REG - Non-Standard Fin - Unaudited Half Year Results to 30 June 2022
28/09/2022 07:16
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RNS Number : 9162A Non-Standard Finance PLC 28 September 2022
Non-Standard Finance plc
('Non-Standard Finance', 'NSF', the 'Company' or the 'Group')
Unaudited Half Year Results to 30 June 2022
28 September 2022
Key points
· The Group continued to face significant regulatory challenges in
the current period and on 15 March 2022, the Group's home credit division was
placed into administration.
· It has not been possible to reach agreement with the FCA
regarding a voluntary redress scheme in respect of the Group's guarantor loans
division. The Directors have therefore decided to pursue the use of a
court-based process (the 'Process'), such as a scheme of arrangement or
restructuring plan, in relation to its redress liabilities. A successful
Process is intended to provide certainty as to the total liability arising
from redress liabilities, thereby allowing the Group to proceed with its
planned capital raise (the 'Capital Raise'). If successful, the proceeds of
the Capital Raise will be used to fund a cash pot which will be available to
finance the payment of redress liabilities to affected customers and to
strengthen the Group's balance sheet and underpin future growth.
· Although it is not expected that the Process will provide for the
redress claims to be paid in full, the Directors believe that the Process is
in the best interests of customers with redress claims. Without the Process,
the Directors believe insolvency is the most likely outcome, in which there
would likely be no payment of redress liabilities.
· A key objective of the Process will be to treat all affected
customers equally. 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
trade out of the same legal entity, the Process will encompass potential
claims from both divisions in order to ensure equitable treatment of
customers.
· The Group is engaging with the FCA, the FOS, as well as Alchemy
and the Group's lenders, regarding the Process. It has appointed an
independent chairperson to chair a committee of customers with redress claims,
who will review the terms of the Process on behalf of affected customers.
· Further details of the Process will be announced in due course.
The Process will be subject to satisfying the statutory creditor approval
requirements and the sanction of the Court.
· We are engaging with the FCA with respect to the business' plan
to rely on DISP 1.6.2R(2), pursuant to which, the business is entitled to
place a temporary hold on the processing of customer complaints.
· Plans for the Capital Raise remain subject to, inter alia,
successful completion of the Process and the continued support of Alchemy and
other key shareholders as well as the Group's lenders.
· Without the successful completion of the Capital Raise, the Group
remains balance sheet insolvent and the Group's ability to remain a going
concern is subject to material uncertainties. However, the Directors
continue to believe there is a reasonable prospect of resolving this position
through the Process and the Capital Raise.
· The Directors of NSF plc are working with key stakeholders on an
alternative transaction to be implemented in the event that the Process is
completed but the Capital Raise is unsuccessful which would preserve the
branch-based lending business as a going concern. In this scenario, it is
expected that the same cash pot would be available to finance the payment of
redress liabilities as if the Capital Raise had completed. However, there
would be a material risk of the Company and certain other members of the Group
entering insolvency and as a result there would be no recovery for the
Company's shareholders.
· The Group's ongoing operational performance in the first six
months of this year has been better than expected and current trading
including impairment levels also remain positive. Whilst Group revenue was
down 17% following the administration of the home credit division, revenues at
branch-based lending were up 11% to £43.8m (2021: £39.4m).
· Despite the pleasing operational performance, for the March 2022
and June 2022 quarter, the Group's loan to value ratio was higher than the
level permitted under its loan to value covenant. The Group, through
negotiations with its lenders, has obtained a short-term waiver which means
the loan to value covenant will not be formally tested, and no covenant breach
or event of default will arise, until the Group provides its compliance
certificates for the March 2022 and June 2022 quarter dates. The date on which
the Group is required to supply these compliance certificates has been
extended until 5 October 2022, with a mechanism for this date to be extended
further with lender support. Further waivers are likely to be dependent on
positive progress of the Process.
· Net loan book at branch-based lending remains slightly below
prior year at £160.4m (2021: £163.8m) as the business continues to build the
loan book back up following the impact of the pandemic.
· The Group's guarantor loans division remains in managed run-off
and has been performing ahead of expectations, with a much reduced loan book
of £17.3m at the end of June 2022 (2021 £41.4m).
· Exceptional charges of £24.9m (2021: £4.0m) includes £5.7m
additional costs in respect of the anticipated Process, £5.5m in relation to
the losses on derecognition of the home credit division in administration and
£13.7m of impairments recognised in relation to unsecured receivable balances
held with the home credit division.
· No half year dividend per share is being declared (2021: 0.0p per
share).
