TIDMNSF
RNS Number : 1400N
Non-Standard Finance PLC
28 September 2021
Non-Standard Finance plc
('Non-Standard Finance', 'NSF', the 'Company' or the
'Group')
Unaudited Half Year Results to 30 June 2021
28 September 2021
Key points
-- The Group is continuing its discussions with the FCA
regarding its redress programme for guarantor loans customers at an
estimated total cost of GBP16.9m that has already been provided for
in the Group's balance sheet
-- The independent regulatory reviews of both branch-based lending and home credit are ongoing
-- Plans for a substantial capital raise ('the Capital Raise')
remain subject to, inter alia, the satisfactory completion of the
independent regulatory reviews; the continued support of Alchemy
and other key shareholders as well as the Group's lenders
-- In the absence of the Capital Raise, the Group remains
balance sheet insolvent and the Group's ability to remain a going
concern is subject to material uncertainties, but the Directors
continue to believe there is a good prospect of resolving this
position
-- The Group's performance in the first half was better than
expected and current trading is also encouraging:
o Branch-based lending: normalised pre-tax profit of GBP2.1m
(2020: GBP0.9m) with promising levels of loans issued and
impairment at historically low levels;
o Home credit: normalised pre-tax profit of GBP1.0m (2020:
GBP2.2m) with steady growth in customer numbers and impairment at
record lows as the quality of our customer base has improved;
and
o Guarantor loans: reduced normalised pre-tax loss of GBP1.9m
(2020: loss of GBP9.2m) thanks to a collections performance that
exceeded expectations and a marked reduction in impairment
-- Normalised revenue(1) down 26% to GBP67.8m (2020: GBP92.2m);
reported revenue of GBP67.8m (2020: GBP91.2m)
-- Normalised operating profit(1) increased by 87% to GBP9.4m
(2020: GBP5.0m); reported operating profit of GBP7.4m (2020:
operating loss of GBP12.3m)
-- Normalised loss before tax(1) of GBP3.5m (2020: normalised loss before tax of GBP9.9m)
-- Exceptional charge of GBP4.0m (2020: GBP91.3m) includes a
small increased provision for redress in guarantor loans and costs
associated with the Capital Raise resulting in a much reduced
reported loss before tax(2) of GBP7.5m (2020: reported loss of
GBP102.7m)
-- No half year dividend per share is being declared (2020: 0.0p per share).
-- At 30 June 2021 the Group had cash balances of GBP103.7m
(2020: GBP75.7m), gross borrowing of GBP330.0m (2020:
GBP345.0m)
-- After careful consideration, and despite the presence of a
number of material uncertainties as detailed in note 1 to the
financial statements, the Board has concluded that it remains
appropriate to continue to adopt the going concern basis of
accounting. The Group has remained within its financial covenants
to date
-- Current trading and outlook: all three divisions are trading
ahead of budget and the Group remains confident of being able to
complete the Capital Raise that will fund customer redress,
strengthen the balance sheet and provide funding for future
growth
Financial summary
6 months to 30 June 2021 2020 % change
GBP'000 GBP'000
---------------------------------- -------- ---------- ---------
Normalised revenue(1) 67,842 92,223 -26%
Reported revenue 67,842 91,252 -26%
Normalised operating profit(1) 9,385 5,016 87%
Reported operating profit/(loss) 7,467 (12,307) -161%
Normalised (loss)/profit
before tax(1) (3,510) (9,896) 65%
Reported loss before tax(2) (7,535) (102,749) 93%
Normalised (loss) / earnings
per share(3) (1.12)p (2.55)p 56%
Reported loss per share (2.41)p (32.77)p 93%
Half year dividend per share Nil Nil n/a
=================================== ======== ========== =========
(1) Normalised figures are before fair value adjustments,
amortisation of acquired intangibles and exceptional items.
Operating profit/(loss) is before finance costs. See glossary of
alternative performance measures and key performance indicators in
the Appendix.
(2) After fair value adjustments, amortisation of acquired
intangible assets and exceptional costs.
(3) Normalised loss per share in 2021 is calculated as
normalised loss after tax of GBP3.510m divided by the weighted
average number of shares of 312,437,422. The normalised earnings
per share in 2020 is calculated as normalised profit after tax of
GBP7.952m, divided by the weighted average number of shares of
312,437,422.
Jono Gillespie, Group Chief Executive Officer, said
"The Group delivered a strong operational performance in the
first half and both branch-based lending and home credit enjoyed a
much improved financial result versus the prior year that was
severely impacted by the pandemic.
"When Non-Standard Finance was founded in 2015 it had one main
purpose and belief: that people on low incomes or with a poor
credit history deserve access to credit they can afford, provided
in a transparent, effective and efficient way that takes account of
their needs and individual circumstances. Since then, we have
provided credit to more than 428,000 customers, helping them to
manage the peaks and troughs in their expenditure, often when they
had few other places to turn to.
"Today there are more than 10 million people in Britain whose
financial circumstances mean that they are effectively excluded
from mainstream credit but whose financial needs - whether to
repair a car or buy a new washing machine - still need to be
addressed. It is also clear that in the past two years the
landscape has changed, prompting the exit of a number of leading
companies that have either quit the sector altogether or have
severely curtailed their activities, leaving many consumers with
even fewer options to access regulated credit.
"After a great deal of work over the past year and despite the
challenges presented by the pandemic and a complex regulatory
landscape, we are determined to continue to deliver on our original
purpose. We are progressing our discussions with the FCA and hope
to reach a conclusion soon. While this work is ongoing, the Group
has concluded that an additional exceptional provision of GBP1.9m
is required to cover expected costs of redress due to customers
that may have suffered harm. The methodology of this estimate
remains unchanged, but the amount has increased due to the
continued accrual of estimated penalty interest.
"As soon as we are able to resolve the Group's outstanding
regulatory issues, we are focused on executing a substantial
capital raise of around GBP80m that will be used to both fund the
payment of redress as well as strengthen significantly the Group's
balance sheet, underpinning our return to profitable growth."
The tables below provide an analysis of the normalised results
(excluding fair value adjustments, amortisation of acquired
intangibles and exceptional items) for the Group for the six month
period to 30 June 2021 and 30 June 2020 respectively.
6 months to 30 June Branch-based Guarantor Home credit Central NSF plc
2021 lending loans costs
Normalised(4)
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ------------- ---------- ------------ --------- ----------
Revenue 39,443 10,380 18,019 - 67,842
Other operating income 237 1 607 8 853
Modification loss (1,306) (1,904) - - (3,210)
Derecognition (loss)
gain (1,621) 130 - - (1,491)
Impairments (4,041) (984) (1,419) - (6,444)
Admin expenses (23,200) (6,870) (15,752) (2,343) (48,165)
Operating profit (loss) 9,512 753 1,455 (2,335) 9,385
Net finance cost (7,367) (2,611) (486) (2,431) (12,895)
------------- ---------- ------------ --------- ----------
Profit (loss) before
tax 2,145 (1,858) 969 (4,766) (3,510)
------------- ---------- ------------ --------- ----------
6 months to 30 June Branch-based Guarantor Home credit Central NSF plc
2020 lending loans costs
Normalised(4)
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ------------- ---------- ------------ --------- ----------
Revenue 47,914 17,032 27,277 - 92,223
Other operating income 888 - - - 888
Modification loss (638) (58) - - (696)
Derecognition gain 192 494 - - 686
Impairments (15,593) (15,727) (7,927) - (39,247)
Admin expenses (22,238) (7,114) (16,382) (3,104) (48,838)
Operating profit (loss) 10,525 (5,373) 2,968 (3,104) 5,016
Net finance cost (9,603) (3,871) (774) (664) (14,912)
------------- ---------- ------------ --------- ----------
Profit (loss) before
tax 922 (9,244) 2,194 (3,768) (9,896)
------------- ---------- ------------ --------- ----------
(4) Excludes fair value adjustments, amortisation of acquired
intangibles and exceptional items
Given the significant reduction in lending that took place
during 2020, combined with a healthy collections performance during
the second half of 2020 and into 2021, the combined net loan book
before fair value adjustments reduced by 23% versus 2020 as
summarised in the table below:
Reconciliation of 2021 2021 2021 2020 2020 2020
net loan book Normalised Fair value Reported Normalised Fair value Reported
adjustments adjustments
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------------ ------------- ---------- ------------ ------------- ----------
Branch-based lending 163.8 - 163.8 187.7 - 187.7
Guarantor loans 41.4 - 41.4 87.6 0.4 88.0
Home credit 24.3 - 24.3 24.3 - 24.3
------------ ------------- ---------- ------------ ------------- ----------
Total 229.5 - 229.5 299.6 0.4 300.0
====================== ============ ============= ========== ============ ============= ==========
Context for the results
The 2021 reported results include exceptional items whilst the
2020 reported results include fair value adjustments, amortisation
of acquired intangibles and exceptional items. Exceptional items in
2021 include an additional provision for customer redress of
GBP1.9m, advisory fees in connection with the Group's proposed
capital raise of GBP1.6m and restructuring costs of GBP0.5m.
Exceptional items in 2020 include the write down of certain
intangible assets and all goodwill assets and a provision for
customer redress of GBP15.8m.
Investor presentation and dial-in details
There will be an investor presentation at 1.00pm on 28 September
2021. The meeting will be broadcast via webcast and conference
call. To watch the live webcast, please register for access by
visiting the Group's website www.nsfgroupplc.com . For those unable
to access the web, details of a dial-in facility are given below. A
copy of the webcast and slide presentation given at the meeting
will be available on the Group's website later today.
Dial-in details to listen to the analyst presentation at 1.00
pm, 28 September 2021
12.50 pm Please call +44 (0)330 336 9125
Access code 1882529
1.00 pm Meeting starts
All times are British Summer Time.
For more information:
Non-Standard Finance plc
Jono Gillespie, Group Chief Executive Officer +44 (0) 20 3869
Peter Reynolds, Director, IR and Communications 9020
Maitland/AMO
Neil Bennett +44 (0) 20 7379
Finlay Donaldson 5151
The non-standard consumer finance market
The non-standard consumer finance market represents a
significant segment of the UK's retail financial services sector.
It provides credit to consumers that either fail to meet the
lending requirements of high street financial institutions or that
choose not to borrow from them. These consumers represent
approximately a third of the UK's adult population and include
those that have no credit history, low credit status or are credit
impaired. A well-regulated, trusted and sustainable credit sector
is imperative to these consumers, particularly in the current
economic climate. Between March and October 2020, the FCA found,
that due to the impact of the pandemic there are now over 14
million people in the UK with low financial resilience. Focused on
face-to-face lending through both branch-based lending and home
credit, NSF's businesses are focused on serving the needs of these
sub-prime borrowers for whom access to appropriate financial
services can be important in helping them manage the peaks and
troughs of their income and expenditure.
About Non-Standard Finance
Non-Standard Finance plc is listed on the main market of the
London Stock Exchange (ticker: NSF) and is a leading player in the
UK's non-standard finance market with leadership positions in
branch-based lending and home credit. The Group's evolution from a
cash shell back in 2015 has been achieved thanks to a period of
significant investment in all three divisions with a clear
differentiating feature being the Group's focus on face-to-face
lending. Our business is founded on building relationships with our
customers, many of whom have already been excluded by high-street
lenders and other mainstream providers. These relationships,
supported by significant physical and technological infrastructure,
represent the very heart of our business model that is focused on
addressing the credit needs of a growing proportion of the 10
million adults(4) that are either unable or unwilling to borrow
from mainstream banks and other lenders.
(4) UK Specialist Lending Market Trends and Outlook 2020.
Executive insights Volume XX, Issue 39 - L.E.K Consulting
Group Chief Executive's statement
Introduction
Against an uncertain but slowly improving macroeconomic backdrop
and despite a number of operational, regulatory and financial
challenges, the Group has performed ahead of management's
expectations with encouraging performances by the continuing
business divisions: branch-based lending and home credit. It was
announced on 30 June 2021 that the guarantor loans division was
being placed into a managed run-off due to the sub-scale nature of
the business and complex regulatory requirements, and would
ultimately be closed. As expressed at the time of the Group's 2020
full year results, whilst hugely disappointing, this was the only
logical conclusion and based on a detailed analysis, is expected to
deliver the best outcome for shareholders.
We are continuing to work with the FCA to resolve a number of
outstanding regulatory issues (see below) so that the Board can
move to complete a substantial capital raise of approximately
GBP80m (the 'Capital Raise') to fund customer redress, strengthen
the Group's balance sheet and underpin future loan book growth.
2021 half year results
The Group delivered a pleasing first half performance with both
branch-based lending and home credit ahead of budget and delivering
positive pre-tax profit before exceptional items. Despite not
having issued any loans in the period, the Guarantor Loans Division
also delivered an improved performance although remained
loss-making at the pre-tax level.
The significant reduction in the net loan books of all three
divisions versus the prior year meant that normalised revenue
before fair value adjustments reduced to GBP67.8m (2020: GBP92.2m).
However, this reduction was also accompanied by a marked reduction
in impairment due to the reduced levels of lending and a good
collections performance by all three divisions. This fed through
into a strong uplift in normalised operating profit to GBP9.4m in
the period (2020: GBP5.0m). A much reduced exceptional charge of
GBP4.0m (2020: GBP91.3m) meant that the reported loss before tax
was also significantly lower at GBP7.5m (2020: loss of GBP102.7m).
The exceptional charge included an additional provision for redress
of GBP1.9m, advisory fees associated with the Capital Raise of
GBP1.6m and restructuring costs in guarantor loans of GBP0.5m (see
Financial review below).
Branch-based lending
An uptick in both the number of leads and qualifying
applications to branch ('ATBs') more than justified the opening of
an additional branch in Leeds during the first half, taking the
total number of branches to 75. Whilst the sustained presence of
COVID-19 restrictions held back the pace of recovery during the
first four months of the year, both lead volume and ATBs increased
as these were gradually removed. While staff numbers had been
reduced during 2020, given the more gradual pace of recovery in
lending volumes there was still some surplus capacity in the
network during the first half although it is expected that this
will be removed by the usual seasonal increase in demand in the
autumn. Whilst the impact of lower lending volumes during 2020 and
2021 meant that revenues were down year-on-year, the impact on
profitability was mitigated by a strong collections performance
that also fed through into lower interest costs. The result was
that normalised profit before tax increased by 133% to GBP2.1m
(2020: GBP0.9m).
Since the end of June 2021, lending volumes have remained robust
and in-line with budget and the net loan book has continued to
recover. A reduction in the number of customers requiring
forbearance has helped to boost average yields and collections have
remained strong so that impairment remains at or below historic
norms. Whilst any return to COVID-19 restrictions or lockdowns
would hamper the pace of recovery, the current trading performance
is encouraging.
Home credit
As COVID-19 restrictions were gradually lifted, our agents were
able to return to making more face-to-face visits and overall
customer numbers began to increase. At the same time, the quality
of our customer base improved with an increase in the proportion
deemed to be 'quality customers' (i.e. those that have made 9 or
more payments out of the last 13 payments due) which is now back to
the levels seen in 2019. While the reduced levels of lending during
2020 and into 2021 meant that the net loan book declined
year-on-year, a step-up in lending volume in May and June drove a
return to month-on-month growth in the loan book. The collections
performance was particularly strong in the period with non-cash
payments remaining the most popular channel for customers. Whilst a
temporary spike in complaints in March meant that overall
administration costs were not down by as much as had previously
been expected, they were still down on last year and normalised
pre-tax profit was ahead of budget at GBP1.0m (2020: GBP2.2m).
Since the end of June, we have continued to grow the active
customer base as well as the number of quality customers on our
books which bodes well for future financial performance. Whilst the
summer months are traditionally a quieter lending period, with
lending volumes in July and August softer than expected, an
excellent collections performance meant that overall, the business
remains ahead of budget as we approach the important peak lending
period during the final quarter.
Guarantor loans
Following a detailed review of the Group's Guarantor Loans
Division, it was announced on 30 June 2021 that the division was to
be placed into a managed run-off and ultimately closed. Whilst
hugely disappointing, the Board determined that collecting out the
division's loan book was the only rational conclusion given the
combined impact of the pandemic, the sub-scale nature of the
business and complex regulatory requirements that would necessarily
impede any potential future recovery in profitability.
Having not written any new loans in the period, the loan book
declined by 53% and revenues were sharply down on the prior year.
However, collections were ahead of plan reflecting the dedication
and hard work of our staff, as well as a better than expected
payment performance by customers that had been affected by
COVID-19. This helped to reduce impairment significantly and the
delivery of a much reduced normalised pre-tax loss of GBP1.9m
(2020: pre-tax loss of GBP9.2m).
