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Seems genuine to me. Also could be because of the overreaction to their last trading update.
No particular reason other than the timing doesn’t seem right as most people’s attention is on more macro matters such as the election and Brexit. Also, as we have nothing to say that requires an immediate announcement, we have decided to wait until the results are ready.
Yes, we will propose an interim dividend.
Agreed Hazrat, last year was a trading update early December saying everything is in line with expectations. Prior year had a fair bit more detail. I don't see why there wouldn't be one even if its just "in line with expectations"
Told by who? Sounds a bit odd to me
I've been told there won't be a trading update because there isn't anything unexpected to add, and because of the other things going on in the country that didn't see the need for it.
The progressive interim dividend is going to be announced in January.
So overall I'm more than happy, they must be making enough profit to keep with the dividend agreement as planned.
Rather indicates the jobbers happy to take the stock well above normal market. A very bullish sign indeed.
Obviously I didn't actually want to sell them, I was just wondering if it would let me.
It'll let me sell 75000 shares in one go without going to negotiated trade, it's unusual for it to do that. Hopefully we're in for another rise since it's settled at this level OK.
Hi. Agreed that the ECL needs to be maintained throughout the life of the agreement, but once an agreement is terminated and linked to a sellable “hard asset”, then once it’s sold the proceeds go towards the o/s balance. Any remaining debt should be written off and then brought back in if and when any further monies are recovered - I’ve checked with other finance houses and this is standard industry practice.
If the debt is not secured against directly against a tangible asset for which the loan was provided - IE a “soft asset” or a loan, then the hit should be taken at point of termination.
The idea that you carry the provision on the balance sheet and never write it off just because you hold a PG, just wouldn’t work.
IE; you could hold a charge on a property and the courts decide that it can’t be enforced until the property is sold as there is a family living in it. Therefore you could wait years to recover your debt.
For this reason, once an agreement is terminated, the hit should be taken immediately and only upon receipt of any proceeds should the debt be credited.
If they aren’t adopting this standard policy, investors should be made aware and the full extent and age of the 90+ Day debt should be declared. There could be a potential large bad debt that’s not been realised and for one would like to know to what extent this is as its possibly one of the most potential threats that could hit a finance company..
Sharesearcher...I wasn't impressed last Feb/March 18, with delays in announcing directors selling ( in one case 6weeks ) and around the same time MD stating he wasn't buying any, preferring to rely on his incentive plan. Hardly inspiring.
@Shareshearcher.
Unfortunately bad debt provision or any other provision can only be an estimate given its about events that haven't happened, and so determined by management. IFRS9 has attempted to make this clearer and more comparable. I agree its complex though.
No problem Meg.
Sorry, not entirely sure what your question is on the next bit so apologies if I have got the wrong end of the stick.
What the accounts are showing, is in the non performing debt is £7.3m (£1.467m/20%). and that the company believe they will recover 80% of this debt. The debts wouldn’t be ‘terminated’ at this stage, just overdue and being actively chased up. The 20% ECL provision is based on past experiences and future predictions decided by management (so debatable) but subject to auditor’s approval.
In terms of never actually writing off a debt, you effectively do hang around for a potential payment by other means, this is why a company makes a provision. It would be wrong to fully write off say 100 debts of 50k each because they are over 90 days old when you know through debt collection practises you expect to collect 80% of the debts. But if you know you won’t recover it at all, e.g. no security against the debt and the debtee is bankrupt then this is when it should be fully written off.
An auditor would get the aging of the debt and looking considerably closer to something a year old say and it would be down the company to prove whether they were ever going to recover it.
Slight side note – where you say “bad debt should be taken at the point of termination and taken from the provision pot - thus taking an immediate hit in the P&L”.
If you were to take from the provision pot then its already been recognized as a hit in the P&L- the accounting treatment would be- If you have provided 20% for a debt of 100k then 20k is already in the provision pot (and already hit the P&L). If you write off the debt fully then 80% is recognized in the P&L at that point in time. The remaining 20% is a balance sheet adjustment only reducing the trade receivable and the provision.
Agreed, this needs total clarity and transparency. A subject so important to the finance sector (bad debt) needs to have a simple explanation for all investors and not left to management freewill.
Keep it clear and simple, not this complex.
Intrigued to know what’s made you loose confidence in the management team?
Thank you guys for your hard work over these debts..
Also concerned, watching with interest to see if you manage to get to the bottom of this matter.
I lost faith in management last year, would appreciate some clarity here.
Thanks for the detailed response and passing on the CFOs comments. Glad you’ve also done the calculations and I’m not the only one with a few concerns over the Y-on-Y changes.
