CHIEF EXECUTIVE OFFICER'S REVIEW

Overview 

Our priority focus is to achieve profitability. Since joining the business in 2021, the management team and I have been focused on getting our residential property credit business operating efficiently across its core three markets (the UK, Ireland and Channel Islands).  

In parallel with seeking to make continuous improvements to the Sancus property lending business and achieving profitability we now have a clear strategic focus. Over the next five years we intend to transform into an alternative asset manager, which focuses on private credit, property (equity & debt) and other complementary alternative strategies in which the management, our shareholders and funders have specific sectorial expertise and deal flow. 

As at the end of 2023, the Group had £202m⁽¹⁾of AUM of which £120m has been funded from private wealth markets in the Channel Islands. Over the coming years we aim to widen our private wealth network in the Channel Islands and to develop similar networks in the UK, Ireland and beyond. Additionally, once the residential property credit business has achieved profitability we will seek to diversify the operating platforms into complementary strategies.

A key element of the transformation to an asset manager will involve transitioning to funding its current and planned lending activities on an off-balance sheet basis. This is expected to be an iterative process with the ultimate goal to be funded entirely off-balance sheet in the coming years.

Note (1): Pro-forma for effect of joint venture agreement announced on 5 December 2023 with HLL  

Our Strategy 

The business continues to prioritise achieving profitability through delivering on the following strategic pillars as part of our transformation into an asset and wealth manager: 

1.             Focusing on revenue growth 

In 2023 we achieved a £2.3 million (23%) increase in revenue to £12.3m. Our strong revenue growth during this period reflects our success in driving increased fee income, with increased co-funder and exit fees more than off-setting a decrease in transaction fees in 2023.

2.             Achieving operating and cost efficiency

Our withdrawal from Guernsey and Gibraltar allows us to centralise most of our operations in Jersey and the UK and focus on achieving greater operating efficiency. Operating costs in the year amounted to £6.5m, £0.2m lower than in 2022 (2022: £6.7m) despite inflationary pressures. We are committed to achieving further expense savings and efficiency gains in future years.

3.             Becoming a capital efficient business 

Our disciplined capital management approach focuses on reducing the amount of own capital within loans and driving down the cost of funding. To strengthen our balance sheet, we continue to reduce our exposure to legacy loans. At the end of 2023, our own capital represented 1.4% of the total loan book, in comparison to 3.5% in 2022, helping us to improve the overall capital efficiency of the business. 

We also made significant progress in lowering our cost of funding during this period, which we anticipate some of the benefits to be accrued in 2024 and future years, including:

As part of our transition to asset & wealth manager we continue to track our AUM. During this period, we have achieved £40 million (23%) increase in AUM to £202.1m on a pro-forma basis in 2023, partially due to  completing a joint venture with Hawk Lending Limited ("HLL" of "Hawk") in Jersey on 5 December 2023 whereby the newly formed company will manage the respective loans books of Sancus Jersey and Hawk (further details about this agreement can be found in the operational updates below). Jurisdictional progress of AUM as follows:

The new facilities written this year (£102.3m vs £124.8min 2022), combined with the anticipated benefits of the HLL joint venture, gives us confidence in our ability to further increase our AUM in 2024.

Financial Summary 

Group revenue increased by 23% year on year from £10.0m in 2022 to £12.3m in 2023 with the UK revenue up by 13% to £3.0m (2022: £2.7m) and Ireland up 40% over the course of 2023 to £2.2m (2022: £1.5m).  We are confident that our HLL joint venture will allow us to drive Channel Islands revenue growth in the future. 

We have reported an operating loss of £9.9m for the year (2022: loss of £4.7m). This primarily reflects £4.8m charge for ECL under IFRS9 (2022: £0.4m), all of which was related to historic loans written.  Operating costs in the year amounted to £6.5m, £0.2m lower than in 2022 (2022: £6.7m) despite inflationary pressures.  We are targeting further operating savings in 2024.  This loss was also impacted by the cost of the group level borrowings from our Bond and Zero Dividend Preference shares.  In 2023 these Group borrowing costs amounted to £2.9m (2002: £1.8m).

The Group's net assets have reduced in the year from £7.2m at 31 December 2022 to net liabilities of £2.0m as a result of the operating loss in the year outlined above.

Group cash and cash equivalents was £5.0m at 31 December 2023 of which £1.6m related to Group operational cash and £3.4m was within Sancus Loans Limited.  

Goodwill carried on the balance sheet as at 31 December 2023 was £nil vs £14.3m as at 31 December 2022. The change in carrying value reflects the transfer of the carrying value of our investment in Sancus Jersey following the sale of the business' goodwill, business information, moveable assets, records and third party rights to HLL in exchange for shares in HLL. This investment in the joint venture with HLL that we announced in December 2023 has been recognised separately on the Statement of Financial Position at a value of £14.3m. Notes 9 and 12 provide further details of our investments in joint ventures and goodwill.  

We continue to manage down our on balance sheet loans (excluding those loans in Sancus Loans Limited). These amounted to £2.3m before IFRS9 provisions at 31 December 2023 compared to £8.2m at 31 December 2022 (£0.5m net of IFRS9 provisions at 31 December 2023 compared to £3.0m at 31 December 2022). Sancus Loans Limited had loans of £82.6m at 31 December 2023 (31 December 2022: £74.7m).  

The Group's liabilities consist of the Bond instrument which still stands at £15.0m and ZDPs of £14.0m with a coupon of 9%. The Bond has a quarterly paid coupon of 7% p.a. and matures on 31 December 2025. During the year we issued £3.0m of ZDPs. The Pollen credit facility of £125m (2022: £75m) stood at £77.75m drawn as at 31 December 2023. 

Operational Updates 

Hawkbridge joint venture 

On 5 December 2023 we announced that we had entered into a joint venture agreement with HLL to form a new Channel Islands based property private credit and debt advisory business - Hawkbridge Ltd. Both former Sancus and Hawk teams are now employed by the joint venture company. Trading as Hawk Lending the business is now in the process of writing its first deals. This joint venture with the Hawk family office has significantly deepened the Group's Channel Islands network of private wealth relationships, enhancing its co-funder and wholesale finance reach.

Loan book management and reduction in non-performing loans

Continued emphasis has been placed on actively managing loans once the initial drawdown has been made. This has been particularly important against the backdrops of various market related pressures such as cost inflation. We are pleased to report that the percentage of loan book in recovery continues to reduce.  

In the year ended 31 December 2023 we have had to recognise an ECL charge of £4.8m (31 December 2022: £0.4m), all of which relates to loans written by the previous management team.

Diversification of funding

We continue to focus on increasing the funding capacity and diversifying the off-balance sheet funding sources of the business, on improved terms. We are seeking to work with a diversified mix of funders, both private and institutional, to match funders with loans meeting their varied risk and reward criteria.  

Private Wealth Co-Funders remain one of our largest funding channels, with the majority of the Offshore loan book being co-funded.  As at 31 December 2023 co-funders provided £48.2m of funding (31 December 2022: £66.9m).  We continue to nurture relationships with the Co-Funder base, with these typically being Offshore private individuals and family offices. We expect that our HLL joint-venture will enhance our capabilities here.  

