Vector Capital plc (LON:VCAP), a commercial lending group that offers secured loans primarily to businesses located in the United Kingdom, has announced its final results for the year ended 31 December 2022.
Highlights
| · | The Group shows continued growth despite uncertain economic conditions |
| · | Loan book growth of 14.9% to £53.2m (FY21: £46.6m) |
| · | Revenue growth of 12.4% to £5.9m (FY21: 5.3m) |
| · | Consistent profit before tax of £2.8m (FY21: 2.8m) |
| · | Continued growth in shareholders equity whilst following a consistent and progressive dividend policy recognising the importance to shareholders of the dividend as part of their overall return. |
| · | Annual growth in Net Asset Value, shown as per share. Net Assets were £25.1m as at 31 December 2022 (£24.0m at 2021 and £21.3m at 2020). |
| · | Proposed final dividend 1.53 pence per share (FY21: 1.51p) |
| · | Near terms focus of maintaining the quality of the loan book against the current uncertain market back drop |
Agam Jain, CEO of Vector Capital, commented: “I am pleased to present our 2022 results. The Company performed well during the year despite the difficult market conditions. We were able to grow our loan book by 14.9% to £53.2 million and the Group’s positive operational performance has been achieved despite the increase in external borrowing costs on new loans provided by our wholesale funders and co-lenders. The Group has been able to pass on the majority of these increases to customers and in some cases reduce gearing to maintain margins.
We continue to look and explore further options to expand our loan book, maximise shareholder returns and further establish our place in the market segment.”
Vector Capital Plc provides secured, business-to-business loans to SMEs based principally in England and Wales. Loans are typically secured by a first legal charge against real estate. The Group’s customers typically borrow for general working capital purposes, bridging ahead of refinancing, land development and property acquisition. The loans provided by the Group are typically for renewable 12-month terms with fixed interest rates.
CHAIRMAN’S STATEMENT
I am pleased to present our 2022 Annual Report and Accounts, which reflect the results of the continued growth in Vector’s secured loan book in the UK small and medium-sized enterprises (SMEs) sector. Vector’s customers are generally smaller property developers who buy properties to develop or refurbish and then re-sell or refinance.
The Company performed well in the year in difficult market conditions and was able to grow our loan book by utilising retained profits, increased wholesale bank facilities now standing at £40m as at 31 December 2022 and finance received from co lending arrangements. This financing, reflecting effective gearing on our capital base underpins the Group’s strong results for the year, achieving revenue growth of 12.4% to £5.9m, consistent profit before tax of £2.8m, and a 14.9% rise in the value of the loan book from £46.3m to £53.2m. Such growth is of course also attributable to the efforts and abilities of the operational team, the strength of the underlying loan management systems and the robust nature of the Vector business model.
The Group’s positive operational performance has been achieved despite the increase in external borrowing costs on new loans provided by our wholesale funders and co-lenders. The Group has been able to pass on the majority of these increases to customers and in some cases reduce gearing to maintain margins.
Despite the Group’s own resilience in these challenging economic and financial conditions, certain borrowers have been adversely affected by delays in completions, the supply chain, cost issues and a general softening of values in the residential property market. As a result, the above results include a provision of £0.2m for doubtful debts which may or may not be required. Recovery of all debts will continue to be actively pursued.
We have a determined strategy to continue to increase our loan book within the context of the continuing uncertain and challenging conditions which exist in the UK, achieved by utilising our own resources and the external facilities provided by our wholesale lenders and co lenders. As part of this process, we intend to further increase the loan gearing we are able to achieve on borrowed funds by strategically rebalancing our loan book. This is intended to lower average value advances but is considered a prudent measure by the Board.
We continue to factor in the implications on the property market of uncertain valuations, the return of double digit inflation and higher than normal interest rates and we are fortunate to be able to draw on our team’s considerable experience during these challenging times.
As a Board we continue to take very seriously our obligations to act responsibly and ethically in all we do, and to follow the core principles of corporate governance set out in the Quoted Company Alliance code. These principles are maintained in all we do as a public company and we recognise our wider environmental, social and governance responsibilities to shareholders and other stakeholders.
Details of our ESG policies and procedures, aimed principally at responsible lending and encouraging sustainability and avoidance of waste in all we do, are set out on the Company’s website, www.vectorcapital.co.uk.