Financial summary
6 months to 30 June 2022 2021 % change
£'000 £'000
Normalised and Reported revenue 56,594 67,842 -17%
Normalised operating profit(1) 2,814 9,385 -70%
Reported operating profit/(loss) (2) (2,373) 7,467 -132%
Normalised profit/(loss) before tax(1) (11,327) (3,510) -223%
Reported profit/(loss) before tax(2) (36,209) (7,535) -381%
Normalised earnings/(loss) per share(3) (3.63)p (1.12)p -224%
Reported earnings/(loss) per share(2) (11.59)p (2.41)p -381%
Half year dividend per share Nil Nil n/a
(1 ) Normalised figures are before exceptional items. Operating
profit/(loss) is before finance costs. See glossary of alternative performance
measures and key performance indicators in the Appendix.
(2) After exceptional costs.
(3 ) Normalised loss per share in 2022 is calculated as normalised loss
after tax of £11.3m divided by the weighted average number of shares of
312,437,422. The normalised earnings per share in 2021 is calculated as
normalised loss after tax of £3.5m, divided by the weighted average number of
shares of 312,437,422.
Jono Gillespie, Group Chief Executive Officer, said
"The Group delivered an improved operational performance in the first half in
branch-based lending, despite the difficult macro-economic environment.
Due to the need to resolve the material uncertainties faced by the Group, the
Board of the Everyday Loans trading entity, supported by the Non-Standard
Finance plc Board, has determined that a court-based process, such as a scheme
of arrangement or a restructuring plan, is required to reach a resolution
regarding the outstanding regulatory issues faced by the Guarantor Loan
Division (which trades through the same legal entity as Everyday Loans). This
process is now being actively pursued, with the timescale for its completion
being determined by engagement with the FCA and the Group's key stakeholders,
and the requirements of the legal process. In order to ensure equitable
treatment of creditors within the Everyday Loans trading entity, this process
will encompass all eligible customers of branch based lending as well as the
guarantor loan division. We are engaging with the FCA with respect to the
business' plan to rely on DISP 1.6.2R(2), pursuant to which, the business is
entitled to place a temporary hold on the processing of customer complaints.
Assuming the successful completion of the legal process, the Board anticipates
being in a position to execute a substantial capital raise which, whilst
ensuring the future for the Group, will materially dilute the interests of
existing equity holders, most likely to negligible value unless they choose to
participate in the planned Capital Raise. The proceeds of the Capital Raise
will be used to fund a cash pot which will be available to finance an agreed
portion of redress liabilities to affected customers (as determined by the
court) and, crucially, to strengthen the Group's balance sheet and underpin a
return to profitable growth through significant investment in our branch-based
lending business. Although it is not expected that the cash pot will be
sufficient to allow for redress liabilities to be paid in full, my fellow
Directors and I believe that the legal process is in the best interests of
customers with redress claims, as well as the Group's other stakeholders.
I would like to thank all our colleagues for their tireless work and continued
dedication through these uncertain times for the business and look forward to
leading the Group through the development and implementation of the legal
process, the planned Capital Raise and beyond."
The tables below provide an analysis of the normalised results (excluding
exceptional items) for the Group for the six month period to 30 June 2022 and
30 June 2021 respectively.
6 months to 30 June 2022 Branch-based lending Guarantor loans Home credit(5) Central costs Consolidated Group
Normalised(4)
£000 £000 £000 £000 £000
Revenue 43,829 5,450 7,315 - 56,594
Other operating income 123 - - - 123
Modification gain/(loss) (406) (177) - - (583)
Impairments (14,831) (111) (2,781) - (17,723)
Admin expenses (24,994) (3,554) (5,065) (1,984) (35,597)
Operating profit/(loss) 3,721 1,608 (531) (1,984) 2,814
Finance costs (6,858) (1,149) (257) (5,877) (14,141)
Profit/(loss) before tax (3,137) 459 (788) (7,861) (11,327)
(4) Excludes exceptional items
(5 )The home credit division was placed into administration on 15
March 2022, its results are therefore to the period ended 14 March 2022.
6 months to 30 June 2021 Branch-based lending Guarantor loans Home credit Central costs Consolidated Group
Normalised(4)
£000 £000 £000 £000 £000
Revenue 39,443 10,380 18,019 - 67,842
Other operating income 237 1 607 8 853
Modification gain/(loss) (1,306) (1,904) - - (3,210)
Derecognition gain/(loss) (1,621) 130 - - (1,491)
Impairments (4,041) (984) (1,419) - (6,444)
Admin expenses (23,200) (6,870) (15,752) (2,343) (48,165)
Operating profit/(loss) 9,512 753 1,455 (2,335) 9,385
Finance costs (7,367) (2,611) (486) (2,431) (12,895)
Profit/(loss) before tax 2,145 (1,858) 969 (4,766) (3,510)
(4) Excludes exceptional items
The administration of the home credit division on 15 March 2022 combined with
a robust collections performance at the remaining divisions has led to a 15%
fall in the net loan book compared to 31 December 2021 as summarised in the
table below:
Net loan book 30 June 2022 31 December 2021
£m £m
Branch-based lending 160.4 157.2
Guarantor loans 17.3 26.8
Home credit(1) - 24.0
Total 177.8 208.0
(1) Home credit division placed into administration on 15 March 2022 and
therefore derecognised from the Group.