Since the end of June, the business has continued to deliver
strong collections performance alongside a carefully managed
reduction in the number of staff following the announcement that
the loan book was being placed into managed run-off.
Liquidity, funding and going concern
As at 30 June 2021 the Group had cash at bank of GBP103.7m (31
December 2020: GBP78.0m) and gross borrowings of GBP330.0m (31
December 2020: GBP330.0m). As at 31 August 2021 cash at bank was
GBP100.8m while the level of gross borrowings remained unchanged at
GBP330.0m.
The Group has a number of debt facilities including a GBP285m
term loan facility that matures in August 2023 and a GBP45m
revolving credit facility ('RCF') maturing in August 2022. Both
facilities remain fully drawn. The Group is in discussions with its
lenders regarding extensions to the term of its existing
facilities. Any such amendments to the existing facilities would be
conditional on the completion of the Capital Raise.
The Group also has a multi-year GBP200m securitisation facility
that remains undrawn. Whilst current cash balances mean that there
is no need for additional funding at the present time, the facility
remains in place. However, in the absence of the Capital Raise, it
is unlikely to be available for use owing to the associated
covenant requirements embedded within the facility agreement and
the need for permission from the lender prior to any drawdown. It
is hoped that following a successful capital raise the facility
will be available for future use, if required.
The Directors acknowledge the considerable challenges presented
over the last year and the material uncertainties which may cast
significant doubt on the ability of both the Group and the Company
to continue to adopt the going concern basis of accounting.
However, despite these challenges, it is the Directors' reasonable
expectation that the Group and Company will raise sufficient equity
in the timeframe required and will continue to operate and meet its
liabilities as they fall due for the next 12 months and beyond and
therefore it has concluded the business is viable.
Should the Capital Raise be unsuccessful or take longer than
expected to execute then it is expected that the Group would remain
in a net liability position from a balance sheet perspective, would
breach certain borrowing covenants during the next 12 months and as
a result would not be able to access further funding over the
period of breach and would require waivers from its lenders. In
such circumstance, the Group may fall under the control of its
lenders and there is a possibility of the Group going into
insolvency.
Refer to note 1 to the financial statements for further
detail.
Outstanding regulatory issues
Redress programme for guarantor loans customers
The Group announced on 5 August 2020 that, following its
multi-firm review of the guarantor loans sector, the FCA had raised
some concerns regarding certain processes and procedures at GLD and
a programme of redress would be required for those customers deemed
to have suffered harm as a result.
Having proposed a detailed redress methodology, the Group is
continuing to discuss this with the FCA with a view to commencing
the execution of the redress programme in 2021. In addition to the
exceptional provision of GBP15.4m that was included in the 2020
full year results to cover the total expected costs of the redress
programme, an additional exceptional provision of GBP1.9m has been
included in the 2021 half year results to reflect the continued
accrual of estimated penalty interest, as the scheme has taken
longer than expected to implement. The total estimated cost of the
programme, which remains subject to confirmation by the FCA,
includes: (i) the sum of all redress due to customers, including
penalty interest (the 'Gross Redress Amount') of GBP18.2m, offset
by existing impairment provisions of GBP1.9m; and (ii) the
associated operational costs of executing the programme amounting
to GBP0.6m, resulting in a net amount of GBP16.9m. It is possible
that the Gross Redress Amount may differ, perhaps materially from
the current estimate and that this could materially impact the
financial statements. This is because the Group and the FCA are
continuing to review the methodology as well as the risks and
inherent uncertainties surrounding the assumptions used in the
provision calculation.
Independent reviews of both branch-based lending and home
credit
In the light of its proposed redress methodology in guarantor
loans, the Group confirmed that it had commenced an independent
review of its lending processes and procedures in both branch-based
lending and home credit, taking account of recent decisions at the
Financial Ombudsman Service. These reviews are ongoing and we are
continuing to work closely with the FCA so that we can reach a
conclusion soon. The Directors recognise that whilst the
independent reviews at the branch-based lending and home credit
divisions remain ongoing there remains a risk that the final
outcome of these reviews may result in the identification of
customers who may require redress, and the cost of redress for the
Group could be materially higher than is currently provided for in
the financial statements.
Capital Raise
It is expected that the Capital Raise will involve a firm
placing and open offer and the Board has received indications of
support from the Group's major shareholder Alchemy, subject to the
outcome of the Group's engagement with its lenders, Alchemy's
analysis of the FCA and Group's regulatory reviews, and greater
levels of certainty around redress and claims.
Other regulatory developments
In addition to the matters outlined above, there have been a
number of other regulatory developments in late 2020 and in 2021
that have been particularly relevant to the Group's business and
these are summarised below:
-- Climate related disclosures - On 21 December 2020, the FCA
published a policy statement and final rule and guidance promoting
better climate-related financial disclosures for UK premium listed
commercial companies. They will be required to include a statement
in their annual financial report which sets out whether their
disclosures are consistent with the recommendations of the
Taskforce on Climate-related Financial Disclosures ('TCFD') and to
explain if they have not done so. The rule applies for accounting
periods beginning on or after 1 January 2021. The FCA has recently
consulted on proposals to: introduce climate-related financial
disclosure rules and guidance for asset managers, life insurers and
FCA-regulated pension providers; and extend climate-related
disclosure rules to standard listed issuers and we await the
outcome of this review. The FCA has also sought views on other
topical ESG issues in capital markets.
-- Woolard Review - On 2 February, the FCA published the
much-anticipated Woolard Review , a significant and wide-ranging
review of change and innovation in the unsecured credit market. The
report contains 26 recommendations for the FCA, government and
other bodies, including an urgent recommendation to bring all buy
now pay later products into the remit of FCA regulation.
-- Vulnerable customers - On 23 February 2021, the FCA published
its guidance for firms on the fair treatment of vulnerable
customers. The FCA wants to drive improvements in the way that
firms treat vulnerable customers and bring about a practical shift
in firms' actions and behaviour. It wants vulnerable customers to
experience outcomes that are as good as for other customers and to
receive consistently fair treatment.
-- Operational resilience - On 29 March 2021, the FCA published
its final rules and guidance on new requirements to strengthen
operational resilience in the financial services sector. They come
into force on 31 March 2022. By that date, affected firms must have
identified their important business services, set impact tolerances
for the maximum tolerable disruption and carried out mapping and
testing to a level of sophistication necessary to do so. Firms must
also have identified any vulnerabilities in their operational
resilience.
-- Consumer Duty - The FCA issued a consultation on a new
Consumer Duty that would seek to set clearer and higher
expectations for firms' standards of care towards consumers. It is
proposed that the Consumer Duty would be a package of measures,
comprised of a new Consumer Principle that provides an overarching
standard of conduct, supported by a set of cross-cutting rules and
four outcomes that set clear expectations for firms' cultures and
behaviours. Firms would be expected to monitor, test and (where
necessary) adapt their policies, practices and processes so they
can satisfy themselves, and demonstrate to the FCA where required,
that the outcomes for their customers are in line with the FCA's
expectations.
The FCA has sought views on two options for the wording of the
Consumer Principle: 'A firm must act to deliver good outcomes for
retail clients'; and 'A firm must act in the best interests of
retail clients'. The FCA is not consulting at this stage on the
drafting of the proposed remaining rules. A second consultation is
expected to follow by 31 December 2021 and any new rules will be
made by 31 July 2022.
We continue to monitor all regulatory developments closely so
that we can anticipate and, if necessary, engage with the relevant
authorities, either directly or through industry associations.
Dividend
As a result of the significant reported losses in 2020 and
during the first half of 2021, the Company does not have any
distributable reserves and is therefore not in a position to
declare a half year dividend (2020: GBPnil per share). As part of
any future capital raise, the Board is committed to completing a
process, subject to shareholder and Court approval, to create
sufficient distributable reserves so that the Company can resume
the payment of cash dividends to shareholders when it is
appropriate to do so.
Current trading and outlook
All three divisions remain ahead of budget with strong
collections and better than expected rates of impairment. While the
pace of recovery in lending volumes has been a little softer than
expected during the summer months, given the structural changes in
the home credit market and our pre-eminent position in branch-based
lending, subject to the successful execution of the Capital Raise,
we are well placed to achieve our financial objectives of
year-on-year loan book growth and an improving return on asset.
Jono Gillespie
Group Chief Executive Officer
28 September 2021
Financial review
Fair value adjustments and amortisation of acquired intangibles
in 2020 include amounts relating to the acquisition of George
Banco. There were no such adjustments in 2021.
6 months to 30 June 2021 2021 2021
Fair value
adjustments,
amortisation
of acquired
intangibles
and exceptional
Normalised(1) items Reported
GBP'000 GBP'000 GBP'000
-------------------------------------------- ---------------------------- ----------------- ----------------------
Revenue 67,842 - 67,842
Other operating income 853 - 853
Modification loss (3,210) - (3,210)
Derecognition gain (1,491) - (1,491)
Impairments (6,444) - (6,444)
Exceptional provision for customer redress - (1,918) (1,918)
Admin expenses (48,165) - (48,165)
---------------------------- ----------------- ----------------------
Operating profit (loss) 9,385 (1,918) 7,467
Exceptional items(2) - (2,107) (2,107)
---------------------------- ----------------- ----------------------
Profit (loss) before interest and tax 9,385 (4,025) 5,360
Finance cost (12,895) - (12,895)
---------------------------- ----------------- ----------------------
Loss before tax (3,510) (4,025) (7,535)
Taxation - - -
---------------------------- ----------------- ----------------------
Loss after tax (3,510) (4,025) (7,535)
============================ ================= ======================
Loss per share (1.12) (2.41)
Dividend per share - -
============================================ ============================ ================= ======================
6 months to 30 June 2020 2020 2020
Fair value
adjustments,
amortisation
of acquired
intangibles
and exceptional
Normalised(1) items Reported
GBP'000 GBP'000 GBP'000
-------------------------------------------- -------------- ----------------- ----------
Revenue 92,223 (971) 91,252
Other operating income 888 - 888
Modification loss (696) - (696)
Derecognition gain 686 - 686
Impairments (39,247) - (39,247)
Exceptional provision for customer redress - (15,753) (15,753)
Admin expenses (48,838) (599) (49,437)
-------------- ----------------- ----------
Operating profit (loss) 5,016 (17,323) (12,307)
Exceptional items(2) - (75,530) (75,530)
-------------- ----------------- ----------
Profit (loss) before interest and tax 5,016 (92,853) (87,837)
Finance cost (14,912) - (14,912)
-------------- ----------------- ----------
Loss before tax (9,896) (92,853) (102,749)
Taxation 1,944 (1,569) 375
-------------- ----------------- ----------
Loss after tax (7,952) (94,422) (102,374)
============== ================= ==========
Loss per share (2.55) (32.77)
Dividend per share - -
============================================ ============== ================= ==========
(1) Normalised figures, adjusted to exclude fair value
adjustments, amortisation of acquired intangibles and exceptional
items(2) . Refer to note 6 in the notes to the financial statements
for further detail
Whilst the UK economy bounced-back strongly during the first
half of 2021, the impact of the pandemic on the Group during 2020
together with sustained COVID-19 restrictions in certain sectors
continued to impact the Group's financial performance in the first
half of 2021. Normalised revenue was down 26% at GBP67.8m (2020:
GBP92.2m) reflecting the decline in the net loan books of all three
divisions following the significant reduction in lending and higher
impairment experienced in 2020. Whilst lending volumes at both
branch-based lending and home credit showed steady growth
month-on-month in 2021, there was no new lending at guarantor loans
and, as announced at the time of the Group's full year results in
June 2021, the loan book of that division is now in managed
run-off. Modification and derecognition losses increased in the
period following increased levels of forbearance offered to
customers affected by the pandemic, whilst better than expected
collections performance in all three divisions meant impairments
fell by 84% to GBP6.4m (2020: GBP39.2m).
Administration costs were 1% lower at GBP48.2m (2020: GBP48.8m)
with lower staff and marketing costs offset by an increase in
complaint handling costs following a temporary spike in complaints
during the first quarter. The spike was driven by certain claims
management companies ('CMCs') and has since reduced significantly.
Whilst still some way off from operating at full strength, the net
result was that normalised operating profit rose by 87% to GBP9.4m
(2020: GBP5.0m). Having repaid the securitisation facility that was
first drawn in April 2020, finance costs were some GBP2.0m lower at
GBP12.9m (2020: GBP14.9m) that led to a much reduced normalised
loss before tax of GBP3.5m (2020: loss before tax of GBP9.9m).
An exceptional charge totalling GBP4.0m (2020: GBP91.3m)
comprised an increased provision for customer redress together with
restructuring costs and fees associated with the Capital Raise. The
net result was a much reduced reported loss before tax of GBP7.5m
(2020: loss before tax of GBP102.7m) and normalised loss per share
was 1.12p (2020: loss per share of 2.55p) while exceptional items
meant that the Group's reported loss per share was 2.41p (2020:
loss per share of 32.77p).
Divisional review
Branch-based lending
Despite the continued presence of government restrictions, the
business remained fully operational throughout the period with all
branches open and delivered a better than expected performance in
the period. While remote channels remain popular in many areas of
the consumer credit market, we remain committed to face-to-face
lending which we continue to believe drives better outcomes for
customers, can deliver attractive shareholder returns and is at the
heart of our business model.
Financial results
6 months to 30 June 2021 2021 2021
Fair value adjustments
and exceptional
Normalised items Reported
GBP'000 GBP'000 GBP'000
------------------------------- ------------------------ ------------------------------------- --------------------
Revenue 39,443 - 39,443
Other operating income 237 - 237
Modification loss (1,306) - (1,306)
Derecognition loss (1,621) - (1,621)
Impairments (4,041) - (4,041)
------------------------ ------------------------------------- --------------------
Revenue less impairment 32,712 - 32,712
Admin expenses (23,200) - (23,200)
------------------------ ------------------------------------- --------------------
Operating profit 9,512 - 9,512
Exceptional items - - -
------------------------ ------------------------------------- --------------------
Profit before interest and tax 9,512 - 9,512
Finance cost (7,367) - (7,367)
------------------------ ------------------------------------- --------------------
Profit before tax 2,145 - 2,145
Taxation - - -
------------------------ ------------------------------------- --------------------
Profit after tax 2,145 - 2,145
======================== ===================================== ====================
6 months to 30 June 2020 2020 2020
Fair value adjustments
and exceptional
Normalised items Reported
GBP'000 GBP'000 GBP'000
------------------------- ----------- ----------------------- ----------
Revenue 47,914 - 47,914
Other operating
income 888 - 888
Modification loss (638) - (638)
Derecognition gain 192 - 192
Impairments (15,593) - (15,593)
----------- ----------------------- ----------
Revenue less impairment 32,763 - 32,763
Admin expenses (22,238) - (22,238)
----------- ----------------------- ----------
Operating profit 10,525 - 10,525
Exceptional items - - -
----------- ----------------------- ----------
Profit before interest
and tax 10,525 - 10,525
Finance cost (9,603) - (9,603)
----------- ----------------------- ----------
Profit before tax 922 - 922
Taxation (175) - (175)
----------- ----------------------- ----------
Profit after tax 747 - 747
=========== ======================= ==========
The business saw an increase in the volume of leads and
qualifying 'applications to branch' ('ATBs') during the first half
of 2021 versus the prior year although activity levels remained
below that in 2019. This increase, coupled with higher conversion
rates of new borrower ATBs drove an increase in the total number of
loans booked. Taken together these factors combined to have a
positive impact on monthly lending volumes and the total level of
new lending increased from GBP7.9m in January to GBP11.6m in June
2021, of which GBP10.0m was new cash. While the impact of the
pandemic on lending volumes in 2020 meant that the net loan book
declined year-on-year, the positive recovery in lending volumes
throughout 2021 meant that the net loan book returned to
month-on-month growth in June 2021 and ended the period at
GBP163.8m (2020: GBP187.7m).
Collections performance has been strong in the period and
although the absolute level of collections remains below 2019
levels, it has been an encouraging performance with the result that
both delinquency and impairment rates are at historic lows.
Contributing to this strong performance has been the significant
progress made on improving our lending processes, including the
assessment of creditworthiness, where we have made great strides
over the past nine months. The nature of IFRS 9 accounting means
that lower lending volumes also helps to reduce impairment charges
however, it is expected that impairment rates will gradually return
to historic norms as volumes recover. While the number of active
customers was down year-on-year at 65,500 in June 2021 (2020:
70,700), June delivered the first month-on-month increase in 2021
and this has been sustained into July and August.
