1 December 2022

Orchard Funding Group PLC

("Orchard Funding Group" or the "company" or the "group")

Full Year Results

For the 12 months ended 31 July 2022

This announcement replaces the announcement released under the headline "Final Results" at 7am on 1 December 2022, with RNS number 1739I. Due to formatting errors in the document, certain page numbers and note references were not displayed correctly, which have now been corrected. Furthermore, the dividend timetable has changed - the record date for the 2022 dividend payment is now 23 December 2022 and the ex-dividend date is now 22 December 2022. All other details remain unchanged.

Orchard Funding Group PLC, the finance company which specialises in insurance premium finance and the professions funding market, is pleased to announce its audited full year results for the year ended 31 July 2022.

Highlights

·     The business has recovered well after the Covid-19 pandemic with increases in lending, revenue and profit

·     Gross total income in the period increased by 34.6% to £6.19 million for the 12 months to 31 July 2022 (31 July 2021 £4.60 million)

·     The loan book increased by 46.4% year on year to £43.74 million

·     Profit after tax rose by 81.0% from £0.84 million to £1.52 million

·     Earnings Per Share ("EPS") rose in the period by 82.0% to 7.11p (31 July 2021 3.91p)

·     The group lent £79.96 million to clients in the 12 months to 31 July 2022 an increase of 31.0% (31 July 2021 £61.02 million)

·     We are again proposing a full year dividend per share of 3.0 pence

·     We have issued a retail bond through Orchard Bond Finance plc raising £3.90 million before costs.

 Ravi Takhar, Chief Executive Officer of the company, stated:

"We are delighted to report our robust performance and return to historic profit levels.

We have grown our business whilst maintaining the historic credit quality of our lending book. We continue to benefit from excellent liquidity from Toyota Financial Services and Nat West. We have also now bolstered our liquidity with access to the listed retail bond market through Orchard Bond Finance.

We continue to invest in and benefit from our software platform, which gives us a number of advantages in underwriting, servicing and marketing our business.

We are very well placed to build on our historic success and looking forward to the continued controlled and profitable growth of our business."

For further information, please contact:

Orchard Funding Group PLC                                                        +44 (0)1582 346 248

Ravi Takhar, Chief Executive Officer

Liberum (Nomad and Broker)                                                        +44 (0)20 3100 3222

Investment banking

Neil Patel

Lauren Kettle

For Investor Relations please go to: www.orchardfundinggroupplc.com

Group financial highlights

Until 2019, Orchard grew its lending year on year. From August 2019 to July 2021 lending fell primarily due to the impact of Covid-19. This situation has been reversed this year with lending in all areas experiencing increases, as shown in the table below.

Comparing lending, income and profit for 2022 with 2021:

Further detail on the above is given throughout the Group strategic report on pages 4 to 14 of the full financial statements.

Chairman's statement

This has been a good year for our business with Lending volumes and Gross and Net Income at all-time highs. We have seen strong performance from our core insurance business despite ongoing aggressive competition from the two major incumbents. We have continued to build a strong relationship with Toyota Financial Services and have successfully piloted our new Bridging Loan proposition. We believe we can grow a profitable secured lending offering to complement our insurance business, competing on the basis of our experienced staff, and our proven underwriting processes and supporting systems.

The economic backdrop improved significantly following the lifting of all Covid-19 restrictions [in the second half of our financial year], although we do face new headwinds from a weakened economic outlook. We are partly insulated from the current high inflation 'cost of living' challenges as our core insurance products are mainly a non-discretionary purchase for our consumers. We will have a close watch for any increase in arrears and will continue to support our customers through any difficulties as far as possible. We are likely to see pressure on our net interest margins with the majority of our borrowing subject to increases in market rates.

I am pleased to confirm that we continue to be funded by Toyota Financial Services and National Westminster Bank and I thank them for their continued support. We have started to diversify our funding this year with the issue of a 5 year listed Retail Bond as we now start to lend longer term with our Static Caravan HP product.

