Principal activities
MSP Capital Holdings’ trading operations are undertaken via its wholly owned subsidiary, MSP Capital Limited. The principal activity of the group is the provision of specialist finance to property professionals in England and Wales.
All finances provided are secured via legal charges and the maximum tenure of any loan agreement is 36 months. The loan finance is generally used to fund acquisitions of investment properties and residential developments. The borrower profile is typically an experienced, medium-sized developer.
Business review
MSP Capital’s strategic objective is to be well known and respected in the marketplace among current and future clients, competitors, lending institutions and industry professionals. MSP aims to empower people to build property, offering its borrowers a wealth of experience from over 40 years of lending.
The group has plans to increase the number of personnel it employs in order to underpin its growth plan. During the year, the average number of full-time equivalent employees increased from 26 to 32 this meant that the compliance, legal, underwriting, marketing and finance departments were all expanded in addition the creation of the new Property Team. Most of the new hires took place in Q3, hence the average is reflective of this. At the year end, the group has a total headcount of 40 employees.
During the period under review, the group was able to continue its impressive growth journey, increasing its loan book by over £87m (30%) from £291m to £378m. This was underpinned by several improvements to its facilities that were successfully negotiated throughout the year.
During the year MSP had the continued support of its current lenders, which included increases to current facilities as well as new longer-term facilities. The ongoing support of the lenders indicates a strong market appetite for MSP’s product suite.
Following the economic bounce back in 2021, driven by various COVID recovery incentives such as the stamp duty holiday, 2022 was a year that saw yet more change and fluctuation in the UK economy.
The war in Ukraine, cost of living crisis, rising inflation, as well as the political and economic volatility caused by the mini budget are among challenges that all UK businesses faced during the year. Despite this, the average UK house price increased by 9.8% in the 12 months to December 2022.
The United Kingdom has a well-documented shortage of homes and MSP will continue to service property investors and developers who provide homes within this sector. As such, MSP’s growth forecasts are in line with this general theme.
The directors are satisfied with the performance of the company during the year. Further information on the primary key performance indicators (KPIs) of the business is provided below.
Principal risks and uncertainties
The principal risks and uncertainties faced by the group are: credit risk, interest rate risk, liquidity risk, compliance and reputational risk and operational risk.
The directors review and agree policies for managing each of these risks and they are summarised below.
Credit risk
The primary risk within the group is the potential financial loss arising from either; borrowers not repaying their loans within agreed contracted terms or, the net realisations from the security underpinning a loan being insufficient to recover the full loan.
The group mitigates this risk by regularly reviewing the new business loan to value (LTV) parameters in the context of current market conditions and the risk appetite of the board. In addition, internal covenants relating to loan type concentration, geographic location and asset type are monitored frequently.
The company is impacted by activity in the wider economy. MSP Capital Group works solely in the United Kingdom and all security is based in the United Kingdom. Therefore, the group is primarily affected by domestic business and economic conditions.
In response to market conditions towards the end of the year, the group continued to write new business at prudent LTVs. This is reflected in the reduced weighted average LTV (61% 2022 vs 63% 2021) giving greater headroom should house prices deteriorate over the coming months.
The group has a thorough risk management process along with a strong performance record through past market corrections. As a result, the directors consider the group to have a robust business model of pricing loans in the event of a downturn.
Interest rate risk
The directors regularly review interest rate risk and ensure adequate measures are in place to manage this risk. MSP Capital provides finance at a fixed interest rate whilst funding lines are negotiated at lower, variable rates. During the year, rapid hikes in SONIA meant that the group’s net interest margin inevitably contracted when SONIA increased. In response to this, during the year the business raised its prices on all new business to ensure an appropriate net interest margin was maintained. Additionally, MSP worked to re-price its existing book where possible, to limit exposure to net interest margin compression.
The average loan term is circa 16 months which assists in limiting the group’s exposure. The group is constantly reviewing SONIA curve forecasting and pricing new business accordingly.
Liquidity risk
Liquidity risk arises when the group is potentially unable to meet its contracted obligations. This risk is mitigated by daily internal controls to monitor the group’s treasury function. All long-term funding commitments are matched with similar long-term funding lines.
Compliance and reputational risk
The company takes independent advice on the regulatory framework and the directors are satisfied that none of the business activities fall into regulated areas. Nevertheless, the directors are cognisant of the broader sector in which the business operates and manage the business accordingly.
MSP hold a quarterly Risk & Compliance Meeting attended by the managing director, finance director, head of legal and the Compliance Department to review all regulatory and risk management matters and developments. The Compliance Department also provide quarterly risk and compliance training to all staff.
During the year, the Compliance Department enhanced its Compliance Monitoring & Assurance Plan documenting all reporting and monitoring procedures currently undertaken, with detail of the frequency of reporting and to whom reports are made. This provides important sight and assurance to the senior leadership team.
Operational risk
Operational risk is defined as the loss or adverse impact to the business in respect of systems, people, processes and external events. Impact to a business includes loss from fraud, crime, cyber-attacks, and information security breaches. MSP takes these risks seriously and operates ongoing Governance throughout the Group, which is led by the Board and managed by Senior Management.
Key risks to the business are identified and reviewed in all Operational Areas and ongoing monitoring plans are in place throughout. Risks are monitored and mitigants implemented to reduce and manage risks. Reporting is maintained and reviewed, critiqued, and acted upon on an ongoing basis.