Loan Notes, managed by Amberton Limited, remain an important funding instrument for the business. Loan Note 8, which was launched in January 2022 was £26.9m as at 31 December 2023 (31 December 2022: £3.0m). Loan Note 8 matures on 1 December 2026 and now has a coupon of 8% p.a. (payable quarterly), with Sancus providing a 20% first loss guarantee.

We continue to make use of an institutional funding line arranged by Pollen Street Capital ("Pollen Street") and which is designed to be complementary to our Co-Funder base and Loan Note program. At 31 December 2023 the total drawn was £77.75m (31 December 2022 £67.75m). While the Pollen Street facility continues to be strategic for the business and is generally utilised in relation to funding development loans we recognise that the availability, cost, diversification and flexibility of funding is key to achieving our growth ambitions.   

We are continuing to minimise the amount of our balance sheet capital deployed to back loans. During the year this was broadly flat at £10.2m (31 December 2022: £10.2m).

Operational efficiency and planned management changes 

A focus on operational efficiency continued into 2023. We completed our exits from Guernsey and Gibraltar early in 2023 and at the end of 2023, the Group headcount was 30 (31 December 2022: 39). We believe the business is now well resourced to meet its objectives and are focussing on continuous improvement and development of our people.  

As announced on 10 January 2023 Emma Stubbs, CFO, left the business at the end of March 2023 and Tracy Clarke was appointed as the Group's Interim Chief Financial Officer for a period of 12 months. Tracy, who was formerly a non-executive director of Sancus, stepped down as CFO on 31 March 2024 and re-assumed her responsibilities as a non-executive director of Sancus. Keith Lawrence, who joined the business as Finance Director in February 2024 assumed CFO responsibilities on 1 April 2024.  Simultaneous with this the arrangement for Carlton Management Services to provide finance and treasury services to Sancus has come to an end and relevant staff have now been employed by Sancus. 

ESG 

We recognise our responsibility to incorporate sustainability practices through our business and our environmental, social and governance ("ESG") journey continued in 2023. We continue to use the materiality assessment to assist us in prioritising the key ESG issues we face and have commenced utilising a data-driven approach to support our progress in improving our approach to managing ESG factors.

We are pleased to publish our 2023 ESG report on our website. The report identifies the progress against our key objectives set in 2022, recognises the key challenges we have faced and summarises key data. An extract of the ESG report is included in this announcement's "Environmental, Social and Governance" section.

Going Concern 

The Company does not have any debt liabilities that fall due within the next 12 months.   In April 2024 Somerston, the Company's largest shareholder, subscribed for £5m of preference shares in one of the Group's principal subsidiaries, Sancus Loans Limited, enhancing the Group's financial flexibility.  Based on this, the Directors are of the opinion that the Company has adequate financial resources to continue in operation and meet its liabilities as they fall due for the foreseeable future. 

Outlook 

There are grounds for optimism. Given our strategic progress and focus, we believe the long term profitable growth potential for our business is clear. While, the immediate economic outlook, especially for the residential property market, remains somewhat uncertain, we expect that this is likely to lead to the continued retrenchment of major banks and other competitors from both SME and development financing, creating further opportunities for us. The long term trend of under supplied housing markets in each of our current markets provides a backdrop for an optimistic outlook. We continue to look forward to delivering profitability.  

Rory Mepham 

Chief Executive Officer 

28 June 2024

PRINCIPAL RISKS, UNCERTAINTIES AND RELATED INTERNAL CONTROLS

The Group aims to carefully manage the risks which are inherent across its business activities in order to deliver an appropriate risk adjusted commercial return. The principal risks which the Group has consciously accepted in the pursuit of value creation are liquidity risk, regulatory and compliance risk, market risk, credit risk, strategic risk, and investment risk. With regard to the FinTech activities, exposure to investment risk is a factor of the strategic, liquidity, credit and operational risks assumed by the platforms in which the Group is invested.

This section on the Group's Principal Risks should be read together with the sections on the Group's Governance Framework, the operation of the Audit and Risk Committee, as well as Note 22 which describes the sensitivity of the Group's financial results to its Financial Risk exposures. These sections explain how these risks are being managed, monitored and governed.

The table below describes the Group's assessment of the principal risks being those which have the potential to have a significant impact on the Group's business model, future performance, solvency or liquidity.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

Introduction and ESG ambition

We have been focusing on a data-driven approach and continue to utilise our materiality assessment to help prioritise the key ESG issues for our business and stakeholders. This section is an executive summary of Sancus' full ESG report, which will be made available on our website.

Our headline objectives are:

We are committed to reducing our carbon emissions and have focused on improving the quality of data that allows us measure our impact in order to lay the foundations for targeted action on reduction. Beyond our operations, we acknowledge the influence we can have on emissions in the built environment and are also working with partners to understand the role we play in promoting sustainable practices.

We also continue our commitment to improving the communities we operate in through local economy investment and delivering voluntary programmes. Finally, we continue to work towards a more diverse leadership approach and maintain high ethical standards across our business through our governance practices.

This report measures our progress against these priorities, which we will continue to report on an annual basis going forward.

Our plan and priorities

In 2022, we noted we are at the beginning of Sancus' ESG programme. We have a team in place focusing on ESG and are supported by industry experts. The ESG team have the full support of the Executive team.  Over the last 12 months, we have focussed on improving our data collection and reporting processes, including working to improve data collection from third-party suppliers and partners. We see this as a key enabler of our action on ESG.  Employee health and wellbeing has also been a key focus, with multiple initiatives being taken over the last 12 months to continue building on our company culture and ultimately our business success.  We will continue to ensure appropriate resources are available to help us achieve our ESG targets.

Our ambition is for ESG to become an integrated part of Sancus and be established in all our practices. We will leverage this to deliver positive impacts for our stakeholders while continuing to help drive long-term value and growth for Sancus.

The key overarching priorities for Sancus are set out below. We have also outlined specific progress to date and next steps across our ESG objectives.

Our key enablers

The key enablers for us to achieve our ESG objectives are:

Our ESG journey

We summarise our ESG progress and commitments below.

Environment

Social

Governance

Task Force on Climate-related Financial Disclosures ("TCFD") Statement - 2023

Governance - Sancus' governance around climate-related risks and opportunities.

Describe the board's oversight of climate-related risks and opportunities.

As set out in the Corporate Governance section, in addition to its requirement to comply with the AIM Rules, Sancus has chosen to comply with the QCA Corporate Governance Code. The Sancus Board has overall responsibility for business strategy, including setting the strategy, approach and monitoring its implementation. The Board receive quarterly reports from Executive Management, which includes matters relating to environmental, social and governance ("ESG") including climate-related risks.

The CEO is responsible for delivering the business strategy including ESG and climate-related risk matters and is present at board meetings including those where ESG and climate-related matters are discussed, with these discussions helping to steer the overall strategy.