We have continued with a hybrid working arrangement, with the majority of our staff benefiting from the flexibility to work from home as a result of our investment in IT infrastructure. This ensures we remain an attractive employer for our small loyal workforce.

Despite the headwinds caused by the current geo-political uncertainty the Board remains cautiously optimistic about the future and in our ability to grow and diversify our balance sheet based on our history of profitable performance, our highly experienced executive team and our nimble systems. I am pleased to confirm that we are proposing to maintain the dividend at 3 pence per share continuing our track record of dividend payments since floatation, including during the Covid-19 downturn.

Steven Hicks

Chairman

30 November 2022

Chief executive's review

We are pleased to report a complete recovery of our business from the impacts of Covid-19.

Our total lending, balance sheet, income and profits have all materially increased from last year's numbers. This is a testament to the hard work of the team and proves the resilience of our business model.

As well as the significant improvement in our lending, we have also ensured that we have market leading liquidity to support our business. Our liquidity is provided by Toyota Financial Services PLC, National Westminster Bank PLC and our listed bond programme through Orchard Bond Finance PLC.

We have always managed our expenses carefully and still run a very cost-effective operation.

We have full control and are justly proud of our in-house developed IT, which not only manages all of our loan administration and reporting, but also provides market leading underwriting technology, which will continue to support our conservative lending into the future. We now provide a SaaS service to a number of our customers, which further exemplifies the effectiveness and robustness of our IT platform.

We operate in a very competitive market, dominated by two very large and aggressive financial institutions. Consolidation in the premium finance industry means that we are now the only other lender in the market. Despite significant balance sheet disadvantage, we continue to provide a unique service to our clients and also offer a unique product in the market to insurance companies and brokers wishing to provide in-house finance to their customers.

We enter the new financial year facing many difficult economic headwinds. Our cost of funds has risen significantly. Consumer confidence and spending power are adversely impacted and hence borrowing levels in the general lending market are already in decline. We believe that our business model will see us through these difficult times and still enable us to continue lending on a prudent basis. All lenders will have to remain vigilant and we are no exception.

 Whilst insurance premium finance remains our preferred and dominant market, we continue to explore and lend in adjacent markets, which share the credit risk profile of our core market. We keep simple unsecured lending with no other protection to a very limited part of our lending book. We are happy to report that we continue to lend into the professions fee funding market, where we have over 200 accountancy firms on our books, the leisure market, where we have over 100 golf clubs on our books, the school fee funding market and the static caravan market. Most recently we have entered, on a very conservative basis, the property bridge finance market, with our new secured lender, Cherry Orchard Funding Limited. We continue to explore market opportunities carefully and are able to utilise the great experience of our non-executive directors who have both held leading positions in a number of UK banks. Our Chairman, Steven Hicks, is Chair of Risk at two UK banks and with Ketan Malde, a former CFO of a number of highly successful banks, provide a watchful and experienced risk management overview of our business.

We continue to be supported by our experienced and loyal staff. We continue to invest in staff to accommodate the changing nature of our business, ensuring that our partners and borrowers have the excellent support that they deserve. Our senior managers have been with us for more than a decade and this is indicative of the type of business that we are - caring and supportive to our people. We believe our staff to be one of our greatest assets and they enable us to continue to deliver a very high level of service to our clients. We have also been able to ensure that all staff are able to work from home and thank them for ensuring that our customers continue to receive excellent service.

We would like to thank Toyota Financial Services PLC and National Westminster Bank PLC for our current liquidity lines. We have adequate liquidity for our near-term lending aspirations.

In summary, we have recovered from Covid-19. We now enter into another period of financial and economic uncertainty, secure in the knowledge that we have a robust business model and a controlled operational cost base that will continue to support our staff, liquidity providers and investors.

We paid a dividend of 2 pence per share in December 2021 and an interim of 1 penny per share in April 2022. I am happy to announce that the board has proposed a final dividend of 2 pence per share to be paid in December 2022, subject to shareholder approval.

