Time Finance plc, (LON:TIME) the AIM listed independent specialist finance provider has announced today the Group’s trading performance for the first quarter of the current financial year which ended on 30 August 2022.
Unaudited financial highlights:
· Own-Book lending origination up 26% to £15.7m (Q1 2021/22: £12.5m)
· Revenue up 12% to £6.3m (Q1 2021/22: £5.6m)
· Profit before Tax up 125% to £0.9m (Q1 2021/22: £0.4m)
· The lending-book continued to grow; increasing 4% to £142.8m since year-end (31 May 2022: £136.8m) and 24% from 12 months prior (30 August 2021: £115.0m)
· Net Arrears continued to fall; reducing 1% since year-end to £9.2m (31 May 2022: £9.3m) and 36% from 12 months prior (30 August 2021: £14.3m)
· Net Tangible Assets continued to increase; up 3% since year-end to £31.3m (31 May 2022: £30.5m) and 9% from 12 months prior (30 August 2021: £28.8m)
The increase in revenue is driven by solid growth in the lending book, particularly within the Invoice Finance division and the ‘Hard’ part of the Asset division. Both areas operate very much in the secured lending arena, reflecting the strategic desire for the Group to increase its average deal size and, where appropriate, take additional security on its lending.
Ed Rimmer, Time Finance Chief Executive Officer commented:
“The first three months of the new financial year have seen the Group continue to experience growing levels of demand for finance from across the UK SME sector. This continued the momentum seen in the final quarter of the last financial year to 31 May 2022. The trend shows that the own-book lending strategy is becoming embedded within the Group, understood by our introducers and valued by UK businesses. The first quarter’s unaudited results give the Board confidence that the Group is well positioned to build value for its shareholders”.
The Board continues to expect the Group’s trading for the full year to be in line with market expectations.
The group also announced today its final results for the year ended 31 May 2022.
Commenting on the results, Tanya Raynes, Non-executive Chair, said:
“Very pleasing progress has been made against the Group’s medium-term strategic plan that was launched in June 2021 and I am very positive about the delivery of strong and sustained results over the next few years. During the year the Group’s balance sheet strengthened further with Net Tangible Assets rising to £30.5m at the year-end. At the same time, net deal arrears fell by approximately 35% over the course of the financial year, demonstrating the effectiveness of our credit risk policy, which seeks to appropriately balance the needs of both our customers and our business.”
Financial Highlights:
• Revenue of £23.6m (2021: £24.2m), a decrease of 2%. Level in respect of continuing operations
• Adjusted PBTE[1] of £3.0m (2021: £3.1m), a decrease of 3%. Level in respect of continuing operations
• Own-Book deal origination of £64.4m (2021: £47.2m), an increase of 36%
• Lending book of £136.8m at 31 May 2022 (2021: £115.7m), an increase of 18%
• Consolidated Net Assets at 31 May 2022 of £58.1m (2021: £57.1m), an increase of 2%
• Consolidated Net Tangible Assets at 31 May 2021 of £30.5m (2021: £28.4m), an increase of 7%
• Future visibility of earnings with unearned income of £16.7m (2021: £14.9m), an increase of 12%
• Blended cost of borrowings maintained at approximately 4% (2021: 4%)
• Net deals in arrears at 31 May 2021 of £9.3m (31 May 2021: £14.2m), a decrease of 35%
• Nil deals in forbearance at 31 May 2021 (31 May 2021: £0.8m)
Operational Highlights:
• Proposition and structure simplified with divestment of non-core, consumer vehicle brokerage
• Supportive funding partners with unused lending headroom in excess of £70m at year-end
• Senior management team restructured and strengthened with the appointments of a Director of Asset and a Director of Loans
• Investment in sales with enlarged team of Business Development Managers for the Invoice Finance and Hard Asset divisions
• Ongoing government-backed accreditation from The British Business Bank to provide Recovery Loan Scheme (“RLS”) to UK SMEs
Ed Rimmer, Chief Executive Officer, added:
“The financial year to May 2022 was the first in our four-year, medium-term strategic plan, and the results are satisfactory. Despite the significant macroeconomic challenges, when the discontinued operations are removed, PBTE is on a par with the prior year at £3.1m. It is particularly pleasing to see the significant progress made during the period against the plan. The Group is now well positioned to take advantage of the opportunities that the market will present, and moves into the new financial year with increased momentum and optimism”
Chair’s Report
For the year ended 31 May 2022
Performance and dividend
Whilst Covid-19 restrictions were largely lifted during this financial year, we continued to experience the effects of the pandemic, especially in terms of consumer confidence, supply chain delays and government funding support to businesses. This was alongside other significant emerging macroeconomic factors: the cost-of-living crisis, inflationary pressures, the war in Ukraine, energy shortages, and UK political turmoil. The global economic landscape is relatively unprecedented. Times of disruption represent both significant challenges and opportunities for our business and our customers. As always, our key focus is to ensure that we continue to provide an essential lifeline of working capital to our SME customers.
