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Update On Kuflink’s Financial Results And Auditor Reports
Kuflink* is now up-to-date in publishing all its company accounts at the UK's companies registrar, after long delays. I've looked into its recent financial results, its independent auditor reports – which were especially important this time round – and other matters.
Kuflink's latest accounts are made up to 30 June 2020, which we call its 2020 financial year.
The Kuflink group of companies had a £129,000 loss in 2020, down from a loss of £2.7 million in 2019. (2019 was also an improvement on 2018, where it lost £3.4 million.)
Kuflink appears to be on track for a profit in the calendar year of 2021, which is the first time it has reached this milestone since it launched a P2P lending platform.
That said, it's looking to grow more, and that will require spending more than it earns again. It raised over £4 million from shareholders in the past couple of years in order to give it this growth. It seems on course to reach a stable kind of profitability in a few years' time.
Update from independent auditors
These accounts have received a clean bill of health from its new auditors, who are the respectable MHA MacIntyre Hudson. This is the news we've been waiting for, after Kuflink Enacts Changes In Response To Auditor Concerns On Governance.
In short, Kuflink's prior auditors resigned with concerns about governance at Kuflink. The new auditors have not found any issues surrounding Kuflink's improved committees and processes.
Anyone who reads the financial pages knows that auditors do sometimes make horrendous mistakes, but nevertheless it has a lot of value that the new auditors are now satisfied. Backing that up, the financial regulator also kept a very close eye on the matter to ensure each of the prior auditor's concerns were properly addressed.
In the latest published accounts, the auditors didn't specifically mention the prior auditors' criticisms, which frankly I consider to be a lazy omission on MHA MacIntyre Hudson's part. Even so, they did have all the details of the prior auditors' issues, so it's good to get these accounts signed off properly.
4thWay's specialists also received data submissions and interviewed the executive. As Kuflink* has now grown to be reasonably substantial, its governance should at this stage be tighter, as befitting its scale, and I believe it's now just about there. In an ideal world, what I'd still like to see is more action on the non-executive director front, potentially adding one or two more experienced, plausibly independent appointments.
Director and related-party loans
The loans to directors in the accounts are substantial..
The accounts refer to a loan of over £4 million to a related party of Kuflink. This property loan was funded through the P2P lending platform, as well as about £1 million more by Kuflink's directors or other related parties. This equated to around 13% of the outstanding loan amounts.
The loans are secured and the property valuations have been conducted by independent specialists.
I'm seeking verification, but it seems now that, since the accounts were written, the £4 million loan has now been repaid in full.
It appears from the accounts that the terms of the director and related-party loans were only recently brought into line with other borrowers. That doesn't mean that individual lenders using Kuflink's P2P platform were losing out on earning a fair interest rate, and Kuflink itself taking the hit instead. But it would have been even better to see that all parties were being treated the same in all ways.
Unfortunately, such related-party loans are not a rare occurrence in P2P lending, especially earlier on in their life. As these loans can lead to a substantial conflict of interest, the P2P lending companies are required to ensure the loan and security is fairly valued, and the interest rate fairly priced.
The big loan has been repaid, so all was well with this one. But it's something to look out for when you're looking into other P2P lending companies. It's best if Kuflink and other providers don't approve further loans like these through their P2P lending platforms. Yet, with the governance improvements, I hope and expect that Kuflink will at least maintain more equal standards in future.
More signs of improved accounting and governance
Reading between the lines, there are quite a few other signs that Kuflink has improved its accounting and governance, which was it's main weak point up until now.
For example, Kuflink appears to have stopped using suppliers that are controlled by its directors or related parties.
Also, until the most recent accounts, Kuflink has habitually needed to make very large corrections to the profit figures it reported in the prior year's accounts, at least the past few years. The restated (which in this case means “corrected”) figures were always considerably worse than had previously been reported. However, 2020's restatement was a much more normal correction of just £100,000, and it was an improved figure from £2.8 million loss down to £2.7 million.
Kuflink's 5% first loss
Just in the event any of you have read through the entire published accounts from its many linked companies, I'd like to clarify one item that was expressed in a muddled way, namely Kuflink's holding of 5% in some loans.
The actual situation is that Kuflink* has been, and continues to, take a 5% share of all loans that are not in auto-lend. So a 5% share of self-select loans. This is so that it has some skin in the game. Kuflink takes the first loss on that share, in the event that a loan turns bad and the entire loan cannot be recovered.
It doesn't take a 5% share of auto-lend loans, because Kuflink takes the view that lenders lower the risks more easily with these accounts, through Kuflink's efforts to automatically diversify their lending.
Checking off VAT
An item we mentioned earlier in the year was Kuflink's outstanding VAT bill. The final bill, which had some uncertainty, was £140,000. This is substantially less than the amount Kuflink had provided for in its prior accounts. That bill has now been paid.
Read the Kuflink Review.
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