IFRS 9 Key Performance Indicators(7) 2021 2020
Number of branches 75 73
Period end customer numbers (000) 65.5 70.7
Period end loan book (GBPm) 163.8 187.7
Average loan book (GBPm) 173.2 208.1
Revenue yield 47.0% 46.7%
Risk adjusted margin 35.7% 34.2%
Impairments/revenue 24.0% 26.7%
Impairment/average loan book 11.3% 12.4%
Cost to income ratio 51.8% 45.2%
Operating profit margin 15.2% 26.2%
Return on asset 7.2% 12.2%
====================================== ================ ======
(7) All definitions are as per glossary.
Despite an improvement in revenue yield, the decline in the net
loan book meant that revenue fell by 18% to GBP39.4m (2020:
GBP47.9m). Lower debt sales and government support in relation to
furloughed employees meant that other operating income was GBP0.2m
(2020: GBP0.9m). The increase in modification losses to GBP1.3m
(2020: GBP0.6m) and derecognition losses that increased to GBP1.6m
(2020: gain of GBP0.2m) reflected the increased level of deferred
and rescheduled loans that remain the division's primary
forbearance tools and that have been deployed extensively during
the pandemic. However, these higher costs were more than offset by
the strength of the collections performance that helped to drive a
significant reduction in the level of impairment. Impairment as a
percentage of revenue reduced to 24.0% on a rolling 12-month basis
(2020: 26.7%) and as a percentage of average net receivables it
fell from 12.4% to 11.3% which is only marginally higher than it
was in the six months to June 2020. Savings in staff and
marketing-related costs were offset by an increase in complaint
handling costs with the result that administrative expenses grew by
4% to GBP23.2m (2020: GBP22.2m). The net impact of these factors
was that normalised operating profit fell by 10% to GBP9.5m (2020:
GBP10.5m).
Strong cash generation and lower lending volumes meant that
finance costs fell by 23% to GBP7.4m (2020: GBP9.6m) which more
than offset the reduction in operating profit outlined above with
the result that the pre-tax profit more than doubled to GBP2.1m in
the first half (2020: GBP0.9m).
Despite the additional challenges presented by the pandemic, we
have continued to monitor a series of key value drivers (network
capacity, lead volumes and quality, productivity and delinquency
management) in order to manage the business and a description of
how these drivers changed during the first half of 2021 is set out
below.
Network capacity - Having suspended our previous branch opening
programme in 2020, given the steady increase in leads and ATBs, we
proceeded to open the planned new branch in Leeds during the first
half of 2021, taking the total number of open branches to 75. There
was however a net reduction of staff versus the prior year
following the decision to adjust our capacity after the first
lockdown in 2020. As a result, the total number of staff reduced to
436 as at the end of June 2021 (2020: 514). Whilst this still
resulted in some excess capacity during the first half, we were
focused on ensuring that we would be able to take full advantage of
the return to growth as the economy recovered and so accepted an
increase in the cost:income ratio during the period.
Lead volumes and quality - New borrower lead volumes and ATBs
were up strongly versus 2020 (10% and 21% respectively), although
this was still below the levels seen over the same period in 2019.
However, the trajectory was particularly encouraging and in the six
months to 30 June 2021, we received a total of 926,400 new borrower
applications (2020: 845,600) of which 188,400 (2020: 154,600)
passed our screening criteria and qualified as ATBs.
Productivity - Despite the strong increase in new borrower ATBs,
we still managed to increase conversion over the six month period
to 6.5% (2020: 6.2%), providing a further boost to the total number
of loans issued, which increased month-on-month throughout the
period to reach 17,577 (2020: 13,828), a 27% increase over the
prior year. We continued to invest in our technology with the
roll-out of an enhanced creditworthiness initiative, a more
effective telephony solution as well as an open banking pilot, all
of which are expected to drive better outcomes for customers and
increase productivity. New cash issued was up 36% to GBP48.3m
(2020: GBP35.5m).
Delinquency management - Whilst we remain extremely sensitive to
the challenges being faced by a number of customers at this
difficult time, the collections performance in the period was ahead
of expectations and reflects the effectiveness of both our
underwriting process as well as our forbearance tools and
collections procedures. The number of customers affected by
COVID-19 on 30 June 2021 had reduced to less than 800 versus over
8,600 at the end of June 2020 and rescheduled loans continued to
reduce as a percentage of the overall book while deferments had
also returned to normalised levels. The net result was that
delinquency levels overall were at historically low levels during
the first half of 2021 and this helped to drive lower rates of
impairment.
Other operational developments included the launch of an
independent review to ensure that there are no implications for the
division as a result of the multi-firm review into guarantor loans
or from recent decisions at the Financial Ombudsman Service. This
review is ongoing and there remains a risk that the final outcome
of the review may result in the identification of customers who may
require redress, and the cost of redress for the Group could be
materially higher than is currently provided for in the financial
statements.
Plans for the rest of 2021
We remain focused on rebuilding the loan book and returning the
branch network to full capacity whilst continuing to maintain a
tight grip on impairment. We remain committed to servicing the
needs of those consumers that may have been excluded from
mainstream lenders through the use of our face-to-face lending
model, one that is both popular with customers and capable of
generating attractive rates of return. Whilst more expensive to
operate than pure online lenders, we continue to believe that it
delivers better outcomes for customers and that our position in the
market offers scope for substantial growth.
Since the end of June 2021, whilst the summer months are
traditionally a softer trading period for the division, we have
continued to trade ahead of budget and lending volumes are in-line
with plan. Our collections performance is ahead of plan and while
we expect the historic low levels of impairment to return to more
normalised rates, we also expect that an improving yield will help
to sustain an attractive risk adjusted margin. We continue to
expect that the demand for our products and services will increase
as a result of the continued economic recovery as well as from some
of the structural changes in the market as a number of competitors
and product categories have been withdrawn. As a result, and whilst
we remain vigilant given the rapidly changing environment, based on
our performance to-date and the steps already taken, we plan to
return to our branch opening programme with a small number of
additional branches opening before the end of the year. Beyond
that, our medium-term vision remains to reach a network of over 100
branches and whilst this will first require the Group to complete
the Capital Raise as planned, once achieved, the business will be
well placed to realise that vision.
Home credit
As a face-to-face lender, the start of the pandemic in 2020
forced us to pivot, albeit temporarily, to an exclusively remote
lending and collections model. However, as soon as it was safe to
do so, we reverted to our face-to-face model. While a number of
customers have continued to use remote channels both to make
payments and also to borrow, our c.900 agencies are maintaining
their regular contact with customers, not just to make a physical
collection or to lend but importantly to ensure they know what is
happening in the household so that they are better placed to
anticipate future needs and/or can apply appropriate forbearance
should payment difficulties appear on the horizon. This insight
lies at the core of a successful home credit business and we
believe delivers a consistently better outcome for customers than
pure remote lending models where there is no face-to-face
contact.
2021 began with the UK in lockdown and this hampered the new
lending performance in home credit, especially during the early
months of the year. Whilst there is always a seasonal reduction in
loan volumes at the start of the calendar year following the
Christmas peak lending period, the demand for credit in the first
quarter of 2021 was a little softer than we might have expected,
with the result that the net loan book continued to decline until
April 2021 before returning to growth as COVID-19 restrictions came
to an end and as consumers began to feel more positive about the
macroeconomic outlook. This recovery in lending volumes continued
throughout the period rising from GBP1.4m in January and reaching
GBP5.9m in June 2021. Whilst this was still below 2019 volumes in
absolute terms (where the increase was from GBP3.5m in January to
GBP7.4m in June), the pace of recovery from May onwards was
encouraging.
Financial results
6 months to 30 June 2021 2021 2021
Normalised Exceptional items Reported
GBP'000 GBP'000 GBP'000
-------------------------------- -------------------------- ------------------ ----------
Revenue 18,019 - 18,019
Other income 607 607
Impairments (1,419) - (1,419)
-------------------------- ------------------ ----------
Revenue less impairments 17,207 - 17,207
Admin expenses (15,752) - (15,752)
-------------------------- ------------------ ----------
Operating profit 1,455 - 1,455
Exceptional items - - -
-------------------------- ------------------ ----------
Profit before interest and tax 1,455 - 1,455
Finance cost (486) - (486)
-------------------------- ------------------ ----------
Profit before tax 969 - 969
Taxation - -
-------------------------- ------------------ ----------
Profit after tax 969 - 969
6 months to 30 June 2020 2020 2020
Normalised Exceptional items Reported
GBP'000 GBP'000 GBP'000
-------------------------------- ----------- ------------------ ----------
Revenue 27,277 - 27,277
Impairments (7,927) - (7,927)
----------- ------------------ ----------
Revenue less impairments 19,350 - 19,350
Admin expenses (16,382) - (16,382)
Operating profit 2,968 - 2,968
Exceptional items - - -
----------- ------------------ ----------
Profit before interest and tax 2,968 - 2,968
Finance cost (774) - (774)
----------- ------------------ ----------
Profit before tax 2,194 - 2,194
Taxation (417) - (417)
----------- ------------------ ----------
Profit after tax 1,777 - 1,777
As the vast majority of the Group's customers tend to borrow
more than once, the size of the existing customer base is an
important key performance indicator for the business. With lower
lending volumes and a better than expected collections performance,
the number of active customers fell to 69,800 at the end of June
2021 (2020: 77,200) although this was above a low in the period of
68,500 in March 2021. Since then, lending volumes have continued to
increase and with it the number of active customers, of which an
increasing proportion are quality customers i.e. they have made at
least 9 out of the last 13 payments due. As at 30 June 2021, 55% of
the active customer base were quality customers, up from 40% in
June 2020 (in June 2019 the proportion of quality customers was
56%).
In 2021 the number of staff remained broadly steady at just over
300 throughout the period and so the business has continued to
deliver increasing levels of productivity as lending volumes
increased. However, the improvements would have been even greater
were it not for a significant spike in the number of customer
complaints received during the first quarter, following which there
was a marked increase in the number of staff (and contractors)
focused on reducing the volume of outstanding complaints. Most of
these staff were redeployed from other roles internally although
there was a need to also use third party contractors during the
period. Having already provided for this significant investment in
complaint handling in the 2020 full year results, the additional
manpower successfully reduced the backlog of outstanding complaints
and the numbers of complaints received has since reduced back down
to normalised levels. However, if the level of complaints were to
return to Q1 levels, this would have a material adverse impact on
the division.
The productivity improvements outlined above were in part thanks
to our persistent drive to improve and in particular our ongoing
investment in technology that in 2021 included the continued
evolution of our mobile lending app for agents that saw version 6
go live during the period. We also continued to develop our
customer portal that, among other things, allows customers to view
their balance, make a payment or request access to further credit -
approximately 9,200 customers or 11% of the total accessed the
portal during the first half of 2021, up from 7% in the first half
of 2020.
Despite lower lending volumes, the collections performance was
ahead of expectations, driven by our strong customer relationships
and underwriting approach. The result was that the rates of
impairment were also better than expected reaching unprecedented
low levels that are rarely seen in the home credit industry. Taken
together, the impact on the net loan book was that it ended the
period flat at GBP24.3m (2020: GBP24.3m).
Key Performance Indicators(8) 2021 2020
Period end agency numbers 896 887
Period end number of offices 64 65
Period end customer numbers (000) 69.8 77.2
Period end loan book (GBPm) 24.3 24.3
Average loan book (GBPm) 24.4 33.8
Revenue yield 141.9% 169.7%
Risk adjusted margin 125.5% 123.8%
Impairments/revenue 11.5% 27.1%
Impairment/average loan book 16.4% 45.9%
Cost to income ratio 101.9% 59.4%
Operating profit margin (11.6)% 13.5%
Return on asset (16.5)% 23.0%
===================================== ======== =======
(8) All definitions are as per glossary and above
Whilst there was a slight shift towards shorter-term loans in
2020, albeit with much lower lending volumes, the picture in 2021
returned to a more normalised mix, helped by the launch of a new
52-week product late in 2020 that is now our most popular product.
Around 34% of loans issued in the first six months of 2021 were for
34 weeks or less versus 36% in 2020. However, due to unprecedented
levels of forbearance offered in 2020, average yield dropped from
169.7% to 141.9% reflecting a marked increase in the number of
slow-paying loans that whilst continuing to be collected, reached
beyond their original term at which point, due to the fixed service
charge of the product, they no longer generate revenue. A lower net
loan book and reduced yield meant that overall revenue was 34%
lower at GBP18.0m (2020: GBP27.3m). As noted above, the collections
performance was better than expected and despite lower revenue, the
absolute level of impairment declined by 82% to GBP1.4m (2020:
GBP7.9m) and the rate of impairment as a percentage of revenue
declined from 27.1% in the prior year to 11.5% for the twelve month
period to 30 June 2021, an historic low for the business.
Solid cost savings in a number of areas including staff-related
costs, IT and travel, helped to reduce administration costs to
GBP15.8m (2020: GBP16.4m). However, given the reduction in revenue
for the reasons outlined above, the rolling 12-month cost:income
ratio increased to 101.9% (2020: 59.4%). This is clearly not
sustainable, but is a consequence of, among other things, the lower
net loan book due to COVID-19 and the accounting treatment of
slow-paying accounts. Assuming that the recent current trading
performance is sustained and the loan book continues to recover,
revenue will increase and the cost:income ratio will start to fall.
The net result was that normalised operating profit fell from
GBP3.0m to GBP1.5m and while strong cash generation meant that
finance costs fell to GBP0.5m (2020: GBP0.8m) pre-tax profit
reduced to GBP1.0m (2020: GBP2.2m).
Other operational developments included the launch of an
independent review to ensure that there are no implications for the
division as a result of the multi-firm review into guarantor loans
or from recent decisions at the Financial Ombudsman Service. This
review is ongoing and so there remains a risk that the final
outcome of the review may result in the identification of customers
who may require redress, and the cost of redress for the Group
could be materially higher than is currently provided for in the
financial statements.
Plans for the rest of 2021
The business is continuing to grow its customer base, that was
significantly reduced by the effects of the pandemic. The number of
quality customers is also continuing to increase which bodes well
for future levels of impairment and a recovery in the return on
assets. That said, we remain focused on maintaining our strong
collections performance and exploring how we can continue to
improve our lending approach, leveraging many of the in-house tools
that we have developed as well as through the deployment of new
tools such as open banking, taking into account any learnings from
the ongoing external reviews. Assuming the Capital Raise is
successful and given the structural changes in the market, the
Group believes that a significant opportunity exists to attract a
number of highly experienced competitor agents that could help to
accelerate the recovery in the division's loan book. The
encouraging current trading performance gives us a strong platform
as we look forward to the forthcoming peak lending period in
November and December.
Guarantor loans
The ongoing discussions with the FCA regarding the Group's
proposed redress methodology for certain of its guarantor loans
customers meant that the division didn't issue any new loans in the
period. However, the business continued to collect ahead of
management's expectations and whilst this was good for impairment
and cash flow, it also meant that the net loan book continued to
decline, reaching GBP41.4m at 30 June 2021 (2020: GBP87.6m). As
noted below, this impacted the financial performance of the
division and, as announced with the Group's 2020 full year results
on 30 June 2021, the Board concluded that shareholder interests
would be best served by placing the division into a managed run-off
and ultimately closing the business. Whilst hugely disappointing,
the Board determined that collecting out the loan book was the only
rational conclusion given the combined impact of the pandemic, the
sub-scale nature of the business and complex regulatory
requirements that would necessarily impede any potential recovery
in profitability in the future.
Financial results
The reduction in the net loan book meant that revenue declined
by 39% to GBP10.4m (2020: GBP17.0m). An increased number of
customers receiving forbearance drove up modification losses and
reduced derecognition gains while the smaller loan book and strong
collections performance meant the division saw a reduction in the
absolute value of impairment from GBP15.7m in 2020 to GBP1.0m. As a
percentage of both revenue and average net receivables, the rate of
impairment fell to 41.2% (2020: 61.6%) and 16.5% (2020: 19.9%)
respectively due to the reasons above. Whilst there was a
meaningful reduction in headcount versus the prior year, the full
benefit was partially offset by additional costs relating to the
proposed redress programme with the result that administration
costs fell by 3% to GBP6.9m (2020: GBP7.1m and the division
achieved a normalised operating profit of GBP0.8m which was a
marked improvement on the prior year (2020: operating loss of
GBP5.4m). Strong cashflow contributed to lower finance costs that
reduced the normalised loss before tax to GBP1.9m (2020: loss
before tax of GBP9.2m).