Alongside the external headwinds, it has been a period of relative disruption internally as we have needed to reassess the cost base of the business within the context of a slower recovery from the Covid-19 pandemic than was originally anticipated. Whilst we supported the full workforce through the pandemic, it became apparent in the second quarter of this financial year that the return to pre-pandemic levels of sales and profit was going to be much delayed from previous assumptions. As a result, the difficult decision was taken to right-scale the operation for a revised pathway of recovery and financial results. This was obviously unsettling for our colleagues across the Group but, amidst all of this difficult change, their commitment and achievements remained outstanding, and the Board extends enormous gratitude.
It is pleasing to report that despite the continuing effect of the pandemic, and the additional external market shocks, the Group’s revenue was £23.6m (2021: £24.2m) with profit before tax and exceptional items of £3.0m (2021: £3.1m). Fully diluted earnings per share were 1.00p (2021: 1.85p). The Group’s balance sheet was yet again strengthened during the year with Net Tangible Assets rising to £30.5m (2021: £28.4m). At the same time deal arrears fell by approximately 35% during the financial year, demonstrating the effectiveness of our credit risk policy, which seeks to appropriately balance the needs of both our customers and our business.
The Group’s business strategy has an aggressive target for the lending book over the next few years. This will require the application of the Group’s available cash resources into leveraging our funding facilities to maximum effect. Our lending objectives are focussed on the growth of shareholder value rather than dividend distribution. Hence, the Board continues to view cash resources as being best deployed to support business growth and, for the time being, not used for dividend payments. This will be kept under review.
Our strategy
At the start of the financial year a new four-year strategy was launched. There has been very pleasing progress made during the first full year since rolling out this updated strategy, as set out in the Group Strategic Priorities. The Group is positioned as a risk-mitigated alternative finance provider, recognised as having a comprehensive range of business finance products to offer to a well-diversified and expanding base of UK businesses. Our core products are Asset Finance, Invoice Finance and Commercial Loans. The focus is on significantly growing the secured own-book lending and own-book originations increased to £64.4m during the financial year, up from £47.2m in the prior year. This demonstrates significant traction against a key strategic goal. Whilst we remain flexible to act as a broker where appropriate, we took the strategic decision to move away from the non-core, consumer brokerages, and the disposal of those elements of the business is now well progressed.
Following the rebrand in December 2020, Time Finance is now well established as a brand which, through our business development and marketing efforts, serves to support our strategic aims.
The critical importance to our strategy of internal systems improvements to support customer experience and business efficiencies is well recognised by the Board. We are delighted to have successfully secured an appointment for the newly created role of Head of Business Improvement, which we fully expect to enable more significant strides forward in this area.
Governance and culture
The business operates in a regulated environment and a key responsibility for the Board is to ensure that strong and effective governance operates throughout the Group. The Board has four sub-committees, namely Audit, Remuneration, Nominations, and Governance and Risk. Membership comprises only of non-executive directors. The committees meet on a regular basis and invite members of the senior management team, as appropriate, to enable well informed discussion and decision making, as well as gain appropriate levels of assurance.
