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.”
