REG - Non-Standard Fin - Audited full year results to 31 December 2022
28/04/2023 08:30
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RNS Number : 8457X Non-Standard Finance PLC 28 April 2023
PRESS RELEASE
Non-Standard Finance plc
('Non-Standard Finance', 'NSF', the 'Company' or the 'Group')
Audited full year results to 31 December 2022
28 April 2023
· The Group continued to face significant regulatory and financial
challenges in 2022, many of which have continued into 2023.
· The Net loan book of the Group reduced from £208m to £177m as a
result of the administration of the home credit division and continued collect
out of guarantor loans. Despite the ongoing uncertain macroeconomic and
regulatory environment, the net loan book of the branch-based lending division
increased by 6% from £157.2m to £167.0m.
· Normalised and reported revenue was down 25% to £98.3m (2021:
£131.4m)
· Normalised loss before tax of £24.6m (2021: normalised loss before
tax of £16.7m)
· Total exceptional charges of £31.8m (2021: £12.9m) meant that the
reported loss before tax was £56.4m (2021: reported loss of £29.6m).
· Following the impact of the Covid-19 pandemic and regulatory issues,
the home credit division went into administration on 15 March 2022.
· Regulatory reviews resulted in the guarantor loans division being
placed into managed run-off in 2021.
· The launch of a scheme of arrangement (the "Scheme") in March 2023 is
designed to reach a resolution with regard to the payment of redress to
customers with valid claims both in respect of the guarantor loans division
and the branch-based lending division (although there were no systemic issues
with branch-based lending, claims in relation to the division have been
included in the Scheme to ensure an equitable treatment of customers).
· Should the Scheme be sanctioned, the Group's intention is to proceed
with its planned restructuring and recapitalisation (the "Proposed
Recapitalisation") to fund the partial payment of redress claims, restore the
Group's balance sheet and return the branch-based business to profitable
trading.
· The Proposed Recapitalisation has the support in principle of NSF's
largest shareholder and the Group's secured lenders, subject to agreement on
the terms and other conditions described below and, in the case of NSF's
largest shareholder, further diligence on and its assessment of the Group's
revised business plan and financial projections. Completion of the Proposed
Recapitalisation is subject to the agreement of terms between lenders and the
Group's largest shareholder, and a number of conditions, including Court
sanction of the Scheme, shareholder approval, the take-up of shares under the
equity raise and execution of definitive documents. Assuming all the above
outlined conditions are satisfied ("the Conditions") NSF expects the Proposed
Recapitalisation to complete at the end of Q2 2023 or the start of Q3 2023.
· The Group has also agreed with its secured lenders to implement an
alternative transaction (the "Alternative Transaction") if the Scheme is
sanctioned but the Conditions to the Proposed Recapitalisation are not
satisfied and / or the Proposed Recapitalisation fails, which would preserve
the Group's branch-based lending business as a going concern but which, if
implemented, would result in no recovery for the Group's current shareholders,
· Should the Scheme fail, there would be a material risk of the entire
Group becoming insolvent.
· Cash balances decreased to £32.8 million (2021: £114.6 million)
predominantly because of the repayment of the Group's revolving credit
facility and a repayment towards the debt facility.
· Whilst the Group's loan to value ratio was higher than the level
permitted under its loan to value covenant at each quarter end in 2022, it
remains a going concern and has received temporary waivers to enable it to
pursue a Scheme and raise additional capital which would reduce loan to value
levels, fund customer redress, and strengthen the Group's balance sheet.
· Current trading - Since the start of 2023 we have seen growth in loan
issuance in branch-based lending and better than expected collection
performance, and are consequently trading ahead of budget.
Financial summary
Year to 31 December 2022 2021 % change
£000
£000
Normalised revenue(1) 98,337 131,387 -25%
Reported revenue 98,337 131,387 -25%
Normalised operating profit(1) 4,460 9,299 -52%
Reported operating profit 4,460 7,092 37%
Normalised loss before tax(1) (24,591) (16,680) -47%(3)
Reported loss before tax (56,359) (29,610) -90%(3)
Normalised loss after tax(1) (24,591) (16,755) -47%(3)
Reported loss after tax (56,359) (29,685) -90%(3)
Normalised earnings per share(2) (7.87)p (5.36)p -47%(3)
Reported (loss) per share (18.04)p (9.50)p -90%(3)
Full-year dividend per share 0.00p 0.00p 0%
1 See glossary of alternative performance measures and key performance
indicators in the Appendix.
2 Basic and diluted (loss) earnings per share is calculated as normalised
loss after tax of £(24.6)m (2021: £(18.6)m) divided by the weighted average
number of shares in issue of 312,437,422 (2021: 312,437,422).
3 Adverse movement.
Jono Gillespie, Group Chief Executive Officer, said
"Despite facing ongoing regulatory and liquidity challenges throughout the
year, the underlying performance of Everyday Lending Ltd (trading as Everyday
Loans) was pleasing as it sought to rebuild the loan book.
The Group is working hard to resolve the regulatory challenges faced with the
convening hearing for the Group's Scheme of Arrangement taking place later
today.
Having worked extensively with the Scheme Customer Committee, our lenders and
key shareholder to reach a sustainable solution for the business and partial
payment of customer redress, we are hopeful that the Scheme will progress and
be sanctioned.
We are hopeful that the Scheme process will conclude towards the end of June
2023 and that this will then enable us to proceed with the recapitalisation of
the business, through either the Proposed Recapitalisation or Alternative
Transaction as previously announced.
If successful, the Proposed Recapitalisation or Alternative Transaction fund
the partial payment of redress claims and underpin the future growth of the
Group's branch-based lending business - Everyday Loans.
The Group's loan to value ratio was higher than the levels permitted at each
quarter end in 2022, but we have continued to trade throughout with the
support of our secured lenders, who have granted fortnightly waivers
(currently until 17 May 2023) pending a conclusion to the Scheme process and
the recapitalisation (or alternative lender-led transaction).
If the Scheme is not sanctioned by the Court, or the Scheme is sanctioned but
the Proposed Recapitalisation and the Alternative Transaction fail, then the
Group would remain insolvent and the most likely outcome would be a Group-wide
insolvency (most likely administration), resulting in no return for the
current shareholders, a significantly reduced return for secured lenders and
minimal or no cash recovery for customers with valid redress claims. In the
event that the Scheme is sanctioned, and the Alternative Transaction takes
place (due to the failure of the Proposed Recapitalisation), there would be no
recovery for the Company's shareholders.
It is clear that consumers face a difficult period as the cost of living
crisis continues. However, experience suggests this could increase the
demand for credit and 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 such
increase in demand."
Context for results
On 15 March, 2022 it was announced that the Group's home credit division had
gone into administration and so the 2022 results include the home credit
division up to 14 March 2022, after which the division was derecognised from
the Group in line with IFRS accounting standards. The results therefore
include exceptional items totalling £19.4m in relation to the derecognition
and impairments associated with the home credit division. Exceptional items
also include £12.4m in relation to the Scheme being pursued by the Group with
further detail provided below (refer note 6 to the financial statements for
further information).
Normalised divisional results
The table below provides an analysis of the 'normalised' results for the Group
for the 12-month period to 31 December 2022. Management believes that by
removing the impact of exceptional items, the normalised results provide a
clearer view of the underlying performance of the Group
Year ended 31 Dec 2022 Normalised(1) Branch-based lending Home credit Guarantor loans Central costs Group
£000
£000
£000
£000
£000
Revenue 84,470 7,315 6,552 - 98,337
Other operating income 173 - - - 173
Modification loss (250) - (12) - (262)
Derecognition loss - - - -
Impairments (26,704) (2,781) 1,595 - (27,890)
Administration expenses (50,493) (5,065) (7,300) (3,040) (65,898)
Operating profit/(loss) 7,196 (531) 835 (3,040) 4,460
Finance cost (14,925) (257) (2,000) (11,869) (29,051)
Loss before tax (7,729) (788) (1,165) (14,909) (24,591)
Taxation (102) 123 - (21) -
Loss after tax (7,831) (665) (1,165) (14,930) (24,591)
Normalised loss per share (7.87)p
Dividend per share 0.00p
Year ended 31 Dec 2021 Normalised(1) Branch-based lending Home credit Guarantor loans Central costs Group
£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)
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
(1) See glossary of alternative performance measures and key performance
indicators in the Appendix.
Net loan book 31 December 2022 31 December 2021
£m £m
Branch-based lending 167.0 157.2
Guarantor loans 10.1 26.8
Home credit(2) - 24.0
Total 177.1 208.0
(2) Home credit division placed into administration on 15 March 2022 and
therefore derecognised from the Group.
Online presentation on 28 April 2023
There will be webcast presentation of the results at 09:30 on 28 April 2023
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.
For more information:
Non-Standard Finance plc +44 (0) 20 3869 9020
Jono Gillespie Group Chief Executive
Sarah Day Group Company Secretary and Chief ESG Officer
H/Advisors Maitland +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, dealt with the impact of
rising inflation and an uncertain UK economic environment on our operations
whilst also managing the impact on our balance sheet which remains in a net
liabilities position.
Following the reviews which started with the FCA's multi-firm review into the
guarantor loan business in March 2020, it also became clear that Loans at
Home, the Group's home credit business (trading out of the legal entity
S.D.Taylor Limited), 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 to
preserve value for creditors. As the operations and activities of Loans at
Home were separate from the rest of the Group, the Board of NSF confirms that,
having received certain waivers from the Group's secured lenders, the
administration of Loans at Home has had minimal impact on the rest of the
Group's business.
In addition, the Group has been in the process of developing an appropriate
redress scheme for Guarantor Lending customers since August 2020 and more
latterly development of the Scheme since June 2022 to address redress claims
in relation to its historical unaffordable lending. As noted in the 2022
half year announcement, although the independent review of the branch-based
lending division carried out in 2021 identified no systemic issues requiring
redress, as this division and the guarantor loans division (now in
collect-out) trade out of the same legal entity (Everyday Lending Limited),
the Scheme encompasses potential claims from both divisions in order to ensure
equitable treatment of customers. The practice statement letter for the scheme
was published on 17 March 2023 and the Board considers that there is a
reasonable prospect of the Scheme being successfully sanctioned by the Court.
Due to the developments described above, the Group is seeking to progress the
Proposed Recapitalisation or Alternative Transaction in readiness, should the
Court sanction the Scheme. As the Group's loan to value ratio during the
year was higher than the level allowed under its loan to value covenant, the
Group has received the requisite waivers and extensions to avoid a covenant
breach so that it can progress with the Scheme and, if successfully sanctioned
by the Court, the Proposed Recapitalisation. The Group's secured lenders
continue to provide temporary waivers and have expressed their support for the
business. As such, they have agreed to enter into the Alternative Transaction
in the event that the Scheme is successfully sanctioned, but that the
Conditions, to the Proposed Recapitalisation are not satisfied, such that the
branch-based lending business would be preserved as a going concern, but
which, if implemented, would result in no recovery for the Group's current
shareholders and the Company (ultimate parent company) may enter into an
insolvency process. Both the Proposed Recapitalisation and the Alternative
Transaction include both significant debt write offs and extensions to the
term of the Group's existing debt facilities to support the business going
forward.
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 Proposed Recapitalisation or
Alternative Transaction (which themselves are subject to the sanctioning of
the Scheme and the Conditions), 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
2022 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, if the Scheme and the subsequent Proposed Recapitalisation
go ahead, the Group and Company will have raised 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 Proposed Recapitalisation or Alternative Transaction will
reduce high levels of gearing, fund the partial payment of redress claims and
underpin the future growth of the Group's 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 balance 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.