The Board will continue to focus on increasing diversity in all its forms and it is pleasing to note that women now represent 50% of the Group’s leadership team. This is an important consideration for the Group where women are 56% of our total workforce.
The culture within Time Finance is of paramount importance to us, and our core values of being Genuine, acting with Integrity and demonstrating Agility are what enable us to deliver good outcomes for our customers. These values are embedded across the business and are key in being responsive and flexible for our customers, whilst also ensuring highly responsible attitudes and behaviours in every member of our team. During the year, we continued to formulate our approach to our Environmental, Social and Governance (“ESG”) responsibilities and to embed ESG as an integrated part of our core business strategy. The themes of our ESG approach include a good working environment for our colleagues, addressing our carbon footprint impact, and investment in systems and training – with the outcome for the Group being long term sustainable growth, improved service levels and enhanced operational resilience.
Our people
On 1st June 2021 it was announced that Ed Rimmer was to be appointed as permanent CEO, after a period as interim CEO from February 2021. Ed’s extensive experience within the financial services sector, along with his specific knowledge of the Group from his time as Group COO between 2017 to 2020, enabled him to take up the CEO responsibilities quickly and effectively.
In line with our strategy, we have made excellent progress during the year with hiring key recruits to support our increased origination growth plan, and we should continue to see the positive impact of this in the Group’s results going forward. We recognise that our staff are our greatest asset and so, as we move forward, we shall look to better measure employee engagement and address any gaps that may be identified by introducing an employee survey in the second half of this calendar year and annually thereafter.
This financial year has yet again been a period of significant and challenging change across many aspects of the business, and the executive leadership of the Group has been key to navigating this journey – my thanks go out to Ed Rimmer (CEO) and James Roberts (CFO) for both their boldness and steadying hand in managing the way forward.
I was delighted to join the Board in March 2021 as a Non-Executive Director, and to assume the role of Non-Executive Chair in October 2021. After a period of necessary focus on internal strategy and restructure, I look forward to the opportunity to engage more externally, specifically with our investors and other key stakeholders.
Our colleagues throughout the Group continue to demonstrate exceptional dedication, commitment and ability, and on behalf of the Board, I wish to record our sincere thanks and appreciation.
Outlook
The Group has made substantial progress during this financial year against the updated strategy. This is creating significant momentum as well as a robust platform for our future growth plans, and so I am very positive about the delivery of strong and sustained results over the next few years.
Whilst the economic and political environment is uncertain and challenging, the Group continues to benefit from being a provider of a wide range of financial products to SMEs across multiple business sectors and has no overweight dependence on any specific business category. The continued strengthening of the Group’s balance sheet, and access to the required cash resources for the planned growth, leaves the Board confident about the future of the Group.
In my first statement as Chair, I would like to express how pleased I am to be on the Board of a company with so much potential and a team that has the ability to deliver. I would also like to thank all of our stakeholders for their continued support, and I look forward to reporting on our continued progress as we move forward with our strategy.
Tanya Raynes
Chair – 22 September 2022
Chief Executive Officer’s Report
For the year ended 31 May 2022
Introduction
Time Finance is a multi-product, specialist finance provider to UK SMEs, predominantly funding transactions on its own book, but with the ability to broker-out transactions that fall outside its credit policy. The business now comprises of three core product divisions: Asset Finance, Invoice Finance and Commercial Loans. Each is headed by a senior manager with significant experience in the small business lending sector. The financial results for the Group for the year ended 31 May 2022 consolidate the results of these divisions along with the trading entities that we no longer consider to be core business; further detail behind this strategy is shown in the Group Strategic Priorities.
The Covid-19 pandemic continued to disrupt the wider small business lending market during the period under review, specifically the first quarter’s trading between June and August 2021. Customers, clients and our own business were impacted by high staff absence and an overhang of businesses still using various government pandemic funding schemes. Market conditions started to improve in the later part of 2021 and more significantly through the final quarter of the financial year from March to May. Despite the challenges, we made good progress with the strategic plan that we set out at the start of the financial year, and the overall numbers delivered were satisfactory. We therefore moved into the new financial year in June with increased momentum and optimism for the year ahead, despite the growing economic and geopolitical challenges that are summarised in the Chair’s Report.
