Vector Capital Plc (LON:VCAP), a commercial lending group that offers secured loans primarily to businesses located in England and Wales, has announced its interim results for the six months ended 30 June 2023.
Highlights
| · | Revenue for the period £2.9m (H1 2022: £3.0m) reflecting a prudent approach to new lending. |
| · | Profit before tax £1.3m (H1 2022: £1.6m) reflecting an increase in the doubtful debt reserve of £167,000 and an inflationary effect on overheads. |
| · | Loan book at 30 June 2023 £48.8m (December 2022: £53.2m), as a result of net redemptions during the period. |
| · | Interim dividend of 1.00p per share (2022: 1.00p), recognising a resilient performance in challenging market conditions. |
Operational Highlights
| · · | Increase in wholesale banking facilities from £40m to £45m during the period.Extended and more flexible facilities to allow greater capacity for loans secured on second charges. |
| · | Continued investment in the technology platform to improve operational resilience and efficiency. |
| · | Further engagement in staff training and development. |
| · | Best practice ESG policies in place to support responsible lending and encourage sustainability across the business. |
Agam Jain, CEO of Vector Capital, commented: “We are very pleased to report a robust set of interim results. The trading climate for the first six months of this year has been set by the backdrop of historic base rate rises from 0.10% in March 2020 to 5% in June 2023, and now 5.25 %. For those borrowers experiencing difficulty, our approach is to be flexible and supportive where we believe that the circumstances justify this methodology.
Our strategy this year has been to seek to maintain higher liquidity, with a correspondingly lower loan book and reduced wholesale borrowings. To the extent that we lend our own capital we can now earn a much higher return than previously. We have a strong capital base which provides the Board with a high level of confidence that we can weather continued or increased economic headwinds.
Our pipeline is healthy with a steady stream of enquiries from our Broker network allowing us to pick and choose the deals that suit us.”
Chairman’s Statement
I am pleased to present our 2023 Interim Results for the six months ended 30 June 2023, which report consolidated pre-tax profits of £1,274,000 (2022 £1,556,000), and to propose an interim dividend of 1.00 pence per share payable on 29 September 2023 (2022 1.00 pence).
The results for the first half of the year should be seen in the light of the combined effects of the well-publicised headwinds in the UK economy, as borrowers struggle with continuingly rising interest rates, inflationary pressure on input prices and falling property prices; almost the perfect storm for any sector. Against this challenging backdrop, the Group’s results show considerable resilience and reflect our strong capital base, our selective and cautious lending policy, our proven loan management systems and the experience of the executive management team. The reduction in the Group’s loan book to £48.8m from £53.2m during the period from 31 December 2022, was to be expected where the terms of trade of many SME borrowers are being squeezed. While these conditions prevail, our aim is to maximise the return to shareholders on our capital base. Our overall aim remains to create a leading market presence in the provision of secured loans to the SME sector, which our strong capital position in these challenging conditions may well accelerate as other lenders trading on the margins struggle.
During the period we extended and deepened our wholesale banking facilities such that we can now utilise up to £45 million (31 December 2022 £40 million) from these sources, of which £2.5 million can be applied to loans secured by second charges, thus providing scope for additional and in some cases higher-margin lending as opportunities arise and market conditions improve. We are also selectively developing our co-lending relationships, and the Company’s parent company, Vector Holdings Limited has increased its loan to the Company from £3 million to £4 million.
Despite the uncertainties in the immediate economic outlook in the UK and the likely continuing relatively high interest rates through to 2025, we remain determined to build on the Group’s strong business foundations, to maximise returns from our existing capital base and to build the loan book utilising the debt facilities described above.
We are increasingly aware of our environmental, social and governance responsibilities to shareholders and other stakeholders and we are following what we believe to be market best practice and developing procedures to address these important issues. 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 Group’s half year results are based on the continued hard work of the executive team, to whom considerable thanks is due, the quality of the underlying operational systems and the robustness of the business model. Thanks, are also due to my fellow Board members and our business partners.
We believe that our team has the skills and experience to adapt to the challenges presented by the UK economic conditions and to continue to build the business by capitalising on the opportunities that are expected to arise through the rest of 2023 and beyond.