An additional exceptional provision for customer redress of
GBP1.9m (2020: GBP15.8m) reflected the impact of a delayed start to
the redress program which increased the penalty interest accrued
and also the amount to be returned to customers from more recent
collections. The total provision in the Group's balance sheet
represents the Directors' best estimate of the total costs of
redress based on the detailed methodology developed in conjunction
with the Group's advisers. As the redress review is still ongoing,
it is possible that the eventual outcome may differ materially from
the current estimate and that this could materially impact the
financial statements due to the risks and inherent uncertainties
surrounding the assumptions used in the provision calculation.
6 months to 30 June 2021 2021 2021
Fair value
Normalised(9) adjustments Reported
------------------------------------ -------------------------- ------------- ------------------
GBP'000 GBP'000 GBP'000
Revenue 10,380 - 10,380
Other income 1 - 1
Modification gain loss (1,904) - (1,904)
Derecognition gain loss 130 - 130
Impairments (984) - (984)
-------------------------- ------------- ------------------
Revenue less impairments 7,623 - 7,623
Exceptional provision for customer
redress - (1,918) (1,918)
Admin expenses (6,870) - (6,870)
-------------------------- ------------- ------------------
Operating profit (loss) 753 (1,918) (1,165)
Exceptional items - (527) (527)
Profit (loss) before interest and
tax 753 (2,445) (1,692)
Finance cost (2,611) - (2,611)
-------------------------- ------------- ------------------
Loss before tax (1,858) (2,445) (4,303)
Taxation - - -
-------------------------- ------------- ------------------
Loss after tax (1,858) (2,445) (4,303)
========================== ============= ==================
6 months to 30 June 2020 2020 2020
Fair value
Normalised(9) adjustments Reported
------------------------------------ -------------- ------------- ---------
GBP'000 GBP'000 GBP'000
Revenue 17,032 (971) 16,061
Other income - - -
Modification loss (58) - (58)
Derecognition gain 494 - 494
Impairments (15,727) - (15,727)
-------------- ------------- ---------
Revenue less impairment 1,741 (971) 770
Exceptional provision for customer
redress - (15,753) (15,753)
Admin expenses (7,114) - (7,114)
-------------- ------------- ---------
Operating loss (5,373) (16,724) (22,097)
Exceptional items - - -
Loss before interest and tax (5,373) (16,724) (22,097)
Finance cost (3,871) - (3,871)
-------------- ------------- ---------
Loss before tax (9,244) (16,724) (25,968)
Taxation 1,756 185 1,941
-------------- ------------- ---------
Loss after tax (7,488) (16,539) (24,027)
============== ============= =========
(9) Normalised figures, adjusted to exclude fair value
adjustments and amortisation of acquired intangibles
IFRS 9 Key Performance Indicators(10) 2021 2020
Period end customer numbers (000) 19.9 31.5
Period end loan book (GBPm) 41.4 87.6
Average loan book (GBPm) 60.7 102.1
Revenue yield 40.1% 32.3%
Risk adjusted margin 23.6% 12.4%
Impairment/revenue 41.2% 61.6%
Impairment/average loan book 16.5% 19.9%
Cost to income ratio 55.6% 41.8%
Operating profit margin (23.0)% (1.1)%
Return on asset (9.2)% (0.4)%
======================================= ======== =======
(10) All definitions are as per glossary.
Plans for the rest of 2021
The Group is focused on reaching a conclusion regarding its
proposed redress methodology which is a pre-requisite for the
execution of the Capital Raise and will also allow us to start to
execute the redress programme for those customers that may have
suffered harm. In the meantime, we are continuing to manage the
collect-out of the remaining loan book, a process that is currently
working well.
Central costs
6 months to 30 Jun e 2021 2021 2021
Normalised(11) Amortisation Reported
of acquired
intangibles
and exceptional
items
GBP000 GBP000 GBP000
------------------------------ -------------------------- -------------------------- --------------------------
Revenue - - -
Other income 8 8
Admin expenses (2,343) - (2,343)
-------------------------- -------------------------- --------------------------
Operating loss (2,335) - (2,335)
Exceptional items(14) - (1,580) (1,580)
Loss before interest and tax (2,335) (1,580) (3,915)
Net finance (cost)/income (2,431) - (2,431)
-------------------------- -------------------------- --------------------------
Loss before tax (4,766) (1,580) (6,346)
Taxation - - -
-------------------------- -------------------------- --------------------------
Loss after tax (4,766) (1,580) (6,346)
========================== ========================== ==========================
6 months to 30 Jun e 2020 2020 2020
Normalised(11) Amortisation Reported
of acquired
intangibles
and exceptional
items
GBP000 GBP000 GBP000
------------------------------ -------------------------- -------------------------- --------------------------
Revenue - - -
Admin expenses (3,104) (599) (3,703)
Operating loss (3,104) (599) (3,703)
Exceptional items - (75,530) (75,530)
-------------------------- -------------------------- --------------------------
Loss before interest and tax (3,104) (76,129) (79,233)
-------------------------- -------------------------- --------------------------
Net finance (cost)/income (664) - (664)
-------------------------- -------------------------- --------------------------
Loss before tax (3,768) (76,129) (79,897)
Taxation 780 (1,754) (974)
-------------------------- -------------------------- --------------------------
Loss after tax (2,988) (77,883) (80,871)
========================== ========================== ==========================
(11) Adjusted to exclude exceptional items (refer to notes to
the financial statements note 6), as well as the amortisation of
acquired intangibles related to the acquisition of George Banco
(14) Refer to note 6 in the notes to the financial statements
for further detail
Normalised administrative expenses fell by 25% to GBP2.3m (2020:
GBP3.1m) driven principally by lower staff and professional fees.
Finance fees increased as surplus cash was held at Group level,
rather than paying down any facilities due to the expectation of
the future cash requirements for loan book growth.
An exceptional charge of GBP1.6m related to professional fees
associated with the forthcoming Capital Raise (2020: GBPnil). The
exceptional charges of GBP75.5m in the prior year related to the
write-off of goodwill and intangible assets (see note 12).
Principal risks
The principal risks facing the Group are:
-- Going concern, solvency and liquidity - although as at 31
August 2021 the Group had GBP100.8m in cash, the Directors note
that material uncertainties exist regarding the successful
execution of a capital raise, current and future impacts of
COVID-19 and the impact of potential levels of redress and
complaints across the Group. The range of assumptions and the
likelihood of them all proving correct creates material uncertainty
and therefore the impact on liquidity and solvency under both the
base case and downside scenarios may cast significant doubt on both
the Group's and individual division's ability to continue as a
going concern. In such circumstance, the Group may fall under the
control of its lenders and there would be a possibility of the
Group going into insolvency;
-- Regulation - the Group faces significant operational and
financial risk through changes to regulations, changes to the
interpretation of regulations or a failure to comply with existing
rules and regulations. This risk may be impacted by the outcome of
the ongoing reviews of each of the Group's divisions. Following a
multi-firm review, the Group has developed a proposed methodology
for redress to certain guarantor loans customers and has made a
provision totalling GBP16.9m to cover the expected costs. Whilst
the provisions made represent the Directors' best estimate of the
total cost of redress across all divisions, based upon a detailed
methodology and analyses developed in conjunction with its
advisers, discussions with the FCA are ongoing and therefore,
although the Directors believe their best estimate represents a
reasonably possible outcome; there is a risk of a less favourable
outcome. The reviews into branch-based lending and home credit are
ongoing and there remains a risk that the final outcome of the
reviews may result in the identification of customers who may
require redress, and the cost of redress for the Group could be
materially higher than is currently provided for in the financial
statements. While the numbers of complaints received has declined
significantly from the peak seen earlier in the year, there remains
a risk of increasing levels of complaints and if the level of
complaints were to return to the levels seen during the first
quarter of 2021, this would have a material adverse impact on the
Group;
-- Conduct - risk of poor outcomes for our customers or other
key stakeholders as a result of the Group's actions;
-- Credit - risk of loss through poor underwriting or a
diminution in the credit quality of the Group's customers;
-- Business strategy - risk that the Group's strategy fails to
deliver the outcomes expected;
-- Business risks:
o operational - the Group's activities are large and complex and
so there are many areas of operational risk that include technology
failure, fraud, staff management and recruitment risks,
underperformance of key staff, the risk of human error, taxation,
increasing numbers of customer complaints, health and safety as
well as disaster recovery and business continuity risks;
o reputational - a failure to manage one or more of the Group's
principal risks may damage the reputation of the Group or any of
its subsidiaries which in turn may materially impact the future
operational and/or financial performance of the Group;
o cyber - increased connectivity in the workplace coupled with
the increasing importance of data and data analytics in operating
and managing consumer finance businesses means that this risk has
been identified separately from operational risk; and
o Pandemic - a large pandemic such as COVID-19, coupled with
restrictions on face-to-face contact by HM Government, may cause
significant disruption to the Group's operations and severely
impact the supply and level of demand for the Group's products. As
a result, any sustained period where such measures are in place
could result in the Group suffering significant financial loss.
On behalf of the Board of Directors
Jono Gillespie
Group Chief Executive Officer
28 September 2021
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge, the
unaudited condensed interim financial statements have been prepared
in accordance with IAS 34 as adopted by the European Union, and
that the interim report includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R, namely:
-- An indication of important events that have occurred during
the first six months of the financial year and their impact on the
unaudited condensed interim financial statements, and a description
of the principal risks and uncertainties for the remaining six
months of the financial year; and
-- Material related party transactions that have occurred in the
first six months of the financial year and any material changes in
the related party transactions described in the last annual report
and financial statements.
The current directors of Non-Standard Finance plc are listed in
the 2020 Annual Report & Financial Statements, with the
exception of John van Kuffeler who resigned from his role as Group
Chief Executive Officer and ceased to be a Director of the Company
with effect from 31 August 2021. A list of current directors is
also maintained on the Non-Standard Finance website:
www.nsfgroupplc.com .
The maintenance and integrity of the Non-Standard Finance
website is the responsibility of the Directors.
Legislation in the United Kingdom governing the preparation and
dissemination of unaudited condensed interim financial statements
may differ from legislation in other jurisdictions.
On behalf of the Board of Directors
Jono Gillespie
Group Chief Executive Officer
28 September 2021
Financial Statements
Condensed consolidated statement of comprehensive income for the
six months ended 30 June 2021
Before fair
value adjustments, Fair value adjustments,
amortisation amortisation
of acquired of acquired
intangibles intangibles Six months
and exceptional and exceptional ended 30 June
items items 2021
Note GBP000 GBP000 GBP000
---------------------------- ---- ------------------- ----------------------- --------------
Revenue 67,842 - 67,842
Other operating income 9 853 - 853
Modification gain/(loss) (3,210) - (3,210)
Derecognition gain/(loss) (1,491) - (1,491)
Impairment of financial
assets (6,444) - (6,444)
Exceptional provision
for customer redress 6 - (1,918) (1,918)
Administrative expenses (48,165) - (48,165)
Operating profit (loss) 5 9,385 (1,918) 7,467
Other exceptional
items 6 - (2,107) (2,107)
----------------------- --------------
Profit (loss) on ordinary
activities before
interest and tax 9,385 (4,025) 5,360
Finance costs (12,895) - (12,895)
--------------
Loss on ordinary activities
before tax (3,510) (4,025) (7,535)
Tax on profit (loss)
on ordinary activities 8 - - -
------------------- ----------------------- --------------
Loss for the period (3,510) (4,025) (7,535)
---------------------------- ---- ------------------- ----------------------- --------------
Total comprehensive
loss for the year (7,535)
---------------------------- ---- ------------------- ----------------------- --------------
Loss attributable
to:
- Owners of the parent (7,535)
- Non-controlling
interests -
Loss per share
Six months ended
30 June 2021
Note Pence
------------------ ---- ----------------
Basic and diluted 7 (2.41)
------------------ ---- ----------------
There are no recognised gains or losses other than disclosed
above and there have been no discontinued activities in the
year.
Condensed consolidated statement of comprehensive income for the
six months ended 30 June 2020
Before fair
value adjustments, Fair value adjustments,
amortisation amortisation
of acquired of acquired
intangibles intangibles Six months
and exceptional and exceptional ended 30 June
items items 2020
Note GBP000 GBP000 GBP000
-------------------------------- ---- ----------------------- ---------------------------------- ----------------------------
Revenue 92,223 (971) 91,252
Other operating income 9 888 - 888
Modification loss (696) - (696)
Derecognition gain 686 - 686
Impairment of financial
assets (39,247) - (39,247)
Exceptional provision
for customer redress 6 - (15,753) (15,753)
Administrative expenses (48,838) (599) (49,437)
Operating profit (loss) 5 5,016 (17,323) (12,307)
Other exceptional
items 6 - (75,530) (75,530)
---------------------------------- ----------------------------
Profit (loss) on ordinary
activities before
interest and tax 5,016 (92,853) (87,837)
Finance costs (14,912) - (14,912)
----------------------------
Loss on ordinary activities
before tax (9,896) (92,853) (102,749)
Tax on profit (loss)
on ordinary activities 8 1,944 (1,569) 375
----------------------- ---------------------------------- ----------------------------
Loss for the period (7,952) (94,422) (102,374)
-------------------------------- ---- ----------------------- ---------------------------------- ----------------------------
Total comprehensive
loss for the year (102,374)
-------------------------------- ---- ----------------------- ---------------------------------- ----------------------------
Loss attributable
to:
* Owners of the parent (102,374)
* Non-controlling interests -
Loss per share
Six months ended
30 June 2020
Note Pence
------------------ ---- ----------------
Basic and diluted 7 (32.77)
------------------ ---- ----------------
Condensed consolidated statement of financial position as at 30
June 2021
30 June 31 December
2021 2020
Note GBP000 GBP000
---------------------------------- ---- --------- -----------
ASSETS
Non-current assets
Goodwill 12 - -
Intangible assets 8,287 8,237
Derivative asset - -
Deferred tax asset - -
Right of use asset 9,145 10,079
Property, plant and equipment 5,437 6,277
Amounts receivable from customers 11 111,083 124,128
---------------------------------- ---- --------- -----------
133,952 148,721
Current assets
Amounts receivable from customers 11 118,466 134,073
Trade and other receivables 2,958 2,080
Corporation tax asset 1,497 1,550
Cash and cash equivalents 103,682 77,956
---------------------------------- ---- --------- -----------
226,603 215,659
---------------------------------- ---- --------- -----------
Total assets 360,555 364,380
---------------------------------- ---- --------- -----------
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables 17,334 15,895
Provisions 13 23,717 21,813
Lease liability 1,873 1,928
Total current liabilities 42,924 39,636
---------------------------------- ---- --------- -----------
Non-current liabilities
Lease liability 8,254 8,961
Bank loans 327,675 326,587
Total non-current liabilities 335,929 335,548
---------------------------------- ---- --------- -----------
Equity
Share capital 15,621 15,621
Share premium 180,019 180,019
Other reserves 255 551
Retained loss (214,193) (206,995)
================================== ==== ========= ===========
Total equity (18,298) (10,804)
---------------------------------- ---- --------- -----------
Total equity and liabilities 360,555 364,380
---------------------------------- ---- --------- -----------
Condensed consolidated statement of changes in equity for the
six months ended 30 June 2021
Share Share Other Retained Non-controlling
capital premium reserves loss interest Total
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ---- -------- -------- --------- ----------- --------------- -----------
At 31 December 2019 15,621 180,019 2,152 (74,181) - 123,611
---------------------------- ---- -------- -------- --------- ----------- --------------- -----------
Total comprehensive
loss for the period - - - (102,374) - (102,374)
Transactions with
owners, recorded directly
in equity:
Dividends paid 10 - - - - - -
Credit to equity for
equity-settled share-based
payments - - 795 - 1,009
Transfer of share-based
payment reserve on
vesting of share awards - - (214) 214 - (214)
---------------------------- ---- -------- -------- --------- ----------- --------------- -----------
At 30 June 2020 15,621 180,019 2,733 (176,341) - 22,032
---------------------------- ---- -------- -------- --------- ----------- --------------- -----------
Total comprehensive
loss for the period - - - (33,183) - (33,183)
Transactions with
owners, recorded directly
in equity:
Dividends paid 10 - - - - - -
Credit to equity for
equity-settled share-based
payments - - 347 - - 347
Transfer of share-based
payment reserve on
vesting of share awards - - (2,529) 2,529 - -
At 31 December 2020 15,621 180,019 551 (206,995) - (10,804)
Total comprehensive
loss for the period - - - (7,535) - (7,535)
Transactions with
owners, recorded directly
in equity:
Dividends paid 10 - - - - -
Credit to equity for
equity-settled share-based
payments - - 41 - - 41
Transfer of share-based
payment reserve on
vesting of share awards - - (337) 337 - -
At 30 June 2021 15,621 180,019 255 (214,193) - (18,298)
---------------------------- ---- -------- -------- --------- ----------- --------------- -----------
Condensed consolidated statement of cash flows for the six
months ended 30 June 2021
Six months Six months
ended ended
30 June 2021 30 June 2020
Note GBP000 GBP000
--------------------------------------- ---- ------------- -------------
Net cash from operating activities 15 32,451 48,813
Cash flows (used in)/from investing
activities
Purchase of property, plant and
equipment (139) (907)
Purchase of software intangibles (1,275) (1,725)
Proceeds from sale of property,
plant and equipment 15 -
Net cash (used in)/from investing
activities (1,399) (2,632)
--------------------------------------- ---- ------------- -------------
Cash flows (used in)/from financing
activities
Finance cost (4,446) (5,612)
Repayment of principal portion
of lease liabilities (880) (857)
Debt raising - 21,800
Repayment of borrowings - -
Dividends paid - -
Net cash (used in)/from financing
activities (5,326) 15,331
--------------------------------------- ---- ------------- -------------
Net increase in cash and cash
equivalents 25,726 61,512
Cash and cash equivalents at beginning
of the period 77,956 14,192
--------------------------------------- ---- ------------- -------------
Cash and cash equivalents at end
of the period 103,682 75,704
--------------------------------------- ---- ------------- -------------
As at 30 June 2021 the Group had cash of GBP103.7m (30 June
2020: GBP75.7m) with gross debt of GBP330.0m (30 June 2020:
GBP345m).
