Distribution Finance Capital Holdings plc share price, company news, analysis and interviews

Distribution Finance Capital Holdings plc (LON:DFCH) (“DF Capital”), a specialist bank providing working capital solutions to dealers and manufacturers across the UK, has announced its results for the six months ended 30 June 2022 and a trading update.

The Group confirms the following financial highlights, and has provided its full report for the period within this announcement:-

	30 June 2022	30 June 2021	31 December 2021
	6-month	6-month	12-month
Financial Highlights
Gross revenues (£m)	10.5	6.1	13.5
Profit/(Loss) after taxation (£m)	0.0	(2.3)	(3.7)
Loan Book (£m)	308.7	166.8	249.5
Net assets (£m)	87.3	87.3	86.1
Customer deposits (£m)	304.4	160.0	297.0
Regulatory capital (£m)	82.8	84.0	82.7
Common Equity Tier 1 capital ratio	30.6%	57.1%	38.2%
Gross yield	7.4%	7.9%	7.9%
Net interest margin	6.1%	6.8%	6.5%
Cost of risk	0.50%	0.21%	0.32%
Impairment loss coverage on loans to customers	0.69%	0.80%	0.69%
Cost income ratio	92%	142%	128%
Key Performance Indicators
Loans originated in the period (£m)	439	295	690
Number of dealer customers	908	706	805
Number of manufacturer partners	85	74	78
Total credit available to dealers (£m)	724	467	601

·      Breakeven profitability, a reduction in losses of £2.3m

·    Continued c.6% net interest margin, notwithstanding the reduction to gross yield resulting from an increasing proportion of the loan book originated directly through manufacturers with additional security in place

·    Further record new loan origination of c£439m during the period, up 49% on 2021, demonstrating the strength of relationships with dealers and manufacturers, as well as the scalability of the platform

·      Loan book reached £309m, up 24% on year-end, despite continuing headwinds

·      Loan book arrears remains low at 0.2% as a result of direct management and strength of our dealer obligors

·      Loan facilities provided to dealers increased 55% to £724m (June 2021: £467m)

·      Retail deposits reached £304m. feefo score now increased to 4.7 (2021: 4.6)

Post period end highlights and outlook

·      Loan book increased to £313m as at 31 August 2022 with expected continued growth through re-stocking period to achieve year-end loan book range of £400-500m

·      Capital actions progressed: negotiating legal documentation in relation to participation in British Business Bank’s ENABLE Guarantee scheme, subject to contract and approval; completed pre-work for Tier 2 capital raise ahead of 2023 requirement

·      The Group continues to trade in-line with the Board’s expectations

Carl D’Ammassa, Chief Executive, commented: “We have continued to deliver momentum throughout the business, achieving record levels of origination and loan book. Despite the macro-economic headwinds and on-going supply chain challenges, it is pleasing to achieve breakeven during the period.

We remain cautious about the global outlook and have taken action to both strengthen and widen the reach of our commercial teams. Scaling the bank, growing in our core products, whilst diversifying our lending activities underpins our confidence to deliver our medium-term objectives and our ambitions to achieve a mid-to-high teens return on allocated capital”

Chief Executive’s Statement

Introduction

As we approach the two-year milestone of receiving our banking licence, we continue to demonstrate solid progress against our strategic objectives. Strength of relationship, a service focused mindset and digitised capabilities underpin the Group’s financial performance. It is pleasing to report that, during the six-month period ended 30 June 2022, the Group has achieved breakeven financial performance. Through the period we have seen continued resilience and growth in our lending activity unlocking the latent operational leverage we have across the company as we scale the business. This strong performance has been achieved against the backdrop of continued macro-economic uncertainty and market headwinds. The tail-effects of the global pandemic has continued to impact supply chains across many of the sectors in which we operate, exacerbated by further outbreaks of COVID-19 in China and the war in Ukraine. It is therefore pleasing to share these financial results in this economic context, a clear demonstration that our products continue to resonate with our customers.

Lending activities

The Group saw record loan origination exceeding £439m during the six-month period to 30 June 2022, up 49% on the equivalent period in 2021 (H1 2021: £295m), demonstrating the strength of relationships with dealers and manufacturers, as well as the scalability of the platform. 

