3BZ
Nominated Advisor Macquarie Capital (Europe) Limited Ropemaker
and Broker Place
28 Ropemaker Street London EC2Y 9HD
Joint Broker Liberum Capital Limited
25 Ropemaker Street
London EC2Y 9LY
Advisors Travers Smith LLP (Solicitors - UK law)
10 Snow Hill
London EC1A 2AL
Ogier (Solicitors - Jersey law) 44 Esplanade
St Helier
Jersey JE4 9WG
Equiniti (Jersey) Limited (Registrar) 26
New Street
St Helier
Jersey JE2 3RA
CHAIRMAN'S STATEMENT
A year of continued progress with a material restructuring to
meet the needs of a changing world.
As I write this Chairman's Statement reflecting on the whole of
2018, it is hard not to concentrate on the very immediate focus of
the Group notably the announcement today of the proposed demerger
of DFC and its Admission to trading on AIM . In the view of the
Directors, this is necessary to give DFC the best possible chance
of obtaining a bank licence in the short to medium term and is in
the best interests of our shareholders.
Before I address the restructuring in detail let me first
reflect on the results and progress made by the Group during the
year. We said at the IPO, that our businesses were set to scale and
2018 was a year that confirmed precisely that. To that end I am
pleased to announce that the progress announced at the interim
results stage has continued into the second half of the year
resulting in annual gross revenues increasing by in excess of 150%
during 2018.
The customer franchise across the subsidiaries has, as
anticipated, grown in strength and depth over the year. The demand
for our product offerings has been strong and the consistent theme
from customers has been the strength of our customer offering and
service - put simply we are good at what we do and customers want
more of it! As such, we are justifiably proud and we look to this
as a core value and business differentiator as the Group
progresses.
Looking across the Group notable achievements during the year
include:
-- DFC surpassing 500 UK dealers signing on to its financing programmes
-- Oxygen continuing its pursuit of market leadership in the UK
public sector with a more than doubling of its live clients
-- Satago seeing the first funded customers as a direct result of its investment in partnerships
-- Zopa obtaining its bank licence with restriction
However, this success has also created a situation where demand
for resources, most notably capital, has been greater than we had
anticipated. Nowhere has the thirst for capital been greater than
at DFC where the team has been extremely effective in both client
and product mix management. As DFC goes forward, the securing of a
bank licence becomes ever more important and remains the Group's
priority.
With such strength in the underlying business, it was
undoubtedly disappointing to have to announce a delay to the
granting of DFC's bank licence in December 2018. However, we have
been working assiduously to resolve this situation as quickly as
possible.
The result is the announcement today of a restructuring of the
Group that will, subject to our shareholders approval, result
in:
-- the sale of our investment in Zopa for GBP44.5 million
-- an equity investment of GBP25 million in DFC
-- the demerger and Admission of DFC to trading on AIM in early May 2019
This proposed restructuring has been driven by the primary
consideration namely that of obtaining a banking licence for DFC.
The regulatory authorities and our advisors have been extremely
resourceful in establishing, what we believe is, a basis on which
to go forward successfully and thus now enable DFC to be in the
best possible position to obtain its bank licence in the short to
medium term. We anticipate a final conclusion to this process
shortly.
In addition to this, the restructuring also anticipates the sale
of our investment in Zopa for GBP44.5 million which is an uplift of
22% on the independent valuation at the end of 2017. The proceeds
from this will be used to invest a further GBP25 million in DFC and
the remainder will be used to fund the existing businesses and form
the basis of a proposed GBP10 million return of value to
shareholders during 2019.
At the time of the TruFin IPO we told shareholders of our plans
and ambitions. Today's news, whilst radically changing the Group,
is in reality an early execution of some aspects of those plans and
we believe represents what is in the best interest of shareholders.
It provides certainty across the businesses, and going forward,
management remains committed to delivering value for shareholders
from the existing businesses, whilst continuing to seek out further
opportunities.
Our Performance
Demand in each of our businesses was strong throughout the year
and we have seen this continue post year end.
DFC and Satago
-- Combined loans and advances to customers were approaching
GBP130 million at 31 December 2018 representing growth in excess of
290% from the previous year
-- Combined revenue grew to GBP6.6 million for the year ended 31
December 2018 representing an increase of 450% since 2017,
highlighting the strong growth trajectory of these companies
-- DFC ended the year with in excess of 500 dealers signed on to
its financing programmes in the UK on behalf of 45 manufacturers,
representing 117% and 69% year on year growth respectively
-- Clients signing up to Satago's digital platform has increased
markedly during the year and the development of partnerships with
leading accounting and financial institutions continues apace
-- At DFC there were a minimal amount of actual defaults and no write offs during the period
-- Operating expenses grew over the period, driven by new hires
and professional services costs arising from, inter alia, DFC's
banking application to the regulatory authorities
-- DFC's application for a UK banking licence progressed during
the year. However, in December 2018, we announced a delay to DFC
obtaining a bank licence. After due consideration and in order to
provide DFC with the best possible opportunity of obtaining a bank
licence in the short to medium term, we have decided to propose a
demerger and Admission of DFC to trading on AIM.
Oxygen
-- Oxygen continued to make significant progress in the public
sector with the number of live clients rising more than 100% during
2018
-- Oxygen secured contracts with significant new clients
resulting in total annual procurement spend under contract moving
to GBP19.7 billion annually by the year end representing a growth
of over 74%
-- Efforts to monetise these client wins are starting to see
results with revenues rising to GBP2.9 million
-- In August 2018, Oxygen acquired 100% of Porge Limited
("Porge"). Porge provides an evidence based public sector market
insight service and research product. This provides Oxygen with an
additional product offering and initial indications are that this
has been warmly welcomed by existing customers of both
companies.
Zopa
-- During the year, Zopa has continued its digital disruption
story, and 2018 saw an upward revaluation in the Group's investment
of GBP8.0 million to GBP44.5 million
-- In December 2018, Zopa was granted a banking licence with
restrictions, a critical milestone for Zopa on its journey towards
a full banking licence
-- As part of the Group's restructuring the sale of this stake
for GBP44.5 million has been announced.
For the Group as a whole, operating loss before tax excluding
share-based payments was GBP12.8 million which was in line with
expectations.
Current trading and prospects
-- 2019 has commenced well and Group revenues for the first
quarter ended 31 March 2019 were GBP3.9 million (unaudited)
-- As at 31 March 2019, the combined loans and advances from DFC
were not less than GBP142 million (unaudited), representing growth
in excess of 25% since 31 December 2018
-- DFC's client base of 26 manufacturers and 246 dealers at the
time of TruFin's IPO has expanded rapidly to 58 active
manufacturers and 616 dealers as at 31 March 2019, with proposals
signed with a further 48 manufacturers
-- Satago is experiencing strong demand to-date during 2019 from
the partnerships it has formed, with capital being the constraining
factor.
Our Strategy
Our strategy remains to operate and create a stable of niche
lenders and early payment providers with a primary focus on
Europe.
The proposed restructuring demonstrates our focus on delivering
value for shareholders. We believe it will provide DFC the best
opportunity to achieve a bank licence whilst providing certainty to
the rest of the Group.
Moreover, the sale of our investment in Zopa (which showed a 22%
increase in value during 2018) represents a pragmatic approach to
ensuring the Group is adequately funded to pursue its businesses
objectives.
A return of value to shareholders of GBP10 million during 2019
is being proposed. Meanwhile, the Directors are focused on ensuring
that the remaining businesses deliver on their business plans.
Our Outlook
The Directors believe that the organic growth opportunities for
the businesses remain strong whilst the proposed restructuring is a
pragmatic solution that delivers the best opportunity for DFC to
obtain a bank licence in the short to medium term.
The demerger does provide us with an opportunity to reflect with
pride on the growth of DFC into what it is today - an origination
engine. We wish them well for the future.
Meanwhile we look forward to developing the next powerful
origination engine from our remaining stable of businesses or one
out there waiting to be found.
Henry Kenner
Chairman and Chief Executive Officer
17 April 2019
GROUP STRATEGIC REPORT
Goals and Objectives
The strategic goal is to operate and create a stable of niche
lenders and payment providers whether through organic growth or
acquisition.
The Directors believe that each of the current businesses
operates in attractive niche markets with the commensurate benefits
associated with high sustainable returns. TruFin's flexible product
offerings focus on customer service and the delivery of extremely
effective technology allows it to address challenges of scalability
and increased customer acquisition costs. As such, TruFin is
committed to continue investing in both its people and
technology.
To achieve the strategic goal, the first deliverable is to
demonstrate to the shareholders and customers that the business
strategy as applied to the existing businesses can deliver for all
interested parties. As such, the focus of the management teams'
efforts is on optimising the performance of the existing
businesses.
At present, the Directors continue to believe that the
individual businesses will flourish optimally through organic
growth. However, the Directors will also continue to monitor
acquisition opportunities that arise in the normal course of
business.
At the time of writing the Board are pursuing the demerger of
DFC from the Group as a strategic goal to enable it to have the
best opportunity to obtain a banking licence.
The Directors have the following strategic objectives for each
business:
Oxygen's future objectives and strategy
Oxygen has continued to build new client and supplier
relationships which, given the operational gearing in the business,
are expected to lead in turn to profitability and enhanced
performance. During 2018 Oxygen signed up 19 new clients and as
such saw procurement spend under contract rise to GBP19.7 billion
by 31 December 2018. The sales pipeline for 2019 remains
robust.
With sales seemingly secure, the main focus remains on
monetising for both the live clients and Oxygen following
implementation of the programmes. Building on 2017, 2018 has seen
Oxygen implement several new initiatives both internally and
externally to improve this. With a continued focus during 2019, the
Directors remain confident of continued progress.
In the medium term, Oxygen aims to continue its expansion in the
UK public sector including with smaller councils and through
further expansion into the NHS and Central Government.
Simultaneously, Oxygen will pursue growth in the corporate sector,
initially targeting large corporates with similar characteristics
to the public sector.
Additionally, Oxygen plans to expand its product offering to its
customer base. To that end it acquired Porge during 2018 and this
has now been integrated into Oxygen. The strategy here is to roll
out this research insight service to existing customers of both
companies.
Satago's future objectives and strategy
At the TruFin IPO we stated that Satago was a nascent business
with great potential. During 2018, that potential has begun to be
realised with the loan increasing to GBP15.4 million at the year
end.
In the core invoice financing business, customer acquisition is
the key to success. The business's strategy was, and remains, to
adopt a partnership model as a means of gaining the necessary
traction and brand awareness. During 2018 the number of interested
partners has grown materially and the business is starting to see
the direct benefits in terms of business volumes. The management is
extremely optimistic as to these materialising further during 2019
and forming the basis for future growth.
As the business has grown the demand for a wider range of
financing products has become increasingly apparent and as such it
a strategic objective to explore the launching of such products
during 2019. These products will initially focus on other short
term working capital facilities and will round out the business's
overall customer offering.
Satago's technology has been a key factor in attracting
potential partners and customers. To that end it is a core
objective to continue to invest in the platform.
With an increasing market presence and the business's
technological strength, various fee-paying services are now being
considered in addition to the core lending business as another
source of revenues.
In addition, to the core business there is speciality lending.
This occurs where there is a specific niche funding vertical which
exhibits attractive funding opportunities whilst the niche operator
itself also requires working capital. Currently, the business has
exposure to two such verticals namely mobile games publishing and
independent financial intermediaries. It is a strategic goal to
continue to explore for further niche verticals.
Satago will target origination of high yielding short-dated
working capital assets, while managing risk via a superior
understanding of the credit risk of prospective counterparties
provided by its advanced technology and fully integrated customer
business model.
Satago's strategy for effecting this is to focus on building the
right strategic partnerships to drive lead generation and to use
its technology platform to take advantage of any disruptive trends
in the industry.
The Directors recognise that Satago needs to extend its product
range and continue enhancing its proprietary technology. This will
enable Satago to increase its customer satisfaction and to explore
opportunities presented by regulatory change and the demand for
advanced receivables finance and short term working capital
loans.
DFC's future objectives and strategy
DFC's loan book grew strongly during 2018 with the loan book
ending the year at GBP114 million. This was all achieved through
increased customer penetration in terms of the number of
manufacturers being signed up to the programme expanding to 45 and
number of dealers to 533.
Accordingly, revenues grew to GBP5.2 million in 2018 and costs
rose as staff numbers increased as DFC readied itself for a banking
licence. The interest expense expanded as the financing facility
became a core tool in facilitating customer demand.
DFC will continue to build its book of distribution finance
assets via established client relationships and continues to pursue
a banking licence. As specified in its Regulatory Business Plan,
DFC will in the medium term launch a leasing product suite for the
dealer-to-consumer leg of each business vertical in which it is
operates. This will complement the wider working capital product
offering.
From the successful stock market listing proceeds, GBP36 million
equity has been invested in the year to enable DFC to execute its
business plan with a further GBP25 million being invested post year
end as part of the restructuring and demerger.
DFC has made an application for a bank licence in order to scale
its balance sheet and provide a wider range of defined products
across the SME and consumer lending environment. As described
earlier, this licence has been delayed and much focus had been on
creating the optimal structure in which to have DFC obtain a bank
licence.
This structure is now achieved and, subject to shareholders
approval, a demerger and listing of DFC will occur shortly. A such,
it is likely that we will see the departure of DFC from the TruFin
family. Whilst this departure is earlier than we originally
anticipated we are immensely proud of DFC and wish them well in
what looks to be an exciting future.
Zopa
Zopa is a technology-led financial services innovator and is
currently a leading UK consumer peer-to-peer lender.
In December 2018, Zopa was granted a bank licence with
restrictions. This will enable Zopa to lend directly from its own
balance sheet and offer customers a broader set of products
(including deposits, credit cards and auto loans) and services. In
doing so, it will significantly increase its addressable market and
capture the full return from these loans, as opposed to solely a
brokerage fee.
As at 31 December 2018, the holding in Zopa which is accounted
for as investment was valued by an external independent valuer at
GBP44.5 million.
As part of the restructuring announced today this investment is
due to be sold to Arrowgrass Master Fund subject to shareholder
approval for GBP44.5 million representing an uplift of 22% on 31
December 2017. As such the Group will no longer have any
involvement with Zopa. We wish them well in the future.
Technologically advanced
The Directors fundamentally believe that, together with
origination, technology is the key component in bringing the Group
as the provider of finance closer to its current and future
customers, the consumers of finance. As such, the Directors have
placed great emphasis across TruFin on building or utilising the
latest technology to deliver products more effectively to its
customers.
TruFin has built leading edge proprietary technology that gives
it a competitive advantage. The Directors believe that this will
represent an increasingly important part of the Group's ability to
satisfy the growing expectations of its existing and future
customers. The Directors are therefore committed to ensuring
continued investment in this area.
Key Performance Indicators
Year ended Year ended
31 December 31 December
GBP'000 2018 2017
============== ============== ===========================
Gross Revenue 9,544 3,774
As at 31 December As at 31 December
2018 2017
============================================== ================================= =================================
Loan Book 129,221 32,709
KPIs (unaudited)
DFC: # of Manufacturers signed up 45 26
DFC: # of Dealers on to programme 533 246
DFC: # of Active Dealers signed up 424 163
Oxygen: Clients total annual procurement spend GBP19.7bn GBP11.3bn
under contract
Principal Risks and uncertainties
The directors of TruFin plc confirm that we have carried out a
robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future
performance, solvency or liquidity.
Principal Risks are a risk or combination of risks that, given
the Group's current position, could seriously affect the
performance, future prospects or reputation of the Group. These
risks could potentially threaten the businesses, performance,
solvency or liquidity, or prevent the delivery of the strategic
objectives. The Board has overall responsibility for ensuring that
risk is appropriately managed across the Group.
As well as external reviews and audits from the Group's
statutory auditors, the Group has internal checks and policies.
Initial responsibility rests with the management team of each
business for identifying and managing risks arising in their
business areas. This is augmented by the Group's central compliance
and finance function with responsibility for reporting to the
Board.
The key risks identified and which the Board has reasonable
expectation are appropriately mitigated are:
-- Strategic risk - Strategic and business risk is the risk
which can affect the Group's ability to achieve its corporate and
strategic objectives. The risk on the performance of the Group
arising from its strategic decisions, change in the business
conditions, improper implementation of decisions or lack of
responsiveness to industry changes. It is particularly important as
the Group continues its growth strategy. Mitigating factors are:
the Group will not put its core strategic and business objectives
at a level of risk which is beyond its financial resources and
operational capabilities; the Group will monitor, review and
challenge its performance against its strategic objectives. The
Strategic risk for the Group remains unchanged from the previous
year.
-- Credit risk - the risk of default, potential write-off, risk
of financial loss arising from a borrower or counterparty failing
to meet its financial obligations. This is mitigated by the Group
adopting prescribed lending policies and adhering to strict credit
and underwriting criteria specifically tailored to each business
area. The exposure to credit risk has increased since the previous
year as the size of the loan book has grown significantly. The
loans issued are in most cases collateralised to a large extent and
the majority of the loans are short dated and therefore the risk of
loss is mitigated to the extent the Directors deem appropriate in
accordance with the relevant risk policies.
-- Funding risk - the risk of the Group not being able to meet
its current and future financial obligations over time,
specifically that funding is not available to meet the Group's
growth targets. The Group's major shareholder is very supportive
and the strategic sale of Zopa in the coming weeks will release
sufficient capital to fund DFC and the remaining Group for the
foreseeable future. The Group will also be reviewing costs and
efficiencies.
-- Operational risk - which is the risk of financial loss and/or
reputational damage resulting from inadequate or failed internal
processes, people and systems or from external events. The exposure
to operational risk has increased from the previous year as the
businesses have grown. Mitigants are:- the Group reviews its
operational infrastructure to ensure that it is secure and fit for
purpose. The Group maintains a strong internal control environment
and the growth has also factored in strengthening processes and
systems.
-- Liquidity risk - The restructuring which takes place after
the reporting period and which is discussed in note 28, Post
Balance Sheet Events, is significant and the sale of Zopa together
with the demerger represents a fundamental change in the business
of TruFin. There is an execution risk that these events do not
happen. The Sale and Purchase agreement relating to the sale of the
Group's investment in Zopa to Arrowgrass Master Fund ("Arrowgrass")
contains a Material Adverse Change clause which states that if
between exchange and completion there is a material adverse change
then Arrowgrass has the right not proceed to completion. The date
of exchange document is on 17 April 2019 and completion is
timetabled for 7 May 2019.
A Material Adverse Change means a material adverse change in the
business, operations, assets, management or legal, financial, tax
or regulatory position of Zopa.
In the event that the sale of the Group's investment in Zopa
does not complete, then TruFin will not be able to provide DFC with
GBP25 million of equity funding within the existing arrangements.
TruFin will then need to consider whether a demerger and subsequent
IPO should proceed given the risk that DFC may not be fully
capitalised. The consequence of DFC not being demerged would likely
result in a delay and/or reapplication of the bank licence.
-- Brexit risk - DFC's structure and license requirements are
not impacted by Brexit as it only lends to UK based firms from a UK
legal entity. DFC could be impacted by varying demand for credit
and higher loss rates from customers due to changes in
macro-economic factors (such as weak GDP or higher interest rates
in the UK), or from higher costs of doing business for DFC's
customers (such as higher import prices due to potential new
tariffs or extreme movements in the purchasing power of Sterling).
These potential risks could impact DFC's customers margins,
profitability and in more extreme scenarios lead to much higher
levels of insolvency. However, as DFC is primarily a secured lender
on short duration loans with uncommitted lines, there are a number
of management levers which can be applied rapidly and the Directors
will continue to actively monitor the situation to ensure customers
are supported within the agreed risk appetite.
Oxygen and Satago has predominantly UK customers and suppliers,
limiting any expected adverse impact of Brexit.
On this basis Brexit is not expected to cause a material adverse
impact on the Group's resources. The Directors will continue to
closely monitor the economic and political situation in the UK and
the EU and adjust the operating and business models where
appropriate.
Strict adherence to managing risk
The Group manages such risks, among other things, with robust
systems and processes, guidelines and policies which are
forward-looking, clearly articulated, documented and communicated
throughout the businesses and which enable the accurate
identification and control of potentially problematic transactions
and events.
Due to DFC and Satago being lending businesses, they each have
their own risk committees and formal risk procedures in place that
aim to manage risk effectively. The systems and processes,
guidelines and policies are continually reviewed and updated and
effectively communicated to all personnel to ensure that resources,
governance and infrastructure are appropriate for the increasing
size and complexity of the business.
The Group manages the risks by making complex judgements,
including decisions (based on assumptions about economic factors)
about the level and types of risk that it is willing to accept in
order to achieve its business objectives, the maximum level of risk
the Group can assume before breaching constraints determined by
liquidity needs and its regulatory and legal obligations,
including, amongst other things, from a conduct and prudential
perspective.
Funding
TruFin successfully listed on AIM raising on 21 February 2018
raising GBP66 million of net proceeds from the IPO.
During the year, the Group provided equity funding to DFC for
GBP36 million and a loan of GBP10 million. DFC signed an initial
GBP40 million committed facility with a leading bank in 2017, the
facility was increased to GBP100 million in 2018. The funding was
instrumental in DFC's loan book growth during 2018 and for DFC to
invest in people, processes and systems to build out its operations
that are commensurate with being a bank.
During the year, the Group extended net facilities to Satago
totalling GBP2 million; this facility is funding the continuation
of Satago's development and loan book growth. The team continues to
invest in the ongoing development of its proprietary technology
platform and in securing strategic partnerships over the coming
year.
During the year, the Group extended facilities to Oxygen
totalling GBP5 million. GBP2 million of this funding was for the
acquisition of Porge Limited and the remaining GBP3 million was to
fund Oxygen's investment in client take-on and supplier
on-boarding.
Significant events post balance sheet
On 17 April 2019, DFC increased its existing wholesale funding
from GBP100 million to GBP155 million and extended the term by 12
months such that the funding line has a maturity of December
2020.
DFC's application for its banking licence progressed in 2018. In
December 2018, the regulator raised some queries relating to the
structure of the Group. In order to give DFC the best opportunity
to obtain its banking licence it is proposed to demerge and IPO DFC
on AIM. Whilst this is consistent with TruFin's broader longer-term
strategy (namely that of maximising shareholder value through
disposal when appropriate) the proposed demerger is earlier than
anticipated. Nevertheless, the structure, size, speed of growth and
ambitions to become a bank mean that the Directors consider an
accelerated demerger is in the best interests of the
shareholders.
As described earlier the investment in Zopa is to be sold for
GBP44.5 million with the proceeds being invested in DFC, a return
of value to shareholders and for general corporate purposes.
Strategy of the Group following the demerger of DFC
Following the restructuring and sale of Zopa, the Group will be
significantly reduced in size, but the Directors remain committed
to maximise value for its shareholders. We will continue to focus
on the existing businesses whilst looking for new opportunities in
the sector. In seeking out new origination capabilities or exciting
new disruptive technologies we believe the Group is well placed to
demonstrate its proven track record in this regard.
That said in undertaking a full review of the cost structure we
will ensure that it is appropriately scaled to the new
structure.
The Group has an exciting future and we look forward to pursuing
the Group's strategy.
ON BEHALF OF THE BOARD
Henry Kenner
Chairman and Chief Executive Officer 17 April 2019
REPORT OF THE DIRECTORS
The Directors present their report with the financial statements
of the Company and the Group for the year ended 31 December
2018.
Principal activity
The principal activities of the Group in the year under review
were those of providing niche lending and early payment
services.
Dividends and return of capital
The Directors' have confirmed that no dividends have been
declared for the year to 31 December 2018. The Directors' current
view is that the earnings of Group will first be reinvested in the
businesses to fund the Group's growth strategy and any surplus
cash, if not reinvested in the foreseeable future, will be returned
to shareholders. Subject to shareholder approval and legal
requirements, it is the intention of the Board to make a
distribution of GBP5 million in June 2019 and another GBP5 million
in December 2019. The mechanism by which the distribution will be
made will be determined near the time of the distribution.
Events since the end of the year
Subject to shareholder approval on 7 May 2019, the Group is to
undergo a significant restructuring which will involve the demerger
of DFC and the sale of Zopa. The details of this restructuring are
given in note 28, post balance sheet event note.
Directors
The Directors who held office during the year and up to the date
of the Directors' report were as follows:
Simon Henry Kenner
James van den Bergh
Raxita Kapashi
Steve Baldwin
Peter Whiting
Penny Judd
Paul Dentskevich
The Directors' interests in the shares of TruFin plc, all of
which were beneficial interests, at 31 December 2018 are as
follows:
Number of Shares 2018 2017
----------------- --------- ----
S H Kenner 1,825,658 -
J van den Bergh 1,732,237 -
P Whiting 26,315 -
P Judd 24,723 -
Directors insurance and indemnities
Throughout the year the Company has maintained Directors and
Officers liability insurance for the benefit of the Company, the
Directors and its officers. The Directors consider the level of
cover appropriate for the business and will remain in place for the
foreseeable future.
Significant shareholders
The following parties held greater than 3% of the issued share
capital of TruFin plc as at 31 December 2018:
Number of % of issued
shares share capital
---------------------------------- ---------- --------------
Arrowgrass Master Fund Limited 71,228,774 73.15%
Watrium AS 6,063,157 6.23%
Liontrust Asset Management 3,526,315 3.62%
TruFin plc Employee Benefit Trust 3,407,895 3.50%
Statement of Directors' responsibility
The Directors are required by the Companies (Jersey) Law 1991,
to prepare financial statements for each financial year which give
a true and fair view of the state of affairs of the Company as at
the end of the financial year and of the profit or loss of the
company for that period. The directors have elected to prepare the
financial statements in accordance with applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. In preparing these financial statements, the
Directors are required to:
-- Select suitable accounting policies and then apply them consistently,
-- Make judgements and estimates that are reasonable and prudent,
-- State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements, and
-- Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping accounting records
that are sufficient to show and explain the Company's transactions.
These records must disclose with reasonable accuracy at any time
the financial position of the Company and enable the Directors to
ensure that any financial statements prepared comply with the
Companies (Jersey) Law 1991. They are also responsible for
safeguarding the assets of the Company and, hence, for taking
reasonable steps for the prevention and detection of fraud, error
and non-compliance with law and regulations.
Statement of Going Concern
As described in the Strategic Report on page 6, the Group is
undergoing a significant restructuring that includes an immediate
investment of GBP25 million in DFC funded by the sale of the
Group's investment in Zopa for GBP44.5 million and, subsequently,
the demerger of DFC in May.
Subject to receipt of the proceeds from the sale of the Group's
investment in Zopa, the Directors have assessed the Company's
ability to continue in operational existence for at least 12 months
from the reporting date. However, whilst the sale has been agreed,
the contract is subject to clauses that could result in it being
cancelled. In the event that the proceeds are not received, this
could delay or prevent the demerger of DFC and the ability of DFC
to obtain a banking license within the current timeframe. As
described on page 8, this uncertainty is considered to be a
principal risk for the Group.
The Directors have considered the impact of this uncertainty on
the Group's ability to continue in operational existence for the
foreseeable future. Whilst the impact to the Group would be
material and the strategic objectives would need to be
reconsidered, the Group can manage short term liquidity through a
reduction in loan originations and, therefore, the Directors have a
reasonable expectation that the Group has adequate resources to
meet its obligations for at least 12 months from the date of
signing the accounts. Accordingly, they continue to adopt the going
concern basis of accounting in preparing the financial
statements.
Corporate Governance and Internal Controls
The Directors acknowledge the importance of high standards of
corporate governance and how the Board and its committees operate.
The corporate governance framework which TruFin operates, including
Board leadership and effectiveness, board remuneration, and
internal control is based upon practices which the board believes
are proportional to the size, risks, complexity and operations of
the business and is reflective of the Group's values.
The Board has decided to adhere to the Quoted Companies
Alliance's Corporate Governance Code ("QCA Code") for small and
mid-size quoted companies (revised in April 2018 to meet the new
requirements of AIM Rule 26). The QCA Code is constructed around
ten broad principles and a set of disclosures. The QCA itself has
stated what it considers to be appropriate arrangements for growing
companies and asks companies to provide an explanation about how
they are meeting the principles through the prescribed
disclosures.
The Board has considered how it applies each principle and the
extent to which the Board judges these to be appropriate in the
circumstances. Details of how TruFin adhere to these principles can
be found on our website www.TruFin.com
TruFin's Chairman of the Board, Henry Kenner, also fulfils the
role of Chief Executive Officer and consequently participates in
the running of the Company's day-to-day business. It is understood
that this does not comply with the QCA code, but the Directors
believe it is in the best interests of the Company and its
Shareholders for Henry to carry out both of these roles.
In line with the QCA Code, the Board and Committees conducted a
formal performance evaluation process during the year. The process
was carried out by way of tailored questionnaires completed by each
member of the Board and Committees.
With respect to the Board, the question covered a variety of
topics, including the composition of the Board, the quality and
timeliness of information provided to the Board, succession
planning and shareholder engagement. In general, the responses
found the Board comprises an appropriate balance of skills and
experience and that it is operating effectively.
The Board comprises three Executive Directors and four
independent Non-Executive Directors.
Brief biographies of the Directors are set out below:
Henry Kenner - Executive Chairman and Chief Executive
Officer
Henry possesses over 30 years of investment banking and capital
markets experience. Henry co-founded Arrowgrass Capital Partners
LLP in 2008 and was CEO until late 2017. Prior to that, Henry
served as a Managing Director at Deutsche Bank. Henry has also
worked as a Managing Director at Swiss Re Capital Management and at
ABN Amro Hoare Govett having started his capital markets career at
NatWest Markets. Henry qualified as a Chartered Accountant.
James van den Bergh - Deputy Chief Executive Officer
James possesses over 16 years of investment banking and capital
markets experience. James led the alternative finance team at
Arrowgrass Capital Partners since its inception in 2013 to its
transfer to TruFin. James began his career at Merrill Lynch before
transitioning into investment management in 2003. James was
formerly a partner at SAC Capital Advisors, Walter Capital
Management LLP and Ivaldi Capital LLP. James is a CFA
Charterholder.
Raxita Kapashi - Chief Financial Officer
Raxita has over 20 years of experience in various senior finance
roles. Most recently she was Head of Finance and Compliance at
Inflexion Private Equity. Prior to that she was Head of Finance at
Oakley Capital Limited. Raxita qualified as a Chartered
Accountant.
Steve Baldwin - Senior Independent Non-Executive Director
Steve has an extensive corporate finance background and is
currently a Non-Executive Director at Edinburgh Investment Trust
plc, Plus500 Limited and Elegant Hotels Group plc and a Trustee at
Howard de Walden Estate Limited. Steve was the Head of European
Equity Capital Markets and Corporate Broking at Macquarie Capital
until February 2015. Prior to this, Steve was a Director at
JPMorgan Cazenove for ten years and was a Vice President of
Corporate Finance at UBS from 1995 to 1998. Steve qualified as a
Chartered Accountant.
Penny Judd - Independent Non-Executive Director
Penny has over 30 years of experience in Compliance, Regulation,
Corporate Finance and Audit and is currently Chairman of Plus500.
Penny was until June 2016, a Managing Director and EMEA Head of
Compliance at Nomura International plc, a position she held for
three years. Prior to this, Penny worked at UBS Investment Bank for
nine years and held the position of Managing Director, EMEA Head of
Compliance. Penny qualified as a Chartered Accountant. Penny is
also currently Non-executive Director of Alpha Financial Management
Consulting Plc and Team17 plc.
Peter Whiting - Independent Non-Executive Director
Peter has over twenty years of experience as an investment
analyst, specialising in the software and IT services sector. Peter
joined UBS in 2000 and led its UK small and mid-cap research team.
Between 2007 and 2011 Peter was Chief Operating Officer of UBS
European Equity Research. Peter is currently the Senior Independent
Director of FDM Group Limited and Microgen plc and a Non-Executive
Director of Keystone Law Group plc and D4T4 solutions plc.
Paul Dentskevich - Independent Non-Executive Director
Paul has over 30 years of financial services experience,
specialising in risk management, investment management and
corporate governance of hedge and other multi-asset funds. Paul is
currently Risk Director at Crestbridge, having previously been at
Brevan Howard, 2008 to 2015, where he was a member of the Manager's
investment committee and sat on a number of boards. Paul has a PhD
in Economics from Imperial College London.
Senior Management
Jason Rogers - Chief Operating Officer
Jason possesses over 20 years of investment banking and capital
markets experience. Jason was involved with the alternative finance
team at Arrowgrass Capital Partners from 2014. Jason has previously
worked at Bennelong Asset Management, Ruby Capital Partners, Swiss
Re, Deutsche Bank and Bankers Trust.
Our Committees
Subsequent to the year end, the Board established the Audit
Committee, the Remuneration Committee and the Nomination Committee
each with written terms of reference and agreed schedules of
work.
(a) Audit Committee
The Audit Committee is chaired by Penny Judd. Its other member
is Peter Whiting. The Audit Committee has primary responsibility
for monitoring the quality of internal controls and ensuring that
the financial performance of the Company is properly measured and
reported on. It receives and reviews reports from the Company's
management and auditors relating to the interim and annual accounts
and the accounting and internal control systems in use throughout
the Company. The Audit Committee meets at least twice a year and
will have unrestricted access to the Company's auditors. A copy of
the Audit Committee Terms of Reference can be found on our
website.
(b) Remuneration Committee
The Remuneration Committee is chaired by Peter Whiting. Its
other member is Steve Baldwin. The Remuneration Committee reviews
the performance of the Company's Executive Directors and makes
recommendations to the Board on matters relating to their
remuneration and terms of employment. The Remuneration Committee
also makes recommendations to the Board on proposals for the
granting of options and other equity incentives pursuant to any
share option scheme or equity incentive scheme in operation from
time to time by the Company. The remuneration and terms and
conditions of appointment of the Non-Executive Directors is set by
the Board. The Remuneration Committee meets formally at least once
a year and otherwise as required. A copy of the Remuneration
Committee Terms of Reference can be found on our website.
(c) Nomination Committee
The Nomination Committee is chaired by Steve Baldwin. Its other
members are Penny Judd and Henry Kenner. The Nomination Committee
assists the Board in discharging its responsibilities relating to
the composition of the Board, performance of Board members,
induction of new Directors, appointment of committee members and
succession planning for senior management of the Company. The
Nomination Committee is responsible for evaluation the balance of
skills, knowledge, diversity and experience of the Board, the size,
structure and composition of the Board, retirements and
appointments of additional and replacement directors and makes
appropriate recommendations to the Board on such matters including
succession planning. The Nomination Committee prepares a
description of the role and capabilities required for a particular
appointment. The Nomination Committee meets formally at least once
a year and otherwise as required. A copy of the Nomination
Committee Terms of Reference can be found on our website.
Board and Committee attendance record
Board Committee Membership
---------- --------------------------------------------
Meetings Nomination Remuneration
attended Committee Audit Committee Committee
--------------------- ---------- ----------- ---------------- -------------
Henry Kenner 11 / 11 1 / 1
James van den Bergh 11 / 11
Raxita Kapashi 11 / 11
Steve Baldwin 9 / 9 1 / 1 3 / 3
Peter Whiting 9 / 9 3 / 3 3 / 3
Penny Judd 8 / 9 1 / 1 3 / 3
Paul Dentskevich 9 / 9
Statement as to disclosure of information to auditors
So far as the Directors are aware, there is no relevant audit
information of which the Company's auditors are unaware and each
Director has taken all the steps that he or she ought to have taken
as a Director in order to make himself or herself aware of any
relevant audit information and to establish that the Company's
auditors are aware of that information.
ON BEHALF OF THE BOARD
Henry Kenner
Chairman and Chief Executive Officer 17 April 2019
AUDIT COMMITTEE REPORT
Members of the Committee
-- Penny Judd (Chair)
-- Peter Whiting
Role of the committee
The Audit Committee has primary responsibility for monitoring
the quality of internal controls and ensuring that the financial
performance of the Company is properly measured and reported on. It
receives reviews reports from the Company's management and auditors
related to the interim and annual accounts and the accounting and
internal control systems in use throughout the Group. The Audit
Committee meets at least twice a year and has unrestricted access
to the Company's auditors. A copy of the Audit Committee Terms of
Reference can be found on our website.
External Audit
The Audit Committee approves the appointment and remuneration of
the Group's external auditors. They also ensure that they are
satisfied with the external auditors' independence in relation to
any other non-audit work undertaken by them.
Internal Audit
The Audit Committee approves the appointment, scope and
remuneration of the Group's internal auditors.
Significant issues considered in relation to the financial
statements
The Audit Committee assesses whether suitable accounting
policies have been adopted and whether appropriate estimates and
judgements have been made by management. The Committee also reviews
accounting papers prepared by management, and reviews reports by
the external auditors. The specific areas reviewed by the Committee
in respect of the year were:
-- appropriateness of the accounting for share based payments
and their disclosure within the Group financial statements
-- appropriateness of the calculation and disclosure of earnings
per share in the Group financial statements
-- appropriateness of the accounting for the fair value of investments and convertible loan notes
-- appropriateness of going concern assumptions
REPORT OF THE INDEPENT AUDITOR TO THE SHAREHOLDERS OF TRUFIN
PLC
Report on the audit of the financial statements
Opinion
In our opinion:
-- the financial statements of TruFin Plc (the 'parent company')
and its subsidiaries ('the group') give a true and fair view of the
state of the group's and of the parent company's affairs as at 31
December 2018 and of the group's loss for the year then ended;
-- the group financial statements have been properly prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union; and
-- the financial statements have been prepared in accordance
with the requirements of Companies (Jersey) Law, 1991.
We have audited the financial statements which comprise:
-- the Consolidated Statement of Comprehensive Income;
-- the Consolidated and Company Statements of Financial Position;
-- the Consolidated and Company Statements of Changes in Equity;
-- the Consolidated and Company Statements of Cash Flows; and
-- the Notes to the Consolidated Financial Statements.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the group and the parent company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the
Financial Reporting Council's Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Summary of our audit approach
======================================================================================
Key audit matters The key audit matters that we identified in the current
year were:
* Revenue recognition;
* Loan loss provisioning;
* Recognition of a deferred tax asset in respect of the
unutilised tax losses; and
* Valuation of convertible debt balances.
Within this report, any new key audit matters are
identified with and any key audit matters which are
the same as the prior year identified with ->.
==================== ================================================================
Materiality The materiality that we used for the group financial
statements was GBP766,250 (2017: GBP454,000) which
was determined on the basis of 0.5% of equity (2017:
0.5% of equity).
==================== ================================================================
Scoping The following component companies were deemed to be
financially significant to the group:
* Oxygen Finance Ltd ("OF");
* Distribution Finance Capital Ltd ("DFC"); and
* Satago Financial Solutions Ltd ("SFS").
==================== ================================================================
Significant changes Last year our report included one other key audit
in our approach matter which is not included in our report this year,
being the valuation of the investment held in Zopa
Ltd ("Zopa"). As a result of the growth of the Group,
the Zopa investment no longer constitutes such a significant
proportion of the total assets of the Group and, additionally,
Zopa completed a funding round in November 2018 so
the uncertainty with respect to the estimation of
the fair value of the investment has reduced. Therefore,
it is no longer considered to represent a key audit
matter.
Additionally, we have identified a new key audit matter
for the 2018 year end audit, in relation to the valuation
of convertible debt.
==================== ================================================================
Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the
following matters where:
-- the directors' use of the going concern basis of accounting
in preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the group's or the parent company's ability to continue
to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are
authorised for issue.
We have nothing to report in respect of these matters.
Key audit matters
=======================================================================================
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks
of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit;
and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Revenue Recognition ->
=======================================================================================
Key audit matter The Group recorded total revenue of GBP9,544k (2017:
description GBP3,774k) for the year ended 31 December 2018 which,
as detailed in the Principal Accounting Policies in
note 1 and in note 3, comprises interest and fee income.
Interest income, earned on loans and advances to customer,
makes up the majority of this amount. However, most
of these loans had redeemed at the balance sheet date
and the remaining deferred income balance is immaterial.
Therefore, we have determined that the key audit matter
relates to fee income.
Fee income is predominantly recognised in relation
to payment services provided by Oxygen and accounts
for approximately 30% of total revenue. There is a
risk that fee income has been recorded in the year
in respect of payment services that have not been
performed or that were performed after the year end.
Manual intervention is involved in calculating amounts
rebated to clients and judgement is applied in the
satisfaction of the performance obligation.
======================== =============================================================
How the scope We performed walkthroughs of the revenue business
of our audit responded process and evaluated the design and implementation
to the key audit of relevant controls over the recognition of fee income
matter in Oxygen.
We reviewed management's revenue recognition policy
to determine whether it was in accordance with the
requirements of IFRS 15. For a sample of clients,
we tested the monthly fee income recognised with reference
to client contracts and obtained evidence for manual
rebates where applied. We performed cut-off testing
to assess whether revenue recognised in the year related
to payment services provided before the year end.
======================== =============================================================
Key observations We concluded that fee income in relation to payment
services was recognised appropriately for the year
ended 31 December 2018.
======================== =============================================================
Expected Credit losses - Loss Given Default ->
=======================================================================================
Key audit matter As stated in note 16, the Group has a total loans
description and advances to customers balance of GBP129,678k (2017:
GBP32,835k) and an associated expected credit losses
("ECL") of GBP308k (2017: GBP126k), representing 0.2%
of the total loans and advances to customers balance
(2017: 0.4%).
As detailed in the summary of critical accounting
judgements and estimates, the estimation of expected
credit losses is inherently uncertain and requires
significant management judgement.
The key judgement in the assessment of expected credit
losses under IFRS 9 is the assessment of the loss
given default ("LGD") for loans originated by DFC,
being the estimation of sale proceeds for collateral
held against these loans. Therefore, we
have determined that there is a potential risk of
error in or manipulation of this balance.
======================== =============================================================
How the scope We evaluated the design and implementation of relevant
of our audit responded controls over the calculation of expected credit losses
to the key audit for loans originated by DFC in accordance with IFRS
matter 9.
For a sample of loans, we challenged management in
relation to the LGD assumption applied in the ECL
model by independently verifying the retail prices
of assets held as collateral and challenging the discount
applied to the valuation by management to reflect
a forced sale and selling costs.
======================== =============================================================
Key observations Overall, we concluded that the loan loss provision
balance as at 31 December 2018 is reasonable.
======================== =============================================================
Deferred Tax Asset Measurement ->
=======================================================================================
Key audit matter The Group has recognised a deferred tax asset of GBP5,579k
description (2017: GBP5,189k), as shown in note 1 and in note
11, relating solely to Oxygen.
The deferred tax asset is recognised in line with
IAS 12 which requires that deferred tax assets, in
the context of a history of recent losses, should
only be recognised to the extent that there is convincing
evidence of sufficient future taxable profits against
which the tax losses can be utilised.
There is considerable judgement in the assessment
of whether sufficient taxable profit will be available
in the future and, therefore, this is considered to
be a key audit matter.
======================== =============================================================
How the scope We evaluated the design and implementation of relevant
of our audit responded controls over the production, and subsequent review
to the key audit of, forecasts used to determine the recoverability
matter of the deferred tax asset.
We challenged management's forecasts by reviewing
the expected pipeline of clients that management had
included in their forecast, assessing the revenue
growth rate assumptions applied by management, reviewing
forecasting accuracy by comparing budgeted figures
to actual results and stress testing the model to
determine how sensitive the forecast was to adverse
movements to relevant inputs.
======================== =============================================================
Key observations We concluded that convincing evidence existed such
that the deferred tax asset recognised in the Consolidated
Statement of Financial Position is appropriate.
======================== =============================================================
Convertible Debt Valuation
=======================================================================================
Key audit matter During the year the Group provided funding to Playstack
description Limited ("Playstack") and Vertus Capital Limited ("Vertus")
in the form of convertible loans, with a recorded
balance of GBP7,150k as at 31 December 2018 (2017:
GBPnil). As detailed in note 1 and note 16, the instruments
are measured at fair value through profit/loss ("FVTPL")
under IFRS 9 and, due to the nature of the instruments,
the fair value considerations are highly complex and
involve a significant degree of judgement. As such,
we have identified the valuation of convertible debt
as a new key audit matter for the 2018 year end audit.
======================== =============================================================
How the scope We evaluated the design and implementation of relevant
of our audit responded controls over the valuation of the convertible, including
to the key audit management's review of the valuation model prepared
matter by their expert.
We challenged the valuation determined by management
by reviewing the competence, capabilities, and objectivity
of management's experts used in the valuation of the
balance, as well as testing the accuracy and completeness
of data inputs in the valuation methodology by reconciling
relevant terms to signed loan agreements.
======================== =============================================================
Key observations Having considered the available evidence, we concluded
that the valuation was reasonable.
======================== =============================================================
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Group financial statements Parents company financial
statements
====================== ============================== ==============================
Materiality GBP766,250 (2017: GBP454,000) GBP382,552 (2017: GBP227,000)
====================== ============================== ==============================
Basis for determining 0.5% of equity Parent company materiality
materiality equates to less than 0.5%
of shareholders equity of
the parent and is capped
at 50% of Group materiality.
====================== ============================== ==============================
Rationale for Financial performance to date is not a key metric
the benchmark as a result of the fact that this is an emerging growth
applied company. Accordingly, the capital structure of the
entity and focus of the users on balance sheet growth
has been identified as the appropriate benchmark balance.
====================== ==============================================================
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP38,312 (2017:
GBP22,700) for the Group and GBP34,400 (2017: GBP19,120) for the
parent company, as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
The group consists of TruFin Plc itself, the holding company
TruFin Holdings Ltd, and eight subsidiaries as detailed within note
1. In addition there is one associate, one joint venture, and one
financial investment.
Three of the subsidiaries are determined to be financially
significant to the group based on chosen benchmarks being in excess
of 15% of the group aggregated balance. These subsidiaries are:
-- Oxygen Finance Ltd;
-- Distribution Finance Capital Ltd; and
-- Satago Financial Solutions Ltd.
These subsidiaries have been subject to a full scope audit. All
other subsidiaries as well as the associate and joint venture have
been subject to analytical procedures at the Group level. Lastly,
the financial investment in Zopa Ltd has been subject to specified
audit procedures.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report including Chairman's Statement, Group Strategic Report, and
Report of the Directors, other than the financial statements and
our auditor's report thereon.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
We have nothing to report in respect of these matters.
Responsibilities of directors
As explained more fully in the statement of directors'
responsibilities, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the parent company's
ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Report on other legal and regulatory requirements
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies (Jersey) Law, 1991 we are required to report
to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- proper accounting records have not been kept by the parent
company, or proper returns adequate for our audit have not been
received from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Article 113A of the Companies (Jersey) Law,
1991. Our audit work has been undertaken so that we might state to
the company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Alastair Morley
For and on behalf of Deloitte LLP London, UK
17 April 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Notes 2018 2017
GBP'000 GBP'000
=========================================== ======= ======================== =========
Interest income 3 6,295 1,136
Fee income 3 3,249 2,638
Interest and fee expenses (2,302) (121)
------------------------ ---------
Net interest and fee income 7,242 3,653
======================== =========
Staff costs 5 (16,095) (8,188)
Other operating expenses (6,116) (4,251)
Depreciation & amortisation (283) (146)
Net impairment loss on financial assets 9 (248) (158)
------------------------ ---------
Operating loss before share of loss
from joint venture (15,500) (9,090)
------------------------ ---------
Share of loss of joint venture accounted
for using the equity method - (582)
Operating loss (15,500) (9,672)
Exceptional expenses 8 - (330)
------------------------ ---------
Loss before tax (15,500) (10,002)
======================== =========
Taxation 11 390 867
------------------------ ---------
Loss after tax (15,110) (9,135)
======================== =========
Other comprehensive income
Items that will not be reclassified subsequently
to profit and loss
Gains on investments in equity instruments 15 8,000 2,600
------------------------ ---------
8,000 2,600
---------
Items that may be reclassified subsequently
to profit and loss
Exchange differences on translating
foreign operations 275 (357)
275 (357)
======================== =========
Other comprehensive income for the
year, net of tax 8,275 2,243
======================== =========
Total comprehensive loss for the year (6,835) (6,892)
======================== =========
Loss after tax attributable to:
Owners of TruFin plc (14,688) (8,103)
Non-controlling interests (422) (1,032)
------------------------ ---------
(15,110) (9,135)
======================== =========
Total comprehensive loss for the year
attributable to:
Owners of TruFin plc (6,413) (5,860)
Non-controlling interests (422) (1,032)
------------------------ ---------
(6,835) (6,892)
======================== =========
The activities of the Group relate entirely to continuing
operations. The notes on pages 36 to 84 are an integral part of
these financial statements.
Earnings per Share
2018 2017
Notes pence pence
---------------------- ------- ------- -------
Basic and Diluted EPS 26 (15.8) (12.4)
Adjusted EPS 26 (12.9) (12.4)
Adjusted EPS (2) 26 (4.3) (8.4)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes 2018 2017
GBP'000 GBP'000
==================================== ======= ========================= =========
Assets
Non-current assets
Intangible assets 12 6,038 649
Property, plant and equipment 13 303 131
Deferred tax asset 11 5,579 5,189
------------------------- ---------
Total non-current assets 11,920 5,969
========================= =========
Current assets
Cash and cash equivalents 24,888 26,049
Loan and advances to customers 16 129,221 32,709
Other investments 15 49,494 36,500
Assets classified as Held for Sale 17 266 -
Trade receivables 18 417 487
Other receivables 18 3,202 1,821
------------------------- ---------
Total current assets 207,488 97,566
========================= =========
Total assets 219,408 103,535
========================= =========
Equity and liabilities
Equity
Issued share capital 19 185,000 123,966
Retained earnings 15,375 (4,962)
Foreign exchange reserve (121) (396)
Other reserves (50,261) (26,919)
------------------------- ---------
Equity attributable to owners of
the company 149,993 91,689
------------------------- ---------
Non-controlling interest 23 3,255 (293)
------------------------- ---------
Total equity 153,248 91,396
========================= =========
Liabilities
Non-current liabilities
Borrowings 20 - 9,000
------------------------- ---------
Total non-current liabilities - 9,000
========================= =========
Current liabilities
Borrowings 20 59,041 35
Trade and other payables 21 6,066 2,805
Provision for commitments and other
liabilities 7 1,053 299
------------------------- ---------
Total current liabilities 66,160 3,139
========================= =========
Total liabilities 66,160 12,139
========================= =========
Total equity and liabilities 219,408 103,535
========================= =========
The notes on pages 36 to 84 are an integral part of these
financial statements.
The financial statements were approved by the Board of Directors
and authorised for issue on 17 April 2019. They were signed on its
behalf by:
Henry Kenner
Chairman and Chief Executive Officer
COMPANY STATEMENT OF COMPREHENSIVE INCOME
Notes 2018 2017
GBP'000 GBP'000
============================== ======= ========================= =========
Assets
Non-current assets
Property, plant and equipment 13 2 -
Investments in subsidiaries 123,966 123,966
------------------------- ---------
Total non-current assets 123,968 123,966
========================= =========
Current assets
Cash and cash equivalents 8,448 -
Trade and other receivables 18 56,652 81
------------------------- ---------
Total current assets 65,100 81
========================= =========
Total assets 189,068 124,047
========================= =========
Equity and liabilities
Equity
Issued share capital 19 185,000 123,966
Retained earnings (6,033) (720)
Other reserves 8,966 -
------------------------- ---------
Total equity 187,933 123,246
========================= =========
Liabilities
Current liabilities
Trade and other payables 21 1,135 801
------------------------- ---------
Total current liabilities 1,135 801
========================= =========
Total liabilities 1,135 801
========================= =========
Total equity and liabilities 189,068 124,047
========================= =========
The Company reported a loss for the year to 31 December 2018 of
GBP4,391,000 (2017: GBP720,000).
The notes on pages 36 to 84 are an integral part of these
financial statements.
The financial statements were approved by the Board of Directors
and authorised for issue on 17 April 2019. They were signed on its
behalf by:
Henry Kenner
Chairman and Chief Executive Officer
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Foreign Non-
Share Share Retained exchange Other controlling Total
capital premium earnings reserve reserves Total interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January
2018 123,966 - (4,962) (396) (26,919) 91,689 (293) 91,396
Loss for the year - - (14,688) - - (14,688) (422) (15,110)
Other
comprehensive
income for the
year - - 8,000 275 - 8,275 - 8,275
-------- -------- --------- --------- --------- -------- ------------ --------
Total
comprehensive
loss for the
year - - (6,688) 275 - (6,413) (422) (6,835)
-------- -------- --------- --------- --------- -------- ------------ --------
New issue of
shares 70,000 - (3,661) - - 66,339 - 66,339
Share
cancellation (8,966) - - - 8,966 - - -
Share based
payment - - 2,739 - - 2,739 - 2,739
Reduction of
Capital - - 28,752 - (28,752) - 1,819 1,819
NCI Share Premium - - - - - - 1,482 1,482
Adjustment
arising
from change in
NCI - - (805) - (3,556) (4,361) 669 (3,692)
-------- -------- --------- --------- --------- -------- ------------ --------
Balance at 31
December 2018 185,000 - 15,375 (121) (50,261) 149,993 3,255 153,248
======== ======== ========= ========= ========= ======== ============ ========
Balance at 1
January
2017 2,202 31,249 541 (39) - 33,953 547 34,500
Loss for the year - - (8,103) - - (8,103) (1,032) (9,135)
Other
comprehensive
income for the
year - - 2,600 (357) - 2,243 - 2,243
-------- -------- --------- --------- --------- -------- ------------ --------
Total
comprehensive
loss for the
year - - (5,503) (357) - (5,503) (1,032) (6,892)
======== --------- --------- --------- -------- ------------ --------
Capital
contribution
in relation to
the issue of
preference
shares - - - - - - 192 192
New issue of
shares 123,966 - - - - 123,966 - 123,966
Arising on
consolidation (2,202) (31,249) - - (26,919) (60,370) - (60,370)
-------- -------- --------- --------- --------- -------- ------------ --------
Balance at 31
December 2017 123,966 - (4,962) (396) (26,919) 91,689 (293) 91,396
======== ======== ========= ========= ========= ======== ============ ========
The notes on pages 36 to 84 are an integral part of these
financial statements.
Share capital
Share capital represents the nominal value of equity share
capital issued.
Share premium
The share premium account is used to record the aggregate amount
or value of premiums paid when the company's shares are issued at a
premium, net of associated share issue costs.
Retained earnings
The retained earnings reserve represents cumulative net gains
and losses.
Foreign exchange reserve
The foreign exchange reserve represents exchange differences
which arise on consolidation from the translation of the financial
statements of foreign subsidiaries.
Other reserves
Other reserves consist of the merger reserve and the share
revaluation reserve.
The merger reserve arises as a result of combining businesses
that are under common control. As at 31 December 2018 it was a
debit balance of GBP59,227,000 (2017: GBP26,919,000).
The share revaluation reserve arose from the share cancellation
that took place in February 2018. As at 31 December its balance was
GBP8,966,000 (2017: GBPnil).
Non-Controlling Interest
The non-controlling interest relates to the minority interest
held in DFC.
COMPANY STATEMENT OF CHANGES IN EQUITY
Share capital Retained earnings Other reserves Total equity
GBP'000 GBP'000 GBP'000 GBP'000
========================= =============== =================== ================ ==============
Balance at 1 January
2018 123,966 (720) - 123,246
Total comprehensive loss
for the year - (4,391) - (4,391)
New issue of shares 70,000 (3,661) - 66,339
Share cancellation (8,966) - 8,966 -
Share options issued - 2,739 - 2,739
--------------- ------------------- ---------------- --------------
Balance at 31 December
2018 185,000 (6,033) 8,966 187,933
=============== =================== ================ ==============
Balance at 29 November - - - -
2017
Total comprehensive loss
for the period - (720) - (720)
Shares issued during
the period 123,966 - - 123,966
--------------- ------------------- ---------------- --------------
Balance at 31 December
2017 123,966 (720) - 123,246
=============== =================== ================ ==============
The Company was incorporated on 29 November 2017.
The notes on pages 36 to 84 are an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
2018 2017
GBP'000 GBP'000
========================================== ======================== ============
Cash flows from operating activities
Loss before income tax (15,500) (10,002)
Adjustments for
Depreciation of property, plant and
equipment 109 43
Amortisation of intangible fixed
assets 225 156
Share based payments 2,739 -
Finance costs - 27
Share in joint venture - 582
------------------------ ------------
Working capital adjustments (12,427) (9,194)
Loans to customers (270,457) (62,512)
Loans repaid by customers 173,945 30,673
Increase in trade and other receivables (1,311) (1,214)
Increase in trade and other payables 3,318 1,979
Net payables on acquisition of subsidiary (325) -
Additions to assets held for sale (266) -
(95,096) (31,074)
Tax paid (36) -
------------------------ ------------
Net cash used in operating activities (107,559) (40,268)
======================== ============
Cash flows from investing activities:
Additions to intangible assets (2,855) (805)
Additions to property, plant and
equipment (275) (107)
Net increase in debt securities (4,993) -
Acquisition of subsidiary (2,014) -
Cash from acquisition of subsidiaries 382 -
Net cash used in investing activities (9,755) (912)
Cash flows from financing activities:
Issue of ordinary share capital 70,000 2,000
Issue of preference share capital - 3,500
Share issue costs (3,661) -
Net borrowings from Group undertakings - 46,000
New borrowings 49,926 9,000
Net interest received - 38
------------------------ ------------
Net cash generated from financing
activities 116,265 60,538
------------------------ ------------
Net (decrease)/increase in cash and
cash equivalents (1,049) 19,358
------------------------ ------------
Cash and cash equivalents at beginning
of the year 26,049 6,690
Effect of foreign exchange rate changes (112) 1
------------------------ ------------
Cash and cash equivalents at end
of the year 24,888 26,049
======================== ============
The notes on pages 36 to 84 are an integral part of these
financial statements
All cash and cash equivalents are cash at bank.
COMPANY STATEMENT OF CASH FLOWS
2018 2017
GBP'000 GBP'000
================================================= ======================== =========
Cash flows from operating activities
Loss before income tax (4,391) (720)
Adjustments for:
Depreciation of property, plant and equipment 1 -
Share based payments 2,739 -
------------------------ ---------
Working capital adjustments (1,651) (720)
Increase in trade and other receivables (3,407) (81)
Increase in trade and other payables 334 801
------------------------ ---------
(3,073) 720
------------------------ ---------
Net cash used in operating activities (4,724) -
======================== =========
Cash flows from investing activities
Increase in intragroup loans (53,164) -
Additions to property, plant and equipment (3) -
------------------------ ---------
Net cash used in investing activities (53,167) -
Cash flows from financing activities
Issue of ordinary share capital 70,000 -
Share issue costs (3,661) -
------------------------ ---------
Net cash generated from financing activities 66,339 -
Net increase in cash and cash equivalents 8,448 -
------------------------ ---------
Cash and cash equivalents at beginning of the - -
year
------------------------ ---------
Cash and cash equivalents at end of the year 8,448 -
======================== =========
The notes on pages 36 to 84 are an integral part of these
financial statements.
All cash and cash equivalents are cash at bank.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Statutory information
TruFin plc is a Company registered in Jersey and incorporated
under Companies (Jersey) Law 1991. The Company's ordinary shares
were listed on the Alternative Investment Market of the London
Stock Exchange. The address of the registered office is 26 New
Street, St Helier, Jersey, JE2 3RA.
The Company was listed on 21 February 2018 and issued 36,842,106
Capital Raising Shares at a price of 190p per share to raise a
total of GBP70 million (GBP66 million net of expenses).
1. Accounting policies
General information
The TruFin Group (the "Group") is the consolidation of TruFin
plc, TruFin Holdings Limited, Oxygen Finance Group Limited, Oxygen
Finance Limited, Oxygen Finance Americas Inc., Porge Limited,
TruFin Software Limited, Satago Financial Solutions Limited,
Distribution Finance Capital Limited, AltLending (UK) Limited, (as
set out in "Basis of consolidation" below).
Additionally, the Company held:
-- a 50% interest in a joint venture - Clear Funding Limited
("Clear Funding"), which has been winding down its operations since
July 2018 and will be struck off in April 2019 and as such, the
investment in the joint venture has been written down to nil at the
balance sheet date;
-- a 40% interest in an associate, PlayIgnite Ltd, which is not material to the Group;
-- a minority interest investment in Zopa Group Limited.
The principal activities of the Group are the provision of niche
lending and early payment services.
The financial statements are presented in Pounds Sterling, which
is the currency of the primary economic environment in which the
Group operates. Amounts are rounded to the nearest thousand.
Basis of accounting
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union ("IFRS").
Prior to 29 November 2017 and before the incorporation of TruFin
plc and TruFin Holdings, the entities named above were under common
control and therefore, have been accounted for as a common control
transaction - that is a business combination in which all the
combining entities or businesses are ultimately controlled by the
same company both before and after the combination. IFRS 3 provides
no specific guidance on accounting for entities under common
control and therefore other relevant standards have been
considered. These standards refer to pooling of assets and merger
accounting and this is the methodology that has been used to
consolidate the Group.
After 29 December 2017, post the reorganisation, the entities
constitute a legal group and accordingly the consolidated financial
statements have been prepared by applying relevant principles
underlying the consolidation procedures of IFRS.
Basis of preparation
The results of the Group companies have been included in the
consolidated statement of comprehensive income. Where necessary,
adjustments have been made to the underlying financial information
of the companies to bring the accounting policies used into line
with those used by the Group. All intra-group transactions,
balances, income and expenses are eliminated on consolidation.
The consolidated financial statements contained in this document
consolidates the statements of total comprehensive income,
statements of financial position, cash flow statements, statements
of changes in equity and related notes for each of the companies
listed in the "Basis of consolidation" below, which have been
prepared in accordance with IFRS.
Non-controlling interests, presented as part of equity,
represent the portion of a subsidiary's profit or loss and net
assets that is not held by the Group. The Group attributes total
comprehensive income or loss of subsidiaries between the owners of
the parent and the non-controlling interests based on their
respective ownership interests.
Basis of consolidation
The consolidated financial statements include all of the
companies controlled by the Group, which are as follows:-
Country Nature of % voting rights
Entities of Registered address the business and shares
incorporation held
=============================== =============== ===================== ======================= ==================
TruFin Holdings Limited Jersey 26 New Street, Holding Company 100% of ordinary
("THL") St Helier, Jersey shares
JE2 3RA
=============================== =============== ===================== ======================= ==================
Satago Financial Solutions UK 4 Bentinck Street, Provision 100% of ordinary
Limited ("SFSL") London, United of short term shares
Kingdom, W1U 2EF finance
=============================== =============== ===================== ======================= ==================
Distribution Finance UK 12 Groveland Court, Provision 94% of ordinary
Capital Ltd ("DFC") London, United of short term shares
Kingdom, EC4M 9EH finance
=============================== =============== ===================== ======================= ==================
Oxygen Finance Group UK Cathedral Place, Holding Company 100% of ordinary
Limited ("OFGL") (together 42-44 Waterloo shares
with OFL and OFAI) ("Oxygen") Street, Birmingham,
United Kingdom,
B2 5QB
=============================== =============== ===================== ======================= ==================
Oxygen Finance Limited UK Cathedral Place, Provision 100% of ordinary
("OFL") 42-44 Waterloo of early payment shares
Street, Birmingham, services
United Kingdom,
B2 5QB
=============================== =============== ===================== ======================= ==================
Oxygen Finance Americas, USA Corporation Trust Provision 99.99% of
Inc ("OFAI") Center, 1209 Orange of early payment ordinary shares
Street, City of services
Wilmington, County
of New Castle,
Delaware 19801,
USA
=============================== =============== ===================== ======================= ==================
Porge Ltd ("Porge") UK Cathedral Place, Provision 100% of ordinary
- acquired on 3 August 42-44 Waterloo of market shares
2018 Street, Birmingham, research information.
United Kingdom,
B2 5QB
=============================== =============== ===================== ======================= ==================
TruFin Software Limited UK 4 Bentinck Street, Provision 100% of ordinary
("TSL") (previously London, United of technology shares
Satago Solutions Limited) Kingdom, W1U 2EF services
=============================== =============== ===================== ======================= ==================
AltLending UK Limited UK 4 Bentinck Street, Provision 100% of ordinary
("AltLending") London, United of short term shares
Kingdom, W1U 2EF finance
=============================== =============== ===================== ======================= ==================
The consolidated financial information also includes three
further investments, as follows:
-- a 50% interest in a joint venture, Clear Funding Limited
("Clear Funding"), which is accounted for using the equity
method,
-- a 40% interest in an associate, PlayIgnite Ltd
("PlayIgnite"), which is accounted for using the equity method
and
-- an undiluted economic interest of 13.3% in Zopa Group Limited
("Zopa") (12.5% fully diluted), as at 31 December 2018, which is
measured at fair value with changes in value recognised through
other comprehensive income.
All three investments are incorporated in the UK.
Principal accounting policies
The principal accounting policies adopted in the preparation of
the financial statements are set out below. These policies have
been applied consistently to all the financial periods
presented.
The consolidated financial statements have been prepared in
accordance with European Union Endorsed International Financial
Reporting Standards (IFRSs) and the IFRS Interpretations Committee
(formerly the International Financial Reporting Interpretations
Committee (IFRIC)) interpretations. These statements have been
prepared on a going concern basis and under the historical cost
convention except for the treatment of certain financial
instruments.
Going concern
The Group's forecasts and projections, taking into account
reasonable possible changes in trading performance, show that the
Group should be able to operate in the foreseeable future. As a
consequence, the Directors have a reasonable expectation that the
Group will have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, the Directors
have adopted the going concern basis in preparing these financial
statements.
Revenue recognition
Net interest and fee income
Interest income and expense
Interest income and expense for all financial instruments except
for those classified as held for trading or measured or designated
as at Fair Value Through Profit and Loss ("FVTPL") are recognised
in "Net interest and fee income" as "Interest income" and "Interest
and fee expenses" in the profit or loss account using the effective
interest method.
The Effective Interest Rate ("EIR") is the rate that exactly
discounts estimated future cash flows of the financial instrument
through the expected life of the financial instrument or, where
appropriate, a shorter period, to the net carrying amount of the
financial asset or financial liability. The future cash flows are
estimated taking into account all the contractual terms of the
instrument.
The calculation of the EIR includes all fees and points paid or
received between parties to the contract that are incremental and
directly attributable to the specific lending arrangement,
transaction costs and all other premiums or discounts.
The interest income/expense is calculated by applying the EIR to
the gross carrying amount of non-credit impaired financial assets
(that is, to the amortised cost of the financial asset before
adjusting for any expected credit loss allowance), or to the
amortised cost of financial liabilities.
For credit-impaired financial assets, as defined in the
financial instruments accounting policy, the interest income is
calculated by applying the EIR to the amortised cost of the
credit-impaired financial assets, that is, to the gross carrying
amount less the allowance for Expected Credit Losses ("ECLs").
Fee income
Fee income for the Group is earned from payments services fees
provided by Oxygen and facility fees provided by DFC.
Payment services provided by Oxygen and DFC comprises the
following elements:
Early Payment Programme Services ("EPPS") contracts
Oxygen's Early Payment Programme Services generate rebates (i.e.
discounts on invoice value) for its clients by facilitating the
early payment of supplier invoices. Oxygen's single performance
obligation is to make its intellectual property and software
platform available to its clients for the duration of their
contracts.
Oxygen bills its clients monthly for a contractually agreed
share of supplier rebates generated by their respective Early
Payment Programmes during the previous month. This revenue is
recognised in the month the rebates are generated.
Assessment Fees
Assessment fees include Oxygen consultants reviewing the
client's internal processes and technology and analysing the
financial business case for setting up an Early Payment Programme.
The assessment is a self- contained consultancy project which is
not contingent on any future Early Payment Programme being entered
into by the client and accordingly Oxygen's single performance
obligation is to deliver a report that summarises the assessment
findings. Revenue from assessment fees is deferred and is accrued
over the period of the assessment.
Implementation Fees
Implementation fees are charged to some clients to cover
Oxygen's costs in establishing a client's technological access to
the Early Payment Programme Services and in otherwise readying a
client to benefit from the Services. Establishing access to the
company's intellectual property and software platform does not
amount to a distinct service as the client cannot benefit from the
initial access except by the company continuing to provide access
for the contract period. Where an implementation fee is charged, it
is therefore a component of the aggregate transaction price of the
Early Payment Programme Services. Accordingly, such revenue is
initially deferred and then recognised in the statement of
comprehensive income over the life of the related Early Payment
Programme Services contract.
Consultancy Fees
Oxygen provides stand-alone advisory services to clients.
Revenue is accrued as the underlying services are provided to the
client.
Facility Fees
Facility fees are fees charged by DFC to customers. These fees
do not meet the criteria for inclusion within interest income under
the EIR method as they are not deemed to be integral to the EIR.
The company satisfies its performance obligations as the services
are rendered. These fees are billed in arrears of the period they
relate to.
Subscription Fees
Subscription fees are fees that are typically annual fees for
the access to Porge's market insight and research database.
Subscriptions are received in advance and recognised over the
length of the contract as access to the database is provided.
Fee Expenses
Fee expenses are directly attributable costs, associated with
the Oxygen's Early Payment Programme Services. The expenses include
amortisation arising from capitalised contract costs incurred
directly through activities which generate fee income. Amortisation
arising from other intangible assets is recognised in depreciation
and amortisation of non-financial assets before operating
profit/loss.
Other income from financial instruments
Dividends from equity investments measured at Fair Value Through
Other Comprehensive Income ("FVTOCI") are recognised in profit and
loss when the Group becomes entitled to them.
For financial instruments that are classified as FVTPL, any
interest or fee income is included in the profit and loss account
within the fair value gain or loss.
Debt securities are measured at fair value through other
comprehensive income. The securities are measured at their closing
bid prices at the reporting date with any unrealised gain or loss
recognised through other comprehensive income. Once the assets have
been derecognised, the corresponding gain or loss is reclassified
to the income statement.
The Group presently holds no financial instruments for trading
or hedging purposes, nor has it designated any other items as
FVTPL.
Operating profit/loss
Operating profit/loss is net interest and fee income less staff
costs, depreciation and amortisation, impairment loss on financial
assets and other operating expenses.
Foreign currencies
The results and financial position of each group company are
expressed in Pounds Sterling, which is the functional currency of
the UK based members of the Group and the presentation currency for
the consolidated financial statements.
Transactions in foreign currencies are translated to the Group
companies' functional currency at the foreign exchange rate ruling
at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are
retranslated to the functional currency at the foreign exchange
rate ruling at that date. Non-monetary assets and liabilities that
are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction.
Foreign exchange differences arising on translation are recognised
in the consolidated statement of comprehensive income.
Property, plant and equipment
All property, plant and equipment is stated at historical cost
(or deemed historical cost) less accumulated depreciation and less
any identified impairment. Cost includes the original purchase
price of the asset and the costs attributable to bringing the asset
to its working condition for its intended use.
Depreciation is provided on all property, plant and equipment at
rates calculated to write each asset down to its estimated residual
value on a straight line basis at the following annual rates:
Leasehold improvements - 5 years
Office equipment - 3 years
Computer equipment - 3 -5 years
Useful economic lives and estimated residual values are reviewed
annually and adjusted as appropriate.
Intangible and contract assets
Identifiable intangible assets are recognised when the Group
controls the asset, it is probable that future economic benefits
attributed to the asset will flow to the Group and the cost of the
asset can be reliably measured.
Intangible assets with finite lives are stated at acquisition or
development cost less accumulated amortisation and less any
identified impairment. The amortisation period and method is
reviewed at least annually. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits
embodied in the asset are accounted for by changing the
amortisation period or method, as appropriate and are treated as
changes in accounting estimates.
Computer Software
Computer software which has been purchased by the Group from
third party vendors is measured at initial cost less accumulated
amortisation and less accumulated impairments.
Computer software also comprises internally developed platforms
and the costs directly associated with the production of these
identifiable and unique software products controlled by the Group.
They are probable of producing future economic benefits. They
primarily include employee costs and directly attributable
overheads.
Internally generated intangible assets are only recognised by
the Group when the recognition criteria have been met in accordance
with IAS 38: Intangible Assets as follows:
-- expenditure can be reliably measured;
-- the product or process is technically and commercially feasible;
-- future economic benefits are likely to be received;
-- intention and ability to complete the development; and
-- view to either use or sell the asset in the future.
The Group will only recognise an internally-generated asset
should it meet all the above criteria. In the event of a
development not meeting the criteria it will be recognised within
the statement of profit or loss in the period incurred.
Capitalised costs include all directly attributable costs to the
development of the asset. Internally generated assets are measured
at capitalised cost less accumulated amortisation less accumulated
impairment losses. The internally generated asset is amortised at
the point the asset is available for use or sale. The asset is
amortised on a straight-line basis over the useful economic life
with the remaining useful economic life and residual value being
assessed annually.
Any subsequent expenditure on the internally generated asset is
only capitalised if the cost increases the future economic benefits
of the related asset. Otherwise all additional expenditure should
be recognised through the statement of profit or loss in the period
it occurs.
Contract Assets
Contract assets comprise the directly attributable costs
incurred at the beginning of an Early Payment Scheme Service
contract to revise a client's existing payment systems and provide
access to the Group's software and other intellectual property.
These implementation (or "set up") costs are comprised primarily of
employee costs.
Amortisation is charged to the statement of comprehensive income
over the estimated useful lives of intangible assets from the date
they are available for use, on a straight-line basis. The
amortisation basis adopted for each class of intangible asset
reflects the Group's consumption of the economic benefit from that
asset.
Estimated useful lives
The estimated useful lives of finite intangible assets are as
follows:
Computer software - 3 -5 years
Contract assets - Life of underlying contract (typically
5 years)
Computer equipment - 3 -5 years
Goodwill
Goodwill arising on acquisition represents the excess cost of a
business combination over the fair values of the Group's share of
the identifiable assets and liabilities at the date of the
acquisition. When part of the consideration transferred by the
Group is deferred or contingent, this is valued at its acquisition
date fair value, and is included in the consideration transferred
in a business combination. Changes in the deferred or contingent
consideration, which occur in the measurement period, are adjusted
retrospectively, with corresponding adjustments to goodwill.
Goodwill is not amortised but is reviewed at least annually for
impairment. For the purpose of impairment testing, goodwill is
allocated to each Cash Generating Unit ("CGU"). Each CGU is
consistent with the Group's primary reporting segment. Any
impairment is recognised immediately through the income statement
and is not subsequently reversed.
On disposal of a subsidiary, the attributable amount of goodwill
is included in the determination of profit or loss on disposal.
Assets classified as held for sale
Whilst assessing whether any assets should be classified as held
for sale, the management of the Group ensure that the status of the
asset satisfies all of the following criteria as set out within
IFRS 5:
-- The carrying amount of the asset will be recovered
principally through a sale transaction rather than through
continuing use;
-- the asset is available for immediate sale in its present
condition subject only to terms that are usual and customary for
sales of such assets;
-- its sale must be highly probable and within one year from the date of classification;
-- management must be committed to a plan to sell the asset; and
-- the asset is being actively marketed for sale at a sales
price reasonable in relation to its fair value.
In the event an asset satisfies the criteria, prior to
reclassification the asset should be valued in accordance with IFRS
accounting standards applicable to the asset in question.
At initial recognition the asset is measured at the lower of
carrying amount and fair value less costs to sell. Any unrealised
gains or losses are recognised in the profit and loss account.
Financial instruments
Initial recognition
Financial assets and financial liabilities are recognised in the
Group's statement of financial position when the Group becomes a
party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially
measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of the financial assets
and financial liabilities (other than financial assets and
financial liabilities at FVTPL) are respectively added to or
deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction
costs that are directly attributable to the acquisition of
financial assets and financial liabilities at FVTPL are recognised
immediately in profit or loss.
Financial assets
Classification and reclassification of financial assets
Recognised financial assets within the scope of IFRS 9 are
required to be classified as subsequently measured at amortised
cost, FVTOCI or FVTPL on the basis of both the Group's business
model for managing the financial assets and the contractual cash
flow characteristics of the financial assets.
Financial assets are reclassified if and only if, the business
model under which they are held is changed. There has been no such
change in the allocation of assets to business models in the
periods under review.
Loans and advances to customers
Other than convertible debt instruments, loans and advances to
customers are held within a business model whose objective is to
hold those financial assets in order to collect contractual cash
flows. The contractual terms of the loan agreements give rise on
specified dates to cash flows that are solely payments of principal
and interest or fees on the principal amount outstanding.
After initial measurement, loans and advance to customers are
subsequently measured at amortised cost using the Effective
Interest Rate method (EIR) less impairment. Amortised cost is
calculated by taking into account any fees or costs that are an
integral part of the EIR. The EIR amortisation is included in
interest and similar income in the statement of comprehensive
income. The losses arising from impairment are recognised in the
statement of comprehensive income and disclosed with any other
similar losses within the line item "Net impairment losses on
financial assets".
Where cash flows are significantly different from the original
expectations used to determine EIR, but where this difference does
not arise from a modification of the terms of the financial
instrument, the Group revises its estimates of receipts and adjusts
the gross carrying amount of the financial asset to reflect actual
and revised estimated contractual cash flows. The Group
recalculates the gross carrying amount of the financial asset as
the present value of the estimated future contractual cash flows
discounted at the financial instrument's original EIR. The
adjustment is recognised in statement of comprehensive income as
income or expense.
Convertible debt instruments
Convertible debt instruments, included within loans and advances
to customers, are held by the Group and are measured at Fair Value
through Profit and Loss as they fail the contractual cash flow
characteristics test required by IFRS 9 for classification under
amortised cost. Movements in the fair value of these assets are
recognised in the profit and loss account.
Trade and other receivables
Trade receivables do not contain any significant financing
component and accordingly are recognised initially at transaction
price, and subsequently measured at cost less expected credit
losses.
Investments in equity shares
The Group's investment in the equity shares of Zopa is not held
for trading. The Group has made an irrevocable election to classify
and subsequently measure the investment at FVTOCI. Movements in the
fair value of the investment are recognised in the statement of
other comprehensive income and are not reclassified to profit on
loss on derecognition.
Investments in subsidiaries
Investments in subsidiaries are accounted for at cost less
impairment in the Company's financial statements.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and demand
deposits and short term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
Impairment
The Group (and Company) recognises loss allowances for Expected
Credit Losses ("ECLs") on the following financial instruments that
are not measured at FVTPL:
-- Loans and advances to customers
-- Other receivables
-- Trade receivables and
-- Loan commitments
-- Intercompany receivables
With the exception of Purchased or Originated Credit Impaired
("POCI") financial assets (which are considered separately below),
ECLs are measured through loss allowances calculated on the
following bases:
ECLs are a probability-weighted estimate of the present value of
credit losses. These are measured as the present value of the
difference between the cash flows due to the Group under the
contract and the cash flows that the Group expects to receive
arising from the weighting of future economic scenarios, discounted
at the asset's EIR within the current performing book.
The Group measures ECL on an individual basis, or on a
collective basis for portfolios of loans that share similar credit
risk characteristics. The loss allowance is measured as the present
value of the difference between the contractual cash flows and cash
flows that the Group expects to receive using the asset's original
EIR, regardless of whether it is measured on an individual basis or
a collective basis.
A financial asset that gives rise to credit risk, is referred to
(and analysed in the notes to this financial information) as being
in "Stage 1" provided that since initial recognition (or since the
previous reporting date) there has not been a significant increase
in credit risk, nor has it has become credit impaired.
For a Stage 1 asset, the loss allowance is the "12-month ECL",
that is, the ECL that results from those default events on the
financial instrument that are possible within 12 months from the
reporting date.
A financial asset that gives rise to credit risk is referred to
(and analysed in the notes to this financial information) as being
in "Stage 2" if since initial recognition there has been a
significant increase in credit risk but it is not credit
impaired.
For a Stage 2 asset, the loss allowance is the "lifetime ECL",
that is, the ECL that results from all possible default events over
the life of the financial instrument.
A financial asset that gives rise to credit risk is referred to
(and analysed in the notes to this financial information) as being
in "Stage 3" if since initial recognition it has become credit
impaired.
For a Stage 3 asset, the loss allowance is the difference
between the asset's gross carrying amount and the present value of
estimated future cash flows discounted at the financial asset's
original EIR. Further, the recognition of interest income is
calculated on the carrying amount net of impairment rather than the
gross carrying amount as for stage 1 and stage 2 assets.
If circumstances change sufficiently at subsequent reporting
dates, an asset is referred to by its newly appropriate Stage and
is re-analysed in the notes to the financial information.
Where an asset is expected to mature in 12 months or less, the
"12 month ECL" and the "lifetime ECL" have the same effective
meaning and accordingly for such assets the calculated loss
allowance will be the same whether such an asset is at Stage 1 or
Stage 2. However, the Group monitors significant increase in credit
risk for all assets so that it can accurately disclose Stage 1 and
Stage 2 assets at each reporting date.
Lifetime ECLs are recognised for all trade receivables using the
simplified approach.
Significant increase in credit risk - policies and procedures
for identifying Stage 2 assets
The Group compares the risk of a default occurring on the
financial instrument as at the reporting date with the risk of a
default occurring on the financial instrument as at the date of
initial recognition in order to determine whether credit risk has
increased significantly.
See note 22 for further details about how the Group assesses
increases in significant credit risk.
Definition of a default
Critical to the determination of significant increases in credit
risk (and to the determination of ECLs) is the definition of
default. Default is a component of the Probability of Default
("PD"), changes in which lead to the identification of a
significant increase in credit risk and PD is then a factor in the
measurement of ECLs.
The Group's definition of default for this purpose is:
-- A counterparty defaults on a payment due under a loan
agreement and that payment is more than 90 days overdue, or
-- Within the core invoice finance proposition, where one or
more individual finance repayments are beyond 90 days overdue,
management judgement is applied in considering default status of
the client.
-- The collateral that secures, all or in part, the loan
agreement has been sold or is otherwise not available for sale and
the proceeds have not been paid to the lending company; or
-- A counterparty commits an event of default under the terms
and conditions of the loan agreement which leads the lending
company to believe that the borrower's ability to meet its credit
obligations to the lending company is in doubt.
The definition of default is similarly critical in the
determination of whether an asset is credit-impaired (as explained
below).
Credit-impaired financial assets - policies and procedures for
identifying Stage 3 assets
A financial asset is credit-impaired when one or more events
that have a detrimental impact on the estimated future cash flows
of the financial asset have occurred. IFRS 9 states that evidence
of credit-impairment includes observable data about the following
events:
-- Significant financial difficulty of the borrower or issuer;
-- A breach of contract such as a default (as defined above) or past due event, or
-- The Group, for economic or contractual reasons relating to
the borrower's financial difficulty, having granted to the borrower
a concession that the Group would not otherwise consider.
The Group assesses whether debt instruments that are financial
assets measured at amortised cost or at FVTOCI are credit-impaired
at each reporting date. When assessing whether there is evidence of
credit- impairment, the Group takes into account both qualitative
and quantitative indicators relating to both the borrower and to
the asset. The information assessed depends on the borrower and the
type of the asset. It may not be possible to identify a single
discrete event - instead, the combined effect of several events may
have caused financial assets to become credit-impaired.
See note 22 for further details about how the Group identifies
credit-impaired assets.
Purchased or originated credit-impaired ("POCI") financial
assets
POCI financial assets are treated differently because they are
in Stage 3 from the point of original recognition. It is not in the
nature of the Group's business to purchase financial assets
originated by other lenders, nor has the Group to date originated
any loans or advances to borrowers that it would define as credit
impaired.
Presentation of allowance for ECL in the statement of financial
position
Loss allowances for ECL are presented in the statement of
financial position as follows:
-- For financial assets measured at amortised cost: as a
deduction from the gross carrying amount of the assets;
-- For loan commitments: as a provision; and
-- For debt instruments measured at FVTOCI: no loss allowance is
recognised in the statement of financial position as the carrying
amount is at fair value. However, the loss allowance is included as
part of the revaluation amount in the investment revaluation
reserve.
Modification of financial assets
A modification of a financial asset occurs when the contractual
terms governing a financial asset are renegotiated without the
original contract being replaced and derecognised and:
-- The gross carrying amount of the asset is recalculated and a
modification gain or loss is recognised in profit or loss;
-- Any fees charged are added to the asset and amortised over
the new expected life of the asset; and
-- The asset is individually assessed to determine whether there
has been a significant increase in credit risk.
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
de-recognised when the rights to receive cash flows from the asset
have expired. The Group also de-recognises the assets if it has
both transferred the asset and the transfer qualifies for
de-recognition.
A transfer only qualifies for de-recognition if either
-- The Group has transferred substantially all the risks and rewards of the asset; or
-- The Group has neither transferred nor retained substantially
all the risks and rewards of the asset but has transferred control
of the asset.
Write offs
Loans and advances are written off when the Group has no
reasonable expectation of recovering the financial asset (either in
its entirety or a portion of it). This is the case when the Group
determines that the borrower does not have assets or sources of
income that could generate sufficient cash flows to repay the
amounts subject to the write-off. A write-off constitutes a
derecognition event. The Group may apply enforcement activities to
financial assets written off. Recoveries resulting from the Group's
enforcement activities will result in impairment gains.
Debt securities
Debt securities are financial assets that are not held for
trading and are intended to be held within a business model to
collect contractual cash flows or sell. These are initially
measured at fair value plus transaction costs that are directly
attributable to the financial asset. Subsequently changes in the
fair value are recognised in other comprehensive income except for
interest calculated at the asset's EIR, foreign exchange and
impairment gains and losses.
Financial liabilities
Financial liabilities and equity
Debt and equity instruments that are issued are classified as
either financial liabilities or as equity in accordance with the
substance of the contractual arrangement.
A financial liability is a contractual obligation to deliver
cash or another financial asset or to exchange financial assets or
financial liabilities with another entity under conditions that are
potentially unfavourable to the Group or a non-derivative contract
that will or may be settled in a variable number of the Group's own
equity instruments, or a derivative contract over own equity that
will or may be settled other than by the exchange of a fixed amount
of cash (or another financial asset) for a fixed number of the
Group's own equity instruments.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Group are recognised
as at the proceeds received, net of direct issue costs.
Distributions on equity instruments are recognised directly in
equity.
Financial liabilities
Financial liabilities are classified as either financial
liabilities at FVTPL or other financial liabilities.
Financial liabilities at Fair Value through Profit or Loss
Financial liabilities at FVTPL may include financial liabilities
held for trading. Financial liabilities are classified as held for
trading if they are acquired for the purpose of selling in the near
term.
During the period under review the Group has held no financial
liabilities for trading, nor designated any financial liabilities
upon initial recognition as at fair value through profit or
loss.
Other financial liabilities
Interest bearing borrowings are measured at amortised cost using
the effective interest rate method. Gains and losses are recognised
in the income statement when the liabilities are derecognised as
well as through the effective interest rate method (EIR). Amortised
cost is calculated by taking into account any discount or premium
on acquisition and fees or costs that are an integral part of the
EIR. The EIR amortisation is included in "Interest and fee
expenses" in the profit and loss account.
Derecognition of financial liabilities
The Group derecognises financial liabilities when and only when,
the Group's obligations are discharged, cancelled or they
expire.
Impairment of non-financial assets
The carrying amounts of the entity's non-financial assets, other
than goodwill and deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the asset's
recoverable amount is estimated. The recoverable amount of an asset
or cash-generating unit is the greater of its value in use and its
fair value less costs to sell. In assessing value in use, the
estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the asset.
For the purposes of impairment testing, assets that cannot be
tested individually are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups
of assets (the Cash-Generating Unit or "CGU").
Contract assets are reviewed for impairment based on the
performance of the underlying contract.
Goodwill is tested annually for impairment in accordance with
IFRS. The goodwill acquired in a business combination, for the
purpose of impairment testing is allocated to CGU that are expected
to benefit from the synergies of the combination. For the purpose
of goodwill impairment testing, if goodwill cannot be allocated to
individual CGUs or groups of CGUs on a non-arbitrary basis, the
impairment of goodwill is determined using the recoverable amount
of the acquired entity in its entirety, or if the acquired entity
has been integrated then the entire group of entities into which it
has been integrated.
An impairment loss is recognised if the carrying amount of an
asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in the statement of comprehensive
income. Impairment losses recognised in respect of CGUs are
allocated first to reduce the carrying amount of any goodwill
allocated to the units and then to reduce the carrying amounts of
other assets in the unit (or group of units) on a pro rata
basis.
An impairment loss is reversed if and only if the reasons for
the impairment have ceased to apply. An impairment loss recognised
for goodwill is not reversed.
Impairment losses recognised in prior periods are assessed at
each reporting date for any indication that the loss has decreased
or no longer exists. An impairment loss is reversed only to the
extent that the asset's carrying amount does not exceed the
carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been
recognised.
Current and deferred income tax
Income tax on the result for the period comprises current and
deferred income tax. Income tax is recognised in the consolidated
statement of comprehensive income except to the extent that it
relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable or receivable on the
taxable income for the period, using tax rates enacted or
substantively enacted at the balance sheet date and any adjustment
to tax payable in respect of previous periods.
Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The amount of deferred
tax provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using
tax rates enacted or substantively enacted at the balance sheet
date.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered. Deferred tax assets and
liabilities are offset when there is a legally enforceable right to
set off current tax assets against current tax liabilities and when
they relate to income taxes levied by the same taxation authority
and the Group intends to settle its current tax assets and
liabilities on a net basis.
Employee benefits - pension costs
A defined contribution plan is a post-employment benefit plan
under which the Group pays fixed contributions into a separate
entity and will have a legal or constructive obligation to pay
further amounts. Contributions to defined contribution schemes are
charged to the statement of comprehensive income as they become
payable in accordance with the rules of the scheme. Differences
between contributions payable in the year and contributions
actually paid are shown as either accruals or prepayments in the
statement of financial position.
Leasing
Rentals paid under operating leases are charged to the
consolidated statement of comprehensive income on a straight line
basis over the period of the lease.
Benefits received and receivable as an incentive to sign an
operating lease are recognised on a straight line basis over the
period of the lease.
The Group does not currently hold any assets under finance
leases.
Provisions for commitments and other liabilities
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties
surrounding the obligation. Where a provision is measured using the
cash flows estimated to settle the present obligation, its carrying
amount is the present value of those cash flows (discounted at the
Group's weighted average cost of capital when the effect of the
time value of money is material).
When some or all of the economic benefits required to settle a
provision are expected to be recovered from a third party, a
receivable is recognised as an asset only if it is virtually
certain that reimbursement will be received and the amount of the
receivable can be measured reliably.
Merger Reserve
Prior to 29 December 2017, the entities within the Group were
held by Arrowgrass Master Fund Limited. On 29 December 2017, these
entities were acquired by TruFin plc via TruFin Holdings Limited.
The consideration provided to Arrowgrass for the companies acquired
was in exchange for shares of TruFin plc based on the fair value of
the underlying companies. Upon consolidation of the group, the
difference between the book value of the entities and the amount of
the consideration paid was accounted through a merger reserve, in
accordance with relevant accounting standards relating to
businesses under common control.
Segmental reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses (including revenues and expenses relating to transactions
with other components of the same entity) and whose operating
results are regularly reviewed by the Board of Directors in order
to make decisions about resources to be allocated to that component
and assess its performance and for which discrete financial
information is available.
For the purposes of the financial statements, the Directors
consider the Group's operations to be made up of three operating
segments: the provision of short term finance, payment services and
other operations.
The accounting policies of the reportable segments are
consistent with the accounting policies of the Group as a
whole.
Further details are provided in note 4.
Share based payments
Where the Group engages in share--based payment transactions in
respect of services received from certain of its employees, these
are accounted for as equity--settled share--based payments in
accordance with IFRS 2 'Share--based payments'. The equity is in
the form of ordinary shares.
The grant date fair value of a share--based payment transaction
is recognised as an employee expense, with a corresponding increase
in equity over the period that the employees become unconditionally
entitled to the awards. In the absence of market prices, the fair
value of the equity at the date of the grant is estimated using an
appropriate valuation technique
The amount recognised as an expense is adjusted to reflect the
actual number of awards for which the related services and
non--market vesting conditions are expected to be met such that the
amount ultimately recognised as an expense is based on the number
of awards that do meet the related service and non--market
performance conditions at the vesting date.
For share--based payment awards with market performance
conditions the grant date fair value of the award is measured to
reflect such conditions and there is no true--up for differences
between expected and actual outcomes.
Refer to note 6 for the amounts disclosed.
New standards and interpretations - in issue but not yet
effective/adopted
IFRS 16 Leases
IFRS 16, which has been endorsed by the EU, introduces a
comprehensive model for the identification of lease arrangements
and accounting treatments for both lessors and lessees. IFRS 16
will supersede the current lease guidance including IAS 17 Leases
and the related interpretations when it becomes effective for
accounting periods beginning on or after 1 January 2019. The Group
will adopt IFRS 16 for the year beginning 1 January 2019. No
decision has been made about whether to use any of the transitional
options in IFRS 16.
IFRS 16 distinguishes leases and service contracts on the basis
of whether an identified asset is controlled by a customer.
Distinctions of operating leases (off balance sheet) and finance
leases (on balance sheet) are removed for lessee accounting and is
replaced by a model where a right-of-use asset and a corresponding
liability have to be recognised for all leases by lessees (i.e. all
on balance sheet) except for short term leases and leases of low
value assets.
The right-of-use asset is initially measured at cost and
subsequently measured at cost (subject to certain exceptions) less
accumulated depreciation and impairment losses, adjusted for any
remeasurement of the lease liability. The lease liability is
initially measured at the present value of the lease payments that
are not paid at that date. Subsequently, the lease liability is
adjusted for interest and lease payments, as well as the impact of
lease modifications, amongst others. Furthermore, the
classification of cash flows will also be affected because
operating lease payments under IAS 17 are presented as operating
cash flows; whereas under the IFRS 16 model, the lease payments
will be split into a principal and an interest portion which will
be presented as financing and operating cash flows
respectively.
An initial assessment has been conducted on the adoption of IFRS
16 against the current methodology followed in accordance with IAS
17. The estimated impact of IFRS 16 is not expected to be
material.
The impact of all other IFRSs not yet adopted is not expected to
be material.
2. Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial information in accordance with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and reported
amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apart from other sources. The
estimates and underlying assumptions are reviewed on an ongoing
basis. Actual results may differ from these estimates.
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 financial statements.
Critical accounting judgements
-- Early Payment Programme Services set up costs: the Group
capitalises the direct costs of implementing Early Payment
Programme Services contracts for clients. These costs are essential
to the satisfaction of the Group's performance obligation under
that contract and accordingly the Group considers that these costs
meet the applicable criteria for recognition as contract
assets.
The amount capitalised is disclosed in note 12.
-- Deferred tax asset: There is inherent uncertainty in
forecasting beyond the immediate future and significant judgement
is required to estimate whether future taxable profits are probable
in order to utilise the carried forward tax losses. However, the
Group has determined that convincing evidence exists to support the
recognition of a deferred tax asset in respect of carried forward
losses for Oxygen.
For Oxygen, a high proportion of the forecast revenue is
expected to be generated from clients that are either already
"live" or have already signed contracts with Oxygen. Oxygen's fixed
cost base is already scaled for continued business growth and
variable cost growth is not expected to be significant.
DFC and Satago have carried forward losses which will be
utilised against future taxable profits. However, a deferred tax
asset has not been recognised for these two companies as there is
uncertainty surrounding the timing of when these losses will be
used.
Refer to note 11 for more information on the deferred tax
asset.
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:
Expected credit losses
-- Where an asset has a maturity of 12 months or less, the "12
month ECL" and the "lifetime ECL" have the same effective meaning
and accordingly for such assets the calculated loss allowance will
be the same whether such an asset is at stage 1 or stage 2. Given
the preponderance of short term lending, the Group's consolidated
loss allowance is not materially affected by the allocation of
assets between stages 1 and 2, nor by any significant subjectivity
in the forward looking estimates that are applied.
-- The Probability of Default ("PD") is an estimate of the
likelihood of default over a given time horizon and is a key input
to the ECL calculation. The Group primarily uses credit scores from
credit reference agencies to calculate the PD for loans and
advances to customers. The score is a 12-month predictor of credit
failure and, in the absence of internally generated loss history,
the Group believes that it provides the best proxy for the credit
quality of the loan portfolio.
-- Exposure At Default ("EAD") is an estimate of the exposure at
a future default date, taking into account expected changes in the
exposure after the reporting date, including repayments of
principal and interest, whether scheduled by contract or otherwise,
expected drawdowns on committed facilities and accrued interest
from missed payments.
-- Loss Given Default ("LGD") is an estimate of the loss arising
on default. It is based on the difference between the contractual
cash flows due and those that the lender would expect to receive,
in particular taking into account wholesale collateral values and
certain buy back options.
The Group has considered the key areas of estimation used within
the IFRS 9 impairment calculation and identified the variables
which propose a material risk in terms of the preparation of the
financial statements. The only variable considered to present a
material risk of estimation uncertainty are the collateral values
which are used within the loss given default (LGD) calculation. The
Group has assessed that if the loss given default increased by a
factor of 4, this would generate an additional provision of
approximately GBP400,000.
Measurement of fair values of level 3 instruments
In estimating the fair value of a financial asset or liability,
the Group uses market observable data to the extent that it is
available. Where such level 1 inputs are not available, the Group
uses valuation models to estimate the fair value of its financial
instruments.
Refer to note 15 for more information on fair value
measurement.
3. Interest and fee income
2018 2017
GBP'000 GBP'000
====================== ======================= ========
Revenue
Interest income 6,295 1,136
----------------------- --------
Total interest income 6,295 1,136
----------------------- --------
EPPS* contracts 2,373 2,153
Assessment fees 145 219
Consultancy fees 35 78
Facility fees 351 188
Subscription fees 345 -
----------------------- --------
Total fee income 3,249 2,638
----------------------- --------
Total revenue 9,544 3,774
======================= ========
*Early Payment Programme Services
4. Segmental reporting
The results of the Group are broken down into segments based on
the products and services from which it derives its revenue:
Short term finance:
Provision of distribution finance products and invoice
discounting. For results during the reporting period, this
corresponds to the results of DFC, SFSL and AltLending.
Payment services:
Provision of Early Payment Programme Services. For results
during the reporting period, this corresponds to the results of
Oxygen and Porge.
Other:
Revenue and costs arising from investment activities and
peer-to-peer lending. For results during the reporting period, this
corresponds to the results of TSL, THL, the Group's investment in
Zopa and joint venture in Clear Funding, and TruFin plc.
The results of each segment, prepared using accounting policies
consistent with those of the Group as a whole, are as follows:
Short term Payment services
Year ended 31 December 2018 finance GBP'000 Other Total
GBP'000 GBP'000 GBP'000
============================== ========== ================ ===================== =====================
Interest and fee income 6,590 2,894 60 9,544
Interest and fee expenses (2,251) (51) - (2,302)
---------- ---------------- --------------------- ---------------------
Net interest and fee income 4,339 2,843 60 7,242
---------- ---------------- --------------------- ---------------------
Adjusted operating loss* (6,627) (2,333) (3,801) (12,761)
Operating loss (6,627) (2,333) (6,540) (15,500)
Loss before tax (6,627) (2,333) (6,540) (15,500)
---------- ---------------- --------------------- ---------------------
Taxation - 390 - 390
---------- ---------------- --------------------- ---------------------
Loss for the year (6,627) (1,943) (6,540) (15,110)
---------- ---------------- --------------------- ---------------------
Total assets 153,451 11,889 54,068 219,408
Total liabilities (62,331) (2,649) (1,180) (66,160)
---------- ---------------- --------------------- ---------------------
Net assets 91,120 9,240 52,888 153,248
---------- ---------------- --------------------- ---------------------
*adjusted operating loss excludes share-based payment
expense
Short term Payment
Year ended 31 December 2017 Finance services Other Total
GBP'000 GBP'000 GBP'000 GBP'000
============================== ========== ============== ================= ===================
Interest and fee income 1,324 2,444 6 3,774
Interest and fee expenses (68) (53) - (121)
---------- -------------- ----------------- -------------------
Net interest and fee income 1,256 2,391 6 3,653
---------- -------------- ----------------- -------------------
Operating loss (3,896) (3,630) (2,147) (9,672)
Loss before tax (3,896) (3,959) (2,147) (10,002)
---------- -------------- ----------------- -------------------
Taxation - 867 - 867
---------- -------------- ----------------- -------------------
Loss for the year (3,896) (3,092) (2,147) (9,135)
---------- -------------- ----------------- -------------------
Total assets 59,493 7,051 36,991 103,535
Total liabilities (10,098) (1,333) (708) (12,139)
---------- -------------- ----------------- -------------------
Net assets 49,395 5,718 36,283 91,396
---------- -------------- ----------------- -------------------
5. Staff costs
Analysis of staff costs:
2018 2017
GBP'000 GBP'000
============================================== ======================= ========
Wages and salaries 10,251 6,111
Consulting costs 1,405 1,262
Social security costs 1,413 710
Pension costs arising on defined contribution
schemes 287 105
Share based payment 2,739 -
----------------------- --------
16,095 8,188
======================= ========
Consulting costs are recognised within staff costs where the
work performed would otherwise have been performed by employees.
Consulting costs arising from the performance of other services are
included within other operating expenses.
Average monthly number of persons (including Executive
Directors) employed:
2018 2017
Number Number
================== ================== =======
Management 18 10
Finance 12 4
Sales & marketing 25 12
Operations 67 35
Technology 21 8
------------------ -------
143 69
================== =======
Directors' emoluments
The number of directors who received share options during the
year was as follows:
2018 2017
Number Number
============================ ================== =======
Long term incentive schemes 3 -
There were no directors who exercised share options during the
year.
The directors' aggregate emoluments in respect of qualifying
services were:
Salary Bonus Pension Benefits 2018 2017
GBP'000s GBP'000s GBP'000s GBP'000s Total Total
GBP'000s GBP'000s
===================== ========= ========= ========= ========== ========= =========
Executive Directors:
S H Kenner 350 270 - 8 628 -
J v d Bergh 250 193 8 5 456 -
R Kapashi 175 135 9 - 319 -
--------- --------- --------- ---------- --------- ---------
775 598 17 13 1,403 -
========= ========= ========= ========== ========= =========
Non-executive
Directors:
S Baldwin 69 - - - 69 -
P Whiting 58 - - - 58 -
P Judd 58 - - - 58 -
P Dentskevich 49 - - - 49 -
--------- --------- --------- ---------- --------- ---------
234 - - - 234 -
========= ========= ========= ========== ========= =========
Key management
The Directors consider that key management personnel include the
Executive Directors of TruFin plc and the Chief Operating Officer.
These individuals have the authority and responsibility for
planning, directing and controlling the activities of the
Group.
6. Employee share-based payment transactions
The employment share-based payment charge comprises:
2018 2017
GBP'000 GBP'000
================================================= ======== ========
Performance Share Plan and Joint Share Ownership
Plan Founder Award 2,671 -
Performance Share Plan Market Value Award 68 -
Performance Share Plan 2018 Award - -
Total 2,739 -
======== ========
Performance Share Plan and Joint Share Ownership Plan Founder
Award ("PSP and JSOP")
On 21 February 2018, 3,407,895 shares were granted to selected
members of senior management of which the share price at date of
grant was GBP1.90 per share. The award is structured as a
Performance Share Plan and a Joint Share Ownership Plan. The
Performance Share Plan is structured as a nil cost option with no
performance conditions attached, although the individuals are
subject to continued employment until February 2021. The Joint
Share Ownership Plan allows the employee to participate in the
growth in value over and above the grant price of GBP1.90. The
shares vest 25% on each anniversary of the grant date.
Performance Share Plan Market Value Award ("PSP Market
Value")
On 21 February 2018, 4,868,420 shares were granted to the senior
management team. The vesting of this award is based on
market--based performance conditions. The vesting of these awards
is subject to the holder remaining an employee of the Company and
the Company's share price achieving five distinct milestones
vesting at 20% each milestone. The exercise price of the shares on
vesting is GBP1.90 per share. A Monte Carlo simulation was used to
determine the fair value of these options. The model used an
expected volatility of 10% and a risk free rate of 1.3%.
Performance Share Plan 2018 Award ("PSP 2018")
On 21 February 2018, 1,000,001 shares were granted to the senior
management team. The PSP 2018 award is structured as a nil cost
option. The vesting of this award is subject to the holder being in
continued employment until February 2021 and the Company achieving
certain financial metrics over a three--year period. The fair value
of these options as at 31 December 2018 was deemed to be nil as it
is highly improbable that the vesting conditions will be met.
Details of share based awards during the year.
PSP and JSOP PSP Market PSP 2018
Value
Type of instrument granted Shares (#) Options (#) Options (#)
Outstanding at 1 January 2018 - - -
Granted during the year 3,407,895 4,868,420 1,000,001
------------ ----------- -----------
Outstanding at 31 December 2018 3,407,895 4,868,420 1,000,001
============ =========== ===========
Vested at 31 December 2018 - - -
============ =========== ===========
No options have been forfeited, exercised or have expired during
the year.
Employees are responsible for settling their own tax obligations
related to these awards as and when they arise. The Company will
pay any Employers NI that becomes due on these awards.
7. Provision for commitments and other liabilities
Management have recognised a provision of GBP299,000 (2017:
GBP299,000) in relation to uncertain tax positions prior to 31
December 2016. Although advice has been taken, the legislation is
complex and could result in different interpretations. The amount
recognised is the best estimate of the consideration required to
settle the present obligation at the balance sheet date.
A provision of GBP750,000 has been made in 2018 for the deferred
consideration payable for the acquisition of Porge by Oxygen. The
deferred consideration is payable in the second quarter of 2019 and
is dependent upon Porge meeting certain revenue targets.
Group GBP'000
===================================== =======
At 1 January 2018 299
Additional provision during the year 754
-------
At 31 December 2018 1,053
=======
Group GBP'000
===================================== =======
At 1 January 2017 299
Additional provision during the year -
-------
At 31 December 2017 299
=======
The Company had no provisions at the year end.
8. Exceptional expenses
Loss before income tax is stated after charging the following
material items:
2018 2017
GBP'000 GBP'000
============================== ======================= ========
Oxygen IT platform transition - 330
----------------------- --------
- 330
======================= ========
Items of income or expense are disclosed separately when they
are material to an understanding of the financial statements.
Oxygen's legacy business strategy had been based around a
technology platform operated by a third- party provider on Oxygen's
behalf. Oxygen incurred material costs in 2016 and 2017 only to
transfer the platform to a cloud based environment under its own
control. As a result these are items which management does not
expect to be repeated and are exceptional in nature.
9. Net impairment loss on financial assets
2018 2017
GBP'000 GBP'000
================================ ======================= ========
At 1 January 126 13
Charge for impairment loss 248 158
Amounts written off in the year (55) (45)
Amounts recovered in the year - -
----------------------- --------
At 31 December 319 126
======================= ========
At 31 December 2018, the Group had an impairment balance of
GBP319,000 of which GBP308,000 is allocated against loans and
advances to customers and the residual GBP11,000 allocated to trade
receivables.
The net impairment charge on financial assets during the year
ended 31 December 2018 derives from GBP237,000 for loans to
customers and the residual GBP11,000 for trade receivables.
In the year ended 31 December 2017 all impairment charges were
against loans to customers.
10. Loss before income tax
Loss before income tax is stated after charging:
2018 2017
GBP'000 GBP'000
============================================== ======================= ========
Depreciation of property, plant and equipment 109 43
Amortisation of intangible assets 225 156
Staff costs including share based payments
charge 16,095 8,188
Operating lease rentals 641 258
2018 2017
Fees payable to the Group's auditor (Deloitte GBP'000 GBP'000
LLP)
================================================ ======================= ========
Fees payable for the audit of the company's
annual accounts 68 70
Fees payable for the audit of the company's
subsidiaries 132 37
----------------------- --------
Total audit fees 200 107
======================= ========
Non audit services
Other taxation advisory services - 187
Other assurance services 68 665
Corporate finance services - 42
----------------------- --------
Total non audit fees 68 894
======================= ========
11. Taxation
Analysis of tax credit recognised in the period
2018 2017
GBP'000 GBP'000
==================== ======================= ========
Current tax credit - -
Deferred tax credit (390) (867)
----------------------- --------
Total tax credit (390) (867)
======================= ========
Reconciliation of loss before tax to total tax credit
recognised
2018 2017
GBP'000 GBP'000
=================================================== ======================== ========================
Loss before tax (15,500) (10,002)
Loss before tax multiplied by the standard
rate of corporation tax in the UK of (19%/19.25%) (2,884) (1,925)
Tax effect of:
Expenses not deductible 543 42
Depreciation in excess of capital allowances 23 2
R&D expenditure credits - (6)
Capital allowances (10) (8)
Other short term timing differences 4 8
Capitalised revenue expenditure 1 -
Deferred tax on brought forward assets (1,461) (87)
Adjust closing deferred tax to rate at which
losses expect to be utilised (17%) 560 129
Adjust closing deferred tax to average rate
of (19%/19.25%) 656 (271)
Adjust opening deferred tax to average rate
of (19%/19.25%) (612) -
Deferred tax not recognised 2,790 1,249
------------------------ ------------------------
Total tax credit (390) (867)
======================== ========================
Reductions in the UK corporation tax rate from 19% (effective
from 1 April 2017) and to 18% (effective 1 April 2020) were
substantively enacted on 26 October 2015. An additional reduction
to 17% (effective from 1 April 2020) was substantively enacted on 6
September 2016. This will reduce the Group's future current tax
charge accordingly. The deferred tax assets and liabilities at 31
December 2018 have been based on the rates substantively enacted at
the balance sheet date.
Deferred tax asset
2018 2017
Group GBP'000 GBP'000
================================================ ======================= ========
Balance at start of the year 5,189 4,322
Credit to the statement of comprehensive income 390 867
----------------------- --------
Balance at end of the year 5,579 5,189
======================= ========
Comprised of:
Losses 5,579 5,189
----------------------- --------
Total deferred tax asset 5,579 5,189
======================= ========
A deferred tax asset has been recognised in respect of Oxygen.
It is considered probable that future taxable profits will be
available to be realised against Oxygen's historical losses. This
determination is based on Oxygen's forecasts. A high proportion of
the revenue forecast is expected to be generated from clients which
have either already onboarded or which have already signed
contracts with Oxygen. Oxygen's fixed cost base is already scaled
for continued business growth, whilst variable costs are not
expected to be material. Unutilised tax losses in DFC and Satago as
at 31 December 2018 were GBP10,858,000 (2017:GBP3,854,000) and
GBP2,559,000 (2017:GBP905,000).
12. Intangible assets
Software licenses
and similar
Client contracts assets
Goodwill Total
Group GBP'000 GBP'000 GBP'000 GBP'000
======================= ====================== ====================== ========== =======
Cost
At 1 January 2018 305 500 - 805
Additions 1,860 995 - 2,855
Arising on acquisition
of subsidiary - - 2,759 2,759
---------------------- ---------------------- ---------- -------
At 31 December 2018 2,165 1,495 2,759 6,419
====================== ====================== ========== =======
Amortisation
At 1 January 2018 (52) (104) - (156)
Charge (51) (174) - (225)
---------------------- ---------------------- ---------- -------
At 31 December 2018 (103) (278) - (381)
====================== ====================== ========== =======
Accumulated impairment
losses
At 1 January 2018 - - - -
Charge - - - -
---------------------- ---------------------- ---------- -------
At 31 December 2018 - - - -
====================== ====================== ========== =======
Net book value
---------------------- ---------------------- ---------- -------
At 31 December 2018 2,062 1,217 2,759 6,038
====================== ====================== ========== =======
At 31 December 2017 253 396 - 649
====================== ====================== ========== =======
Software licenses
and similar
Client assets
contracts GBP'000 Total
Group GBP'000 GBP'000
==================== =========== ================= =========
Cost
At 1 January 2017 - - -
Additions 305 500 805
----------- ----------------- ---------
At 31 December 2017 305 500 805
----------- ----------------- ---------
Amortisation
At 1 January 2017 - - -
Charge (52) (104) (156)
----------- ----------------- ---------
At 31 December 2017 (52) (104) (156)
----------- ----------------- ---------
Net book value
----------- ----------------- ---------
At 31 December 2017 253 396 649
=========== ================= =========
At 31 December 2016 - - -
=========== ================= =========
The Company had no intangibles assets at the year end.
Client contracts comprise the directly attributable costs
incurred at the beginning of an Early Payment Scheme Service
contract to revise a client's existing payment systems and provide
access to the Group's software and other intellectual property.
These implementation (or "set up") costs are comprised primarily of
employee costs.
The useful economic life for each individual asset is deemed to
be the term of the underlying Client Contract (generally 5 years)
which has been deemed appropriate and for impairment review
purposes, projected cash flows have been discounted over this
period.
The amortisation charge is recognised in fee expenses within the
statement of comprehensive income, as these costs are incurred
directly through activities which generate fee income.
Software, licenses and similar assets comprises separately
acquired software, as well as costs directly attributable to
internally developed platforms across the Group. These directly
attributable costs are associated with the production of
identifiable and unique software products controlled by the Group
and are probable of producing future economic benefits. They
primarily include employee costs and directly attributable
overheads.
A useful economic life of 3 to 5 years has been deemed
appropriate and for impairment review purposes projected cash flows
have been discounted over this period.
The amortisation charge is recognised in depreciation and
amortisation on non-financial assets within the statement of
comprehensive income.
The Group performed an impairment review at 31 December 2018 and
concluded no impairment was required.
The 'Software, licenses and similar assets' net book value
balance related to internally generated intangible assets at 31
December 2018 was GBP1,198,000 (2017: GBP396,000). This consists of
cost of GBP1,471,000 (2017: GBP500,000) and accumulated
amortisation of GBP273,000 (2017: GBP104,000) During the year there
were additions of GBP971,000 (2017: GBP500,000) and amortisation of
GBP169,000 (2017: GBP104,000).
Goodwill relates to Oxygen Finance Group Limited ("Oxygen") and
arises from the acquisition of a subsidiary Company, Porge Limited
("Porge") in August 2018. This is included within the payment
services segment of the Group. Further details of the acquisition
are included in note 24.
The rationale for the acquisition was to enhance Oxygen's
product offering. Porge is a provider of evidence based public
sector market insight services and research products.
Impairment testing of intangibles
An impairment review of the goodwill was carried out at the year
end. Porge was valued using the discounted cash flow methodology.
The net earnings of Porge were forecasted to 2022, a discount rate
of 12% was used and terminal growth rate of 2%. The valuation of
Porge was greater than the amount of goodwill and therefore the
goodwill is not deemed to be impaired.
13. Property, plant and equipment
Leasehold Fixtures & Computer equipment
improvements fittings Total
Group GBP'000 GBP'000 GBP'000 GBP'000
======================= ====================== ====================== ====================== ===========
Cost
At 1 January 2018 44 221 35 300
Additions 23 113 139 275
Arising on acquisition
of subsidiary - 3 3 6
---------------------- ---------------------- ---------------------- -----------
At 31 December 2018 67 337 177 581
---------------------- ---------------------- ---------------------- -----------
Depreciation
At 1 January 2018 (6) (157) (6) (169)
Charge (18) (48) (43) (109)
At 31 December 2018 (24) (205) (49) (278)
---------------------- ---------------------- ---------------------- -----------
Net book value
---------------------- ---------------------- ---------------------- -----------
At 31 December 2018 43 132 128 303
====================== ====================== ====================== ===========
At 31 December 2017 38 64 29 131
====================== ====================== ====================== ===========
Leasehold Fixtures &
improvements fittings Computer equipment Total
Group GBP'000 GBP'000 GBP'000 GBP'000
==================== ====================== ====================== ====================== ===========
Cost
At 1 January 2017 - 188 5 193
Additions 44 33 30 107
---------------------- ---------------------- ---------------------- -----------
At 31 December 2017 44 221 35 300
---------------------- ---------------------- ---------------------- -----------
Depreciation
At 1 January 2017 - (126) - (126)
Charge (6) (31) (6) (43)
---------------------- ---------------------- ---------------------- -----------
At 31 December 2017 (6) (157) (6) (169)
---------------------- ---------------------- ---------------------- -----------
Net book value
---------------------- ---------------------- ---------------------- -----------
At 31 December 2017 38 64 29 131
====================== ====================== ====================== ===========
At 31 December 2016 - 62 5 67
====================== ====================== ====================== ===========
The Group holds no assets under finance leases.
Computer equipment
Total
Company GBP'000 GBP'000
==================== ====================== =================
Cost
At 1 January 2018 - -
Additions 3 3
---------------------- -----------------
At 31 December 2018 3 3
---------------------- -----------------
Depreciation
At 1 January 2018 - -
Charge (1) (1)
---------------------- -----------------
At 31 December 2018 (1) (1)
---------------------- -----------------
Net book value
---------------------- -----------------
At 31 December 2018 2 2
====================== =================
14. Investment in joint venture
Joint ventures
The summarised financial information for Clear Funding Limited,
prepared in accordance with IFRS, is set out below. The Group
equity accounts for its 50% share in the joint venture.
2018 2017
Group GBP'000 GBP'000
================================ ======================== ===================
Income statement - -
Cost of sales - (59)
Administrative expenses - (1,777)
------------------------- -------------------
Loss from continuing operations - (1,836)
========================= ===================
2018 2017
GBP'000 GBP'000
================================ ======================= ==================
Statement of financial position
Non-current assets - 5
Cash - 88
Other current assets - 91
Current liabilities - (855)
----------------------- ------------------
Equity shareholders funds - (671)
======================= ==================
There are no restrictions in the ability of Clear Funding to
transfer funds to the investor in the form of cash dividends,
repayment of loans, or advances. The Group did not receive a
dividend in the year to 31 December 2018 (2017: GBPnil). There is
no unrecognised share of losses in Clear Funding for the years
ended 31 December 2018 or 31 December 2017.
Clear Funding has been winding down its operations from July
2018 and will be struck off in April 2019 and as such, the
investment in the joint venture has been recognised as GBPnil.
15. Other investments
2018 2017
Group GBP'000 GBP'000
================================== ======================= ========
Investments in equity instruments 44,500 36,500
Debt securities 4,944 -
----------------------- --------
49,494 36,500
======================= ========
Investment in equity instruments
Group Level
3 valuation Company
GBP'000 GBP'000
======================================== ================ ========================
Fair value at 1 January 2018 36,500 -
Gain on revaluation at 31 December 2018 8,000 -
Fair value at 31 December 2018 44,500 -
================ ========================
Group Level
3 valuation Company
GBP'000 GBP'000
======================================== ================ =============
Fair value at 1 January 2017 33,900 -
Gain on revaluation at 31 December 2017 2,600 -
Fair value at 31 December 2017 36,500 -
================ =============
At 31 December 2018, the Group had an economic interest in Zopa
Group Limited (the ultimate owner of the UK-based Zopa peer-to-peer
lending business). The table below represents the economic
ownership both on an undiluted basis and a fully diluted basis
(i.e. assuming that all holders of options, warrants and preferred
shares were to have exercised their subscription and conversion
rights).
Group 2018 2017
============== ===== =====
Undiluted 13.3% 17.7%
Fully diluted 12.5% 15.7%
A level 3 valuation is one that relies on unobservable inputs to
the valuation process.
The shares are not quoted in any market. TruFin values it
investment in Zopa using an independent valuer at the year end.
This valuation has utilised, amongst other things, recent financial
data provided by Zopa, peer group valuation metrics and the most
recent funding round. A combination of these provide the best
estimate for the investment's market value. TruFin values the
investment on a monthly basis. At the half year end and the year
end an independent valuation is carried out by an independent
valuation service provider.
Debt Securities
Group GBP'000
============================================ =======
Balance at 1 January 2018 -
Purchased debt securities 5,993
Fair value gain 1
Proceeds from maturing securities (1,000)
-------
Balance at 31 December 2018 4,994
=======
Balance at 1 January 2017 -
Movement in the year ended 31 December 2017 -
-------
Balance at 31 December 2017 -
=======
During the year ending 31 December 2018 the Group purchased UK
Treasury Bills with a total nominal value of GBP6 million of which
GBP1 million contractually matured during the year. The securities
are valued at fair value through other comprehensive income
("FVTOCI") using closing bid prices at the reporting date.
The Company had no debt securities at the year end (GBPnil).
16. Loans and advances to customers
2018 2017
Group GBP'000 GBP'000
====================================== ======================= ========
Total loans and advances to customers 129,678 32,835
Less: loss allowance (308) (126)
Less: deferred income (149) -
129,221 32,709
======================= ========
2018 2017
Total loans and advances are made up of: GBP'000 GBP'000
========================================= ======================= ========
Loans and advances to customers 122,528 32,835
Financial assets at Fair Value 7,150 -
----------------------- --------
129,678 32,835
======================= ========
The financial assets held at fair value correspond to
convertible loan notes of GBP3.5 million to a company called
Playstack Limited ("Playstack") and a convertible loan note of
GBP3.65 million to a company called Vertus Capital Limited
("Vertus"). These loans are valued at fair value using a
combination of income and market-based approach and any recent
funding rounds.
If the Group were to exercise the conversion rights on
Playstack, the percentage ownership would be dependent on the
conversion price at the time of conversion and also on any funding
rounds from other investors at the time of conversion. If the Group
were to exercise their conversion rights on the Vertus convertible
loan then the Group would own 51% of Vertus.
Past due receivables relating to loans and advances are analysed
as follows:
2018 2017
GBP'000 GBP'000
============================== ======================= ========
Neither past due nor impaired 128,341 32,402
Past due: 0-30 days 742 254
Past due: 31-60 days 219 16
Past due: 61-90 days 30 1
Past due: more than 91 days 38 36
129,370 32,709
======================= ========
The Company had no loans and advances to customers at the year
end (2017: GBPnil).
17. Assets classified as held for sale
In December 2018 a customer of DFC went into administration and
defaulted on their outstanding loans. DFC repossessed the assets
held as collateral against the outstanding loans which were moved
into a third-party storage facility at the expense of DFC. The
outstanding loan to the customer at the time of default was
GBP287,000.
At 31 December 2018 DFC was proactively marketing the assets for
sale. The assets were being marketed by the customer at the time of
repossession so are deemed as fit for sale in their current
condition. Given this the directors are satisfied the assets meet
the classification criteria for 'assets classified as held for
sale'.
DFC have estimated the expected selling and legal costs
associated with a proposed transaction at GBP30,000.
As such, the fair value less costs to sell at initial
recognition was been estimated at GBP257,000 and the residual
GBP30,000 expected shortfall remains as a loan receivable due from
the customer's appointed administrators.
At 31 December 2018 none of the assets had been disposed so
there are no transfers to the profit or loss.
The asset is included within the Short term finance Group
segment.
Summary of assets classified as held for sale
2018
Group GBP'000
===================================================== =======================
Fair value less costs to sell at initial recognition 257
Proceeds from disposal of assets -
Transaction costs paid up to 31 December 2018 9
=======================
Balance at 31 December 2018 266
=======================
18. Trade and other receivables
Group Company
------------------ ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
Trade and other receivables 417 487 - -
Prepayments 1,387 1,062 72 37
Accrued income 676 354 - -
VAT - 29 24 -
Other debtors 1,139 376 296 44
Intercompany receivable - - 56,261 -
-------- -------- -------- --------
3,619 2,308 56,652 81
======== ======== ======== ========
Trade receivables above are stated net of a loss allowance of
GBP11,000 (2017: GBPnil). All receivables are due within one
year.
Past due trade receivables are analysed as follows:
Group Company
------------------ ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
Not yet due 135 328 - -
Past due: 0-30 days 90 10 - -
Past due: 31-60 days 66 8 - -
Past due: 61-90 days 10 - - -
Past due: more than
91 days 116 141 - -
417 487 - -
======== ======== ======== ========
19. Stated capital
Stated Capital Total
Group and Company GBP'000 GBP'000
====================================== ================ =========
97,368,421 shares at GBPnil par value 185,000 185,000
At 31 December 2017, 123,965,702 shares were issued and fully
paid. 1 share was issued and unpaid.
In February 2018, these were consolidated to form 60,526,315
ordinary shares and on 21 February 2018, the shares of TruFin plc
were listed on the Alternative Investment Market of the London
Stock Exchange. The company raised GBP70 million from the IPO
issuing 36,842,106 shares at a price of 190p per share.
The Company is a no par value company. The liability of each
member arising from their holding of a share is limited to the
amount (if any) unpaid on it. There is no limit on the number of
shares of any class which the Company is authorised to issue.
All ordinary shares carry equal entitlements to any
distributions by the company. No dividends were proposed by the
Directors for the year ended 31 December 2018.
20. Borrowings
2018 2017
Group GBP'000 GBP'000
========================== ======================= ========
Loans due within one year 59,041 35
Loans due in over a year - 9,000
======================= ========
59,041 9,035
======================= ========
On 12 December 2017, DFC entered into a two-year senior debt
facility with a leading bank which is secured on a floating pool of
underlying assets. Interest is payable at 3 month LIBOR + 4%.
Movements in borrowings during the year
The below table identifies the movements in borrowings during
the year.
Group GBP'000
============================ ========================
Balance at 1 January 2018 9,035
Funding drawdown 49,926
Interest expense 2,145
Interest paid (2,065)
------------------------
Balance at 31 December 2018 59,041
========================
Balance at 1 January 2017 -
Funding drawdown 9,000
Interest expense 35
========================
Balance at 31 December 2017 9,035
========================
21. Trade and other payables
Group Company
------------------ ------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 1,606 212 24 -
Accruals 3,526 1,430 1,045 801
Other payables 228 652 1 -
Corporation tax 22 - - -
Other taxation and social
security 438 511 65 -
VAT 246 - - -
-------- -------- -------- --------
6,066 2,805 1,135 801
======== ======== ======== ========
22. Financial instruments
The Directors have performed an assessment of the risks
affecting the Group through its use of financial instruments and
believe the principal risks to be: capital risk; credit risk, and
market risk including interest rate risk.
This note describes the Group's objectives, policies and
processes for managing the material risks and the methods used to
measure them. The significant accounting policies regarding
financial instruments are disclosed in note 1.
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as going concerns while providing an
adequate return to shareholders.
The capital structure of the Group consists of borrowings
disclosed in note 20 and equity of the Group (comprising issued
capital, reserves, retained earnings and non-controlling interests
as disclosed in note 19 and note 23).
The Group is not subject to any externally imposed capital
requirements.
Principal financial instruments
The principal financial instruments to which the Group is party
and from which financial instrument risk arises, are as
follows:
-- Loans and advances to customers, primarily credit risk and liquidity risk;
-- Trade receivables, primarily credit risk and liquidity risk;
-- Investments, primarily fair value or market price risk;
-- Cash and cash equivalents, which can be a source of credit
risk but are primarily liquid assets available to further business
objectives or to settle liabilities as necessary;
-- Trade and other payables; and
-- Borrowings which are used as sources of funds and to manage liquidity risk.
Analysis of financial instruments by valuation model
Financial assets included in the statement of financial position
at fair value:
2018 2017
Group GBP'000 GBP'000
========================================= ======== ========
Debt securities (level 1) 4,994 -
Investments (level 3) 44,500 36,500
Financial assets at fair value (level 3) 7,150 -
Debt securities carried at fair value by the Group are treasury
bills. Treasury bills are traded in active markets and fair values
are based on quoted market prices. There were no transfers between
levels during the periods, all debt securities have been measured
at level 1 from acquisition.
A level 3 valuation is one that relies on unobservable inputs to
the valuation process.
-- The Zopa valuation is calculated by reference to the
independent valuer's valuation at the year end. This valuation has
utilised, amongst other things, recent financial data provided by
Zopa, peer group valuation metrics and the most recent funding
round. A combination of these provide the best estimate for the
investment's market value.
-- Financial assets at fair value have been valued by
considering the valuation of the convertible loans as well as the
value of the underlying companies (Playstack and Vertus). The
valuations were prepared using a discounted cash flow. The Vertus
valuation used a discount rate of 25%. A 3% increase in the
discount rate reduces the enterprise value of Vertus by 22% and 3%
increase in the discount rate decreases the enterprise value of the
company by 30%.
-- The Playstack valuation was prepared using a discount rate of
45%. A 3% increase in the discount rate reduced the enterprise
value by 24% and 3% increase in the discount rate decreased the
enterprise value of the asset by 18%.
-- In addition to the discount cash flow methodology, a market
based approach was also prepared, using comparable EBITDA and
revenue multiples.
There were no transfers of assets between level 1 and level 2
during the current or prior year.
Reconciliation of level 3 financial assets included in the
statement of financial position at fair value
Financial
Group assets at
Investments fair value Total
GBP'000 GBP'000 GBP'000
============================= ====================== =========== ===================
Balance at 1 January
2018 36,500 - 36,500
Gains in other comprehensive
income 8,000 - 8,000
Additions - 7,150 7,150
Balance at 31 December
2018 44,500 7,150 51,650
====================== =========== ===================
There are no financial liabilities included in the statement of
financial position at fair value.
31 December 2018
Financial assets and financial liabilities included in the
statement of financial position that are not measured at fair
value:
Carrying
Group amount Fair value Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================== ============ ============== ============= ============= =============
Financial assets not measured
at fair value
Loans and advances
to customers 122,071 122,071 - - 122,071
Trade receivables 417 417 - - 417
Other receivables 3,202 3,202 - - 3,202
Cash and cash equivalents 24,888 24,888 24,888 - -
============ ============== ============= ============= =============
150,578 150,578 24,888 - 125,690
============ ============== ============= ============= =============
Financial liabilities not measured
at fair value
Borrowings 59,041 59,041 - - 59,041
Trade, other payables
and accruals 5,361 5,361 - - 5,361
============ ============== ============= ============= =============
64,402 64,402 - - 64,402
============ ============== ============= ============= =============
31 December 2017
Carrying
Group amount Fair value Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================== ============ ============== ============= ============= =============
Financial assets not measured
at fair value
Loans and advances
to customers 32,709 32,709 - - 32,709
Trade receivables 487 487 - - 487
Other receivables 1,821 1,821 - - 1,821
Cash and cash equivalents 26,049 26,049 26,049 - -
============ ============== ============= ============= =============
61,066 61,066 26,049 - 35,017
============ ============== ============= ============= =============
Financial liabilities not measured
at fair value
Borrowings 9,035 9,035 - - 9,035
Trade, other payables
and accruals 2,805 2,805 - 27 2,778
============ ============== ============= ============= =============
11,840 11,840 - 27 11,813
============ ============== ============= ============= =============
31 December 2018
Carrying
Company amount Fair value Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================== ============ ============== ============= ============= =============
Financial assets not measured at fair
value
Other receivables 56,628 56,628 - - 56,628
Cash and cash equivalents 8,448 8,448 8,448 - -
============ ============== ============= ============= =============
65,076 65,076 8,448 - 56,628
============ ============== ============= ============= =============
Financial liabilities not measured
at fair value
Trade, other payables
and accruals 1,070 1,070 - - 1,070
============ ============== ============= ============= =============
1,070 1,070 - - 1,070
============ ============== ============= ============= =============
31 December 2017
Carrying
Company amount Fair value Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
====================== ============ ============== ============= ============= =============
Financial assets not measured at fair
value
Other receivables 81 81 - - 81
------------ -------------- ------------- ------------- -------------
81 81 - - 81
============ ============== ============= ============= =============
Financial liabilities not measured
at fair value
Trade, other payables
and accruals 801 801 - - 801
------------ -------------- ------------- ------------- -------------
801 801 - - 801
============ ============== ============= ============= =============
Fair values for level 3 assets and liabilities were calculated
using a discounted cash flow model and the Directors consider that
the carrying amounts of financial assets and liabilities recorded
at amortised cost in the financial statements approximate to their
fair values.
Loans and advances to customers
Due to the short term nature of loans and advances to customers,
their carrying value is considered to be approximately equal to
their fair value. These items are short term in nature such that
the impact of the choice of discount rate would not make a material
difference to the calculations.
Trade and other receivables, other borrowings and other
liabilities
These represent short term receivables and payables and as such
their carrying value is considered to be equal to their fair
value.
Financial risk management
The Group's activities and the existence of the above financial
instruments expose it to a variety of financial risks.
The Board of Directors has overall responsibility for the
determination of the Group's risk management objectives and
policies. The overall objective of the Board of Directors is to set
policies that seek to reduce ongoing risk as far as possible
without unduly affecting the Group's competitiveness and
flexibility.
The Group is exposed to the following financial risks:
-- Credit risk
-- Liquidity risk
-- Market risk
-- Interest rate risk
Further details regarding these policies are set out below.
Credit risk
Credit risk is the risk that a customer or counterparty will
default on its contractual obligations resulting in financial loss
to the Group. One of the Group's main income generating activities
is lending to customers and therefore credit risk is a principal
risk. Credit risk mainly arises from loans and advances to
customers. The Group considers all elements of credit risk exposure
such as counterparty default risk, geographical risk and sector
risk for risk management purposes.
Credit risk management
The credit committees within the wider Group are responsible for
managing the credit risk by:
-- Ensuring that it has appropriate credit risk practices,
including an effective system of internal control;
-- Identifying, assessing and measuring credit risks across the
Group from an individual instrument to a portfolio level;
-- Creating credit policies to protect the Group against the
identified risks including the requirements to obtain collateral
from borrowers, to perform robust ongoing credit assessment of
borrowers and to continually monitor exposures against internal
risk limits;
-- Limiting concentrations of exposure by type of asset,
counterparty, industry, credit rating, geographical location;
-- Establishing a robust control framework regarding the
authorisation structure for the approval and renewal of credit
facilities;
-- Developing and maintaining the risk grading to categorise
exposures according to the degree of risk of default. Risk grades
are subject to regular reviews; and
-- Developing and maintaining the processes for measuring
Expected Credit Loss (ECL) including monitoring of credit risk,
incorporation of forward-looking information and the method used to
measure ECL.
Significant increase in credit risk
The Group continuously monitors all assets subject to Expected
Credit Loss as to whether there has been a significant increase in
credit risk since initial recognition, either through a significant
increase in Probability of Default ("PD") or in Loss Given Default
("LGD").
The following is based on the procedures adopted by the
Group:
Granting of credit
The Business Development Team prepare a Credit Application which
sets out the rationale and the pricing for the proposed loan
facility and confirms that it meets the Group's product risk and
pricing policies. The Application will include the proposed
counterparty's latest financial information and any other relevant
information but as a minimum:
-- Details of the limit requirement e.g. product, amount, tenor, repayment plan etc.;
-- Facility purpose or reason for increase;
-- Counterparty details, background, management, financials and ratios (actuals and forecast);
-- Key risks and mitigants for the application;
-- Conditions, covenants & information (and monitoring
proposals) and security (including comments on valuation);
-- Pricing;
-- Confirmation that the proposed exposure falls within risk appetite; and
-- Clear indication where the application falls outside of risk appetite.
The Credit Risk Department will analyse the financial
information, obtain reports from credit reference agencies,
allocate a risk rating and make a decision on the application. The
process may require further dialogue with the Business Development
Team to ascertain additional information or clarification.
Each mandate holder and Committee is authorised to approve loans
up to agreed financial limits provided that the risk rating of the
counterparty is within agreed parameters. If the financial limit
requested is higher than the credit authority of the first reviewer
of the loan facility request, the application is sent to the next
credit authority level with a recommendation.
The Executive Risk Committee reviews all applications that are
outside the credit approval mandate of the mandate holder due to
the financial limit requested or if the risk rating is outside of
policy but there is a rationale and/or mitigation for considering
the loan on an exceptional basis.
Applications where the counterparty has a high risk rating are
sent to the Executive Risk Committee for a decision based on a
positive recommendation from the Credit Risk department. Where a
limited company has such a risk rating, the Executive Risk
Committee will consider the following mitigants:
-- Existing counterparty which has met all obligations in time
and in accordance with loan agreements,
-- Counterparty known to Group personnel who can confirm positive experience,
-- Additional security, either tangible or personal guarantees
where there is verifiable evidence of personal net worth,
-- A commercial rationale for approving the application,
although this mitigant will generally be in addition to at least
one of the other mitigants.
Identifying significant increases in credit risk
The short tenor of the current loan facilities reduces the
possible adverse effect of changes in economic conditions and/or
the credit risk profile of the counterparty.
The Group nonetheless measures a change in a counterparty's
credit risk mainly on payment and end of contract repayment
behaviour and the collateral audit process. Although regular and
interim reviews may highlight other changes in a counterparty's
risk profile, such as the security asset no longer being under the
control of the borrower. The Group views a significant increase in
credit risk as:
-- A two-notch reduction in the Group's counterparty's risk
rating since origination, as notified through the credit rating
agency;
-- A counterparty defaults on a payment due under a loan agreement;
-- Late contractual payments which although cured, re-occur on a regular basis;
-- Counterparty confirmation that it has sold Group assets but delays in processing payments;
-- Evidence of a reduction in a counterparty's working capital
facilities which has had an adverse effect on its liquidity; or
-- Evidence of actual or attempted sales out of trust or of
double financing of assets funded by the Group.
An increase in significant credit risk is identified when any of
the above events happen after the date of initial recognition.
Default
Identifying loans and advances in default and credit
impaired
The Group's definition of default for this purpose is:
-- A counterparty defaults on a payment due under a loan
agreement and that payment is overdue on its terms, or
-- The collateral that secures, all or in part, the loan
agreement has been sold or is otherwise not available for sale and
the proceeds have not been paid to the lending company, or
-- A counterparty commits an event of default under the terms
and conditions of the loan agreement which leads the lending
company to believe that the borrower's ability to meet its credit
obligations to the lending company is in doubt.
Exposure at default
Exposure at default ("EAD") is the expected loan balance at the
point of default and, for the purpose of calculating the Expected
Credit Losses ("ECL"), management have assumed this to be the
balance at the reporting date.
Expected Credit Losses
The ECL on an individual loan is based on the credit losses
expected to arise over the life of the loan, being defined as the
difference between all the contractual cash flows that are due to
the Group and the cash flows that it actually expects to
receive.
This difference is then discounted at the original effective
interest rate on the loan to reflect the disposal period of
underlying collateral.
Regardless of the loan status stage, the aggregated ECL is the
value that the Group expects to lose on its current loan book
having assessed each loan individually.
To calculate the ECL on a loan, the Group considers:
1. Counterparty PD; and
2. LGD on the asset
whereby: ECL = EAD x PD x LGD
Forward looking information
In its ECL models, the Group applies the following sensitivity
analysis of forward looking economic inputs:
-- GDP growth
-- LIBOR
-- Retail Price Index ("RPI")
However, in making its assessment of the impact of these key
forward looking economic assumptions, the Group has placed reliance
on the short dated nature of its loans which do not extend beyond
12 months. Given the current loan book has an average tenor of less
than 4 months, the forward looking economic inputs above do not
affect the ECL significantly.
Maximum exposure to credit risk
Group Company
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
Cash and cash equivalents 24,888 26,049 8,448 -
Loans and advances to
customers 129,221 32,709 - -
Trade and other receivables 3,619 2,308 56,629 81
======== ================= ======== ========
Maximum exposure to
credit risk 157,728 61,066 65,077 81
======== ================= ======== ========
Loans and advances to customers:
Collateral held as security
Group Company
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
================================= ======== -------- -------- ========
Fully collateralised
Loan-to-value* ratio:
Less than 50% 2,408 6 - -
50% to 70% 6,000 5 - -
71% to 80% 36,126 3,893 - -
81% to 90% 31,756 5,161 - -
91% to 100% 45,994 23,311 - -
======== ======== ======== ========
122,284 32,376 - -
======== ======== ======== ========
Partially collateralised
Collateral value relating
to loans over 100% loan-to-value - - - -
-------- -------- -------- --------
Unsecured lending 160 459 - -
======== ======== ======== ========
* Calculated using wholesale collateral values
The majority of the Group's lending activities are asset-backed
and the Group expects that the majority of its exposure is secured
by the collateral value of the asset that has been funded under the
loan agreement. The Group has title to the collateral which is
funded under loan agreements. The collateral comprises boats,
motorcycles, recreational vehicles, caravans and industrial and
agricultural equipment. The collateral has low depreciation and is
not subject to rapid technological changes or redundancy. There has
been no change in the Group's assessment of collateral and its
underlying value in the reporting period.
The assets are generally in the counterparty's possession, but
this is controlled and managed by the asset audit process. The
audit process checks on an agreed periodic basis that the asset is
in the counterparty's possession and has not been sold out of trust
or is otherwise not in the counterparty's control. The frequency of
the audits is determined by the risk rating assessed at the time
that the borrowing facility is first approved.
Additional security may also be taken to further secure the
counterparty's obligations and further mitigate risk. Further to
this, in many cases the Group is often granted by the counterparty,
an option to sell-back the underlying collateral.
Based on the Group's current principal products, the
counterparty repays its obligation under a loan agreement with the
Group at or before the point that it sells the asset. If the asset
is not sold and the loan agreement reaches maturity, the
counterparty is required to pay the amount due under the loan
agreement plus any other amounts due. In the event that the
counterparty does not pay on the due date, the Group's customer
management process will maintain frequent contact with the
counterparty to establish the reason for the delay and agree a
timescale for payment. Senior management will review actions on a
regular basis to ensure that the Group's position is not being
prejudiced by delays.
In the event that the Group determines that payment will not be
made voluntarily, it will enforce the terms of its loan agreement
and recover the asset, instituting legal proceedings for delivery,
if necessary. If there is a shortfall between the net sales
proceeds from the sale of the asset and the counterparty's
obligations under the loan agreement, the shortfall is payable by
the counterparty on demand.
Concentration of credit risk
The Group maintains policies and procedures to manage
concentrations of credit at the counterparty level and industry
level to achieve a diversified loan portfolio. As at 31 December
2018, the largest counterparty exposure was 9% of the total loan
portfolio and the largest industry sector exposure was 34% of the
total loan portfolio.
Credit quality
An analysis of the Group's credit risk exposure for loan and
advances per class of financial asset, internal rating and "stage"
is provided in the following tables. A description of the meanings
of stages 1, 2 and 3 is given in the accounting policies set out in
note 1.
2018 2017
Risk rating Stage 1 Stage 2 Stage 3 Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
===================== ------------- ------------- ------------- ------------------- ---------------------
Above average (risk
rating 1-2) 55,698 - - 55,698 14,305
Average (risk rating
3-5) 31,868 14,916 - 46,784 16,207
Below average (risk
rating 6+) 12,191 7,705 150 20,046 2,323
------------- ------------- ------------- ------------------- ---------------------
Gross carrying amount 99,757 22,621 150 122,528 32,835
------------- ------------- ------------- ------------------- ---------------------
Loss allowance (217) (31) (60) (308) (126)
------------- ------------- ------------- ------------------- ---------------------
Carrying amount 99,540 22,590 90 122,220 32,709
============= ============= ============= =================== =====================
Stage 1 Stage 2 Stage 3 Total
Gross Carrying Amount GBP'000 GBP'000 GBP'000 GBP'000
====================== ============= ============= ============= ====================
As at 31 December
2017 32,835 - - 32,835
Transfer to stage
2 521 (521) - -
Transfer to stage
2 (26,577) 26,577 - -
Transfer to stage
3 (128) (286) 414 -
Loans originated 208,281 - - 208,281
Loans repaid (115,175) (3,149) (264) (118,588)
------------- ------------- ------------- --------------------
As at 31 December
2018 99,757 22,621 150 122,528
============= ============= ============= ====================
Trade receivables
Status at balance sheet date
The Group has assessed the trade and other receivables in
accordance with IFRS 9 and determined that, at the balance sheet
date, the lifetime ECL is GBP11,000 (2017: GBPnil).
The contractual amount outstanding on financial assets that were
written off during the reporting period and are still subject to
enforcement activity is GBPnil at 31 December 2018 (31 December
2017: GBPnil).
Liquidity risk
Liquidity risk is the risk that the Group does not have
sufficient financial resources to meet its obligations as they fall
due or will have to do so at an excessive cost. This risk arises
from mismatches in the timing of cash flows which is inherent in
all banking operations and can be affected by a range of Group
specific and market-wide events.
Liquidity risk management
The Group delegates liquidity risk management to its subsidiary,
DFC, which has in place a policy and control framework for managing
liquidity risk. DFC's Asset and Liability Management Committee
(ALCO) is responsible for managing the liquidity risk via a
combination of policy formation, review and governance, analysis,
stress testing, limit setting and monitoring. The ALCO meets on a
monthly basis to review the liquidity position and risks. Daily
liquidity reports are produced and reviewed by the management team
to track liquidity and pipeline.
DFC is in the process of applying for a Bank Licence. One of the
key requirements is to a have a comprehensive liquidity management
process & documentation which is submitted to the Prudential
Regulation Authority (PRA) for approval. These documents have been
approved by DFC's Board of Directors and submitted to the PRA.
Group Finance performs treasury management for the Group, with
responsibility for the treasury for each business entity being
delegated to the individual subsidiaries. However, in line with the
wider Group governance structure, Group Finance performs an
important oversight role in the wider treasury considerations of
the Group. The primary mechanism for maintaining this oversight is
a formal requirement that subsidiaries' Finance teams notify all
material Treasury matters to Group Finance.
The main Group responsibilities are to maintain banking
relationships, manage and maximise the efficiency of the Group's
working capital and long term funding and ensure ongoing compliance
with banking arrangements. The Group currently does not have any
offsetting arrangements.
Liquidity stress testing
DFC has assessed its liquidity adequacy and viability for the
first 12 months of operations, based on its 5 year business plan
projections. Under this analysis, DFC is confident that it will be
able to meet all of its liabilities as they fall due, even in a
stress scenario.
A range of liquidity stress scenarios has been conducted (as
detailed in the capital and liquidity requirements), which
demonstrates that DFC's liquidity profile at the end of this
12-month period will be sufficient to withstand a severe stress at
this time.
Maturity analysis for financial assets and financial
liabilities
The following maturity analysis is based on expected gross cash
flows.
As at 31 December Carrying Less 1-3 months 3 months 1-5 years >5 years
2018 Amount than to 1
1 month year
GBP'000s GBP'000s GBP'000s GBP'000s
GBP'000s GBP'000s
----------------------- ---------- ---------- ----------- ---------- ---------- ----------
Financial Assets
Cash and cash
equivalents 24,888 24,888 - - - -
Trade receivables 417 265 71 81 - -
Loans and advances
to customers 129,221 25,494 34,208 53,408 13,245 3,184
Investment in
equity instruments 44,500 - - - - -
Debt Securities 4,994 - 5,000 - - -
204,020 50,647 39,279 53,489 13,245 3,184
========== ========== =========== ========== ========== ==========
Financial Liabilities
Trade other payables
and accruals 5,361 5,361 - - - -
Borrowings 59,041 246 739 60,897 - -
---------- ---------- ----------- ---------- ---------- ----------
64,402 5,607 739 60,897 - -
========== ========== =========== ========== ========== ==========
Market risk
Market risk is the risk that movements in market factors, such
as foreign exchange rates, interest rates, credit spreads, equity
prices and commodity prices will reduce the TruFin Group's income
or the value of its portfolios.
Market risk management
The TruFin Group's management objective is to manage and control
market risk exposures in order to optimise return on risk while
ensuring solvency.
The core market risk management activities are:
-- The identification of all key market risk and their drivers,
-- The independent measurement and evaluation of key market risks and their drivers,
-- The use of results and estimates as the basis for the TruFin
Group's risk/return-oriented management, and
-- Monitoring risks and reporting on them.
Interest rate risk management
The TruFin Group is exposed to the risk of loss from
fluctuations in the future cash flows or fair values of financial
instruments because of the change in market interest rates.
Interest rate risk
Interest rates on loans and advances are charged at competitive
rates given current market condition. Should rates fluctuate, this
will be reviewed and pricing will be adjusted accordingly.
DFC's borrowings are at both fixed rates of interest at LIBOR
based. To help mitigate interest rate risk DFC may increase asset
pricing on new assets funded at its discretion. Additionally, the
limited asset average loan duration helps mitigate this interest
rate risk.
23. Non-controlling interests
Distribution Finance Capital Ltd, a 94% owned subsidiary of the
Company, has material non-controlling interests (NCI).
The summarised financial information below represents amounts
before intragroup eliminations.
2018 2017
GBP'000 GBP'000
============================================= ======================= =======================
Current assets 128,903 37,858
Non-current assets 851 37
Current liabilities (61,630) (2,795)
Non-current liabilities (13,404) (36,560)
Equity attributable to owners of the Company 51,465 (1,168)
Non-controlling interests 3,255 (291)
2018 2017
GBP'000 GBP'000
=================================================== ======================= =======================
Revenue 5,179 1,116
Expenses (12,276) (6,273)
Loss after tax (7,097) (5,157)
Loss after tax attributable to owners of the
Company (6,675) (4,125)
Loss after tax attributable to the non-controlling
interests (422) (1,032)
2018 2017
GBP'000 GBP'000
--------------------------------------------- ------------------------ ------------------------
Net cash used in operating activities (86,703) (33,727)
Net cash used in investing activities (5,915) (42)
Net cash generated from financing activities 93,716 37,416
Net increase in cash and cash equivalents 1,098 3,647
GBP'000
------------------------------------------ -------
Balance at 1 January 2017 547
Share of loss for the year (1,032)
Capital contribution 192
Balance at 1 January 2018 (293)
Share of loss for the year (422)
Reduction of capital and equity injection 3,301
Change of ownership percentage 669
-------
Balance at 31 December 2018 3,255
=======
24. Acquisition of Subsidiary
On 3 August 2018, Oxygen Finance Group Limited acquired 100% of
the issued share capital of Porge. Porge provides an evidence based
public sector market insight service and research product, which
provides Oxygen with an additional product offering.
Porge was acquired at a cost of GBP2 million plus a deferred
consideration of GBP0.75 million payable in May 2019. The deferred
consideration was subject to Porge achieving certain performance
targets which have now been met.
Porge's financial year end date is 31 March 2019. Its results
have been consolidated from the date of acquisition to 31 December
2018, in line with the Group's financial year end.
The amounts recognised in respect of the identifiable assets of
Porge acquired and liabilities assumed are as set out in the table
below.
GBP'000
============================================ =======
Total assets 502
Total liabilities (497)
-------
5
-------
Goodwill arising on acquisition
Total consideration 2,764
Less: fair value of identifiable net assets
acquired (5)
-------
2,759
-------
Consideration satisfied by:
Cash 2,014
Contingent consideration 750
In accordance with IFRS 3, we have up to one year to finalise
the initial accounting for a business combination. At the reporting
date, our assessment in relation to the recognition and measurement
of separately identifiable intangible assets acquired is ongoing.
Whilst we expect to recognise intangible assets, including computer
software and the customer list, the directors believe that the
majority of the purchase price represents goodwill as a result of
synergies generated between Porge and Oxygen's businesses.
Nevertheless, we have assessed the impact on the 2018 financial
statements if half of the GBP2.8m goodwill balance was determined
to consist of separately identifiable intangible assets. Assuming a
useful economic life of 5 years, this would result in an
amortisation charge of GBP115,000 for the 5 months since the
acquisition of Porge. Based on analysis to date, we expect the
separately identifiable intangible asset balance and associated
amortisation to be below the level illustrated.
25. Leasing commitments
The Group only has operating leases in the form of leasing
property for office space. The lease agreements have a fixed term
with a maximum lease term of 5 years. The leasing arrangements
clearly specify the rental expense for the year which is fixed over
the life of the leases. The service charge expense has been
estimated over the life of the term and is not considered
materially variable. Rent and service charge invoices are paid
quarterly in advance. Should the Group wish to renew these leases
in the future, this would require signing new agreements.
The Group did not engage in any subleasing arrangements in any
of the reporting periods and there was no contingent rent payable
for any of the reporting periods.
2018 2017
GBP'000 GBP'000
================================================= ======================= ========
Lease payments under operating leases recognised
as an expense in the year 641 258
At the year end date the TruFin Group has lease agreements in
respect of properties and equipment for which the payments extend
over a number of years. The future minimum lease payments under
non-cancellable leases are as follows:
2018 2017
GBP'000 GBP'000
====================================== ======================= ========
Due in less than one year 456 391
Due between one and five years 735 450
----------------------- --------
Total future lease payments committed 1,191 841
======================= ========
26. Earnings per share
Earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the year.
The calculation of the basis and adjusted earnings per share is
based on the following data:
2018 2017
=============================================== =================== ===========
Number of shares
At year end 97,368,421 123,965,703
Weighted average 92,791,949 65,245,107
Earnings attributable to ordinary shareholders GBP'000 GBP'000
Loss after tax attributable to the owners of
TruFin plc (14,688) (8,103)
Adjusted earnings attributable to ordinary
shareholders
Loss after tax attributable to the owners of
TruFin plc (14,688) (8,103)
Adjusted for share-based payment 2,739 -
Adjusted loss after tax attributable to the
owners of TruFin plc (11,948) (8,103)
Earnings per share* pence pence
Basic and Diluted (15.8) (12.4)
Adjusted(1) (12.9) (12.4)
Adjusted(2) (4.3) (8.4)
* All Earnings per share figures are undiluted and diluted.
Adjusted(1) EPS excludes share-based payment expense from loss
after tax
Adjusted(2) EPS includes the unrealised gain on the revaluation
of the TruFin Group's investment in Zopa - GBP8.0m for the year
ended 31 December 2018 (2017: GBP2.6m)
At 31 December 2017 there were 123,965,703 shares in issue at
GBP1 per share. In February 2018 these were consolidated to form
60,526,315 shares at GBP1.90 per share. This consolidation
effectively consisted of a share cancellation of 8,965,703 shares
as well as a 1 for 1.9 share consolidation. Following the share
consolidation, the shares were listed on AIM and on 21 February
2018 and 36,842,106 shares were issued at GBP1.90 per share. A
reconciliation of the impact of these transactions on the number of
shares and the value of share capital is shown in the table
below.
Number of
shares GBP'000
---------------------------- ------------ -------
Balance at 1 January 2018 123,965,703 123,966
Share cancellation (8,965,703) (8,966)
------------ -------
115,000,000 115,000
Share consolidation (54,473,685) -
------------ -------
60,526,315 115,000
Share issue 36,842,106 70,000
------------ -------
Balance at 31 December 2018 97,368,421 185,000
============ =======
The weighted average shares in the EPS disclosure have been
reduced by the number of shares that were absorbed as part of the
share consolidation as if the transaction took place at the start
of the period. Similarly, the EPS disclosure for 2017 has been
restated by incorporating the same adjustment to the weighted
average shares of that period.
During the year 9,276,316 share options were granted to
management (see note 6 for details). These could potentially dilute
basic EPS in the future, but were not included in the calculation
of diluted EPS as they are antidilutive for the years presented, as
the Group is loss making.
27. Related party disclosures
Transactions with Directors
Transactions with Directors, or entities in which a Director is
also a Director or partner:
2018 2017
GBP'000 GBP'000
-------------------------------------------- -------- --------
Loans provided to directors 140 -
Consultancy services provided by a director - 13
Other related parties 9 -
Key management personnel disclosures are provided in note 5.
Loans were issued to Henry Kenner (GBP74,878) and James van den
Bergh (GBP64,894) on 21 February 2018 relating to the tax and
national insurance payable on the JSOP founder awards in the month
that these were granted. These loans have a nil interest charge and
remain outstanding at the year end.
28. Post balance sheet events
On 17 April 2019, DFC increased its existing wholesale funding
facility from GBP100 million to GBP155 million and extended the
term by 12 months such that the funding line now has a maturity
date of December 2020.
The Board of TruFin is seeking shareholder approval to sell its
investment in Zopa to Arrowgrass for a gross cash consideration of
GBP44.5 million which is equal to the fair value of Zopa as at 31
December 2018. The Zopa transaction is conditional and is subject
to a shareholder resolution at the General Meeting to be held on 7
May 2019. The sale constitutes a related party transaction under
Rule 13 of the AIM Rules as a result of Arrowgrass owning more than
10% of TruFin plc. The independent directors of TruFin, having
consulted with the Nominated Adviser, consider the terms of the
Zopa sale to be fair and reasonable.
It has always been TruFin's intention to realise its investment
in Zopa and TruFin believes this is an appropriate time to sell
Zopa as it releases cash to the Group. GBP25 million of the
proceeds will be invested in DFC as equity which in turn will be
used to fund DFC's balance sheet for lending. The remaining cash
will be used to support and implement the strategy of the remaining
group and for the costs and expenses relating to the sale of Zopa
and the costs of the demerger. It is also the intention of the
Directors to make a cash distribution of GBP5 million in both June
and December 2019.
On 17 April 2019, the Board made a decision to restructure the
Group which would provide DFC the best opportunity to be granted a
bank licence as a standalone entity without the restriction of it
being part of a controlling group. The Board is therefore proposing
the demerger of DFC into a separate AIM listed company, with the
existing shareholders in TruFin being given one new share in DFC
for each existing TruFin share. In order to achieve these steps,
the Board is seeking shareholder approval at a General Meeting to
be held on 7 May 2019. It is proposed that DFC will be demerged to
a new company called DFC Holdings plc. DFC Holdings will seek
admission of its entire issued share capital on AIM on 9 May 2019.
Following the demerger, TruFin shareholders will own TruFin
ordinary shares and DFC Ordinary shares. The demerger is expected
to become effective on 8 May 2019. On Admission, DFC Holdings is
expected to have a market capitalisation of GBP96 million.
Concurrently with these proposals, Arrowgrass has informed the
Board that it has arranged the disposal of sufficient new shares in
DFC such that after completion of the demerger, it will own less
than 50% of the votes in the equity share capital of DFC
Holdings.
Modifications proposed to the existing Share Incentive Plans
Following the demerger and subsequent IPO of DFC scheduled for
May 2019, the share incentive plans have been modified to
incorporate the effects of the new structure and to provide
management with some level of neutrality with respect to their
incentive plans whilst also balancing tax and regulatory
requirements.
Founder Awards
The Founder Award comprises (i) the JSOP Awards and (ii) the PSP
Founder Awards (details of which are set out in note 6). As part of
the demerger, all TruFin shareholders will receive one DFC listed
share for each TruFin share they hold. It has been agreed that the
Founder Awards, in so far as they relate to the DFC listed shares,
will be cancelled and replaced with an alternative arrangement. The
intended outcome of the new arrangement is that the TruFin Founders
will hold DFC listed shares directly, but will be subject to the
same clawback and transfer restrictions as the original Founder
Awards. The effect of this new arrangement will give rise to an
Employers national insurance liability on TruFin plc which is
GBP419,000. It has been determined that the valuation of the JSOP
and PSP awards has not changed as a result of the demerger.
PSP Market Value Awards
The PSP Market Value awards comprise options to acquire TruFin
shares at 190p per share (share price at Admission) and vest upon
the achievement of set share price thresholds. In order to reflect
the impact of the demerger, it has been agreed that the PSP Market
Value Awards will be split in two so that:
-- Part of the award will remain as an option in respect of
TruFin shares ("TruFin Market Value Awards")
-- Part of the award will be in respect of DFC listed shares
The TruFin Market Value Awards will be on materially the same
terms as the original PSP Market Value Awards except that:
-- The exercise price will be adjusted by reference to the
respective share prices of DFC Holdings and TruFin using the
closing prices on the first day of trading of DFC Holdings shares
(expected to be 9 May 2019) to reflect the demerger.
The DFC Market Value award will take the form of a restricted
share award of 2% of the DFC Listed Shares under which the award
holder will receive nil cost DFC listed shares. These transfer
restrictions and clawback will fall away over time (i.e. 33.33% per
year over three years). The first 33% will become freely
transferable and cease to be subject to clawback on 21 February
2020 and each subsequent tranche on the following two
anniversaries. The effect of this award will give rise to an
Employer's national insurance liability on TruFin plc which is
GBP265,000.
PSP Performance Awards
The PSP Performance Awards comprise nil cost options to acquire
TruFin Shares at the end of a three year vesting period. In order
to reflect the impact of the demerger and as the performance
condition relating to the business of DFC will be achieved in full
due to the demerger, it has been agreed that the 2018 PSP
Performance Award will be adjusted so that:
-- the awards will part vest and will be satisfied by way of a
cash payment calculated by reference to 50% of the shares subject
to the award and a price of 190p per share. The cash payment will
be made at the time of the annual bonus cycle in February 2020
-- the awards will continue in respect of 100% of the TruFin
shares but the performance condition will relate solely to the
business of Oxygen.
The valuation of the 2018 PSP Performance Awards as at 31
December 2018 was nil. However due to the part-vesting as a result
of the demerger the value of these shares is deemed to have a value
of approximately GBP900,000.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EADLXFDENEFF
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