The directors present the strategic report for the year ended 31 December 2023.
The principal activity of the company and group continued to be the provision of finance and back-office support solutions by way of lending to SME customers.
During the year ended 31 December 2023, the company recorded a profit before tax of £105k (2022: £1.3m). 2023 included exceptional group costs in relation to management of the entity and costs associated with implementation of the new private warehouse securitisation facility of £1.6m (2022: nil). Pre-exceptional costs the trading profits were £1.7m representing a 32% increase on 2022 (£1.3m).
During the year the company has recognised a bad debt charge of £494k (2022: £859k). As at the balance sheet date, the company recognised a bad debt provision of £1.4m (2022: £1.1m). Given the historical loss rates of the business (net capital losses below 1.5% over the last three years) the board and management are satisfied that the bad debt provision provided is sufficient at 2.58% of the net receivable (2022: 2.58%) despite the macro-economic uncertainty across the UK SME landscape.
At the year end of 31 December 2023, the company has a gross receivable of £59m representing a growth of £13m (29%) since the prior year (2022: £45m (23% prior year growth)) whilst continuing to generate an appropriate risk adjusted return on new origination.
During the year the group has continued to invest in a proprietary platform combining speciality finance risk expertise with the power of data driven decision-making technology. Developed exclusively within the group using 10 years of SME lending data and operational experience the platform allows informed and fast decision making at scale with end-to-end support on risk. The system has been fully operational within the group since Q2 2022 and has significantly enhanced lead generation and risk management through access to key credit information and automation, dramatically increased operational efficiency and real-time granular reporting. Zodeq have supported the creation of this platform through group management charges
In December 2023, Zodeq alongside Praetura Commercial Finance refinanced the back-to-back facilities with RBSIF to secure the long-term funding of the group via a private warehouse facility with Barclays. The business met the credit threshold and all other conditions regarding robustness of operational processes, credit underwriting and data integrity through an extensive due diligence process.
The group has the infrastructure and senior funding lines to grow significantly over the next three to five years through a combination of further organic growth, strategic acquisitions and investment in incremental sales teams.
Despite the wider economic challenges, Zodeq has demonstrated both resilience and increasing levels of activity, laying a solid foundation for future growth.
We recognise that a principal risk within the business is that of client or customer fraud. We are satisfied that we have robust processes in place in terms of underwriting and day-to-day management of clients and debtors to minimise our exposure to such events. Our bad debt outcomes, year on year, demonstrate our effective management of these risks.
The Group's focus on strong risk management, strategic investment, and operational efficiency will continue to drive its success in the sector.
As part of PDS Group, Zodeq has significant growth expectations over the next 5 years, leveraging the investment in talent, technology and the scalable senior funding facilities now in place.
On 12 July 2024 Praetura Debt Services completed the purchase of the remaining shares in Zodeq Holdings and now owns 100% of Zodeq Ltd and Zodeq Holdings Ltd.
On behalf of the board
Zodeq Ltd is a private company limited by shares incorporated in England and Wales. The registered office is 3 The Exchange, St. John Street, Chester, CH1 1DA.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.
Basic financial assets, which include debtors, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans and loans from fellow group companies, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
Invoice factoring
Amounts due in respect of invoice factoring are separately disclosed as current liabilities. The client operates under the terms and condition of an invoice finance agreement. The client can draw down on a percentage of approved sales invoices. The management and collection of trade debtors is carried out by the company but the risk of uncollectable debt remains with the client up to the limit of the facility.
On 20 December 2023, Zodeq refinanced its back-to-back funding facility with RBS Invoice Finance into a combined group facility with the related entities Praetura Commercial Finance and Praetura Invoice Finance. This combined private warehouse facility with Barclays provides the group with a platform for growth through an increased facility limit and secured two year term.
Change in accounting estimate
For the year ended 31 December 2023, the directors had modified the rate at which they provided for bad debts to reflect the actual and historical run rate. As a result, the bad debt provision at 31 December 2023 was £486,439 lower than it would have been using the old estimate.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
The directors make provisions for doubtful debts based on an assessment of the historic average rate of recoverability of debtors. Provisions are also applied to debtors where events or changes in circumstances indicate that the carrying amounts may not be recoverable. The directors specifically analyse historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when making a judgement to evaluate the adequacy of the provision for doubtful debts.
The average monthly number of persons (including directors) employed by the company during the year was:
The company has a fixed and floating charge over the assets of the company dated 28 April 2017 in favour of Aldermore Bank PLC, satisfied on 3 February 2023.
The company has a fixed and floating charge over the assets of the company dated 7 December 2021 in favour of Quay Street Trading Limited, satisfied on 5 October 2022.
The company has a fixed and floating charge over the assets of the company dated 23 September 2022 in favour of Zodeq LoanCo Limited.
The company has a fixed and floating charge over the assets of the company dated 23 September 2022 in favour of RBS Invoice Finance Limited.
The company had a fixed and floating charge over the assets of the company dated 23 June 2023 in favour of Ruby Recruitment Limited, satisfied on the same day.
The company has a fixed and floating charge over the assets of the company dated 29 June 2023 in favour of Xander Recruitment Group Limited, satisfied on the same day.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
As the income statement has been omitted from the filing copy of the financial statements, the following information in relation to the audit report on the statutory financial statements is provided in accordance with s444(5B) of the Companies Act 2006:
The auditor's report was unqualified.
During the year the company entered into the following transactions with related parties:
The following amounts were outstanding at the reporting end date:
The immediate parent undertaking is Zodeq Holdings Limited. Both of which have a registered address of 3 The Exchange, St. John Street, Chester, United Kingdom, CH1 1DA.
At the reporting date, the ultimate parent company was Praetura Group Limited, a company registered in England and Wales.
On 12 July 2024 PDS Lending Limited became the ultimate parent company after acquiring 100% of the shares of Praetura Debt Services Holding Ltd.