The Group has continued to increase its reach across its chosen markets supporting 85 manufacturers at 30 June 2022 (30 June 2021: 74 and 31 December 2021: 78) and over 900 dealers (30 June 2021: 706 and 31 December 2021: 805).   Aggregate dealer loan facilities at the end of the period totalled £724m, up 55% on the prior year (30 June 2021: £467m) and up 20% on the end of the last financial year end (31 December 2021: £601m).

Whilst we continue to originate record levels of new loans, the pace of overall loan book growth has continued to be constrained by high dealer sales, on-going supply chain issues, and wider macro-economic factors. Whilst we have seen some modest slowdown in stock turn in the six-month period to 30 June 2022 to c110 days (FY 2021: 105 days), this is significantly below the historic average of c.150 days. Despite the stock turn remaining at elevated levels, the Group’s loan book ended the period at £309m, up 85% on the equivalent period in the prior year (30 June 2021: £167m) and up 24% on the end of the last financial year (31 December 2021: £249m).

Portfolio By Sector

	30 June 2022 £’000	30 June 2022 %	30 June 2021 £’000	30 June 2021 %	31 December 2021 £’000	31 December 2021 %
Leisure
Lodges and holiday homes	94,696	30.7%	40,977	24.6%	59,936	24.0%
Motorhomes and caravans	58,103	18.8%	34,152	20.5%	47,660	19.1%
Marine	36,786	11.9%	24,060	14.4%	37,061	14.9%
Motorcycle	15,730	5.1%	12,940	7.8%	13,197	5.3%
Specialist and prestige cars	1,760	0.6%	–	–	–	–
	207,075	67.1%	112,129	67.2%	157,854	63.3%
Commercial
Transport	54,489	17.7%	31,708	19.0%	56,283	22.6%
Industrial equipment	27,561	8.9%	17,949	10.8%	25,842	10.4%
Agricultural equipment	19,535	6.3%	4,978	3.0%	9,475	3.8%
	101,585	32.9%	54,635	32.8%	91,600	36.7%
Total gross receivables	308,660	100%	166,764	100%	249,454	100%

The Group successfully launched its inventory finance product to selective specialist and prestige car dealers during the period under review and has a strong pipeline for further growth. 

The Group’s loan book remains well diversified. The modest reduction in commercial lending as a percentage of portfolio in the six-month period ended 30 June 2022 to 32.9% (31 December 2021: 36.7%) relates to a reduction in the transportation sector which has been adversely impacted by further COVID-19 outbreaks in China and global shipping issues. These challenges are now starting to ease as we head in to the second half of the year.

Financial performance

Summarised Statement of Comprehensive Income

	30 June 2022	30 June 2021	31 December 2021
	6-month	6-month	12-month
	£’000	£’000	£’000
Gross revenues1	10,511	6,122	13,641
Interest expense	(1,865)	(871)	(2,338)
Net income2	8,646	5,251	11,303
Impairment charges	(704)	(163)	(556)
Other provisions	–	25	25
Other operating expenses	(7,926)	(7,438)	(14,507)
Profit/(Loss) before taxation	16	(2,325)	(3,735)
Taxation	–	–	59
Profit/(Loss) after taxation	16	(2,325)	(3,676)
Other comprehensive loss	(172)	(89)	(162)
Total comprehensive loss	(156)	(2,414)	(3,838)

¹ Sum of interest and similar income, fee income, net gains/(losses) on disposal of financial assets, and net losses from derivatives measured at fair value through profit or loss

² Gross revenues less interest and similar expenses

Summarised Statement of Financial Position

	30 June 2022	30 June 2021	31 December 2021
	£’000	£’000	£’000
Cash and cash equivalents1	67,934	34,904	29,597
Debt securities	31,997	59,750	108,867
Loans and advances to customers	305,629	164,841	247,205
Other assets	4,065	3,328	2,939
Total assets	409,625	262,823	388,608
Customer deposits	304,377	159,988	296,856
Financial liabilities	499	604	554
Other liabilities	18,656	14,858	5,140
Total liabilities	323,532	175,450	302,550
Total equity	86,093	87,373	86,058

¹ Includes cash and balances at central banks, and loans and advances to banks which are deemed as cash and cash equivalents. Refer to note 16 for further details.

