REG - Non-Standard Fin - Audited full year results to 31 December 2021
29/04/2022 07:00
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RNS Number : 7876J Non-Standard Finance PLC 29 April 2022
Non-Standard Finance plc
('Non-Standard Finance', 'NSF', the 'Company' or the 'Group')
Audited full year results to 31 December 2021
29 April 2022
· The Group continued to face significant operational, regulatory and
financial challenges in 2021, many of which have continued into 2022
· Whilst the total net loan book(1) fell by 19%, strong collections
drove a return to positive operating profit although the Group still delivered
a loss at the pre-tax level
· Normalised revenue was down 20% to £131.4m (2020: £164.1m);
reported revenue of £131.4m (2020: £162.7m)
· Normalised loss before tax of £16.7m (2020: normalised loss before
tax of £35.2m)
· Total exceptional charges of £12.9m (2020: £97.8m) meant that the
reported loss before tax was £29.6m (2020: reported loss of £135.7m)
· Independent reviews concluded that whilst there was no need for any
redress in branch-based lending, in home credit, certain customers may have
suffered harm and given ongoing challenges, the home credit business went into
administration on 15 March 2022
· The Group's Guarantor Loans Division was placed into a managed
run-off on 30 June 2021
· The estimated cost of redress in guarantor loans is based upon a
detailed methodology and analyses developed in conjunction with the Group's
advisers, as we have however not yet agreed the operational mechanics of the
scheme with the FCA, so there is a risk of a less favourable outcome
· As a result of the developments described above, it is expected that
a substantial capital raise will be launched during the second half of 2022.
· Given the loss before tax and the absence of distributable reserves,
no final dividend per share is being declared (2020: 0.0p per share)
· Despite cash balances of £115m at 31 December 2021 (2020: £78m) and
£113m at 31 March 2022, the Group's loan to value ratio at 31 March 2022 was
higher than the level permitted under its loan to value covenant. However,
the Group has received waivers and extensions until 15 June 2022 thereby
avoiding a covenant breach so that it can proceed with a planned capital raise
· The Group's ability to remain a going concern is subject to a
material uncertainty and is dependent upon the completion of a substantial
capital raise
· Current trading: since the start of 2022 we have seen month on month
growth in loan issuance in branch-based lending, combined with historically
low impairment, and are consequently trading ahead of budget
Financial summary
Year to 31 December 2021 2020 % change
£000 £000
Normalised revenue(2) 131,387 164,102 -20%
Reported revenue 131,387 162,665 -19%
Normalised operating (loss) profit(2) 9,299 (6,316) 247%
Reported operating (loss) profit 7,092 (24,452) 129%
Normalised loss before tax(2) (16,680) (35,152) -53%
Reported loss before tax (29,610) (135,721) -78%
Normalised loss after tax(2) (16,755) (35,152) -52%
Reported loss after tax (29,685) (135,557) -78%
Normalised loss per share(3) (5.36)p (11.25)p -52%
Reported loss per share (9.50)p (43.39)p -78%
Full-year dividend per share 0.00p 0.00p 0%
(1) For reconciliation of net loan book growth see table in Financial Review
(2) See glossary of alternative performance measures and key performance
indicators in the Appendix.
(3) Basic and diluted (loss) earnings per share is calculated as normalised
loss after tax of £(16.8)m (2020: £(35.2)m) divided by the weighted average
number of shares in issue of 312,437,422 (2020: 312,437,422).
Jono Gillespie, Group Chief Executive Officer, said
"The Group delivered a resilient performance in 2021 despite the enormous
challenges it faced, including operating during the pandemic, whilst working
with the FCA to resolve a number of outstanding regulatory matters.
Crucially, we have retained the support of our lenders and major shareholders
and I would like to thank them for their continued support.
Having to place the guarantor loans division into managed run-off and the home
credit division into administration following regulatory reviews were
particularly challenging events to manage. However, we are pleased that
there were no implications for our branch-based lending business that is
continuing to rebuild its lending volumes and is performing well.
"Whilst the Group continued to trade within its financial covenants during
2021and despite having accumulated a sizeable cash balance, a major interest
payment and the home credit division going into administration during the
first quarter has resulted in the Group's loan to value ratio being higher
than permitted under its loan covenant as at 31 March 2022. The Group's
lenders have agreed to an extension to 15 June 2022 in order to enable the
Group to conduct a substantial capital raise with the support of Alchemy and
other investors to strengthen the balance sheet, fund redress payments and
underpin future growth. Before that can take place however, the Group needs to
agree the mechanics of its proposed redress scheme in guarantor loans with the
FCA so that investors have sufficient certainty regarding the potential
redress liability before subscribing for new capital in the Company. Until
this is complete, there remain material uncertainties regarding the Group's
ability to remain a going concern. The Directors continue to believe that
there remains a reasonable prospect of resolving this position and completing
the capital raise as planned.
"It is clear that consumers face a difficult period as the rise in the cost of
living starts to bite(5). This is expected to increase the demand for credit
and could present a significant opportunity for companies in a non-standard
credit sector that fulfils a vital role by supporting millions of consumers
who have limited savings. Previous recessions have shown that prime lenders
tend to be particularly risk averse, tightening their lending criteria and
leaving a large and expanding pool of higher quality applicants seeking access
to regulated and responsible credit markets. Assuming we are able to raise
capital as planned, the Group will be well placed to serve any ensuing
increase in demand."
( )
4 Financial Lives Survey 2020: the impact of coronavirus - FCA, 11 February
2021
5 "Over 8 in 10 (83%) adults reported an increase in their cost of living in
March 2022 (3 to 13 March 2022) compared with around 6 in 10 (62%) adults in
November 2021 (3 to 14 November 2021)." - Impact of increased cost of living
on adults across Great Britain: November 2021 to March 2022 - ONS, 30 March
2022
Context for results
The 2021 results include exceptional items totalling £12.9m relating to an
increase in the estimated costs of customer redress in guarantor loans,
restructuring costs and the write-down of assets and the recognition of
liabilities in the home credit division. Exceptional items in 2020 totalled
£97.8m and included a number of different items including provision for
customer redress, goodwill impairment, the write-off of certain capitalised
fees and costs related to restructuring. The 2020 reported results also
include fair value adjustments, the amortisation of acquired intangibles and
the write-off of goodwill assets. Normalised results are presented to
demonstrate Group performance before these items.
On 15 March, 2022 it was announced that the Group's home credit division had
gone into administration (see note 19 - Subsequent events).
Normalised divisional results
The table below provides an analysis of the 'normalised' results for the Group
for the 12-month period to 31 December 2021. Management believes that by
removing the impact of exceptional items, amortisation of acquired intangibles
and fair value adjustments, the normalised results provide a clearer view of
the underlying performance of the Group.
Year ended 31 Dec 2021 Branch-based lending Home Guarantor loans Central costs NSF plc
Normalised(6) credit
£000 £000 £000 £000 £000
Revenue 79,940 38,401 13,046 - 131,387
Other operating income 384 587 1 11 983
Modification loss (1,383) - (1,478) - (2,861)
Derecognition loss - - - -
Impairments (18,994) (6,230) 1,061 - (24,163)
Revenue less impairments 59,947 32,758 12,630 11 105,346
Administration expenses (46,294) (34,962) (10,695) (4,096) (96,047)
Operating profit/(loss) 13,653 (2,204) 1,935 (4,085) 9,299
Finance cost (14,491) (1,102) (4,350) (6,036) (25,979)
Loss before tax (838) (3,306) (2,415) (10,121) (16,680)
Taxation 48 158 299 (580) (75)
Loss after tax (790) (3,148) (2,116) (10,701) (16,755)
Normalised loss per share (5.36)p
Dividend per share 0.00p
Year ended 31 Dec 2020 Branch-based lending Home Guarantor loans Central costs NSF plc
Normalised(6) credit
£000 £000 £000 £000 £000
Revenue 89,788 43,834 30,480 - 164,102
Other operating income 1,125 18 - 11 1,154
Modification loss (2,207) - (4,075) - (6,282)
Derecognition loss (2,602) - (41) - (2,643)
Impairments (31,449) (10,495) (24,318) - (66,262)
Revenue less impairments 54,655 33,357 2,046 11 90,069
Administration expenses (41,236) (35,866) (13,773) (5,510) (96,385)
Operating profit/(loss) 13,419 (2,509) (11,727) (5,499) (6,316)
Finance cost (18,594) (1,228) (7,467) (1,547) (28,836)
Loss before tax (5,175) (3,737) (19,194) (7,046) (35,152)
Taxation - - - - -
Loss after tax (5,175) (3,737) (19,194) (7,046) (35,152)
Normalised loss per share (11.25)p
Dividend per share 0.00p
Reconciliation of net loan book 2021 2021 2021 2020 2020 2020
Normalised(6) Fair value Reported Normalised(6) Fair value Reported
adjustments
adjustments
£m £m £m £m £m £m
Branch-based lending 157.2 - 157.2 171.5 - 171.5
Home credit 24.0 - 24.0 26.9 - 26.9
Guarantor loans 26.8 - 26.8 59.8 - 59.8
Total 208.0 - 208.0 258.2 - 258.2
(6 ) See glossary of alternative performance measures and key performance
indicators in the Appendix.
Online presentation on 29 April 2022
There will be webcast presentation of the results at 09:30 on 29 April 2022
given by Jono Gillespie, Group Chief Executive. To access the webcast, please
register here or via the Group's website or dial in using the number below. A
copy of the slides presented will also be available on the Group's website,
http://www.nsfgroupplc.com later today.
Dial-in details to listen to the analyst presentation at 09:30, 29 April 2022
09:20 Please call +44 (0)330 165 4012
Participant PIN 3616449
09:30 Meeting starts
All times are British Summer Time (BST).
For more information:
Non-Standard Finance plc +44 (0) 20 3869 9020
Jono Gillespie Group Chief Executive
Peter Reynolds, Director, IR and Communications
Maitland/amo +44 (0) 20 7379 5151
Neil Bennett
Finlay Donaldson
Group Chief Executive's Report
Summary
The past year presented several challenges for the Group as we sought to
resolve a number of outstanding regulatory issues, continued to deal with the
ongoing impact of the pandemic on our operations whilst also managing the
impact on our balance sheet that remains in a net liabilities position.
There has been a continuous dialogue with the FCA since August 2020 as we
sought to address the FCA's concerns regarding a possible read-across for
branch-based lending and home credit from the FCA's multi-firm review into
guarantor loans and from recent decisions at the Financial Ombudsman
Service. We also continued to work closely with the FCA to finalise our
proposed redress methodology in guarantor loans. Whilst we did make progress
in 2021, concluding that there was no requirement for customer redress for
branch-based lending and with no significant amendments to our proposed
redress methodology in guarantor loans (although we continue to discuss the
operational practicalities of the scheme with the regulator), it became clear
that Loans at Home, the Group's home credit business, was no longer viable and
so it went into administration on 15 March 2022. Whilst deeply saddened
and disappointed with this outcome, it was clear that administration was the
only option available in order to preserve value for creditors. As the
operations and activities of Loans at Home are separate from the rest of the
Group, the Board of NSF confirms that, having received certain waivers from
the Group's lenders (see below), the administration of Loans at Home will have
minimal impact on the rest of the Group's business.
Whilst the Board remains hopeful that it can agree the operational mechanics
of its proposed redress programme with the FCA, thereby clearing the way to
complete a substantial capital raise, should this not be possible such that
there remains significant uncertainty regarding the quantum of potential
redress liabilities, the Group may be forced to consider other options that
can reduce such uncertainty, including a scheme of arrangement. Whilst such
schemes are complex, time consuming and not guaranteed to be successful, the
Board believes that, were such a scheme to be pursued it would stand a
reasonable chance of success and would, along with needing to extend lending
facilities, allow it to proceed with its planned capital raise (as described
in further detail below). The Board therefore believes that it remains a going
concern.
As a result of the developments described above, it is expected that the
Capital Raise will be launched during the second half of 2022. As the
Group's loan to value ratio at 31 March 2022 was higher than the level
permitted under its loan to value covenant following large interest payments
made during the quarter has also received the requisite waivers and extensions
to enable the Capital Raise to take place. However, if the Group is unable
to agree similar extensions or other forms of waivers for any future covenant
breaches and obtain extensions to the term of its existing debt facilities on
terms acceptable to investors prior to the completion of the Capital Raise
then there would be a material risk of the Group entering insolvency.
The return of social distancing rules coupled with certain regional
restrictions during 2021 placed additional constraints on our business model
in both branch-based lending and home credit that was founded on face-to-face
lending. Despite these challenges and thanks to the hard work and dedication
of our staff and self-employed agents, we continued to serve the needs of our
customers whilst also ensuring that the concerns raised by the FCA were taken
into account in all of our lending and collections processes.
The Group's strong market position, in combination with a number of both
external and internal profit drivers means that the Board is confident that,
subject to the timely completion of the Capital Raise, the prospects for
branch-based lending remain positive, driven by a planned recovery of ground
lost over the past two years that should result in a marked improvement in the
Group's financial performance. Further details regarding our future plans
can be found in the 2021 financial review below.
Whilst there remain a number of material uncertainties which may cast
significant doubt on the ability of both the Group and Company to continue as
a going concern and remain viable, it remains the Directors' reasonable
expectation that the Group and Company will raise sufficient capital in the
timeframe required and will continue to operate and meet their respective
liabilities as they fall due for the next 12 months and beyond. The Board has
therefore concluded that, whilst a material uncertainty remains, the business
is viable and remains a going concern.
If successful, the Capital Raise will reduce high levels of gearing, fund the
payment of agreed redress to certain guarantor loan customers of the Group and
underpin the future growth of its branch-based lending business. In addition,
whilst there would be no need for access to further debt funding beyond the
extension of the term of the Group's existing debt facilities in the short
term given the significant cash balances that would then be at the Group's
disposal, it is hoped that in due course, the Group would be better placed to
broaden its sources of debt funding.
However, 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 and as a result would likely not be able to access further funding
over the period of breach and would require additional waivers from its
lenders. In such circumstance, there would be a material risk of the Group
going into insolvency. However, the Directors continue to believe there is a
reasonable prospect of resolving this position.
2021 full year results
The continued challenges presented by the pandemic meant that while the Group
delivered a much improved financial performance versus the prior year, the
Group was still loss-making at the pre-tax level. The re-introduction of
government restrictions and a more cautious lending approach interrupted the
recovery in lending which, in conjunction with a robust collections
performance, meant that the combined net loan book fell by 28% to £208.0m
(2020: £258.2m). A summary of the other key performance indicators for each
of our businesses for 2021 is shown below:
Key performance indicators(7) Branch-based lending Home credit(8) Guarantor loans(9)
Year ended 31 Dec 20
Loan book growth (8.3)% (10.8)% (55.2)%
Revenue yield 48.8% 157.2% 32.1%
Risk adjusted margin 37.2% 131.7% 34.7%
Impairments/revenue 23.8% 16.2% (8.1)%
Impairments/average net loan book 11.6% 25.5% (2.6)%
Cost:income ratio 57.9% 91.0% 82.0%
Operating profit margin 17.1% (5.7)% 14.8%
Return on assets 8.3% (9.0)% 4.8%
Key performance indicators(7) Branch-based lending Home credit Guarantor loans
Year ended 31 Dec 20
Loan book growth (20.2)% (32.5)% (43.3)%
Revenue yield 46.5% 155.2% 35.3%
Risk adjusted margin 30.2% 118.0% 7.1%
Impairments/revenue 35.0% 23.9% 79.8%
Impairments/average net loan book 16.3% 37.2% 28.2%
Cost:income ratio 45.9% 81.8% 45.2%
Operating profit margin 14.9% (5.7)% (38.5)%
Return on assets 7.0% (8.9)% (13.6)%
(7 ) See glossary of alternative performance measures and key performance
indicators in the Appendix.
