Trufin Plc Regulatory News (TRU)

15 May 2020

TruFin plc 

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

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019 

Full year results demonstrate robust growth and momentum into 2020.

TruFin today announces its financial results for the year ended 31 December 2019, which are consistent with the guidance provided in the trading update of 24 March 2020. TruFin's complete annual report and accounts, which set out these results in full detail with accompanying commentary, are now available below and on TruFin's website: www.Trufin.com/investors.

Financial Highlights 

· Gross revenues from continuing operations were £7.3m for the year ended 31 December 2019, representing year-on-year growth of 68%

· Loss before tax from continuing operations excluding share-based payment charge was £9.3m

· During 2019 the Group demerged Distribution Capital Finance Ltd ("DFC"), sold its stake in Zopa Group Limited ("Zopa") and acquired majority stakes in Playstack Limited ("Playstack") and Vertus Capital Limited ("Vertus")

Operational Highlights

· Total amount of invoices for which Oxygen Finance Group Limited (together with its subsidiaries, Oxygen Finance Limited, Oxygen Finance Americas, Inc. and Porge Ltd) ("Oxygen") accelerated payment, rose by 26% to £550 million during the year

· Satago Financial Solutions Limited ("Satago") launched a paid subscription model for its core software services in October 2019, and continued to see minimal defaults on its loan book

· Vertus secured a debt facility of £15 million with a UK high street bank, and its approved loan facilities grew to £16.5 million

Current Trading and Prospects

· Group revenues for Q1 2020 were £2.1m (unaudited), representing growth of 36% over the same period in 2019

· Despite the headwind from the Covid-19 pandemic, April 2020 saw the Group experience revenue growth of not less than 45% over April 2019 (unaudited).

· Oxygen has maintained its 100% renewal success rate in 2020

· Satago signed a £5 million revolving credit facility in March 2020

· Playstack signed a significant exclusivity contract for one of its games with a leading platform in February 2020

James van den Bergh, TruFin CEO, said:

"2019 was a year of meaningful change for TruFin at Group level; we completed the demerger and listing of our largest subsidiary (DFC), the sale of our stake in Zopa (the largest consumer lending peer-to-peer platform in the UK), and completed investments in Playstack and Vertus. Given these transactions, we executed a significant restructuring of the Group's Head Office to reflect the reduced size of the TruFin Group. Despite these changes, I am pleased to say that each of our underlying businesses continued to perform well over 2019.

More recently, whilst the Covid-19 pandemic has inevitably led to changes in the way that we have had to do business, and there is greater uncertainty in our markets, our businesses operate in sectors that should be resilient in comparison to many others. Much of the momentum we experienced in 2019 is continuing into 2020 and we remain cautiously optimistic about our prospects for 2020 and beyond. We will keep shareholders updated as the current year progresses."

For further information, please contact:

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

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 Annie Styler.

COMPANY INFORMATION

CHAIRMAN'S STATEMENT

• The disposal of our stake in Zopa Limited ("Zopa") for £44.5m as part of a strategic assessment

• The demerger of Distribution Finance Capital Ltd ("DFC") and listing of Distribution Finance Capital Holdings plc as a pragmatic step towards its strategic goal of obtaining a bank licence

• The acquisition of 100% of Playstack Limited ("Playstack") to garner control and provide strategic leadership to this exciting growth company

• Conversion of the outstanding convertible loan in Vertus Capital Limited ("Vertus") resulting in a holding of 51% of Vertus

• External funding secured by Vertus enabling it to continue its growth

• £5m return of value to shareholders in June 2019 and a further £5m in December 2019

Henry Kenner

Chairman

14 May 2020

CEO'S REVIEW

TruFin's performance in 2019

Oxygen

• During 2019 Oxygen maintained a 100% renewal record for local authority Early Payment Programme Services with three customers renewing their contract for a further 5 years

• The total amount of invoices, for which Oxygen accelerated payment, rose by 26% to £550 million and further efficiencies were made reducing EBITD losses by 36%

• A refined commercial model has resulted in clients acquired in the second half of 2019 contracting on a gain share model, alongside a new fixed monthly service fee. This is now the standard model for all new business and results in even greater income predictability for the five-year term of every new contract