Gross revenues (comprising interest and similar income of £10.0m and fee income of £0.5m) increased by 73% to £10.5m compared to H1 2021 of £6.1m (comprising interest and similar income of £5.9m and fee income of £0.2m).  This increase is due to the average loan book balance through the period under review being higher than H1 2021. Gross yield, however, reduced by 50bps to 7.4% (H1 2021: 7.9%) predominantly as a result of an increase in the proportion of loans through manufacturer programmes which tend to have a lower yield than loans originated direct to dealers. Lending through manufacturer programmes have additional security in the form of manufacturer repurchase or redistribution agreements. Net interest margin (“NIM”) reduced to 6.1% (H1 2021: 6.8%) reflecting this reduced yield, but remains slightly ahead of our stated target of 6%.

We have continued to effectively manage our cost base and unlock the operational leverage we have in the business given our digital capabilities. We have continued to invest in areas to support growth and scaling of the business, such as API-connections with dealers, robotic process automation (RPA) and character-recognition technologies. During the six months ended 30 June 2022 operating expenses were £7.9m an increase of 7% on the comparative period (H1 2021: £7.4m). We have completed actions to strengthen our commercial team through the period, with many of the new hires joining during the second half of the year. Given our highly digitised client facing processes and on-going investment in automation, we believe we are building further scalability into our operational capabilities and much of the cost we need to support our near-term loan book targets is already embedded. Our cost to income ratio has reduced significantly to 92% during the six months ended 30 June 2022 (H1 2021: 142%) and we expect to see further reductions in this ratio as we scale the business, underpinning the delivery of our return ambitions.

Arrears

	30 June 2022	30 June 2021	31 December 2021
	£’000	£’000	£’000
Arrears – principal repayment, fees and interest
1 – 30 days past due	541	161	105
31 – 60 days past due	145	–	834
61 – 90 days past due	12	–	–
91 + days past due	56	162	164
	754	323	1,103
Total % of loan book	0.2%	0.2%	0.4%
Associated principal balance
1 – 30 days past due	13,033	367	951
31 – 60 days past due	1,866	–	834
61 – 90 days past due	–	–	–
91 + days past due	138	162	184
	15,037	529	1,970
Total % of loan book	4.9%	0.3%	0.8%

Loan book arrears have continued to operate at levels better than pre-pandemic. During the period we have seen ongoing strong credit performance with low arrears and default cases. We are pleased with the underlying quality and financial strength of our dealer obligors, many who have come out of the pandemic achieving record levels of sales and profitability. Accordingly, arrears comprised 0.2% of the loan book at the end of June 2022 (30 June 2021: 0.2% and 31 December 2021: 0.4%). 

In addition, the Group’s lending relative to its security position remains strong with a loan to wholesale value (‘LTV’) of 90% (30 June 2021: 85% and 31 December 2021: 91%). The increase in loan to value compared to June 2021 relates to an increase in the proportion of loans originated through manufacturer programmes, which generally fund at a higher LTV at inception, but monthly principal repayments usually see the LTV fall quickly through the life of a loan. We hold additional security in the form of personal and directors’ guarantees as well as having manufacturer repurchase or redistribution agreements in place across c.65% of our loan book.

Our Security Position

	30 June 2022	30 June 2021	31 December 2021
	%	%	%
Loan to wholesale value1	90%	85%	91%

¹ Wholesale price is the invoice value paid by the dealer to the manufacturer

Cost of risk for the six months ended 30 June 2022 was 0.50%, well below our through-the-cycle expectations. Whilst this represents an increase against the comparator period (H1 2021: 0.21%), H1 2021 included a reduction in the COVID-19 overlay to our IFRS9 model given the improving economic conditions and outlook for the UK economy at that time.

The combination of a significant increase in Gross revenues well in excess of the increase in Interest expense, a relatively small increase in operating expenses, and low cost of risk, has resulted in a breakeven performance for the 6-month period ended 30 June 2022 compared to a loss of £2.3m for the 6-month period ending June 2021.