Notes to the preliminary announcement
1. General information
Non-Standard Finance plc is a public limited company
incorporated and domiciled in the United Kingdom. The address of
the registered office is 7 Turnberry Park Road, Gildersome, Morley,
Leeds, England, LS27 7LE.
The unaudited condensed interim financial statements do not
constitute the statutory financial statements of the Group within
the meaning of section 434 of the Companies Act 2006. The statutory
financial statements for the year ended 31 December 2020 were
approved by the Board of Directors on 30 June 2021 and have been
delivered to the Registrar of Companies. The report of the auditor
was unqualified and did not contain a statement under s498(2) or
(3) of the Companies Act 2006, but did include a section
highlighting a material uncertainty that may cast significant doubt
on the Group and Company's ability to continue as a going concern
due to the requirement for additional capital to be raised to
secure the Group's future covenant compliance, solvency and
liquidity position; the impact of the guarantor loans division
('GLD') regulatory redress programme and customer complaints across
the Group; and the disruption within the Group caused by COVID-19,
specifically taking into account the impact on collections and
lending volumes. The Group notes this material uncertainty
continues to exist as at 30 June 2021 as a result of the reasons
above.
The unaudited condensed interim financial statements for the six
months ended 30 June 2021 have been reviewed, not audited, and were
approved by the Board of Directors on 28 September 2021.
2. Basis of preparation
The condensed consolidated financial statements for the six
months ended 30 June 2021 have been prepared in accordance with
International Accounting Standard 34: Interim Financial Reporting,
as adopted by the UKEB, and the requirements of the Disclosure and
Transparency Rules ('DTR') of the Financial Conduct Authority
('FCA') in the United Kingdom as applicable to interim financial
reporting. The unaudited condensed interim financial statements
should be read in conjunction with the statutory financial
statements for the year ended 31 December 2020 which have been
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and
International Financial Reporting Standards ('IFRS Standards')
adopted pursuant to Regulation (EC) No 1606/2002 as it applies to
the European Union.
There are no new standards adopted by the Group from 1 January
2021. There are no new standards not yet effective and not adopted
by the Group from 1 January 2021 which are expected to have a
material impact on the Group.
Going concern
In adopting the going concern assumption in preparing the half
year end financial statements, the Directors have considered the
activities of its principal subsidiaries, as well as the Group's
principal risks and uncertainties.
As part of its going concern assessment, the Directors reviewed
both the Group's liquidity and its future balance sheet solvency.
The Group produced two scenarios: (i) the more likely (or 'base
case') scenario; and (ii) the 'downside' scenario which applies
stresses in relation to the key risks identified in the base
case.
(i) Base case scenario
Liquidity
The base case forecasts assume additional equity is raised
during 2021 and reflects a business plan where the Group rebuilds
its loan book back up to historic levels and achieves further
growth within its branch-based lending and home credit divisions.
It also assumes that GLD remains in managed run-off. In this model,
any potential covenant breaches are cured by the injection of
capital into the Group. As at the date of these financial
statements, the Group expects to raise equity funds in the region
of GBP80m before expenses with support from Alchemy, its largest
shareholder, and other investors, subject to greater levels of
certainty around redress and claims, Alchemy's analysis of the
FCA's and the Group's regulatory reviews, and the outcome of the
Group's engagement with its lenders.
In this forecast, we have taken into account:
-- the potential future costs of complaints and the provision
for customer redress made in GLD and its associated costs. Whilst
the methodology for redress has not yet been agreed with the FCA,
the quantum of provision for redress represents the Directors' best
estimate of the ultimate cost of the redress as at the reporting
date;
-- the ongoing independent reviews commissioned by the Group
around the lending and complaints handling activities of the
branch-based lending and home credit divisions as far as we have
been able to do so as they are not yet complete;
-- the pay-outs required in relation to complaints across the Group;
-- the expected performance of customers impacted by COVID-19,
as informed by experience to date;
-- recent Government guidance around the proposed future COVID-19 roadmap;
-- consideration of the macroeconomic impact on loan loss
provisions since the year end as a result of COVID-19;
-- the potential costs of obtaining extensions to existing
Revolving Credit Facilities (RCF) and Term Loan facilities which
currently mature in August 2022 and August 2023 respectively;
and
-- no dividends are assumed to be paid over the forecast period.
Under the base case, it is forecast that the Group is at risk of
breaching its financial covenants within the next 12 months,
however any breach will be either mitigated or cured by the
injection of new equity capital as outlined above. Under the base
case, the covenant position as at 30 September 2021 is assumed to
be very tight and there remains a risk that the Group will breach
as at 30 September 2021. If this were to happen, then the Group
would maintain its strategy as described under the base case,
however this would result in a requirement to request a temporary
waiver from lenders until the Group is able to raise capital.
Therefore, if the Group finds itself in such a scenario, the risks
associated with executing on the base case would be increased due
to the need to agree waivers with lenders, and consequently the
likelihood of the Group ending up in the downside scenario and
becoming insolvent would also be increased.
There are material uncertainties regarding the assumptions and
outcome of the base case in the following areas:
-- the full and final cost of the redress programme in GLD and
any future complaint / redress costs across the Group;
-- the outcome of the independent reviews commissioned by the
Group around the lending and complaints handling activities of the
branch-based lending and home credit divisions, and any associated
cost of redress which, if materially higher than in the base case,
may lead to the ring- fencing or closure of the divisions;
-- the ultimate execution of the planned equity raise by the end
of Q4 21 at the earliest, support of Alchemy and other investors
for this, as well as uncertainty that in the event of a covenant
breach, the Group will be able to raise equity within sufficient
timeframes to enable it to continue as a going concern;
-- the impact of the macroeconomic environment, including
COVID-19, on future trading performance, including the impact of
the vaccination programme, potential new strains of the virus and
the Government response to any changes in infection rates;
-- the subsequent performance of COVID-19 impacted customers who
have come off an emergency payment freeze;
-- the impact of the GLD run-off on customer behaviour;
-- the actions of Claims Management Companies (CMCs) and results
of Financial Ombudsman Service (FOS) decisions made which may
increase the costs of complaints across the Group;
-- the nature of any agreement with the debt providers in case covenants are breached; and
-- the expectation that debt maturing in August 2022 and August
2023 will be rolled over and/or refinanced.
As at 31 August 2021, the Group had a total cash balance of
GBP100.8m which, when combined with the Group ' s ability to
conserve cash through a reduction in future lending, means the
Group expects to be able to fund operating expenses and interest
payments for at least the next 12 months, subject to the above
assumptions not being materially different from the base case.
Solvency
Under the base case, after the Capital Raise, the Group would be
in a net asset position from a balance sheet perspective; this
however is dependent upon a number of factors including:
-- the Group raising additional capital and the extension and/or
refinancing of the Group's debt facilities as outlined above;
-- the assumptions not varying materially from the base case; and
-- any mitigating actions which could be implemented to offset
any adverse movement from the base case.
In the absence of the Capital Raise, the Group is forecast to
remain in a net liability position from a balance sheet perspective
over the next 12 months and beyond. It is also likely to breach its
financial covenants and as a result, if waivers are not
forthcoming, the Group may fall under the control of its lenders.
This is considered further in the downside scenario.
Due to the uncertainties regarding the current and future impact
of COVID-19 on the macroeconomic environment and regulatory
uncertainties, the Group notes that movement in any one or a number
of these assumptions creates a material uncertainty in the
liquidity and/or solvency position of the Group.
Key risks to the assumptions made include:
-- higher than anticipated payouts required in relation to
complaints and the GLD customer redress programme;
-- the outcome of the independent reviews at the branch-based
lending and home credit divisions resulting in the identification
of customers who may require redress materially beyond that already
provided for;
-- the possibility that the Group is unable to raise sufficient
capital within the time frame forecast;
-- the possibility that the current performance of the loan book
deteriorates beyond current expected delinquency trends and that
recovery of customer performance is not as anticipated;
-- further changes in the regulatory environment which
negatively impact the Group's divisions;
-- a further negative shift in the macroeconomic environment;
-- costs relating to the managed run-off of GLD; and
-- the Group is unable to agree acceptable terms with its
lenders or they do not roll over loans when due and refinancing is
not available.
(ii) Downside scenario
Liquidity
This scenario assumes that no additional equity is raised in
2021 and also reflects stresses to the key risks described
above.
Under this scenario we have assumed:
-- the ultimate cost of the GLD customer redress programme is
higher than the provision which has been included in the financial
statements on the basis of amendments to the external harm criteria
of the Group's proposed methodology; and
-- higher complaint levels than expected under the base case across all divisions.
-- the planned equity raise is not successful;
-- there are prolonged social restrictions and lockdowns across
the UK in response to COVID-19, therefore leading to lower lending
than expected and;
-- a higher proportion of customers are at risk of losing their
jobs therefore leading to even higher delinquency than expected
under the base case.
Under this scenario it is expected that the Group would breach
certain borrowing covenants during the next 12 months, would not be
able to access further funding over the period of breach and would
require waivers from its lenders. If waivers are not forthcoming,
the Group may fall under the control of its lenders and there is a
possibility of the Group going into insolvency.
As at 31 August 2021, the Group had a total cash balance of
GBP100.8m which, combined with the Group's ability to conserve cash
through a reduction in lending, means that the Group expects to be
able to fund operating expenses and interest payments for at least
the next 12 months, provided that forbearance is received from its
lenders in the event of a covenant breach, existing loans are
rolled over, and subject to the above assumptions not being
materially different from the downside case.
Solvency
The Group would remain in a net liability position from a
balance sheet perspective if some or all of the downside stresses
were to take place without a significant injection of further
equity.
Conclusion
The Directors acknowledge the considerable challenges presented
by the current regulatory position including potential customer
redress, the outbreak of COVID-19 and the financial performance of
the Group, which have created a material uncertainty around the
going concern and viability status of the Group. However, despite
the material uncertainties associated with forecast assumptions,
the conditional support from Alchemy and other investors means that
it is their reasonable expectation that the Group will continue to
operate and meet its liabilities as they fall due over the
viability period from both a liquidity and solvency
perspective.
On the basis of the above analysis, the Directors note that a
material uncertainty exists regarding the impact of potential
levels of redress across the Group, the successful execution of a
capital raise, the potential action of lenders, and the current and
future impacts of COVID-19. The impact of these factors on
liquidity and solvency under both the base case and downside
scenarios therefore may cast significant doubt on the ability of
both the Group and Company to continue as a going concern and
remain viable.
In making their assessment, the Directors took account of the
Group's current financial and operational positions, the status of
conversations with the regulator and advisors as well as its recent
trading activity. They noted the indications of support for the
Capital Raise received from investors to support the Group subject
to the outcome of the proposed GLD redress programme and
independent reviews across the branch-based lending and home credit
divisions, and in addition the proposed extension to the term of
the Group's existing facilities by its lenders on acceptable terms,
which would be conditional upon the completion of a successful
capital raise. The Directors also note the existence of the
securitisation facility, however they note that this is currently
suspended and the ability to use this facility remains outside of
the Group's control as it is subject to the consent of the lenders
and the satisfaction of standard covenants for a facility of this
type. The Directors recognise there exists a risk around covenant
compliance as at 30 September 2021 and that should a breach occur,
it would result in a requirement to request a temporary waiver from
the lenders until it is able to raise capital. Therefore, if the
Group finds itself in such a scenario the Directors note the risks
associated with executing on the base case would be increased due
to the need to agree waivers with lenders and consequently the
likelihood of the Group ending up in the downside scenario and
becoming insolvent would also be increased.
The Directors additionally considered the 'reverse stress test'
conducted by the Group which showed that, assuming no changes to
lending levels and operating expenses, collections would have to
fall by over 22% from current expected levels in the base case for
the Group to then be unable to fund operating expenses and interest
payments beyond the next 12 months. With regards to the balance
sheet solvency of the Group, the Directors noted that under the
base case scenario the Group returns to a net asset position and
remains there for the going concern period, however this remains
dependent on the injection of additional capital into the
Group.
As the possible outcomes detailed above remain dependent on a
number of factors not directly within the Group's control, the
Board will continue to monitor the Group's financial position
carefully over the coming weeks and months as a better
understanding of the impact of these various factors are developed.
The Board recognises the importance of the issuance of further
equity to mitigate the uncertainties noted above and to support the
future growth prospects of the Group.
The Directors acknowledge the considerable challenges presented
over the last 18 months and the material uncertainty which may cast
significant doubt on the ability of both the Group and the Company
to continue as a going concern. However, despite these challenges,
it is the Directors' reasonable expectation that the Group and
Company will raise sufficient equity in the timeframe required,
obtain extensions to the borrowing term on a reasonable basis from
its lenders, and continue to operate and meet its liabilities as
they fall due for the next 12 months and beyond and therefore it
has concluded the business is viable.
The assumption of shareholder support for additional equity,
lender support for the extension of existing financing facilities
and the satisfactory outcome of regulatory and redress matters and
that the ultimate conclusions on those matters are not materially
different to that envisaged under the base case, forms a
significant judgement of the Directors in the context of approving
the Group's going concern status.
The Directors will continue to monitor the Group and Company's
risk management, access to liquidity, balance sheet solvency and
internal control systems.
Reviews of internal controls across the Group are undertaken by
the Group's Internal Audit function, providing comment over the
design and effectiveness of controls. Report findings are regularly
reported to the Audit Committee for monitoring, assessment and
where necessary management action.
3. Accounting policies
The accounting policies used in these condensed consolidated
interim financial statements are consistent with those used in the
Non-Standard Finance Plc Annual Report 2020.
4. Critical accounting assumptions and key sources of estimation
uncertainty
The critical accounting assumptions exercised by management and
key sources of estimation uncertainty in the interim financial
statements are consistent with those adopted in the statutory
financial statements for the year ended 31 December 2020 and these
are also described below:
Critical accounting judgements:
Amounts receivable from customers - significant increase in
credit risk
Expected Credit Losses ('ECL') are measured as an allowance
equal to 12-month ECL for stage 1 assets, or lifetime ECL for stage
2 assets or stage 3 assets. An asset moves to stage 2 when its
credit risk has increased significantly since initial recognition.
IFRS 9 does not define what constitutes a significant increase in
credit risk and therefore the Group makes assumptions to determine
whether there are indicators that credit risk has increased
significantly which indicates that there has been an adverse effect
on expected future cash flows. In assessing whether the credit risk
of an asset has significantly increased, the Group takes into
account qualitative and quantitative reasonable and supportable
forward-looking information. for branch-based lending and guarantor
loans, a Probability of Default ('PD') above the minimum level
(deemed as the 'stage 2 threshold') provides a very close
approximation to the point at which the Group would not have
written the loan and therefore represents a significant increase in
credit risk. Management therefore consider the stage 2 threshold to
be a critical accounting judgement in the determination of ECL.
Given the short-term nature of lending in the home credit
division, the difference between the 12-month ECL and lifetime
losses is minimal; therefore, this judgement applies only to the
branch-based and Guarantor Loans Division.