Without the successful completion of the Scheme and the Proposed
Recapitalisation (or the Alternative Transaction in the event the Conditions,
to the Proposed Recapitalisation are not satisfied, which, if implemented,
would result in no recovery for the Group's current shareholders and the
Company (ultimate parent company) may enter into an insolvency process), the
balance sheet remains deeply insolvent. In the event that the Scheme is
not sanctioned by the court, or in the event that both the Proposed
Recapitalisation and the Alternative Transaction fail, there would be a very
significant likelihood of a Group-wide insolvency (most likely
administration), resulting in no return for current shareholders and a
significantly reduced return for secured lenders. However, the Directors
continue to believe there is a reasonable prospect of resolving this position
through the Scheme, which was recently launched on 17 March 2023, and the
Proposed Recapitalisation with the Group's largest shareholder and secured
lender support, which remains subject to the Conditions, or, in case of the
Alternative Transaction, the support of the secured lenders (noting, as above,
that the Alternative Transaction may result the Company (ultimate parent
company) entering into an insolvency process).
2022 full year results
Since emerging from the effects of the pandemic, a new set of economic
challenges has presented itself, particularly the inflationary environment
causing a cost-of-living crisis. However, these circumstances have proven to
be supportive for the need for non-standard finance and created a liquidity
gap for those not served by traditional lenders.
The Group reported an increased normalised loss before tax of £24.6m (2021:
normalised loss before tax of £16.7m). Once again, the full year results were
impacted by a number of non-operating items as well as the home credit
division being placed into administration and derecognised from the Group on
15 March 2022. The guarantor loans division collect out continues to progress
well whilst the branch-based lending business continues to deliver good
financial performance driven by higher revenues and loan book growth. Group
revenues decreased 25% from £131.4m to £98.3m due to the aforementioned
derecognition of the home credit division in Q1 and collect out of guarantor
loans, however this was partly offset by the higher revenue at branch-based
lending which increased 6% to £84.5m (2021: £79.9m) as a result of higher
revenue yields, with yields having reduced during 2020 and 2021 following an
increase in the number of customers utilising forbearance measures during the
pandemic. Impairments at branch-based lending were higher in the current
period at £26.7m (2021: £19.0m) due to 2021 benefitting from lower lending
volumes, however despite this, collections performance remained strong
throughout 2022. Administrative expenses for the Group were lower by 31% at
£65.9m (2021: £96.0m) as 2021 included a full year of the home credit
division. Excluding this, the Group saw savings in expenses at its guarantor
loans division with a decrease of 32% to £7.3m (2021: £10.7m) as the
division continues to wind down and savings in staff costs, professional fees
and complaints costs are realised. The branch-based lending division however
saw increased spend on employee costs following investment in expanding the
operational headcount to drive the growth in new lending resulting in
administrative expenses increasing by 9%. The Group also remains in a net
liability position, due to the net losses over the past few years, the
derecognition of the home credit division and the continued non-recognition of
deferred tax assets. The Group is progressing with plans to resolve its
regulatory issues via the Scheme and support from the Group's secured lenders
and largest shareholder (subject to the Conditions), means the Board continue
to believe that there is a reasonable prospect of resolving the current
position subject to the implementation of the Scheme and the Proposed
Recapitalisation (or the Alternative Transaction).
A summary of the other key performance indicators for each of our businesses
for 2022 is shown below:
Key performance indicators(1) Branch-based lending Guarantor loans(3)
Year ended 31 Dec 22
Loan book growth 6.2% (62.1)%
Revenue yield 52.3% 38.3%
Risk adjusted margin 35.8% 47.7%
Impairments/revenue 31.6% (24.4)%
Impairments/average net loan book 16.5% (9.3)%
Cost: income ratio 59.8% 111.4%
Operating profit margin 8.5% 12.8%
Return on assets 4.5% 4.9%
Key performance indicators(1) Branch-based lending Home credit(2) Guarantor loans(3)
Year ended 31 Dec 21
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%
1 See glossary of alternative performance measures and key performance
indicators in the Appendix.
2 The home credit division went into administration on 15 March 2022.
3 The Guarantor Loans Division was placed into managed run-off on 30 June
2021 and did not issue any new loans in 2021 and 2022.
The reduction in the net loan book from the collect out of the guarantor loans
division and administration and subsequent derecognition of the home credit
division was the main driver behind the 25% reduction in normalised and
reported revenue to £98.3m (2021: £131.4m). Higher interest rates in 2022
also contributed to 12% higher finance costs in the year. This meant that the
Group produced a normalised loss per share of 7.87p (2021: normalised loss per
share of 5.36p).
The Group's 2022 and 2021 reported, or statutory results were both affected by
exceptional items, a summary of which is shown in the table below. The 2022
results saw greater impact from the derecognition and impairments related to
the home credit division and the provision for customer redress and scheme
costs.
Year ended 31 December 2022 2021
£000
£000
Exceptional items
Advisory fees - (1,580)
Write down of balance sheet relating to home credit division - (8,542)
Loss on derecognition of the home credit division (5,647) -
Impairment of intercompany receivable with home credit division (13,714) -
Scheme of arrangement customer redress and costs (12,407) (2,207)
Restructuring costs - (601)
Total (31,768) (12,930)
The Group reported a statutory loss before interest and tax of £27.3m (2021:
loss before interest and tax of £3.6m) and a statutory loss before tax of
£56.4m (2021: £29.6m).
A summary of the performance of each division in 2022 is given below with
further details in the 2022 financial review.
Branch-based lending
While the impact of the pandemic on lending volumes meant that the net loan
book declined in both 2020 and 2021, the positive recovery in lending volumes
has resulted in the net loan book returning to growth in 2022 and it ended the
year up 6% at £167.0m (2021: £157.2m). We continually look to enhance our
lending processes, including the assessment of creditworthiness and the
refinement of credit scorecards and strategies. Whilst acutely aware of the
cost-of-living crisis, the collections performance of the business remains
ahead of expectation with customer payment levels particularly strong, whilst
early settlements continue below pre-pandemic levels. Delinquency performance
has returned to historically normal levels. The nature of IFRS 9 accounting
meant that lower lending volume in the prior years also helped to reduce
impairment charges however, as lending volumes have continued to recover
throughout 2022, impairment rates are gradually seeing a corresponding
reversal of the recent low levels, though remain below expectations. The
result of this was the division reported a normalised operating profit of
£7.2m (2021: £13.7m). The impact of higher finance costs and exceptional
costs relating to the Scheme meant the division reported a statutory loss
before tax of £20.1m (2021: loss before tax of £0.8m).
The Board continues to believe that the branch-based lending division has
potential for future growth once the Group has resolved its outstanding
regulatory issues and completed the planned Proposed Recapitalisation or
Alternative Transaction (noting, as above, that the Alternative Transaction
may result in the Company (ultimate parent company) entering into an
insolvency process).
Although the independent review of the Group's branch-based lending business
carried out in 2021 identified no systemic issues requiring redress, since
this business and the guarantor loans division trade out of the same legal
entity (ELL), the Scheme will encompass potential claims from both businesses
to ensure equitable treatment of customers. As a result, provisioning for the
scheme redress and operational costs have now been included within the
branch-based lending reporting.
As outlined below, due to the need to launch the Scheme which encompasses both
branch-based lending and guarantor loan customers, to ensure equitable
treatment of customers within the same legal entity, an added exceptional
charge for Scheme costs and customer redress of £12.4m has been recorded in
the 2022 accounts.
Home credit
The Group's home credit division, which traded as Loans at Home ('LAH') out of
S.D.Taylor Limited, was placed into administration on 15 March 2022. In the
first two and a half months of the year the division performed ahead of budget
although it delivered a negative contribution with a normalised operating loss
of £0.5m (2021: normalised operating loss £2.2m).
In the current period, exceptional items of £5.6m in relation to losses on
derecognition of the home credit division were recognised as well as an
additional £13.7m (2021: £nil) of impairments of related receivable balances
held with the division in order to reflect the fact that these may not be
recovered directly by the Group. Whilst the Group will not recover the
balances held directly with LAH following the conclusion of the
administration, as LAH remains a guarantor of the Group's financing
facilities, proceeds from the administration will be paid directly to its
secured lenders, thereby reducing the external debt balance held by the Group
at that point. During H2 2022 £10m of such proceeds were paid from the LAH
administration and a further £3m in February 2023.
Guarantor loans
The Group's guarantor loans division was placed into a managed run-off on 30
June 2021. Since then, the Group has continued to collect out its loan book
balance with the result that the division delivered a positive contribution to
normalised operating profits in the year.
The loan book, net of provisions, has now fallen to £10.1 million (2021:
£26.8m) and the Group continues to focus on collecting out the remaining
book. The ELL Directors, supported by the Group Directors, decided to pursue
the Scheme to address the Group's redress liabilities. As noted in the 2022
Half Year announcement, although the independent review of the branch based
lending division carried out in 2021 identified no systemic issues requiring
redress, as this division and the guarantor loans division (now in
collect-out) trade out of the same legal entity (ELL), the Scheme encompasses
potential claims from both divisions in order to ensure equitable treatment of
customers.
The FCA's current views in relation to the Scheme are set out in its letter of
25 April 2023. The FCA has stated that it does not, at this stage,
anticipate that it will oppose the Scheme from being sanctioned should the
requisite majorities of Scheme Creditors vote in favour of the Scheme. The
FCA has confirmed that it does, however, fully reserve its position in respect
of the Scheme and its right to object to the Scheme in due course, if the FCA
considers it appropriate to do so
Liquidity, funding and going concern
As at 31 December 2022 the Group had cash at the bank of £32.8m (2021:
£114.6m) and gross borrowings of £255.0m (2021: £330.0m). As at 31 March
2023, cash balances were £15.8m and gross borrowings reduced to £252m.
The Group's active loan facility comprises a £285m term loan facility that
matures in August 2023 ('Existing Facilities'), which at the year end had been
partially repaid, with £255m remaining drawn down at 31 December 2022. Having
received appropriate waivers from its secured lenders ensuring that the
administration of Loans at Home would have minimal impact on the rest of the
Group, the Board and its advisers have discussed and reached agreement on the
extension of the existing facilities and the terms under which interest is
paid, dependent upon the successful sanctioning of the Scheme.
The Group's multi-year £200m securitisation facility, which was undrawn at
the start of the year, was closed during the course of the year as it was
unlikely to have been available for use, owing to the associated covenant
requirements embedded in the facility agreement.
As noted in the 2022 Half Year Results, the Group's subsidiary S.D. Taylor
Limited (Loans at Home) was placed into administration on 15 March 2022. As
the operations and activities of Loans at Home were separate from the rest of
the Group, having received certain waivers from the Group's secured lenders,
the administration of Loans at Home has had minimal impact on the existing
funding arrangements of the Group.
For the quarters ended 31 March 2022, 30 June 2022, 30 September 2022 and 31
December 2022, the Group's loan to value (LTV) ratio was higher than the level
permitted under its LTV covenant. The Group has agreed extensions with its
secured lenders such that the LTV covenant will not be formally tested, and no
covenant breach or event of default will arise, until the Group provides its
compliance certificates for the aforementioned quarter dates. The date on
which the Group is required to supply these compliance certificates has been
extended until 17 May 2023, with a mechanism for this date to be extended
further with lender support.
The Group is now pursuing the Scheme in order to provide certainty as to the
amount that will be paid to customers with valid redress claims, which, as
explained above, is one of the Conditions to the Group's largest shareholder
and secured lenders being willing to participate in the Proposed
Recapitalisation (or the Alternative Transaction). Although the independent
review of the Group's branch-based lending division carried out in 2021
identified no systemic issues requiring redress, as this division and the
guarantor loans division (now in collect-out) trade out of the same legal
entity (Everyday Lending Limited), the Scheme encompasses potential claims
from both divisions in order to ensure equitable treatment of customers. On 17
March 2023, the Group sent out a practice statement letter to its creditors
and a first court hearing is scheduled for 28 April 2023.