Satago

• In a direct response to customer and partner demand, Satago launched a paid subscription model for its core software services in October 2019

• The monthly subscription model growth was bolstered by the signing of a reseller agreement with a leading software provider in the fourth quarter of 2019

• In addition to the many thousands of customers who currently use Satago's software on a free basis, Satago is targeting 2,000 paid subscribers by 31 December 2020

• Satago's key strength remains the technology platform; to ensure they maintain their competitive position the development team was enhanced during 2019 to allow for complimentary product builds during 2020 and beyond

• Minimal defaults with the loans advanced constrained only by a lack of capital

Playstack

• TruFin acquired a majority controlling stake in Playstack in September 2019

• Lending in PlayIgnite, the financing subsidiary of Playstack, experienced zero losses and showcased the opportunity set within the mobile-game lending space

• The Group remains capital constrained and as such the full lending opportunity set cannot yet be fully exploited

• Playstack released six new titles including 'Doctor Who: Edge of Time' VR game under licence from the BBC

• Playstack also pioneered and tested a proprietary technology platform to scale mobile game revenue in 2020 and beyond

Vertus

• TruFin converted its outstanding loan to Vertus in July 2019, resulting in a 51% holding of Vertus

• In September 2019 Vertus concluded a secured debt facility of £15 million with a UK high street bank, with the potential for it to be increased by a further £10 million

• Approved loan facilities to clients increased by 58% between September and December of 2019

• In 2019, approved loan facilities grew by 82% from £9 million to £16.5 million

• The business experienced zero defaults or write downs in the year

Current Trading and Prospects

Oxygen

• Oxygen has maintained their 100% renewal success rate in 2020, with four renewals already secured

• During April 2020 Oxygen was notified, following a full Official Journal of the European Union (OJEU) process, that the North East Procurement Organisation (NEPO) will award a contract to Oxygen enabling their 520 NEPO member organisations to procure Oxygen's Early Payment Programme Services. The framework contract is available for 8 years

• Oxygen's pipeline of opportunities remains strong overall although we expect to see some 'pushing back' of the pipeline in the second and third quarters of 2020

• As a result of the Covid-19 pandemic some UK Government bodies are delaying the tendering of certain capital projects which we anticipate will have a knock-on financial impact for Oxygen during the second half of 2020 and into early 2021

Satago

• A £5 million revolving credit facility was signed in March 2020. This is the first step to resolving Satago's capital constraints

• Satago anticipates writing in excess of £60 million of loans during 2020

• All else being equal, Satago expects paying subscribers to hit 2,000 by 31 December 2020 and this momentum to continue into 2021

• Satago continues to have strategic dialogue with new and existing partners and is now in discussions with a leading UK clearing bank, which is looking at the feasibility of leveraging Satago's best-in-class invoice financing software for its SME customers

• During this period of macro uncertainty Satago will continue to manage the book cautiously

Playstack

• During the first quarter of 2020 Playstack signed a significant exclusivity contract with a leading games platform for one of its upcoming launches, highlighting the pedigree of the Playstack portfolio

• Due to the Group's capital constraints, PlayIgnite has begun to source capital from external debt providers which has led to their pipeline of international funding opportunities growing meaningfully

• Given interest from investors in the 'Covid-19 resilient' gaming space and the momentum of the Playstack portfolio, we are currently exploring the feasibility of a third-party equity investment into Playstack. Discussions are at an early stage and may or may not lead to a transaction

Vertus

• Vertus expects a mature pipeline to result in completed applications as the market environment stabilises

• The Covid-19 pandemic has had a short-term impact on new loan applications, although Vertus believes that the IFA sector will be robust through the crisis

• All else being equal, Vertus is targeting a loan book of £16m by 31 December 2020

Outlook

Chief Executive Officer

14 May 2020

GROUP STRATEGIC REPORT

Goals and Objectives

Oxygen

• The absolute focus of the business remains on monetising live clients through the onboarding of their suppliers to Oxygen programmes

• The formation of the client led 'Advisory Boards' is leading to far greater client engagement and best practice, which will continue to drive improved efficiencies for both Oxygen and their clients

• Oxygen has signed several partnerships with organisations that are keen to leverage Oxygen's client relationships. These complimentary services augment the value that Oxygen can bring to existing clients whilst strengthening relationships