Robin Stevens
Chairman
4 September 2023
Chief Executive’s Statement
Background
The trading climate for the first six months of this year has been set by the backdrop of historic base rate rises from 0.10% in March 2020 to 5% in June 2023, and now to 5,25%, the highest rate since April 2008. For the mortgage sector, these are circumstances not experienced by many lenders or borrowers. The tool used by the Bank of England to control inflation has hit some of our borrowing customers extremely hard. Our principal market consists of borrowers that take loans to refurbish or develop land and property.
Our borrowers have been faced with multiple issues of rising building material costs and long lead times since 2022. This has led to cost overruns and delays. On top of this, they are now faced with substantial interest rate rises. This has a negative bearing on project viability and the ability of some borrowers to re-finance their developments.
Stressed Loans
For those borrowers experiencing difficulty, our approach is to be flexible and supportive where we believe that the circumstances justify this approach. We do this by agreeing to re-schedule monthly payments and capital repayments. Where we are not satisfied with the financial viability of a borrowers’ loan, we work with the borrowers to give time for them to sell or re-finance and, if necessary, appoint an LPA Receiver to sell the property. Bearing in mind the circumstances prevailing this year, the number of receiver appointments has increased over previous years.
Our expectation is that we will recover our full capital in almost all cases and also the fees and accrued interest in most cases, albeit with consequent delays of 4-12 months. In accordance with our normal policy, we have made provision for estimated doubtful debts with the results for the period and the impact on our results is within the margins we had stress tested. It should be stressed that we have not written off any debts in the current period under review but are taking a prudent view due to the macro-economic environment. We have a strong capital base which provides the Board with a high level of confidence that we can weather continued or increased economic headwinds.
Excellent Interim Results
Against these adverse market conditions, I am very pleased to report that Vector has delivered an excellent set of results and we expect to continue to pay attractive dividends.
The unaudited profit before tax for the period was £1.3m on a revenue of £2.9m (£1.6m and £3.0m, respectively, 30 June 2022).
At 30 June 2023 the loan book was £48.8m (31 December 2022, £53.2m), and the consolidated net assets were £25.4m (31 December 2022, £25.1m).
We are fortunate to have a very strong capital base that allows us the flexibility and security to capitalise on the market opportunities that still exist in these challenging times.
We will propose an interim dividend of 1.00 pence per share payable on 29 September 2023 (2022 1.0 pence.
Loan Book KPIs
| HY 2023 | % | FY 2022 | % | |
| Residential | 27,234,055 | 55.80% | 30,351,346 | 57.02% |
| Commercial | 11,681,461 | 23.93% | 11,643,949 | 21.87% |
| Land & Development | 5,050,619 | 10.35% | 4,681,424 | 8.79% |
| Mixed | 3,937,194 | 8.07% | 4,707,648 | 8.84% |
| 2nd charge | 492,023 | 1.01% | 1,545,273 | 2.90% |
| Other | 415,000 | 0.85% | 300,000 | 0.56% |
| 48,810,352 | 100.00% | 53,229,641 | 100.00% |
The loans we have issued to the various market segments that we serve remain broadly similar.
The average rate achieved during the period was 10.18% p.a. (June 2022, 11.69% p.a.)
The average loan size was £474,000 spread over 103 live loans. (June 2022, £532,000)
Security held at 30 June 2023 was estimated at £84m giving an average LTV of 58.10% (June 2022, 59.41%).
The loan balances are stated net of provisions of £367,000 at 30 June 2023 (December 2022, £200,000)
Operational review
Our strategy this year has been to seek to maintain higher liquidity, with a correspondingly lower loan book and reduced wholesale borrowings. To the extent that we lend our own capital we can now earn a much higher return than previously.
Our pipeline is healthy with a steady stream of enquiries from our Broker network allowing us to pick and choose the deals that suit us.
Our wholesale banking rates have inevitably increased. However, the rates are still viable for us to continue to drawdown against the facilities. Our facilities are currently £45m and we do not need to seek a further increase this year.
The existing operational team is extremely efficient and provides a fast response time to brokers and borrowers alike. We remain lean and have not needed to increase the head count in the period.
Outlook
Vector is in a healthy financial position with a strong capital base and we remain keen to return to a growth path when market conditions allow. However, we still remain cautious and will wait to see the impact on our market when the base rates stabilise. There is strong demand for our loans, we have good support from our lenders, and we remain excited about capitalising on the opportunities ahead, albeit selectively.
Agam Jain
Chief Executive Officer
4 September 2023