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 the Group's largest shareholder and secured lenders remain
supportive of the Proposed Recapitalisation subject to the Conditions, while
the Group also has contractual commitments from its secured lenders to support
the Alternative Transaction (noting, as above, that the Alternative
Transaction may result in the Company (ultimate parent company) entering
into an insolvency process and, that although the Group has contractual
commitments from its secured lenders to support the Alternative Transaction,
there is a risk that it will not be possible to implement either the Proposed
Recapitalisation nor the Alternative Transaction. In these circumstances, if
neither the Proposed Recapitalisation or the Alternative Transaction has been
implemented by 31 December 2023, it will not be possible to pay the Scheme
fund into a nominated trust account and the Scheme will fail).
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 2022
Annual Report.
The assumption of support from the Group's largest shareholder and secured
lenders for the Proposed Recapitalisation and 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, each
as outlined above and in the Conditions, 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 Board will continue to monitor the Company and the Group's financial
position (including access to liquidity and balance sheet solvency) carefully
as a better understanding of the impact of these various factors are
developed. The Board recognises the importance of the success of the Scheme
and the Proposed Recapitalisation to mitigate the uncertainties noted above
and to support the future growth prospects of the Group. If the Scheme was not
to be sanctioned or if the Group was otherwise unable to implement the
Proposed Recapitalisation (or the Alternative Transaction in the event the
Conditions, to the Proposed Recapitalisation are not satisfied) following the
successful sanctioning of the Scheme, there would be a material risk of the
Group entering insolvency.
Regulation
Concluding all the Group's outstanding regulatory issues has been a key
priority over the past 24 months. As previously outlined, whilst the
conclusion from the two independent reviews carried out at the request of the
FCA was that there was no requirement for systemic customer redress in
branch-based lending, the Directors of the Group's home credit business, Loans
at Home (trading out of the legal entity S.D. Taylor Limited), reluctantly
concluded that it was no longer viable and so the business was put into
administration on 15 March 2022. As the operations and activities of Loans at
Home are separate from the rest of the Group and following the receipt of
certain waivers from the Group's secured lenders. The administration of
Loans at Home has had minimal impact on the rest of the Group's business. As a
result, the Group is fully committed to the growth of its branch-based lending
business.
Scheme
The Group has decided to pursue the Scheme and, as noted in the half year 2022
announcement, although the independent review of the Group-based lending
division carried out in 2021 identified no systemic issues requiring redress,
as this division and the guarantor loans division (now in collect-out) trade
out of the same legal entity (ELL), the Scheme encompasses potential claims
from both divisions in order to ensure equitable treatment of customers.
As set out in the Practice Statement Letter as published on 17 March 2023, the
Scheme will compromise:
· subject to certain limited exceptions, the redress claims (i.e.
claims in relation to any activity which occurred on or before 31 March 2021
in connection with a loan provided by Everyday Loans, George Banco or Trust
Two; and
· case fees owed to the Financial Ombudsman Service arising from
complaints referred to the FOS on or after 17 March 2023 in relation to any
activity which occurred on or before 31 March 2021 in connection with a loan
provided by Everyday Loans, George Banco or Trust Two (the "FOS Fees").
Under the current expected timetable, the Court convening hearing will be held
on 28 April 2023 and the Court sanction hearing on 22 June 2023, with the
creditors' meeting where the scheme creditors will vote on the Scheme being
held virtually between these dates.
The FCA's current views in relation to the Scheme are set out in its letter of
25 April 2023. The FCA has stated that it does not, at this stage,
anticipate that it will oppose the Scheme from being sanctioned should the
requisite majorities of Scheme Creditors vote in favour of the Scheme. The
FCA has confirmed that it does, however, fully reserve its position in respect
of the Scheme and its right to object to the Scheme in due course, if the FCA
considers it appropriate to do so.
The Proposed Recapitalisation and Alternative Transaction
The Scheme is a key component of the Proposed Recapitalisation, which will
ensure the future of the Group and the Everyday Loans business. The Group's
intention is for the Proposed Recapitalisation to be implemented shortly
following Court sanction of the Scheme.
The Proposed Recapitalisation will involve:
· NSF raising gross proceeds of approximately £95 million through
a public equity raise, part of which will be applied towards the cost of the
equity raise and part of which will be used to fund the Scheme Fund and cover
the costs of the Scheme, with the remainder being invested in the Everyday
Loans business;
· the Group's secured lenders releasing a portion of their secured
debt in exchange for shares in NSF;
· the extension of the maturity date under the Group's secured debt
facilities from August 2023 to June 2027; and
· the Company and its advisers exploring the cancellation of NSF's
listing on the Main Market of the London Stock Exchange plc and its admission
of its enlarged share capital to trading on AIM.
The Proposed Recapitalisation has the support in principle of NSF's largest
shareholder and the Group's secured lenders, subject to the Conditions.
NSF expects the equity raise to include both a placing with new and existing
institutional investors as well as an open offer component, whereby existing
shareholders will be provided with an opportunity to participate in the
capital raise. The structure, detailed terms and viability of the equity
raise are expected to be confirmed in Q2 2023 following consultation with
major shareholders and potential investors.
Although the Proposed Recapitalisation will ensure the future of the Group and
the Everyday Loans business, it will materially dilute the interests of the
Company's existing equity holders, most likely to negligible value, unless
they choose to participate in the equity raise.
Completion of the Proposed Recapitalisation is subject to the Conditions.
Assuming all the Conditions are satisfied, NSF expects the Proposed
Recapitalisation to complete at the end of Q2 2023 or the start of Q3 2023.
The Group has also agreed with its secured lenders to implement the
Alternative Transaction if the Scheme is sanctioned but the Conditions to the
Proposed Recapitalisation are not satisfied. The Alternative Transaction would
involve a transfer of the ownership of the Group's business to the secured
lenders (pursuant to a share pledge enforcement) in exchange for the release
of a portion of their secured debt and the provision of a new lending
facility. Part of the proceeds from this new lending facility would be used to
fund the Scheme Fund and cover the costs of this Scheme. Under the Alternative
Transaction, there would be no recovery for the Company's shareholders and the
Company (ultimate parent company) may enter into an insolvency process.
However, if the Scheme is not sanctioned by the Court, or the Scheme is
sanctioned but the Proposed Recapitalisation and the Alternative Transaction
both fail, then the Group would remain insolvent and the most likely outcome
would be a Group-wide insolvency (most likely administration), resulting in no
return for the Company's shareholders, a significantly reduced return for
secured lenders and minimal or no cash recovery for customers with valid
redress claims. In the event that the Scheme is sanctioned and the Alternative
Transaction takes place (due to the failure of the Proposed Recapitalisation),
there would be no recovery for the Company's shareholders.
Complaint handling
Whilst the overall number of complaints received by the Group reduced in 2022,
this was largely due to the closure of Loans at Home which had, until that
point, been on an upwards trend of complaint volumes. The remaining two
divisions saw contrasting trends where branch-based lending increased by 14%
and guarantor loans fell by 23%. The majority of complaints came from three
CMCs in branch-based lending, all of which sent more complaints than the
previous year, and one CMC in guarantor loans. FOS decisions fell
significantly across these two divisions after FOS aimed to clear their
outstanding backlog in the early part of the year.
Consumer Duty
One of the most significant regulatory initiatives in recent years was the
introduction of the new consumer duty which aims to raise the standard for how
firms should be treating consumers. The new principle, rules and guidance were
issued in July 2022 with an expectation to implement within 12 months.
Following on from the issued guidance, the business has created a gap
analysis, a detailed action plan and an implementation plan to fulfil the
requirements ahead of the July 2023 deadline. ELL Directors sit on a steering
group to oversee the project, whilst an experienced project manager has been
employed to drive the project forward and report back to the steering group.
Six separate work streams consisting of senior management have been, and are
currently working on, ensuring all actions are satisfactorily completed within
the expected timeframes. Much of the work done over the past few years has
put the branch-based lending in an excellent position ahead of the new
regulations. However, the project remains a priority and the business is
confident that all elements of the consumer duty will be met.
Further details on the consumer duty and the other pertinent regulatory
developments during 2022 and into 2023 are available on the Group's website:
www.nsfgroupplc.com (http://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 the collect out of guarantor loans has been slightly
ahead of management's expectations. Lending volumes in the first quarter of
2023 were a little better than expected and collections and impairment
performance have 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 2022 the Company did not have any distributable reserves, no final
dividend has been declared. Assuming the Court sanctioning of the Scheme and
the subsequent Proposed Recapitalisation 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 such that, without the successful completion of
the Scheme and the Proposed Recapitalisation (or the Alternative Transaction
in the event the Conditions to the Proposed Recapitalisation) are not
satisfied), the balance sheet remains deeply insolvent. If the Scheme is not
sanctioned by the Court, or the Scheme is sanctioned but the Proposed
Recapitalisation and the Alternative Transaction both fail, then the Group
would remain insolvent and the most likely outcome would be a Group-wide
insolvency (most likely administration), resulting in no return for the
current shareholders, a significantly reduced return for secured lenders and
minimal or no cash recovery for customers with valid redress claims. In the
event that the Scheme is sanctioned and the Alternative Transaction takes
place (due to the failure of the Proposed Recapitalisation), there would be no
recovery for the Company's shareholders and the Company (ultimate parent
company) may enter into an insolvency process.
The Directors continue to believe there is a reasonable prospect of resolving
this position through the Scheme and the Proposed Recapitalisation with the
support in principle of the Group's largest shareholder and secured lenders,
which support remains subject to the Conditions, or, in case of the
Alternative Transaction, the support of the secured lenders.
Assuming the Proposed Recapitalisation or Alternative Transaction is
completed as planned, our focus in 2023 is to re-energise the business
following the enormous structural changes over the past few years and the
regulatory changes to the industry more generally. As outlined in the 2022
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 23 June 2023. A separate
notice of meeting will be being sent to shareholders nearer the time of the
meeting and will be available from the Group's website: www.nsfgroupplc.com
(http://www.nsfgroupplc.com) .
Jono Gillespie
Group Chief Executive
28 April 2023
2022 Financial Review
Group results
Since emerging from the effects of the pandemic, a new set of economic
challenges has presented itself, particularly the inflationary environment
causing a cost-of-living crisis. However, these circumstances have proven to
be supportive for the need for non-standard finance and created a liquidity
gap for those not served by traditional lenders.
The Group reported an increased normalised loss before tax of £24.6m (2021:
normalised loss before tax of £16.7m). Once again the full year results were
impacted by a number of non-operating items as well as the home credit
division being placed into administration and derecognised from the Group on
15 March 2022. The guarantor loans division collect out continues to progress
well whilst the branch-based lending business continues to deliver good
financial performance driven by higher revenues and loan book growth. Group
revenues decreased 25% from £131.4m to £98.3m due to the aforementioned
derecognition of the home credit division in Q1 and collect out of guarantor
loans, however this was partly offset by the higher revenue at branch-based
lending which increased 6% to £84.5m (2021: £79.9m) as a result of higher
revenue yields, with yields having reduced during 2020 and 2021 following an
increase in the number of customers utilising forbearance measures during the
pandemic. Impairments at branch-based lending were higher in the current
period at £26.7m (2021: £19.0m) due to 2021 benefitting from lower lending
volumes, however despite this, collections performance remained strong
throughout 2022. Administrative expenses for the Group were lower by 31% at
£65.9m (2021: £96.0m) as 2021 included a full year of the home credit
division. Excluding this, the Group saw savings in expenses at its guarantor
loans division with a decrease of 32% to £7.3m (2021: £10.7m) as the
division continues to wind down and savings in staff costs, professional fees
and complaints costs are realised. The branch-based lending division however
saw increased spend on employee costs following investment in expanding the
operational headcount to drive the growth in new lending resulting in
administrative expenses increasing by 9%.