• New products will be launched in 2020 combining the deep technical connectivity Oxygen has with its client's data and the research and insight capabilities of its subsidiary Porge. These new chargeable services have already been successfully tested and deployed in 2020

Satago

• Satago's core strategic goal is unchanged: to be the leading comprehensive cash flow management solution for SMEs. To achieve this goal Satago is leveraging technology to enhance credit control, risk monitoring, customer experience and its product suite

• Satago's customer acquisition strategy is focused on the deep partnerships it has formed to-date with accountants and software providers whilst seeking new routes to market through other financial intermediaries

• The rapid adoption of the paid subscription model has given management the confidence to reinforce the technology investment already made, in order to solidify the competitive advantage Satago has built

Playstack

• Raise 3rd party equity capital in order to exploit the growing pipeline of opportunities for both PlayIgnite and Playstack

• Market testing of proprietary technology platform to grow additional revenues in 2020 and beyond

• Increase reach on console and PC platforms

Vertus

• Vertus aims to be the UK leader in providing debt capital and support to IFAs for succession planning (acquisitions and MBOs)

• Vertus has an established management team, a strong partner (in IntegraFin Holdings plc) and an efficient capital structure

• Following the focus on capital raising in 2019, Vertus is now solely focussed on sales and origination opportunities to capitalise on the significant consolidation that is taking place in the UK IFA market

• Vertus, along with their partner, anticipate that the Covid-19 crisis will accelerate consolidation in the IFA market, increasing their lending opportunities

Principal risks and uncertainties

• Covid-19 - The overarching risk of the Covid-19 crisis is how it impacts our customers and partners. The inevitable rescheduling of meetings, agreements and partnerships makes this pandemic a headwind on the Group. It is too early to say what the medium-term financial impacts are and we will be sure to update shareholders when the full impact is more accurately measurable

• 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 include: 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 and continually review this risk

• Credit risk - The risk of default, potential write-off, 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 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. Both Vertus and Satago have secured external funding in the last six months with which they can continue to grow their loan books. Playstack has started to explore the feasibility of third-party equity investment and PlayIgnite has begun to source capital from external debt providers

There is ongoing uncertainty amongst potential funding partners and delivery partners concerning the intentions of TruFin's largest shareholder, AMFL, which announced in September 2019 that it would be closing its fund, leading in due course to the divestment of its investment positions. AMFL has appointed a representative director to the board and the Board remains actively engaged with AMFL

• Liquidity risk - The Group is due to receive repayments of £5.3m from DFC in June 2020 and £9.1m in December 2020. There are risks that these payments become impaired or delayed and this would cause a considerable risk to the Group. The Group regularly conducts liquidity stress tests, based on a range of different scenarios to ensure it can meet all of its liabilities as they fall due

• Operational risk - 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 Group has also factored in the strengthening of processes and systems

Strict adherence to managing risk

Significant events post reporting date

Chief Executive Officer

14 May 2020

REPORT OF THE DIRECTORS

Principal activity

Dividends and return of capital

Events since the end of the year

Directors

Directors insurance and indemnities

Significant shareholders

Statement of Directors' responsibility

• 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.

Statement of Going Concern

Corporate Governance and Internal Controls

Henry Kenner - Chairman (Chairman and Chief Executive Officer until 11 September 2019)

James van den Bergh - Chief Executive Officer (Deputy Chief Executive Officer until 11 September 2019)

Steve Baldwin - Senior Independent Non-Executive Director

Penny Judd - Independent Non-Executive Director

Paul Dentskevich - Independent Non-Executive Director

Stephen Greene - Non-Executive Director

Our Committees

(a) Audit Committee

(b) Remuneration Committee

(c) Nomination Committee

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

Henry Kenner

Chairman

14 May 2020

AUDIT COMMITTEE REPORT

Members of the Committee

• Penny Judd (Chair)

• Peter Whiting (resigned 31 July 2019)

• Steve Baldwin (joined committee 6 August 2019)

• Paul Dentskevich (joined committee 6 August 2019)

Role of the Committee

External Audit

Internal Audit

Significant issues considered in relation to the financial statements

• appropriateness of the calculation and valuation of Goodwill recognised in the Group financial statements

• appropriateness of going concern assumptions

REPORT OF THE INDEPENDENT AUDITOR TO THE SHAREHOLDERS OF TRUFIN PLC

Opinion

• the Group consolidated statement of comprehensive income for the year ended 31 December 2019;

• the Group consolidated and parent company statements of financial position as at 31 December 2019;

• the Group and parent company statements of cash flows for the year then ended;

• the Group and parent company statements of changes in equity for the year then ended; and

• the notes to the financial statements, including a summary of significant accounting policies

• the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 December 2019 and of the Group's loss for the year then ended;

• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and

• the financial statements have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991

Basis for opinion

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:

• The directors' use of the going concern basis of accounting in the 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.