Describe management's role in assessing and managing climate-related risks and opportunities.

Day-to-day management of ESG and climate-related matters has been delegated to the Executive Management, with representatives from across the business as members of the ESG Team, who review ESG and climate-related data and issues and provide recommendations to the Executive Management for new initiatives, activities and overall strategy for ESG and climate-related matters.

Strategy - Impacts of climate-related risks and opportunities on the business, strategy and financial planning.

Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term. Describe the impact of climate-related risks and opportunities on the organisation's businesses, strategy, and financial planning.

Sancus considers risk and opportunities in the short, medium and long term:

Sancus' core business model is the provision of short-term funding for property development and bridging. Climate-related risks and opportunities potentially impact the business model in several ways. The company has identified climate-related risks across the TCFD's two major categories: (1) risks related to the transition to a low-carbon economy and (2) risks related to the physical impacts of climate change - summarised in Table 1 below.

Through this, Sancus will be able to assess climate-related risks and also consider what climate-related opportunities are available, how these opportunities can be developed within the overall strategy and will report on the short-, medium- and long-term objectives as we progress.

Our ESG report provides details of the key emissions data across Scope 1, Scope 2 and Scope 3 greenhouse gas emissions ("GHG"), from across the various offices and staff locations the company operates from. We are working with our key suppliers to improve the quality of data available and which will allow us to better measure GHG. Presently, and due to this, Sancus has not defined a strategic target for reducing emissions. However, through initiatives such as the consolidation of office locations in 2023 and our plans for a sustainable business travel policy, we believe there is scope to achieve quick wins to reduce emissions over the medium-term. We will focus on achieving reduction through continued engagement with key providers over the long-term.

Describe the resilience of the organisation's strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.

Sancus continues to develop in responding to its requirements under TCFD and, currently, does not have the capability and resources to perform climate scenario analysis as part of the reporting exercise. We recognise the importance of incorporating climate scenario analysis into our strategic planning to ensure sustainable growth and resilience. To address this, we are developing a comprehensive plan to build our internal capabilities, including investing in training and improving our data capture systems. We anticipate that we will be fully equipped to conduct thorough climate scenario analyses within the next 3-4years.

Table 1a - Summary of Sancus' climate-related risks

Table 1b - Summary of Sancus' climate-related opportunities

Risk Management - Climate-related risk management and metrics

Describe the organisation's processes for identifying and assessing climate-related risks.

Sancus continues to develop its strategy for identifying, assessing and managing climate-related risks and opportunities. Our ESG Team, reporting to the Executive Management and Board are responsible for our overall ESG risk management framework, including identifying and assessing climate-related risks and providing reporting to the Board. Our credit-risk processes include assessment of known climate related risks (e.g. flood risk).

Sancus recognises further investment in training and support for the ESG Team is fundamental in building out this strategy over the medium term.

Describe the organisation's processes for managing climate-related risks.

Sancus recognises further investment in training and support for the ESG Team is fundamental in building out a strategy for managing climate-related risks over the medium term and is committed to providing the resource necessary to achieve this.

Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation's overall risk management.

Through the Executive Risk Committee, Sancus intends to further integrate climate-related risk management into the overall risk management strategy within the next 12-24 months.

Metrics and Targets

Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks.

Presently, the focus has been on capturing quality data relating to the energy usage of the operations with a view to developing strategies for carbon emissions reduction. This data is focused on GHG emissions, using the GHG protocol for understanding Scope 1, Scope 2, and Scope 3 emissions.

2023 GHG Emissions data

Emissions by source

Capturing and understanding quality emissions data is key to developing a carbon reduction strategy. Despite progress and engagement, it can still be difficult to obtain carbon emissions data from key service providers. Data quality has improved over the last 12 months. However, improvements in data capture from key providers is pivotal in enabling Sancus to identify opportunities for reducing GHG emissions over the medium to long term, which is part of the overall ESG strategy.

Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets.

Sancus recognises that it operates in the UK which has made a commitment to transition to a net zero economy (under the Climate Change Act 2008 (Order 2019)). As part of our annual ESG and GHG emissions reporting exercises, we have considered our level of maturity in being able to develop and disclose a climate transition plan.

At present, Sancus is still building out and developing its capability for GHG emissions calculations with the intention of developing a realistic carbon reduction plan. Principally, we are still addressing key gaps in data availability and quality that allow us to build a complete picture of our GHG emissions as a company, therefore impairing our ability to set a robust baseline for emissions reduction targets. We plan to address data availability and quality issues through further engagement with key providers and aim to have established a science-based net-zero target in the next coming years.

Summary

Whilst Sancus is committed to addressing climate-related risks and understands the importance of becoming a more responsible and sustainable business, we acknowledge we are in the early stages of developing our overall climate strategy and through the ESG programme, will continue to assess and refine the strategy, recognising that ESG and climate-related risk management is an on-going commitment, rather than a one-time initiative.

CORPORATE GOVERNANCE

Board of Directors and Executive Management Team

Introduction

The Board recognises the importance of a strong corporate governance culture.

The composition of the Board is the subject of ongoing review. Somerston Group had the right to nominate a candidate for appointment to the Board and presently exercises this right via the appointment of Tracy Clarke (bio noted below).

Board of Directors

The Company operates a unitary Board Structure, comprised of both Executive and Non-Executive Directors. Biographical details of the Directors can be found below. The terms of Directors' appointments are available from the Company Secretary.

On joining the Board, any new director will have received an induction through face to face meetings with existing directors, senior management and the Company Secretary.

The Chairman leads the Board and is responsible for its overall effectiveness in directing the Company, its corporate governance responsibilities, and addressing any training or development needs of the directors.

Steve Smith - Independent Non-Executive Director

Mr Smith was formerly an Executive Director and the Chief Investment Officer of The British Land Company plc, the FTSE 100 property investment trust, with responsibility for the group's property and investment strategy, standing down in 2013. Prior to this, Mr Smith was Global Head of Asset Management and Transactions at AXA Real Estate Investment Managers, where he was responsible for the asset management of a portfolio of assets valued at more than €40 billion on behalf of life funds, listed property vehicles, unit linked and closed end funds. Prior to joining AXA in 1999, Mr Smith was Managing Director at Sun Life Properties for over five years. Over the last decade, Mr Smith has worked extensively in governance related roles for a number of property focused organisations. Mr Smith is Chairman of the Board and is a member of the Audit and Risk Committee and Remuneration and Nomination Committee. Mr Smith was appointed to the Board on 11 May 2021. He is resident in the UK.

John Whittle - Independent Non-Executive Director

Mr Whittle has a background in large third party Fund Administration. He has worked extensively in high tech service industries and has in-depth experience of strategic development and mergers/acquisitions. He has experience of listed company boards as well as the private equity, property and fund of funds sectors. He is currently Chairman of Starwood European Real Estate Finance Limited and Director and Audit Chair of The Renewable Infrastructure Group Ltd ("TRIG") (both listed on the main market of the London Stock Exchange) and Director and Audit Chair of Chenavari Toro Income Fund Limited (admitted to trading on the Specialist Fund Segment of the London Stock Exchange). Mr Whittle, a Chartered Accountant, has also served as Finance Director of Close Fund Services Limited (responsible for internal finance and client financial reporting), Managing Director of Hugh Symons Group PLC and Finance Director and Deputy MD of Talkland International Limited (now Vodafone Retail).