Ravi Takhar

Chief executive officer

30 November 2022

Group strategic report

Strategy and objectives

The group's principal objective remains to increase our profitability in a prudent, sustainable manner, having due regard for the interests of all stakeholders. The term stakeholders in this respect is wide ranging and includes employees, shareholders, our introducing partners, other customers, creditors, regulators, other parts of government and the local and wider community. Each of these groups has different, sometimes conflicting, interests, and it is the responsibility of the board to ensure that all stakeholders are treated fairly. This concept of fairness to all permeates through the decision making process.

We have six strategic drivers behind our objective of increasing profitability and these have remained the same for some years:

·    to differentiate our business from that of our competitors, based on service excellence, fair pricing and robust underwriting procedures;

·    to increase lending in a responsible manner;

·    to preserve and, where deemed necessary, increase our sources of liquidity;

·    to innovate;

·    to continually improve our IT systems;

·    to support our excellent staff in their work.

Differentiation covers a number of factors: the ease of transfer of business from other lenders to us; taking time to fully understand our introducing partners' businesses; being easily contactable by all our customers; providing flexible funding arrangements; reducing our partners costs and giving them regular training and assistance.

The directors still believe in our two pronged approach to lending - to increase the number of partners who fit in with our business values (brokers, accountants and other third party introducers) as well as to increase the volume of business from each of these partners, while always having regard to the risks associated with lending and keeping fair treatment of customers at the heart of our business.

Our approach to innovation is to review markets and product lines which we believe are appropriate for our lending criteria - safe lending and sensible returns. How we have achieved this during the year is detailed later.

Our IT system is fully in-house, providing stability for our future business, the ability to increase lending in our core markets where IT system integration is required and the ability to enter new markets. It gives us much more control over, and thereby reduces risks in, the development of the system. We work with our supplier in the further development of an open banking system, pushing down costs and giving greater security in lending.

Our sales team are our first line in dealing with our partners, arranging prospect meetings and, where required, making use of senior personnel to help them close a deal. They are ably supported by other members of the team who ensure that proper care is taken of our partners. Care of our partners is of paramount importance in our business culture and this aspect is a constant part of training for all staff. Feedback from our partners in this area remains positive.

Our aim is to continue to build strongly to achieve our principal objective by maintain and enhancing the strategies listed above.

Our business model

Our core business remains providing credit to businesses and consumers to enable them to spread the cost of their insurance premiums, professional fees or other service fees over a period of up to one year. We began expanding last year into longer term loans (up to seven years) for asset finance and up to three years for gap insurance. We have introduced a bridging loan product this year. Our business model is a "hold to collect" model in which financial assets are held to maturity to collect cash flows of principal and interest, rather than holding them for sale. More detail on this is given in note 2.6 on page 39 of the full financial statements.

Despite the fact that we now have longer term lending, the nature of our products remains so alike in terms of risk, reward and processes that any segregation would not give meaningful information to users of the financial statements. In most cases our lending is covered by recourse to a guaranteeing partner. Our underwriting and debt management procedures are similar enough that we have not found it necessary to disaggregate results arising from our several markets. We believe that to do so would obscure material information and reduce the understandability of the financial statements. We therefore still report a single trading segment - lending. All of our lending is within the UK.

Lending limits to our customers are set by reference to financial information (credit reports, regulatory and other requirements) and by reference to other qualitative information for both our introducing partners and for the end borrowers. In addition, an annual review process, including regulatory permissions and credit checks, is conducted for each introducing partner and each partner is monitored monthly for the group's financial exposure to that entity. The majority of our lending gives us recourse to the introducing partner, is through regulated introducers and no cash is passed over until at least the first repayment is received. In the case of insurance, the customer can have their cover withdrawn for non-payment with any refunds being paid to Orchard. In the case of longer term lending, the procedure is more vigorous, making use of open banking technology (as mentioned earlier) to further mitigate the risk of default. We have in the past turned down potential borrowers because they did not fulfil our strict requirements. Indeed, we shall continue to do so. In terms of bridging finance, our maximum loan compared to the value of the property ("LTV") is 75%, with no loan this year being more than 70% LTV.

