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RNS
Orchard Funding Group PLC  -  ORCH   

Final Results

Released 07:00 17-Oct-2017

RNS Number : 7491T
Orchard Funding Group PLC
17 October 2017
 

17 October 2017

 

Orchard Funding Group PLC

('Orchard Funding Group' or the 'company' or the 'group')

 

Full Year Results

For the 12 months ended 31 July 2017

 

Orchard Funding Group PLC, the finance company which specialises in insurance premium finance and the professions funding market, announces its audited full year results for the year ended 31 July 2017.

 

Highlights

·      The group continues to be strongly cash generative, with revenues in the period increasing by 31.4% to £4.56 million for the 12 months to 31 July 2017 (31 July 2016: £3.47 million)

·      Profit after tax rose as the increased investment from last year began to feed through onto the bottom line. The increase was 34.0% compared to a fall in 2016 of 2.9%.- £1.34 million compared to £1.00 million in the previous year

·      Earnings Per Share ("EPS") rose in the period by 33.2% to 6.26p (31 July 2016 4.70p)

·      The group lent £63.35 million to clients in the 12 months to 31 July 2017 an increase of 30.5% (31 July 2016 £48.56 million)

·      In August 2016, Barclays bank increased our facility from £10 million to £15 million

·      We have also further increased our access to liquidity in July 2017 with  a new bank funder providing us with a facility from August 2017

·      The board remains committed to implementing its progressive dividend policy in 2018

 

Ravi Takhar, Chief Executive Officer of Orchard, said: ""I am very pleased with Orchard's performance during the year. We are passionate about our business and continue to grow in a prudent and controlled manner. We will continue to focus on our core markets and as we have already demonstrated this will result in an increased share of those markets. Trading since the period end has continued to be robust and in line with management expectations. We have a number of strategic avenues available to us to support the group's growth and we look forward to the year ahead with cautious optimism."

 

The board is pleased to propose a final dividend of 2 pence per share to be paid on 22 December 2017 to shareholders on the register on 8 December 2017, with an ex-dividend date of 7 December 2017. The final dividend is subject to shareholder approval at the company's upcoming annual general meeting ("AGM").

 

The AGM is to be held on 16 December 2017 at the company's registered office. Notice of the AGM will be sent out in November 2017.

 

 

 

For further information please contact

 

Orchard Funding Group PLC                                                                        +44 (0)1582 635 507

Ravi Takhar, Chief Executive Officer

 

finnCap Limited (Nomad and Broker)                                                      +44 (0)20 7220 0579

Jonny Franklin-Adams (Corporate Finance)

Emily Watts (Corporate Finance)

Jeremy Grime (Research Director)

 

 

               

For Investor Relations please go to: www.orchardfundinggroupplc.com



Group financial highlights

 


2017

2016

2015





Lending volume

£63.35m

£48.56m

£43.81m

Revenue

£4.56m

£3.47m

£3.41m

Gross profit

£4.15m

£3.15m

£2.46m

Profit before tax1

£1.64m

£1.27m

£1.29m

Profit after tax1

£1.34m

£1.00m

£1.03m

EPS (pence)2

6.26

4.70

8.77

DPS (pence)3

3.00

2.81

1.17

Return on capital employed4

6.73%

6.41%

8.24%

Return on equity

10.16%

8.14%

8.89%





 

1.   Costs associated with the parent are included in the profit before and after tax above. These are not reflected in the information on subsidiaries shown below.

2.   There are no factors which would dilute earnings therefore fully diluted earnings per share are identical.

3.   Dividends per share are based on interim dividends paid in the year and proposed final dividend for the year.

4.   See the Group strategic report for further information on key performance indicators ("KPIs").

 

 

 

Information on segments

 

 

2017

2016

2015

Insurance premium funding




Lending volume

£43.04m

£32.79m

£28.28m

Revenue

£3.06m

£2.26m

£2.13m

Gross profit

£2.66m

£1.94m

£1.71m

Profit before tax

£1.56m

£1.06m

£0.99m

Profit after tax

£1.37m

£0.94m

£0.77m

Return on capital employed

9.15%

7.79%

9.04%

 

 

 

 

Professional fee funding




Lending volume

£20.31m

£15.77m

£15.53m

Revenue

£1.50m

£1.21m

£1.28m

Gross profit

£1.49m

£1.21m

£0.75m

Profit before tax

£0.68m

£0.73m

£0.36m

Profit after tax

£0.57m

£0.58m

£0.29m

Return on capital employed

8.91%

11.55%

7.64%

 

 

 

 

 

The information given above relates to the main subsidiaries. Orchard Finance is not included as its results in terms of income, expenditure, assets and liabilities are negligible (gross assets were £8.3k and total liabilities £7.5k, giving net assets of £0.8k at 31 July 2017 (£0.07k at 31 July 2016).

 

In the six months to 31 January 2017, the board reported segmental information by sub dividing insurance premium funding between direct and broker finance companies. The risks, security and average returns are not materially different between these types of business therefore there is no meaningful information to be gained by separating them. They have therefore been merged in these accounts. The amounts originally formed part of the half year accounts which were unaudited. These figures are therefore also unaudited.