8 The home credit division went into administration on 15 March 2022 (see note
1 and 19 to the financial statements).
(9 ) The Guarantor Loans Division was placed into managed run-off on 30
June 2021 and did not issue any new loans in 2021.
The reduction in the net loan book was the main driver behind the 20%
reduction in normalised revenue before fair value adjustments to £131.4m
(2020: £164.1m). However, there was also a marked improvement in impairment
on the back of lower lending volumes and strong collections that meant the
Group returned to positive normalised operating profit of £9.3m versus a
normalised operating loss in 2020 of £6.3m. While lower debt levels meant
that interest charges also reduced, the reduction in revenue meant that the
Group produced a normalised loss per share of 5.36p (2020: normalised loss per
share of 11.25p).
The Group's 2021 and 2020 reported, or statutory results were both affected by
exceptional items, a summary of which is shown in the table below (also see
note 7 to the financial statements). The 2020 results were also
significantly affected by fair value adjustments and the amortisation of
acquired intangibles associated with the acquisitions of Everyday Loans and
George Banco. There were no such adjustments in 2021.
As a result, while reported revenue in 2021 of £131.4m (2020: £162.7m) was
unaffected by fair value adjustments, there was a £1.4m reduction to
normalised revenue in 2020. However, the 2021 results were impacted by a
number of non-operating items including an increase in the estimated costs of
customer redress in guarantor loans and the write-down of assets and the
recognition of liabilities in the home credit division, further details of
which are set out below. Total exceptional items in 2021 were £12.9m (see
table below and note 6) which was a significant reduction from the prior year
(2020: £97.8m).
Year ended 31 December 2021 2020
£000 £000
Impairment of goodwill asset (non-cash) - branch-based lending - (47,107)
Impairment of goodwill asset (non-cash) - guarantor loans - -
Impairment of goodwill asset (non-cash) - home credit - (27,725)
Advisory fees (1,580) (1,444)
Write-off of capitalised fees associated with the Group's securitisation - (5,795)
facility
Write down of balance sheet relating to home credit division (8,542)
Charge for customer redress (2,207) (15,401)
Restructuring costs (601) (362)
Total (12,930) (97,834)
With no further write-off of acquired intangibles in 2021 (2020: £1.3m) the
Group reported a statutory loss before interest and tax of £3.6m (2020: loss
before interest and tax of £106.9m) and a statutory loss before tax of
£29.6m (2020: £135.7m).
A summary of the performance of each division in 2021 is given below with
further details in the 2021 financial review
Branch-based lending
Having returned to month-on-month loan book growth in June 2021 and with the
removal of most government restrictions on social contact in England in July
2021, a trend of month-on-month growth in the loan book continued until the
fourth quarter when, despite a good flow of leads, lending volumes were
impacted by a more cautious approach to lending as well as the emergence of
the Omicron coronavirus variant. At the same time however, collections
remained strong throughout 2021 and so while the number of new borrower loans
booked was up 15% and the total volume of loans written was up 13%, this was
not sufficient to restore annual loan book growth and the net loan book
declined by 8%. The consequential 11% reduction in revenue was more than
offset by a reduction in impairment and despite higher administration costs,
normalised operating profit increased by 2% and despite a £4.1m reduction in
finance costs, the division reported a statutory loss before tax of £0.8m
(2020: loss before tax of £11.2m).
Home credit
There was a similar picture in home credit that returned to loan book growth
in June 2021 and this continued through the summer. However, further
government public health measures and a more cautious approach to lending
meant that this was not sustained into the fourth quarter and while there was
a small year-on-year increase in lending in December, the uplift was much
smaller than expected with the result that the net loan book ended the year
down 11%. An improvement in yield as a number of slow-paying customers dropped
out of the book, whilst helpful, was not enough to offset the impact on
revenue that decreased by 12%. A strong collections performance and lower
levels of lending meant that impairment fell, as did administration costs with
the net result that the division reported a reduced normalised loss before tax
of £3.3m (2020: loss before tax of £3.7m). As noted elsewhere, after
lengthy discussions with the FCA, the directors of the Group's home credit
business reluctantly concluded that it was no longer viable and so the
business was put into administration on 15 March 2022 resulting in an
exceptional charge of £8.5m (2020: nil) and a statutory loss before tax of
£11.8m (2020: loss before tax of £3.7m).
Guarantor loans
As previously announced, the Group's guarantor loans business was placed into
a managed run-off and did not write any new loans in 2021 but has continued to
collect-out existing loan balances. As a result, the division's loan book
continued to decline ending the year at £26.8m (2020: £59.8m). This had a
major impact on normalised revenues that fell by 57% but the strong
collections performance meant that impairments declined significantly and the
division delivered a normalised operating profit of £1.9m (2020: operating
loss of £11.7m). The Group is continuing to work with the FCA on
finalising the operational mechanics of the proposed redress scheme and hopes
to complete this work soon so that, subject to, and as soon as possible
following a successful completion of the Capital Raise, we can start to pay
out redress to those customers affected. An additional exceptional provision
for customer redress of £2.2m has been recorded in the 2021 accounts (2020:
£15.4m) and largely represents the cost of additional penalty interest based
on the Directors' best estimate based on the redress programme (see note 6 to
the financial statements). The net result was that the division reported a
loss before tax of £5.2m (2020: loss before tax of £36.0m).
Impairment provisioning
Given the highly dynamic external environment, the Group has continued to
monitor carefully its level of loan loss provisions and in particular has
considered the outputs from a continuous assessment of expected credit losses
in all three divisions. The net result has been an increase in coverage
ratios in branch-based lending and home credit during 2021 with the result
that, on a combined basis as at 31 December 2021 and using the same
methodology in previous years, the coverage ratio for the Group as a whole
increased to 21.5% (2020: 19.5%). Utilising a revised methodology that the
Board believes provides investors with a more relevant coverage metric that is
more directly comparable with key competitors and other sector companies, the
ratio also increased from 24.8% to 25.5%. Further details are set out in the
2021 financial review below.
Liquidity, funding and going concern
As at 31 December 2021 the Group had cash at bank of £114.6m (2020: £78.0m)
and gross borrowings of £330.0m (2020: £330.0m). As at 31 March 2022, cash
balances were £112.8m while gross borrowings remained unchanged.
The Group's active loan facilities include a £285m term loan facility that
matures in August 2023 and a £45m revolving credit facility maturing in
August 2022 ('Existing Facilities'), both of which remain fully drawn. Having
received appropriate waivers from its lenders ensuring that the administration
of Loans at Home would have minimal impact on the rest of the Group, the Board
and its advisers are discussing a possible extension to the term of the
Existing Facilities and the terms of any additional covenant waivers that may
be required ahead of any capital raise. Any amendments to the Existing
Facilities would be conditional upon the completion of the Capital Raise.
The Group also has a multi-year £200m 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 a capital raise, it is unlikely to be available for
use owing to the associated covenant requirements embedded within the facility
agreement and as permission from the lenders to a drawdown on the facility is
unlikely to be granted. It is hoped that, following a successful capital
raise, the facility will be available for future use, if so required.
Whilst the Group has obtained waivers from its lenders in relation to the
administration of the home credit division, its loan to value ratio at 31
March 2022 was higher than the level permitted under its loan to value
covenant following large interest payments made during the quarter. As such,
the Group has also received waivers and extensions from its lenders in order
to avoid a covenant breach so that it can proceed with the planned Capital
Raise. The Directors recognise the considerable challenges presented and the
material uncertainties 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, the Board believes that if a satisfactory outcome regarding
the redress mechanics in guarantor loans is reached, and assuming the proposed
extension to the term of the Group's existing facilities by its lenders is
concluded on terms acceptable to investors (which itself is likely to be
dependent on a successful capital raise), the Group and Company can reasonably
expect to raise sufficient new capital to enable them to continue to operate
and meet their respective liabilities as they fall due for the next 12 months.
The Board has therefore adopted the going concern basis of accounting. The
Board's position is, in part, informed by the fact that Alchemy remains
supportive of a capital raise subject to: an outcome of the Group's engagement
with its lenders that is acceptable to Alchemy; Alchemy's analysis of the
outcome of the Group's discussions with the FCA regarding the regulatory
position of the Group's divisions and the implications of that on (and
Alchemy's assessment of) the Group's business plan and financial projections;
and greater levels of certainty around redress and claims.
In adopting the going concern assumption in preparing the financial
statements, the Directors have considered the activities of its principal
subsidiaries, as well as the Group's principal risks and uncertainties as set
out in the Governance Report and Viability Statement within the Group's 2021
Annual Report.
The assumption of shareholder support for a substantial capital raise, lender
support for the extension of existing financing facilities and the
satisfactory conclusion of regulatory and redress matters within or close to
the assumptions made in the Group's base case, form a significant judgement of
the Directors in the context of approving the Group's going concern status
(see note 1 to the financial statements).
The Directors will continue to monitor the Group and Company's risk
management, access to liquidity, balance sheet solvency and internal control
systems.
If the Group cannot obtain waivers and/or extensions from its lenders for
potential future covenant breaches beyond 15 June 2022 and/or ahead of the
Capital Raise completing and obtain extensions to the term of its existing
debt facilities on terms acceptable to investors, if it fails to reach
agreement with the FCA with respect to the redress programme in guarantor
loans, or if the outcome of any discussions with the FCA are such that the
amount of redress is expected to be significantly higher than previously
estimated, there is a risk that the Capital Raise may not be concluded or
cannot be concluded in a timely manner. If either were to occur, or if the
Group was otherwise unable to raise additional capital, in the event of a
further covenant breach and without further waivers from the lenders, there
would be a material risk of the Group entering insolvency.
Regulation
Concluding all of the Group's outstanding regulatory issues has been a key
priority over the past 18 months. Whilst pleased that, following the
independent reviews, there was no requirement for customer redress for
branch-based lending, the Board was disappointed that Loans at Home went into
administration. In guarantor loans, whilst the business is not issuing any
new loans and is in managed run-off, the Group is continuing to work with the
FCA on finalising the operational mechanics of its proposed redress scheme.
Other pertinent regulatory-related matters affecting the Group include
complaint handling and the forthcoming introduction of a new Consumer Duty.
A more detailed summary of each of these regulatory matters is set out below.
Independent reviews of branch-based lending and home credit
Throughout 2021 the Group was actively engaged with the FCA in order to
finalise its proposed redress methodology for guarantor loans customers that
may have suffered harm and work is continuing to finalise the operational
mechanics of the scheme. The Board is hopeful that this will soon be
finalised in order to provide certainty for investors so that it can then
proceed with the Capital Raise that, if successful, will be used to fund
agreed customer redress as well as strengthen the Group's balance sheet and
transform its prospects. Having made a £15.3m provision for redress in the
2020 full year results, this was increased by a further £2.2m in 2021,
largely due to increased interest costs as the payment of redress would take
place later than previously expected. It is expected that the redress
programme for guarantor loans customers will commence as soon as practicable
following a successful completion of the Capital Raise which is anticipated to
take place in the second half of 2022.
Complaint handling
While the overall number of complaints received by the Group increased in
2021, there were very different dynamics at each of the three divisions with
the number of complaints increasing in branch-based lending (9%) and home
credit (113%) whilst in guarantor loans the number of complaints received fell
(18%). The increase in home credit was seen as exceptional and was driven by
a single claims management company that lodged a large number of complaints in
a single month. Subsequent investigation found that a large proportion of
the claims lodged by the CMC had in fact been lodged without the customer's
consent or knowledge and so have been withdrawn. Since then, complaint
volumes have returned to previous levels and have remained broadly flat.
There has however been a marked uptick in the cost of complaints as FOS
accelerated its processing of previously lodged complaints with the result
that the The most significant regulatory development over the past year has
been the proposed introduction of a new consumer duty. Having already
consulted once on the new duty, the FCA issued a further consultation that
closed on 15 February 2022. The shape of the new duty applies to many areas
of financial services, including consumer credit. While the FCA has
helpfully taken on board a number of comments made by sector firms, concerns
remain that while the focus is on consumer outcomes, there is no certainty on
what "good compliance" looks like. Many are also nervous about the basis
upon which 'fair value' will be assessed and also the short period of time
before this new obligation comes into effect (April 2023). Industry has
raised these issues as part of the consultation and hopes that these concerns
will be addressed in the FCA's next response.
Further details on the consumer duty and the other pertinent regulatory
developments during 2021 and into 2022 are available on the Group's website:
www.nsfgroupplc.com.
Current trading and outlook, no final dividend
Whilst the fallout from the pandemic, Brexit and more recently the Ukrainian
crisis means that macroeconomic uncertainty remains high, recent trading in
branch-based lending and guarantor loans has been slightly ahead of
management's expectations. Whilst lending volumes in the first quarter of
2022 were a little better than expected, collections and impairment
performance has been much better with the result that the Group's overall
early performance for the year to date has been promising.
Given the financial position of the Company and the fact that as at 31
December 2021 the Company did not have any distributable reserves, no final
dividend has been declared. Assuming the Capital Raise is successful, the
Company intends to create additional distributable reserves so that, when and
if appropriate, the Board can consider the payment of cash dividends to
shareholders at some point in the future.
The outlook for the Group is entirely dependent upon concluding the
discussions with the FCA and completing the Capital Raise as planned. If
successful, such a capital raise would fund the payment of agreed customer
redress, strengthen the Group's balance sheet and significantly reduce the
prospect of any future covenant breach. The Board believes that the Capital
Raise is the best course of action in order to avoid insolvency, to safeguard
the interests of shareholders and other stakeholders and to underpin future
growth.
However, 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 remain in breach of its
borrowing covenants and as a result would likely not be able to access further
funding over the period of breach and would require additional waivers from
its lenders. In such circumstance, there would be a material risk of the Group
going into insolvency. However, the Directors continue to believe there is a
reasonable prospect of resolving this position.
Assuming the Capital Raise is completed as planned, our focus in 2022 is to
recover the ground lost due to the pandemic and following the enormous
structural changes to our business over the past two years. As outlined in
the 2021 financial review, this recovery will be dependent on us restoring the
momentum in our branch-based lending business through a combination of
investment in staffing, technology and process-driven productivity
improvements and a steady recovery in demand for non-standard consumer credit.
Given the Group's pre-eminent position in branch-based lending, the Board
continues to believe that, subject to funding, the current business
environment represents a significant opportunity for NSF. In the past, when UK
consumers have faced periods of macroeconomic difficulty and stress, the
non-standard consumer lending sector saw a marked increase in demand as the
number of consumers that were unable to access mainstream credit increased. At
the same time, we have seen a significant reduction in the supply of regulated
non-standard consumer credit that may provide an additional opportunity for
the Group to gain market share as we continue to serve the very large numbers
of UK consumers that are unable or unwilling to access regulated mainstream
credit.