Last year the year the group refinanced its borrowings. The interest rates charged (excluding associated costs) were lower than was previously being charged.

A retail listed bond was issued on 2 March 2022. Full details of the bond plus the prospectus published in connection with the issue are available on the company's website at https://www.orchardfundinggroupplc.com/bonds. This raised £3.90m up to 31 July 2022 and has given us further secure liquidity.

Excluding the bond, the group has borrowing facilities up to up to a maximum of £25.00m for general lending. In addition Orchard Finance has a facility of up to £10.00m to be used exclusively for lending in respect of products from the provider of those funds.

Of the general facility, £8.58m was unused at the year end. Of the restricted facility, £4.64m was unused.

The balance of lending is provided both from group resources. At 31 July 2022 the group had net current financial assets (receivables plus cash in hand less current liabilities) amounting to £12.26m.

The group's average cost of finance (calculated by interest payments over borrowings in the period) was 3.57% in the financial year to 31 July 2022 (6.03% on the same basis in the year to 31 July 2021). Cost of funds includes arrangement and legal fees payable for access to funding and fees for non-use of the facility.  There was some distortion last year as costs were incurred for a facility which was not used by the year end but which has since been used. If only interest were included in cost of finance the percentages would be 2.95% for 2022 and 3.03% for 2021.

Principal risks and uncertainties

The group's activities expose it to a variety of risks.

The board has identified the following principal risks, their potential impact on Orchard, an assessment of change in risk year-on-year, our risk appetite and how we mitigate risk. Principal risks are those which could have most impact on our ability to continue in business. Indicators of those risks (key risk indicators or KRIs) are shown below. Orchard's sole business is lending money and therefore the risks apply to this area. Since issuing the retail bond further risks have arisen. In addition, turbulence in world markets has led indirectly to interest rate rises.

Credit risk

Liquidity risk

Interest rate risk

Non-use risk

Non-repayment risk

Systems risk

Conduct risk

The group's overall risk management programme focuses on reducing the effect of these risks on its financial performance. A risk appetite (the level at which risk is accepted by the group before action needs to be taken) is established for the key risk areas. A regular assessment of the principal risks affecting the group, based on a traffic light classification, is carried out by the executive directors who then pass this on to the full board of directors. The board identifies, evaluates and mitigates financial risks and there are written policies for all major risk areas at subsidiary company level (where the activity takes place). The tables above show the group's principal risk appetite and how risk is mitigated. A risk register is maintained in which any instances of any of the aforementioned risks are recorded and, where necessary, acted upon.

We are committed to maintaining the highest standards of ethics and integrity in the way we do business. We adopt a zero tolerance approach to bribery and fraud and expect our business partners to do the same. Our staff are encouraged to contact the board if they have any concerns in this regard. We are committed to behaviour that results in fair outcomes for our customers (both introducers and end borrowers).

In summary:

·    credit risk is reduced by a robust system of checks on introducers, borrowers and by third party guarantees;

·    liquidity risk is alleviated by borrowing facilities from our funders;

·    interest rate risk is mitigated by the fact that most loans are short term, by regular interaction with our bankers and by reviewing the net interest margin;

·    risks attaching to the bond (both non-use and non-repayment) are alleviated by our normal business processes of finding markets which can give a profitable return and generate sufficient cash. If need be we can replace other borrowings with money raised from the issue:

·    risk from disruption to the IT system and cyber-crime is avoided by thorough business continuity procedures and procedures designed to prevent, detect, respond and recover from malicious attacks; and

·    conduct risk is mitigated by staff training, board oversight and monitoring of introducing partners.