Mr Whittle was appointed to the Board, the Audit and Risk Committee and the Remuneration and Nomination Committee on 23 September 2016, after having served as an Alternate Director since December 2015. He is resident in Guernsey. Mr Whittle is Chairman of the Audit and Risk Committee, and of the Remuneration and Nomination Committee.

Tracy Clarke - Non-Executive Director

Ms Clarke is a representative of the Somerston group of companies ("Somerston"), the Company's largest shareholder which has the right to nominate one individual for appointment to the Board. Ms Clarke joined Somerston in 2016 and acts as the Group's Chief Operating Officer.  Ms Clarke is also Managing Director of Carlton Management Services Limited, a licensed Jersey trust company business. Prior to joining Somerston, Ms Clarke worked for Deutsche Bank in Jersey and Zurich for over 10 years, specialising in financial Intermediary and external asset manager business. Ms Clarke is a Fellow of the Institute of Chartered Accountants in England and Wales and holds the CISI Investment Advice Diploma. Ms Clarke was appointed to the Board on 8 March 2022 and is a member of the Company's Audit and Risk Committee and Remuneration and Nomination Committee.

Rory Mepham - Executive Director

Rory joined Sancus in January 2021, assuming the role of Interim CEO on 1 July 2021 and was then confirmed as CEO and board member on 23 November 2021. Joining Sancus from The Somerston Group where he managed their European property platform which includes businesses in the hotel, retail, land development, student housing and PRS sectors. Rory has over 20 years experience in the UK and European property market. He has spent his career working with institutional capital and has an extensive track record in M&A, corporate finance, capital raising, debt finance, investment management and property development. Rory holds an MBA from the Cranfield School of Management, a BSc (Hons) in Land Management from the University of Reading and qualified as a member of the Royal Institute of Chartered Surveyors (MRICS).

Executive Management Team

Rory Mepham - Chief Executive Officer

See above.

Keith Lawrence - Chief Financial Officer

Keith was appointed to the Executive Management Team on 1 April 2024. Keith has over 30 years experience in the financial services industry.  After qualifying as a Chartered Accountant with KPMG Keith worked in investment banking for 20 years, focussing primarily on financial services clients.  Prior to joining Sancus Keith was the CFO of an innovative private equity backed residential construction business.  Keith holds a BA(Econ)(Hons) in Accounting and Finance from the University of Manchester. Keith joined Sancus in February 2024.

James Waghorn - Chief Investment Officer

James was appointed to the Executive Management Team on 8 March 2022. James has over 14 years experience in the UK and European property market. James has extensive experience across the corporate real estate, investment and property development sectors. For the past 6 years James has led Somerston's land development business, a strategic land and development focused business with capacity for in excess of 2,350 units within its strategic portfolio. James holds a BSc in Investment and Finance in Property from the University of Reading and is MRICS accredited. James joined Sancus in January 2021.

GOVERNANCE FRAMEWORK

The Board is committed to maintaining high standards of corporate governance throughout the Company's operations and to ensuring that all of its practices are conducted transparently, ethically and efficiently. The Board believes that scrutinising all aspects of the Company's business and reflecting, analysing and improving its procedures will minimise the potential for downside risk and will preserve shareholder value. In compliance with the AIM Rules for Companies, published March 2018, the Company has chosen to comply with the provisions of the QCA Corporate Governance Code (the "QCA Code"). The Company is also mindful of the provisions of the Finance Sector Code of Corporate Governance, as amended by the Guernsey Financial Services Commission in November 2021.

The Board believes that applying the principles and reporting against the provisions of the QCA Code accurately reflects the nature, scale and complexity of the business and enables the Board to provide information to shareholders on its activities in accordance with the principles set out in a recognised governance framework. Furthermore, through applying the relevant provisions the Company is better positioned to mitigate downside risk and in doing so, preserve long-term shareholder value. The Company's corporate governance framework has been based on these principles and is designed to deliver the Group's strategy, and the application of such principles to the operation of the Board ensures that its decision-making processes remain focussed on the long-term sustainable success of the Company.

As at 31 December 2023, the Company complied substantially with the relevant provisions of the QCA Code and it is the intention of the Board that the Company will comply with these provisions throughout the year ending 31 December 2024, save with regard to the following:

How we apply the QCA Code

The Company has established specific formally constituted committees and implemented certain policies, to ensure that:

Risk management remains a key area of focus during Board meetings. Details of the Company's risk management and internal control framework is set out in the "Principal Risks, Uncertainties And Related Internal Controls" section.

Composition and Independence of the Board of Directors

The Board of Directors is responsible for ensuring the affairs of the Company are properly managed through formulating, reviewing and approving the Company's strategy, budgets, and corporate actions and that oversight, scrutiny and challenge is applied to Executives responsible for the day-to-day activities of the Group. The Company seeks to deliver long-term growth for shareholders and maintain a flexible, efficient and effective management framework within an entrepreneurial environment.

It is important that the Board itself contains the right mix of skills and experience in order to deliver the strategy of the Company. As such, the Board is comprised of:

The Board is comprised of individuals holding professional qualifications and experience relevant to the activities of the Company. A biography of each of the Directors is included in the "Board of Directors and Executive Management Team" section. The time requirement expected from each of the Directors is set out in writing in their respective appointment letters.

Liberum Capital has been appointed as the Company's Corporate Broker and Nominated Adviser under the AIM Rules and advises on compliance with the AIM Rules, corporate communications and acts as financial adviser to corporate actions. Additionally, the Company has appointed a professional Company Secretary who assists the Board of Directors in preparing for and running effective board meetings, including the timely dissemination of appropriate information. The Company Secretary provides guidance to the extent required by the Board on certain aspects of the legal and regulatory environment, within which the Company operates.

The Board believes that long serving Directors should not be prevented from forming part of the Board or from acting as Chairman and no limit has been imposed on the overall length of service of the Directors. Each Director will retire and seek reappointment at every third annual general meeting, with those serving for nine years or more subject to reappointment annually. The Board meets on at least a quarterly basis during the financial year.

The Board has appointed several committees to support it in different areas of the business; each with formal terms of reference, with specific roles as set out below.

The Board undertakes an annual evaluation of its own performance, the performance of its formally constituted committees and that of individual Directors. This includes a formal process of self-appraisal reviewing the balance of skills, experience, independence and diversity present on the Board, and individual director performance, contribution and commitment to the Group to ensure that the Board and its committees continue to operate effectively, or to identify areas where action is required. The remainder of the Board is responsible for evaluating the performance of the Chairman. The Chairman also has responsibility for assessing the individual Board members' training requirements. No significant findings were identified in the 2023 evaluation which required further action.