There were £31.8m of exceptional items (2021: £12.9m) comprised of £5.7m in
relation to the derecognition of the home credit division following the
business being placed into administration on 15 March 2022, a £13.7m charge
in relation to impairment of intercompany receivable balances following the
administration of the home credit division, and an additional £12.4m of costs
and redress provisions in relation to the Scheme. 2021 exceptional costs
comprised £2.2m of additional customer redress, £1.6m of advisory fees,
£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.
Cash balances decreased to £32.8m (2021: £114.6m) following the full
repayment of the RCF and part repayments of the term loan made during the
year. The high interest environment however adversely impacted net finance
costs and the total charge in the period was £29.1m (2021: £26.0m).
The net effect was that the Group reported a statutory loss before tax of
£56.4m (2021: loss of £29.6m) and with no tax charge/credits recognised in
the year, the reported loss after tax was £56.4m (2021: loss of £29.7m).
The resulting reported loss per share was 18.0p (2021: loss per share of
9.5p).
The Group also remains in a net liability position, due to the net losses over
the past few years, the derecognition of the home credit division and the
continued non-recognition of deferred tax assets. The Group is continuing is
progressing with plans to resolve its regulatory issues via the Scheme and
support in principle from the Group's secured lenders and largest shareholder
means the Board continue to believe that the balance sheet situation will be
remedied subject to a successful completion of the Scheme and Proposed
Recapitalisation (or the Alternative Transaction in the event the Conditions,
to the Proposed Recapitalisation are not satisfied) noting, as above, that the
Alternative Transaction may result in the Company (ultimate parent company)
entering into an insolvency process.
Normalised figures are before exceptional items.
Year ended 31 December 2022 2022 2022
Normalised(1) Exceptional items Reported
£000
£000
£000
Revenue 98,337 - 98,337
Other operating income 173 - 173
Modification loss (262) - (262)
Impairments (27,890) - (27,890)
Administration expenses (65,898) - (65,898)
Operating profit / (loss) 4,460 - 4,460
Exceptional items - (31,768) (31,768)
Profit / (Loss) before interest and tax 4,460 (31,768) (27,308)
Finance cost (29,051) - (29,051)
Loss before tax (24,591) (31,768) (56,359)
Taxation - - -
Loss after tax (24,591) (31,768) (56,359)
Loss per share (7.86) (18.04)
Dividend per share 0.00p 0.00p
Year ended 31 December 2021 2021 2021
Normalised(1) Exceptional items Reported
£000
£000
£000
Revenue 131,387 - 131,387
Other operating income 983 - 983
Modification loss (2,861) - (2,861)
Impairments (24,163) - (24,163)
Exceptional provision for customer redress - (2,207) (2,207)
Administration expenses (96,047) - (96,047)
Operating profit / (loss) 9,299 (2,207) 7,092
Other exceptional items - (10,723) (10,723)
Profit / (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
1 See glossary of alternative performance measures and key performance
indicators in the Appendix.
Normalised divisional results
The table below provides an analysis of the 'normalised' results for the Group
for the 12-month period to 31 December 2022. Management believes that by
removing the impact of exceptional items, the normalised results provide a
clearer view of the underlying performance of the Group
Year ended 31 Dec 2022 Normalised(1) Branch-based lending Home credit Guarantor loans Central costs Group
£000
£000
£000
£000
£000
Revenue 84,470 7,315 6,552 - 98,337
Other operating income 173 - - - 173
Modification loss (250) - (12) - (262)
Derecognition loss - - - -
Impairments (26,704) (2,781) 1,595 - (27,890)
Administration expenses (50,493) (5,065) (7,300) (3,040) (65,898)
Operating profit/(loss) 7,196 (531) 835 (3,040) 4,460
Finance cost (14,925) (257) (2,000) (11,869) (29,051)
Loss before tax (7,729) (788) (1,165) (14,909) (24,591)
Taxation (102) 123 - (21) -
Loss after tax (7,831) (665) (1,165) (14,930) (24,591)
Normalised loss per share (7.87)p
Dividend per share 0.00p
Year ended 31 Dec 2021 Normalised(1) Branch-based lending Home credit Guarantor loans Central costs Group
£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)
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
(1) See glossary of alternative performance measures and key performance
indicators in the Appendix.
Net loan book 31 December 2022 31 December 2021
£m £m
Branch-based lending 167.0 157.2
Guarantor loans 10.1 26.8
Home credit(2) - 24.0
Total 177.1 208.0
(2) Home credit division placed into administration on 15 March 2022 and
therefore derecognised from the Group.
Impairment provisioning - coverage ratios
Consistent with prior year, the below shows coverage ratios excluding
adjustments for modification and derecognition gains and losses in order to
allow more direct comparability with sector companies:
31 December 2022 31 December 2021 Change
Branch-based lending 17.6% 19.0% -1.4%
Home credit N/A 46.7% N/A
Guarantor loans 38.3% 33.2% 5.1%
Group 19.1% 25.5% -6.4%
Coverage ratios at branch based lending improved whilst worsening at guarantor
loans due to the reducing size of the loan book as the division remains in
collect-out. The Group coverage ratio fell 6.4% as a result of the home credit
division no longer being part of the Group.
Divisional review
Branch-based lending
Financial results
Year ended 31 December 2022 2022 2022
Normalised(3) Exceptional items Reported
£'000 £'000 £'000
Revenue 84,470 - 84,470
Other operating income 173 - 173
Modification gain/(loss) (250) - (250)
Impairments (26,704) - (26,704)
Admin expenses (50,493) - (50,493)
Operating profit 7,196 - 7,196
Exceptional items - (12,407) (12,407)
Profit/(loss) before interest and tax 7,196 (12,407) (5,211)
Finance costs (14,925) - (14,925)
Loss before tax (7,729) (12,407) (20,136)
Taxation (102) - (102)
Loss after tax (7,831) (12,407) (20,238)
Year ended 31 December 2021 2021 2021
Normalised(3) Exceptional items Reported
£'000 £'000 £'000
Revenue 79,940 - 79,940
Other operating income 384 - 384
Modification gain/(loss) (1,383) - (1,383)
Impairments (18,994) - (18,994)
Admin expenses (46,294) - (46,294)
Operating profit 13,653 - 13,653
Exceptional items - - -
Profit/(loss) before interest and tax 13,653 - 13,653
Finance costs (14,491) - (14,491)
Loss before tax (838) - (838)
Taxation 48 - 48
Loss after tax (790) - (790)
The business saw a 20% increase in the volume of qualifying 'applications to
branch' ('ATBs') during 2022 versus the full year 2021. This drove an
increase in the total number of loans booked, with new money lent to customers
increasing 19% in comparison to 2021. While the impact of the pandemic on
lending volumes meant that the net loan book declined in both 2020 and 2021,
the positive recovery in lending volumes has resulted in the net loan book
returning to growth in 2022 and it ended the year up 6% at £167.0m (2021:
£157.2m). The number of active customers has seen a small increase to 66,500
at December 2022 (December 2021: 66,000).
We continually look to enhance our lending processes, including the assessment
of creditworthiness and the refinement of credit scorecards and strategies.
Whilst acutely aware of the cost-of-living crisis, the collections performance
of the business remains ahead of expectation with customer payment levels
particularly strong, whilst early settlements continue below pre-pandemic
levels. Delinquency performance has returned to historically normal levels.
The nature of IFRS 9 accounting meant that lower lending volume in the prior
years also helped to reduce impairment charges however, as lending volumes
have continued to recover throughout 2022, impairment rates are gradually
seeing a corresponding reversal of the recent low levels, though remain below
expectations.
Key Performance Indicators(3) 2022 2021
Number of branches 77 75
Period end customer numbers (000) 66.5 66.0
Period end loan book (£m) 167.0 157.2
Average loan book (£m) 161.5 163.7
12 Month Rolling:
Revenue yield 52.3% 48.8%
Risk adjusted margin 35.8% 37.2%
Impairments/revenue 31.6% 23.8%
Impairments (including modifications)/revenue 31.9% 25.5%
Impairment/average loan book 16.5% 11.6%
Cost to income ratio 59.8% 57.9%
Operating profit margin 8.5% 17.1%
Return on asset 4.5% 8.3%
(3 ) (See glossary of alternative performance measures and key performance
indicators in the Appendix.)
Revenues increased 6% to £84.5m (2021: £79.9m) despite lower average
receivables due to a higher revenue yield. Yields reduced during 2020 and 2021
following an increase in the number of customers utilising forbearance
measures during the pandemic. Modification losses were lower at £0.3m
(2021: £1.4m) with the prior year seeing an increased level of deferred and
rescheduled loans as the business utilised forbearance measures as a result of
the pandemic. Impairments were higher in the current period at £26.7m
(2021: £19.0m) with corresponding increases in the impairment ratios, due to
2021 benefitting from lower lending volumes (whereby the nature of IFRS 9
means lower lending helps reduce impairment charges). Despite the higher
impairment costs, collections performance remained strong throughout 2022,
supported by continued tight underwriting with a rigorous creditworthiness
assessment and strengthening of the credit scorecards and strategies.
Increased spend on employee costs following investment in expanding the
operational headcount to drive the growth in new lending and the filling of
support staff vacancies has resulted in administrative expenses increasing by
9% to £50.5m (2021: £46.3m). The net impact of all of these factors was that
normalised operating profit fell to £7.2m (2021: £13.7m).
As detailed above, the Group has now launched the Scheme to address its
redress liabilities, which will provide certainty as to the amount that will
be paid to customers with valid redress claims. Although the independent
review of the Group's branch-based lending business carried out in 2021
identified no systemic issues requiring redress, since this business and the
guarantor loans division trade out of the same legal entity, the Scheme
encompasses potential claims from both businesses in order to ensure equitable
treatment of customers. The exceptional charge in the year of £12.4m relates
to costs and redress associated with the Scheme.
Finance costs increased by 3% to £14.9m (2021: £14.5m) funding growth in the
loan book. As a result of the reasons noted above, the business produced a
normalised pre-tax loss of £7.7m (2021: loss before tax of £0.8m).
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 2022 is
summarised below:
Network capacity - Qualifying application levels have grown steadily through
2021 and 2022 and the recruitment of in-branch employees has increased
alongside this to take advantage of the return to growth. In-branch full time
employee numbers have increased from 341 at December 2021 to 377 at the end of
December 2022 with plans to increase further throughout 2023. The branches
that were originally planned to be opened in late 2020 but were deferred by
the pandemic were successfully opened in 2022, splitting larger branches in
the North West and North East conurbations to take advantage of the growth
opportunities in these areas. This increases the total number of branch
locations to 77. Two further branches are planned to open in the second half
of 2023.
Lead volumes - The number of qualified new borrower applications increased by
19% in 2022 compared to 2021 levels. Due to a more cautious approach to
lending post-pandemic, new borrower conversion rates dipped slightly to 6.1%
(2021: 6.5%) whilst new borrower loans written increased by 13%. We credit
scored 2.5 million new borrower applications in 2022 (2021: 1.7 million) of
which 485,055 (2021: 403,800) applications passed our screening criteria to
qualify as applications to branch (ATBs).
Productivity and quality - The total number of loans issued in 2022 reached
38,781 (2021:37,150) a 4% increase over the prior year. The focus on better
quality customers led to new cash lent increasing 19% to £121m compared to
£102m in 2021. We continue to invest in the enhancement of our technology. A
new integrated telephony solution was implemented in the current year, this
alongside continued strengthening of our creditworthiness process and open
banking improvements will drive efficiencies in our lending processes whilst
continuing to deliver good customer outcomes and improved customer journeys.