The nature of the business is that loans are made either to finance companies or to clients of our introducing partners. Although there is some significant lending to individual finance companies, the underlying debts making up these loans are collected by Orchard and assigned to Orchard. At 31 July 2022, the largest nominal exposure was £6.69m to one finance company representing 15.25% of our loans (before expected credit loss provisions "ECL").  The highest exposure to a non-finance company was £2.15m and consisted of advances comprising many smaller loans (the average amount for each loan was £211). The reality, therefore, is that our exposure is low. At 31 July 2022 total outstanding loans were £43.87m before ECL (at 30 September 2021 £30.60m), of which the highest individual loan (not a block loan to a premium finance company) was £186.39k. This was for asset finance and represented less than 0.43% of total outstanding loans. This is likely to remain the situation in the near future.

We have experienced late payments in the past. The majority of these are through our customers changing banking details. We make charges for late payments and this reduces our expected credit losses.

We review debts for impairment and make provision where necessary. As part of this process, we have increased the provision by £63k during the year to 31 July 2022, net of reversal of previous provisions and items written off against those provisions (£131k was released in the year to 31 July 2021). This has been charged (2021 credited) to the income statement below operating costs. The provision this year is £135k carried forward at 31 July 2022 (£72k at 31 July 2021). As our loan book grows so does the provision. Note 2.6 of the full financial statements outlines the approach to credit impairments.

The main uncertainties in these financial statements are those connected with the level of expected credit losses. Although objective evidence is obtained where possible (macroeconomic factors etc.), these still require a good deal of management judgement. They are detailed in note 3 to the full financial statements.

The business environment

Having come out of the market turbulence caused by Covid-19, businesses appear to have been thrust into another period of instability. The effect of oil and gas price rises, changes in government and the commotion caused by the invasion of Ukraine have led to further unrest in the markets and pressure on the pound.

As a result of the above we are seeing rates of inflation not seen for many years with the Bank of England increasing interest rates to combat these high inflation rates. Bank of England base rate has increased five times since our last year end with another three increases since 31 July 2022. These eight increases make up an astonishing 2,900% on the rate in force at 31 July 2021.

In this environment, individuals and businesses are more likely to try to conserve cash and spread expenditure over a period of time. Insurance is one type of expenditure which lends itself to this approach. It is also a purchase which is needed (a "distress purchase") either for legal reasons or for security. Orchard's core business is exactly that - providing funds for the spreading of insurance payment. We are in an ideal position to provide help to our introducers and their customers in these difficult times by providing this service.

Development and performance of the business

Overview

Lending was already beginning to grow by the end of our last financial year and this pattern continued in every month this year except December. Overall growth in lending was 30.98% over the previous year.

Most of our premium finance growth will come from the direct insurance side (this was up 39.34% compared to the previous year) rather than from broker premium funding companies ("PFC"'s). PFCs still remain our largest market and, after lending to them fell from £33.8m in 2020 to £29.58m last year, it has grown again to £37.03m in this financial year. The demand for professional fee finance seems to have stabilised this year at £4.38m.

Product lines already introduced are reviewed regularly to evaluate the impact they are having on the business. To date that impact has been encouraging. We continue to use the same disciplined approach when evaluating potential new markets.

We began lending into longer term markets, as mentioned last year and these are going well. We intend to grow these  further. Details are shown in future developments later on in this section.

To summarise: it remains our intention to increase our sales in existing markets and expand into adjacent markets, always having regard to returns that are needed to keep the business financially healthy. We shall continue to control costs, only spending where we believe it will increase our profitability. We have sufficient liquidity at present but this is always kept under review.

Financial indicators

The function of the group remains to lend money safely. Good quality customers are therefore central to the development of the business. We have continued to add to our introducing partner base and have continued to sell more through this base. Despite hard economic conditions, this continues to work well.

Our margin is an important area. Some of our borrowing is fixed to bank base rate and some to the Sterling Overnight Index Average, "SONIA." As these rates alter so will our borrowing costs. Given the short term nature of most of our lending any likely changes would make a small impression on margins. Our own analysis indicated that, under what could be described as "normal" circumstances, the influence on our business would be negligible. However, as pointed out in

Principal risks and uncertainties, these are not normal circumstances. We now ensure that as base rate or SONIA rises, we are faster to readjust our pricing. This was not needed to be done before because rates were low and stable. There remains greater risk with our longer term products that rate increases would erode margins.