Key sources of estimation uncertainty:
Amounts receivable from customers
The Group assesses its portfolio of amounts receivable from
customers for ECL at each balance sheet date. The following are key
estimations that the Directors have used in the process of applying
the Group's recognition of ECL policy:
Branch-based lending and Guarantor Loans Division
Incorporation of macroeconomic data: establishing the number and
relative weightings of macroeconomic scenarios for each type of
product/market and determining the macroeconomic information
relevant to each scenario. The Group incorporates macroeconomic
information into both its assessment of whether the credit risk of
a financial asset has increased significantly since initial
recognition and its measurement of PD. This is achieved by
developing a number of potential economic scenarios and modelling
the PD for each scenario. The outputs from each scenario are
combined using the estimated likelihood of each scenario occurring
to derive a probability weighted PD which is then used to calculate
ECL. Therefore, when measuring PD and ECL the Group uses reasonable
and supportable forward-looking information, which is based on
assumptions for the future movement of different economic drivers
and how these drivers will affect each other. This is only
applicable to branch-based lending and Guarantor Loans Division as
due to the nature of the home credit industry and based on
historical evidence, management has determined that the effect of
traditional macroeconomic downside indicators on home credit is
minimal.
COVID-19 overlay: During the current and prior year, the Group
made adjustments in order to reflect the higher PD, Loss Given
Default ('LGD') and Expected loss At Default ('EAD') for the
proportion of branch-based lending and guarantor loan customers who
were financially impacted by the pandemic. This was informed by the
Group's detailed analysis of past repayment behaviours and expected
repayments behaviour across the entire customer base. In
branch-based lending, a COVID-19 overlay was derived having
considered the recent collection performance on COVID-19 affected
accounts and whether any impact on collection performance was
deemed to be temporary or permanent. An overlay adjustment was
therefore made to increase provisions for accounts for which the
impact was deemed permanent and/or who were not making full
payments. For GLD, recent payment performance of those customers
who were impacted by COVID-19 but are no longer on an emergency
payment freeze ('EPF') were used to inform expected delinquency
trends of customers who had not yet resumed payment following an
EPF. A provision overlay was then applied to reflect expected
performance consistent with the recent performance behaviours
observed.
Home credit
Under IFRS 9, ECL assessment is based upon forward-looking
modelled probability of default ('PD'), exposure at default ('EAD')
and loss given default ('LGD') parameters which are run at account
level, and applied across all receivables from initial recognition.
ECL in home credit is estimated by reference to future cash flows
based upon observed historical data and updated as management
considers appropriate to reflect current and future conditions.
Loan loss provisions are thereby calculated by reference to their
stage (criteria for categorisation into stages is as described
above) and are measured as the difference between the carrying
value of the loans and the present value of estimated future cash
flows discounted at the original EIR. A receivable can move from
having a provision calculated on a lifetime expected loss basis
back to a 12-month expected loss basis (or vice versa) depending on
the performance of the receivable at the review date. This
methodology encapsulates PD, EAD and LGD collectively which
together forms a key source of estimation uncertainty.
Sensitivity Analysis
Branch-based lending and Guarantor Loans Division - COVID-19
overlay
The sensitivity of the COVID-19 overlay adjustments applied by
Branch-based lending and the Guarantor Loans Division are noted
below. The below sensitivities assume all other variables used in
the calculation of ECL remains constant.
Branch-based lending
If no overlay is applied to 50% of COVID-19 impacted customer
accounts who have missed payments and are deemed to be permanently
impacted, ECL would reduce by GBP0.3m. If 50% of COVID-19 impacted
customer accounts deemed as temporarily impacted and have missed
payments, are permanently impacted, ECL would increase by
GBP0.2m.
Guarantor Loans Division
A 5% increase/decrease in the collections pertaining to COVID-19
impacted customer accounts who have missed payments would
increase/decrease the ECL by GBP0.8m.
Probability of default and loss given default
Branch-based lending
The calculation of ECL in branch-based lending uses historical
data to forecast future cash flows, discounted at the receivable's
Effective Interest Rate ('EIR'). A sensitivity run on collections
performance shows that a 5% increase or decrease in expected cash
collections would result in an GBP7.4m increase in the provision
and an GBP8.4m decrease in the provision respectively. The
suitability of the 5% sensitivity run has been reviewed and
considered appropriate based on historical performance.
Home credit
The home credit policy for provisioning uses historical cash
flow data to gain the best view of prospective collections
performance from receivables held on the balance sheet, which are
discounted at the product's EIR to value the receivables at balance
sheet date. Recent experience has shown that a 5% increase or
decrease in expected cash collections is possible in a 12-month
horizon and if collections performance were to vary by such an
amount, the provision recognised would change by -/+ GBP1.2m
effectively changing the receivable valuation by 5%. The
suitability of the 5% sensitivity run has been reviewed and
considered appropriate based on historical performance.
Guarantor Loans Division
The calculation of ECL in GLD uses historical data to forecast
future cash flows, discounted at the receivable's EIR. A
sensitivity run on collections performance shows that a 10%
increase or decrease in expected cash collections would result in a
GBP4.1m increase/ decrease in provisions. The suitability of the
10% sensitivity run has been reviewed and considered appropriate
based on historical performance.
Provisions
Provision for customer complaints
Provisions for customer complaints are recognised when the Group
has a present obligation (legal or constructive) as a result of a
past event, it is probable that the Group will be required to
settle that obligation and a reliable estimate can be made of the
amount of the obligation.
Judgement is applied to determine whether the criteria for
establishing and retaining a provision have been met. Provisions
for customer redress are in respect of complaints where the outcome
has not yet been determined. Judgement is applied to determine the
quantum of such provisions, including making assumptions regarding
the extent to which the complaints received may be upheld, average
redress payments and related administrative costs. Past experience
is used as a predictor of future expectations with management
applying overlays where necessary depending on the nature and
circumstance of the complaints. The cost could differ from the
Group's estimates and the assumptions underpinning them and could
result in an increased provision being required. There is also
uncertainty around the impact of proposed regulatory changes,
claims management companies and customer activity.
The key assumptions in these calculations, which involve
management judgement and estimation, relate primarily to the
projected costs of existing complaints where it is considered
likely that customer redress will be appropriate.
These key assumptions are:
-- uphold rate percentage - the expected average uphold rate
applied to existing complaint volumes where it is considered more
likely than not that customer redress will be appropriate;
-- average redress cost - the estimated compensation, inclusive
of balance adjustments and cash payments, for upheld complaints
included in the provision; and
-- customer complaint volumes - the level of claims which would
be due remediation in future based on recent experience of valid
claims.
These assumptions remain subjective due to the uncertainty
associated with future complaint volumes and the magnitude of
redress which may be required. Complaint volumes may include
complaints under review by the Financial Ombudsman Service, cases
received from claims management companies or cases lodged directly
by customers.
Sensitivity Analysis
Branch-based lending
A +/-50% increase/decrease in customer complaints volumes would
result in a GBP0.8m increase/decrease in provisions for the Group,
a +/-50% increase/decrease in average claim redress would result in
a GBP0.8m increase/decrease in provisions for the Group, and a
+/-50% increase/decrease in upheld rate would result in a GBP0.8m
increase/ decrease in provisions for the Group.
Home credit
A +/-25% increase/decrease in customer complaints volumes would
result in a GBP0.2m increase/decrease in provisions for the Group,
a +/-25% increase/decrease in average claim redress would result in
a GBP0.2m increase/decrease in provisions for the Group, and a
+/-25% increase/decrease in upheld rate would result in a GBP0.2m
increase/ decrease in provisions for the Group.
Guarantor Loans division
Part of the provision included in the statement of financial
position relates to a provision recognised for the proposed
programme of redress for customers of GLD totalling GBP16.9m (31
December 2020: GBP15.3m). The provision represents an accounting
estimate of the expected future outflows arising using information
available as at the date of signing these financial statements.
Identifying whether a present obligation exists and estimating the
probability, timing, nature and quantum of the redress payments
that may arise from past events requires judgements to be made on
the specific facts and circumstances relating to individual
customers. It is possible that the eventual outcome may differ,
perhaps materially, from the current estimate and this could impact
the financial statements. This is due to the risks and inherent
uncertainties surrounding the assumptions used in the provision
calculation. Whilst the current estimate represents the Directors'
best estimate of the total cost of redress, based upon a detailed
methodology and analyses developed in conjunction with its
advisers, the uncertainty surrounding the final cost of redress is
heightened by the fact that the FCA has not yet approved the
methodology proposed. Therefore, although the Directors believe
their best estimate represents a reasonably possible outcome; there
is a risk of a less favourable outcome. Refer to note 13 for more
detail regarding the customer redress provisions.
As at the date of these condensed interim financial statements,
the Group continues to work closely with the FCA to reach a
conclusion regarding the redress methodology. The FCA has raised
questions around the Group's assessment of whether or not the
customer has suffered harm (in instances where we have concluded
that the affordability assessment at the time of underwriting was
not appropriate). Under the Group's proposed methodology there are
a range of factors which need to be met in order to conclude that a
customer has suffered harm, including external indicators that harm
may have been incurred. The current methodology requires multiple
indicators to be present to trigger redress, however, should only
one of these factors in isolation be taken as a definition of harm,
then the redress provision could be c.GBP10m higher than that
currently provided for in the financial statements. Furthermore,
until such time the redress approach has been agreed with the FCA,
there remains uncertainty around this estimate and therefore the
ultimate cost could be higher than this GBP10m sensitivity
indicates. The ultimate redress amount will also be subject to a
manual case-by-case review of customers who have incomplete
electronic records that may be affected. This could result in the
ultimate pay-out being higher than estimated under the proposed
methodology.
5. Segment information
Management has determined the operating segments by considering
the financial and operational information that is reported
internally to the chief operating decision maker, the Board of
Directors, by management. For management purposes, the Group is
currently organised into four operating segments: branch-based
lending (Everyday Loans), guarantor loans (TrustTwo and George
Banco), home credit (Loans at Home) and central (head office
activities). The Group's operations are all located in the United
Kingdom and all revenue is attributable to customers in the United
Kingdom.
Branch-based Home Guarantor 2021
lending credit loans(1) Central Total
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ------------ -------- --------- --------- --------------- ---------
Six months ended 30 June
2021
Interest income 39,443 18,019 10,380 - 67,842
Fair value unwind on acquired - - - -
loan portfolio -
-------------------------------- ------------ -------- --------- --------- --------------- ---------
Total revenue 39,443 18,019 10,380 - 67,842
Exceptional provision for
customer redress - - (1,918) - (1,918)
Operating profit/(loss)
before amortisation 9,512 1,455 (1,165) (2,335) 7,467
Amortisation of intangible - - - - -
assets
-------------------------------- ------------ -------- --------- --------- --------------- ---------
Operating profit/(loss)
before exceptional items 9,512 1,455 (1,165) (2,335) 7,467
Exceptional items(3) - - (527) (1,580) (2,107)
Finance cost (7,367) (486) (2,611) (2,431) (12,895)
------------ -------- --------- --------- ---------------
Profit/(loss) before taxation 2,145 969 (4,303) (6,346) (7,535)
Taxation - - - - -
-------------------------------- ------------ -------- --------- --------- --------------- ---------
Profit/(loss) for the period 2,145 969 (4,303) (6,346) (7,535)
-------------------------------- ------------ -------- --------- --------- --------------- ---------
Capital expenditure 790 657 - 85 1,532
Depreciation of plant, property
and equipment 835 121 - 12 968
Depreciation of right of
use asset 688 289 - 75 1,052
Amortisation and impairment
of intangible assets 360 852 - 12 1,224
30 June
Branch-based Home Guarantor Consolidation 2021
lending credit loans(1) Central adjustments(2) Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ------------ -------- --------- --------- --------------- ---------
Total assets 191,699 35,044 41,449 359,812 (267,449) 360,555
Total liabilities (226,726) (16,248) - (333,904) 198,025 (378,853)
-------------------------------- ------------ -------- --------- --------- --------------- ---------
Net assets (35,027) 18,796 41,449 25,908 (69,424) (18,298)
-------------------------------- ============ ======== ========= ========= =============== =========
(1) Guarantor loans division includes George Banco and TrustTwo.
TrustTwo is supported by the infrastructure of Everyday Loans, but
its results are reported to the Board separately and have therefore
been disclosed within the Guarantor Loans Division above
(2) Consolidation adjustments include the acquisition
intangibles of GBPnil (2020: GBPnil), goodwill of GBPnil (2020:
GBPnil) fair value of loan book of GBPnil (2020: GBP0.5m) and the
elimination of intra-Group balances
(3) Refer to note 6 for further details
Branch-based Home Guarantor 2020
lending credit loans Central Total
GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- ------------ -------- --------- --------- ------------- ---------
Six months ended 30 June
2020
Interest income 47,914 27,277 17,032 - - 92,223
Fair value unwind on acquired
loan portfolio - - (971) - - (971)
----------------------------------- ------------ -------- --------- --------- ------------- ---------
Total revenue 47,914 27,277 16,061 - - 91,252
Exceptional provision for
customer redress - - (15,753) - - (15,753)
Operating profit/(loss)
before amortisation 10,525 2,968 (22,097) (3,104) - (11,708)
Amortisation of intangible
assets - - - (599) - (599)
----------------------------------- ------------ -------- --------- --------- ------------- ---------
Operating profit/(loss)
before exceptional items 10,525 2,968 (22,097) (3,703) - (12,307)
Exceptional items(2) - - - (75,530) - (75,530)
Finance cost (9,603) (774) (3,871) (664) - (14,912)
------------ -------- --------- --------- -------------
Profit/(loss) before taxation 922 2,194 (25,968) (79,897) - (102,749)
Taxation (175) (417) 1,941 (974) - 375
----------------------------------- ------------ -------- --------- --------- ------------- ---------
Profit/(loss) for the period 747 1,777 (24,027) (80,871) - (102,374)
----------------------------------- ------------ -------- --------- --------- ------------- ---------
Capital expenditure 1,622 1,171 - - - 2,793
Depreciation of plant, property
and equipment 752 168 - 19 - 939
Depreciation of right-of-use-asset 638 314 - 65 - 1,017
Amortisation of intangible
assets 225 828 - 1,309 - 2,362
31 Dec
Branch-based Home Guarantor Consolidation 2020
lending credit loans Central adjustments Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- ------------ -------- --------- --------- ------------- ---------
Total assets 220,702 38,745 59,794 391,597 (346,458) 364,380
Total liabilities (271,981) (19,021) - (332,946) 248,764 (375,184)
----------------------------------- ------------ -------- --------- --------- ------------- ---------
Net assets (51,279) 19,724 59,794 58,651 (97,694) (10,804)
----------------------------------- ============ ======== ========= ========= ============= =========
The results of each segment have been prepared using accounting
policies consistent with those of the Group as a whole.
The carrying value of financial assets and liabilities are not
materially different to their fair value, except for amounts
receivable from customers.
6. Exceptional items
In the six months ended 30 June 2021, the Group incurred
exceptional costs totalling GBP4.0m (including VAT) (2020:
GBP91.3m). This comprised the following:
The Group announced on 3 August 2020 that following its
multi-firm review of the guarantor loans sector, the FCA had raised
some concerns regarding certain processes and procedures at the
Group's Guarantor Loans Division and a programme of redress would
be required. Whilst discussions with the FCA have not yet concluded
in regard to the Group's proposed redress methodology, the Group
has recognised a provision which represents the Directors' best
estimate of the full and final costs of the redress programme
(refer to note 13 for further detail). During the six months ended
30 June 2021, a charge of GBP1.9m has been recognised in addition
to the GBP15.4m charge recognised for the year ended 31 December
2020, which reflects additional interest accrued since the year
end.
The Group announced on the 30 June 2021 that shareholder
interests will be best served by placing GLD into a managed run-off
and ultimately closing the business. As a result, an exceptional
redundancy cost of GBP0.5m has been recognised in the six months
ended 30 June 2021 (2020: GBPnil).
The remaining GBP1.6m of exceptional costs relate to advisory
fees incurred. Equity-related fees are treated as non-deductible
for tax purposes.
In the six months ended 30 June 2020, the Group incurred
GBP91.3m of exceptional costs. These comprised: GBP47.1m of the
exceptional items reflect the write-down of the value of goodwill
associated with Everyday Loans; GBP27.7m of the exceptional items
reflect the write-down of the value of goodwill associated with
Loans at Home; and GBP0.7m of the exceptional items reflect the
write-down of the value of the intangible assets at Everyday Loans
(further details pertaining to the write-down of the value of
goodwill in the prior year are set out in note 11). In addition, a
provision of GBP15.8m was made during the six months ended 30 June
2020 in relation to the aforementioned guarantor loans redress
programme based upon the Directors' best estimate of the total
redress payable to certain customers of GLD.