Delinquency management -Increasing costs of living were a key concern for our
customers across the year. A continual review process ensured that our
underwriting remained appropriate from both credit risk and affordability
perspectives and we maintained a high quality of new lending. Pro-active
communication and monitoring of forbearance tools ensured that existing
customers continued to have the support they need. This was further enhanced
by the introduction of a central collections team, utilising available
capacity from within the Guarantor Loans business as that loan book runs down.
As a result, collections performance was consistently ahead of expectations
throughout the year, and by year end the proportion of the loan book that was
up-to-date and not rescheduled or deferred had recovered to the pre-Covid
levels of early 2020.
Plans for 2023
We remain focused on our commitment to servicing the needs of those consumers
that may have been excluded from mainstream lenders, using our face-to-face
lending model. We continue to evolve our credit risk assessment processes in
order to maintain the highest standards of responsible lending, ensuring that
we continue to deliver good customer outcomes for all our customers. The
ability to grow the business efficiently and enhancing the customer journey
are key areas of focus in 2023. Investment in in-branch recruitment, a focus
on streamlining back-office tasks and embracing technology opportunities such
as 'Open Banking' will reduce waiting times for customers through a smoother
application process.
We continue to expect that the demand for our products and services will
increase given the current macroeconomic environment as well as from some of
the structural changes in the market regarding both potential customer
population and companies operating in the market. As a result, and whilst we
remain vigilant given the rapidly changing environment, based on our
performance to-date and the steps already taken, we continue to focus on
operational efficiency and loan book growth through 2023 and beyond. Future
growth plans will require the Group to complete the Scheme and the Proposed
Recapitalisation or Alternative Transaction, but once achieved, the business
will be well placed to realise that vision.
Home credit
Following the conclusions of the review into home credit, the Directors of
S.D. Taylor 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
administration was the only option available in order to preserve value for
creditors. As the operations and activities of Loans at Home were separate
from the rest of the Group, having received certain waivers from the Group's
secured lenders, the administration of Loans at Home has had minimal impact on
the rest of the Group's business.
The results of the home credit division for the period ended 14 March 2022 are
shown below:
Financial results
The home credit division contributed a normalised operating loss of £0.5m to
the Group (2021: normalised operating loss of £2.2m). An exceptional charge
of £5.6m was recognised in 2022 in relation the derecognition of the
remaining net assets of the division existing at the date of administration.
Period to 14 March 2022 2022 2022
Normalised(4) Exceptional items Reported
£'000 £'000 £'000
Revenue 7,315 - 7,315
Other income - - -
Impairments (2,781) - (2,781)
Admin expenses (5,065) - (5,065)
Operating loss (531) - (531)
Exceptional items - (5,647) (5,647)
Loss before interest and tax (531) (5,647) (6,178)
Finance cost (257) - (257)
Loss before tax (788) (5,647) (6,435)
Taxation 123 - 123
Operating loss (665) (5,647) (6,312)
Year ended 31 December 2021 2021 2021
Normalised(4 Exceptional items Reported
) £000
£000
£000
Revenue 38,401 - 38,401
Other income 587 - 587
Impairments (6,230) - (6,230)
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)
(4) ( )(See glossary of alternative performance measures and key performance
indicators in the Appendix.)
Guarantor loans
The Group's guarantor loans division was placed into a managed run-off in June
2021 and so continues not to issue any new loans. Therefore the financial
performance of the business has been driven by collections from the
outstanding loan book.
Financial results
The reduction in the net loan book meant that revenue declined by 49% to
£6.6m (2021: £13.0m). Collections performance during 2022 has remained
strong, leading to impairments of £(1.6)m (2021: £(1.1m). Administration
costs fell by 32% to £7.3m (2021: £10.7m) as the division continues to wind
down and savings in staff costs, professional fees and complaints costs are
realised. The division achieved a normalised operating profit of £0.8m (2021:
£1.9m) whilst strong cashflow has contributed to lower finance costs that
reduced the normalised loss before tax to £1.2m (2021: loss before tax of
£2.4m).
Year ended 31 December 2022 2022 2022
Normalised(5) Exceptional items Reported
£'000 £'000 £'000
Revenue 6,552 - 6,552
Other income - - -
Modification gain/(loss) (12) - (12)
Impairments 1,595 - 1,595
Admin expenses (7,300) - (7,300)
Operating profit/(loss) 835 - 835
Exceptional items - - -
Profit/(loss) before interest and tax 835 - 835
Finance costs (2,000) - (2,000)
Loss before tax (1,165) - (1,165)
Taxation - - -
Loss after tax (1,165) - (1,165)
Year ended 31 December 2021 2021 2021
Normalised(5) Exceptional items Reported
£'000 £'000 £'000
Revenue 13,046 - 13,046
Other income 1 - 1
Modification gain/(loss) (1,478) - (1,478)
Impairments 1,061 - 1,061
Exceptional provisions - (2,207) (2,207)
Admin expenses (10,695) - (10,695)
Operating profit/(loss) 1,935 (2,207) (272)
Exceptional items - (601) (601)
Profit/(loss) before interest and tax 1,935 (2,808) (873)
Finance costs (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)
Key Performance Indicators(5) 2022 2021
Period end customer numbers (000) 6.8 14.5
Period end loan book (£m) 10.1 26.8
Average loan book (£m) 17.1 40.6
12 Month Rolling:
Revenue yield 38.3% 32.1%
Risk adjusted margin 47.7% 34.7%
Impairment/revenue (24.4)% (8.1)%
Impairment (including modifications)/revenue (24.2)% 3.2%
Impairment/average loan book (9.3)% (2.6)%
Cost to income ratio 111.4% 82.0%
Operating profit margin 12.8% 14.8%
Return on asset 4.9% 4.8%
(5) (See glossary of alternative performance measures and key performance
indicators in the Appendix.)
Plans for 2023
The collect-out of the outstanding loan book is progressing well and as
planned.
Central costs
Year ended 31 December 2022 2022 2022
Normalised(6) Exceptional items Reported
£000 £000 £000
Revenue - - -
Other income - - -
Admin expenses (3,040) - (3,040)
Operating loss (3,040) - (3,040)
Exceptional items - (13,714) (13,714)
Loss before interest and tax (3,040) (13,714) (16,754)
Finance costs (11,869) - (11,869)
Loss before tax (14,909) (13,714) (28,623)
Taxation (21) - (21)
Loss after tax (14,930) (13,714) (28,644)
Year ended 31 December 2021 2021 2021
Normalised(6 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 (580) - (580)
Loss after tax (10,701) (1,580) (12,281)
(6) ( )(See glossary of alternative performance measures and key performance
indicators in the Appendix.)
Normalised administrative expenses fell by 26% to £3.0m (2021: £4.1m) driven
principally by lower staff, rent and professional fees. Finance fees increased
due to surplus cash held at Group level alongside higher interest rates.
An exceptional charge of £13.7m relates to impairments recognised on
intercompany receivable balances held with the home credit division. Prior
year exceptional costs comprised £1.6m of advisory fees.
Balance sheet
As at 31 December 2022, the Group had increased its cash balances to £32.8m
(2021: £114.6m) and gross debt reduced to £255m (2021: £330m). The
Group's balance sheet remained in a negative net tangible assets position. A
summary of the Group's balance sheet at December 2022 is shown below:
Year ended 31 December 2022 2021
£000
£000
Loan book 177,104 207,984
Cash 32,783 114,577
Trade receivables and other assets 1,363 4,003
Property, plant and equipment, intangibles and right of use assets 12,719 14,574
Payables and provisions (59,055) (44,018)
Lease liability (7,460) (9,545)
Debt (255,000) (328,762)
Net (liabilities)/assets (97,546) (41,187)
The clear priority for the Group is to complete the Proposed Recapitalisation
that, if successful, is expected to, amongst other things, fund the Scheme,
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 success of the Scheme and execution of the Proposed
Recapitalisation (or the Alternative Transaction, noting, as above, that the
Alternative Transaction may result in the Company (ultimate parent company)
entering into an insolvency process) which casts 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:
· Going concern, solvency and liquidity - the Directors note that
material uncertainties exist regarding the: (i) success of the Scheme,
including positive creditor votes and the court sanction of the Scheme within
the timeframes required; (ii) the ability of the Group to raise sufficient
capital in the timeframes required (iii) the agreement of extensions to the
testing dates and other forms of waivers from secured lenders in relation to
potential future covenant breaches and implementation of the Scheme prior to
completion of the Proposed Recapitalisation (or the Alternative Transaction);
(iv) the contractual commitments from secured lenders to extend the term of
existing debt facilities and to write off a portion of their debt as well as
agree other changes to the facilities (including the covenant levels); and (v)
the impact of macroeconomic uncertainties and other unforeseen factors on the
financial performance of the Group. The range of assumptions and the
likelihood of them all proving correct creates material uncertainty and
therefore the impact on liquidity and solvency under both the base case and
downside scenarios may cast significant doubt on both the Group's and
individual division's ability to continue as a going concern. The Director's
note that although the Group has contractual commitments from its secured
lenders to support the Alternative Transaction, there is a risk that it will
not be possible to implement either the Proposed Recapitalisation or the
Alternative Transaction. In these circumstances, if neither the Proposed
Recapitalisation nor the Alternative Transaction has been implemented by 31
December 2023, it will not be possible to pay the Scheme fund into a nominated
trust account and the Scheme will fail. Refer to the going concern statement
in note 1 of the financial statements for further detail on the base and
downside case;
· 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,
some of which have crystallised in the year. Due to the need to bring this
uncertainty to a resolution, the Group has launched the Scheme to address the
redress claims which will provide certainty as to the amount that will be paid
to customers with valid redress claims. As outlined above, the review into
branch-based lending concluded that there was no need for systemic customer
redress, although claims in relation to the branch-based lending business have
been included in the Scheme. The conclusion of the home credit review resulted
in the administration of the business as it was concluded that the business
model was no longer viable and that an administration was the only option
available to preserve value for creditors.
§ Conduct - risk of poor outcomes for our customers or other key stakeholders
as a result of the Group's actions;
§ Credit - risk of loss through poor underwriting or a diminution in the
credit quality of the Group's customers;
§ Business strategy - risk that the Group's strategy fails to deliver the
outcomes expected;
§ Business risks:
o operational - the Group's activities are large and complex and so there
are many areas of operational risk that include technology failure, fraud,
staff management and recruitment risks, underperformance of key staff, the
risk of human error, taxation, increasing numbers of customer complaints,
health and safety as well as disaster recovery and business continuity risks;
o reputational - a failure to manage one or more of the Group's principal
risks may damage the reputation of the Group or any of its subsidiaries which
in turn may materially impact the future operational and/or financial
performance of the Group;
o cyber - increased connectivity in the workplace coupled with the
increasing importance of data and data analytics in operating and managing
consumer finance businesses means that this risk has been identified
separately from operational risk;
o aftermath of pandemic - a large pandemic such as COVID-19, coupled with
the possibility of the return of 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; and
o cost of living crisis - the significant pressure of the cost of living at
the current time increases the risk of delinquency for some customers, whilst
also presenting an opportunity for the business in terms of those potential
customers who may previously have been served by the prime financial services
sector.
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. Further details
are included on page 27 of the 2022 Annual Report.