 

 

 

 

 

Below are revised tables showing the combined situation for the six months to 31 January 2017 and the six months to 31 January 2016. These figures are unaudited.

 

 

 

 6 months to 31 January  2017

6 months to 31 January  2016

Insurance premium funding



Lending volume

£20.6m

£16.46m

Revenue

£1.44m

£1.06m

Gross profit

£1.25m

£0.68m

Profit before tax

£0.71m

£0.57m

Profit after tax

£0.62m

£0.51m

Return on capital employed

3.87%

3.86%

 

 

 

Professional fee funding



Lending volume

£10.52m

£7.17m

Revenue

£0.68m

£0.58m

Gross profit

£0.68m

£0.58m

Profit before tax

£0.36m

£0.38m

Profit after tax

£0.29m

£0.30m

Return on capital employed

3.85%

5.54%

 

 

 

 

At the end of the six months to 31 January 2016, Orchard Funding (professional fee funding) had a substantial amount of cash in the bank, post the IPO a few months earlier. The return on capital employed (ROCE) percentage takes account of bank balances and therefore  the ROCE is disproportionately high for that period.

 

 

 



 

Chairman's statement

Orchard Funding Group plc has had a very satisfactory year. I am pleased to report that this success has been driven by a significant increase in overall lending volumes, which grew by 30.5% to £63.35m. This in turn fed through to an increase in group revenues of 31.4% to £4.56m, a record for the group. The position at the year end showed a 6.7% increase in shareholders' equity from £12.34m to £13.17m.

Investment in staff and systems meant that administrative costs in the business grew by 33.3% to £2.51m. This was a little ahead of the growth rates seen in both lending and revenue but your board considers these investments to be important and necessary to ensure that the business continues to support and delight our customers and continue to provide them with the levels of service that they have, rightly, come to expect of us.

The group's profit before tax rose by 29.1% to £1.64m, ahead of market commentators' expectations. Group earnings per share rose by 33.2% to 6.26p, a more than respectable outcome for the year.

The level and growth of dividends announced by any company is often seen as a mark of the confidence that the directors have in the future of the business in question. It is no different for Orchard Funding Group and we are happy to propose a 6.76% increase in the annual dividend (including the interim dividend) to 3.00p.

The group's main focus of operations is the insurance premium finance market, currently an area growing well and showing every sign of continuing to so do. The best of that growth for the Orchard Group, we believe, will come from the direct insurance side of the business. Although the professional fee funding market is an important part of the group's profit stream, the rates of growth expected from this area by your board are likely to be more modest by comparison.

The macro background remains generally favourable for the group. Interest rates in the UK remain low but should they rise in the future the group is well placed to react quickly. Loans are generally for a 10 month period and none are longer than 12 months in duration.

However, if conditions are of benefit to the group then they are inevitably also helpful to our competitors. We have seen strong competition in some areas of our focus with pressure being put upon rates. The largest players in the insurance premium finance market continue to aggressively protect their market positions. We are seeing increasing examples of insurance brokers entering into 2-3 year exclusivity agreements and receiving substantial advance commission payments in return for introducing their business to certain insurance premium finance providers. That said, we believe that we are in a strong position to continue to grow our lending volumes at acceptable rates without needing to resort to such tactics.

Your board remains focussed on the cost of our own borrowing and continually looks to seek out new ways in which to keep this as low as possible. Potential sources of liquidity for the group are always examined and we continue to keep all our options under review.

During the year we acquired Orchard Finance which operated Orchard Lending Club, a peer-to-peer initiative. It is still early days but we believe that this is the first product in the insurance premium/professional fee funding space to be introduced in the UK market, and has attracted considerable interest in the financial press.

As we reported at the interim stage the new consumer credit application regime has led to delays in applications as the FCA is inundated. To try and avoid these delays, we have created structures to enable brokers to rely on our regulatory permissions whilst still obtaining the benefits of lending without the regulatory burden. Interest in this approach remains considerable and we believe we are the only providers of such a service in the UK at present.

As shareholders would expect, the board continues to assess markets adjacent to our current areas of business where we are able to bring our expertise, products and solutions to bear for the benefit of these markets. We will, of course, report on any developments as and when the occasion arises.

I am also very pleased to report that the board of Orchard Funding Group has been strengthened with the appointment of Mr. Iacovos Koumi as a non-executive director. Iac brings many years of experience in matters of finance and banking and we have already benefitted from his wisdom in our deliberations. We welcome him warmly.

The board is very satisfied with the progress of the group to date. We will continue to examine all appropriate strategic avenues for the group and will also continue to make the appropriate investments necessary to ensure continuing success while, at the same time, remaining focussed on the cost of our borrowing, the rates returned and the size and quality of the loans we provide.

We look to the future with confidence.

 

 

 

David A Clark

Chairman

 

16 October 2017

 

Chief executive's review

We are pleased to report that we continue to build on the progress we made last year.

Our lending and our pipeline of new clients continue to grow in all the markets in which we operate.

Our two key competitors are still the largest suppliers of premium funding and professions finance in the UK market. Both companies continue aggressively to protect their multi-billion pound patch, but our focused sales effort continues to win us new business.

We have also significantly improved the liquidity available to the group, by renewing our £15m facility with our existing bankers for a further 12 months and obtaining a new banking facility from another banking institution.