Deposit activities

We continue to operate an effective and well-diversified deposit raising capability, entering the best buy tables as necessary. We have focused significantly on existing customer retention as they reach maturity of their fixed rate bond.  We have retained c65% of fixed rate bonds that matured during the period and now hold £304m of deposits that support our lending activities. We are pleased that our retail savings proposition has now achieved a feefo score of 4.7 (2021: 4.6).

Delivering future growth.

With our existing manufacturer partners we have access to an additional c2,500 prospective dealers across our core sectors, presenting us with opportunity to increase our market share as we onboard more of them; whilst we recognise we will not convert this entire potential pipeline as it may not meet our credit criteria or may not complete, the associated facility limits total £1.2bn.  In addition, we continue to target new manufacturers in our existing sectors, which in turn presents us with additional dealer prospects.

Whilst the Group has a significant runway for growth in its core lending product, we remain committed to diversifying our product range further and lending into adjacencies, such as hire purchase and leasing that will allow us to lend beyond the forecourt. We continue to explore a range of routes for diversifying our product range including inorganic opportunities, through business combinations, partnerships and internal new product development. 

Given the strength of pipeline, we have made further investments to strengthen our commercial team allowing us to accelerate the pace of dealer onboarding against current levels, whilst ensuring we continue to offer a high-quality level of service to all of our lending customers.

Ciara Raison joins us from Secure Trust Bank, to lead our sales and commercial activities as Chief Commercial Officer. Ciara’s appointment allows Andy Stafferton, co-founder and existing commercial lead, to focus entirely on our product development and partnership strategy.

We have made good progress on our capital strategy. We are negotiating legal documentation in relation to our participation in the British Business Bank’s ENABLE Guarantee scheme, which remains subject to contract and the scheme’s approval processes. We have already completed pre-work required to move forward our Tier 2 capital raise ahead of the 2023 requirement.

Current trading and outlook

The Group’s ability to generate new loan origination has continued through the summer months and for the 8 months to 31 August 2022 the Group originated loans totalling over £585m with dealer loan facilities exceeding £740m at this date.  Our loan book exceeded £313m at 31 August 2022. Whilst the economic environment remains uncertain with numerous headwinds, we remain cautious about the macro-economic outlook. We expect discretionary consumer spend to tighten over the coming months, and although we have no direct credit risk to end-users of the assets we finance, we do expect stock turn at dealers to slow, moving towards more normal levels as dealers enter the re-stocking period during the balance of the year. With over £740m of loan facilities now in place, utilisation levels are expected to increase as we head towards the end of the year, thus increasing our loan book balance, and we remain on track to deliver a year end loan book between £400 – 500m.

We are mindful of the inflationary environment we current operate in and expect an increase to costs in H2 2022, in particular given the further investments in our commercial team. Additionally we also expect an increase in cost of risk as the Group’s loan book grows given provisions are made at loan inception, together with the uncertain economic outlook potentially impacting our provisioning. Despite these factors the Group continues to trade in line with the Board’s expectations.

Scaling the bank, growing in our core products, whilst diversifying our lending activities underpins our confidence to deliver our medium-term objectives and our ambitions to achieve a mid-to-high teens return on allocated capital. 

Carl D’Ammassa

Chief Executive Officer, DF Capital

Distribution Finance Capital Holdings plc (LON:DFCH) DF Capital, the specialist bank providing working capital solutions to dealers and manufacturers across the UK, has announced an update on trading for the six months ended 30 June 2022.

The Group has continued to make good progress against the objectives set at the start of the year and the Group continues to perform in line with the Board’s expectations, despite the on-going wider economic uncertainty.

New loan origination during the period exceeded £439m, being materially up on H1 2021 (H1 2021: £295m) and H2 2021 (H2 2021: £395m) demonstrating the strength of relationships with dealers and manufacturers, as well as the scalability of the platform.  The Group’s loan book ended the period at c£308m, up c85% on the comparator period in the prior year (30 June 2021: £167m) and up 24% on the end of the last financial year (31 December 2021: £249m).

