Sancus Lending : LEND Interim report 2021

Sancus Lending Group Limited

(Formerly GLI Finance Limited)

Interim Report and

Unaudited Condensed Consolidated Financial Statements

For the six month period ended 30 June 2021

Sancus Lending Group Limited (Formerly GLI Finance Limited)

For the period ended 30 June 2021

CONTENTS

	Page
Overview
Highlights	3
Chairman's Statement	4
Interim Chief Executive Officer's Review	5-7
Risks, Uncertainties and Responsibility Statement	8
Financial Statements
Independent Review Report	9
Condensed Consolidated Statement of Comprehensive Income (Unaudited)	10
Condensed Consolidated Statement of Financial Position (Unaudited)	11
Condensed Consolidated Statement of Changes in Shareholders' Equity (Unaudited)	12
Condensed Consolidated Statement of Cash Flows (Unaudited)	13
Notes to the Condensed Interim Financial Statements	14-31
Officers and Professional Advisers	32-33

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Sancus Lending Group Limited (Formerly GLI Finance Limited)

For the period ended 30 June 2021

HIGHLIGHTS

Rory Mepham, Interim Chief Executive Officer of Sancus Lending Group Limited, commented:

"I am delighted to have assumed the position of Interim CEO from the 1 July 2021. The last eighteen months have been highly dynamic and it is our expectation that the outlook will continue to provide both opportunities and challenges. Reduced willingness of traditional lenders to participate in the residential development and bridge lending space has offered Sancus the opportunity to increase the speed of our growth in the target expansion markets of Ireland and the UK, and continue to grow the Offshore markets, whilst at the same time various Covid related factors have continued to delay our exit from a number of historical loan positions. As we navigate our path through the expected recovery, we remain confident that the business is in a strong position from which to grow."

Highlights

• Change of name from GLI Finance Limited to Sancus Lending Group Limited announced on 11 May 2021 reflecting the Group's continued focus on property lending in residential development and bridge financing;
• Change in personnel in the period following the resignation of Andy Whelan, Rory Mepham was appointed as Interim CEO on 1 July 2021 and Dan Walker as Deputy CEO effective on 2 June 2021. Steve Smith was appointed as Non-Executive Chairman on 31 August 2021, with the previous Chairman, Patrick Firth stepping down after sixteen years with the Group;
• The successful fundraise at the end of 2020 and a positive shift in the real estate market presents the Group with a favourable outlook and an opportunity to focus on growth in the coming period;
• Our geographic focus remains unchanged with Offshore being our largest market and the business in the UK and Ireland continues to expand. The pipeline for these key growth markets is strong with revenue growth in the UK up five-fold in comparison to last June;
• Group revenue for the half year was £5.0m (H1 2020: £5.5m) with lower exit fees in the period which can vary year on year. However, transaction fees are up from £0.6m last year to £1.7m in 2021 reflecting an increase in loan activity;
• Group operating loss for the half year was £4.1m (H1 2020: loss £0.5m) with £3.0m relating to an increase in expected credit losses under IFRS9; and
• A strong start to 2021 with new loan facilities written at £53m for the first half of 2021 against £50m for the full year 2020.

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Sancus Lending Group Limited (Formerly GLI Finance Limited)

For the period ended 30 June 2021

CHAIRMAN'S STATEMENT

Positioning the business for the future

I was delighted to join the Group earlier in the year and, having taken on the role of Chairman on 31 August 2021, I am looking forward to the challenge ahead.

A number of key events took place prior to my appointment and the successful fundraise at the end of last year was the first step in what the Group believes will be a structured programme of change and repositioning for growth. Our target markets continue to provide good opportunities and reduced appetite amongst traditional balance sheet lenders may add to our capacity to write favourable new business.

It has been a busy first half of the year, during this time the Group was rebranded as Sancus Lending Group Limited (from GLI Finance Limited) on 11 May 2021. This change reflects the Group's continued focus on lending to residential property development and bridge financing.

There have been a number of changes to our senior executive team which are outlined more fully below.

As part of a wider review of the business, we have carried out a detailed impairment review and have made additional IFRS9 provisions of £3.0m. The provisions are largely against interest due and not loan principal, as the Group has been impacted by the late repayment of certain loans (due to Covid delays). As we are required under the accounting rules to book revenue due from interest and it follows that we have applied commensurate expected credit loss provisions.

Finally, after a five-year tenure our auditor, Deloitte LLP is standing down to be replaced by Moore Stephens following a tender process carried out in the period.

Our People

There have been a number of personnel changes in the last six months, following the resignation of Andy Whelan, Rory Mepham was appointed as Interim CEO on 1 July 2021 and Dan Walker as Deputy CEO on 2 June 2021. Rory has extensive experience in corporate finance, capital raising, debt finance, asset and fund management and property development. Prior to his appointment as Interim CEO Rory was responsible for funding and origination for the Group, having joined in January 2021. Dan has assumed the role of Deputy CEO and continues to act as the Managing Director of Sancus UK, having joined the Group in January 2018.

On 31 August 2021, Patrick Firth stepped down after sixteen years with the Group and we would like to thank Patrick for his invaluable contribution during this time.