Our investors are aware that we have been working on obtaining a bank licence. I am pleased to report that this process is moving forward in a positive direction and gaining momentum. We will continue to update investors with our progress on this exciting development to the business.

We remain a small, lean, hardworking and profitable finance company in a huge financial services market. We are passionate about our business and have now operated in our market for nearly 17 years. We will continue to work as hard as we can and to the best of our abilities. We are confident that this will result in an increased share of our market.

Insurance premium finance and professional fee finance is a multi-billion pound market, which is dominated by two large and well managed companies. We will continue to work hard to take a very small portion of the market for the group. We have the capital, liquidity and a great team to achieve our conservative plans and projections for the business and are looking forward to our continued growth over the coming years.

We paid a dividend of 1.405p per share in December and an interim of 1p per share in April. I am happy to announce that the board will propose a final dividend of 2p per share to be paid in December 2017, subject to shareholder approval.

 

 

 

 

 

 

 

Ravi Takhar

Chief executive officer

 

16 October 2017



 

Group strategic report

Strategy and objectives

The group's principal objective is to increase our profitability in a prudent, sustainable manner. The reason for this is that our stakeholders (employees, shareholders, partners, other customers, creditors and government) will all benefit from profit growth in the group.

We have two main financial strategies for doing this:

·      to grow our lending book profitably. In the short to medium term, the directors believe that the group's aims will be achieved first by increasing the number of our insurance broker and professional firm clients and secondly, by increasing the volume of business from our insurance broker and professional firm partners. This will come from a dedicated sales team who have achievable targets and by additional funding. Growth in our book also requires further increasing our capital base which will enable us to support higher levels of borrowing, leading to better liquidity and economies of scale;

·      to obtain a bank licence. This will enable us to increase our liquidity further and reduce our reliance on commercial lenders.

Our financial strategy is bolstered by our non-financial strategies. First, we consider those brokers and professional firms with whom we work as our partners. We provide them with the tools they require to run their own finance businesses or we directly provide their customers with finance. We have found that in this way these businesses become supportive participants in our objectives because they see how this will assist them in achieving theirs. Our sales team are given support in meeting the targets set for them by finding these target partners, arranging prospect meetings and, where required, making use of senior personnel to help them close the deal. Care of our partners is of paramount importance in our business culture and this aspect is a constant part of training for all staff. Feedback from our partners in this area has been positive. Performance targets set for our staff (for example, answering partner enquiries promptly) have all been met.

The aim going forward is to build strongly on our core markets. The board does consider complementary markets to augment the group's core businesses but will only enter these if, after detailed analysis, it will assist in achieving the overall objectives.

 

Our business model

The group has two main businesses:

·    Providing credit to limited companies, partnerships and consumers to enable them to spread the cost of their insurance premiums, both through premium funding companies, owned by independent insurance intermediaries, and directly on behalf of other independent insurance intermediaries; (mainly conducted by Bexhill) and

·    Providing credit to entities similar to those dealt with by Bexhill to enable them to spread the cost of their professional fees (conducted by Orchard).

 

Bexhill

Bexhill borrows up to 75% of the amount advanced to each of its clients from its bankers. The balance is provided by Bexhill from its own resources. Its capital and reserves were £2.94m as at 31 July 2017. Barclays has renewed Bexhill's facility each year since 2002. Bexhill's current facility is £15.0 million. Barclays performs regular reviews and supplements these with an audit every six months by external independent auditors. Bexhill has operated within a disciplined lending environment since its inception. Insurance broker borrowing limits are set based on financial information, credit reports, regulatory requirements and other qualitative factors obtained from the broker. In addition, an annual review process, including regulatory permissions and credit checks, is conducted and each broker is monitored monthly for the company's financial exposure to that broker.

Bexhill's external cost of finance was approximately 3.4% in the financial year to 31 July 2017.

Orchard

Orchard borrows through Orchard Finance (badged under Orchard Lending Club), the peer to peer lender which was set up last year. At 31 July 2017 Orchard's capital and reserves were £0.68m. In the past Orchard's business was subject to regular audits by its finance supplier. That led to Orchard developing a highly disciplined approach. The directors also set credit limits on professional firms and obtain credit reports as part of the underwriting process. In addition, Orchard performs an annual review process and monitors exposure to each accountancy and professional firm monthly.

Orchard's external cost of finance was, on average, 4.06% in the financial year to 31 July 2017.

As stated in the second paragraph above, a bank licence will increase our liquidity and reduce reliance on third party financing.

 

With both companies it is the simplicity of the premise which is the greatest strength - borrow money at one rate and lend it at a higher rate. Cash flow is good and overhead is well controlled.

 

The business environment

The insurance premium finance market in which the group operates is still expected by the board to grow over the next five years in line with the general insurance market. We believe that most of our premium finance growth will come from the direct insurance side rather than from broker premium funding companies, although the premium funding company activities will remain the largest part of the business for the foreseeable future (see our business model above). The market for professional fee finance is also expected to grow, although growth in this area is not expected to match the insurance premium funding side.