Investor presentation
The investor presentation will be available on the Group's website
www.nsfgroupplc.com (http://www.nsfgroupplc.com) .
For more information:
Non-Standard Finance plc +44 (0) 20 3869 9020
Jono Gillespie, Group Chief Executive Officer
Sarah Day, Chief ESG Officer & Company Secretary
H/Advisors Maitland +44 (0) 20 7379 5151
Neil Bennett
Finlay Donaldson
Group Chief Executive's statement
Introduction
Against a changing macroeconomic environment and despite a number of
operational, regulatory and financial challenges, the Group has performed
ahead of management's expectations in the past six months and delivered a
positive normalised operating profit of £2.8m (2021: £9.4m), mainly thanks
to an encouraging performance by the Group's remaining operating division:
branch-based lending, which trades as Everyday Loans ("ELL"). Whilst
encouraging, this positive operating profit remains some way short of the
level required to cover the finance costs of the Group, resulting in a
normalised loss before tax of £11.3m. The business clearly needs to grow in
order to resolve this situation, and is very well placed operationally to do
so, with an established branch network and experienced central team who have
proven historically that they can achieve sustainable and profitable growth.
Indeed, recent months have seen an encouraging return to loan book growth.
Loans at Home ("LAH"), the Group's home credit division, was placed in
administration on 15 March 2022. While this was deeply disappointing for all
of us, it was clear that administration was the only option available in order
to preserve value for creditors. The first half results include a contribution
from LAH to that date.
The guarantor loans division remains in managed run-off however strong
collections performance has resulted in a £1.6m (2021: £0.8m) contribution
to the Group's normalised operating profit for the six months ended 30 June
2022.
The Board of the Everyday Loans trading entity has decided to actively pursue
a court-based process (the 'Process') to address the outstanding regulatory
issue in the guarantor loans division (which trades through the same legal
entity as Everyday Loans), using either a scheme of arrangement or a
restructuring plan. The Non-Standard Finance plc Board is in agreement with
the Everyday Loans Board that this is an appropriate course of action. A key
objective of the Process will be to treat all affected customers equally. In
order to ensure equitable treatment of creditors within the Everyday Loans
trading entity, and notwithstanding the fact that the independent review of
Everyday Loans carried out in 2021 identified no systemic issues requiring
redress, the Process will encompass all eligible Everyday Loans customers of
the branch-based lending division as well as the guarantor loan division.
The Group is engaging with the FCA, the FOS, as well as Alchemy and the
Group's lenders, regarding the Process. It has appointed an independent
chairperson to chair a committee of customers with redress claims, who will
review the terms of the Process on behalf of affected customers. Further
details of the Process will be announced in due course. The Process will be
subject to satisfying the statutory creditor approval requirements and the
sanction of the Court.
The Board, whilst recognising that court-based processes are complex, time
consuming and not guaranteed to be successful, believe that there is a
reasonable chance of success and that the Process is necessary to provide
certainty as to the total liability arising from redress liabilities. They
further expect that the successful completion of the Process will, along with
the continued support of Alchemy and other key shareholders and the Group's
lenders (including to agree an extension of the lending facilities), allow the
Group to proceed with its planned Capital Raise which, if successful, will
strengthen the Group's balance sheet and underpin future growth. The Company
is in discussions with its lenders regarding a potential extension of the
lending facilities and other measures to support the business going forwards,
which are likely to be linked to completion of the Capital Raise.
The proceeds of the planned Capital Raise will be used, among other things, to
fund a cash pot which will be available to finance an agreed portion of
redress liabilities to affected customers and reduce debt gearing levels.
Although it is not expected that the cash pot will be sufficient to allow for
redress liabilities to be paid in full, the Board believe that the Process is
in the best interests of customers with redress claims, as well as the Group's
other stakeholders. Without the Process there is a material risk of the Group
entering an insolvency process in which there would be no payment of redress
liabilities.
If the Capital Raise (which is dependent upon successful completion of the
Process) is not achieved within the required timeframe, it is expected that
the Group would not be capable of meeting its liabilities as they fall due,
and under this scenario, the Group's lenders would be entitled to enforce
their security and there would be a material risk of the Group entering
insolvency.