On behalf of the Board of Directors
Jono Gillespie
Group Chief Executive
28 April 2023
Consolidated statement of comprehensive income
for the year ended 31 December 2022
Note Before Exceptional items(3) Year ended
exceptional items £000 31 Dec 2022
£000 £000
Revenue(1) 3 98,337 - 98,337
Other operating income 173 - 173
Modification loss 10 (262) - (262)
Impairment of financial assets(2) (27,890) - (27,890)
Administrative expenses (65,898) - (65,898)
Operating profit/(loss) 4 4,460 - 4,460
Exceptional items 6 - (31,768) (31,768)
Profit/(loss) on ordinary activities before interest and tax 4,460 (31,768) (27,308)
Finance costs (29,051) - (29,051)
Loss on ordinary activities before tax (24,591) (31,768) (56,359)
Tax on loss on ordinary activities 7 - - -
Loss for the year (24,591) (31,768) (56,359)
Total comprehensive loss for the year (56,359)
1 Revenue comprises interest income calculated using the EIR method.
2 Impairments comprise expected credit losses on amounts receivable from
customers. Refer to note 10 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 (56,359)
· Non-controlling interests -
Loss per share
Note Year ended
31 Dec 2022
Pence
Basic and diluted 8 (18.04)
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 2021
Note Before Exceptional items(3) Year ended
exceptional items £000 31 Dec 2021
£000 £000
Revenue(1) 3 131,387 - 131,387
Other operating income 983 - 983
Modification loss 10 (2,861) - (2,861)
Impairment of financial assets(2) (24,163) - (24,163)
Exceptional provision for customer redress 6 - (2,207) (2,207)
Administrative expenses (96,047) - (96,047)
Operating profit/(loss) 4 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)
Profit/(loss) on ordinary activities before tax (16,680) (12,930) (29,610)
Tax on profit/(loss) on ordinary activities 7 (75) - (75)
Profit/(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 18 in the notes to the financial statements
for further detail.
3 Refer to the appendix for detail of alternative performance measures.
Refer to note 7 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)
Consolidated statement of financial position
as at 31 December 2022
Note 31 Dec 2022 31 Dec 2021
£000 £000
ASSETS
Non-current assets
Intangible assets 2,886 2,772
Deferred tax asset 11 - -
Right-of-use asset 6,834 7,877
Property, plant and equipment 2,999 3,925
Amounts receivable from customers 10 101,969 98,836
114,688 113,410
Current assets
Amounts receivable from customers 10 75,135 109,148
Trade and other receivables 1,363 2,526
Corporation tax asset - 1,477
Cash and cash equivalents 32,783 114,577
109,281 227,728
Total assets 223,969 341,138
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables 12 28,365 18,375
Provisions 24 30,690 25,643
Lease liability 1,765 2,129
Loans and borrowings 255,000 -
Total current liabilities 315,820 46,147
Non-current liabilities
Lease liability 5,695 7,416
Loans and borrowings - 328,762
Total non-current liabilities 5,695 336,178
Equity
Share capital 15 15,621 15,621
Share premium 16 180,019 180,019
Other reserves 255 255
Retained loss (293,441) (237,082)
Total equity (97,546) (41,187)
Total equity and liabilities 223,969 341,138
These financial statements were approved by the Board of Directors on 28 April
2023
Signed on behalf of the Board of Directors.
Jono Gillespie
Group Chief Executive
Consolidated statement of changes in equity
for the year ended 31 December 2022
Note Share Share Other Retained Non- Total
capital premium reserves loss controlling £000
£000 £000 £000 £000 interest
£000
At 31 December 2020 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 - - (330) 330 - -
of share awards
At 31 December 2021 15,621 180,019 255 (237,082) - (41,187)
Total comprehensive loss for the year - - - - (56,359)
(56,359)
Transactions with owners, recorded directly in equity:
Dividends paid 9 - - - - - -
At 31 December 2022 180,019 (293,441) -
15,621 255 (97,546)
Consolidated statement of cash flows
for the year ended 31 December 2022
Note Year ended Year ended
31 Dec 2022 31 Dec 2021
£000 £000
Net cash from/(used in) operating activities 17 17,916 57,762
Cash flows from/(used in) investing activities
Purchase of property, plant and equipment (315) (261)
Purchase of software intangibles (1,092) (2,514)
Proceeds from sale of property, plant and equipment 4 17
Reduction in cash resulting from derecognition of home credit division in (7,062) -
administration
Net cash from/(used in) investing activities (8,465) (2,758)
Cash flows from/(used in) financing activities
Finance cost (24,549) (15,832)
Repayment of principal portion of lease liabilities (1,696) (2,551)
Repayment of loans and borrowings (65,000) -
Dividends paid 9 - -
Net cash from/(used in) financing activities (91,245) (18,383)
Net increase/(decrease) in cash and cash equivalents (81,794) 36,621
Cash and cash equivalents at beginning of year 114,577 77,956
Cash and cash equivalents at end of year 32,783 114,577
Notes to the financial statements
1. Basis of preparation
Basis of preparation
The financial information set out in the announcement does not constitute the
Company's statutory accounts for the years ended 31 December 2022 or 2021.
The financial information for the year ended 31 December 2021 is derived from
the statutory accounts for that year which have been delivered to the
Registrar of Companies. The auditors reported on those accounts: their report
was unqualified and did not contain a statement under s498(2) or (3) of the
Companies Act 2006, but did include a section highlighting a material
uncertainty that may cast significant doubt on the Group and Company's ability
to continue as a going concern.
The statutory financial statements for the year ended 31 December 2022 will be
filed with the Registrar of Companies following the General Meeting to be held
on 23 June 2023. The report of the auditor was unqualified and did not contain
a statement under s498(2) or (3) of the Companies Act 2006, but did include a
section highlighting a material uncertainty that may cast significant doubt on
the Group and Company's ability to continue as a going concern.
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.
On 15 March 2022, the Company's indirect subsidiary S.D Taylor Limited
(trading as 'Loans at Home' and forming the home credit division of the Group)
was placed into administration. As a result, the financial statements of the
home credit division for the prior year ended 31 December 2021 were prepared
on a basis other than going concern. This required carrying value of the
assets to be at the amounts they were expected to realise and the liabilities
included any amounts for onerous contracts as a result of the administration.
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 up to the date of
administration, the financial statements of S.D. Taylor have been consolidated
and are reported in the Group financial statements for the current year up to
14 March 2022 and the prior year for the full year. The financial statements
of the Group have been prepared on a going concern basis with the exception of
the home credit division which was prepared on non-going concern basis (as
described above).
This announcement has been agreed with the Company's auditor for release.
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 2022. 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 any 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
placed into administration on 15 March 2022. Up to the date of administration,
Non-Standard Finance plc retained control of the division and as such, in line
with IAS 10, its results have been consolidated to 14 March 2022 for the
purposes of these financial statements. The appointment of an administrator on
15 March 2022 represents a loss of control by Non-Standard Finance plc, and as
such, the home credit division has been derecognised from this date and the
effect of this reflected in the current 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.
Going concern
As noted in the 2022 Half Year Results, the Group's subsidiary S.D. Taylor
Limited (which traded as Loans at Home) was placed into administration on 15
March 2022. As the operations and activities of Loans at Home were separate
from the rest of the Group, having received certain waivers from the Group's
secured lenders, the administration of Loans at Home has had minimal impact on
the existing funding arrangements of the Group.
For the quarters ended 31 March 2022, 30 June 2022, 30 September and 31
December 2022, the Group's loan to value (LTV) ratio was higher than the level
permitted under its LTV covenant. The Group has agreed extensions with its
lenders such that the LTV covenant will not be formally tested, and no
covenant breach or event of default will arise, until the Group provides its
compliance certificates for the aforementioned quarter dates. The date on
which the Group is required to supply these compliance certificates has been
extended until 17 May 2023, with a mechanism for this date to be extended
further with lender support.
The Group is pursuing a scheme of arrangement (the "Scheme") in order to
resolve its outstanding regulatory issues, so as to allow it to proceed with
its planned restructuring and recapitalisation (the "Proposed
Recapitalisation"). The Proposed Recapitalisation has the support in principle
of the Company's largest shareholder and the Group's secured lenders, subject
to agreement on the terms and other conditions described below and, in the
case of the Company's largest shareholder, further diligence on and its
assessment of the Group's revised business plan and financial projections.
Completion of the Proposed Recapitalisation is subject to the agreement of
terms between lenders and the Company's largest shareholder, and a number of
conditions, including Court sanction of the Scheme, shareholder approval, the
take-up of shares under the equity raise and execution of definitive
documents. Assuming all the above outlined conditions are satisfied (the
"Conditions"), the Group expects the Proposed Recapitalisation to complete at
the end of Q2 2023 or the start of Q3 2023. The Group has also agreed with its
secured lenders to implement an alternative transaction if the Scheme is
sanctioned but the Conditions, to the Proposed Recapitalisation are not
satisfied (the "Alternative Transaction").
Although the independent review of the Group's branch-based lending division
carried out in 2021 identified no systemic issues requiring redress, as this
division and the guarantor loans division (now in collect-out) trade out of
the same legal entity (Everyday Lending Limited), the Scheme encompasses
potential claims from both divisions in order to ensure equitable treatment of
customers. On 17 March 2023, the Group sent out a practice statement letter to
its creditors and a first court hearing is scheduled for 28 April 2023.
In light of the above, the Group has produced two possible scenarios as part
of its going concern assessment:
(i) the base case scenario assumes:
a. the Scheme is successful;
b. the Scheme is sanctioned by the court by the end of June 2023;
c. a substantial equity injection is received in late Q2 or early Q3 2023
(the Proposed Recapitalisation);
d. the Group has obtained extensions to the testing dates and/or other
forms of waivers from its secured lenders for potential covenant breaches to
enable it to proceed with the Proposed Recapitalisation;
e. the extension of the term of the Group's debt facilities and write-off
of a portion of the debt on terms acceptable to investors;
f. the Group is able to raise a revolving credit facility at a level
acceptable to its lenders and potential investors; and
g. should the Proposed Recapitalisation be unsuccessful, the Alternative
Transaction is implemented which would preserve the branch-based lending
business and a going concern, but which, if implemented, would result in no
recovery for the Company's current shareholders and the Company may enter into
an insolvency process.
(ii) the downside scenario assumes:
a. the Scheme is unsuccessful;
b. the Group is unable to complete the Proposed Recapitalisation (or the
Alternative Transaction), whilst no acceptable alternative to the base case
that is capable of implementation is agreed between the Group and its secured
lenders, resulting in the secured lenders enforcing their security and the
Group going into an insolvency process;
c. the Group is not granted extensions to the testing dates and/or other
forms of waivers from its secured lenders of covenant breaches and the Group's
secured lenders become entitled to enforce their security, resulting in the
Group entering an insolvency process; and
d. as a result of the Group entering into an insolvency process, no return
for current shareholders and a significantly reduced return for secured
lenders.
The above downside assumptions are not mutually exclusive. The Group's ability
to complete the Proposed Recapitalisation or the Alternative Transaction is
entirely dependent on the success of the Scheme.
The base case scenario is entirely dependent upon the base case assumptions
listed above proving true. In addition, it is dependent on factors such as
the impact of the cost-of-living crisis and other macroeconomic uncertainties
on performance as well as any further changes in the environment not varying
materially from that assumed in the base case.
The Directors continue to maintain a regular dialogue with key stakeholders
including the Company's largest shareholder and Group's secured lenders
regarding the above matters.
The Directors acknowledge the considerable challenges presented by the
uncertainty around the:
· success of the Scheme;
· the ability of the Group to raise sufficient capital in the
timeframes required;
· the agreement of extensions to the testing dates and other forms
of waivers from secured lenders in relation to potential future covenant
breaches and the implementation of the Scheme and the Proposed
Recapitalisation (or the Alternative Transaction);
· the agreement from secured lenders to extend the term of existing
debt facilities and to write off a portion of their debt as well as agree
other changes to the facilities (including the covenant levels); and
· the impact of macroeconomic uncertainties and other unforeseen
factors on the financial performance of the Group.