The results achieved are due to the commitment and hard work shown by all colleagues across the Group. As government restrictions continued to ease during the Autumn of 2021, our staff began to spend more time working back in the office and a sensible balance was achieved in terms of providing flexible working. Whilst this enables people to work from home if their role allows, we have seen a return of a more vibrant atmosphere in the offices which is an important part of being a “people” business. Our SME clients and customers still want a high degree of human interaction and providing flexibility to them is therefore a key part of our proposition.
Sustainable, robust business model
The Group has maintained sound operational principles designed to develop a robust business including:
– a widely spread lending book with security taken to support lending facilities and suitable margin achieved on each deal to justify the risk taken.
– fixed interest rates are charged for the term of the lending in the Asset and Loans divisions, with interest rates incurred on borrowings drawn down equally being fixed for the term. The Group’s policy is, wherever possible, to match the term of borrowings drawn to the term of lending provided.
– underwriting is carried out by people as opposed to automated systems for credit decisions. Although an essential element of the Group’s development continues to be the deployment of IT systems and improved efficiencies, it is essential that the end credit decisions are taken by people given the markets we operate in.
– a realistic approach to provisioning. The total provisions carried in the balance sheet at 31 May 2022 amounted to £3.6m, representing approximately 3% of the net lending portfolio. A detailed internal review of provisioning is undertaken on a quarterly basis, led by the Director of Risk in conjunction with the CFO and the recommendations made are presented to the Board for approval.
Market positioning and new business origination
The Group provides the main finance products that SMEs require for day to day working capital requirements and to grow their businesses over the longer term. Since the Global Financial Crisis of 2008, the lending market has transformed with the traditional banks no longer being the automatic point of call for small business finance. Many alternative finance providers have emerged in the form of challenger banks, fin-tech lenders and independent providers such as Time Finance who generally offer more flexibility and a high level of focus on customer service. As the Group is not a retail deposit taker, wholesale funding facilities are utilised at competitive rates. In order to make an acceptable margin on lending, the Group chooses to operate in the “Tier 2” market segment, therefore serving SMEs typically at the smaller end of the market.
New business origination in the core Asset, Commercial Loan and Invoice Finance divisions for the year to 31 May 2022 amounted to £70.8m, 33% up on the £53.1m achieved the previous year. Of this origination 91% was funded on balance sheet and 9% was broked-on, compared with 88% and 12% respectively in the prior year. The move towards an increase in own-book lending is consistent with our strategy and commented on further in the Group Strategic Priorities.
Financial results
Total revenue for the year to 31 May 2022 was £23.6m, a decrease of £0.6m year-on year. Revenue comprises interest and other income (such as facility fees, document fees and asset assurance income) of £20.6m from own-book lending (2021: £20.4m) and commission income of £3.0m from broking activities (2021: £3.6m). Interest and other income from lending therefore accounted for 87% (2021: 84%) and commission income from broking accounted for 13% (2021: 15%) of total revenues. The business enjoys good visibility of future revenue from ‘unearned income’ (i.e. future interest income from ‘own-book’ deals already written on the Group’s balance sheet) which at 31 May 2022 amounted to £16.7m (2021: £14.9m). The Group’s profit before tax and exceptional items for the year ended 31 May 2022 was £3.0m, compared with £3.1m in the prior year. Profit before tax was £1.1m (2021: £2.0m), and profit after tax £0.9m (2021: £1.8m). This is driven by one-off costs associated with the closure of the non-core vehicles brokerage and subsequent write-off of the goodwill associated with that historic acquisition. Further details are provided in the Group Strategic Priorities.