The Directors of NSF plc are working with key stakeholders on an alternative
transaction to be implemented in the event that the Process is completed but
the Capital Raise is unsuccessful which would preserve the branch-based
lending business as a going concern. In this scenario, it is expected that
the same cash pot would be available to finance the payment of redress
liabilities as if the Capital Raise had completed. However, there would be a
material risk of the Company and certain other members of the Group entering
insolvency and as a result there would be no recovery for the Company's
shareholders.
We are engaging with the FCA with respect to the business' plan to rely on
DISP 1.6.2R(2), pursuant to which, then business is entitled to place a
temporary hold on the processing of customer complaints. This pause will
ensure that all customers can be treated equally and fairly.
2022 half year - review of operations
Branch-based lending
The Group's branch-based lending division performed ahead of expectations
during the first half of 2022. The volume of leads received was higher
compared to the same period last year which meant that the net loan book
returned to growth, ending the period 2% higher than 31 December 2021. In
addition, collections performance in the six months ended 30 June 2022 has
been positive with impairment performance returning to more normalised levels.
Despite this increasing costs of living remains a risk to collections
performance for the remainder of the year.
The business continues to invest in the enhancement of technology and
embedding of its strengthened creditworthiness process which will ensure that
the business continues to meet the highest standards of responsible lending,
ensuring we continue to deliver good outcomes for all customers.
The Board continues to believe that the branch-based lending division has
significant potential for future growth once the Group has resolved its
outstanding regulatory issues and completed the planned Capital Raise.
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 Process will encompass potential claims from both businesses in
order to ensure equitable treatment of customers.
Home Credit
The Group's home credit division, which traded as Loans at Home ("LAH"), 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 profit £1.5m).
In the current period, exceptional items of £5.5m 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 does not expect to recover
the balances held directly with LAH following the conclusion of the
administration, as LAH remains a guarantor of the Group's financing
facilities, it is anticipated that the proceeds from the administration would
be paid directly to its secured lenders, thereby reducing the external debt
balance held by the Group at that point.
Guarantor loans
The Group's guarantor loans division was placed in 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 of
£1.6 million to normalised operating profits in the half year.
The loan book, net of provisions, has now fallen to £17.3 million (2021:
£41.4m) and the Group continues to focus on collecting out the remaining
book. It has not been possible to reach agreement with the FCA regarding a
voluntary redress scheme in respect of guarantor loans and therefore the Group
is now actively pursuing a legal resolution to the regulatory difficulties
faced by the division through the Process which will provide certainty as to
the total liability arising from redress liabilities. This, in turn, will
allow the Group to proceed with its planned Capital Raise and therefore fund a
cash pot which will be available to finance an agreed portion of redress
liabilities to affected customers. It is not expected that the cash pot will
be sufficient to allow for redress liabilities to be paid in full, although
this is dependent on the final size of the cash pot (which remains subject to
discussion with the Group's key stakeholders) and the costs of the Process.
Liquidity, funding and going concern
As at 30 June 2022 the Group had cash at bank of £111.5m (31 December 2021:
£114.5m) and gross borrowings of £330.0m (31 December 2021: £330.0m). Prior
to its August 2022 maturity date, the Group repaid its £45m RCF facility in
full on 8 July 2022. In addition, on 26 August 2022 a part repayment of £5m
was made to the Group's term loan facilities from the proceeds of the LAH
administration. As at 31 August 2022 cash at bank was £56.7m while the level
of gross borrowings reduced to £280.0m (comprised of a term loan facility
that matures in August 2023). The Group is in discussions with its lenders
regarding extensions to the term of the existing facilities and other support
that might be provided by lenders. It is likely that any extension would be
conditional upon successful completion of the Process and the Capital Raise.
For the March 2022 and June 2022 quarter, the Group's loan to value ratio was
higher than the level permitted under its loan to value covenant. The Group,
through negotiations with its lenders, has obtained a short-term waiver which
means the loan to value covenant will not be formally tested, and no covenant
breach or event of default will arise, until the Group provides its compliance
certificates for the March 2022 and June 2022 quarter dates. The date on which
the Group is required to supply these compliance certificates has been
extended until 5 October 2022, with a mechanism for this date to be extended
further with lender support. Further waivers are likely to be dependent on
positive progress of the Process.
At 30 June 2022 the Group also had a multi-year £200m securitisation facility
which remained undrawn and due to the current balance sheet position could not
be used. On 14 September 2022, the Group closed the facility.