Most other operating costs in this business are relatively stable. We have increases resulting from an increased sales function. Exhibition costs are up because we have been unable to attend during the last two years because of Covid-19 but now can. The other main increase is in consultancy fees in setting up the bridging loan system. Overall, operating costs (including ECL) are 24.27% higher than in 2021. Details of these costs are shown in note 5.

Financial key performance indicators (KPIs)

The table below gives a breakdown of group KPIs as well as indicators not considered KPIs but which give a better understanding of the figures.

We have seen increases in lending, revenue and profit this year compared to last. Last year Covid-19 impacted our business for approximately eight months. This year we have seen increases in all markets in which we operate except school fees. We have also seen increases in our costs. Other operating costs rose from £2.52m in 2021 to £2.91 this year (see Consolidated statement of comprehensive income). With a profit before tax of 79.05% higher than in 2021 the board are satisfied with the results this year.

KPIs

Other performance indicators

1.   Average interest earning assets consist of the average of the opening and closing loan book after taking account of the impairment provision.

2.   This has become more important than in  the past. As explained in Principal risks and uncertainties, in the light of rising interest rates it gives both a quick indicator of the level of profitability in the loans made and will be used to evaluate whether the interest rate risk on loans made falls within our risk appetite. It is now a KPI.

3.   There are no factors which would dilute earnings therefore fully diluted earnings per share are identical.

4.   Dividends per share are based on interim dividends paid in the year and proposed final dividend for the year.

Net total income (as shown in the Consolidated statement of comprehensive income) has recovered after a fall last year. Operating costs before ECL are up by £382k. Included in operating costs are consultancy costs of which the major increase was for amounts paid to get Cherry Orchard lending. Staff costs were £110k higher, reflecting the fact that we have to pay more for good people. Last year we had a credit to the income statement for impairment allowance amounting to £131k. This year there is a charge of £63k. Other operating costs (excluding impairment allowance) were up by £52k or 2.18%.

Non-financial indicators

Staffing

The most important non-financial indicator remains quality of management and staff.

Our senior members of staff are all fully trained in every facet of the business and have good relationships with more junior staff members whom they able and willing to assist when required. They have been with us for many years.

Customer care is of paramount importance in our business culture and this aspect is a constant part of training for everyone in the organisation. Feedback from our partners in this area has been very positive. Non-financial performance targets set for our staff have all been met. These include, but are not limited to, ensuring that our partners and end-user customers receive prompt responses to any queries they raise.

Orchard is a small group with 16 non-parent direct employees. Although no employee is on the main board, there is no formal workforce advisory panel, nor is there a designated workforce non-executive director, all employees have access to the executive directors at any time and can raise any issues with them. They are also able to contact the Chairman should they wish to discuss a matter which they feel may not be appropriate for the executive. There are two non-main board directors as directors of the subsidiaries.

Partner retention

Partner retention is another significant area in our business. This couples well with another non-financial indicator, brand preference. As our partner base grows, so does awareness of who we are and what we do. We review our partner base regularly to establish whether they are increasing or decreasing the amount of business they do with us. Action is taken if business from one source is unexpectedly dropping.

Innovation

A key non-financial strategy is innovation (see Strategy and objectives on page 5 of the full financial statements). Innovation is the ability to continually evolve and grow our business in our chosen markets. When looking at new products we stay within our risk parameters and examine whether the returns justify the resources expended. If new products fit our return and risk expectations, we proceed to the testing stage - relatively small amounts of lending. We believe that innovation is fundamental to growth.