At 31 May 2022, the Group’s total gross receivables stood at £137m, compared with £116m on 31 May 2021, an 18% increase and again as part of our strategy to increase own-book lending. Total active borrowing facilities as at 31 May 2022 amounted to £148m (2021: £162m), of which £78m was drawn (2021: £58m). Consolidated net assets stood at £58.1m (2021: £57.1m), an increase of 2%. Consolidated Net Tangible Assets stood at £30.5m (2021: £28.4m), an increase of 7%. Net cash and cash equivalents held at 31 May 2022 was £2.9m (2021: £7.7m). The reduction was down to the increase in own-book lending origination with an element of cash required to support each new lease or loan agreement that is put in place. The strength of the Group’s balance sheet, together with its liquidity in the form of available operational debt facilities for lending and cash held, ensure the Group is well-placed to take advantage of future opportunities over the short to medium term.
At 31 May 2022, there were 92,512,704 shares in issue (2021: 92,512,704). It is expected that, wherever possible, all current share options will be fulfilled from the Group’s Employee Benefit Trust, resulting in little or no dilution to shareholders. Given these share numbers, earnings per share were 1.00 pence (2021: 1.76 pence) with an identical number when calculated on a fully diluted basis.
Operational progress
The year to 31 May 2022 saw much change but, ultimately, good progress in ensuring the business is set-up to achieve the significant growth over the 4-year period set out in the strategic plan. I was appointed as full-time CEO on 1st June and at the time, like the wider business community, hoped that the worst of the lockdown restrictions were behind us. This, unfortunately, proved not to be the case with a difficult summer period experienced in 2021 although, as previously mentioned, trading conditions improved significantly as the year progressed. As commented in the Chair’s Report, with the elongated recovery, we made the difficult decision to reduce overheads through a redundancy programme which saw headcount reduce by approximately 15%. This understandably caused a lot of disruption with additional workloads falling on colleagues across the business and I like would like to reiterate my sincere gratitude to the professionalism and commitment shown by our team. The retirement of John Newman as Chair was also another significant change; however, Tanya Raynes’s appointment provided the Group with fresh impetus and I am grateful for her support and guidance during the year.
Alongside this significant change to the business, much progress has been made. The Asset Finance division saw strong demand for ‘hard’ asset finance with the own-book new business target exceeded by 20%. Whilst our business overall was impacted by the ease of access to cash through the various government fundings schemes, our Loans division benefited from becoming an accredited lender under the Recovery Loan Scheme providing it with much needed momentum. The Invoice Finance division had a very successful year, benefiting from lower than expected client attrition and record new business levels in the second half of the year. The division’s lending book increased by 80% during the year from the post-pandemic low point. Both the Asset and Invoice Finance divisions have continued to show further growth post year-end.
A lot of focus was placed on reorganising the business during the financial year which was unsettling for our colleagues. A number of people went above and beyond day-to-day expectations and we recognise the need to improve communication and measure employee engagement more regularly, enabling timely feedback and a process to deliver continuous improvements. This will be a key priority for the new financial year ahead.
Culture, compliance and governance
Time Finance is a customer focused business priding ourselves on being Genuine, Agile and acting with Integrity. To this end we have a strong focus on:
· Being Easy to Deal With
· Doing Things Quickly
· Having a Commercial and Flexible approach to decision making
· Doing the Right Thing for all our Stakeholders
The Group has high standards for compliance and governance for all its activities, referenced to the principles and guidelines of the Financial Conduct Authority and the codes of conduct of the relevant industry bodies. All staff are required to act in accordance with our cultural values and uphold the following;
· To act with integrity, due skill, care and diligence
· To be open and cooperative with regulators
· To pay due regard to the interests of customers and clients and treat them fairly
Each of our offices has a “culture champion” to ensure that the required behaviours are evident on a day-to-day basis and this also provides a regular flow of communication back to the Board, including any areas where corrective action is required.
Outlook
SMEs are currently facing an unprecedented number of challenges, with increasing costs of operating through spiralling inflation, interest rate rises and geopolitical instability. Small businesses, however, will always need access to finance in order to provide the necessary working capital to operate and expand. With the changes made during the financial year, particularly the restructuring of the senior management team and the focus on developing our strategic plan, we are in a good position to take advantage of the opportunities that the market will present.
Ed Rimmer
Chief Executive Officer – 22 September 2002
[1] Profit Before Tax, Exceptional Items and Share-Based Payments