Overview of our audit approach

Materiality

Overview of the scope of our audit

Key Audit Matters

Other information

Matters on which we are required to report by exception

• proper accounting records have not been kept by the 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; or

• we have not received all the information and explanations we require for our audit

Responsibilities of the directors for the financial statements

Auditor's responsibilities for the audit of the financial statements

Use of our report

Leo Malkin (Senior Statutory Auditor)

for and on behalf of

Crowe U.K. LLP

Statutory Auditor

London

14 May 2020

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

James van den Bergh

Chief Executive Officer

COMPANY STATEMENT OF FINANCIAL POSITION

James van den Bergh

Chief Executive Officer

CONSOLIDATED STATEMENT OF CHANGES OF EQUITY

Share capital

Retained earnings

Foreign exchange reserve

Other reserves

Non-Controlling Interest

COMPANY STATEMENT OF CHANGES OF EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

COMPANY STATEMENT OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Statutory information

1. Accounting policies

General information

Basis of accounting

Basis of preparation

Basis of consolidation

• A 49% interest in PlayFinder Games Ltd

• A 49% interest in Snackbox Games Ltd

• A 42% interest in Military Games International Ltd

• A 26% interest in Stormchaser Games Ltd

• a 50% interest in a joint venture, Clear Funding Limited ("Clear Funding"), which was struck off on 30 April 2019.

Principal accounting policies

Going concern

Revenue recognition

Fee expenses

Publishing income

In App Purchases (IAP)revenue

Console revenue

Brand revenue

Publishing expenses

Publishing expenses are directly attributable costs, associated with the Playstack Group's publishing income. These costs are included at their invoiced value and are net of VAT and any other sales tax.

Other income from financial instruments

Operating profit/loss

Foreign currencies

Property, plant and equipment

Intangible and contract assets

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

Goodwill

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.

Financial instruments

Financial assets

Convertible debt instruments

• Loans and advances;

• Other receivables;

• Trade receivables; and

• Intercompany receivables

• 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.

• 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.

• 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.

• 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.

• 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.

Debt securities

Financial liabilities

Impairment of non-financial assets

Current and deferred income tax

Employee benefits - pension costs

Provisions for commitments and other liabilities

Merger reserve

Investments in associates

Segmental reporting

Share based payments

New standards and interpretations

2. Critical accounting judgements and key sources of estimation uncertainty

Critical accounting judgements

• Early Payment Programme Services set up costs: the Group capitalises the direct costs of implementing Early Payment Programme Services contracts for clients. These costs are essential to the satisfaction of the Group's performance obligation under that contract and accordingly the Group considers that these costs meet the applicable criteria for recognition as contract assets.

• Deferred tax asset: There is inherent uncertainty in forecasting beyond the immediate future and significant judgement is required to estimate whether future taxable profits are probable in order to utilise the carried forward tax losses. However, the Group has determined that convincing evidence exists to support the recognition of a deferred tax asset in respect of carried forward losses for Oxygen.

• Where an asset has a maturity of 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.

• The Probability of Default ("PD") is an estimate of the likelihood of default over a given time horizon and is a key input to the ECL calculation. The Group primarily uses credit scores from credit reference agencies to calculate the PD for loans and advances. The score is a 12-month predictor of credit failure and, in the absence of internally generated loss history, the Group believes that it provides the best proxy for the credit quality of the loan portfolio.

• Exposure At Default ("EAD") is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities and accrued interest from missed payments.

• Loss Given Default ("LGD") is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, in particular taking into account wholesale collateral values and certain buy back options.

3. Gross revenue

*Early Payment Programme Services

4. Segmental reporting