The Directors acknowledge the considerable challenges which continue to impact
the Group and the material uncertainties which may cast significant doubt on
the ability of both the Group and the Company to continue to adopt the going
concern basis of accounting. However, despite these challenges, it is the
Directors' reasonable expectation that the Group and Company will resolve its
regulatory issues through the Process which will provide certainty as to the
total liability arising from redress liabilities, raise sufficient capital in
the timeframe required and will continue to operate and meet its liabilities
as they fall due for at least the next 12 months and therefore it has
concluded the business is a going concern.
Should the Process and subsequent Capital Raise be unsuccessful, it is
expected that the Group would not be capable of meeting its liabilities as
they fall due, and under this scenario, the Group's lenders would be entitled
to enforce their security and there would be a material risk of the Group
entering insolvency. The Directors are working with key stakeholders on an
alternative transaction to be implemented in the event that the Process is
completed but the Capital Raise is unsuccessful which would preserve the
branch-based lending business as a going concern. In this scenario, the same
cash pot would be available to finance the payment of redress liabilities as
if the Capital Raise had completed. However, there would be a material risk of
the Company and certain other members of the Group entering insolvency and as
a result there would be no recovery for the Company's shareholders.
Refer to note 2 of the financial statements for further detail.
Outstanding regulatory issues
Court-based process (the 'Process')
The Group announced on 3 August 2020 that, following its multi-firm review of
the guarantor loans sector, the FCA had raised some concerns regarding certain
processes and procedures at the guarantor loans division ("GLD") and a
programme of redress would be required for those customers deemed to have
suffered harm as a result.
It has not been possible to reach agreement with the FCA regarding a voluntary
redress scheme in respect of guarantor loans which the Group believes it could
fund in its current position, and therefore the Group is now actively pursuing
a legal resolution to the ongoing regulatory uncertainty within GLD through
the Process which will provide certainty as to the total liability arising
from redress liabilities. Pending the conclusion of the Process, the Group
continues to maintain the exceptional provision for redress in relation to the
estimated costs of redress to GLD customers, with a total estimated cost of
£17.5m at the period end (31 December 2021: £16.9m). The increase from 2021
reflects additional interest accrued over the period. The independent review
of the branch-based lending business carried out in 2021 identified no
systemic issue regarding redress. However, since GLD trades through the same
legal entity as branch-based lending, in order to ensure a fair outcome to all
customers, the Process will also encompass all eligible Everyday Loans
customers as well as GLD customers. Whilst the amount which might be paid as
part of the Process in relation to branch-based lending customers is uncertain
given no systemic issues were identified in the independent review carried out
in 2021, in its ordinary course of business the Group does uphold a small
number of complaints each month for non-systemic reasons. The Group
recognises that the Process may pull forward such complaints from future years
and has therefore recognised an exceptional charge of £4.5m in the
branch-based lending division based on management's best estimate of the
future value of such complaints. Whilst the provisions have been calculated
assuming that eligible customers are paid in full, given the cost of the
Process (which will be deducted from the cash pot that will be available to
finance the payment of redress liabilities) and the increased number of
complaints which may be made as part of the Process, it is expected that those
customers who suffered harm would not receive 100p/£1. We are engaging with
the FCA with respect to the business' plan to rely on DISP 1.6.2R(2), pursuant
to which, the business is entitled to place a temporary hold on the processing
of customer complaints.
Capital Raise
It is expected that the planned Capital Raise will involve a firm placing and
open offer. The Directors recognise that the Capital Raise is dependent on a
number of material uncertainties including (i) a successful Process, including
positive creditor votes and the court sanction of the Process within the
timeframes required; (ii) the redress liability under the Process being within
levels acceptable to investors; (iii) the Group's lenders continuing to grant
appropriate extensions to the testing dates or other forms of waivers for
covenant breaches prior to the Capital Raise completing; (iv) the Group's
lenders providing the necessary waivers to implement the Process; (v) the
Group obtaining extensions to the term of its existing debt facilities on
terms acceptable to investors; and (vi) the underlying assumptions in relation
to the regulatory environment, macro-economic environment and business
performance not varying materially from the base case. The Directors continue
to maintain a regular dialogue with key stakeholders including the FCA,
Alchemy and the Group's lenders regarding the above matters.
Other regulatory developments
In addition to the matters outlined above, there have been a number of other
regulatory developments in late 2021 and in 2022 that have been particularly
relevant to the Group's business. They are summarised below:
Climate related disclosures - In November 2021, the FCA sought views on their
'Sustainability Disclosure Requirements' which will principally affect
investment firms, and forms part of a wider body of ESG-orientated work as
promised in the Business Plan. ESG is an important topic for the regulator,
who seeks to build on five key themes: Transparency; Trust; Tools; Transition;
and Team. Whilst regulated firms like Everyday Loans are yet to be
incorporated into ESG plans, their views have been solicited, despite new
rules being aimed at LLCs and investment firms. The FCA's direction of travel
reflects the fact that four out of five respondents to the Financial Lives
Survey felt that environmental issues are important, and believe that
businesses have a wider responsibility than simply to make a profit.