The Directors remain mindful of the benefits which can flow from increasing the level of diversity represented on the Board including, but not limited to, cultural, gender, experience and background. Such factors will be taken into consideration by the Nomination Committee during any selection process.

Executive Management Team

As at the year end, the Company's Executive Management Team comprised Rory Mepham (Chief Executive Officer), Tracy Clarke (Interim Chief Financial Officer), and James Waghorn (Chief Investment Officer) (together the "Executive Management Team" or "Management"). Management are responsible for the day-to-day management of the Company's operations. The non-executive independent Directors monitor and evaluate the performance of the Management Team on an ongoing basis.

BOARD COMMITTEE STRUCTURE

Audit and Risk Committee

The Audit and Risk Committee conducts formal meetings at least twice a year. The Audit and Risk Committee's key duties include:

The Audit and Risk Committee has three members, two of whom are independent, non-executive directors and one of whom is a non-executive director, and at least one member has recent and relevant financial experience. The current members of the Committee are John Whittle as the Chairman, Steve Smith and Tracy Clarke.

The Audit and Risk Committee is supported by a risk management and oversight process employed by the Executive Management Team and receives reports twice a year on key risks and developments during the period, or as otherwise required in the case of a material development.

The terms of reference of the Audit and Risk Committee are available from the Company Secretary.

Remuneration and Nomination Committee

The purpose of the Remuneration and Nomination Committee is to determine and agree with the Board the framework or broad policy for the remuneration of the Company's Directors, senior executives, and any bonus-related arrangements in place by the Company as well as to consider the structure, size and composition of the Board. The key duties of the Remuneration and Nomination Committee include:

The Remuneration and Nomination Committee has three members, all of whom are non-executive directors and two are independent. The current members of the committee are John Whittle as the Chairman, Steve Smith and Tracy Clarke.

The terms of reference of the Remuneration and Nomination Committee are available from the Company Secretary.

Please refer to the "Remuneration Report" section for details of fees paid to the Directors during the year.

Meetings and attendance

The Directors meet on a quarterly basis ('Quarterly' meetings per the table below) and at other unscheduled times ('Other' meetings per the table below) when necessary to assess Group operations and the setting and monitoring of strategy and performance.

The table below, details the attendance of the Board at eligible Board and Committee meetings during the year, noting that certain Directors retired or were appointed during the course of the year as set out below the table:

Relations with Stakeholders

The Board's advisers and the Executive Management Team maintain regular dialogue with key shareholders, the feedback from which is reported to the Board and the Chairman. Shareholders who wish to communicate with the Board should contact the Company Secretary in the first instance, whose contact details can be found in the "Officers and Professional Advisers section.

The Board also regularly monitors the shareholder profile of the Company. All shareholders have the opportunity to and are encouraged to attend the Company's annual general meeting at which members of the Board are available in person to meet shareholders and answer questions.

Whilst the primary duty of the Directors is owed to the Company as a whole, the Board takes into consideration the interests of all key stakeholder groups as part of its decision-making process and particular consideration is given to the impact of any decision on holders of its securities, the Co-Funders to the underlying loan businesses, and providers of the Group's long-term debt capital. The Board also recognises the crucial roles played by those involved throughout the Group's operations who contribute to delivering strategy, including staff and key service providers, to ensure a continued alignment of interests between their activities and those of the Company.

Terms of Reference of Committees

Committee Terms of Reference are available from the Company Secretary.

AUDIT AND RISK COMMITTEE REPORT

The Audit and Risk Committee

The Audit and Risk Committee has a formal terms of reference mandate documenting the duties and responsibilities which it has been delegated by the Board. These are available from the Company Secretary. The Audit and Risk Committee has been in operation throughout the year under review.

Chairman and Membership

The Audit and Risk Committee comprises of John Whittle as Chairman, Steve Smith and Tracy Clarke. Only Non-Executive Directors serve on the Audit and Risk Committee and members of the Audit and Risk Committee have no links with the Company's external auditor and are independent of the Executive Management Team. The Audit and Risk Committee meets not less than three times a year in Guernsey and meets the external auditor at least twice a year in Guernsey. The identity of the Chairman of the Audit and Risk Committee is reviewed on an annual basis and the membership of the Audit and Risk Committee, and its terms of reference are kept under review. Regular attendees at the Audit and Risk Committee include the CEO, CFO and CIO.

Duties

The Audit and Risk Committee is responsible for monitoring the financial reporting process, including the appropriateness of the Company's accounting policies and the effectiveness of the Company's risk management and internal control systems. The Committee continues to spend a considerable amount of time reviewing significant risks and areas of judgement. In particular, the Committee conducts detailed reviews and analysis of the valuations prepared by the Executive Management Team of the FinTech Ventures investments, the Subsidiary Goodwill value in use models to assess if any impairment might be required and the Expected Credit Loss model. These valuations are key elements in the Group's financial statements and the Audit and Risk Committee questions these carefully.

External Audit

The Audit and Risk Committee is responsible for overseeing the relationship with the external auditor, including the ongoing assessment of the auditor's independence. The Committee makes recommendations to the Board with regard to the appointment of the external auditor and approves their terms of engagement and fees. The Committee discusses and agrees the nature and scope of the audit as set out in the audit engagement letter, reviews the results of the audit as described in the auditors' management letter and the ongoing independence and objectivity of the external auditor. Moore Kingston Smith LLP has been appointed as the Group's auditor. The Group's former external auditor, Moore Stephens Audit & Assurance (Jersey) Limited, resigned in May 2024 for technical reasons relating to the listing of the Group's Zero Dividend Preference shares. As part of their resignation Moore Stephens Audit & Assurance (Jersey) Limited confirmed that there were no factors that they required to the members or creditors of the Group to be made aware of.

Processes are in place to safeguard the independence of the external auditor, including controls around the use of the external auditor for non-audit services. The external auditor also provides the Audit and Risk Committee with further assurance as to the procedures that it maintains to preserve objectivity and confirmation that it remains independent. All non-audit services are pre-approved by the Audit and Risk Committee.   

Effectiveness of External Auditor

The Committee assessed the effectiveness of the external auditor and the external audit process for 2023 through a number of steps, including:

For the audit for the year ended 31 December 2023, the Audit and Risk Committee was satisfied that the audit was effective and that there were no factors which had any bearing on the independence or effectiveness of the external auditor.

Financial Reporting

The Audit and Risk Committee reviews, considers and, if thought appropriate, recommends to the Board the approval of the contents of the half yearly report and annual report and audited financial statements together with the external auditor's report thereon. It focuses particularly on compliance with legal requirements, accounting standards and the relevant Listing Rules. The ultimate responsibility for reviewing and approving the half year report and annual report and audited financial statements remains with the Board.

The Audit and Risk Committee provides a forum through which the external auditor reports to the Board and the external auditor is invited to attend Audit and Risk Committee meetings at which annual and half yearly financial statements are considered. After discussions with the Executive Management Team and external auditor, the Audit and Risk Committee determined that the key risks of misstatement of the Group's financial statements relate to the valuation of financial assets at fair value through profit or loss, the valuation and recoverability of goodwill, loan impairments and revenue.