Annual General Meeting
The AGM of the Company is scheduled to take place on 26 May, 2022. A separate
notice of meeting is being sent to shareholders with the 2021 Annual Report
and is available from the Group's website: www.nsfgroupplc.com.
Jono Gillespie
Group Chief Executive
29 April 2022
2021 FINANCIAL REVIEW
Group results
Normalised figures are before fair value adjustments, the amortisation of
acquired intangibles and exceptional items.
Year ended 31 December 2021 2021 2021
Normalised(10) Fair value Reported
adjustments,
and exceptional items
£000 £000 £000
Revenue 131,387 - 131,387
Other operating income 983 - 983
Modification loss (2,861) - (2,861)
Derecognition loss - - -
Impairments (24,163) - (24,163)
Exceptional provision for customer redress - (2,207) (2,207)
Administration expenses (96,047) - (96,047)
Operating loss 9,299 (2,207) 7,092
Other exceptional items - (10,723) (10,723)
Loss before interest and tax 9,299 (12,930) (3,631)
Finance cost (25,979) - (25,979)
Loss before tax (16,680) (12,930) (29,610)
Taxation (75) - (75)
Loss after tax (16,755) (12,930) (29,685)
Loss per share (5.36)p (9.50)p
Dividend per share 0.00p 0.00p
( )
Year ended 31 December 2020 2020 2020
Normalised(10) Fair value Reported
adjustments,
and exceptional items
£000 £000 £000
Revenue 164,102 (1,437) 162,665
Other operating income 1,154 - 1,154
Modification loss (6,282) - (6,282)
Derecognition loss (2,643) - (2,643)
Impairments (66,262) - (66,262)
Exceptional provision for customer redress - (15,401) (15,401)
Administration expenses (96,385) (1,298) (97,683)
Operating loss (6,316) (18,136) (24,452)
Other exceptional items - (82,433) (82,433)
Loss before interest and tax (6,316) (100,569) (106,885)
Finance cost (28,836) - (28,836)
Loss before tax (35,152) (100,569) (135,721)
Taxation - 164 164
Loss after tax (35,152) (100,405) (135,557)
Loss per share (11.25)p (43.39)p
Dividend per share 0.00p 0.00p
( )
(10 )See glossary of alternative performance measures and key performance
indicators in the Appendix.
Normalised revenue fell by 20% to £131.4m (2020: £164.1m) reflecting lower
levels of lending by all three divisions that drove a reduction in the net
loan book. The reduction in reported revenue to was slightly greater than for
normalised revenue as the final portion of the unwind of the fair value
adjustment made to the George Banco loan book at the time of its acquisition
in August 2017 was taken through the profit and loss account in 2020 and there
was no such adjustment in 2021. A marked reduction in the numbers of
rescheduled and deferred loans in both branch-based lending and guarantor
loans meant that modification and derecognition losses reduced substantially
versus 2020. Collections remained strong in all three businesses in 2021
with the result that the absolute level of impairment more than halved versus
the prior year to £24.2m (2020: £66.3m). A marked reduction in staff costs
helped to offset higher complaints costs with the result that administration
costs were slightly lower at £96.0m (2020: £96.4m) and the Group delivered a
normalised operating profit of £9.3m versus a normalised operating loss in
2020 of £6.3m.
There were £12.9m of exceptional items (2020: £97.8m) split between £2.2m
of additional customer redress in guarantor loans, almost all of which was due
to additional interest as the proposed redress programme had not commenced by
the year end, £1.6m of advisory fees in connection with the independent
reviews and ongoing work ahead of the planned Capital Raise, £8.5m relating
to the write-down of assets and the recognition of liabilities in the home
credit division triggered by the business going into administration on 15
March 2022 and £0.6m of restructuring costs. The £97.8m charge in 2020
included the non-cash impairment to the remaining value of goodwill
attributable to the Group's operating subsidiaries totalling £74.8m; and a
charge for redress to certain customers of the Group's guarantor loans
division totalling £15.4m. The Group's home credit division went into
administration on 15 March 2022 - see note 1 and 19.
Whilst the strong cash flow during the period meant that cash balances
increased to £114.6m (2020: £78.0m), low deposit rates meant that the impact
on net finance costs was lower than might have been expected and the total
charge in the period was £26.0m (2020: £28.8m).
The net effect was that the Group reported a much reduced statutory loss
before tax of £29.6m (2020: loss of £135.7m and with a small tax charge the
reported loss after tax was £29.7m (2020: £135.6m). The resulting reported
loss per share was 9.50p (2020: loss per share of 43.39p).
Impairment provisioning
Following a marked increase in impairment provisioning in 2020, the Group is
keen to ensure that the Group's coverage ratio, as reported, is not
misunderstood because of the accounting treatment of modification and
derecognition gains and losses. As a result, the Group has continued to
report coverage ratios in line with previous years but has also included an
additional alternative performance measure that the Board believes provides
investors with a more relevant coverage metric that is more directly
comparable with key competitors and other sector companies. The key
difference between the two methodologies is in the way that modification and
derecognition gains and losses are treated, both of which affect branch-based
lending in particular and which, without appropriate adjustment, make
meaningful comparisons with other sector companies much more difficult.
The elements of the disclosure which are not representative of the underlying
position in branch-based lending and guarantor loans are the stage 2 coverage
and the total portfolio coverage (home credit is unaffected). Branch-based
lending stands out against the peer group, firstly because, using the reported
presentation, it has very low coverage in stage 2 while the progression from
stage 1 to stage 3 is notably different and less logical than for the peer
group. This is because the current presentation nets down both the gross
cash receivable ('GCR') and the provision to determine coverage. The revised
methodology simply restates the coverage using both figures on a gross basis,
which the Board believes to be a more appropriate and comparable presentation
of provision coverage.
Using the presentation used in previous years, the Group's reported coverage
ratio increased from 19.5% at 31 December 2020 to 21.5% at 31 December 2021
and is summarised in the following table:
31 Dec 2021 31 Dec 2020 Increase
Branch-based lending 14.0% 7.6% 6.4%
Home credit 46.7% 49.9% -3.2%
Guarantor loans 27.8% 26.7% 1.1%
Group 21.5% 19.5% 2.0%
Using the revised presentation methodology (that has no impact on the
underlying level of provision included in the Group's balance sheet), the
coverage ratios in both 2021 and 2020 are shown below:
31 Dec 2021 31 Dec 2020 Increase
Branch-based lending 19.0% 15.4% 3.6%
Home credit 46.7% 49.9% -3.2%
Guarantor loans 33.2% 31.4% 1.8%
Group 25.5% 24.8% 0.7%
In branch-based lending, the increase in coverage reflects a rise in the rate
of delinquency as a number of customers that had received COVID-related
forbearance were charged off and also because of the Directors' judgement that
the outlook for the division's customers was more uncertain given the prospect
of rising fuel and food costs over the coming months.
In home credit, after a major increase in 2020 due to the pandemic, the
coverage ratio decreased by 3.1 percentage points to 46.7% reflecting a strong
collections performance during the year and the fact that the provisioning
methodology used is accurately predicting the level of expected credit losses.
While the uncertain macroeconomic outlook was considered as part of the
overall assessment of provisions, as noted in previous annual reports, there
is little or no correlation between macroeconomic indicators and expected
credit losses in home credit.
Having seen the largest increase in provisioning in 2020, in 2021 the Group's
guarantor loans division saw its coverage ratio increase slightly as while the
collections performance has been in-line with expectations, as with
branch-based lending, the outlook for the division's customers was more
uncertain given the prospect of rising fuel and food costs over the coming
months.
Further details regarding the Group's approach to provisioning are set out in
note 1 to the financial statements.
Divisional review
Branch-based lending
Year ended 31 December 2021 2021 2021
Normalised(1) Fair value adjustments and exceptional items Reported
£000 £000 £000
Revenue 79,940 - 79,940
Other operating income 384 - 384
Modification loss (1,383) - (1,383)
Derecognition loss - - -
Impairments (18,994) - (18,994)
Revenue less impairments 59,947 - 59,947
Administration expenses (46,294) - (46,294)
Operating profit 13,653 - 13,653
Exceptional items - -
Profit/(loss) before interest and tax 13,653 - 13,653
Finance cost (14,491) - (14,491)
Loss before tax (838) - (838)
Taxation 48 - 48
Loss after tax (790) - (790)
( )
Year ended 31 December 2020 2020 2020
Normalised(1) Fair value adjustments and exceptional items Reported
£000 £000 £000
Revenue 89,788 - 89,788
Other operating income 1,125 - 1,125
Modification loss (2,207) - (2,207)
Derecognition loss (2,602) - (2,602)
Impairments (31,449) - (31,449)
Revenue less impairments 54,655 - 54,655
Administration expenses (41,236) - (41,236)
Operating profit 13,419 - 13,419
Exceptional items - (6,017) (6,017)
Profit/(loss) before interest and tax 13,419 (6,017) 7,402
Finance cost (18,594) - (18,594)
Loss before tax (5,175) (6,017) (11,192)
Taxation - - -
Loss after tax (5,175) (6,017) (11,192)
( )
( )
(1 ) See glossary of alternative performance measures and key performance
indicators in the Appendix.
In branch-based lending, the key performance drivers that underpin the
operational and financial performance of the business include network
capacity, lead volume and quality, network productivity and impairment
management. A summary of how these factors were affected during 2021 is
summarised below.
Network capacity - Given the continued uncertainty regarding the impact of the
pandemic on the UK economy during 2021 and the outlook for consumer credit
generally, we remained cautious on expanding our footprint and opened just one
of the branches that had been mothballed in 2020, taking the total number to
75. However, given a more cautious lending approach as the economy slowed and
certain sectors were particularly hard hit, coupled with a desire to both
manage costs and also stay within our targeted ratio of network staff to
active customers, staffing levels in the network reduced during the first half
of 2021, falling from 326 in December 2020 to 306 at the end of June. A
number of these departures were prompted by network staff reassessing their
careers in the light of the pandemic. We began to rebuild during the second
half of 2021 and the network staffing levels increased to reach 343 by the
year end. Head office staffing levels also declined during the year from 114
in December 2020 to 104 in December 2021, partly due to similar reasons as in
the network but also as we sought to increase efficiency levels within head
office.
The introduction of further government restrictions during the year and our
determination to remain cautious did impact the level of lending in 2021 which
was lower than we had previously hoped for. As a result, there was a 4%
decline in the number of active customers that fell to 66,000 (2020: 68,100)
and the net loan book fell by 8% to £157.1m (2020: £171.5m), some 27% below
what it had been at the end of 2019 (2019: £214.8m).
Lead volumes and quality - Our ability to continue to attract leads remained
strong and the total number of gross new borrower leads processed in 2021
increased from 1.8 million in 2020 to 2.1 million in 2021 - an increase of 20%
(albeit that this level of increase was flattered somewhat by the fact that in
April 2020 we accepted no leads at all in the immediate aftermath of the first
lockdown). The quality of the leads remained good and new borrower
applications to branch ('ATBs') also increased by a similar percentage to over
403,800 (2020: 339,100). Our mix of leads and loans written is supported by
the strength and longevity of our relationships with a number of financial
brokers that in aggregate provided approximately 91% of gross leads (2020:
94%) and accounted for approximately 52% of completed loans (2020: 57%).
Direct applications, renewals and applications from former customers made up
the balance and while they represented only 9% of all leads, they accounted
for approximately 48% of the total number of loans written, with a much higher
conversion rate than for leads introduced by financial brokers.
Productivity - whilst our more cautious approach to lending and the
introduction of a more detailed creditworthiness process meant that conversion
rates for new borrowers fell to 6.5% (2020: 6.8%) the increase in
applications and ATBs meant that the number of new borrower loans booked
increased to 26,448 (2020: 23,019), the total number of loans booked increased
to 37,150 (2020: 33,499) and the total value of loans issued increased by 17%
to £117.8m (2020: £104.3m). Whilst a return to lending growth is
encouraging, the volume of lending remained significantly below the £169.9m
achieved in 2019.
Delinquency management - The unprecedented levels of forbearance offered to
customers in 2020 and into 2021 began to unwind towards the end of the first
half of 2021. By the end of 2021, customers that had requested COVID-related
forbearance either returned to their regular payments, continued with their
rescheduled payments or were written-off. At the same time, the quality of
new lending remained high as we maintained a rigorous lending process that
also benefited from a new and enhanced creditworthiness assessment that was
introduced during the year. As a result, after the sharp increase in the
previous year due to the pandemic, the rate of impairment reduced from 16.3%
of average net receivables to 11.6% and from 35.0% to 23.8% of normalised
revenue. Whilst pleased that the rates of impairment started to return to more
normalised levels, they remained higher than that seen prior to the pandemic.
2021 results
Revenue was 11% lower at £79.9m (2020: £89.8m) primarily due to the 8%
reduction in the net loan book. Other income was slightly lower with a reduced
volume of debt sales and the absence of any furlough support from HM
Government that had been received in 2020. Modification and derecognition
gains / losses reduced significantly in 2021 as the impact of the pandemic in
2020 was not repeated. Lower rates of delinquency together with lower
charge-off led to a 40% decrease in impairments to £19.0m (2020: £31.4m).
Despite a steady reduction in staff numbers during the first half of 2021
(although this was reversed in the second half as we sought to fill vacancies
and increase capacity), the return to bonus payments for staff, higher
complaint handling costs that were in large part due to a significant
reduction in the backlog of historic FOS complaints and increased marketing
expenses meant that administration costs increased to £46.3m (2020:
£41.2m). However, given the marked reduction in impairments and despite the
reduction in revenue, normalised operating profit increased from £13.4m to
£13.7m.
There were no exceptional charges in 2021 while the £6.0m charge in the prior
year related to the £5.8m write-off of capitalised fees associated with the
Group's securitisation facility and restructuring costs of £0.2m.
Strong cash generation as a result of a healthy collections performance and
lower lending volumes meant that finance costs reduced from £18.6m to £14.5m
with the result that the division produced a much reduced normalised loss
before tax of £0.8m (2020: loss before tax of £5.2m). Given the absence of
any exceptional items in 2021, the reduction in the reported loss before tax
was even more significant from £11.2m to £0.8m.
Key performance indicators
While the write-off a number of loans due to the pandemic and lower numbers of
rescheduled and deferred loans helped to drive an increase in revenue yield to
48.8% (2020: 46.5%), the 8% decline in the net loan book was the principal
reason behind the decline in revenue. The increased quality of our new lending
together with strong collections helped to reduce impairment as a percentage
of revenue with the result that the risk adjusted margin increased back to
levels above that achieved in 2019 at 37.2% (2020: 30.2%; 2019: 36.1%).
Including modification and derecognition losses, the impairment as a
percentage of revenue fell from 40.4% to 25.5%.
Despite the fact that the increase in costs coupled with lower revenue meant
that the cost:income ratio increased to 57.9% (2020: 45.9%), normalised
operating profit margin increased to 17.1% (2020: 14.9%) although this remains
well below the 31.9% achieved in 2019.