In making their overall assessment on going concern, the Directors considered
both the balance sheet solvency and the liquidity position of the Group and
Company. In connection with the former, the Proposed Recapitalisation would
create a positive net asset position. In connection with the latter the
Directors have taken into consideration the impact of the Proposed
Recapitalisation on the existing cash balances which would then be available
to the business. This combination would provide sufficient liquidity
throughout the going concern period. Whilst essential for the future of the
Group and Company, the Proposed Recapitalisation would materially dilute the
interest of current shareholders, most likely to negligible value unless they
chose to participate in the Proposed Recapitalisation. However, the Proposed
Recapitalisation is dependent on the Conditions, including the sanctioning of
the Scheme by the Court, and this dependency creates a material uncertainty.
The secured lenders continue to provide short-term waivers of the Group's loan
to value covenant, ensuring the Group has the liquidity to pursue the Scheme
and the Proposed Recapitalisation (or the Alternative Transaction in the event
the Conditions, to the Proposed Recapitalisation are not satisfied, which, if
implemented, would result in no recovery for the Group's current
shareholders), however the Directors recognise that, in the absence of the
secured 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, assuming the Group is able to raise sufficient equity within
the timeframes required, the Group returns to a net asset position post
Proposed Recapitalisation and remains there for the going concern period.
As noted above, the Group has agreed the Alternative Transaction in the event
that the Scheme is sanctioned but the Proposed Recapitalisation is
unsuccessful, which would preserve the branch-based lending business as a
going concern. However, there is no certainty that the Alternative
Transaction would necessarily be successful and, in this scenario, there would
be no recovery for the Company's current shareholders and the Company may
enter into an insolvency process. Should the going concern assumption not be
appropriate, the assets of the Company would have to be reduced to their
market value which is expected to be £nil and require the recognition of
contractual commitments which would become onerous in relation to the lease
liability held at the Company totalling £62k as at 31 December 2022.
Despite the material uncertainties associated with the forecast assumptions,
the Directors note that the Group's largest shareholder and secured lenders
are supportive in principle, of the Proposed Recapitalisation, subject to
agreement on the terms and the satisfaction of certain conditions, including
further diligence on and its assessment of the Group's revised business plan
and financial projections as outlined in the Conditions noted earlier.
The Directors believe that if the actual outcomes do not differ materially
from the assumptions outlined in the base case, the Group can reasonably
expect to continue to operate and meet its respective liabilities as they fall
due for at least the next 12 months. In regards to the Company, the Directors
believe that under the base case which assumes a successful Proposed
Recapitalisation, the Company can reasonably expect to continue to operate and
meet its respective liabilities as they fall due for at least the next 12
months. However, should the Alternative Transaction be implemented, there
would be no recovery for the Company's current shareholders and the Company
may enter into an insolvency process. Accounting standards require that
financial statements are prepared on a going concern basis unless the
Directors either intend to liquidate the entity or to cease trading or have no
realistic alternative but to do so. The Directors therefore believes it
remains appropriate to prepare the financial statements on a going concern
basis whilst recognising the material uncertainties that remain. The Directors
acknowledge that, whilst a scheme of arrangement is complex, time consuming
and not guaranteed to be successful, they believe that there is a reasonable
chance of success. The Directors' position is, in part, informed by the
favourable performance to date against plan, support the Group has received
from its secured lenders to date, including a contractual commitment to the
Alternative Transaction, in the event the Proposed Recapitalisation fails, and
the fact that the Company's largest shareholder remains supportive in
principle of the Proposed Recapitalisation subject to the Conditions. The
Director's notes that although the Group has contractual commitments from its
secured lenders to support the Alternative Transaction, there is a risk that
it will not be possible to implement either the Proposed Recapitalisation or
the Alternative Transaction. In these circumstances, if neither the Proposed
Recapitalisation nor the Alternative Transaction has been implemented by 31
December 2023, it will not be possible to pay the Scheme fund into a nominated
trust account and the Scheme will fail.
As previously mentioned, the Directors recognise 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 have therefore concluded that a
material uncertainty exists which may cast significant doubt over the Group
and Company's ability to continue as a going concern and therefore, that the
Group and Company may be unable to realise their assets and discharge their
liabilities in the normal course of business.
Should the going concern assumption not be appropriate, the assets of the
Group would have to be reduced to their market values and the liabilities
would have to include any amounts for onerous contracts and in addition, is
likely to result in an increase in the amount of the redress provision.
The Directors will continue to monitor the Group and Company's financial
position (including access to liquidity and balance sheet solvency) carefully
as a better understanding of the impact of these various factors is developed.
The Directors recognise the importance of the success of the Scheme and the
Proposed Recapitalisation 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 and internal
control systems.
Significant judgement
The below factors form a significant judgement of the Directors in the context
of approving the Group and Company's going concern status:
· the assumption of a successful completion of the Scheme,
· support in principle from the Group's largest shareholder for the
Proposed Recapitalisation,
· lender support for waivers and the Proposed Recapitalisation,
· the extension of existing financing facilities and partial
write-off of debt as part of the Proposed Recapitalisation,
· the continued performance of the Group and that the outcomes are
not materially different to those assumptions envisaged under the base case,
and
· should the Proposed Recapitalisation be unsuccessful, lender
support for the Alternative Transaction which would preserve the branch-based
lending business and a going concern, but which, if implemented, would result
in no recovery for the Company's current shareholders and the Company may
enter into an insolvency process.
2. Changes in accounting policies and disclosures
New and amended standards and interpretations for the financial year ending 31
December 2022
There are no other new IFRSs or International Financial Reporting
Interpretations that are effective for the first time for the year ended 31
December 2022 which have a material impact on the Group. The Group has not
applied the following new and revised IFRSs that have been issued but are not
yet effective (effective 1 January 2023): Amendments to IAS 1, Presentation of
financial statements on classification of liabilities; IFRS 17, Insurance
contracts; Amendments to IAS 8, Definition of accounting estimates; Amendments
to IAS 12, Deferred tax relating to assets and liabilities from a single
transaction, and IFRS Practice statement 2, disclosure of accounting policy
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 2022 31 Dec 2021
£000 £000
Interest income 98,337 131,387
Total revenue 98,337 131,387
4. Operating profit/(loss) for the year is stated after charging/(crediting):
Year ended Year ended
31 Dec 2022 31 Dec 2021
£000 £000
Depreciation of property, plant and equipment 1,215 2,175
Depreciation of right-of-use asset 1,462 2,878
Amortisation and impairment of intangible assets 978 7,910
Staff costs excluding agent commission(1) 33,093 42,690
Rentals under operating leases 460 728
Profit/(loss) on sale of property, plant and equipment (1) 454
1 Agent commission for the period ended 14 March 2022 was £1.5m (year ended
31 December 2021: £9.5m). 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 divisions are all located in the United Kingdom and all revenue is
attributable to customers in the United Kingdom.
Branch-based Home Guarantor Central 2022
lending Credit(4) loans(1) £000 Total
£000 £000 £000 £000
Year ended 31 December 2022
Interest income 84,470 7,315 6,552 - 98,337
Other income 173 - - - 173
Total revenue 84,643 7,315 6,552 - 98,510
Operating profit/(loss) before exceptionals 7,196 (531) 835 (3,040) 4,460
Exceptional items(2) (12,407) (5,647) - (13,714) (31,768)
Finance cost (14,925) (257) (2,000) (11,869) (29,051)
Loss before taxation (20,136) (6,435) (1,165) (28,623) (56,359)
Taxation (102) 123 - (21) -
Loss for the year (20,238) (6,312) (1,165) (28,644) (56,359)
Branch-based Home Guarantor Central Consolidation 2022
lending credit loans(1) £000 adjustments(3) Total
£000 £000 £000 £000 £000
Total assets 185,129 - 10,147 197,994 (169,301) 223,969
Total liabilities (226,088) - - (274,061) 178,634 (321,515)
Net assets/(liabilities) (40,959) - 10,147 (76,067) 9,333 (97,546)
Capital expenditure 1,876 - - 73 - 1,949
Depreciation of plant, property and equipment 1,214 - - 1 - 1,215
Depreciation of right-of-use asset 1,451 - - 11 - 1,462
Amortisation and impairment of intangible assets 957 - - 22 - 979
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 Refer to note 6 for further details.
3 Consolidation adjustments include the elimination of intra-Group
balances.
4 The home credit division was placed into administration on 15 March
2022; therefore its results reflect the period up to 14 March 2022.
Branch-based Home credit Guarantor Central 2021
lending £000 loans £000 Total
£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 - - (2,207) - (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 items 13,653 (2,204) (272) (4,085) 7,092
Other exceptional items - (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 Home Guarantor Central Consolidation 2021
lending credit loans £000 Adjustments Total
£000 £000 £000 restated £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 (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 797 7,091 - 23 - 7,910
intangible assets
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 2022, the Group incurred exceptional costs
totalling £31.8m (2021: £12.9m).
Exceptional items during the current year comprised: £5.65m in relation to
the derecognition of the home credit division (S.D. Taylor Limited) which was
placed into administration on 15 March 2022; £13.71m impairments recognised
on related intercompany receivable balances held with the division; and
£12.41m of costs and redress in relation to the Scheme.
Exceptional items during the prior 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 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.
7. Taxation
For the year ended 31 December 2022, 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 2022 totalled
£30.1m (2021: £21.8m unrecognised deferred tax asset).
Year ended Year ended
31 Dec 2022 31 Dec 2021
£000 £000
Current tax charge
Current tax - -
Prior period adjustment to current tax - 75
Total current tax charge - 75
Deferred tax charge(1) - -
Prior period adjustment to deferred tax - -
Total tax (credit)/charge - 75
1 Unrecognised deferred tax assets arising from tax
losses in the current year were £6.3m (2021: £5.0m).
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 2022 31 Dec 2021
£000 £000
Loss before taxation (56,359) (29,610)
Tax on loss on ordinary activities at standard rate of UK corporation tax of (10,708) (5,626)
19% (2021: 19%):
Effects of:
Fixed asset differences 62 114
Non-deductible expenses 4,329 456
Share-based payments - 7
Prior year adjustments - 75
Deferred tax assets not recognised on current year losses 6,317 5,049
Total tax (credit)/charge - 75
Certain exceptional items and costs related to the derecognition of the home
credit division and related impairments as well as Scheme costs have been
treated as non-deductible for tax purposes.
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 2022 31 Dec 2021
Retained loss attributable to Ordinary Shareholders (£000) (56,359) (29,685)
Weighted average number of Ordinary Shares at year ended 31 December 312,437,422 312,437,422
Basic and diluted loss per share (pence) (18.04)p (9.50)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 2022, nil shares were held as options and nil
shares were held in treasury (2021: nil).
Year ended Year ended
31 Dec 2022 31 Dec 2021
000s 000s
Weighted average number of potential Ordinary Shares that are not currently - 339
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 2022 was the end of the contingency period. There were no active
LTIP or SAYE schemes during the year ended 31 December 2022.
9. Dividends
As a result of the significant reported losses over the past three years, the
Company does not have any distributable reserves and is therefore not in a
position to declare a final dividend. Assuming that the Proposed
Recapitalisation is successfully completed, 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 2022, the Group did not declare
a half-year dividend during the first half of 2022 (2021: nil).
10. Amounts receivable from customers
2022 2021
£000 £000
Gross carrying amount 212,153 265,021
Loan loss provision (35,049) (57,037)
Amounts receivable from customers 177,104 207,984
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:
2022 2021
£000 £00
Unamortised broker commissions 7,348 6,653
Total unamortised broker commissions 7,348 6,653
The fair value of amounts receivable from customers are:
2022 2021
£000 £00
Branch-based lending(1) 222,856 208,440
Home credit(2) - 36,368
Guarantor loans(1) 12,316 31,366
Fair value of amounts receivable from customers 235,172 276,174
1 Includes amounts receivable from customers which have been
provided for as part of the scheme of arrangement for further detail.