Freely tradeable market prices are not available for the majority of the Group's financial assets, including the carrying value of goodwill arising on consolidation, which are therefore based on a discounted cash flow basis. Goodwill impairment testing is carried out annually or sooner where an indicative event of impairment has been identified.  As set out in Note 12 to the financial statements, on 5 December 2023, the Group sold its Jersey operations in exchange for a 50% shareholding in a new joint venture, Hawkbridge Limited. The goodwill attributable to these Jersey operations has therefore been fully transferred to Hawkbridge Limited as part of the consideration.

For the valuations of the FinTech Ventures portfolio, the Executive Management Team provides a detailed valuation report on a quarterly basis. The Executive Management Team has confirmed to the Audit and Risk Committee that the valuation methodology has been applied consistently during the year. The accounting policies are described in detail in Note 2 (f) to the financial statements.

The Audit and Risk Committee has assessed the processes around the expected credit loss provisions recorded in respect of the Group's loan assets and reviewed the IFRS 9 model adopted at year-end which had also gone through the credit committee for approval.

The accounting policies for revenue recognition are described in detail in Note 2 (o) to the financial statements. The Audit and Risk Committee has reviewed the revenue recognition policies of the Group and has determined that they are in accordance with the accounting standards and have been applied consistently.

After due consideration, the Audit and Risk Committee recommends to the Board that the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's performance, business model and strategy.

Non-Audit and audit related fees paid to the External Auditors

During 2023 no non-audit fees were paid to Moore Kingston Smith LLP, the external auditors or Moore Stephens, the former external auditors. £15,000 was paid to Moore Stephens for audit related services, being the half year review. There is no perceived threat to auditor independence given the nature of the services provided and the safeguards in place.

Risk Management and Internal Control Systems

During 2023, management continued to enhance its reporting on risk management to the Board and the Audit and Risk Committee, which cover the operation of the Company and its wholly owned subsidiaries. The Audit and Risk Committee has received and considered these reports on three occasions, which has been the basis for its conclusion below.

In addition to the review of risk management reports, and in accordance with the guidance published in the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting by the Financial Reporting Council (the "FRC"), the Audit and Risk Committee has reviewed the Company's internal control procedures and concluded that these are adequate to manage the current risk profile.

A robust, ongoing process of Risk Management and Internal Control

The Board and Executive Management Team are responsible for safeguarding the assets of the Group through establishing effective systems of risk management and internal control. This responsibility is shared by the Directors of subsidiary companies, who are similarly responsible for safeguarding the assets of these companies.

The Board is also responsible for deciding on whether the nature and extent of risks taken within the Group are within its risk appetite. Such risks have been formally defined (in the "Principal Risks, Uncertainties And Related Internal Controls" section), setting the basis for the design and implementation of the Group's internal control framework.

On behalf of the Board, the Audit and Risk Committee oversees the Group's risk management and internal control systems. These systems are designed to ensure proper accounting records are maintained and that internal and published financial information is reliable, and that the assets of the Group are safeguarded. Such a system of internal controls can only provide reasonable and not absolute assurance against misstatement or loss.

Critical components of the Group's internal control framework include the documented policies which describe how each risk is to be managed and governed and the governance committees established in terms of such policies, which have mandates describing how they should operate, what reports they should receive and how they should govern the management of principal risks. Such policies have been implemented at Company as well as subsidiary levels.

On a semi-annual basis, the Executive Management Team review the key risks across the Group to ensure they are being managed within the Company's risk appetite. Action plans are drawn up if any risks are considered to be outside of the Company's risk appetite and these are monitored on a regular basis until they return to levels back within the risk appetite.

On a semi-annual basis, the Board and/or Audit and Risk Committee receive reports on risk management, the key risks and the exposures outstanding. Also included in these reports are the results of the Executive Management Team's risk and issue identification discussions noted above. These meetings also provide the Directors with the opportunity to consider any other issues which management may not have identified and give direction on any additional risk management actions which might be required.

Insurance

The Sancus and subsidiaries insurance programme is subject to annual review each year, with cover generally renewed in April of the following year. A significant amount of Insurance cover is held for Public Indemnity, Directors' and Officers' liability, Cyber, and Crime. Appropriate office and travel insurance is also in place.

During 2023, the Committee did not receive any reports relating to whistleblowing across the Group.

On behalf of the Audit and Risk Committee

John Whittle

Chairman

Audit and Risk Committee

28 June 2024

REMUNERATION REPORT

Introduction

An ordinary resolution for the approval of the annual remuneration report will be put to the shareholders at the annual general meeting to be held in 2024.

Remuneration and Nomination Committee

The Remuneration and Nomination Committee comprises of John Whittle as Chairman, Steve Smith and Tracy Clarke. The key duties include, but are not limited to, agreeing a framework for Director remuneration, ensuring management staff are appropriately incentivised to enhance performance, and reviewing the effectiveness of the remuneration policy on an on-going basis. No Director is involved in determining their own remuneration.

Remuneration Policy

In February 2020 the Remuneration Policy was last approved and adopted. The Company is committed to the objective of maximising shareholder return in the longer term. The remuneration policy aims to be competitive, aligned with shareholder interests and relatively simple and transparent. The Board takes into consideration the views of significant shareholders when determining the remuneration of directors.

The objective is to put in place a remuneration package that, as a whole:

The Board is reviewing the Remuneration Policy against these objectives.

The Policy is divided into two parts; the first part in relation to the remuneration of the Non-Executive directors of the Company, and the second part in relation to the remuneration of the Executive Directors of the Company.

Part 1 - Remuneration Policy of Non-Executive Directors

Each Non-Executive Director receives a fixed fee per annum based on their role and responsibility within the Company and the time commitment required. It is not considered appropriate that Non-Executive Directors' remuneration should be performance related and none of the Non-Executive Directors are eligible for pension benefits, share options, long-term incentive schemes or other benefits in respect of their services as Non-Executive directors of the Company. Shares held by the Non-Executive Directors are disclosed in the Annual Report.

Pursuant to Article 30.3 of the Company's Articles of Incorporation (the "Articles") the Board may award additional remuneration to any Director engaged in exceptional work at the request of the Board on a time spent basis to compensate for the additional time spent over their expected time commitment.

The total remuneration of the Non-Executive Directors has not exceeded the £300,000 per annum limit (excluding amounts payable in respect of any out-of-pocket expenses pursuant to Article 30.2 or any additional remuneration awarded pursuant to Article 30.3) pursuant to an ordinary resolution passed at the Annual General Meeting of the Company held on 19 May 2016.

The Articles provide that Non-Executive Directors retire and offer themselves for re-election‑ at the first annual general meeting after their appointment and at least every three years thereafter. A Non-Executive Director's appointment may at any time be terminated by and at the discretion of either party upon three months' written notice. A Non-Executive Director's appointment will terminate immediately without notice (or payment in lieu of notice) if such director is not re-appointed at a General Meeting of the Company (if required under the Articles), if such director is removed as a director at a General Meeting of the Company, or if such director resigns or ceases to be a director in accordance with the provisions of the Articles.