Year ended 31 December 2021 2020
Normalised Normalised
Key Performance Indicators(1)
Number of branches 75 74
Period-end customer numbers (000) 66.0 68.1
Period-end loan book (£m) 157.2 171.5
Average loan book (£m) 163.7 193.0
Loan book growth (%) (8.3)% (20.2)%
Revenue yield (%) 48.8% 46.5%
Risk adjusted margin (%) 37.2% 30.2%
Impairments/revenue (%) 23.8% 35.0%
Impairments (including modifications)/revenue 25.5% 40.4%
Impairment/average loan book (%) 11.6% 16.3%
Cost:income ratio (%) 57.9% 45.9%
Operating profit margin 17.1% 14.9%
(1) See glossary of alternative performance measures and key performance
indicators in the Appendix.
Actions and plans for 2022
Assuming that the Capital Raise can be completed as planned, we continue to
believe that there are significant opportunities for our branch-based lending
business. Whilst the UK's recovery from the pandemic has taken longer than
most previously expected and against an uncertain macroeconomic backdrop, our
investment over the past few years in new systems and improved operational
processes and procedures, together with a planned return to full network
capacity in terms of staffing, underpins our confidence in being able to
deliver significant loan book growth. This will be a combination of recovering
ground lost during the pandemic but also through productivity improvements and
operational efficiencies. However, it will not mean that we will compromise on
our commitment to continue to meet the highest standards of responsible
lending, ensuring that we continue to deliver good outcomes for all our
customers, including those that may be vulnerable.
Whilst the evolution of our credit risk assessment process is continuous, the
benefits of a more extensive creditworthiness process together with an
enhanced credit scorecard should help to maintain a strong collections
performance even against a backdrop of growing lending volumes.
Home credit(1)
Year ended 31 December 2021 2021 2021
Normalised(2) Fair value adjustments and exceptional items Reported
£000 £000 £000
Revenue 38,401 - 38,401
Other income 587 - 587
Impairments (6,230) - (6,230)
Revenue less impairments 32,758 - 32,758
Administration expenses (34,962) - (34,962)
Operating loss (2,204) - (2,204)
Exceptional items - (8,542) (8,542)
Loss before interest and tax (2,204) (8,542) (10,746)
Finance cost (1,102) - (1,102)
Loss before tax (3,306) (8,542) (11,848)
Taxation 158 - 158
Loss after tax (3,148) (8,542) (11,690)
( )
(1) The Home credit division went into administration on 15 March 2022 and
is no longer part of the Group (see note 19)
(2 )See glossary of alternative performance measures and key performance
indicators in the Appendix.
( )
( )
Year ended 31 December 2020 2020 2020
Normalised(2) Fair value adjustments and exceptional items Reported
£000 £000 £000
Revenue 43,834 - 43,834
Other income 18 - 18
Impairments (10,495) - (10,495)
Revenue less impairments 33,357 - 33,357
Administration expenses (35,866) - (35,866)
Operating loss (2,509) - (2,509)
Exceptional items - - -
Loss before interest and tax (2,509) - (2,509)
Finance cost (1,228) - (1,228)
Loss before tax (3,737) - (3,737)
Taxation - - -
Loss after tax (3,737) - (3,737)
( )
(2 )See glossary of alternative performance measures and key performance
indicators in the Appendix.
Following extensive discussions with the FCA regarding the conclusions of the
review into home credit, the Directors of Loans at Home Limited ('Loans at
Home') concluded that the Loans at Home business was no longer viable and so
the business was placed into administration on 15 March, 2022. Whilst deeply
saddened and disappointed with this news, the Boards of both Loans at Home and
NSF were clear that this outcome was the only option available in order to
preserve value for creditors. As the operations and activities of Loans at
Home are separate from the rest of the Group, the Board of NSF has confirmed
that, having now received certain waivers from the Group's lenders, the
administration of Loans at Home will have minimal impact on the rest of the
Group's business.
2021 results
The impact of a lower average net loan book together with a flat average yield
meant that revenue was 12% lower at £38.4m (2020: £43.8m). A continued
strong collections performance in conjunction with lower levels of new lending
meant that in absolute terms, impairments fell by 41% to £6.2m, which is a
record low for the business (2020: £10.5m). Despite the drop in revenue,
impairment as a percentage of revenue also reduced to reach a record
annualised low of 16.2% (2020: 23.9%).
Lower staff costs and a reduction in complaint handling costs contributed to
an 3% reduction in administration costs to £35.0m
(2020: £35.9m) that in turn helped to reduce the normalised operating loss
from £2.5m to £2.2m. While strong cashflow helped to reduce finance costs to
£1.1m (2020: £1.2m), an exceptional charge of £8.5m (2020: nil) relating to
the write-down of assets and the recognition of liabilities as a result of the
business going into administration on 15 March 2022 meant that the reported
loss before tax was £11.8m (2020: loss before tax of £3.7m).
Key performance indicators
The further reduction in impairment fed through into a much improved risk
adjusted margin that increased by over 10 percentage points versus the prior
year. Despite concerted efforts to continue to manage our cost base, the fall
in revenue meant that the cost:income ratio increased significantly to 91.0%
(2020: 81.8%), impacting operating profit margins and the return on asset.
Year ended 31 December 2021 2020
Normalised Normalised
Key Performance Indicators(1)
Period-end customer numbers (000) 70.5 72.1
Period-end loan book (£m) 24.0 26.9
Average loan book (£m) 24.4 28.2
Loan book growth (%) (10.8)% (32.5)%
Revenue yield (%) 157.2% 155.2%
Risk adjusted margin (%) 131.7% 118.0%
Impairments/revenue (%) 16.2% 23.9%
Impairments(including modifications)/revenue 16.2% 23.9%
Impairment/average loan book (%) 25.5% 37.2%
Cost to income ratio (%) 91.0% 81.8%
Operating profit margin (5.7)% (5.7)%
Return on asset (%) (9.0)% (8.9)%
(1) For definitions see glossary of alternative performance measures in the
Appendix.
Having gone into administration on 15 March 2022, Loans at Home is no longer
part of the Group.
Guarantor loans
Year ended 31 December 2021 2021 2021
Normalised(1) Fair value Reported
adjustments and
exceptional
items
£000 £000 £000
Revenue 13,046 - 13,046
Other income 1 - 1
Modification loss (1,478) - (1,478)
Derecognition loss - - -
Impairments 1,061 - 1,061
Revenue less cost of sales 12,630 - 12,630
Exceptional provision for customer redress (2,207) (2,207)
Administration expenses (10,695) - (10,695)
Operating loss 1,935 (2,207) (272)
Other exceptional items - (601) (601)
Loss before interest and tax 1,935 (2,808) (873)
Finance cost (4,350) - (4,350)
Loss before tax (2,415) (2,808) (5,223)
Taxation 299 - 299
Loss after tax (2,116) (2,808) (4,924)
Year ended 31 December 2020 2020 2020
Normalised(1) Fair value Reported
adjustments and
exceptional
items
£000 £000 £000
Revenue 30,480 (1,437) 29,043
Other income - - -
Modification loss (4,075) - (4,075)
Derecognition loss (41) - (41)
Impairments (24,318) - (24,318)
Revenue less cost of sales 2,046 (1,437) 609
Exceptional provision for customer redress - (15,401) (15,401)
Administration expenses (13,773) - (13,773)
Operating loss (11,727) (16,838) (28,565)
Other exceptional items - - -
Loss before interest and tax (11,727) (16,838) (28,565)
Finance cost (7,467) - (7,467)
Loss before tax (19,194) (16,838) (36,032)
Taxation - - -
Loss after tax (19,194) (16,838) (36,032)
(1 )See glossary of alternative performance measures and key performance
indicators in the Appendix.
Following completion of the FCA's detailed review of the Group's proposed
redress methodology for certain customers of its Guarantor Loans Division,
whilst there were no material amendments, the Group is continuing to work with
the FCA on finalising the operational mechanics of the scheme. The Group's
Guarantor Loans Division was placed into a managed run-off in June 2021 and it
did not issue any new loans in 2021 and so the financial performance of the
business has been driven by collections from the outstanding loan book.
With no new lending in 2021, the number of active loans declined from 26,227
in December 2020 to 14,470 at the end of December 2021 and the net loan book
also fell sharply as collections remained strong throughout the period. As
at 31 December 2021, the net loan book had declined by 55% to reach £26.8m at
31 December 2020 (2020: £59.8m).
2021 results
With no new lending and a declining loan book, normalised revenue fell by 57%
to £13.0m (2020: £30.5m). Collections however remained strong helping to
drive a significant reduction in impairment resulting in a credit of £1.1m
(2020: charge of £24.3m) - the prior year having been particularly high as a
result of the pandemic that had had a disproportionate impact on young adults
that made up a significant proportion of the guarantor loans customer base.
Provision coverage is being monitored on an account by account basis during
the collect out and using the same methodology as in previous years the
provision coverage increased from 26.7% at the end of 2020 to 27.8% at the end
of 2021. Using the revised methodology described in the Group Chief
Executive's review, the provision coverage increased from 31.4% at the end of
2020 to 33.2% at the end of 2021.
Our continued focus on managing our costs meant that administration costs fell
by 22% to £10.7m (2020: £13.8m) thanks to lower staff costs, lower complaint
handling costs and lower professional fees. The net result was that the
business returned to generating a normalised operating profit of £1.9m (2020:
operating loss of £11.7m). Strong cash flow meant that finance costs were
lower at £4.4m (2020: £7.5m) resulting in a much reduced normalised loss
before tax of £2.4m (2020: loss before tax of £19.2m). There was an
exceptional charge of £2.8m (2020: £15.4m) that comprised an additional
£2.2m charge for penalty interest on the customer redress already provided
for due to the delay in execution and £0.6m related to redundancy costs
following the decision to put the division into managed run-off (see note 13
to the financial statements for more detail regarding the customer redress
provisions). With the absence of any fair value adjustment to revenue (2020:
£1.4m), the net result was that the reported loss before tax was £5.2m
(2020: loss before tax of £36.0m).
Key performance indicators
The absence of any lending in 2021 together with a robust collections
performance saw the loan book reduce by over 55% (2020: (43.3)%) and it was
this that prompted a marked decline in revenue. However, lower levels of
lending led to a favourable impact on impairment that was also helped by a
robust collections performance that flattered both yield and risk adjusted
margin. While the drop in revenue meant that the cost:income ratio increased
to 82% (2020: 45%), the major reduction in impairment meant that the net
effect was that the division's operating profit margin returned to positive
territory at 14.8% (2020: negative 38.5%) and return on assets was also
positive, albeit modest at 4.8% (2020: negative 13.6%).
Year ended 31 December 2021 2020
Normalised Normalised
Key Performance Indicators(1)
Period-end customer numbers (000) 14.5 26.2
Period-end loan book (£m) 26.8 59.8
Average loan book (£m) 40.6 86.2
Loan book growth (%) (55.2)% (43.3)%
Revenue yield (%) 32.1% 35.3%
Risk adjusted margin (%) 34.7% 7.1%
Impairment/revenue (%) (8.1)% 79.8%
Impairment (including modifications)/revenue 3.2% 93.3%
Impairment/average loan book (%) (2.6)% 28.2%
Cost:income ratio (%) 82.0% 45.2%
Operating profit margin (%) 14.8% (38.5)%
Return on assets (%) 4.8% (13.6)%
(1 )See glossary of alternative performance measures and key performance
indicators in the Appendix.
Collect-out of Guarantor Loans Division
Having concluded that shareholder interests will be best served by placing the
division into a managed run-off and ultimately closing the business, the
collect-out of the outstanding loan book is progressing well and as planned.
Central costs and exceptional items
Year ended 31 December 2021 2021 2021
Normalised(1) Amortisation of acquired intangibles and exceptional items Reported
£000 £000 £000
Revenue - - -
Other income 11 - 11
Administration expenses (4,096) - (4,096)
Operating loss (4,085) - (4,085)
Exceptional items - (1,580) (1,580)
Loss before interest and tax (4,085) (1,580) (5,665)
Finance cost (6,036) - (6,036)
Loss before tax (10,121) (1,580) (11,701)
Taxation (581) - (581)
Loss after tax (10,701) (1,580) (12,281)
( )
Year ended 31 December 2020 2020 2020
Normalised(1) Amortisation of acquired intangibles and exceptional items Reported
£000 £000 £000
Revenue - - -
Other income 11 - 11
Administration expenses (5,510) (1,298) (6,808)
Operating loss (5,499) (1,298) (6,797)
Exceptional items - (76,416) (76,416)
Loss before interest and tax (5,499) (77,714) (83,213)
Finance cost (1,547) - (1,547)
Loss before tax (7,046) (77,714) (84,760)
Taxation - 164 164
Loss after tax (7,046) (77,550) (84,596)
(1) See glossary of alternative performance measures and key performance
indicators in the Appendix.
A number of initiatives were taken during 2021 to reduce central costs
including the relocation of the Group's London office to just outside
Wakefield, a reduction in staffing levels and general cost efficiencies. As
a result, normalised administrative expenses fell by 26% to £4.1m (2020:
£5.5m). There was no amortisation of acquired intangible assets as these had
all been written down in prior years (2020: £1.3m). Finance costs increased
to £6.0 (2020: £1.5m) due to the higher cash balances held at the Group
level and lower inter-company interest charges from subsidiaries.
Exceptional costs of £1.6m (2020: £97.8m) comprised advisory fees and this
total was a major reduction from the previous year that had included the
following items: the impairment of the remaining goodwill assets relating to
the Group's operating subsidiaries totalling £74.8m; £1.6m of advisory fees;
the write-off of £5.8m of capitalised fees associated with the Group's
securitisation facility; a charge for redress totalling £15.4m; and £0.2m of
restructuring and redundancy costs that took place during the year. The
increase in finance costs reflects the repayment of intercompany borrowings by
subsidiaries with no corresponding repayment of external debt, the balances
being held in cash.
Balance sheet
As at 31 December 2021, the Group had increased its cash balances to £114.6m
(2020: £78.0m) while gross debt remained unchanged at £330.0m. However,
following the write-off in 2020 of all of the remaining goodwill assets
associated with the Group's operating subsidiaries, the exceptional provision
for redress and the write-down of assets and the recognition of liabilities in
the home credit division associated with that business going into
administration as well as the further losses incurred in 2021, the Group's
balance sheet remained in a negative net tangible assets position. A summary
of the Group's balance sheet as at 31 December 2021 is shown below:
Year ended 31 December 2021 2020 Restated
£000 £000
Loan book 207,984 258,201
Fair value - -
Adjusted loan book 207,984 258,201
Cash 114,577 77,956
Trade receivables and other assets 4,003 3,630
Property, plant and equipment, intangibles and right of use assets 14,574 24,593
Payables and provisions (44,018) (38,440)
Lease liability (9,545) (10,889)
Debt (328,762) (326,587)
Tangible net (liabilities)/assets (41,187) (11,536)
Goodwill and acquired intangibles - -
Net (liabilities)/assets (41,187) (11,536)
The clear priority for the Group is to complete the Capital Raise that, if
successful, is expected to, amongst other things, fund the payment of customer
redress, strengthen the Group's balance sheet and restore it to a positive net
assets position. However, the Directors note that a material uncertainty
exists regarding the successful execution of a capital raise, current and
future impacts of COVID-19 and the impact of potential levels of redress and
claims across the Group, each of which may cast significant doubt on both the
Group's and the Company's ability to continue as a going concern.