Cost-of-living crisis - The cost of living crisis continues to unfold across
the UK, with huge spikes in energy, transport, food and housing, against a
backdrop of wages that are falling in real terms and benefits that are failing
to keep up with rampant inflation. The FCA has launched a website on the same
topic, which details relevant publications, letters, updates, news and
speeches that pertain to the ongoing crisis. The long running Borrowers in
Financial Difficulty ('BiFD') project is of particular interest as it contains
some insightful and comprehensive feedback from borrowers across the spectrum.
A 'Dear CEO' letter has been issued to all firms about helping customers
through the cost-of-living scenario in June 2022.
Vulnerable customers - Echoing the sentiments from the BiFD project, the FCA
has been reiterating its stance on vulnerable customers and their associated
treatment in nearly every speech that has been made by its stakeholders over
the last six months. Final guidance was released last year, and the FCA
released an update on progress in this area in June 2022. Regulated entities
are being urged to adopt 'tell us once' strategies and to utilise complaints
insights as learning opportunities, as well as to ensure that their senior
management staff are setting the tone from the top. According to the most
recent communication on the matter, around half of retail banks are unable to
demonstrate that they have implemented strategies that ensure consistently
fair outcomes across their consumer portfolios, and so the FCA is keen to see
clear lines of accountability and that the concept has been fully embedded.
Operational resilience - Following the publication of the Operational
Resilience Policy Statement in March 2021, the firms within the FCA's
perimeter will have until March 2025 to exemplify its principles, though they
should do so as soon as reasonably practicable. Mapping and testing for impact
tolerances and investments that are necessary to remain within them must be in
place by the new deadline. As part of this work, the regulator is also
reviewing the practice of critical third parties, such as datacentre
providers, having released a Discussion Paper with the PRA in July 2022.
Consumer Duty - The final rules have been released for the new Consumer Duty
project ('CD'), without much significant deviation from the proposal of 2021.
The implementation time has been extended by three months to July 2023, and
for closed products the deadline is now July 2024. Whilst they are only
recommendations, the FCA has provided deadlines for a Board report on CD
(October 2022) and, for manufacturers, a deadline of April 2023 for product
& services reports has been provided so as to allow other parties in the
chain time to absorb and apply the information within them, which should
pertain to target markets. Views were solicited from across the financial
landscape about the final wording of the Duty, which has been settled at "act
to deliver good outcomes for retail customers," and the three cross-cutting
rules and four principles remain unchanged with their original wording.
Future Regulatory Framework - Following the conclusion of the Brexit
transition period, ministers have been promising a review of the UK's
financial regulatory framework via reform of the Financial Services and
Markets Act ('FSMA'), which is being managed by HM Treasury. However, as much
of our regulatory law and principles intersect, much of the work recommended
by the Woolard review which was aimed at reforming the Consumer Credit Act of
1974 ('CCA') has come within HMT's remit. The Government has committed to
reviewing the CCA, not least because some of the existing obligations are not
wholly compatible with the incoming CD - the Credit Services Association
posited that a firm can follow the letter of the old law or the spirit of the
new regulations, but not both. This position is not accepted by the FCA but
the disconnect remains apparent, and the reform of a 50-year-old statute is
potential for further uncertainty and disruption to regulation and legislation
alike.
We continue to monitor all regulatory developments closely so that we can
anticipate and, if necessary, engage with the relevant authorities, either
directly or through industry associations.
Dividend
As a result of the significant reported losses over the last two years and
during the first half of 2022, the Company does not have any distributable
reserves and is therefore not in a position to declare a half year dividend
(2021: £nil per share). As part of any future capital raise, the Board is
committed to completing a process, subject to shareholder and Court approval,
to create sufficient distributable reserves so that the Company is able to
resume the payment of cash dividends to shareholders when it is appropriate to
do so.
Current trading and outlook
Since the end of June 2022, we have continued to trade ahead of budget. Given
the current macroeconomic environment as well as some of the structural
changes in the market regarding both potential customer population and also
companies operating in the market, we expect demand for our products to
increase. However, future growth plans will require the Group to complete
the Process and the Capital Raise, but once achieved, the business will be
well placed to realise that vision.