Dividend and Shareholders

In line with our dividend policy, it is not proposed to declare a dividend for this period.

While our operational focus, Offshore, UK and Ireland, remains largely unchanged, we expect the Sancus offices in Ireland and the UK, to drive free cash flow in the coming periods and to return the Group to profitability. We fully intend to recommence the dividend programme but only at such time as the Company is in a position to make such payments.

On behalf of the Board, I would like to thank shareholders for their continuing support and patience. We certainly do not underestimate the scale and challenge ahead, but with the continuing support of shareholders and other stakeholders we believe that we have the strategy, the systems and the personnel to put the business onto a much firmer footing. I look forward to reporting positive developments in the coming period.

Steve Smith

Chairman

Date: 24 September 2021

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Sancus Lending Group Limited (Formerly GLI Finance Limited)

For the period ended 30 June 2021

INTERIM CHIEF EXECUTIVE OFFICER'S REVIEW

Overview

Having joined Sancus at the beginning of 2021, I am delighted to have been offered the opportunity to assume the position of Interim CEO from 1 July 2021. The Company has ambitious growth objectives which will rely upon a combination of growing our loans under management together with improving our margins. In order to deliver these plans the Company is reviewing its capital requirements and considering its options in terms of potential sources of funding.

During the first half of 2021 we have completed a number of re-organisational initiatives which now enables the business to focus on its strategy to be a leading alternative lender in the residential lending space. The initiatives undertaken include the rebranding of the Company and reorganisation of staff into teams aligned with our business priorities: Origination, Funding, Lending and Finance & Operations. Our geographic focus remains unchanged, and we will continue to invest in growing our business across the jurisdictions in which we are active (UK, Ireland, and the Offshore markets of Channel Islands & Gibraltar). It is our belief that the UK and Irish markets offer us the greatest growth opportunities and consequently we foresee a significant scaling up of our businesses there. We are looking to simplify the Group over the course of 2021 and will be reporting a new simplified Group basis at the end of the year when we will set out the Group's strategy in further detail and set key performance metrics that we will report on going forward.

We are looking at our options for the FinTech Ventures portfolio and we will communicate any developments to shareholders as appropriate. It has certainly been a difficult, challenging and hugely disappointing journey over the years with the FinTech Ventures portfolio. Many of the platforms have reached key points in their development and the market for raising equity and debt financing is challenging, which has had a material impact on valuations in the past.

Business Priorities

The essence of the Sancus business involves matching sources of capital to appropriate risk/return lending opportunities. In order to continue to grow, the business therefore needs to (1) continue to focus on the Origination of suitable lending opportunities for its existing sources of capital; (2) work with current secured Funders and to identify complementary sources of capital seeking differing risk/return criteria; (3) continue to increase our Lending book and maintain a high quality loan management process; and (4) ensure Finance and Operations is fully equipped to support the growth of the business.

1. Origination

We have seen a strong start to 2021 with new loan facilities written at £53m for the first half of 2021 against £50m for the full year 2020 and loan deployments of £46m for the first half of the year compared to £69m for the full year 2020. Arrangement fees and commitments fees are received on the full loan facility written and therefore we believe loan facilities written is a more meaningful metric when tracking growth. We continue to see significant demand for development finance and are increasing our presence in the bridging market with a couple of key hires.

2. Funding

We are confident that as new loan opportunities arise, the loan book will increase as Co-Funders are attracted to the risk adjusted returns, especially when compared to the all-time low alternative yielding assets such as cash or bonds. The business has recently recruited two senior team members to focus on both managing relations with our existing funding sources and identify additional complementary sources of funding. A longer-term objective remains to identify capital sources domestic to the market in which the lending opportunity has been identified and this is an ongoing initiative in Ireland for example. Growing and diversifying pools of lending capital is critical for our growth. Our funding sources include institutional, corporate and high net worth individuals which are in excess of 200. We also continue to target the Co-Funder base and nurture relationships. The Honeycomb Investment Trust plc ("HIT") funding line, noted below, is designed to be complementary to our Co-Funder base and work alongside it to complete on larger sized loans which have a greater revenue impact on the Group.

Our existing committed sources of funding include Sancus Loan Notes ("SLNs") and a credit facility provided by HIT.

The SLNs comprise a series of Special Purpose Vehicles ("SPVs") designed to act like securitisation vehicles, enabling Co- Funders to participate in a diversified loan portfolio rather than individual loans. On 10 May 2021 SLN7 was launched with £16.6m assets managed by Amberton Limited, following the repayment of SLN5 and SLN6. SLN7 matures on 10 May 2024 and has a coupon of 7% p.a. (payable quarterly), with Sancus providing a 10% first loss guarantee.

As announced on 4 December 2020 the HIT credit facility was increased to £75m from £45m and the term was extended to 28 January 2025. At 30 June 2021 the total drawn was £47.5m (31 December 2020: £45.0m).

The availability and cost of funding is key to achieving our growth ambitions and we are reviewing the capital position of the business with a view to ensuring it's best placed to grow funding capacity on improved terms.

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