Principal risks
The principal risks facing the Group are:
Liquidity, going concern and solvency - while as at 31 March 2022 the Group
had c.£112.8 in cash, the Directors note that the Group's loan to value ratio
at 31 March 2022 was higher than the level permitted under its loan to value
covenant following large interest payments made during the quarter. At the
same time, material uncertainties exist regarding the successful execution of
a capital raise, the ability of the Group to obtain extensions to the term of
its existing debt facilities on terms acceptable to investors, current and
future financial performance and the impact of potential levels of redress and
claims across the Group. Whilst the Group has received waivers and extensions
from its lenders in order to avoid a covenant breach so that it can proceed
with the planned Capital Raise, without further waivers and/or extensions for
any future covenant breaches and extensions to the terms of its existing
facilities, the impact on liquidity and solvency under both the base case and
downside scenarios may cast significant doubt on both the Group's and the
Company's ability to continue as a going concern. In such circumstance, there
would be a material risk of the Group going into insolvency. However, the
Directors continue to believe there is a reasonable prospect of resolving this
position;
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. Whilst the reviews
of each of the Group's divisions concluded that no redress was payable in
branch-based lending, the home credit division went into administration on 15
March 2022. Following the FCA's detailed review of the Group's proposed
redress methodology for certain customers of its guarantor loans business, the
Group is continuing to work with the FCA on finalising the operational
mechanics of the redress programme. The Board is hopeful that this will soon
be finalised in order to provide certainty for investors so that it can then
proceed with the Capital Raise. However, should the Group fail to reach
agreement with the FCA regarding the mechanics of the programme such that
there remains significant uncertainty regarding the quantum of potential
redress liabilities, the Group may be forced to consider other options that
can reduce such uncertainty, including a scheme of arrangement. Whilst such
schemes are complex, time consuming and not guaranteed to be successful, the
Board believes that, were such a scheme to be pursued it would stand a
reasonable chance of success and would, along with needing to extend lending
facilities, allow it to proceed with its planned capital raise (as described
in further detail below). The Board therefore believes that it remains a going
concern. The proceeds of the planned capital raise will be used, among other
things, to fund redress payments to eligible GLD customers. The current
provisions for redress represent the Directors' best estimate of the total
cost of redress, based upon detailed methodology and analyses developed in
conjunction with its advisers, there is a risk of a less favourable outcome;
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 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 COVID-19 - 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.
Emerging risks that may impact the future performance of the Group include the
anticipated increase in the cost of living, climate change and technology
where we plan to become more agile and independent with greater control over
our ability to augment and improve our lending proposition. See the Group's
2021 Annual Report for further details.
On behalf of the Board of Directors
Jono Gillespie
Group Chief Executive
29 April 2022
Consolidated statement of comprehensive income
For the year ended 31 December 2021
Note Before fair value adjustments, and exceptional items Fair value adjustments and exceptional items(3) Year ended
31 Dec 2021
£000 £000
£000
Revenue(1) 3 131,387 - 131,387
Other operating income 983 - 983
Modification loss (2,861) - (2,861)
Impairment of financial assets(2) (24,163) - (24,163)
Exceptional provision for customer redress - (2,207) (2,207)
Administrative expenses (96,047) - (96,047)
Operating profit/(loss) 4, 5 9,299 (2,207) 7,092
Other exceptional items 6 - (10,723) (10,723)
Profit/(loss) on ordinary activities before interest and tax 9,299 (12,930) (3,631)
Finance costs (25,979) - (25,979)
Loss on ordinary activities before tax (16,680) (12,930) (29,610)
Tax on loss on ordinary activities 7 (75) - (75)
Loss for the year (16,755) (12,930) (29,685)
Total comprehensive loss for the year (29,685)
1 Revenue comprises interest income calculated using the EIR method. Refer to
note 1 in the notes to the financial statements for further detail.
2 Impairments comprise expected credit losses on
amounts receivable from customers. Refer to notes 1 and 11 in the notes to the
financial statements for further detail.
3 Refer to the appendix for detail of alternative performance measures used
('APMs'). Refer to note 6 in the notes to the financial statements for further
detail.
Loss attributable to:
- Owners of the parent (29,685)
- Non-controlling interests -
Loss per share
Note Year ended
31 Dec 2021
Pence
Basic and diluted 8 (9.50)
There are no recognised gains or losses other than disclosed above and there
have been no discontinued activities in the year.
Consolidated statement of comprehensive income
For the year ended 31 December 2020
Note Before fair value adjustments, amortisation of acquired intangibles and Fair value adjustments, amortisation of acquired intangibles and exceptional Year ended
exceptional items items(3)
31 Dec 2020
£000 £000
£000
Revenue 3 164,102 (1,437) 162,665
Other operating income 1,154 - 1,154
Modification loss (6,282) - (6,282)
Derecognition loss (2,643) - (2,643)
Impairment (66,262) - (66,262)
Provision for customer redress - (15,401) (15,401)
Administrative expenses (96,385) (1,298) (97,683)
Operating profit 4, 5 (6,316) (18,136) (24,452)
Other exceptional items 6 - (82,433) (82,433)
Profit/(loss) on ordinary activities before interest and tax (6,316) (100,569) (106,885)
Finance cost (28,836) - (28,836)
Profit/(loss) on ordinary activities before tax (35,152) (100,569) (135,721)
Tax on profit/(loss) on ordinary activities 7 - 164 164
Profit/(loss) for the year (35,152) (100,405) (135,557)
Total comprehensive loss for the year (135,557)
1 Revenue comprises interest income calculated using the EIR method.
Refer to note 1 in the notes to the financial statements for further detail.
2 Impairments comprise expected credit losses on amounts receivable from
customers. Refer to notes 1 and 11 in the notes to the financial statements
for further detail.
3 Refer to the appendix for detail of alternative performance measures
used ('APMs'). Refer to note 6 in the notes to the financial statements for
further detail
Loss attributable to:
- Owners of the parent (135,557)
- Non-controlling interests -
Loss per share
Note Year ended
31 Dec 2020
Pence
Basic and diluted 8 (43.39)
Consolidated statement of financial position
As at 31 December 2021
Note 31 Dec 2021 31 Dec 2020 1 Jan 2020
Restated Restated
£000 £000 £000
ASSETS
Non-current assets
Goodwill - - 74,832
Intangible assets 10 2,772 8,237 8,572
Derivative asset - - 1
Deferred tax asset - - 1,677
Right of use asset 7,877 10,079 10,560
Property, plant and equipment 3,925 6,277 6,556
Amounts receivable from customers 11 98,836 124,128 185,269
113,410 148,721 287,467
Current assets
Amounts receivable from customers 11 109,148 134,073 176,379
Trade and other receivables 2,526 2,080 2,183
Corporation tax asset 1,477 1,550 460
Cash and cash equivalents 114,577 77,956 14,192
227,728 215,659 193,214
Total assets 341,138 364,380 480,681
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables 18,375 16,627* 27,641*
Provisions 13 25,643 21,813 1,466
Lease liability 2,129 1,928 1,830
Total current liabilities 46,147 40,368 30,937
Non-current liabilities
Lease liability 7,416 8,961 9,275
Bank loans 328,762 326,587 317,590
Total non-current liabilities 336,178 335,548 326,865
Equity
Share capital 16 15,621 15,621 15,621
Share premium 17 180,019 180,019 180,019
Other reserves 255 551 2,152
Retained loss (237,082) (207,727)* (74,913)*
Total equity (41,187) (11,536) 122,879
Total equity and liabilities 341,138 364,380 480,681
* Trades and other payables and Retained earnings for 31 December 2020 and 1
January 2020 include a prior year adjustment, refer to note 1 for further
detail.
Consolidated statement of changes in equity
For the year ended 31 December 2020
Note Share Share Other Retained Non-controlling interest Total
capital premium reserves loss £000 £000
£000 £000 £000 £000
At 31 December 2019 15,621 180,019 2,152 (74,181) - 123,611
Prior year adjustment - trade and other payables 1 - - - (732) - (732)
At 1 January 2020 opening balance - as restated 15,621 180,019 2,152 (74,913) - 122,879
Total comprehensive loss for the year - - - (135,557) - (135,557)
Transactions with owners, recorded directly in equity: -
Dividends paid 9 - - - - - -
Credit to equity for equity-settled share-based payments 1,142 1,142
- - - -
Transfer of share-based payments on vesting of share awards (2,743) 2,743 -
- - -
At 31 December 2020 - as restated 15,621 180,019 551 (207,727) - (11,536)
Total comprehensive loss for the year - - - (29,685) - (29,685)
Transactions with owners, recorded directly in equity: -
Dividends paid 9 - - - - - -
Credit to equity for equity-settled share-based payments 34 34
- - - -
Transfer of share-based payments on vesting of share awards (330) 330 -
- - -
At 31 December 2021 15,621 180,019 255 (237,082) - (41,187)
Consolidated statement of cash flows
For the year ended 31 December 2021
Note Year ended Year ended
31 Dec 2021 31 Dec 2020
£000
£000
Net cash from/(used in) operating activities 18 57,762 82,193
Cash flows from investing activities
Purchase of property, plant and equipment (261) (1,726)
Purchase of software intangibles (2,514) (3,221)
Proceeds from sale of property, plant and equipment 17 16
Net cash used in investing activities (2,758) (4,931)
Cash flows from financing activities
Finance cost (15,832) (18,333)
Repayment of principal portion of lease liabilities (2,551) (1,806)
Debt raising - 21,641
Repayment of borrowings - (15,000)
Dividends paid 9 - -
Net cash (used in)/from financing activities (18,383) (13,498)
36,621 63,764
Net increase in cash and cash equivalents 77,956 14,192
Cash and cash equivalents at beginning of year 114,577 77,956
Cash and cash equivalents at end of year 57,762 82,193
Notes to the financial statements
1. Basis of preparation
The consolidated and Company financial statements 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') as adopted by the United Kingdom.
The financial statements have been prepared under the historical cost
convention, except for the revaluation of certain financial instruments that
are measured at revalued amounts or fair values at the end of each reporting
period, as explained in the accounting policies below. In estimating the fair
value of an asset or a liability, the Group takes into account the
characteristics of the asset or liability if market participants would take
those characteristics into account when pricing the asset or liability at the
measurement date. Fair value for measurement and/or disclosure purposes in
these consolidated financial statements is determined on such a basis, except
for share‑based payment transactions that are within the scope of IFRS 2,
leasing transactions that are within the scope of IFRS 16 Leases, and
measurements that have some similarities to fair value but are not fair value,
such as value in use ('VIU') in IAS 36 Impairment of Assets.
Post balance sheet date, the Directors of the Company's indirect subsidiary
S.D Taylor Limited (trading as 'Loans at Home' and forming the home credit
division of the Group) reluctantly concluded that the Loans at Home business
was no longer viable, leading to the business being placed into administration
on 15 March 2022. As a result, the financial statements of the home credit
division have been prepared on a basis other than going concern. This requires
carrying value of the assets to be at the amounts they are expected to realise
and the liabilities include any amounts for onerous contracts as a result of
the administration. The application of the basis other than going concern on
the results for the year ended 31 December 2021 decreases the profit for the
year by £8.5m (see note 19). In all other respects the financial statements
have been prepared in accordance with the accounting framework.
As Non-Standard Finance plc retained control of the division as at 31 December
2021, the financial statements of S.D. Taylor have been consolidated and are
reported in the Group financial statements for the year ended 31 December
2021. As a result, the financial statements of the Group for the current year
have been prepared on a going concern basis with the exception of the home
credit division which has been prepared on non-going concern basis (as
described above).
Basis of consolidation
The Group financial statements incorporate the financial statements of the
Company and entities controlled by the Company (its subsidiaries) prepared to
31 December 2021. Control is achieved where the Company is exposed to, or has
the rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the entity. In
assessing control, the Group takes into consideration the existence and effect
of potential voting rights that currently are exercisable or convertible.
The results of subsidiaries acquired during the year are included in the
consolidated statement of comprehensive income from the effective date of
acquisition.
As noted above, the Group's home credit division (S.D. Taylor Limited) was put
into administration post year end on 15 March 2022. As at 31 December 2021,
Non-Standard Finance plc retained control of the division and as such, in line
with IAS 10, its results have been consolidated for the purposes of these
financial statements. The appointment of an administrator on 15 March 2022
however, represents a loss of control by Non-Standard Finance plc, and as
such, the home credit division will be derecognised from this date and the
effect of this reflected in the Group's year ended 31 December 2022 financial
statements.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used
by the Group.
All intra-Group transactions and balances and any unrealised gains and losses
arising from intra-Group transactions are eliminated in preparing the
consolidated financial statements.
The Company has taken advantage of the exemption under section 408 of the
Companies Act 2006 from publishing its individual statement of comprehensive
income and related notes.
S.D. Taylor Limited's financial information up to 29 December 2021 has been
included with material adjustments made to incorporate transactions up to 31
December 2021 in line with IFRS 10.
This announcement has been agreed with the Company's auditor for release.
Going concern
During the year, the Committee assessed the forecast levels of net debt,
headroom on existing borrowing facilities (which comprise a £285m term loan
and a £45m RCF facility, both of which are fully drawn) and compliance with
debt covenants. As part of its going concern assessment, the Committee
reviewed both the Group's access to liquidity and its future balance sheet
solvency for at least the next 12 months.
Background
The Group's guarantor loans division ('GLD') was placed into a managed run-off
in June 2021. Throughout 2021, the Group was actively engaged with the FCA in
order to finalise its proposed redress methodology for certain customers of
GLD. Whilst there have been no significant amendments to the methodology since
2020, with the movement in provision from the prior year primarily
attributable to additional penalty interest accrued as a result of the delays
in commencing the programme, the Group is currently working with the FCA in
order to finalise the operational mechanics of the redress programme.
Therefore, as the redress programme has yet to be agreed in its entirety with
the FCA, there remains uncertainty as to the costs of such programme and,
although the Directors believe their best estimate represents a reasonably
possible outcome, there is a material risk of a less favourable outcome. The
Directors note that should the Group not be able to reach agreement with the
FCA regarding the mechanics of the programme such that there remains
significant uncertainty regarding the quantum of potential redress
liabilities, the Group will need to consider other options that can reduce
such uncertainty, including a scheme of arrangement. Whilst such schemes are
complex, time consuming and not guaranteed to be successful, the Board
believes that, were such a scheme to be pursued it would stand a reasonable
chance of success and would, along with needing to extend lending facilities,
allow it to proceed with its planned capital raise. The Board therefore
believes that it remains a going concern. The proceeds of the planned
capital raise will be used, among other things, to fund redress payments to
eligible GLD customers.