Jono Gillespie
Group Chief Executive Officer
28 September 2022
Financial review
6 months to 30 June 2022 2022 2022
Normalised(1) Exceptional items Reported
£'000 £'000 £'000
Revenue 56,594 - 56,594
Other operating income 123 - 123
Modification gain/(loss) (583) - (583)
Impairment of financial assets (17,723) - (17,723)
Exceptional provisions - (5,187) (5,187)
Admin expenses (35,597) - (35,597)
Operating profit/(loss) 2,814 (5,187) (2,373)
Other exceptional items(2) - (19,695) (19,695)
Profit/(loss) before interest and tax 2,814 (24,882) (22,068)
Finance costs (14,141) - (14,141)
Profit/(loss) before tax (11,327) (24,882) (36,209)
Taxation - - -
Profit/(loss) after tax (11,327) (24,882) (36,209)
Loss per share (3.63) (11.59)
Dividend per share - -
6 months to 30 June 2021 2021 2021
Normalised(1) Exceptional items Reported
£'000 £'000 £'000
Revenue 67,842 - 67,842
Other operating income 853 - 853
Modification gain/(loss) (3,210) - (3,210)
Derecognition gain/(loss) (1,491) - (1,491)
Impairment of financial assets (6,444) - (6,444)
Exceptional provisions - (1,918) (1,918)
Admin expenses (48,165) - (48,165)
Operating profit/(loss) 9,385 (1,918) 7,467
Other exceptional items(2) - (2,107) (2,107)
Profit/(loss) before interest and tax 9,385 (4,025) 5,360
Finance costs (12,895) - (12,895)
Profit/(loss) before tax (3,510) (4,025) (7,535)
Taxation - - -
Profit/(loss) after tax (3,510) (4,025) (7,535)
Loss per share (1.12) (2.41)
Dividend per share - -
(1) Normalised figures, adjusted to exclude exceptional items
(2) Refer to note 6 in the notes to the financial statements for further
detail
Following the relaxation of COVID-19 restrictions, the macro environmental
landscape has remained unstable throughout the first half of 2022. A number of
factors have contributed to uncertainty, including the ongoing economic
consequences of COVID, post-Brexit economic turmoil and the Russian invasion
of Ukraine. These events have, in turn, contributed to a cost-of-living crisis
affecting households across the UK, which is likely to get worse before it
gets better. Against this external 'backdrop' the Group's core business has
performed better than anticipated, however normalised revenue remained down
year on year by 16.5% at £56.6m (2021: £67.8m). This performance reflects
the decline in loan books of both the guarantor lending division, which moved
into managed run-off in June 2021 and also the administration of the Group's
home credit division, where any activity post 15 March 2022 is no longer
included within the Group's financial results. The Group's core branch based
lending business has generated an increase in normalised revenue year on year
of 11.1%, with £43.8m in normalised revenue in 2022 (2021: £39.4m)
Administration costs were 26.1% lower at £35.6m (2021: £48.2m) primarily
driven by overall reduced costs in the home credit division due to the
administration and removal from the Group financial results, offset by higher
levels of complaints year on year, driven by certain claims management
companies ('CMCs'). Impairment and modification costs were higher year on
year, mainly due to 2021 seeing lower impairment in line with lower levels of
lending.
The Group's finance costs remained high due to the rising interest rate
environment and with the facilities remaining fully drawn as at 30 June 2022.
This in turn has contributed significantly to the increase in normalised post
tax loss which was £11.3m (2021: £3.5m loss)
Exceptional charges totalling £24.9m (2021: £4.0m) comprised predominantly
of: the impairment of receivables held with Loans at Home following the
administration of the business (whilst the Group does not expect to recover
the balances held directly with LAH following the conclusion of the
administration, as LAH remains a guarantor of the Group's financing
facilities, it is anticipated that the proceeds from the administration would
be paid directly to its secured lenders, thereby reducing the external debt
balance held by the Group at that point), the derecognition of assets related
to the division, and increased provisions associated with the Process. The
net result was an increased reported loss before tax of £36.2m (2021: loss
before tax of £7.5m) and normalised loss per share was 3.63p (2021: loss per
share of 1.12p). Accounting for exceptional items meant that the Group's
reported loss per share was 11.59p (2021: loss per share of 2.41p).
The Group continues to consolidate and regroup post pandemic and whilst the
material uncertainties remain, the business remains confident that there are
reasonable prospects outlined in the court-based solution above, that will
resolve the material uncertainties, raise the substantial capital required and
facilitate the growth of the core branch-based lending business.