In June 2016 the UK voted to leave the European Union. This has created a situation of uncertainty for business generally. Given our market, the board believes that the direct effect of Brexit on Orchard will be minimal in the short term. Conditions arising from this process (e.g. a fall in sterling) appear to have had little impact on us so far.

In August 2016 the Bank of England cut its base rate to 0.25%. Recent statistics regarding the rate of inflation indicate that rates will remain low in the very short term but are likely to rise as inflation and debt rises. Even if rates do increase, the nature of the business will allow fairly quick reaction to this (our business is short term loans - ten months on average and none over twelve months). The board believes that further opportunities will present themselves as liquidity becomes more important to businesses and individuals (for borrowers our service is an additional line of liquidity).

The business environment has certainly provided some challenges this year (e.g. the uncertainty over Brexit and increased competition) but it still affords a real opportunity for the group, with a growing market for its products and, currently, relatively stable interest rates.

 

Principal risks and uncertainties

The group's activities expose it to a variety of financial risks;

·      credit risk;

·      liquidity risk; and

·      cash flow interest rate risk.

The group's overall risk management programme focuses on reducing the effect of these risks on the group's financial performance. A regular assessment of the principal risks affecting the group is carried out by the board of directors. It identifies, evaluates and mitigates financial risks and has written policies for credit risk and liquidity risk.

The principal risks, an explanation of what they are, their impact on the group and how they are mitigated, are shown in Table 1. Our sole business is lending money and therefore the risks apply to this area (although we have segmented these for reporting purposes).

There are other risks associated with general financial uncertainty in this business (or in any other business), e.g. loss of staff and insurance risk. These have been reviewed but are not key or principal risks.



 

Table 1 principal risks

 

 

Risk

 

Explanation of risk

 

Impact on the group

Assessment of change in risk year-on-year

 

 

Mitigation of risk

Credit risk

The risk that debtors will default.

A major loss could have a serious effect on group profit. Although loans to insurance broking finance companies can be substantial, we have a claim on the underlying agreements which are considerably smaller. For this reason any losses are likely to come from relatively small debts, therefore these would have little impact on liquidity or solvency.

This is an ongoing situation. There has been no change in this risk.

Money is only lent for periods up to one year through regulated introducers who guarantee the loans. Borrowing limits are set based on prudent underwriting principles.

Impairment reviews are regularly conducted to identify potential problems early.

Liquidity risk

A lack of funding to finance our business.

If our funding had been halved for the whole of the 2017 year, and there had been no changes in overheads, there would still have been a pre-tax profit of approximately £0.7m. There is no threat to solvency or own liquidity through a reduction in funding.

This is an ongoing situation. There has been no change in this risk.

Our bankers have supported us since 2002 and last year increased our funding by 50%. They have renewed our facility for another year and have indicated, so far as they are able, that they have no wish to withdraw that support. Other lines of credit have since been opened to us and we have our own resources to draw on which were £13.2m at 31 July 2017.

Cash flow interest rate risk

An increase in bank rate means that loans already made need to be covered by new borrowing at a higher rate.

 

Loans already made will be effectively charged at a lower margin for part of the borrowing term.

In any realistic scenario, liquidity and solvency would not be significantly affected.

This is an ongoing situation. There has been no change in this risk.

Management is in regular contact with its bankers and routinely reviews the financial situation in the economy. Loans made are relatively short term (no more than twelve months with the average at ten) so any increase is likely to have a fairly short term impact.

IT risk

Disruption to or failure of our IT systems.

Persistent failures would have an enormous impact on our business and could lead to its collapse. Clearly, this would affect solvency. However, our controls are such that even a minor disruption is very quickly picked up and action taken. We have never had this type of failure.

This is an ongoing situation. There has been no change in this risk.

There are in place business continuity procedures and security measures in the event of IT failures or disruption, including backup IT systems for business critical systems. These are reviewed with our providers at least annually but more frequently if work is being carried out on the system.

 

 

 

In summary:

·      credit risk is reduced by a robust system of checks on borrowers and by third party guarantees;

·      liquidity risk has been alleviated by a new source of funding from another bank and should be further eased by obtaining a bank licence;

·      cash flow interest rate risk is mitigated by the fact that loans are short term and by regular interaction with our bankers; and

·      risk from disruption of the IT system is avoided by thorough business continuity procedures.

Our internal control systems ensure that the incidence of fraud or error is kept to a minimum. Much of the process is automated and provided and maintained by a third party.

The nature of the business is that loans are made either to introducer finance companies or to clients of our introducing partners. Although there is high concentration when lending to finance companies (at 5 October 2017 the largest nominal exposure was 21.93% of our loans), the individual debts making up these loans are assigned to us in the event of default.  The reality, therefore, is that our exposure is low. At 5 October 2017, (the latest date of review), total outstanding loans were £27.95m, of which the highest was £0.49m, representing 1.75% of the outstanding amounts. This was the level of our highest exposure at that date. The situation was similar throughout the year and is expected to remain so for the foreseeable future.

We have experienced late payments in the past. The majority of these are through clients of our introducers (or the introducers themselves) changing banking details. Where there are other issues which cause late payment we investigate these. During the year to 31 July 2017 there was one situation which arose causing a loss of £52,681 (see note 10). Because of the size of the individual repayments. any impact on our business through late payments would be negligible.