The results for the year are only possible by the efforts of Vector’s employees and my fellow Board members, including Gordon Robinson who I’m delighted joined us with his extensive banking experience in February 2022, and considerable thanks are due to them, as well as our business partners and professional advisers.
We are also indebted to our shareholders, with whom we look forward to developing a rewarding relationship as market conditions improve. This relationship is recognised in our proposed final dividend for the year of 1.53 pence per share, represents an increase of 0.02 pence or 1.3% over 2021, in-line with our stated intention to adopt a progressive dividend policy as we acknowledge the importance to shareholders of the dividend as part of their overall return.
I am more confident than ever that we have the skills, strategy and experience to capitalise on the market opportunities that exist in these uncertain times and thereby continue to prosper thorough 2023.
Robin Stevens
Chairman
17 April 2023
CHIEF EXECUTIVE’S STATEMENT
A strong performance in uncertain times
I am pleased to report a healthy set of results achieved in a very uncertain market. The economy faced the challenges of rocketing energy prices due to the Ukraine war, rising costs and long lead times of building materials, political turmoil and repeated Bank of England rate rises. Despite this we are proud to remain one of the select group of AIM quoted companies paying consistent dividends and showing consistent capital growth.
Our loan book was £53.2m at 31 December 2022, up from £46.3m at 31 December 2021. This is a commendable 14.9% year on year growth. The average monthly loan book for the 12 months period was £52m (2021: £40.8m) an increase of 27.4%.
The achieved average interest rate for the year was 11.18% p.a. (2021: 11.84%) and the average loan to value was 57.12% (2021: 53.52%).
Pre-tax profit for the year was £2.8m, similar to that achieved in 2021 of £2.8m. This was achieved despite making a provision of £0.2m for potential doubtful debts, all of which will be actively pursued.
On the basis of this performance a final dividend for the year of 1.53p per share is proposed (2021: 1.51p).
Diverse market spread
Our loan book is secured by properties in a diverse spread of sectors.
Market segmentation at 31 December2022
| 2022 | % | 2021 | % | |
| Residential | £30,351,346 | 56.81% | £24,580,323 | 53.07% |
| Commercial | £11,643,949 | 21.79% | £12,773,180 | 27.58% |
| Land & Development | £4,881,424 | 9.14% | £5,429,273 | 11.72% |
| Mixed | £4,707,648 | 8.81% | £2,997,977 | 6.47% |
| 2nd charge | £1,545,273 | 2.89% | £532,023 | 1.15% |
| Other | £300,000 | 0.56% | ||
| £53,429,641 | 100.00% | £46,312,775 | 100.00% |
Our direction of travel is towards smaller residential loans for the foreseeable future where we can utilise a higher proportion of our wholesale debt funding and thereby grow the loan book more quickly with our existing capital base.
We are also issuing selected loans against second charge where the equity value in the property is substantial.
Funding
We achieved increases in our wholesale bank funding lines during the year to £40m (up from £35m in 2021). Our wholesale bank providers remain prepared to entertain a further increase in facilities as and when we require.
Our first drawdown on co-funding from a Swiss investment fund started in December 2022 and we expect these facilities to be utilised further during 2023.
Our liquidity remains healthy, and we have good capacity to fund selected new loan opportunities meeting our criteria.
Our Team
Gordon Robinson was appointed as a Non-Executive Director in February 2022. Gordon has over 30 years of senior banking experience and has added valuable sector expertise to the board.
Apart from this appointment, our head count has remained the same and the current operational team is well positioned to handle the projected activity for 2023.
Outlook
Data provided by members of the Association of Short-Term Lenders, shows that UK bridging completions were just over £1.4bn in Q3, 2022, representing an increase of 15.9% on the June 2022 quarter. This is the latest data at the time of writing. However, Q4 is likely to show temporary stalling as lenders take stock of the macro-economic circumstances now prevailing.
Going forward into 2023, we along with other lenders will continue to exercise caution in our underwriting and stress testing. This means our focus during Q1 and Q2 of 2023 has been and will remain more on caution and safety instead of aggressive growth. Our borrowers will have to deal with higher monthly payments due to the multiple rate rises and are likely to find it more challenging to exit via sale or through re-finance with the high street banks. Once the market has settled, however we would hope to return to a higher growth trajectory from Q3 onwards.
Agam Jain
Chief Executive Officer
17 April 2023