IT systems

A robust, reliable and secure IT system is crucial to the business. We work closely with external outsource partners to continually review and develop our IT systems. Our system and has been tried and tested for a number of years. We began taking advantage of the open banking system as part of our risk strategy and this has been invaluable. Our customers have seen advantages of this, making it easier to manage their agreements. We continue to upgrade the system in response to customer requirements.

Quality of lending

Our lending has been based on sound underwriting since we began - we carefully assess any person or body to whom we lend. In addition, we receive at least one instalment before we pay out (eliminating first payment default); the direct debit establishes timely collection and an electronic link to our borrowers; in most cases our partners guarantee the payment should the end borrower default; and, if the partner fails, many of our end borrowers are protected by the financial services compensation scheme thereby ensuring that we are paid. In addition, the open banking system has helped ensure quality of lending.

Good governance

The role of the board is set out in the Corporate governance report on pages 20 to 22 of the full financial statements. Among its objectives is to protect and enhance long-term value for all stakeholders. It sets the overall strategy for the group and supervises executive management. The non-executive directors are there to challenge the executives. The board also ensures that good corporate governance policies and practices are implemented within the group. In the course of discharging its duties, the board acts in good faith, with due diligence and care, and in the best interests of the group and its shareholders.

Going concern

The financial statements have been prepared on a going concern basis which assumes that the group will be able to continue its operations for the foreseeable future.

The directors continually assess the prospects of the group. Forecasts are prepared for a four year period, on a rolling basis. These are also subject to stress testing, the main aspects of which are the value of loans made, the return on those loans and the level of expected credit losses. In these scenarios, there is no indication that there will be a problem in continuing as a going concern. We are, however, in turbulent times when some of the most respected forecasters seem to find difficulty in assessing what lies ahead. It is therefore important to appreciate that the further away in time the estimate, the less reliable it is. Our forecasts assume a base rate of 3.00% in the short term, although if this increased further there would be little impact because of the short term nature of most of our lending.

The character of our lending is such as to permit us to react to any changes in base rate within a relatively short period of time other than with those loans that can be up to three or seven years ahead. These are relatively small in value, amounting to 5.10% of total loans made in the year and of these 4.38% are 36months or less. Not included in these figures are loans made by Orchard Finance where, although longer term, the risk is taken by the provider of the funds.

As a result of our estimate of the impact of the current, and likely short term future, financial situation, we have revised our forecasts downwards.

The key assumptions and bases used in the forecasts are now:

·   Loans through our partners will grow to circa £92m in 2023/24;

·   Liquidity will be available to fund those loans;

·   Margins on lending will fall slightly to an average of 5.05%;

·   Overheads will increase at the rate of inflation with stepped increases at certain points, e.g. when capacity constraints are hit or when project spending is required;

·   The funding system will be able to accommodate the increased business.

The directors have prepared and reviewed the financial projections covering a period of almost four years from the date of signing of these financial statements. In each year, and in particular in the 12 to 18 month period from signing, there is sufficient cash and there are sufficient reserves to enable the group to pay its debts as they fall due. In addition, they have further stress tested these projections to a point which they believe is unlikely to happen  (reducing lending, reducing margins and increasing bad debt) to give a confidence buffer. Even in this scenario, based on the level of existing cash, the projected income and expenditure and the excess of our loan book over external debt, the directors have a reasonable expectation that the company and group have adequate resources to continue in business for the foreseeable future. Accordingly, the going concern basis has been used in preparing the financial statements.

Future developments

There has been little change in how we wish to grow the business in the future. We shall continue to grow our core markets and look at adjacent markets. Last year I said that we had tested a small amount of longer term lending for static caravans and we grew this lending to £344k. We continue to review this given its longer term nature but it has been successful so far with no arrears. We began providing short term property finance this year (bridging loans) and we intend to expand this if it continues to go well. The nature of this lending is that we have to wait to be paid until the property is sold. Although this would ordinarily indicate a higher risk business, as already stated our systems are robust. In addition, our LTV is set at less than 75%, giving some comfort in the present economy.

We shall, of course, continue to look at other markets which fit our risk and return profile. We have not identified any at present which would fit our lending criteria.