The terms and conditions of appointment of each Non-Executive Director are available for inspection at the Company's registered office.

The last independent remuneration review was carried out in July 2014. A Long Term Incentive Plan was established for Senior Management during 2023, further details of which are set out below.

For comparative purposes the table below sets out the Non-Executive Directors' remuneration approved and actually paid for the year to 31 December 2022 as well as that proposed for the year ended 31 December 2023 (to be approved at the 2024 AGM).

* Pro rata for 2022 as Mr Wakefield was succeeded by Ms Clarke on 8 March 2022. Ms Clarke served as a non-executive director from 1 January 2023 to 31 March 2023 and during which she received a pro-rata portion of her annual fees of £35,000.  She then served as Interim Group CFO from 1 April 2023 and received the pro rata portion of an annual salary of £130,000.

Part 2 - Remuneration Policy of Executive Directors

For comparative purpose the following table sets out remuneration paid to Executive Directors for the years ended 31 December 2023 and 31 December 2022, excluding all reasonable expenses incurred in the course of their duties which were reimbursed by the Company.

¹ Ms Stubbs resigned on 31 March 2023.

² As noted above, Ms Clarke served as Interim Group CFO from 30 March 2022 until 31 March 2023.

³ Mrs Trott was appointed COO and Legal Counsel on 29 November 2022 and was employed on a 4 day a week contract. She resigned on 14 July 2023.

⁴ Relates to termination payments to Ms Stubbs and Ms Trott, including payments in lieu of notice

Long Term Incentives

The Board introduced a Long Term Incentive Plan ("LTIP") for Senior Management during 2023. An initial grant of restricted forfeiture ordinary shares was made to Rory Mepham and James Waghorn as follows:

These forfeiture shares will vest in 2026, 3 years after grant, and the level of vesting will be subject to the achievement of operating profit targets measured up to the end of the 2025 financial year.

¹ Defined as operating profit after all debt financing including ZDP and Bonds, loan loss provisions/recoveries and a provision for other staff cash bonuses. Operating profit is measured pre-exceptional items and taxation.

Subject to shareholder approval at the Annual General Meeting it is proposed that a further grant of will be made to members of the Executive Management and certain members of senior management.  The awards proposed to be awarded to the Executive Management are as follows:

These forfeiture shares will vest in 2027, 3 years after grant, and the level of vesting will be subject to the achievement of operating profit targets measured up to the end of the 2026 financial year.

¹ Defined as operating profit after all debt financing including ZDP and Bonds, loan loss provisions/recoveries and a provision for other staff cash bonuses. Operating profit is measured pre-exceptional items and taxation.

Discretionary Executive Bonus

No discretionary cash bonuses were paid to the Executive Management Team in 2023. (In the year to 2022: £50,000 was paid to James Waghorn).

On behalf of the Remuneration Committee

John Whittle

Remuneration Committee Chairman

28 June 2024

DIRECTORS' REPORT

The Directors submit their Report together with the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Shareholders' Equity, the Consolidated Statement of Cash Flows and the related Notes for the year ended 31 December 2023, which have been prepared in accordance with UK-adopted International Accounting Standards, in accordance with any relevant enactment for the time being in force, and are in agreement with the accounting records, which comply with Section 238 of The Companies (Guernsey) Law, 2008.

Principal Activities

The Company was incorporated and domiciled in Guernsey, as a company limited by shares and with limited liability on 9 June 2005 in accordance with The Companies (Guernsey) Law, 1994 (since superseded by The Companies (Guernsey) Law, 2008). From January 2023 the Company changed its management and control from Guernsey to Jersey. Until 25 March 2015, the Company was Authorised as a Closed-ended Investment Scheme and was subject to the Authorised Closed-ended Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission ("GFSC"). On 25 March 2015, the Company was registered with the GFSC as a Non-Regulated Financial Services Business, at which point the Company's authorised fund status was revoked. The Company's Ordinary Shares were admitted to the AIM market of the London Stock Exchange on 5 August 2005. The ZDPs were listed and traded on the main market of the London Stock Exchange with effect from 5 October 2015 and following shareholder approval now have a maturity date of 5 December 2027. The Company's 2021 bonds were repaid on 21 December 2021 and a total of £12.575m principal of new bonds (the "New Bonds") were issued on 22 December 2021. Somerston subscribed to a further £2.425m bonds on 1 December 2022 taking the Company's aggregated bond principal to £15m of which £10.13m is now held by Somerston. The New Bonds are not listed and have an interest rate of 7%.

The Company does not have a fixed life and the Articles do not contain any trigger events for a voluntary liquidation of the Company.

Following the approval by Shareholders at the Company AGM on 19 May 2016, the Company changed its status from being an investing company for the purpose of the AIM rules to a trading Company.

The Executive Management Team is responsible for the day-to-day management of the Company.

The Group

As at 31 December 2023, the Group comprises the Company and the entities disclosed in Note 20 to the financial statements.

Directors and Executive Management Team of the Company

A list of the Directors and the Executive Management Team who served the Company during the year and as at the date of this announcement is shown in the "Board of Directors and Executive Management Team" section.

Results and Dividends

The Group results for the year are set out in the "Consolidated Financial Statements" section. No Dividends were paid during the year (31 December 2022: Nil).

Substantial Shareholdings

As at 31 December 2023, the Company was aware of the following substantial shareholders who held 3% or more of issued share capital of the Company:

Directors' Interests

As at 31 December 2023, the Directors had the following beneficial interests in the Ordinary Shares of the Company:

Statement of Directors' Responsibilities

The Directors are responsible for preparing the financial statements in accordance with UK-adopted International Accounting Standards) and The Companies (Guernsey) Law, 2008 for each financial period to give a true and fair view of the state of affairs of the Group as at the end of the financial year and of the profit or loss for that period.  International Accounting Standard 1 requires that financial statements present fairly for each financial period the Group's financial position, financial performance and cash flows. This requires faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's "Framework for the preparation and presentation of financial statements". In virtually all circumstances a fair presentation will be achieved by compliance with all IFRSs as adopted by the UK. 

In preparing these financial statements, the Directors are required to:

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements have been properly prepared in accordance with The Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors also confirm that the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's performance, business model and strategy.

Internal Controls Review

Taking into account the ongoing work of the Audit and Risk Committee in monitoring the risk management and internal control systems on behalf of the Board the Directors, the latter has conducted a robust assessment of the principal risks and uncertainties faced by the Group as set out in the "in the "Principal Risks, Uncertainties And Related Internal Controls" section and is satisfied that each of these has been properly identified and is being effectively managed through the operation of appropriate internal controls and risk management systems, within the constraints of the resources of the Group.

Statement as to Disclosure of Information to Auditor

The Directors who held office at the date of approval of this Directors' Report confirm that:

Auditor

Moore Kingston Smith LLP were appointed in the year and have indicated their willingness to continue in office and a resolution to re-appoint Moore Kingston Smith LLP will be tabled at the forthcoming AGM.

