Wellesley Finance has swung into the black, as its new lending strategy starts to bear fruit.
The alternative property development lender posted a pre-tax profit of £467,620 for the first six months of 2019, compared to a £1.9m loss in the first six months of 2018.
Total net income decreased by £167,000 over the comparable six-month period to £4.4m, which it said was due mainly to the more cautious lending strategy maintained over the past 18 months.
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“We improved our lending strategy in 2015 to focus on higher-quality, larger developments and since then we’ve lent to about 35 projects, of which around half have been repaid,” said Luke Madden (pictured), managing director, Wellesley Group.
“All the developments have progressed well, with many of them already pre-sold.
“We’re very pleased with the results.
“The results show we’re starting to see the benefits of our improved lending strategy feed through to the accounts.
“We’re profitable for the period and we expect to continue to be profitable on an underlying basis for the full year.”
Wellesley has achieved a five-year track record of no losses under the new lending strategy, which focuses on larger loans with property developers that the firm has worked with before.
Its latest half-year results also revealed that it is continuing to make progress on the recovery of defaulted loans in its legacy loanbook from before the new strategy was implemented.
Only four cases remain from this earlier period and three are completed developments awaiting sales.
Furthermore, the firm has seen a 25 per cent reduction in operating expenses, compared to the same period the previous year.
Founder Graham Wellesley said in the half-year report that the firm has identified some potential risks that Brexit could pose to its lending activities.
“These risks are primarily focussed upon the construction process involved when its developers are building properties and the residential property values upon which project viability is underpinned,” he said.
“Brexit may cause increased costs in labour and materials from the European Union.
“However, as Wellesley appoint their own independent surveyor to each project, any costs will be reviewed and then stressed internally prior to funding the deal.
“More detailed underwriting of costs would be expected including analysis of the developer’s supply chain.
“In addition, the company might focus on working more with contractors with UK based supply chains.
“The potential impact of a the UK’s departure from the EU on 31 January 2020 is something that is under regular review by the company and Wellesley Group however at this stage it remains satisfied that any downside movement as a result will be mitigated through a combination of the company’s and Wellesley credit policies, regional focus, oversight of the construction process and its drive to ensure the quality track records of its underlying customer base.”
Wellesley has several recovery strategies underway, the benefit of which has not yet been recognised within the accounts.
Other than enforcing on physical security, Wellesley has been given personal guarantees from borrowers who have defaulted and are now being pursued for restitution.
In addition, where professional advisers have, in the opinion of Wellesley, fallen below the standards expected of them which has led to loan losses, the company has initiated legal proceedings for damages.
Whilst not certain, the directors believe that there is a potential range of such recoveries of £8.9m to £12.6m, but these could not be incorporated into the half-year results under the stricter IFRS 9 reporting standards.
The business has revealed it has a long-term aspiration for an initial public offering.
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