7. Loss per share
Six months
Six months ended
ended 30 June
30 June 2021 2020
---------------------------------------------------- ------------------ ------------
Retained loss attributable to Ordinary Shareholders
(GBP000) (7,535) (102,374)
Weighted average number of Ordinary Shares 312,437,422 312,437,422
Basic and diluted loss per share (pence) (2.41) (32.77)
---------------------------------------------------- ------------------ ------------
The loss per share was calculated on the basis of net loss
attributable to Ordinary Shareholders divided by the weighted
average number of Ordinary Shares in issue. The basic and diluted
loss per share is the same, as the exercise of share options would
reduce the loss per share and is anti-dilutive. At 30 June 2021,
nil shares were held in treasury (2020: nil).
Six months
Six months ended
ended 30 June
30 June 2021 2020
---------------------------------------------- ------------- ----------
Weighted average number of potential Ordinary
Shares that are not currently dilutive (000) 5,539 6,895
---------------------------------------------- ------------- ----------
The weighted average number of potential Ordinary Shares that
are not currently dilutive includes the Ordinary Shares that the
Company may potentially issue relating to its share option schemes
and share awards under the Group's long-term incentive plans and
Save As You Earn schemes.
8. Taxation
Any tax charge for the period is calculated by applying the
Directors' best estimate of the effective tax rate for the
financial year to the profit or loss before tax for the period. In
the six months to 30 June 2021, the effective tax rate was 19%
(2020: 19%). As at the 30 June 2021, the Group has not recognised a
deferred tax asset (2020: GBPnil). In the current and prior year
the Group has not recognised any tax benefits that would typically
accrue based on current year losses due to the uncertainty in the
regulatory environment, and the potential future impact of COVID-19
on the macroeconomic environment. The Group reviews the carrying
amount of deferred tax assets at each balance sheet date and
reduces it to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part
of the asset to be recovered. The total unrecognised deferred tax
asset as at 30 June 2021 is GBP11.4m (2020: GBP1.9m).
9. Other Operating Income
Other income comprises of GBP0.8m in debt sales (2020: GBP0.3m)
and GBP0.05m in grants pertaining to the Coronavirus Job Retention
Scheme (2020: GBP0.6m).
Coronavirus Job Retention Scheme
In the six months ended 30 June 2021, the Group continued to
receive government grants offered through the Coronavirus Job
Retention Scheme ('CJRS') . The original direction was signed by
the Chancellor on 15 April 2020 and further directions were signed
on 20 May 2020, 25 June 2020, 1 October 2020, 12 November 2020, 25
January 2021 and 15 April 2021.
A breakdown of these grants is provided below:
Six months ended 30 June 2021 Six months ended 30 June 2020
GBP000 GBP000
--------------------------------- ----------------------------- -----------------------------
Salaries 52 519
National Insurance contributions - 9
Pension contributions - 24
--------------------------------- ----------------------------- -----------------------------
Total CJRS grant received 52 552
--------------------------------- ----------------------------- -----------------------------
HMRC have announced that the CJRS grant must be included as
income within taxable profits for Corporation Tax purposes, however
businesses can also deduct employment costs as normal when
calculating taxable profits for Corporation Tax purposes.
10. Dividends
As a result of the reported losses in 2020 and the six months
ended 30 June 2021, the Company does not have any distributable
reserves and is therefore not in a position to declare a half year
dividend for the six months ended 30 June 2021 (2020: nil pence per
share).
With no interim dividend being proposed by the Directors in
respect of the six months ended 30 June 2021 (interim dividend
2020: nil pence per share), there will be no dividend payment in
relation to the current period (2020: GBPnil).
11. Amounts receivable from customers
30 June 31 Dec
2021 2020
GBP000 GBP000
---------------------------------- -------- --------
Gross carrying amount 278,192 320,942
Loan loss provision (48,643) (62,741)
---------------------------------- -------- --------
Amounts receivable from customers 229,549 258,201
---------------------------------- -------- --------
30 June 31 Dec
Included within the gross carrying amount above 2021 2020
are unamortised broker commissions, see table below: GBP000 GBP000
Unamortised broker commissions 7,434 9,231
Total unamortised broker commissions 7,434 9,231
------------------------------------------------------ ------- -------
Analysis of amounts receivable from customers due within/more
than one year:
30 June 31 Dec
2021 2020
GBP000 GBP000
---------------------------------- ------- -------
Due within one year 118,466 134,073
Due in more than one year 111,083 124,128
---------------------------------- ------- -------
Amounts receivable from customers 229,549 258,201
---------------------------------- ------- -------
Analysis of amounts receivable from customers
Stage 1 Stage 2 Stage 3 Total
30 June 2021 GBP000 GBP0000 GBP000 GBP000
----------------------- -------- -------- -------- --------
Branch-based lending 145,593 28,460 4,157 178,210
Home credit 21,511 12,455 9,378 43,344
Guarantor loans 27,951 16,723 11,964 56,638
Gross carrying amount 195,055 57,638 25,499 278,192
----------------------- -------- -------- -------- --------
Branch-based lending (6,517) (4,828) (3,086) (14,431)
Home credit (1,528) (9,200) (8,295) (19,023)
Guarantor loans (4,173) (4,019) (6,997) (15,189)
Loan loss provision (12,218) (18,047) (18,378) (48,643)
----------------------- -------- -------- -------- --------
Branch-based lending 139,076 23,632 1,071 163,779
Home credit 19,983 3,255 1,083 24,321
Guarantor loans 23,778 12,704 4,967 41,449
Net amounts receivable 182,837 39,591 7,121 229,549
----------------------- -------- -------- -------- --------
Stage 1 Stage 2 Stage 3 Total
31 December 2020 GBP000 GBP000 GBP000 GBP000
----------------------- -------- -------- -------- --------
Branch-based lending 140,418 39,472 5,772 185,662
Home credit 23,537 12,316 17,883 53,736
Guarantor loans 34,566 25,831 21,147 81,544
Gross carrying amount 198,521 77,619 44,802 320,942
----------------------- -------- -------- -------- --------
Branch-based lending (6,011) (3,095) (5,096) (14,202)
Home credit (1,876) (8,124) (16,789) (26,789)
( 1,366 ( 5,864 ( 14,520
Guarantor loans ) ) ) (21,750)
Loan loss provision (9,253) (17,083) (36,405) (62,741)
----------------------- -------- -------- -------- --------
Branch-based lending 134,408 36,377 676 171,460
Home credit 21,661 4,192 1,094 26,947
Guarantor loans 33,200 19,967 6,627 59,794
Net amounts receivable 189,268 60,536 8,397 258,201
----------------------- -------- -------- -------- --------
Fair value of amounts receivable from customers
30 June 2021 31 Dec 2020
GBP000 GBP000
---------------------------------- ------------ ---------------
Branch-based lending 209,792 284,911
Home Credit 38,523 44,006
Guarantor Loans 95,851 105,100
Amounts receivable from customers 344,166 434,017
================================== ============ ===============
Fair value has been derived by discounting expected future cash
flows (net of collection costs) at the credit risk adjusted
discount rate at the balance sheet date. Under IFRS 13, 'Fair value
measurement', receivables are classed as Level 3 which defines fair
value measurements as those derived from valuation techniques that
include inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
12. Goodwill
30 June 2021 31 Dec 2020
GBP000 GBP000
Gross carrying amount 140,668 140,668
Accumulated impairment (140,668) (65,836)
Impairment charge - (74,832)
----------------------- ------------ -----------
Net carrying amount - -
======================= ============ ===========
Goodwill recognised in prior years represent the difference
between the purchase consideration paid and the value of net assets
acquired (including intangible assets recognised upon acquisition),
less any accumulated impairment.
Under IFRS 13, 'Fair Value Measurement', the fair value used in
the goodwill impairment assessment is classified as Level 3.
The Group tests goodwill annually for impairment or more
frequently if there are indications that goodwill might be
impaired. Determining whether goodwill is impaired requires an
estimation of the recoverable amount of each CGU. The recoverable
amount is the higher of its fair value ('FV') less cost to sell or
its value in use ('VIU').
Total goodwill as at 30 June 2021 is GBPnil (2020: GBPnil).
In the prior year, for the six months ended 30 June 2020, the
Group wrote off all its remaining goodwill balance totalling
GBP74.8m. Detail regarding this impairment is described below.
Impairment of goodwill in the six months ended 30 June 2020:
Fair value ('FV') less cost to sell
The calculation to determine the fair value less cost to sell
for each Cash Generating Unit ('CGU') in the 2020 financial year
used forecast earnings for the year ended 31 December 2020,
multiplied by the 30 June 2020 Price Earnings ('PE') multiple for
comparable companies. Earnings represent profit after tax before
fair value adjustments, amortisation of intangibles and exceptional
items. Disposal costs were estimated at 2%. As part of this
assessment, we applied PE multiples to forecast 2020 profit after
tax in order to determine management's best estimate of the fair
value to be attributed to each of the CGUs.
Value in use ('VIU')
The calculation to determine recoverable amount based on VIU for
the 2020 financial year used the cash flows derived from earnings
projections for the years ended 31 December 2020, 2021, and 2022,
together with a terminal value based on the cash flow forecast for
2022 at a perpetuity growth rate. The resulting cash flow forecasts
were then discounted at a discount rate appropriate to the CGU to
produce a VIU to the Group.
Loans at Home goodwill assessment
In the six months ended 30 June 2020, the Group utilised the
actual 30 June 2020 PE multiple of comparable companies, along with
2020 forecast profit after tax to determine recoverable amount. The
result was a FV less cost to sell below the carrying value of the
CGU as at 30 June 2020. Management also ran a VIU calculation to
determine recoverable value. Assuming a nil growth into perpetuity
results in a VIU which, whilst higher than the FV less cost to sell
calculated for Loans at Home, remained below the carrying value of
the LAH CGU. The impact of COVID-19 on the profitability of the CGU
in the 2020 financial year along with the significant decline in
peer group PE multiples (driven by uncertainties in the economic,
market and regulatory environment) meant that on the basis of the
analysis above, the Group concluded to impair the entire goodwill
asset attributable to the LAH CGU as at 30 June 2020 totalling
GBP27.7m. This reduced the Loans at Home goodwill asset to GBPnil
as at 30 June 2020. No further assessment was conducted in the
six-month period ended 30 June 2021 given the reversal of an
impairment loss for goodwill is not permitted.
Everyday Loans goodwill assessment
For the six months ended 30 June 2020, the Group performed a FV
less cost to sell for the Everyday Loans CGU using actual PE
multiples as at 30 June 2020 and 2020 forecast profits. Given the
unique circumstances of COVID-19 on 2020 performance, along with
the significant decline in peer group PE multiples since 31
December 2019 driven by uncertainties in the economic, market and
regulatory environment, the Group calculated the FV less costs to
sell to be below the carrying value, therefore indicating an
impairment to the remaining goodwill value held on the balance
sheet. A VIU base case forecast was used to ascertain whether or
not the VIU of the CGU was greater or less than the FV less cost to
sell. Assuming a nil growth into perpetuity, the VIU of the CGU was
below the FV less costs to sell, and therefore it was appropriate
to impair the entire goodwill asset attributable to the Everyday
Loans CGU as at 30 June 2020 totalling GBP47.1m. This reduced the
Everyday Loans goodwill asset to GBPnil, and therefore no further
assessment has been conducted on the goodwill in the current
six-month period ended 30 June 2021 given the reversal of an
impairment loss for goodwill is not permitted.
13. Provisions
Guarantor
Loans
Plevin Complaints Dilapidation Redress Restructuring Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------- ------- ---------- ------------ ----------- --------------- -------
Opening at 31 December
2019 93 - 1,203 - 170 1,466
Charge during the
year (44) 5,129 120 15,313 (170) 20,348
Utilised - - (1) - - (1)
----------------------- ------- ---------- ------------ ----------- --------------- -------
Balance at 31 December
2020 49 5,129 1,322 15,313 - 21,813
Charge during the
period - 3,314 - 1,918 527 5,759
Utilised (49) (3,432) (10) (364) - (3,855)
----------------------- ------- ---------- ------------ ----------- --------------- -------
Balance at 30 June
2021 - 5,011 1,312 16,867 527 23,717
----------------------- ------- ---------- ------------ ----------- --------------- -------
Provisions are recognised for present obligations arising as a
consequence of past events where it is more likely than not that a
transfer of economic benefit will be necessary to settle the
obligation, which can reliably be estimated. The restructuring
provision includes a provision for redundancies relating to the
managed run-off of the Guarantor Loans Division.
Branch-based lending
The Group has recognised a provision for complaints of GBP1.6m
as at 30 June 2021 (31 December 2020: GBP0.88m) in relation to
potential outflows to customers related to past non-compliance with
regulations relating to affordability assessments. Judgement is
applied to determine the quantum of such provisions, including
making assumptions regarding the extent to which the complaints
already received may be upheld, average redress payments and
related administrative costs (refer to note 4 for sensitivity
analysis on this). As part of their assessment, the Directors also
considered an independent review commissioned by the Group in April
2021 of the lending and complaints handling activities of the
division. This review remains ongoing and includes an assessment of
whether the issues identified in guarantor loans have any
implications for the branch-based lending division. The review also
includes an assessment of recent FOS decisions in order to
determine whether there exists a subset of customers that may be
eligible for redress on the basis of factors which may indicate
instances of unaffordable lending. As at the date of these
financial statements, the Directors recognise that as the review is
ongoing, there remains a risk that the final outcome of these
reviews may result in the identification of customers who may
require redress, and the cost of redress for the Group could be
materially higher than is currently provided for in the financial
statements.
Home credit
The Group has recognised a provision for complaints of GBP1.5m
as at 30 June 2021 (31 December 2020: GBP3.4m) in relation to
potential outflows to customers related to past non-compliance with
regulations relating to affordability assessments. Judgement is
applied to determine the quantum of such provisions, including
making assumptions regarding the extent to which the complaints
already received may be upheld, average redress payments and
related administrative costs (refer to note 4 for sensitivity
analysis on this). As with branch-based lending, as part of their
assessment, the Directors also considered an independent review
commissioned by the Group in April 2021 of the lending and
complaints handling activities of the home credit division. The
scope of this review is in line with that detailed above for
branch-based lending. As at the date of these financial statements,
the Directors recognise that as the review is ongoing, there
remains a risk that the final outcome of these reviews may result
in the identification of customers who may require redress, and the
cost of redress for the Group could be materially higher than is
currently provided for in the financial statements.
Redress programme for certain customers of GLD
The Group has recognised a provision for complaints of GBP1.9m
as at 30 June 2021 (31 December 2020: GBP0.82m) in relation to
potential outflows to customers related to past non-compliance with
regulations relating to affordability assessments. In addition,
part of the provision included in the statement of financial
position relates to a provision recognised for the customer redress
programme in GLD totalling GBP16.9m (31 December 2020: GBP15.3m).
The provision represents an accounting estimate of the expected
future outflows arising using information available as at the date
of signing these financial statements. Identifying whether a
present obligation exists and estimating the probability, timing,
nature and quantum of the redress payments that may arise from past
events requires judgements to be made on the specific facts and
circumstances relating to the individual customers concerned. It is
possible that the eventual outcome may differ materially from the
current estimate and this could impact the financial statements.
This is due to the risks and inherent uncertainties surrounding the
assumptions used in the provision calculation.
The Group has included the exceptional provision of GBP16.9m as
at 30 June 2021 based on the Directors' best estimate of the full
and final costs of the programme using the proposed methodology.
The estimate includes: the sum of all redress due to affected
customers, including penalty interest, of GBP18.2m, together with
costs of implementation of GBP0.6m, offset by existing impairment
provisions of GBP1.9m, resulting in a net provision amount of
GBP16.9m. Whilst the current estimate represents the Directors'
best estimate of the total cost of redress, based upon a detailed
methodology and analyses developed in conjunction with its
advisers, discussions with the FCA are still ongoing, therefore,
although the Directors believe their best estimate represents a
reasonably possible outcome, there is a risk of a less favourable
outcome. It is anticipated that the redress will start to be paid
in 2021.
The Guarantor Loans Division continues to monitor its policies
and processes and will continue to assess both the underlying
assumptions in the calculation and the adequacy of this provision
periodically using actual experience and other relevant evidence to
adjust the provision where appropriate.