 

Development and performance of the business

The fundamental function of the business (whether the insurance side or fee funding side) is to lend money safely. To do this the group has relied on obtaining funding to provide loans to clients of its partners (insurance intermediaries and professional firms). The ability to provide this money is crucial to the business and availability of funds is a key area to enable future growth. For this reason the bank licence is being applied for.

The ability to find borrowers is also key to the business. This has been discussed at the beginning of the Group strategic report. The more formal and extensive marketing plan, launched in the previous year, has now reaped benefits. Our recruits to the sales team are contributing substantially to the growth of the group.

Our margin is another key area. Upward changes in base rate could erode our margins (but only in the short term). Should rates increase, our rates would also increase to reflect this. Our own analysis indicates that the influence on our business would be negligible. Indeed, there was a reduction in bank rate during the year which has had very little impact.

Overheads in this business are relatively stable. We have increases resulting from an increased sales function, increasing our bank borrowings and enhancements to our IT systems. Other overheads have not altered significantly.

The board has identified the following financial KPIs:

·      Lending.

·      Gross rate on loans made.

·      Borrowing and other capital resources.

·      Cost of borrowing.

 

The tables below give a breakdown of our KPIs on a group basis and by segment.

 

2017

2016

2015

Group




Loans made in the year

£63.35m

£48.56m

£43.81m

Average gross rate on loans made

6.06%

6.22%

7.41%

Level of borrowing

£13.79m

£9.24m

£7.06m

Own capital resources

£13.17m

£12.34m

£11.64m

Cost of borrowing

£0.33m

£0.24m

£0.85m





 



 

Insurance premium funding




Loans made in the year

£43.04m

£32.79m

£28.28m

Average gross rate on loans made

5.49%

5.64%

6.05%

Level of borrowing

£13.54m

£9.2m

£7.06m

Own capital resources

£2.94m

£2.42m

£2.28m

Cost of borrowing

£0.32m

£0.24m

£0.33m

Revenue

£3.06m

£2.26m

£2.13m

PBT

£1.56m

£1.06m

£0.99m





 

Professional fee funding




Loans made in the year

£20.31m

£15.77m

£15.53m

Average gross rate on loans made

7.27%

7.44%

8.11%

Level of borrowing

£0.25m

£0.04m

£0.00m

Own capital resources

£0.68m

£0.52m

£0.54m

Cost of borrowing

£0.01m

£0.00m

£0.52m

Revenue

£1.50m

£1.21m

£1.28m

PBT

£0.68m

£0.73m

£0.36m





NB. In the audited accounts loans made, revenue and PBT are shown in graphical form. We are unable to do this in the preliminary announcement so these are shown as part of the tables.

 

In 2015 Orchard was funding its business through Bracken Holdings Limited at an average cost of 12%. Profit was therefore disproportionately low in 2015.

 

In terms of non-financial indicators, the most important of these is quality of management and staff.

Our senior members of staff have a substantial number of years of experience between them working in the business. Because, over the years, they have taken on additional responsibilities, they know each area of the business well. 

All our staff are fully trained for the role which they take. Customer care is of paramount importance in our business culture and this aspect is a constant part of training for all staff members. Feedback from our partners in this area has been very positive. Performance targets set for our staff have all been met.

People are happy to contribute towards our success and their views are always listened to by senior management. In many cases ideas which come forward are put into action and in all cases explanations are given when this does not happen.

Going concern

The financial statements have been prepared on a going concern basis which assumes that the group will be able to continue its operations for the foreseeable future.

The directors continually assess the prospects of the group. Forecasts are prepared for a three year period, on a rolling basis. These are also subject to sensitivity analysis, the main aspect of which is the value of loans made. In all scenarios, there is no indication that there will be a problem in continuing as a going concern. However, it is important to appreciate that the further away in time the estimate, the less reliable it is. The forecasts are prepared on the basis that bank base rate will remain where it is. This is clearly highly unlikely in the longer term. However, should rates from the bank rise we are in a position to react (as mentioned in the section on cash flow interest rate risk above), within a short period of time, with relatively little impact on our margins.

The key assumptions and bases used in the forecasts are:

·    Loans through our partners will grow from circa £64m in 2017 to circa £120m in 2020;

·    Liquidity will be available to fund those loans;

·    Margins will remain stable on both corporate and direct business;

·    Overhead will increase at the rate of inflation with stepped increases at certain points (when capacity constraints are hit);

·    The funding system will be able to accommodate the increased business.

The consolidated statement of financial position shows the situation at the year end in detail.

The two subsidiaries have traded for a number of years and have grown at a rate commensurate with finance available at a given point in time.

The directors have prepared and reviewed financial projections for the 12 month period from the date of signing of these financial statements. Based on the level of existing cash and the projected income and expenditure, the directors have a reasonable expectation that the company and group have adequate resources to continue in business for the foreseeable future. Accordingly the going concern basis has been used in preparing the financial statements.

Environmental, social responsibility, community, human rights issues and gender diversity

The group is a small group. The impact of the group on the environment consists of power used in an office environment and fuel used for getting to and from work. Environmental issues are therefore negligible.

