Trufin Plc Regulatory News (TRU)

17 April 2019

TruFin plc 

("TruFin" or the "Company" or together with its subsidiaries "TruFin Group" or "the Group")

FINAL RESULTS FOR THE YEAR ENDED 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 £9.5m 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 £12.8m

· Consolidated net assets as at 31 December 2018 of £153m

· The investment in Zopa was revalued upwards by £8m to £44.5m

Operational Highlights

· Combined loans and advances to customers of DFC and Satago were approximately £129m as at 31 December 2018, representing growth of 290% over 31 December 2017

· Oxygen's clients total procurement spend was £19.7bn 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 £3.9m (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 £142 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 £40 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:

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

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 £44.5 million

• an equity investment of £25 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 £44.5 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 £25 million in DFC and the remainder will be used to fund the existing businesses and form the basis of a proposed £10 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 £130 million at 31 December 2018 representing growth in excess of 290% from the previous year

• Combined revenue grew to £6.6 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 £19.7 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 £2.9 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 £8.0 million to £44.5 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 £44.5 million has been announced.

For the Group as a whole, operating loss before tax excluding share-based payments was £12.8 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 £3.9 million (unaudited)

• As at 31 March 2019, the combined loans and advances from DFC were not less than £142 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 £10 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.

Chairman and Chief Executive Officer

17 April 2019

GROUP STRATEGIC REPORT

Goals and Objectives

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 £19.7 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 £15.4 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 £114 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 £5.2 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, £36 million equity has been invested in the year to enable DFC to execute its business plan with a further £25 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 £44.5 million.

As part of the restructuring announced today this investment is due to be sold to Arrowgrass Master Fund subject to shareholder approval for £44.5 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

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 £25 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 £66 million of net proceeds from the IPO.

During the year, the Group provided equity funding to DFC for £36 million and a loan of £10 million. DFC signed an initial £40 million committed facility with a leading bank in 2017, the facility was increased to £100 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 £2 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 £5 million. £2 million of this funding was for the acquisition of Porge Limited and the remaining £3 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 £100 million to £155 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 £44.5 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

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 £5 million in June 2019 and another £5 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:

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:

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 £25 million in DFC funded by the sale of the Group's investment in Zopa for £44.5 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

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

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 INDEPENDENT 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.

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.

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:

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £38,312 (2017: £22,700) for the Group and £34,400 (2017: £19,120) 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.

For and on behalf of Deloitte LLP London, UK

17 April 2019

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

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:

Chairman and Chief Executive Officer

COMPANY STATEMENT OF COMPREHENSIVE INCOME

The Company reported a loss for the year to 31 December 2018 of £4,391,000 (2017: £720,000).

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:

Chairman and Chief Executive Officer

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

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 £59,227,000 (2017: £26,919,000).

The share revaluation reserve arose from the share cancellation that took place in February 2018. As at 31 December its balance was £8,966,000 (2017: £nil).

Non-Controlling Interest

The non-controlling interest relates to the minority interest held in DFC.

COMPANY STATEMENT OF CHANGES IN EQUITY

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

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

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 £70 million (£66 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:-

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

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 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:

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 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 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.

Oxygen provides stand-alone advisory services to clients. Revenue is accrued as the underlying services are provided to the client.

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.

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 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:

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 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 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.

The estimated useful lives of finite intangible assets are as follows:

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

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

Convertible debt instruments

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.

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 are accounted for at cost less impairment in the Company's financial statements.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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

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. 

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 are classified as either financial liabilities at FVTPL or other financial liabilities.

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.

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.

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.