14. Contingent Liabilities
A contingent liability is a possible obligation depending on
whether some uncertain future event occurs. During the normal
course of business, the Group is subject to regulatory reviews and
challenges. All material matters arising from such reviews and
challenges are assessed, with the assistance of external
professional advisors where appropriate, to determine the
likelihood of the Group incurring a liability as a result. In those
instances, including future thematic reviews performed by the
regulator in response to recent challenges noted in the industry,
where it is concluded that it is more likely than not that a
payment will be made, a provision is established based on
management's best estimate of the amount required to meet such
liability at the relevant balance sheet date.
The Group recognises that there continue to be risks around CMC
activity in the non-standard lending sectors and the Group
continues to incur the cost of settling complaints as part of its
normal business activity. The Group has included a provision within
its financial statements for complaints where the outcome has not
yet been determined (refer to provisions in note 13) and continues
to defend robustly inappropriate or unsubstantiated claims and is
working closely with the FOS in this regard. However, it is
possible that claims could increase in the future due to unforeseen
circumstances such as COVID-19 and/or if FOS were to change its
policy with respect to how such claims are adjudicated. Should the
final outcome of these complaints differ materially to management's
best estimates, the cost of resolving such complaints could be
higher than expected. It is however not possible to estimate any
such increase reliably.
15. Net cash used in operating activities
Six months
Six months ended ended 30 June
30 June 2021 2020
GBP000 GBP000
----------------------------------------------- ---------------- --------------
Operating profit/(loss) 5,360 (87,837)
Taxation paid - -
Depreciation 2,020 1,956
Finance charges on leases (512) (501)
Share-based payment charge 41 795
Amortisation of intangible assets 1,224 1,663
Goodwill impairment loss - 74,832
Fair value unwind on acquired loan book - 971
Acquired intangibles impairment loss - 698
(Loss)/profit on disposal of property, plant
and equipment and intangible assets (3) 6
Decrease in amounts receivable from customers 28,652 60,651
Decrease/(Increase) in other assets - -
Decrease/(Increase) in receivables (825) (6,734)
(Decrease)/increase in payables and provisions (3,506) 2,313
Cash used in operating activities 32,451 48,813
----------------------------------------------- ---------------- --------------
16. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
One member of the Group's key management personnel (Executive
Director of Non-Standard Finance plc) is a Trustee of the charity
Loan Smart as at 30 June 2021 (31 December 2020: one member).
During the six months ended 30 June 2021, the Company donated
GBP15,000 to Loan Smart (six months ended 30 June 2020:
GBP80,500).
The Company receives charges from and makes charges to related
parties in relation to shared costs, staff costs and other costs
incurred on their behalf. As at 30 June 2021, the Company had
GBP0.5m and GBP0.2m paid in advance from its subsidiary
undertakings Everyday Loans Limited and S.D. Taylor Limited
respectively, in relation to recharges described above (31 December
2020: GBPnil and GBPnil respectively). Intra-Group transactions
between the Company and the fully consolidated subsidiaries or
between fully consolidated subsidiaries are eliminated on
consolidation.
In October 2020, the Group appointed Toby Westcott to the Board.
Toby Westcott as a Nominee Director receives no direct remuneration
from the Company. However, Alchemy Special Opportunities LLP were
remunerated for the services of Toby Westcott through a services
agreement. This figure equates to a GBP75,000 fee plus VAT per
annum. Total fees paid in relation to these services totalled
GBP37,500 (plus VAT) for the period ended 30 June 2021 (six months
ended 30 June 2020: GBPnil).
In the prior year, the Group put in place a new six-year
securitisation facility, of which GBP15m was drawn in April 2020.
In August 2020, the Group repaid the GBP15m (GBP10.5m net)
previously drawn on its GBP200m securitisation facility. The amount
currently drawn under this facility as at 31 June 2021 remains at
GBPnil (31 December 2020: GBPnil). The nature of the facility
required the setup of a Special Purpose Vehicle ('SPV') NSF Funding
2020 Limited, which is consolidated into the Group in line with the
requirements of IFRS 10. During the six-month period ended 30 June
2021, the SPV transacted with Everyday Lending Limited (a
subsidiary within the Group). As these transactions took place
between two or more subsidiaries, they were deemed to be related
party transactions, and were eliminated on consolidation.
17. Distributable Reserves of the Parent Company
At 30 June 2021, the Company had no distributable reserves (31
December 2020: GBPnil).
18. Subsequent Events
On 31 August 2021, the Board of NSF announced that John van
Kuffeler would step down from his role as Group Chief Executive
Officer with effect from 31 August 2021 and would cease to be a
Director of the Company.
Since 30 June 2021 there have been no other events that require
disclosure and/or adjustment to the financial statements.
APPIX
Glossary of alternative performance measures ('APMs') and key
performance indicators
The Group has developed a series of alternative performance
measures that it uses to monitor the financial and operating
performance of each of its business divisions and the Group as a
whole. These measures seek to adjust reported metrics for the
impact of non-cash and other accounting charges (including
modification loss) that make it more difficult to see the true
underlying performance of the business. These APMs are not defined
or specified under the requirements of International Financial
Reporting Standards, however we believe these APMs provide readers
with important additional information on our business. To support
this, we have included a reconciliation of the APMs we use, how
they are calculated and why we use them on the following page.
Alternative performance measure Definition
Net debt Gross borrowings less cash at bank
-------------------------------- ------------------------------------------------------------------------------------
Normalised revenue Normalised figures are before fair value adjustments, amortisation of acquired
Normalised operating profit intangibles
Normalised profit before tax and exceptional items.
Normalised earnings per share
-------------------------------- ------------------------------------------------------------------------------------
Key performance indicators Definition
Impairments/revenue Impairments as a percentage of normalised revenues
Impairments/average loan book Impairments as a percentage of 12 month average loan book excluding fair value
adjustments
Normalised net loan book Net loan book before fair value adjustments but after deducting any impairment due
Net loan book growth Annual growth in the net loan book
Operating profit margin Normalised operating profit as a percentage of normalised revenues
Cost to income ratio Normalised administrative expenses as a percentage of normalised revenues
Return on asset Normalised operating profit as a percentage of average loan book excluding fair
value adjustments
Revenue yield Normalised revenue as a percentage of average loan book excluding fair value
adjustments
Risk adjusted margin Normalised revenue less impairments as a percentage of average loan book excluding
fair value
adjustments
================================ ====================================================================================
Alternative Performance Measures reconciliation
1. Net debt
30 Jun 31 Dec
2021 2020
GBP000 GBP000
---------------------------- --------- --------
Borrowings 330,000 330,000
Cash at bank and in hand(1) (102,976) (77,402)
---------------------------- --------- --------
227,024 252,598
---------------------------- --------- --------
1 Cash at bank and in hand excludes cash held by Parent Company
that sits outside of the security group
This is deemed useful to show total borrowings if cash available
at year end was used to repay borrowing facilities.
2. Normalised revenue (12 months)
Branch-based
lending Guarantor loans Home credit
-------------------------------- ---------------- ----------------- ----------------
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ------- ------- -------- ------- ------- -------
Reported revenue 81,444 97,160 23,352 30,857 34,576 57,421
Add back fair value adjustments - - 971 2,155 - -
-------------------------------- ------- ------- -------- ------- ------- -------
Normalised revenue 81,445 97,160 24,323 33,012 34,576 57,421
-------------------------------- ------- ------- -------- ------- ------- -------
Fair value adjustments have been excluded due to them being
non-business-as-usual transactions. They have resulted from the
Group making acquisitions and do not reflect the underlying
performance of the business. Removing this item is deemed to give a
fairer representation of revenue within the financial year.
3. Normalised operating profit (12 months)
Branch-based
lending Guarantor loans Home credit
-------------------------------- ---------------- ----------------- ----------------
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ------- ------- -------- ------- ------- -------
Reported operating profit 12,406 25,445 (8,332) (2,528) (4,024) 7,768
Add back fair value adjustments - - 466 2,155 - -
Add back amortisation of
intangibles - - 699 - - -
Add back exceptional provision
for customer redress - - 1,566 - - -
-------------------------------- ------- ------- -------- ------- ------- -------
Normalised operating profit 12,406 25,445 (5,601) (373) (4,024) 7,768
-------------------------------- ------- ------- -------- ------- ------- -------
Fair value adjustments have been excluded due to them being
non-business-as-usual transactions. They have resulted from the
Group making acquisitions and do not reflect the underlying
performance of the business. Removing this item is deemed to give a
fairer representation of revenue within the financial year.
4. Normalised profit before tax
30 Jun 2021 30 Jun 2020
GBP000 GBP000
--------------------------------------------------- ----------- -----------
Reported loss before tax (7,535) (102,749)
Add back fair value adjustments - 971
Add back amortisation and write-off of intangibles - 599
Add back exceptional items 4,025 91,283
--------------------------------------------------- ----------- -----------
Normalised profit before tax (3,510) (9,896)
--------------------------------------------------- ----------- -----------
Fair value adjustments, amortisation of intangibles, and
exceptional items have been excluded due to them being
non-business-as-usual transactions. The fair value adjustments and
amortisation of intangibles have resulted from the Group making
acquisitions, whilst the exceptional items are one-off and are not
as a result of underlying business-as-usual transactions and
therefore do not reflect the underlying performance of the
business. Hence, removing these items is deemed to give a fairer
representation of the underlying profit performance within the
financial year.
5. Normalised profit for the year
Group
------------------------
30 Jun 2021 30 Jun 2020
GBP000 GBP000
------------------------------------------- ----------- -----------
Reported loss for the period (7,535) (102,374)
Add back fair value adjustments - 971
Add back amortisation of intangibles - 599
Add back exceptional items 4,025 91,283
Adjustment for tax relating to above items - 1,569
------------------------------------------- ----------- -----------
Normalised loss for the period (3,510) (7,952)
------------------------------------------- ----------- -----------
Weighted average shares 312,437,422 312,437,422
------------------------------------------- ----------- -----------
Normalised earnings per share (pence) (1.12)p (2.55)p
------------------------------------------- ----------- -----------
As noted above, fair value adjustments, amortisation of
intangibles and exceptional items have been excluded due to them
being non-business-as-usual transactions. The fair value
adjustments and amortisation of intangibles have resulted from the
Group making acquisitions, whilst the exceptional items are one-off
and are not as a result of underlying business-as-usual
transactions (refer to note 6 for further detail on exceptional
costs in the year) and therefore does not reflect the underlying
performance of the business. Hence, removing these items is deemed
to give a fairer representation of the underlying earnings per
share within the financial year.
6. Impairment as a percentage of revenue
Branch-based lending Guarantor loans Home credit
------------------------------- ---------------------- ----------------- ----------------
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ---------- ---------- -------- ------- ------- -------
Normalised revenue (12 months) 81,444 97,160 24,323 33,012 34,576 57,421
Impairment (12 months) 19,541 25,906 10,011 20,337 3,987 15,534
------------------------------- ---------- ---------- -------- ------- ------- -------
Impairment as a percentage
revenue 24.0% 26.7% 41.2% 61.6% 11.5% 27.1%
------------------------------- ---------- ---------- -------- ------- ------- -------
Impairment as a percentage revenue is a key measure for the
Group in monitoring risk within the business.
7. Impairment as a percentage loan book
Branch-based lending Guarantor loans Home credit
---------------------------- ---------------------- ----------------- ----------------
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ---------- ---------- -------- ------- ------- -------
Reported opening net loan
book 187,707 201,817 88,043 98,440 24,276 35,534
Less fair value adjustments - - (466) (3,126) -
Normalised opening net loan
book 187,707 201,817 87,577 95,314 24,276 35,534
Reported closing net loan
book 163,779 187,707 41,449 88,043 24,321 24,276
Less fair value adjustments - - - (466) - -
Normalised closing net loan
book 163,779 187,707 41,449 87,577 24,321 24,276
Normalised opening net loan
book 187,707 201,817 87,577 95,314 24,276 35,534
Normalised closing net loan
book 163,779 187,707 41,449 87,577 24,321 24,276
Average net loan book 173,189 208,092 60,721 102,097 24,365 33,844
Impairment 19,541 25,906 10,011 20,337 3,987 15,534
---------------------------- ---------- ---------- -------- ------- ------- -------
Impairment as a percentage
loan book 11.3% 12.4% 16.5% 19.9% 16.4% 45.9%
---------------------------- ---------- ---------- -------- ------- ------- -------
Impairment as a percentage loan book allows review of impairment
level movements year on year.
8. Net loan book growth
Branch-based lending Guarantor loans Home credit
---------------------------- ---------------------- ----------------- ----------------
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ---------- ---------- -------- ------- ------- -------
Normalised opening net loan
book 187,707 201,817 87,577 95,314 24,276 35,534
Normalised closing net loan
book 163,779 187,707 41,449 87,577 24,321 24,276
---------------------------- ---------- ---------- -------- ------- ------- -------
Net loan book growth (12.7)% (7.0)% (52.7)% (8.1)% 0.2% (31.7)%
---------------------------- ---------- ---------- -------- ------- ------- -------
9. Return on asset
Branch-based lending Guarantor loans Home credit
---------------------------- ---------------------- ----------------- ----------------
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- ---------- ---------- -------- ------- ------- -------
Normalised operating profit
(12 months) 12,406 25,445 (5,601) (373) (4,024) 7,768
Average net loan book 173,189 208,092 60,721 102,097 24,365 33,844
---------------------------- ---------- ---------- -------- ------- ------- -------
Return on asset 7.2% 12.2% (9.2)% (0.4)% (16.5)% 23.0%
---------------------------- ---------- ---------- -------- ------- ------- -------
The return on asset measure is used internally to review the
return on the Group's primary key assets.
10. Revenue yield
Branch-based lending Guarantor loans Home credit
------------------------------- ---------------------- ----------------- ----------------
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ---------- ---------- -------- ------- ------- -------
Normalised revenue (12 months) 81,444 97,160 24,323 33,012 34,576 57,421
Average net loan book 173,189 208,092 60,721 102,097 24,365 33,844
------------------------------- ---------- ---------- -------- ------- ------- -------
Revenue yield percentage 47.0% 46.7% 40.1% 32.3% 141.9% 169.7%
------------------------------- ---------- ---------- -------- ------- ------- -------
Revenue yield percentage is deemed useful in assessing the gross
return on the Group's loan book.
11. Risk adjusted margin
Branch-based lending Guarantor loans Home credit
--------------------------------- ---------------------- ------------------ -----------------
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------- ---------- ---------- -------- -------- ------- --------
Normalised revenue (12 months) 81,444 97,160 24,323 33,012 34,576 57,421
Impairments (12 months) (19,541) (25,906) (10,011) (20,337) (3,987) (15,534)
Normalised risk adjusted revenue 61,903 71,254 14,312 12,675 30,590 41,887
Average net loan book 173,189 208,092 60,721 102,097 24,365 33,844
--------------------------------- ---------- ---------- -------- -------- ------- --------
Risk adjusted margin percentage 35.7% 34.2% 23.6% 12.4% 125.5% 123.8%
--------------------------------- ---------- ---------- -------- -------- ------- --------
The Group defines normalised risk adjusted revenue as normalised
revenue less impairments. Risk adjusted revenue is not a
measurement of performance under IFRSs, and you should not consider
risk adjusted revenue as an alternative to profit before tax as a
measure of the Group's operating performance, as a measure of the
Group's ability to meet its cash needs or as any other measure of
performance under IFRSs. The risk adjusted margin measure is used
internally to review an adjusted return on the Group's primary key
assets.
12. Operating profit/(loss) margin
Branch-based lending Guarantor loans Home credit
----------------------------------- ---------------------- ----------------- ----------------
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------- ---------- ---------- -------- ------- ------- -------
Normalised operating profit/(loss)
(12 months) 12,406 25,445 (5,601) (373) (4,024) 7,768
Normalised revenue (12 months) 81,444 97,160 24,323 33,012 34,576 57,421
----------------------------------- ---------- ---------- -------- ------- ------- -------
Operating profit/(loss) margin
percentage 15.2% 26.2% (23.0)% (1.1)% (11.6%) 13.5%
----------------------------------- ---------- ---------- -------- ------- ------- -------
13. Cost to income ratio
Branch-based lending Guarantor loans Home credit
------------------------------- ---------------------- ----------------- -----------------
30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun
2021 2020 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ----------- --------- -------- ------- -------- -------
Normalised revenue (12 months) 81,444 97,160 24,323 33,012 34,576 57,421
Administration expense (12
months) (42,197) 43,915 (13,529) 13,797 (35,228) 34,119
------------------------------- ----------- --------- -------- ------- -------- -------
Cost to income ratio 51.8% 45.2% 55.6% 41.8% 101.9% 59.4%
------------------------------- ----------- --------- -------- ------- -------- -------
This measure allows review of cost management.
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END
IR EAENXASSFEAA
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