The group operates out of an office in Luton. Most of our employees are based in the local area. We therefore contribute to the economy of the local community. None of our employees earn less than £10 per hour (before any bonuses). We provide health club membership and childcare for any staff who wish it. We review the background of our suppliers and will not use any supplier which, as far as we are aware, breaches our own high standards as regards human rights.

The main board of directors is currently all male. The main reason for this situation is that the group took in outside board members who were best suited to the positions. The board of the two subsidiaries consist of one male and two females each. Males make up 41.67% of the employees in total (36.00% in 2016).

Approved by the directors and signed by order of the board

 

 

 

 

 

Liam McShane,

Company secretary

 

16 October 2017


Consolidated income statement           

 

 


2017

2016

 

Notes

£

£

Continuing operations




Revenue

4

4,559,966

3,468,864

Finance costs

4

(329,478)

(238,079)

Other operational costs

4

(77,550)

(76,025)

Gross profit


4,152,938

3,154,760

Administrative expenses

4

(2,511,941)

(1,884,030)

Operating profit and profit before tax


1,640,997

1,270,730

Tax

7

(303,214)

(266,653)

Profit for the year from continuing operations 


1,337,783

1,004,077





Other comprehensive income 


-

-









Total comprehensive income for the year attributable to the owners of the parent 


1,337,783

1,004,077

















Earnings per share attributable to the owners of the parent during the year (pence)







Basic and diluted

8

6.26

4.70



 

 

 

 

 

 



 

Consolidated statement of financial position

 

 



2017

2016

 


Notes

£

£

Assets










Non-current assets





Property, plant and equipment



76,567

95,058

Intangible assets



74,914

43,873

Trade and other receivables


10

22,720

-

 

 

 

174,201

138,931






Current assets





Trade and other receivables


10

28,523,011

22,003,868

Cash and cash equivalents:





     Bank balances and cash in hand



1,728,484

1,390,098

 

 

 

30,251,495

23,393,966






Total assets



30,425,696

23,532,897

 

 

 



Equity and liabilities










Equity attributable to the owners of the parent




Called up share capital



213,542

213,542

Share premium



8,691,910

8,691,910

Merger reserve



890,725

890,725

Retained earnings



3,369,664

2,545,449

Total equity

 

 

13,165,841

12,341,626






Liabilities





Non-current liabilities





Borrowings


11

57,458

27,318

Deferred tax



7,482

10,078

 

 

 

64,940

37,396






Current liabilities





Trade and other payables


12

3,181,938

1,657,030

Borrowings


11

13,733,504

9,207,927

Tax payable



279,473

288,918


 

 

17,194,915

11,153,875

Total liabilities

 

 

17,259,855

11,191,271






Total equity and liabilities



30,425,696

23,532,897


 

 

 

 

 



 

Consolidated statement of changes in equity

 

 

Called up






share

Retained

Share

Merger

Total


capital

earnings

Premium

reserve

equity


£

£

£

£

£

Balance at 1 August 2015

213,542

1,841,398

8,691,910

890,725

11,637,575







Changes in equity






Total comprehensive income

-

1,004,077

-

-

1,004,077

Transactions with owners:






Dividends paid

-

(300,026)

-

-

(300,026)







Balance at 31 July 2016

213,542

2,545,449

8,691,910

890,725

12,341,626







Changes in equity






Total comprehensive income

-

1,337,783

-

-

1,337,783

Transactions with owners:






Dividends paid

-

(513,568)

-

-

(513,568)







Balance at 31 July 2017

213,542

3,369,664

8,691,910

890,725

13,165,841







 

Retained earnings consist of accumulated profits and losses of the group. They represent the amounts available for further investment in group activities. Only the element which constitutes profits of the parent company are available for distribution.

The share premium account arose on the IPO on 1 July 2015 at a premium of 95p per share. Costs of the IPO have been deducted from the account as permitted by IFRS.

The merger reserve arose through the formation of the group on 23 June 2015 using the capital reorganisation method as shown in note 2.3 on page 28 of the statutory accounts.

 


 

Consolidated statement of cash flows

 

 



2017

2016




£

£

Cash flows from operating activities:





Profit before tax



1,640,997

1,270,730

Adjustment for depreciation and amortisation



47,913

20,521

Hire purchase interest



2,376

1,466




1,691,286

1,292,717

Increase in trade and other receivables



(6,541,863)

(4,088,870)

Increase/(decrease) in trade and other payables


1,524,908

(178,878)




(3,325,669)

(2,975,031)

Tax paid



(315,256)

(253,245)






Net cash absorbed by operating activities



(3,640,925)

(3,228,276)











Cash flows from investing activities





Purchases of property, plant and equipment



(1,706)

(61,924)

Purchase of intangible fixed assets



(58,757)

(50,949)






Net cash absorbed by investing activities



(60,463)

(112,873)











Cash flows from financing activities





Dividends paid



(513,568)

(300,026)

Net proceeds from borrowings



4,564,919

2,185,099

Borrowings repaid



(11,577)

(8,627)






Net cash generated by financing activities



4,039,774

1,876,446






Net increase/(decrease) in cash and cash equivalents


338,386

(1,464,703)

Cash and cash equivalents at the beginning of the year


1,390,098

2,854,801






Cash and cash equivalents at the end of year


1,728,484

1,390,098






 

 

 

 

 

 

 

 

 



 

Notes to the consolidated financial statements

1.     Preliminary announcement

Orchard Funding Group plc ("Orchard") is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the AIM market of the London Stock Exchange. The registered office is 721 Capability Green, Luton, Bedfordshire LU1 3LU and the principal place of business is the United Kingdom.