We took an investment in Open B Banking in 2020 and increased our investment in that company in 2021. We have been working with this supplier to further develop the system to benefit both parties. This will continue.

Despite the fact that we have secure sources of funding at present, we shall continue to look at alternative sources of liquidity as this is of key importance to what we do.

Environmental, social responsibility, community, human rights issues and gender diversity

The impact of the group on the environment consists of power used in an office environment and fuel used for getting to and from work. Environmental issues are therefore negligible (see SECR reporting on the next page).

The group operates out of an office in Luton. During the Covid-19 pandemic, most employees worked from home. This proved remarkably successful from the perspective of both employee and employer and this situation has continued. This has meant that our carbon footprint as a business in the area has fallen (although there will be some impact on the environment from home working).

We provide health club membership and childcare vouchers for any staff who wish them.

We provide equal opportunities for all applicants and members of staff, irrespective of race, colour, sex, disability or marital status.

The composition of the main board of directors is currently all male. The boards of the subsidiaries consist of one or two males and two females each. Males make up 61.90% of the employees in total (68.42% in 2020).

We review the background of our suppliers and will not use any supplier which, as far as we are aware, breaches our own high standards as regards human rights.

Section 172(1) Statement

Section 172(1) requires a director of a company to act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard to:

(a) the likely consequences of any decision in the long term,

(b) the interests of the company's employees,

(c) the need to foster the company's business relationships with suppliers, customers and others,

(d) the impact of the company's operations on the community and the environment,

(e) the desirability of the company maintaining a reputation for high standards of business conduct, and

(f) the need to act fairly as between members of the company.

All matters brought to the board for consideration are reviewed in the light of how they will impact on stakeholders. This review involves balancing the interests of all stakeholders and includes having regard to:

·   profitability;

·   risk associated with the proposal (see

·   Principal risks and uncertainties);

·   how the decision will impact on our employees (both in financial terms and how the quality of their work life and outside life will be affected). Further detail on how we engage with our workforce is shown under Environmental, social responsibility, community, huma rights issues and gender diversity above;

·   what impact it will have on our partners and other customers (as  mentioned under Non-financial indicators. Proper customer care, particularly in avoiding unfair outcomes, is of overriding importance to Orchard;

·   our reputation (the impact of loss of reputation is dealt with under Conduct risk);

·   either the CEO and/or CFO are in contact with major investors at least twice a year (albeit by Zoom or telephone) to discuss the group's progress and overall plans. This gives us an insight into how our investors perceive us. All reports and other documents are on our website and any investor may request a meeting with any member of the board.

In a wider sense:

·   Orchard does not deal unfairly with its suppliers and business associates and ensures that payment terms are adhered to. In fact, in many cases it assists those associates to expand their business. For example, we increased our investment in Open B Gateway Limited last year, so that they could have the benefit of finance to further develop their software platform;

·   it behaves as a good neighbour, helping the local community where it is able and employing people from the locality - which also assists in reducing our carbon footprint; 

·   in its dealings with government, particularly the revenue authorities, it is completely open, paying what it owes on time;

·   it has had no instances from the FCA of non-compliance with regulations;

Environmental, social responsibility, community, human rights issues and gender diversity are discussed on the previous page.

The board considers whether proposals put to it have long-term outcomes which affect its stakeholders. In most cases the proposals have no material long-term consequences. However, where there are potential consequences, the board takes account of the long-term nature of its decisions. For example, some years ago decisions were made both to change our IT system and to apply for a banking licence. Both decisions were long term in nature and required resources to be provided. The board agreed to both, seeing the benefits in the longer term for most of our stakeholders. The company withdrew its application for the banking licence last year but has continued to develop its IT system.

Streamlined Energy and Carbon Reporting (SECR)

The directors believe that the company is exempt from reporting under the SECR framework as its energy use is below the threshold for reporting.

Approved by the directors and signed by order of the board

Liam McShane,

Company secretary

30 November 2022