2 The home credit division was placed into administration on 15
March 2022 and derecognised from the Group.
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: 2022 2021
£000 £00
Due within one year 75,135 109,148
Due in more than one year 101,969 98,836
Amounts receivable from customers 177,104 207,984
Analysis of receivables from customers
31 December 2022 Stage 1 Stage 2 Stage 3 Total
£000 £000 £000 £000
Branch-based lending 159,594 27,878 8,658 196,130
Guarantor loans - 13,510 2,513 16,023
Gross carrying amount 159,594 41,388 11,171 212,153
Branch-based lending (9,332) (12,476) (7,365) (29,173)
Guarantor loans - (3,803) (2,073) (5,876)
Loan loss provision (9,332) (16,279) (9,438) (35,049)
Branch-based lending 150,262 15,402 1,293 166,957
Guarantor loans - 9,707 440 10,147
Net amounts receivable 150,262 25,109 1,733 177,104
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
11. Deferred tax asset/(liability)
£000
At 31 December 2021 -
Prior period adjustment to deferred tax -
Reversal of prior year deferred tax assets -
At 31 December 2022 -
Consistent with prior years, 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 asset is attributable to temporary timing differences and
carried forward losses arising in respect of:
2022 2021
£000 £000
Accelerated tax depreciation 334 271
Carried forward losses 26,747 18,214
Restatement of loan loss spreading (22) (30)
Other short-term timing differences - 317
Unpaid employer pension contributions 73 100
FRS 102 adoption (2) (3)
IFRS 16 transitional adjustment 12 15
IFRS 9 transitional adjustment 2,457 2,949
Unutilised provisions 413 -
Unpaid employee remuneration 87 -
Unpaid donations 2 4
Unrecognised tax losses (30,101) (21,837)
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.
12. Trade and other payables and provisions
2022 2021
£000 £000
Trade creditors and payables 10,941 955
Other creditors 1,992 3,932
Current tax liability - -
Accruals and deferred income 15,432 13,488
28,365 18,375
Provisions - Group
Plevin Onerous contracts Complaints Dilapidations Scheme provision Restructuring Total
£000 £000 £000 £000 £000 £000 £000
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
Derecognition of home credit division(1) - (282) (3,636) (230) - - (4,148)
Charge during the year - - - 390 9,502 - 9,892
Utilised - - (232) - - (465) (697)
Balance at 31 December 2022 - - 2,765 1,429 26,430 66 30,690
(1) The Group's home credit division was placed into administration on 15
March 2022.
Provisions are recognised for present obligations arising as a consequence of
past events where it is more likely than not that a transfer of economic
benefit will be necessary to settle the obligation, which can reliably be
estimated.
The Group is pursuing the Scheme in order to resolve the outstanding
regulatory issues and compromise its redress liabilities. Although the
independent review of the Group's branch-based lending division carried out in
2021 identified no systemic issues requiring redress, as this division and the
guarantor loans division (now in collect-out) trade out of the same legal
entity (Everyday Lending Limited), the Scheme encompasses potential claims
from both divisions in order to ensure equitable treatment of customers. The
publication of the Practice Statement Letter on 17 March 2023 provides details
regarding the Scheme. The Group has included a provision of £26.4m as at 31
December 2022 based on the amount it expects to be available for redress
creditors and costs associated with the Scheme. If the Scheme is successful,
it would compromise redress liabilities for loan activity prior to 31 March
2021, however it is possible that claims relating to post 31 March 2021 loan
activity could increase in the future due to unforeseen circumstances and/or
if FOS were to change its policy with respect to how such claims are
adjudicated. The Group has recognised a provision for business as usual
(BAU) complaints received at year end of £2.8m as at 31 December 2022 (2021:
£6.6m). This is 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.
The home credit division was placed into administration on 15 March 2022 and
therefore is no longer part of the Group as at 31 December 2022.
13. 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 is pursuing the Scheme which if successful, would compromise redress
liabilities for loan activity prior to 31 March 2021. It is possible that
claims relating to post 31 March 2021 loan activity could increase in the
future due to unforeseen circumstances 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 from management's current estimates, the
cost of resolving such complaints could be higher than expected. It is however
not possible to estimate any such increase reliably.
14. 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 (2021:
£nil). 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. Intra-Group transactions between the Company and the fully
consolidated subsidiaries or between fully consolidated subsidiaries are
eliminated on consolidation.
The Loan Smart charity was closed on 11 July 2022. During the year, the
Company donated £nil to Loan Smart (2021: £15,000).
Information about the remuneration of individual Directors is provided in the
Annual Report and Accounts.
Toby Westcott who is a Nominee Director of the Company 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 £75k fee plus VAT per annum. Total fees paid in
relation to these services totalled £75k (plus VAT) for the year ended 31
December 2022 (2021: £75k+VAT).
15. 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 (2021: nil shares) and
issued nil shares (2021: nil shares).
Share movements
Number
Balance at 31 December 2021 312,437,422
Cancellation of shares -
Issue of shares -
Balance at 31 December 2022 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 2022, the EBT held nil (2021: nil) shares in the Company with a cost
of £nil (2021: £nil) and a market value of £nil (2021: £nil).
16. 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 2021 180,019
Capital reduction -
Issue of shares -
Balance at 31 December 2022 180,019
17. Net cash generated/(used) in operating activities
Year ended Year ended
31 Dec 2022 31 Dec 2021
£000 £000
Operating loss (27,308) (3,631)
Taxation refund/(paid) 1,353 -
Interest portion of the repayment of lease liabilities (816) (983)
Depreciation 2,677 3,833
Share-based payment charge - 34
Amortisation of intangible assets 979 2,727
Derecognition and impairments related to administration of home credit 19,361 -
division
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 123 1,022
Decrease/(increase) in amounts receivable from customers 13,374 48,522
Decrease/(increase) in receivables 332 (446)
(Decrease)/increase in payables and provisions 7,841 (1,858)
Cash generated/(used) in operating activities 17,916 57,762
18. Subsequent Events
The Everyday Lending Limited Directors, supported by the Group Directors,
decided to pursue a scheme of arrangement to address the Group's redress
liabilities and a practice statement letter for the scheme was published on 17
March 2023 (refer to note 24 for amounts provided for as part of this).
On 7 February 2023, the S.D. Taylor administrators repaid a further £3m to
the Group's secured lenders, thereby reducing the Group's gross loans and
borrowings to £252m.
APPENDIX
Glossary of alternative performance measures 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 7).
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 2022 31 Dec 2021
£000 £000
Borrowings 255,000 330,000
Cash at bank and in hand(1) (31,732) (114,544)
223,268 215,456
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 and reported revenue
Branch-based lending Guarantor loans
31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021
£000 £000 £000 £000
Normalised and reported revenue 84,470 79,940 6,552 13,046
3. Normalised operating profit/(loss)
Branch-based lending Guarantor loans
31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021
£000 £000 £000 £000
Reported operating profit/(loss) 7,196 13,653 835 (272)
Add back fair value adjustments and amortization of acquired intangibles - - - -
Add back exceptional items - - - 2,207
Normalised operating profit/(loss) 7,196 13,653 835 1,935
Fair value adjustments and amortisations have been excluded due to them
being non-business-as-usual transactions. They result 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 relevant financial year.
4. Normalised profit/(loss) before tax
31 Dec 2022 31 Dec 2021
£000 £000
Reported loss before tax (56,359) (29,610)
Add back fair value adjustments - -
Add back amortisation and write-off of intangibles - -
Add back exceptional items 31,768 12,930
Normalised (loss)/profit before tax (24,591) (16,680)
Exceptional items have been excluded due to them being non-business-as-usual
transactions. They are one-off and are not as a result of underlying
business-as-usual transactions (refer to note 7 for further detail) 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 2022 31 Dec 2021
£000 £000
Reported loss for the year (56,359) (29,685)
Add back exceptional items 31,768 12,930
Adjustment for tax relating to above items - -
Normalised profit/(loss) for the year (24,591) (16,755)
Weighted average shares 312,437,422 312,437,422
Normalised earnings/(loss) per share (pence) (7.87)p (5.36)p
Exceptional items have been excluded due to them being non-business-as-usual
transactions. They are one-off and are not as a result of underlying
business-as-usual transactions (refer to note 7 for further detail) 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 earnings/(loss) per share within the financial year.
6. Impairment as a percentage of revenue
Branch-based lending Guarantor loans
31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021
£000 £000 £000 £000
Normalised revenue 84,470 79,940 6,552 13,046
Impairment (26,704) (18,994) 1,595 1,061
Impairment as a percentage revenue 31.6% 23.8% (24.4)% (8.1)%
Branch-based lending Guarantor loans
31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021
£000 £000 £000 £000
Normalised revenue 84,470 79,940 6,552 13,046
Impairment and modifications (26,954) (20,337) 1,583 (417)
Impairment and modifications as a percentage revenue 31.9% 25.5% (24.2)% 3.2%
Impairment as a percentage revenue is a key measure for the Group in
monitoring risk within the business.
7. Impairment as a percentage loan book
Branch-based lending Guarantor loans
31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021
£000 £000 £000 £000
Opening net loan book 157,181 171,460 26, 763 59,794
Closing net loan book 166,957 157,181 10,147 26, 763
Average net loan book 161,460 163,724 17,095 40,609
Impairment (26,704) (18,994) 1,595 1,061
Impairment as a percentage loan book 16.5% 11.6% (9.3)% (2.6%)
Impairment as a percentage loan book allows review of impairment level
movements year on year.
8. Net loan book growth
Branch-based lending Guarantor loans
31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021
£000 £000 £000 £000
Opening net loan book 157,181 171,460 26, 763 59,794
Closing net loan book 166,957 157,181 10,147 26, 763
Net loan book growth 6.2% (8.3%) (62.1)% (55.2%)
9. Return on asset
Branch-based lending Guarantor loans
31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021
£000 £000 £000 £000
Normalised operating profit 7,196 13,653 835 1,935
Average net loan book 161,460 163,724 17,095 40,609
Return on asset 4.5% 8.3% 4.9% 4.8%
The return on asset measure is used internally to review the return on the
Group's primary key assets.
10. Revenue yield
Branch-based lending Guarantor loans
31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021
£000 £000 £000 £000
Normalised revenue 84,470 79,940 6,522 13,046
Average net loan book 161,460 163,724 17,095 40,609
Revenue yield percentage 52.3% 48.8% 38.3% 32.1%
Revenue yield percentage is deemed useful in assessing the gross return on the
Group's loan book.
11. Risk adjusted margin
Branch-based lending Guarantor loans
31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021
£000 £000 £000 £000
Normalised revenue 84,470 79,940 6,552 13,046
Impairments (26,704) (18,994) 1,595 1,061
Normalised risk adjusted revenue 57,766 60,946 8,147 14,107
Average net loan book 161,460 163,724 17,095 40,609
Risk adjusted margin percentage 35.8% 37.2% 47.7% 34.7%
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 Guarantor loans
31 Dec 2022 31 Dec 2021 31 Dec 2022 31 Dec 2021
£000 £000 £000 £000
Normalised operating profit 7,196 13,653 835 1,935
Normalised revenue 84,470 79,940 6,552 13,046
Operating profit margin percentage 8.5% 17.1% 12.8% 14.8%
13. Cost to income ratio
Branch-based lending Guarantor loans
31 Dec 2022 £000 31 Dec 2021 31 Dec 2022 £00 31 Dec 2021
£000 £000
Normalised revenue 84,470 79,940 6,552 13,046
Administration expense (50,493) (46,294) (7,300) (10,695)
Operating profit margin percentage 59.8% 57.9% 111.4% 82.0%
This measure allows review of cost management.
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