As noted in the prior year, the Group commissioned independent reviews of both
its branch-based lending and home credit businesses to ensure that there were
no implications for either division as a result of the multi-firm review into
guarantor loans, or from recent decisions at the Financial Ombudsman
Service. Whilst the review into branch-based lending (Everyday Loans)
concluded that there was no requirement for any customer redress, in home
credit the conclusion was that there may have been harm. Following extensive
yet ultimately inconclusive discussions with the FCA about how harm should be
defined and the implications for future lending, the directors of S.D Taylor
Limited (trading as 'Loans at Home') reluctantly concluded that the Loans at
Home business was no longer viable, leading to the business being placed into
administration on 15 March 2022. The boards of Loans at Home and of NSF were
clear that this was the only option available in order to preserve value for
creditors. As the operations and activities of Loans at Home are separate
from the rest of the Group, having received certain waivers from the Group's
lenders, the administration of Loans at Home will have minimal impact on the
existing funding arrangements of the Group.
Going concern assessment
In light of having completed the independent review in relation to the
branch-based lending division, the ongoing discussions regarding the redress
programme with respect to GLD, and the fact that the home credit division has
been put into administration, the Group has produced two reasonably possible
scenarios as part of its going concern assessment:
(i) the base case scenario includes a substantial equity
injection in 2022 (the 'Capital Raise'); assumes the receipt of waivers from
lenders for covenant breaches prior to the Capital Raise completing; assumes
that there is no change to the estimate of the amount of redress payable in
guarantor loans (other than additional interest); and assumes the extension of
the Group's debt facilities on acceptable terms;
(ii) the downside scenario applies stresses in relation to the
key risks identified in the base case and does not include the Capital Raise.
A summary of the key assumptions used in the scenarios are as follows:
(i) Base case
The base case forecast assumes:
· the Group has obtained extensions to the testing dates and/or
other forms of waivers from its lenders for potential covenant breaches to
enable it to proceed with the Capital Raise;
· the extension of the Group's debt facilities on terms acceptable
to investors;
· additional capital is raised during 2022 and reflects a business
plan where the Group achieves further growth in later years driven by its
branch-based lending division;
· that GLD remains in managed run-off, continues to perform in line
with recent trends and that the ultimate cost of the redress programme does
not differ materially from the Directors' best estimate as at the date of this
Annual Report (other than additional interest) and/or is an amount acceptable
to potential investors;
· the home credit division remains in administration.
(ii) Downside scenario
This scenario assumes that no additional equity is raised in 2022 and also
reflects stresses to the key risks described above.
Under this scenario we have assumed:
· the Capital Raise is not successful;
· the Group is unable to agree the operational mechanics of the GLD
redress programme with the FCA and fails to implement a scheme of arrangement
(should this be pursued) such that the Group is unable to raise sufficient
capital or unable to raise sufficient capital within the required timeframes;
· higher complaint levels than expected under the base case and;
· uncertainty in the macroeconomic environment leads to higher
delinquency and lower lending than expected under the base case.
Whilst the Group has obtained waivers from its lenders in relation to the
administration of the home credit division (Loans at Home), its loan to value
ratio was higher as at the quarter date on 31 March 2022 than the level
permitted under its loan to value covenant following large interest payments
made during the quarter. However, the loan to value covenant will not be
formally tested, and no covenant breach or event of default will arise, until
the Group provides its compliance certificate for the March 2022 quarter date.
The Group has also received an extension to the date on which it is required
to supply this compliance certificate until 15 June 2022, with a mechanism for
this date to be extended further with lender support. However, if the Group is
unable to agree similar extensions or other forms of waivers for any future
covenant breaches prior to the completion of the Capital Raise and obtain
extensions to the term of its existing debt facilities on terms acceptable to
investors, then the likelihood of the Group ending up in the downside scenario
would be increased, and there would be a material risk of the Group entering
insolvency.
Under the base case scenario and assuming successful completion of the Capital
Raise, the Group would be in a net asset position from a balance sheet
perspective; achieving this outcome however is dependent upon a number of
factors including:
· the Group receiving extensions to the testing dates or other form
of waivers from its lenders future covenant breaches beyond 15 June 2022
and/or prior to completion of the Capital Raise;
· the Group having raised sufficient additional capital and secured
extensions to the term and/or refinancing of the Group's debt facilities;
· the Group having reached a conclusion in regards to the GLD
redress programme with the estimated costs not varying materially from
management's best estimate;
· 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 (such as reductions to costs which are
within management's control, for example employee and marketing expenses).
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.
Under the downside scenario it is expected that the Group would not comply
with its loan to value covenant at subsequent quarter dates during the next 12
months and as a result, additional extensions of those testing dates or other
forms of waivers would be required from its lenders (and, depending on the
terms of those waivers) the Group may not be able to access further funding.
If such waivers or extensions were not forthcoming, or if the Directors were
not otherwise able to identify an alternative course of action which, if
successfully implemented, would enable them to conclude that there was a
reasonable prospect of the Group returning to a net asset position such that
the Group will be able to meet its liabilities (including to redress
creditors) as they fall due, there would be a material risk of the Group going
into insolvency.
The Directors acknowledge the considerable challenges presented by uncertainty
around the GLD redress programme (as the operational mechanics have not yet
been finalised with the FCA) and the continued impact of COVID-19 and other
macroeconomic uncertainties on the financial performance of the Group and so
have concluded that there exists a material uncertainty around the going
concern status of the Group. The Directors recognise that the Capital Raise is
dependent on a number of factors including (i) the costs associated with the
GLD redress programme being within levels that are acceptable to potential
investors and; (ii) the Group's lenders continuing to grant appropriate
extensions to the testing dates or other forms of waivers for covenant
breaches prior to the Capital Raise completing and; (iii) the Group obtaining
extensions to the term of its existing debt facilities on terms acceptable to
investors. The Directors continue to maintain a regular dialogue with key
stakeholders including the FCA, Alchemy and the Group's lenders regarding the
above matters. Despite the material uncertainties associated with the forecast
assumptions, the Directors note that Alchemy has confirmed its continued
support for a capital raise. The Directors believe that if a satisfactory
outcome regarding the redress mechanics in guarantor loans is reached, the
proposed extension to the term of the Group's existing facilities by its
lenders is concluded on terms acceptable to investors (which itself is likely
to be dependent on a successful capital raise), and the actual outcomes do not
differ materially from the assumptions outlined in the base case, the Group
and Company can reasonably expect to raise sufficient new capital to enable
them to continue to operate and meet their respective liabilities as they fall
due for the next 12 months. The Board has therefore adopted the going concern
basis of accounting. The Board's position is, in part, informed by the fact
that Alchemy remains supportive of a capital raise subject to: an outcome of
the Group's engagement with its lenders that is acceptable to Alchemy;
Alchemy's analysis of the outcome of the Group's discussions with the FCA
regarding the regulatory position of the Group's divisions and the
implications of that on (and Alchemy's assessment of) the Group's business
plan and financial projections; and greater levels of certainty around redress
and claims.
Conclusion
On the basis of the above analysis, the Directors note that material
uncertainties exist regarding the impact of discussions with the FCA regarding
the GLD redress programme, the successful and timely execution of the Capital
Raise, the agreement of extensions to the testing dates or other forms of
waivers from lenders in relation to potential future covenant breaches prior
to completion of the Capital Raise, the Group obtaining extensions to the term
of its existing debt facilities on terms acceptable to investors, and the
current and future impact of COVID-19 and other factors on the macroeconomic
outlook (such as inflation, any other unforeseen economic consequences of the
conflict in Ukraine and their potential impact on customer repayment
behaviours). The Directors note that, should the Group not be able to reach
agreement with the FCA regarding the mechanics of the GLD redress programme
such that there remains significant uncertainty regarding the quantum of
potential redress liabilities, the Group will need to consider other options
that can reduce such uncertainty, including a scheme of arrangement. Whilst
such schemes are complex, time consuming and not guaranteed to be successful,
the Board believes that, were such a scheme to be pursued it would stand a
reasonable chance of success and would, along with needing to extend lending
facilities, allow it to proceed with its planned capital raise (as described
in further detail below). The Board therefore believes that it remains a going
concern. The proceeds of the planned capital raise will be used, among other
things, to fund redress payments to eligible GLD customers. The Directors note
that certainty around the level of potential redress liabilities will likely
be a key factor for Alchemy and other potential investors, in assessing
whether they will, ultimately, support the Capital Raise. A successful
scheme of arrangement would be subject to a number of variables, including
court sanction, a positive creditor vote and the receipt of necessary waivers
from lenders.
The Director's recognise as there are a high number of assumptions and
variables in the modelling of the base case which are not directly within the
Group's control and that, should the actual outcomes vary materially from the
modelled assumptions, any consequent negative impact on the liquidity and
solvency under the base case scenario may cast significant doubt on the
ability of both the Group and Company to continue as a going concern. Under
the downside scenario, there is a material risk of the Group going into
insolvency.
In making their assessment, the Directors considered:
· the loan to value ratio being higher as at the quarter date on 31
March 2022 than the level permitted under its loan to value covenant and the
likelihood of the lenders agreeing to extend the testing date or provide other
forms of waivers in relation to this covenant and/or potential future covenant
breaches beyond 15 June 2022 and/or prior to the Capital Raise completing;
· the ability of the Group to obtain extensions to the term of its
existing debt facilities (which itself is likely to be dependent on a
successful capital raise);
· the Group's current financial and operational positions;
· the status of conversations with the FCA and advisors as well as
the Group's recent trading activity;
· the uncertainty around the quantum of potential redress
liabilities due under the GLD redress programme and, if such uncertainty is
not resolved, the potential use of a scheme of arrangement to allow the
Capital Raise to proceed and fund redress payments to eligible GLD customers;
· the conditional nature of support for the Capital Raise received
from Alchemy (as outlined above).;
In making their overall assessment, the Directors also considered both the
balance sheet solvency and the liquidity position of the Group. In connection
with the former, the Capital Raise would create a positive net asset position.
In connection with the latter the Directors have taken into consideration the
impact of the Capital Raise on the existing cash balances which would then be
available to the business. This combination would provide ample liquidity
throughout the going concern period. However, the Capital Raise is dependent
on the factors listed above and this dependency creates a material
uncertainty. Looking at the generation of future cash, the Directors also
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 40% 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. Based on trading performance to date, such
a reduction in collections, with no mitigating actions being taken such as a
reduction in costs, was thought by the Directors to be unlikely. However, the
Directors also recognised that, in the absence of the lenders granting the
necessary extensions to the testing dates or other forms of waivers in respect
of potential future covenant breaches, cash balances may not be available to
the Group or Company. With regard 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 noted above, if the Capital Raise is not achieved and the Directors cannot
otherwise identify an alternative means of returning to a net asset position
such that there is a reasonable prospect of the Group being capable of meeting
its liabilities as they fall due, then the Group may enter insolvency.
The Directors recognise the considerable challenges presented and the material
uncertainties 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, the Directors currently have a reasonable expectation that the
Group's outstanding regulatory and redress matters can be resolved close to
the assumptions outlined in the base case (albeit recognising that there is a
material risk in relation to this), the Group can obtain extensions to the
testing dates or other forms of waivers from its lenders for potential future
covenant breaches prior to completion of the Capital Raise such that it can
raise sufficient equity in the timeframe required, the Group can obtain
extensions to the term of its borrowings on a reasonable basis from its
lenders and on terms acceptable to investors, and that potential investors
remain supportive of the injection of (additional) capital. As a result, it is
the Directors' reasonable expectation that the Group and Company can continue
to operate and meet its liabilities as they fall due for the next 12 months.
On that basis, the Directors continue to adopt the going concern basis in
preparing these accounts.
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 Company and Group's financial position (including access to
liquidity and balance sheet solvency) 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 Capital Raise to
mitigate the uncertainties noted above and to support the future growth
prospects of the Group.
The Directors will also continue to monitor the Group and Company's risk
management, response to claims and the redress programme, and internal control
systems.
Prior year restatement
On 4 August 2015, the Group obtained control of SD Taylor Limited, trading as
Loans at Home ('LAH') through the purchase of 100% of the share capital. The
fair value of the identifiable assets of LAH as at the acquisition date
included £0.73m in relation to accruals for a recognised dilapidations
provision on the properties owned by LAH (refer note 23 of the Annual Report
and Accounts for the Financial Year ended 2015). Through the review of the
2021 financial statements, it was determined that an error in the acquisition
accounting relating to this item at the Group consolidation level resulted in
an understatement of the trade and other payables balance since 2015 with
retained earnings understated by the same amount. As this adjustment occurs at
Consolidation level only, there is no impact on the results of the Group's
three divisions in the current or prior years (Branch-based lending, Guarantor
Loans, and Home Credit). A prior year adjustment has therefore been made and
the effect of this is outlined below:
As at 1 Jan 2020 Previous opening Group balance sheet Adjustment at consolidation level
1 Jan 2020
£000 Restated opening balance sheet 1 Jan 2020
£000
£000
Liabilities
Trade and Other payables 26,909 732 27,641
Equity
Retained loss (74,181) (732) (74,913)
As at 31 Dec 2020 Previous Closing Group balance sheet Adjustment at consolidation level Restated closing balance sheet 31 Dec 2020
31 Dec 2020
£000 £000
£000
Liabilities
Trade and Other payables 15,895 732 16,627
Equity
Retained loss (206,995) (732) (207,727)
2. Changes in accounting policies and disclosures
New and amended Standards and Interpretations issued but not effective for the
financial year ending 31 December 2021
In the current year and in accordance with IFRS requirements, the following
accounting standards have been issued and were effective from 1 January 2021:
Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS
7, IFRS 4 and IFRS 16) (the Phase 2 amendments). The Group does not apply
hedge accounting and its accounting policies are consistent with the new
requirements. The Directors do not expect the adoption of these standards to
have a significant effect on the financial statements of the Company in
future periods. There are no other 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.
Management will continue to assess the impact of new and amended standards and
interpretations on an ongoing basis.
3. Revenue
Revenue is recognised by applying the EIR to the carrying value of a loan. The
EIR is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial asset or financial
liability to the gross carrying amount of a financial asset or to the
amortised cost of a financial liability.
Year ended Year ended
31 Dec 2021 31 Dec 2020
£000
£000
Interest income 131,387 164,102
Fair value unwind on acquired loan portfolio(1) - (1,437)
Total revenue 131,387 162,665
(1) In the prior year ended 31 December 2020, the fair value adjustment made
to the acquired loan portfolio of the Guarantor Loans Division was fully
unwound.
4. Operating profit/(loss) for the year is stated after charging/(crediting):
Year ended Year ended
31 Dec 2021 31 Dec 2020
£000
£000
Depreciation of property, plant and equipment 2,175 1,941
Depreciation of right to use asset 2,878 2,065
Amortisation and impairment of intangible assets 7,910 3,556
Staff costs excluding agent commission(1) 42,690 43,855
Rentals under operating leases 728 596
Profit on sale of property, plant and equipment 454 54
(1 ) Agent commission for the year ended 31 December 2021 was £9.5m (2020:
£11.3m). Refer to note 1 for accounting policy.
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 lending Home Guarantor loans(1) Central 2021
Total
£000 credit £000 £000
£000
£000
Year ended 31 December 2021
Interest income 79,940 38,401 13,046 - 131,387
Fair value unwind on acquired loan portfolio - - - - -
Total revenue 79,940 38,401 13,046 - 131,387
Exceptional provision for customer redress(2) - - (2,207) - (2,207)
Operating profit/(loss) before amortisation 13,653 (2,204) (272) (4,085) 7,092
Amortisation of intangible assets - - - - -
Operating profit/(loss) before exceptional provision for customer redress 13,653 (2,204) (272) (4,085) 7,092
Other exceptional items(2) - (8,542) (601) (1,580) (10,723)
Finance cost (14,491) (1,102) (4,350) (6,036) (25,979)
Loss before taxation (838) (11,848) (5,223) (11,701) (29,610)
Taxation 48 158 299 (580) (75)
Loss for the year (790) (11,690) (4,924) (12,281) (29,685)
Branch-based lending Home Guarantor loans(1) Central Consolidation adjustments(3) 2021
Total
£000 credit £000 £000 £000
£000
£000
Total assets 188,068 26,929 26,763 286,258 (186,880) 341,138
Total liabilities (220,927) (20,777) - (325,421) 184,800 (382,325)
Net assets/(liabilities) (32,859) 6,152 26,763 (39,163) (2,080) (41,187)
Capital expenditure 2,191 1,662 - 129 - 3,982
Depreciation of plant, property and equipment 1,585 578 - 12 - 2,175
Depreciation of right of use asset 1,338 1,420 - 120 - 2,878
Amortisation and impairment of intangible assets 797 7,091 - 23 - 7,910
(1) The 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 has therefore been disclosed within
the Guarantor Loans Division above.
(2) There were £12.9m total exceptional items in 2021 (2020:
£97.8m). Refer to note 6 for further details.
(3 )Consolidation adjustments include the acquisition
intangibles of £nil (2020: £nil), goodwill of £nil (2020: £nil), fair
value of loan book of £nil (2020: £nil) and the elimination of intra-Group
balances.
Branch-based lending Home Guarantor loans(1) Central 2020
Total
£000 credit £000 £000
£000
£000
Year ended 31 December 2020
Interest income 89,788 43,834 30,480 - 164,102
Fair value unwind on acquired loan portfolio - - (1,437) - (1,437)
Total revenue 89,788 43,834 29,043 - 162,665
Exceptional provision for customer redress(2) - - (15,401) - (15,401)
Operating profit/(loss) before amortisation 13,419 (2,509) (28,565) (5,499) (23,154)
Amortisation of intangible assets - (1,298) (1,298)
Operating profit/(loss) before exceptional items 13,419 (2,509) (28,565) (6,797) (24,452)
Exceptional items(2) (6,017) - - (76,416) (82,433)
Finance cost (18,594) (1,228) (7,467) (1,547) (28,836)
Loss before taxation (11,192) (3,737) (36,032) (84,760) (135,721)
Taxation - - - 164 164
Loss for the year (11,192) (3,737) (36,032) (84,596) (135,557)
Branch-based lending Home Guarantor loans(1) Central Consolidation adjustments(3) 2020
£000 credit £000 £000 £000 Restated
Total
£000
£000
Total assets 220,702 38,745 59,794 391,597 (346,458) 364,380
Total liabilities (271,981) (19,021) - (332,946) 248,032 (375,916)
Net assets/(liabilities) (51,279) 19,724 59,794 58,651 (98,426) (11,536)
Capital expenditure 4,070 2,467 - - - 6,537
Depreciation of plant, property and equipment 1,643 261 - 37 - 1,941
Depreciation of right of use asset 1,321 615 - 129 - 2,065
Amortisation and impairment of intangible assets 571 1,665 - 1,320 - 3,556
The results of each segment have been prepared using accounting policies
consistent with those of the Group as a whole.
6. Exceptional items
During the year ended 31 December 2021, the Group incurred exceptional costs
totalling £12.9m (including VAT) (2020: £97.8m). Exceptional items during
the current year comprised:
· £1.6m advisory fees incurred (Equity related fees are treated as
non-deductible for tax purposes),
· £2.2m additional interest costs accrued in relation to the
guarantor loans redress program;
· £0.6m relating to the guarantor loans redundancies arising as a
result of the Group's announcement on 30 June 2021 to place the division into
managed run-off; and
· £8.5m (2020: £nil) in relation to the write-down of assets and
the recognition of liabilities in the home credit division as a result of the
business being placed into administration on 15 March 2022 and its financial
statements no longer being prepared on a going concern basis.
In the prior year, the Group incurred £97.8m of exceptional costs that
comprised: £47.1m write-down of the value of goodwill associated with
Everyday Loans, £27.7m write-down of the value of goodwill associated with
Loans at Home, £15.4m provision relating to the guarantor loans redress
programme ; £5.8m fees written-off in relation to the Group's securitisation
facility, equity related advisory fees of £1.4m and restructuring costs at
branch-based lending of £0.4m.
7. Taxation
As at the 31 December 2021, the Group has continued not to recognise a
deferred tax asset on its current year losses. Deferred tax assets not
recognised in current and prior year losses as at 31 December 2021 totalled
£21.8m (2020: £11.3m unrecognised deferred tax asset).
Year ended Year ended
31 Dec 2021 31 Dec 2020
£000
£000
Current tax charge
In respect of the current year - -
Prior period adjustment to current tax(1) 75 (1,841)
Total current tax charge 75 (1,841)
Deferred tax charge(2) - 1,677
Prior period adjustment to deferred tax - -
Total tax charge/(credit) 75 (164)
(1) 2020 prior period adjustments primarily represent the benefit of claiming
deductions for the costs related to the guarantor loan redress provision for
which no tax deduction was assumed in the 2019 year (refer to note 13 for
further detail).
(2) Unrecognised deferred tax assets arising from tax losses in the current
year were £4.9m (2020: £8.4m).
The difference between the total tax expense shown above and the amount
calculated by applying the standard rate of UK corporation tax to the profit
before tax is as follows:
Year ended Year ended
31 Dec 2020
31 Dec 2021 £000
£000
Loss before taxation (29,610) (135,721)
Tax on loss on ordinary activities at standard rate of UK corporation tax of (5,626) (25,787)
19% (2020: 19%):
Effects of:
Fixed asset differences 114 100
Expenses not allowable for taxation 456 17,222
Share-based payments 7 44
IFRS 16 adjustments - (23)
Prior year adjustments 75 -
Adjustment to tax charge in respect of previous periods - (2,168)
Adjustment to tax charge in respect of previous periods - deferred tax - -
Corporation tax rate change - -
Deferred tax rate change - 79
Reversal of prior year deferred tax asset - 2,021
Deferred tax assets not recognised on current year losses 5,049 8,348
Total tax (credit)/charge 75 (164)
Certain exceptional items and costs related to the Group's Save As You Earn
('SAYE') and long-term incentive plans Certain exceptional items and costs
related to the Group's Save As You Earn ('SAYE') and long-term incentive plans
are included within expenses not allowable for taxation' due the nature of
these transactions. These include the £nil (2020: £75.5m) write-down of the
value of goodwill associated with Loans at Home and Everyday Loans, as well as
the write-down of the value of intangibles at Everyday Loans. Long-term
incentive plan items disallowed relates to set-up costs and the fair value of
the schemes at the date of grant totalling £nil (2020: £0.7m) and £1.6m of
equity related advisory fees (2020: £1.6m).
The Finance Bill 2021 had its third reading on 24 May 2021 and is now
considered substantively enacted. This will have a consequential effect on the
Group's future tax charge and means that the 25% main rate of corporation tax
and marginal relief will be relevant for any asset sales or timing differences
expected to reverse on or after 1 April 2023.
8. Loss per share
Year ended Year ended
31 Dec 2021 31 Dec 2020
Retained loss attributable to Ordinary Shareholders (£000) (29,685) (135,557)
Weighted average number of Ordinary Shares at year ended 31 December 312,437,422 312,437,422
Basic and diluted loss per share (pence) (9.50)p (43.39)p
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 any share options would reduce the loss per share and is
anti-dilutive. At 31 December 2021, nil shares were held as options and nil
shares were held in treasury (2020: nil).
Year ended Year ended
31 Dec 2021 31 Dec 2020
'000
'000
Weighted average number of potential Ordinary Shares that are not currently 339 6,272
dilutive
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 SAYE schemes. The amount is based
upon the average number of shares over the year that would have been issued if
31 December 2021 was the end of the contingency period.
9. Dividends
As a result of the significant reported losses in 2020 and 2021, the Company
does not have any distributable reserves and is therefore not in a position to
declare a final dividend. 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 is able to
resume the payment of cash dividends to shareholders as soon as it is
appropriate to do so.
As reported in the Interim Results to 30 June 2021, the Group did not declare
a half-year dividend during the first half of 2021 (2020: nil).
10. Intangible assets
Customer lists Agent network Brands Broker relationships Technology LAH IT software development Software Total
£000 £000 £000 £000 £000 £000 £000 £000
Cost
At 1 January 2021 21,924 540 2,005 9,151 6,227 10,401 5,600 55,848
Reclassification in current year - - - - - (65) (18) (83)
Additions - - - - - 1,169 1,345 2,514
Disposals - - - - - - 1 1
At 31 December 2021 21,924 540 2,005 9,151 6,227 11,505 6,928 58,280
Amortisation
At 1 January 2021 21,924 540 2,005 9,151 6,227 4,445 3,319 47,611
Reclassification in current year - - - - - - (10) (10)
Charge for the year(1) - - - - - 7,060 850 7,910
Disposals - - - - - - (3) (3)
At 31 December 2021 21,924 540 2,005 9,151 6,227 11,505 4,156 55,508
Net book value
At 31 December 2021 - - - - - - 2,772 2,772
At 31 December 2020 - - - - - 5,956 2,281 8,237
(1) The Group's home credit division was placed into administration on 15
March 2022, As a result, the charge for the year includes £5.2m relating to
the write down of assets to the amounts expected to be realised. Refer to note
1 for further detail.
Customer lists Agent network Brands Broker relationships Technology LAH IT software development Software Total
£000 £000 £000 £000 £000 £000 £000 £000
Cost
At 1 January 2020 21,924 540 2,005 9,151 6,227 8,408 4,372 52,627
Additions - - - - - 1,993 1,228 3,221
At 31 December 2020 21,924 540 2,005 9,151 6,227 10,401 5,600 55,848
Amortisation
At 1 January 2020 21,545 540 1,605 9,151 5,709 2,798 2,707 44,055
Charge for the year 175 - 185 - 239 1,647 612 2,858
Impairment(1) 204 - 215 - 279 - - 698
At 31 December 2020 21,924 540 2,005 9,151 6,227 4,445 3,319 47,611
Net book value
At 31 December 2020 - - - - - 5,956 2,281 8,237
At 31 December 2019 379 - 400 - 518 5,610 1,665 8,572
(1 ) Impairment of acquisition intangibles were assessed as part of the
goodwill assessment in 2020..
IAS 38.122 requires the Group to disclose the carrying value and remaining
amortisation period of individual acquired intangible assets, the table below
includes all material assets held by the Group as at 31 December 2021:
Carrying value as at Carrying value as at Amortisation period remaining
31 Dec 2021 31 Dec 2020
Intangible assets £000 £000 years and months
Loans at Home IT software development - 5,956 3 years
Software 2,772 2,281 3 to 5 years
11. Amounts receivable from customers
2021 2020
£000 £000
Gross carrying amount 265,021 320,942
Loan loss provision (57,037) (62,741)
Amounts receivable from customers 207,984 258,201
The movement on the loan loss provision for the period relates to the
provision at the branch-based lending, guarantor loans and home credit
divisions for the year.
Included within the gross carrying amount above are unamortised broker
commissions, see table below:
Included within the gross carrying amount above are unamortised broker 2021 2020
commissions, see table below:
£000 £000
Unamortised broker commissions 6,653 9,231
Total unamortised broker commissions 6,653 9,231
The fair value of amounts receivable from customers are:
2021 2020
£000 £00
Branch-based lending 208,440 284,911
Home credit 36,368 44,006
Guarantor loans(1) 31,366 105,100
Fair value of amounts receivable from customers 276,174 434,017
1 Includes amounts receivable from customers which have been provided
for as part of the guarantor loans redress programme, refer to note 13 for
further detail.
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).
Maturity of amounts receivable from customers: 2021 2020
£000 £000
Due within one year 109,148 134,073
Due in more than one year 98,836 124,128
Amounts receivable from customers 207,984 258,201
Analysis of receivables from customers
31 December 2021 Stage 1 Stage 2 Stage 3 Total
£000 £000 £000 £000
Branch-based lending 141,979 33,723 7,138 182,840
Home credit - 32,162 12,975 45,137
Guarantor loans - 30,768 6,276 37,044
Gross carrying amount 141,979 96,653 26,389 265,021
Branch-based lending (6,831) (13,347) (5,481) (25,659)
Home credit - (9,186) (11,911) (21,097)
Guarantor loans - (5,965) (4,316) (10,281)
Loan loss provision (6,831) (28,498) (21,708) (57,037)
Branch-based lending 135,148 20,376 1,657 157,181
Home credit - 22,976 1,064 24,040
Guarantor loans - 24,803 1,960 26,763
Net amounts receivable 135,148 68,155 4,681 207,984
31 December 2020 Stage 1 Stage 2 Stage 3 Total
£000 £000 £000 £000
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)
Guarantor loans (1,366) (5,864) (14,520) (21,750)
Loan loss provision (9,253) (17,083) (36,405) (62,741)
Branch-based lending 134,407 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
12. Deferred tax asset/(liability)
£000
At 31 December 2019 1,677
Prior period adjustment to deferred tax in 2020 -
Reversal of prior year deferred tax assets in 2020 (1,677)
At 31 December 2020 and 31 December 2021 -
Consistent with prior year, the Group has not recognised a deferred tax asset
during the financial year on its losses due to the uncertainty in the
regulatory and 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 deferred tax liability is attributable to temporary timing differences
arising in respect of:
2021 2020
£000 £000
Accelerated tax depreciation 271 (132)
Carried forward losses 18,214 7,295
Restatement of loan loss spreading (30) (28)
Other short-term timing differences 317 251
Unpaid employer pension contributions 100 32
FRS 102 adoption (3) 39
IFRS 16 transitional adjustment 15 12
IFRS 9 transitional adjustment 2,949 2,615
Unpaid donations 4 -
Unrecognised tax losses (21,837) (10,084)
Net deferred tax asset - -
The Finance Bill 2021 had its third reading on 24 May 2021 and is now
considered substantively enacted. This will have a consequential effect on the
Group's future tax charge and means that the 25% main rate of corporation tax
and marginal relief will be relevant for any asset sales or timing differences
expected to reverse on or after 1 April 2023.
13. Trade and other payables and provisions
2021 2020
£000 Restated(1)
£000
Trade creditors 955 614
Other creditors 3,932 5,446
Current tax liability - -
Accruals and deferred income 13,488 10,567
18,375 16,627
(1) Refer note 1 for further detail on prior year restatement.
Provisions
Plevin Onerous contracts Complaints Dilapidations Guarantor loans Restructuring Total
£000 £000 £000 £000 redress £000
£000
Balance 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 year - 282 4,936 15 2,251 601 8,085
Utilised (49) - (3,432) (68) (636) (70) (4,255)
Balance at 31 December 2021 - 282 6,633 1,269 16,928 531 25,643
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. In the current year, the Group has recognised additional provisions
for complaints and redress costs (further detail below).
Branch-based lending
The Group has recognised a provision for complaints of £2.0m as at 31
December 2021 (2020: £0.88m) 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. As part of their assessment, the Directors also
considered the independent review commissioned by the Group in April 2021 of
the lending and complaints handling activities of the division. This review
completed in Q1 2022 and the result was no requirement for customer redress.
Home credit
The Group has recognised a provision for complaints of £3.6m as at 31
December 2021 (2020: £3.4m) 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.
Redress programme for certain customers of the Guarantor Loans Division
The Group has recognised a provision for complaints of £0.95m as at 31
December 2021 (2020: £0.82m) 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 the Group's Guarantor Loans Division totalling £16.9m (2020:
£15.3). The provision is 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 £18.1m, together with the cost of implementation of £0.36m,
offset by existing impairment provisions of £1.5m, resulting in a net
provision amount of £16.9m. 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. The operational mechanics of the redress programme have
not yet been agreed with the FCA and therefore whilst the quantum of provision
for redress represents the Directors' best estimate of the ultimate cost of
the redress, including penalty interest, as at the reporting date, it is
possible that the eventual outcome may differ, perhaps materially, from the
current estimate. Therefore, although the Directors believe their best
estimate represents a reasonably possible outcome; there is a risk of a less
favourable outcome.
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 robustly defend 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.
In April 2021, the Group commissioned an independent review of the lending and
complaints handling activities of its home credit division. The review
concluded that customers may have suffered harm and, following extensive
discussions with the FCA about how this should be defined and the implications
for future lending, the directors of SD Taylor Limited (trading as 'Loans at
Home') reluctantly concluded that the Loans at Home business was no longer
viable and as a result the division was put into administration on the 15
March 2022. The Group recognises that whilst the conclusion noted that
customers may have suffered harm, as at 31 December 2021 it is not possible to
estimate such cost reliably. As such, there is a risk that the cost of such
redress may have a material impact of the net asset/(liability) position of
the division and Group as at 31 December 2021. The Group notes that any
redress amounts agreed post administration will be dealt with by the
administrators and thus fall into the period after which Non-Standard Finance
plc no longer had control (see note 19 for further detail).
The Group has recognised a provision for a customer redress programme in the
Group's Guarantor Loans Division based on the Directors' best estimate of the
costs of the programme using the proposed methodology (refer to Provisions
above). As the operational mechanics of the redress programme have not yet
been agreed with the FCA, there is a risk of an increase in the redress
provision over and above what has been provided for in the financial
statements.
15. Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation. The Company received dividend
income of £nil from its subsidiary undertakings during the year (2020:
£11.9m). The Company receives charges from and makes charges to these related
parties in relation to shared costs, staff costs and other costs incurred on
their behalf. As at 31 December 2021, the Company was owed £0.03m from its
subsidiary undertaking S.D. Taylor Limited in relation to employee costs for
the year ended 31 December 2021 (2020: £nil) and £0.07m to its subsidiary
undertaking Everyday Loans Limited in relation to Group relief tax charges
(2020: £0.07m). Intra-Group transactions between the Company and the fully
consolidated subsidiaries or between fully consolidated subsidiaries are
eliminated on consolidation. Please refer to note 21 for the year-end amounts
due from subsidiaries to the Company and note 24 for year-end amounts due to
subsidiaries from the Company.
There were no Executive Directors of Non-Standard Finance plc who were
Trustees of the charity Loan Smart as at 31 December 2021 (2020: one). During
the year, the Company donated £15,000 to Loan Smart (2020: £111,000).
One Director was a member of the Non-Standard Finance plc Long-Term Incentive
Plan which lapsed in the prior year as at 31 December 2020. Further
information about the remuneration of individual Directors is provided in the
Directors' remuneration report in the 2021 Annual Report.
In the prior year ended 31 December 2020, the Group put in place a new
six-year securitisation facility, of which £15m was drawn in April 2020. 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. Over the course of the current year, the SPV
transacted multiple times with Everyday Lending Limited (a subsidiary within
the Group) to facilitate the payment of maintenance fees (2020: transactions
related to securitisation of loans and associated fees). As these transactions
took place between two or more subsidiaries, they are deemed to be related
party transactions, and have been eliminated on consolidation. In August 2020,
the Group repaid the £15m (£10.5m net) previously drawn on its £200m
securitisation facility such that the amount currently drawn under this
facility is £nil as at 31 December 2021 (2020: £nil).
In the prior year 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 £75,000 fee plus VAT per annum. Total fees paid in relation to
these services totalled £75,000 (plus VAT) for the year ended 31 December
2021 (2020: £18,750 plus VAT).
16. Share capital
All shares in issue are Ordinary 'A' Shares consisting of £0.05 per share.
All 312,437,422 shares are fully paid up.
The Company's share capital is denominated in Sterling. The Ordinary Shares
rank in full for all dividends or other distributions, made or paid on the
Ordinary Share capital of the Company.
During the year, the Company cancelled nil shares (2020: nil shares) and
issued nil shares (2020: nil shares).
Share movements Number
Balance at 31 December 2019 and 2020 312,437,422
Cancellation of shares -
Issue of shares -
Balance at 31 December 2021 312,437,422
Non-Standard Finance plc sponsors the Non-Standard Finance plc 2019 Employee
Benefit Trust ('EBT') which is a discretionary trust established on 21 October
2019 for the benefit of the employees of the Group. The Company has appointed
Estera Trust (Jersey) Limited to act as trustee of the EBT. The trustee has
waived the right to receive dividends on the shares it holds. As at 31
December 2021, the EBT held nil (2020: nil) shares in the Company with a cost
of £nil (2020: £nil) and a market value of £nil (2020: £nil).
17. Share premium
The share premium account is used to record the aggregate amount or value of
premiums paid when the Company's shares are issued at a premium.
Total
£000
Balance at 31 December 2019 and 2020 180,019
Capital reduction -
Issue of shares -
Balance at 31 December 2021 180,019
18. Net cash generated/(used) in operating activities
Year ended Year ended
31 Dec 2021
31 Dec 2020
£000 £000
Operating loss (3,631) (106,885)
Taxation (refund)/paid - (1,093)
Interest portion of the repayment of lease liabilities (983) (1,038)
Depreciation 3,833 4,006
Share-based payment charge 34 1,142
Amortisation of intangible assets 2,727 3,556
Intangible assets impairment loss - 1,298
Goodwill impairment loss - 74,832
Fair value unwind on acquired loan book - 1,437
Exceptional charge for write-down of assets and recognition of liabilities of 8,542 -
home credit division
Profit/(loss) on disposal of property, plant and equipment 1,022 54
Decrease/(increase) in amounts receivable from customers 48,522 100,713
Decrease/(increase) in other assets - 1
Decrease/(increase) in receivables (446) 852
(Decrease)/increase in payables and provisions (1,858) 3,318
Cash generated/(used) in operating activities 57,762 82,193
19. Subsequent Events
Subsequent to 31 December 2021, the Directors of the Company's indirect
subsidiary S.D Taylor Limited (trading as 'Loans at Home') reluctantly
concluded that the Loans at Home business was no longer viable, leading to the
business being placed into administration on 15 March 2022. As a result, the
financial results of the Group's home credit division have been prepared on a
basis other than going concern. See note 1 and 6 for further detail. In line
with IAS 37, the Group has not provided for costs for which an obligation did
not exist as at 31 December 2021.
APPENDIX
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 pages.
Alternative performance measure Definition
Net debt Gross borrowings less cash at bank
Normalised revenue Normalised figures are before fair value adjustments, amortisation of acquired
intangibles and exceptional items (refer to note 6).
Normalised operating profit
Normalised profit before tax
Normalised earnings per share
Key performance indicator
Impairments/revenue Impairments as a percentage of normalised revenues
Impairments (including modifications)/revenue Impairments (including modification and derecognition losses) as a percentage
of normalised revenues
Impairments/average loan book Impairments as a percentage of 12-month average net loan book, excluding fair
value adjustments
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:income ratio Normalised administrative expenses as a percentage of normalised revenue
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
31 Dec 2021 31 Dec 2020
£000 £000
Borrowings 330,000 330,000
Cash at bank and in hand(1) (114,544) (77,402)
215,456 252,598
(1) Cash at bank and in hand excludes cash held by the 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
Branch-based lending Home credit Guarantor loans Group
31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020
£000 £000 £000 £000 £000 £000 £000 £000
Reported revenue 79,940 89,788 38,401 43,834 13,046 29,043 131,387 162,665
Add back fair value adjustments - - - - - 1,437 - 1,437
Normalised revenue 79,940 89,788 38,401 43,834 13,046 30,480 131,387 164,102
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/(loss)
Branch-based lending Home credit Guarantor loans Group
31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020
£000 £000 £000 £000 £000 £000 £000 £000
Reported operating profit/(loss) 13,654 13,419 (2,204) (2,509) (272) (28,565) 7,092 (24,452)
Add back fair value adjustments - - - - - 1,437 - 1,437
Add back amortisation of intangibles - - - - - - - 1,298
Add back exceptional provision for customer redress - - - - 2,207 15,401 2,207 15,401
Normalised operating profit/(loss) 13,654 13,419 (2,204) (2,509) 1,934 (11,727) 9,299 (6,316)
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/(loss) before tax
31 Dec 2021 31 Dec 2020
£000 £000
Reported loss before tax (29,610) (135,721)
Add back fair value adjustments - 1,437
Add back amortisation and write-off of intangibles - 1,298
Add back exceptional items 12,930 97,834
Normalised (loss)/profit before tax (16,680) (35,152)
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 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/(loss) for the year
Group
31 Dec 2021 31 Dec 2020
£000 £000
Reported loss for the year (29,685) (135,557)
Add back fair value adjustments - 1,437
Add back amortisation of intangibles - 1,298
Add back exceptional items 12,930 97,834
Adjustment for tax relating to above items - (164)
Normalised profit/(loss) for the year (16,755) (35,152)
Weighted average shares 312,437,422 312,437,422
Normalised earnings/(loss) per share (pence) (5.36)p (11.25)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 Home credit Guarantor loans Group
31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020
£000 £000 £000 £000 £000 £000 £000 £000
Normalised revenue 79,940 89,788 38,401 43,834 13,046 30,480 131,387 164,102
Impairment (18,994) (31,449) (6,230) (10,495) 1,061 (24,318) (24,163) (66,262)
Impairment as a percentage revenue 23.8% 35.0% 16.2% 23.9% (8.1)% 79.8% 18.4% 40.4%
Branch-based lending Home credit Guarantor loans Group
31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020
£000 £000 £000 £000 £000 £000 £000 £000
Normalised revenue 79,940 89,788 38,401 43,834 13,046 30,480 131,387 164,102
Impairment and modifications (20,337) (36,258) (6,230) (10,495) (417) (28,434) (27,024) (66,262)
Impairment and modifications as a percentage revenue 25.5% 40.4% 16.2% 23.9% 3.2% 93.3% 20.6% 40.4%
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 Home credit Guarantor loans Group
31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020
£000 £000 £000 £000 £000 £000 £000 £000
Reported opening net loan book 171,460 214,783 26,947 39,904 59,794 106,961 258,201 361,648
Less fair value adjustments - - - - - (1,437) - (1,437)
Normalised opening net loan book 171,460 214,783 26,947 39,904 59,794 105,524 258,201 360,211
Reported closing net loan book 157,181 171,460 24,040 26,947 26, 763 59,794 207, 984 258,201
Less fair value adjustments - - - - - - - -
Normalised closing net loan book 157,181 171,460 24,040 26,947 26,763 59,794 207,984 258,201
Normalised opening net loan book 171,460 214,783 26,947 39,904 59,794 105,524 258,201 360,211
Normalised closing net loan book 157,181 171,460 24,040 26,947 26,763 59,794 207,984 258,201
Average net loan book 163,724 192,990 24,423 28,243 40,609 86,229 228,756 307,462
Impairment (18,994) (31,449) (6,230) (10,495) 1,061 (24,318) (24,163) (66,262)
Impairment as a percentage loan book 11.6% 16.3% 25.5% 37.2% (2.6%) 28.2% 10.6% 21.6%
Impairment as a percentage loan book allows review of impairment level
movements year on year.
8. Net loan book growth
Branch-based lending Home credit Guarantor loans Group
31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020
£000 £000 £000 £000 £000 £000 £000 £000
Normalised opening net loan book 171,460 214,783 26,947 39,904 59,794 105,524 258,201 360,211
Normalised closing net loan book 157,181 171,460 24,040 26,947 26,763 59,794 207,984 258,201
Net loan book growth (8.3%) (20.2%) (10.8%) (32.5%) (55.2%) (43.3%) (19.4%) (28.3%)
9. Return on asset
Branch-based lending Home credit Guarantor loans
31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020
£000 £000 £000 £000 £000 £000
Normalised operating profit 13,653 13,419 (2,204) (2,509) 1,935 (11,727)
Average net loan book 163,724 192,990 24,423 28,243 40,609 86,229
Return on asset 8.3% 7.0% (9.0%) (8.9%) 4.8% (13.6%)
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 Home credit Guarantor loans
31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020
£000 £000 £000 £000 £000 £000
Normalised revenue 79,940 89,788 38,401 43,834 13,046 30,480
Average net loan book 163,724 192,990 24,423 28,243 40,609 86,229
Revenue yield percentage 48.8% 46.5% 157.2% 155.2% 32.1% 35.3%
Revenue yield percentage is deemed useful in assessing the gross return on the
Group's loan book.
11. Risk adjusted margin
Branch-based lending Home credit Guarantor loans
31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020
£000 £000 £000 £000 £000 £000
Normalised revenue 79,940 89,788 38,401 43,834 13,046 30,480
Impairments (18,994) (31,449) (6,230) (10,495) 1,061 (24,318)
Normalised risk adjusted revenue 60,946 58,339 32,171 33,339 14,107 6,162
Average net loan book 163,724 192,990 24,423 28,243 40,609 86,229
Risk adjusted margin percentage 37.2% 30.2% 131.7% 118.0% 34.7% 7.1%
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 margin
Branch-based lending Home credit Guarantor loans
31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020
£000 £000 £000 £000 £000 £000
Normalised operating profit 13,653 13,419 (2,204) (2,509) 1,935 (11,727)
Normalised revenue 79,940 89,788 38,401 43,834 13,046 30,480
Operating profit margin percentage 17.1% 14.9% (5.7%) (5.7%) 14.8% (38.5%)
13. Cost to income ratio
Branch-based lending Home credit Guarantor loans
31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020 31 Dec 2021 31 Dec 2020
£000 £000 £000 £000 £000 £000
Normalised revenue 79,940 89,788 38,401 43,834 13,046 30,480
Administration expense (46,294) (41,236) (34,962) (35,866) (10,695) (13,773)
Operating profit margin percentage 57.9% 45.9% 91.0% 81.8% 82.0% 45.2%
This measure allows review of cost management.
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