Going Concern

The Group has reported an operating loss of £9.9m (2022: £4.7m) for the year. This is primarily due to an ECL charge of £4.8m (2022: £0.4m). As at 31 December 2023 the Group had net liabilities of (£1.9m) (2022: net assets of £7.2m) including cash and cash equivalents of £5.0m (2022: £4.1m).

The Directors have considered the going concern basis in the preparation of the financial statements as supported by the Director's assessment of the Company and Group's ability to pay its liabilities as they fall due and have assessed the current position and the principal risks facing the business with a view to assessing the prospects of the Company. The Directors have prepared a cash flow forecast for the period to 30 September 2025 which shows that the Company and the Group will have sufficient cash resources to meet their ongoing liabilities as they fall due for at least twelve months from the date of approval of these financial statements.  Following the extension of the ZDPs at the end of 2022, for a further 5 years to 5 December 2027 and with the Bonds maturity date not until 31 December 2025, the Company does not have any debt liabilities that fall due within the next 12 months.  Based on this, along with the issuance of preference shares by a subsidiary of the Group in April 2024 and as set out in Note 27 to these financial statements, the Directors are of the opinion that the Company and the Group has adequate financial resources to continue in operation and meet its liabilities as they fall due for the foreseeable future.

It is however expected, whereby equity is required to facilitate an increase in drawdown from institutional funding lines that the Company will require growth capital to fund the continued growth of the loan book. The Company's largest shareholder, Somerston has indicated their willingness to support the Company's growth plans. The Company will be looking at options available to raise such additional growth capital over the course of the year.

The Directors therefore believe it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

Board Succession

The Directors remain focussed on ensuring the Board is comprised of individuals with the requisite skills, knowledge, experience and diversity to operate effectively and to meet the future leadership needs of the Company. From 30 March 2022 until 31 March 2023 Ms Tracy Clarke served as the Interim Group CFO. Keith Lawrence, who joined the Group in February 2024, was appointed as Group CFO on this date and Ms Tracy Clarke has reverted to being Somerston's appointed Board representative.

Approved and signed on behalf of the Board of Directors on 28 June 2024.

Independent auditor's report to the members of Sancus Lending Group Limited

Opinion

We have audited the Group financial statements of Sancus Lending Group Limited (the 'Group') for the year ended 31 December 2023 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted International Accounting Standards.

In our opinion the Group financial statements:

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the audit of the financial statements section of our report. We are independent of the group, in accordance with the ethical requirements that are relevant to our audit of the financial statements in Guernsey, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

An overview of the scope of our audit

Our audit approach was a risk-based approach founded on a thorough understanding of the group's business, its environment and risk profile. We conducted substantive audit procedures and evaluated the group's internal control environment. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the directors that may have represented a risk of material misstatement. The components of the group were evaluated by the group audit engagement team based on a measure of materiality, considering each component as a percentage of the group's total assets, current assets, revenue and gross profit, which allowed the group audit engagement team to assess the significance of each component and determine the planned audit response.

For those components that were evaluated as significant components, either a full scope audit or a specified audit procedures approach was determined based on their relative materiality to the group and our assessment of the level of audit risk. For significant components requiring a full scope audit approach, we evaluated controls by performing walkthroughs over the financial reporting systems identified as part of our risk assessment, reviewed the accounts production process and addressed critical accounting matters. We then undertook substantive testing on significant transactions and material account balances.

We determined there to be five significant components to the group, which were Sancus Lending Group Limited, Sancus Lending (UK) Limited, Sancus Holdings (UK) Limited, Sancus Loans Limited and Sancus Lending (Ireland) Limited which were subject to full scope audits. Other non-significant components were subject to targeted audit procedures based on the level of risk in the context of the group as a whole.

Significant elements of the group's operations are located in the United Kingdom and the Republic of Ireland. Component audit teams in both countries performed full scope audits of relevant significant components.

The audit of the United Kingdom significant components was completed by another office of Moore Kingston Smith LLP l and the audit of the Republic of Ireland significant component was completed by Moore Ireland Audit Partners Limited .These audits were completed under the supervision and direction of the group audit engagement team, as described in more detail below. The remaining significant component, namely the parent company Sancus Lending Group Limited, was audited by the group audit engagement team.

Our involvement with the component auditors

As part of our supervision and direction of the component audit teams, we determined the level of involvement required in order to be able to conclude whether sufficient appropriate audit evidence has been obtained in respect of the United Kingdom and Irish significant components as a basis for our opinion on the group financial statements as a whole. Our involvement with the component auditors included the following:

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the group financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the group financial statements, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

Our application of materiality

The scope and focus of our audit were influenced by our assessment and application of materiality. We define materiality as the magnitude of misstatement that could reasonably be expected to influence the readers and the economic decisions of the users of the financial statements. We use materiality to determine the scope of our audit and the nature, timing, and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole. We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.

Based on our professional judgement we determined materiality for the financial statements as a whole and performance materiality as follows:

Performance materiality:

We calculated performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality level for the Group consolidated financial statements as a whole. We determined performance materiality to be £540,500, which was set at 50% of overall materiality and reflects the Group's listed status.

Component materiality:

We set materiality for each component of the group based on a percentage of group materiality dependent on the size and our assessment of risk of material misstatements of that component. Component materiality, other than the parent company's, ranged from £60,000 to £757,450. In the audit of each component, we further applied performance materiality levels of 50% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.

Trivial:

We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £54,050 for the group. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. We also reported to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

Conclusions relating to Going Concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the group's ability to continue to adopt the going concern basis of accounting included, but was not limited to:

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's ability to continue as a going concern.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Other information

The other information comprises the information included in the annual report, other than the Group financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the group financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the group financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Group financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the group financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

Responsibilities of directors

As explained more fully in the directors' responsibilities statement set out in the "Directors' Report" section, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of group financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the Group financial statements, the directors are responsible for assessing the group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the Group financial statements

Our objectives are to obtain reasonable assurance about whether the group financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Group financial statements.

A further description of our responsibilities is available on the FRC's website at https://www.frc.org.uk/library/standards-codes-policy/audit-assurance-and-ethics/auditors-responsibilities-for-the-audit/#description-of-the-auditors-responsibilities-for-the-audit-of-the-financial-statements-aef17638. This description forms part of our auditor's report.

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

The objectives of our audit in respect of fraud, are; to identify and assess the risks of material misstatement of the group financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses to those assessed risks; and to respond appropriately to instances of fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both management and those charged with governance of the Group.

Our approach was as follows:

There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the Group financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.

Use of our report

This report is made solely to the company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Matthew Banton

for and on behalf of Moore Kingston Smith LLP, Statutory Auditor

6th Floor

9 Appold Street

London

EC1A 2AP

28 June 2024

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The accompanying Notes in the "Notes to the Financial Statements" section form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The financial statements were approved by the Board of Directors on 28 June 2024 and were signed on its behalf by:

The accompanying Notes in the "Notes to the Financial Statements" section form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY