13 Mar 2017 07:00
GLI Finance Limited
(the "Group" or "GLI")
Trading Update
GLI Finance Limited, a leading investor in the alternative finance sector, is pleased to provide an update on its trading for the financial year ended 31 December 2016, ahead of the announcement of its audited annual results to be published on 27 March 2017.
Financial information quoted below is subject to the completion of the 2016 audit.
Completion of the Strategic Review
The strategic review that commenced at the beginning of 2016 has been completed, delivering the following outcomes:
· we have simplified the business into two business units, namely Sancus BMS and FinTech Ventures;
· Sancus BMS has brought together the alternative lenders operated by the Group, being Sancus, BMS Finance and Sancus Finance;
· we have completed our review of the goodwill arising on the acquisition of operating subsidiaries and of the valuations of platform investments;
· funding at a Group level has been improved with the repayment of the maturing syndicated loan today. This repayment reduced the Group debt balance to £32.0m with a weighted average cost of 6.0% (7.6% in 2016). The Group's next debt maturity is not until 5 December 2019 when the Group's zero dividend preference shares mature; and
· conflicts of interests have significantly reduced.
Group Structure
In our half year report we introduced our "3 Pillar" structure. Since the half year, with the sale of the Group's shares in The SME Loan Fund plc ("SMEF") and the changed role of Amberton Asset Management Limited ("AAM") (both announced on 8 March 2017), we consider that a structure of 2 pillars or business units is a more efficient way of managing the Group and is more readily understood by investors.
From a Group perspective, AAM's primary focus has become the raising of funding for Sancus BMS's lending operations, through securitization vehicles. AAM is therefore included in Pillar 1.
In summary:
Pillar 1, Sancus BMS is a profitable cash generative business with the potential to earn a high return on equity.
Pillar 2, FinTech Ventures, comprises the Group's portfolio of investments in innovative FinTech lending platforms (now numbering 12) from which the Group expects future capital profits on sale. These investments also include Funding Knight, a subsidiary since mid-year, the results of which are therefore consolidated.
Sale of Investment in SMEF
At year end, the Group's investment in SMEF of 25.3m shares (comprising 47.99%% of the fund) was valued at £23.6m at a mid-price of 93.5p. On 8 March 2017, the Group announced that it had sold this investment for £22.7m and that the proceeds were used to repay the Syndicated Loan (£14.9m) (due 15 March 2017), to purchase £5.3m of performing loans from SMEF which no longer fit their revised investment strategy and to invest the remaining balance in Sancus BMS.
This will further simplify the Pillar 1 balance sheet, and provide an overall improvement in annualised profit.
Group results for the year ended 31 December 2016
The key features of our financial results for the year have been:
· continued growth in the profitability of Sancus BMS;
· the consolidation of the operating losses, for the first time, of Sancus Finance (formerly Platform Black) and Funding Knight;
· in the second half of the year, negative fair value adjustments to the goodwill of two subsidiaries, Sancus Finance and Platform Black (of £4.1m) and an insignificant net fair value adjustment to FinTech Ventures' platforms; and
· achieving the £1m recurring expense savings target.
Performance of Sancus BMS
The pre-tax profit target for 2016 of approximately £2.5m as stated in our RNS dated 30 June 2016 was exceeded, excluding the consolidated loss of Sancus Finance.
Combined loan book growth for the year was a creditable 33%, reaching £151m for the first time. We continue to attract institutional and high net worth co-funders who support loan origination through our syndicated process. A key part of the Sancus BMS strategy is to continue expanding our quality co-funder client base, as this is an important factor underpinning loan book growth.
Platform Black was rebranded Sancus Finance in January 2017 and is trading in line with management's expectations, albeit the company, as it continues its development, lost approximately £1.5m in 2016. The business has been put through a strategic overhaul and is now positioned to break even on a monthly basis by the end of 2017.
Performance of FinTech Ventures
In the first half of 2016, the number of platforms in the Pillar 2 portfolio was reduced and write downs of £7.5m were recognised. In the second half relatively small valuation adjustments were made amounting to £1m, which, after a gain on foreign currency translation, resulted in a small net unrealised gain. These figures remain subject to the completion of our annual audit process.
It has been pleasing to note the additional third party funding which a number of platforms have been able to attract this year. This demonstrates growing confidence in their business models and has contributed to increases in their loan books. Two platforms have now reached break-even point. The aggregate loan books of the platforms grew by 94% to reach £141m. Platform management teams remain positive about the future.
Funding Knight is also in the process of a strategic review to position it for future profitability. An operating loss of approximately £0.5m has been recognised in the period since Funding Knight became a subsidiary.
Group costs
As noted above, our recurring cost savings target of approximately £1m was achieved in 2016, bringing the expected annual costs of running the GLI parent company to approximately £1.5m.
Non-recurring costs of £1.9m (including legal, professional and other project related costs) were expended as part of executing the restructure of the Group.
Confirmation of the new Dividend Policy
The Group will be paying its next interim dividend of 0.625p for the fourth quarter of 2016 on 21 April 2017.
The Board announced the Group's new dividend policy in its strategic update in August 2016. This recognises the need to balance dividend payments in the short term with the opportunities to grow the business for shareholders in the longer term. As such the Group's policy is to make dividend payments which are consistent with prudent capital and liquidity management, covered by cash earnings or realised profits on the sale of investments. Any dividend will be affordable.
GLI is committed to a providing a stable progressive platform for future growth.
In future, dividend payments will be made half yearly, September (interim dividend) and March (final dividend), with a weighting in payment of approximately one third/two thirds.
Conflicts of Interests
Potential conflicts of interest have been reduced in the second half as follows:
· the purchase of 14% of the shares in Sancus IOM Holdings Limited from directors of Sancus BMS Group, announced on 6 February 2017; and
· the sale of the Group's investment in SMEF (see above) has reduced any perceived conflict between SMEF, GLI and AAM (in which GLI is a 50% shareholder) as sub-advisor of this fund.
Outlook for 2017
The critically important strategic changes we undertook in 2016 are behind us. We have created a solid platform from which we can grow financial performance.
Sancus BMS expects loan demand to continue to be strong on attractive terms. An expanding and loyal institutional and high net worth co-funder base, together with a series of asset backed notes to be arranged by AAM during the year, will contribute to the funding of this growth.
We expect the majority of platforms within FinTech Ventures to accelerate their growth trajectories in 2017 and look forward to seeing significant developments this year.
Enquiries
GLI Finance Limited
Andy Whelan
+44 (0)1534 708900
Liberum Capital (Nominated Adviser and Broker)
Steve Pearce
Chris Clarke
Jonathan Wilkes-Green
+44 (0) 207 100 2000
Instinctif Partners (PR Advisor)
Tim Linacre/Nick Woods
+44 (0)207 457 2020
About GLI Finance
GLI Finance (www.glifinance.com) is a specialist provider of finance to small and medium sized enterprises. Its ordinary shares are quoted on the AIM and its issued zero dividend preference shares are listed and traded on the main market of the London Stock Exchange (tickers GLIF and GLIS (Ord) and GLIZ (2019 ZDP)). Loans are provided to SMEs through a variety of finance platforms in which GLI has an equity stake.
The platforms in which GLI Finance is invested vary by geography, industry, size of lending and by type of lending. They include UK and US SME Lending, Offshore Lending, UK and European Invoice Discounting, Supply Chain Finance, Global Trade Finance and UK Property-Backed Lending.