One point I would also pick up on from the CFOs response is regarding when to take the hit on writing off bad debt;
“Once an agreement is effectively ‘terminated,’ you shouldn’t hang out for a potential payment from other means (ie PGs, other charges etc.) The bad debt should be taken at the point of termination and taken from the provision pot - thus taking an immediate hit in the P&L. If you then recover all/part of the o/s funds from those terminated agreements, this then filters back into the business as profit.
If you do not treat bad debt in this manner, you could effectively say that all terminated agreements that are supported by a PG etc are going to be recovered and never get written off and run the risk of having to declare a greater bad debt in the future. Thus not providing an accurate picture of the companies real state. If this is what’s happening, it is bad practice and begs the question as to how many of these agreements sit in the provision pot when they should be declared as bad debt?”
Maybe I need to email him to ask this question as it would never be evident in the accounts from this practice...
Apologies, I was looking too quickly... I said…
“So year on year total non-performing debt has reduced considerably from 7.3m to 3.5m. Which is a good sign.”
This is the wrong way round, it has increased from 3.5m to 7.3m which is not good.
This was touched on in an in an email I sent to the CFO a few days ago. James' Reponse was :
"...Secondly, at this particular year end, there were a handful of reasonably chunky deals that were in this non-performing pot due to being over 90 days old. However, we either had particularly strong realisable security over them that we were very confident we’d get them back so they didn’t need provided for, or we had actually recovered them shortly after the year end and so, again, we felt didn’t need providing for given we knew with certainty they were coming back in. This is what brought the coverage down from c25% to just over 20%. This reflects, as you mention, the look forward aspect of the provisioning. If you know things are improving or worsening this should be factored into the provisioning rates you ultimately use as it’s a best estimate of what will transpire."
Meg, looked into your query more.
Firstly, adoption of IFRS9 hasn’t caused the provision to fall from 1,235k to 660k, the 660k in 2018 is a restated figure so that you can compare like for like in the 2019 set of accounts.
The provision for non performing debt has gone up by £671k (i.e. 1467-796), while total provisions has gone up by 193k (i.e. 2,414-2,221). I agree this does beg the question as to why.
The non performing debt has an ECL rate of 20%, and a credit loss provision of 1,467k – this implies 7.3m of debt falls into the non performing bucket (i.e. 1,467k/20%). Whereas the prior year this figure is 3.5m (i.e. 796k/23%).
So year on year total non-performing debt has reduced considerably from 7.3m to 3.5m. Which is a good sign. This figure is not one that can be easily manipulated or subject to accounting estimates. It’s a very simple audit check to get the aged receivables and see what is over 90 days old.
The performing debt is a little more complicated. With rounding’s the stated ECL rate of 1% can be anything from 0.5%- 1.5% which is a huge difference.
The sum of current and non-current trade receivables figure is pretty much constant from 2018 to 2019 at £122m (note 17).
The CLP rate can actually be worked more precisely, I make it 0.6% in 2019 and 1.1% in 2018. This is where my analysis can’t go much further as to why this has fallen. Id still suspect it’s a change in the product mix. When the individual stats for each company in 1Pm are filed with companies house I’ll be able to take a closer look (They have 9 months to do so after there year end so likely to be a few months)
As1983, Prior year will have been restated so it's comparable so this doesn't explain Meg's query.
i'm no expert but i understand that the movement in provision from changing to IFRS9 goes through reserves in balance sheet and then the movement in year is in the P&L. So for example if provision is £100 under IAS39, but £200 under IFRS9 at start of year... then in year moves to £250. The P&L would only show a charge of £50 with £100 going through reserves on balance sheet. Not 100% sure and not looked at accounts to check but thats how I understand it works.
Email the CFO to ask? He's been very good at getting back to me. Although i used my one question the other day so don't want to overload him with just questions from me!
It will be something to do with change mix of loan types Id presume.
I've asked a couple of questions of the CFO and always been happy with the reply.
Why after adopting IFRS9 for performing debt should the provision fall from £1.235m in 2018 to £660k in 2019 ?
Provisions for non performing debt have gone up by £768k yet the total provision only increased by £196k. Something just doesn’t add up to me..
Still not sure what is trying to be added up.... I'm interested in Megpricing & shareshearcher calcs....
Think they are making an assumption that bad debt provision should match debtors >90 days. No reason for this to be the case if the company still believes the debt is recoverable. Though if there is a downturn the probability of recovery does reduce and so it is a vulnerability.
Can you reference exactly what you are trying to add up/reconcile please.
Why would they match?
Good RNS today