The preliminary announcement set out above does not constitute Orchard's statutory financial statements for the years ended 31 July 2017 or 2016 within the meaning of section 434 of the Companies Act 2006 but is derived from those audited financial statements. The auditor's report on the consolidated financial statements for the years ended 31 July 2017 and 2016 is unqualified and does not contain statements under s498(2) or (3) of the Companies Act 2006. 

The accounting policies used for the year ended 31 July 2017 are unchanged from those used for the statutory financial statements for the year ended 31 July 2016. The 2017 statutory accounts will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

2.     Compliance with accounting standards

While the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS.

Accounting standards adopted in the year

No new accounting standards that have become effective and adopted in the year have had a significant effect on the Group's Financial Statements.

Accounting standards issued but not yet effective

At the date of authorisation of the Financial Statements, there were a number of other Standards and Interpretations (International Financial Reporting Interpretation Committee - IFRIC) which were in issue but not yet effective, and therefore have not been applied in these Financial Statements. The Directors have not yet assessed the impact of the adoption of these standards and interpretations for future periods, but do not expect them to have any significant impact on the Group's financial statements. 

3.     Going concern

The financial statements have been prepared on a going concern basis which assumes that the Group will be able to continue its operations for the foreseeable future. The Directors have prepared and reviewed financial projections for the 12 month period from the date of signing of these financial statements. Based on the level of existing cash and the projected income and expenditure, the Directors have a reasonable expectation that the Company and Group have adequate resources to continue in business for the foreseeable future. Accordingly the going concern basis has been used in preparing the financial statements. This is discussed more fully in the Group strategic report.



 

4.     Segment information

The group operates wholly within the United Kingdom therefore there is no meaningful information that could be given on a geographical basis. It does have, however, two discrete operating segments - insurance premium funding and professional fee funding.

The board assesses the performance of each sector based on operating profit (before tax and exceptional items, but after interest which is a cost of sale). The relative revenues, operating costs and operating profit are shown below. Segmental assets and liabilities are provided to the board and the CEO (the chief operating decision maker) and are not therefore disclosed further.

2017

Total

Central

Insurance premium funding

Professional fee funding


£

£

£

£

Revenue

4,559,966

-

3,058,044

1,501,922






Interest payable

(329,478)

-

(321,117)

(8,361)

Operational costs and administrative expenses

(2,583,564)

(592,245)

(1,176,579)

(814,740)

Goodwill on consolidation written off

(5,927)

-

-

-

Operating profit/(loss) before tax

1,640,997

(592,245)

1,560,348

678,821

Current tax expense

(303,214)

-

(189,971)

(113,243)

Profit/(loss) for the year after tax

1,337,783

(592,245)

1,370,377

565,578






2016

Total

Central

Insurance premium funding

Professional fee funding


£

£

£

£

Revenue

3,468,864

-

2,259,577

1,209,287






Interest payable

(238,079)

-

(238,079)

-

Operational costs and administrative expenses

(1,960,055)

(514,161)

(961,771)

(484,123)

Operating profit/(loss) before tax

1,270,730

(514,161)

1,059,727

725,164

Current tax expense

(266,653)

-

(121,831)

(144,822)

Profit/(loss) for the period after tax

1,004,077

(514,161)

937,896

580,342






 

 

5.     Expenses by nature

 



2017

2016




£

£

Interest payable in cost of sales



329,478

238,079

Employee costs (including directors)



1,072,259

838,544

Advertising and selling costs



218,855

151,791

Bank fees



437,566

353,577

Other expenses



860,811

616,143

Total cost of sales, other operational costs and administrative expenses 


2,918,969

2,198,134






 

6.     Finance income and costs

The group's income comes from making loans.

Interest payable on borrowings to finance these loans is therefore included as a cost of sale. The amount included was £329,478 (2016 £238,079).



 

 

7.     Income tax expense

7.1  Current period tax charge:


2017

2016


£

£

Current tax expense

331,050

250,616

Adjustment re previous year tax expense

(25,240)

6,549

Deferred tax expense relating to the origination and reversal of temporary differences

(2,596)

 

9,488


303,214

266,653




 

7.2  Tax reconciliation

The tax assessed for the year differs from the main corporation tax rates in the UK (19% and 20%, 2016 - 20%).

The differences are explained below.


2017

2016


£

£

Profit for the financial period

1,640,997

1,270,730




Applicable rate - 19.67% (2016 20%)

19.67%

20.00%




Tax at the applicable rate

322,784

254,146

Effects of:



  Expenses not deductible for tax

5,263

7,737

  Adjustment re previous year tax expense

(25,240)

6,549

  Reduced rate of tax (17%) on reversing timing differences

407

(1,779)

Tax charge for the period

303,214

266,653




 

 

8.     Earnings per share

Earnings per share is based on the profit for the year of £1,337,783 (2016 £1,004,077) and the weighted average number of ordinary shares in issue during the year of 21,354,167 (2016 21,354,167). There are no options or other factors which would dilute these therefore the fully diluted earnings per share is identical.