Subject matter experts have been recruited to ensure MSP has the appropriate skillsets and expertise within the Group for all operational subject matters – including Data Protection, Cyber Security, Information Security and Compliance.
The Group recruits staff of a high calibre, and provides ongoing training, development, and progression to ensure the staff have the best opportunities and training and awareness available – to develop and protect both themselves and the business.
Comprehensive processes are in place for any requirement of implementation of additional systems and architecture into the business.
The business implements stress testing and resilience testing on an ongoing basis to ensure business continuity and availability and has comprehensive Cyber and Information Security protocols in place across the Group.
Financial KPIs
The KPIs are an important indicator to monitor the performance of the business. The directors’ report on and monitor KPIs on a monthly basis. Whilst management continue to track a range of financial and non-financial measures, it is these KPIs that the business uses to gauge progress.
These KPIs illustrate that revenue and profitability are directly related to the loan book, which fluctuates over time. The below KPIs are a comparison of the year to 31 December 2022 with the year to 31 December 2021.
The gross loan book grew by 30% (41% in the year to December 2021).
Revenue for the year was £47.2m (compared to £37.5m in the year to December 2021). Profit before tax and exceptional costs was £11.0m (compared to £11.6m for the year to December 2021).
During the year, there was a change in accounting estimate pertaining to the recognition of arrangement fee income. This resulted in a one-off adjustment of £3.78m to effectively decelerate the recognition of this income.
Section 172 statement
The directors of MSP Capital Finance Group have acted in the way that they consider, in good faith, would be most likely to promote the success of the company and for the benefit of all stakeholders.
Many of the requirements of Section 172 of the Companies Act 2006 are integral to the way in which the group operates and therefore references have been provided where appropriate to other sections of the strategic report.
The board considers the matters set out in Section 172 of the 2006 Act in all its decision-making. This includes:
(a) the likely consequences of any decision in the long term;
The board are deeply conscious of the potential outcomes of its decisions and work to ensure these support the long-term objectives of the business referred to in this report.
(b) the interests of the company’s employees;
MSP’s employees are key to its success and are always considered by the board when making decisions.
During the year, several committees were established including the Social Committee and Wellbeing Committee. The objectives of these committees are to increase employee engagement via social events and promote mental and physical wellbeing through a variety of initiatives.
Employees can win any of two awards on a monthly basis; “Cheers from your Peers” or “Wellbeing Champion of the Month” both of which are awarded based on employee nominations.
In addition to the committees, the office has a state-of-the-art onsite gym available for all employees to use. Employees also have the option to attend a variety of classes available throughout the week, including group PT sessions, stretching and mobility.
(c) the need to foster the company’s business relationships with suppliers, clients and others;
The board recognises that maintaining positive business relationships is of key strategic importance.
The group holds regular meetings with its banking facility providers giving these parties the opportunity to discuss matters regarding financial performance – both at entity and group level – key risks, and wider market trends.
Detailed reporting packs are shared with lenders and investors on a monthly basis to ensure all parties are adequately appraised of the group’s position
All board meetings are attended by Cabot Square Capital who proactively engage on strategic decisions with particular regard to funding and capital structure.
(d) the impact of the company’s operations on the community and the environment;
Community
MSP is passionate about the local community and is always looking for ways in which it can make a positive change within it.
One aspect that specifically brings the community together is football. In 2022 MSP continued its partnership with its local team, as the AFC Bournemouth Training Wear Sponsor. Together MSP and AFC Bournemouth have worked to undertake several community-based initiatives such as the ‘Bring Your Boots’ campaign as well as funding healthy lifestyle sessions in local schools.
In addition to its partnership with AFC Bournemouth, in 2022, MSP launched its in-house Community Committee. The committee has organised several company charitable events to raise funds for charities and helped the company to donate over £18,000 .
Over the course of 2022, some of the events that the Community Committee were able to organise included, a beach volleyball tournament (raising funds for Julia’s House and Lewis Manning Hospice), a 12-hour triathlon (fundraising for Young Lives vs Cancer), collecting food and clothing for Routes2Roots (local homeless charity) plus numerous ad hoc donations to other causes.
Environment
MSP formed their ESG Committee in 2022, which set out its strategy “Foundations for Better Futures”.
During the year, MSP became Carbon Neutral Plus – offsetting 125% of its Carbon emissions. To achieve this, MSP first sought to quantify its carbon emissions and identify carbon reduction opportunities. The remaining emissions were neutralised by engaging with Carbon Footprint on a tree planting scheme.
In addition, employees joined local charity Coacoara to do a local beach clean – this is set to become a regular activity.
Other initiatives for the office include; using 100% renewable energy, reducing the use of plastic and paper and encouraging recycling wherever possible.
(e) the desirability of the company maintaining a reputation for high standards of business conduct; and
The board are highly cognisant of the importance of reputation and high standards. During the year, there were further enhancements to compliance procedures. In addition, staff received training in specific risk areas such as tax evasion, data protection and fraud awareness.
(f) the need to act fairly between members of the company.
The board acknowledges its responsibility to act fairly between members of the company. In addition to maintaining clear and open lines of communication between all parties the board engages with external consultants on governance issues. This provides an external and independent view ensuring that well informed and balanced decisions are made.
