Interim results presentation Six months ended 30 November 2019 January 2020
Who we are and what we do A non-bank specialist finance provider We are customer outcome-led • Income PBT Track Record £000 £000 We operate a hybrid model; flexibility • 35,000 9,000 to either fund on balance sheet, or 8,000 broke-on to other lenders 30,000 7,000 25,000 All own balance sheet lending is to UK 6,000 • 20,000 SMEs who meet our credit criteria 5,000 4,000 15,000 We broke-on proposals outside our • 3,000 10,000 credit criteria and all consumer 2,000 5,000 finance deals 1,000 - - We are multi-product providing a • 2013 2014 2015 2016 2017 2018 2019 range of finance products that One pm Academy Bradgate iloans smaller UK SMEs require; Asset Finance, Loans, Vehicles and Invoice Gener8 Positive CF2U PBT £k Finance 2
The UK market Stable, sizeable total addressable market UK economy employs 27m people in 5.7m businesses of which 4.5m are SMEs. 43% of UK companies • use external funding; currently circa £25bn of gross lending Of this lending, circa 40% is asset or invoice finance; approximately 1m companies using the products • we provide. Our share is <1%, so a huge market opportunity UK business investment (source: FLA and UK Finance statistics): • Asset Finance increased 7% in 2019 to 30 November • Analysis by asset class Nov 2019 y-o-y % change Plant & machinery +11 New cars 0 Used cars +14 Light commercial vehicles +11 Business equipment +1 IT equipment -2 Invoice Finance stable at 40,000 companies in the UK using such facilities, but advances have • increased 20% over the past 3 years, mostly in smaller SMEs. 3
Four operating divisions Dealing with over 21,000 SMEs and consumers Vehicle Finance Asset-secured Asset Finance Commercial (i.e. and PG-backed invoice) Finance Loans Origination £30.3m Origination £11.9m Origination £23.1m Origination £22.5m All new and used vehicle Book £48.1m Book £85.4m Book £10.0m finance deals brokered Interest rate 4%+fees Interest rate 10-18% Interest rate 14-22% to other lenders – no Typical term 2 years Typical term 3 years Typical term 3 years balance sheet risk 4
Core competencies Robust lending criteria, processes and risk/reward pricing Spread is fundamental in SME lending and creates a natural hedge: • Largest sector by value and number of deals < 5% of portfolio • Multiple SIC codes – top 10 sectors account for only 1/3rd of the portfolio • Largest lease c. £0.5m. Average deal size £15k. Largest IF facility c. £2.0m. Average £150k. • LTV advance on hard assets, typically 70%; on IF facilities, typically 55% of sales ledger • Security is paramount and timely follow-up essential: • Personal guarantees from the directors/proprietors of each SME for all soft asset leases and loans • Assiduous follow-up on arrears and impairments, turning impaired deals into Charging Orders • Strong track-record in collections; circa 70% of impaired value recovered over the past 10 years • Margin is risk-priced to facilitate robust growth: • Policy decision not to relax price or credit criteria to chase aggressive top-line growth • Net interest margin of c.12% • 5
Robust business model Reasons we stay strong through the credit cycle Spread and diversity – of introducer channel, asset category, lending product, sector, geography, • deal size and deal quality Operating model flexibility – lending and broking • Borrower resilience – lending to independent businesses for ‘staple - diet’ consumer products, not • multiple-outlet, retail chain businesses reliant on discretionary spend Small individual exposures – meaning that impaired receivables can typically be recovered through • charging orders and payment plans Human underwriting – eyes on every deal • Adequate provisions in line with IFRS9 – carrying bad debt provisions roughly twice the amount of • annual net write-offs Fixed interest rate deals – no exposure to interest rate rises for business already written • 6
H1 19/20 Financial Highlights Sound like-for-like, year-on-year performance +7% • Total deal origination £87.8m from £82.3m* ✓ -3% • Revenue £15.6m down from £16.0m* Due to revenue mix -3% • Blended cost of borrowing 3.9% down from 4.0%* ✓ Due to revenue mix, -8% • Profit before tax and exceptional items £3.2m down from £4.1m* investment and provisions -14% • Fully diluted earnings per share 2.70 pence per share from 3.14* As above +1% • Own book lending portfolio £143.5 up from £141.7m** ✓ +4% • Net assets £56.1m up from £53.8m** ✓ +2% • Funding facilities £170.7m up from £167.1m** ✓ +16% • Bad debt provision 2.2% of net portfolio up from 1.9%** ✓ Notes * comparative is H1 2018/19 ** comparative is 31 May 2019 7
Deal origination and revenue Hybrid model in action = risk management Change Change H1 2020 in mix % FY 2019 in mix % FY 2018 NEW DEAL ORIGINATION £m mix % £m mix % £m mix % Assets, Loans and IF: Value of deals written on own-book 27.5 48% 56.1 52% 62.9 60% Value of deals broked-on 30.0 52% 50.8 48% 42.7 40% 57.5 106.9 105.6 Vehicle: Value of deals written on own-book 0 0 0 Value of deals broked-on 30.3 54.1 37.3 30.3 54.1 37.3 Value of deals written on own-book 27.5 31% 56.1 35% 62.9 44% Value of deals broked-on 60.3 69% 104.9 65% 80.0 56% Total origination 87.8 161.0 142.9 REVENUE Interest & other lending related income 12.1 78% 25.3 80% 24.8 83% Commission from broking 3.5 22% 6.5 20% 5.2 17% 15.6 31.8 30.0 8
Own-Book Portfolio Reflects operating model flexibility • Gross* lending portfolio at 30 November 2019 was £143.5m, including £20.8m unearned interest (i.e. future revenue) • Analysis of the net portfolio by lending division was as follows: Analysis by division Portfolio £m Provision £m % Asset 70.4 2.4 3.4% Loan 8.3 0.1 1.2% Invoice Finance 44.1 0.2 0.4% 2.7 (Blended) 2.2% Group 122.8 *Gross portfolio means total receivable including unearned interest. **Net portfolio, means total receivables less unearned interest income. 9
Diversified lending Credit risk management – no major concentrations Top 10 by Principal o/s (leases, loans, HP) & credit facility (invoice financing) £ M's 10 Top 10 by deal number Unlicensed restaurants 4.9% 9 Maintenance & repair of vehicles 8 Licensed restaurants 4.0% 4.8% 7 10.7% Hairdressing & beauty 4.9% 6 Public houses & bars 5.0% 5 2.6% Take away food 10.5% 2.5% 5.1% 2.2% Business support services 4 5.8% Retail sale in food, beverages 3 1.5% 1.5% 1.5% 9.4% or tobacco 1.2% 7.0% Freight transport by road 2 0.9% 7.8% Specialised construction activities 1 0 Freight Business Specialised Unlicensed Licensed Maintenance Hairdressing & Other Other Construction transport by support construction restaurants restaurants & repair of beauty personal manufacturing of civil road services activities vehicles service engineering activities projects 10
Funding Ample headroom for organic growth Key Funding Lines - £m Facility Usage at 30 Nov. 19 Headroom Bank Overdraft (Nat West) 1.0 0 1.0 Block Funding lines (no non-utilisation fees) 116.8 51.5 65.3 Secured Loan Note & other HNW loans 15.9 8.2 7.7 Back-to-back facility (RBS IF) 37.0 31.9 5.1 Total Funding Facilities 170.7 91.6 79.1 • Gearing remains contained at circa 3.1x Net Tangible Assets • 3.9% blended average borrowing rate; reduced through reduction in ‘Block’ rates due to treasury ‘bulk buying’ and economies of scale • Potential opportunities for longer term and/or cheaper funding being explored. Block funding providers: British Business Bank, Aldermore, Siemens, Hitachi, Hampshire Trust, BLME, Conister, Investec, Shawbrook 11
Balance Sheet £m And key KPIs 30/11/19 31/5/19 H1 20 FY 19 Assets Non-Current Assets 74 82 Net Interest Margin 12% 12% • Current Assets 90 76 Total Assets 164 158 Gross margin 64% 68% • Equity Cost to income ratio 0.81 0.75 • Retained Earnings 22 20 Share capital & premium 34 34 Earnings per share • Total Equity 56 54 Basic 2.76p 7.30p • Fully diluted 2.70p 6.61p • Liabilities Non-Current Liabilities 31 31 Interim Dividend (per share) 0.36p 0.28p • Current Liabilities 77 73 Total Liabilities 108 104 Total Equity and Liabilities 164 158 Notes 12 * H1 prorated to compare on a like for like basis
Competition Fragmented sector - few at scale in small-ticket lending Alternative finance Quoted companies Private companies Banks Challenger Banks platforms Tend to be single Quantum Finance HSBs lend to SMEs, but Also lessors, but do not product focused, (Investec) and multiple Growing sector, but no longer structured to operate in the smaller comparatively small banks, or lending to regional players such as support smaller SME end of the market. (rate of growth consumers e.g. PCF, Armada, Kingsway, businesses Lend to us wholesale. Orchard, Provident slowing) Tower, Propel Alternative finance Banks Challenger Banks Quoted companies Private companies platforms ✓ ✓ ✓ ✓ Flexibility X X ✓ ✓ ✓ ✓ ✓ Speed of service X ✓ ✓ ✓ Personal approach X X X ✓ ✓ ✓ Range of products X X X 13
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