SME finance specialist GLI Finance posted net losses of £10.3m in the first half of 2016, according to the GLI Measurement Basis*. The result was driven largely by £13m in write downs in investments in “underperforming or liquidated platforms”, following the company’s strategic review, entitled "Project Clarity", which was enacted in the early stages of this year. GLI posted net profits of £200k in the first half of 2015.
The company's stategic review involved, among other things, rearranging the company’s assets into three distinct pillars. The second of these pillars encompasses the investments of FinTech Ventures Limited, which was initially created to hold four “prioritised” platforms: The Credit Junction,LiftForward,Funding Options and Finexkap. Each of these companies is loss-making. Because GLI owns more than 20 per cent of the equity in each, these losses must be absorbed into the company's consolidated accounts. GLI expects its prioritised platforms to deliver strong long-term returns.
GLI also owns equity in a range of other alternative finance businesses, and has seen significant write-downs across these investments, in some cases down to zero. CrowdShed and Raiseworks were in the process of closing down during the first half of the year. CEO Andrew Whelan says that he has been “exceptionally prudent” in write-downs, meaning that whatever remains is “all upside”.
In her review of the results, chief financial officer Emma Stubbs alludes to the company's "exceptional, non-recurring write downs" as a major drag on performance. As such, she also presents a "normalised net profit" figure of £5.169m for GLI across the period.
Whelan sees the new pillar system as a significant step forward in delivering more transparency as to the group's activities, something that investors have requested. Patrick Firth, Chairman of GLI Finance, commented: "The last six months have marked the beginning of a period of significant transformation for GLI Finance. We continue to restructure the business in order to reduce its complexity, remove potential conflicts of interests and optimise our allocation of capital and resource. We have made good progress in establishing the basis for a strong business that is sustainable over the long term and well positioned to take advantage of significant market opportunities in order to generate value for our shareholders."
The first of the three new pillars is GLI’s profitable niche lender, Sancus BMS Group, which was formed in June when Sancus BMS acquired the entire issued share capital of Sancus (Gibraltar) Limited from Sancus Gibraltar Holdings Limited and the intragroup loans that had been made by Sancus Gibraltar Holdings to Sancus, for a total of £23.5m. Sancus BMS also acquired £5.175m of BMS shares from Tranquil Capital and BMS management. Invoice finance platform Platform Black was also brought into the fold. Sancus BMS Group increased revenues from £2.7m to £4m on a year-on-year basis in H1 2016.
The third pillar relates to Amberton Asset Management, the manger of GLI’s recently renamed SME Loan Fund plc (formerly GLI Alternative Finance Limted plc).
Despite the mounting group losses, Whelan was positive on the overall outlook for GLI. GLI’s total amount of debt outstanding and weighted average cost of debt have both fallen, although Whelan admits that there’s “more to go”. GLI's cost of debt in H1 2016 was 6.8 per cent, down from 8.6 per cent in the previous six months. GLI is forecasting strong returns for Sancus BMS going forward, and is on target in relation to its annual cost-saving goals. Whelan acknowledges that the past 6 months have been something of a “clean up” phase, but is pleased with progress. He said that the company’s balance sheet has been “significantly strengthened”.
Nonetheless, the company’s Net Asset Value "NAV" per share fell from 42.73p to 37.07p across H1 2016. “I find it depressing where the share price is,” said Whelan, adding that he sees it catching up soon. “We are executing as quickly as possible within the confines and restraints of a listed business,” he continued. “I can’t say I’m pleased because the share price isn’t where it should be, but I will be when it is”.
This morning, GLI Finance announced the appointment of Liberum Capital Limited ("Liberum") as its nominated adviser and broker. Liberum replaces Panmure Gordon (UK) Limited with immediate effect.
* GLI quote on the GLI Measurement Basis: "As the Group's transformation has progressed, it has become increasingly obvious that the application of International Financial Reporting Standards (IFRS) to the Group's business does not necessarily provide a clear understanding of performance and financial position. To address this issue, the Group has developed a hybrid approach to presenting its results, referred to as the GLI Measurement Basis."