 

9.     Dividends


2017

2016


£

£

Amounts recognised as distributions to equity holders in the period:



Final dividend for the year ended 31 July 2016 of 1.405p (2015 Nil) per share

 

300,026

 

-

Interim dividend for the year ended 31 July 2017 of 1p (2016 1.405p) per share

213,542

300,026


513,568

300,026




Proposed final dividend for the year ended 2017 of 2p (2016 1.405p) per share

 

427,083

 

300,026




 



 

 

10.   Trade and other receivables


2017

2016

 


Group

Group

 


£

£

 

Non-current



 

Other receivables

22,720

-

 


22,720

-

 

Current



 

Trade receivables

28,412,738

21,799,397

 

Other receivables

86,321

170,947

 

Prepayments

23,952

33,524

 


28,523,011

22,003,868

 


 

Standard credit terms for trade receivables are based on the length of the loan but payments are due on a monthly basis. The directors consider that the carrying amount of trade and other receivables approximates their fair value. There are impaired debts at the year end amounting to £52,681 (2016 £Nil). Provision has been made in full for these. The value of debts which were past due but not impaired at the year end was £Nil (2016 £Nil).

 

11.   Borrowings


2017

2016


Group

Group


£

£

Non-current:



Other loans

41,170

1,100

Hire purchase contracts

16,288

26,218


57,458

27,318




Current:



Bank loan

13,519,513

9,174,044

Other loans

204,490

25,110

Hire purchase contracts

9,501

8,773


13,733,504

9,207,927




 

 

11.1   Terms and repayment of debt schedule

The bank loan is due within one year.

The other loans fall due as follows:


2017

2016


Group

Group


£

£




Within 1 year

204,490

25,110

Later than 1 year but no later than 3

40,170

100

Later than 3 years but no later than 5

1,000

1,000


245,660

26,210

 



 

The minimum payments under hire purchase contracts are as follows:


2017

2016


Group

Group


£

£




Within 1 year

11,036

11,036

Later than 1 year but no later than 5

17,568

29,144


28,604

40,180

Future finance charges

(2,815)

(5,189)


25,789

34,991

The present value of hire purchase liabilities are as follows:




Within 1 year

9,501

8,773

Later than 1 year but no later than 5

16,288

26,218

Future finance charges

25,789

34,991




Bank borrowings are secured by a fixed and floating charge over all the assets of Bexhill UK Limited, bear interest at rates of 2.90% above LIBOR plus any associated costs, and are repayable within one year of the advances. The maximum drawdown facility is currently £15m therefore at 31 July 2017 £1,480,487 was undrawn.

Other borrowings are unsecured and bear interest at varying rates between 4.00% and 6.25%.

Hire purchase liabilities are secured on the assets that they finance and bear interest at varying rates.

 

12.   Trade and other payables


2017

2016


Group

Group


£

£

Trade payables

2,832,827

1,469,707

Other payables

40,028

33,584

Other tax and social security costs

42,623

34,187

Accrued expenses

266,460

119,552


3,181,938

1,657,030




            The directors consider that the carrying value of trade and other payables approximates their fair value.

 

13.   Financial instruments

The company is exposed to the risks that arise from its use of financial instruments. The objectives, policies and processes of the company for managing those risks and the methods used to measure them are detailed in note 3 to the statutory accounts.

 

13.1   Principal financial instruments

The principal financial instruments used by the company, from which financial instrument risk arises, are as follows:

Cash and cash equivalents

Trade and other receivables

Trade and other payables

Borrowings



 

 

13.2   Financial instruments by category

The group held the following financial assets at the reporting date:


2017

2016


Group

Group


£

£

Loans and receivables:



Trade and other receivables: non-current

22,720

-

Trade and other receivables: current

28,499,059

21,970,344

Cash and cash equivalents:



    Bank balances and cash in hand

1,728,484

1,390,098


30,250,263

23,360,442




 

The group held the following financial liabilities at the reporting date:


2017

2016


Group

Group


£

£

Other financial liabilities at amortised cost:



Interest bearing loans and borrowings:



   Borrowings payable: non-current

57,458

27,318

   Borrowings payable: current

13,733,504

9,207,927

Trade and other payables

3,139,315

1,622,843


16,930,277

10,858,088

 

13.3   Fair value of financial instruments

The fair values of the financial assets and liabilities are not materially different to their carrying values due to the short term nature of the current assets and liabilities.

 

13.4   A Financial risk management

The company's policies for financial risk management are outlined in note 3 on page 32 of the statutory accounts.

 

14.  Treatment of borrowings

The group borrows money from its bankers and lends this on, together with its own funds, to its customers.

Any increase in activity leads to an increase in debtors and an associated increase in borrowings. If the company was one which bought and sold goods or services the money borrowed would be similar to the company's stock in trade and the change in creditors would be shown as part of operating cash flows. However, accounting standards require cash flows from financing to be shown separately and this means that there appears to be a large outflow of cash from the company's operations which is then covered by borrowings. For reasons stated above this is not the case.

 


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