The Group has continued to increase its reach across its chosen markets and now supports 85 manufacturers (30 June 2021: 74 and 31 December 2021: 78) and over 900 dealers (30 June 2021: 706 and 31 December 2021: 805).  Aggregate dealer loan facilities at the end of the period totalled c£724m, up 55% on the prior year (30 June 2021: c£467m) and up 20% on the end of the last financial year (31 December 2021: £601m).

The Group has a strong pipeline of new and existing facilities that underpin its growth ambitions, now exceeding in total £1.9bn, notwithstanding on-going near-term supply chain challenges across a number of sectors. The speed of product sales across a number of sectors remains consistent with prior periods, with average stock turn slowing marginally to 110 days (31 December 2021: c.105 days). Should dealer sales slow further through the balance of this year on the back of reduced consumer confidence and tightening of discretionary spend, the Group expects this to positively impact its loan book.

Carl D’Ammassa, Chief Executive of the Group, commented: “I am pleased with the progress we continue to make as a firm. Our performance during the first half of this year demonstrates the need for our lending products. Product diversification remains a strategic imperative for us and we continue to explore strategic opportunities in this area. The economic environment remains volatile and supply chains continue to be impacted.  However, with over £700m of loan facilities now in place, utilisation levels expected to increase as we head towards the end of the year, and a strong capital base, I believe we have all the foundations in place to support our near-term growth ambitions.”

Notice of Results

DF Capital’s H1 2022 results are expected to be announced on 20 September 2022.

Distribution Finance Capital Holdings plc (LON:DFCH), the specialist bank providing working capital solutions to dealers and manufacturers across the UK, today announces the following Board changes, subject to regulatory approval:

Nicole Coll

Nicole Coll will be joining the Board as an Independent Non-Executive Director with effect from 16 May 2022.  Nicole is currently chief financial officer of STM Group plc and a non-executive director of Dudley Building Society where she is deputy chair and senior independent non-executive director and chairs the audit committee.  Nicole is a qualified Chartered Accountant with over 20 years’ global financial services experience including service as Chief Finance Officer at Bank and Clients PLC, Chief Financial Accountant at the Bank of England, and senior finance roles at Société Générale. 

Sheryl Lawrence

Sheryl Lawrence will also be joining the Board with effect from 16 May 2022 as Senior Independent Non-Executive Director and Chair of the Board Risk Committee.  Sheryl is currently an independent non-executive director of Morses Club plc and RCI Bank UK Limited where she chairs the remuneration & people committee. She also chairs the board audit committees of both firms. Sheryl is a chartered accountant and holds an MBA from London Business School and an LLM from the Institute of Advanced Legal Studies.  She has held senior executive roles at Barclays, Lloyds Bank, Santander, Coventry Building Society, Nationwide Building Society, and Provident Financial Group. Sheryl began her banking career at NatWest Bank in 1996, after 11 years’ multi-sector experience with Coopers & Lybrand.

Carole Machell

Carole Machell has confirmed to the Company that she will not be seeking re-election by shareholders at the forthcoming Annual General Meeting of the Company, and consequentially will be stepping down from the Board with effect from the conclusion of that meeting, to be held on 15 June 2022. 

Following Carole Machell stepping down from the Board, Nicole Coll will Chair the Board Audit Committee.

Following these changes, the Board will comprise an independent non-executive Chair, a non-executive Senior Independent Director, two independent non-executive directors, one non-executive director, the Chief Executive Officer and the Chief Financial Offer. 

Additional information required to be disclosed under with AIM Rule 17 and paragraph (g) of Schedule Two of the AIM Rules for Companies:

Nicole Coll (formerly Foster) (age 46 years) currently holds or has held the following directorships and partnerships over the last five years:

Current	Past
STM Group plc	British Friendly Society
STM Group (IOM) Limited	The Hygiene Bank Trustee
STM Fidecs Limited
CAH Limited
Options Corporate Pensions UK Limited
London and Colonial Holdings Ltd
Dudley Building Society
Bank and Clients Plc
The Ena Makin Educational Trust
The Wildernesse Avenue/Seal Drive Road Trust

Sheryl Arlene Frances Lawrence (formerly Mothersille, formerly Dear) (age 57 years) currently holds or has held the following directorships and partnerships over the last five years:

Current	Past
Morses Club plc	Earl Shilton Building Society
RCI Bank UK Limited	Provident Personal Credit Limited
Adventist Hope Media Limited	Provident Financial Management Services Limited
GRC Advisory Limited

Except as disclosed in this announcement, no other disclosures are required in respect of the appointment of Nicole Coll and Sheryl Lawrence under paragraph (g) of Schedule Two of the AIM Rules for Companies

Mark Stephens, Chair, commented: “On behalf of the entire Board I would like to thank Carole for her valuable contribution to the Group since joining the Board in 2018, and especially during the chair transition process last year, where she took on additional responsibilities in support.  Carole has thoroughly enjoyed being involved in DF Capital’s journey through the AIM listing and gaining the bank license. She has decided to reduce the number of iNED roles that she holds and is, therefore, not seeking re-election at the AGM. 

“I would also like to welcome Nicole and Sheryl to DF Capital and look forward to the fresh perspective each will bring to the Board’s proceedings.”

Distribution Finance Capital Holdings plc (LON:DFCH), the specialist bank providing working capital solutions to dealers and manufacturers across the UK, has announced an update on trading for the three months ended 31 March 2022, outlook for the remainder of 2022, and revised near term capital strategy.

Trading Update

The Group has continued to see significant momentum in new lending through Q1 2022, originating a record c£220m of new loans during the period, c£100m of which in March 2022 alone.  However, the pace and strength of dealer sales seen last year has continued into 2022, with average stock turn running at c105 days against the Company’s normalised historical average of 150 days.  Despite this, the Group’s loan book has grown c20% since the year end to £302m, with more than 850 dealers now being provided with over £680m of facilities by the Company.

The solid performance during Q1 has been achieved against the backdrop of ongoing tail effects of COVID-19, significant economic uncertainty and continued market challenges. Supply chain issues, as previously reported by the Group, and subsequent impact on delivery timeframes have not eased through the start of the year. Delivery dates for some assets, particularly across the transportation sector, have continued to drift, and outbreaks of COVID-19 in China and the conflict in Ukraine are expected to further delay product deliveries to dealers until later in the year.

Set against this, the current macro-economic environment, including the impact of rising inflation, fuel and energy price increases and interest rate rises, is expected to impact consumer confidence, which could dampen current pent-up demand for assets, and in turn help normalise stock turn, leading to higher utilisation of facilities provided by the Group.

In light of these factors, and notwithstanding increasing demand for the Group’s products, the Board now expects that supply chain issues and strong end user demand will likely persist for much of 2022. Accordingly, the Board expects the pace of loan book growth to slow, impacting average loan book size and therefore generating a lower level of income versus Board expectations. Subsequently, the Board provides the following guidance for the current financial year:-

·    Loan book: the Group expects to end 2022 with a loan book in the region of £400 – 500m.

·    Profit/loss: the Group expects the net result to range between a loss of £2m and breakeven.

·    The Group expects to achieve its first full year of profitability in 2023.

Capital

The Group is pleased to report that it has also completed its review of the Company’s near-term capital strategy and intends to prioritise a non-equity Tier 2 raise and/or participation in the British Business Bank’s ENABLE guarantee scheme to enable its growth plans beyond a loan book of c£0.5bn, which is supported by existing capital.  The Company is already in active dialogue with the British Business Bank to progress its application to join the scheme later this year, which remains subject to the scheme’s approval processes.  These initiatives together could support the Group’s expected growth plans through to 2024, unlocking a loan book of up to c£0.8bn without the requirement of any additional equity capital. 

Notice of Results

The Company expects to announce its audited results for the year ended 31 December 2021 on 13 April 2022.  

Carl D’Ammassa, DF Capital Chief Executive, commented: “I am pleased with the momentum and record levels of business we have originated during the year so far. Our products continue to resonate with our customers, and we have a significant runway of opportunities ahead. Despite the on-going supply chain challenges and uncertainty caused by the macro-economic outlook we remain focused on achieving profitability through continued loan book growth and delivering our target of mid-to-high teen returns on allocated capital over the medium term as a multi-product lending franchise.”