Impairment provisioning - coverage ratios
30 June 2022 31 Dec 2021 Change
Branch-based lending 18.2% 19.0% -0.8%
Home credit N/A 46.7% N/A
Guarantor loans 33.7% 33.2% 0.5%
Group 20.0% 25.5% -5.5%
Coverage ratios across the two remaining divisions remained generally in line
with the ratios as at 31 December 2021 whilst the group coverage ratio fell
5.5% as a result of the home credit division no longer being part of the
Group.
Divisional review
Branch-based lending
Financial results
6 months to 30 June 2022 2022 2022
Normalised Exceptional items Reported
£'000 £'000 £'000
Revenue 43,829 - 43,829
Other operating income 123 - 123
Modification gain/(loss) (406) - (406)
Impairments (14,831) - (14,831)
Exceptional provisions - (4,500) (4,500)
Admin expenses (24,994) - (24,994)
Operating profit 3,721 (4,500) (779)
Exceptional items - - -
Profit/(loss) before interest and tax 3,721 (4,500) (779)
Finance costs (6,858) - (6,858)
Profit/(loss) before tax (3,137) (4,500) (7,637)
Taxation - - -
Profit/(loss) after tax (3,137) (4,500) (7,637)
6 months to 30 June 2021 2021 2021
Normalised Exceptional items Reported
£'000 £'000 £'000
Revenue 39,443 - 39,443
Other operating income 237 - 237
Modification gain/(loss) (1,306) - (1,306)
Derecognition gain/(loss) (1,621) - 1,621)
Impairments (4,041) - (4,041)
Admin expenses (23,200) - (23,200)
Operating profit 9,512 - 9,512
Exceptional items - - -
Profit/(loss) before interest and tax 9,512 - 9,512
Finance costs (7,367) - (7,367)
Profit/(loss) before tax 2,145 - 2,145
Taxation - - -
Profit/(loss) after tax 2,145 - 2,145
The business saw an increase in the volume of leads and qualifying
'applications to branch' ('ATBs') during the first half of 2022 versus the
prior year. This drove an increase in the total number of loans booked, with
new money lent to customers increasing 22% in comparison to the first half of
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 H1 2022 and
it ended the period at £160.4m (December 2021: £157.2m). The number of
active customers has seen a small increase to 66,400 at June 2022 (December
2021: 66,000).
We continually look to enhance our lending processes, including the assessment
of creditworthiness. Whilst acutely cognisant 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 and impairment 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 over H1 22,
impairment rates are gradually returning to historic norms.
Key Performance Indicators(7) 2022 2021
Number of branches 76 75
Period end customer numbers (000) 66.4 65.5
Period end loan book (£m) 160.4 163.8
Average loan book (£m) 160.1 173.2
12 Month Rolling:
Revenue yield 51.5% 51.4%
Risk adjusted margin 35.9% 34.1%
Impairments/revenue 30.3% 33.8%
Impairments (including modifications)/revenue 32.5% 39.2%
Impairment/average loan book 15.6% 17.4%
Cost to income ratio 58.3% 47.4%
Operating profit margin 9.5% 13.9%
Return on asset 4.9% 7.2%
(7) All definitions are as per glossary. 2021 has been recalculated to ensure
like-for-like comparative to 2022.
Revenues increased 11% to £43.8m (2021: £39.4m) 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 £0.4m
(2021: £1.3m) with the prior year seeing 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 £14.8m
(2021: £4.0m) 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 in H1 22,
helping to drive a reduction in the level of impairment and modifications as a
percentage of revenue from 39.2% to 32.5% on a rolling 12-month basis. As a
percentage of average net receivables, it was also improved at 15.6% (2021:
17.4%).
Increased spend on employee costs as vacancies were filled and the return to
bonus payments for staff since June 2021 has resulted in administrative
expenses increasing by 8% to £25.0m (2021: £23.2m). The net impact of all of
these factors was that normalised operating profit fell to £3.7m (2021:
£9.5m).
As detailed above, the Group is now actively pursuing a legal resolution to
its regulatory issues through the Process which will provide certainty as to
the total liability arising from redress liabilities. 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 Process will
encompass potential claims from both businesses in order to ensure equitable
treatment of customers. Whilst the amount which might be paid as part of the
Process in relation to branch-based lending customers is uncertain given no
systemic issues were identified in the independent review carried out in 2021,
in its ordinary course of business the Group does uphold a small number of
complaints each month for non-systemic reasons. The Group recognises that
the Process may pull forward such complaints from future years and has
therefore recognised an exceptional charge of £4.5m in the branch-based
lending division based on management's best estimate of the future value of
such complaints.
Strong cash generation meant that finance costs fell by 7% to £6.9m (2021:
£7.4m), however due to the reasons noted above, the business produced a
normalised pre-tax loss of £3.1m (2021: normalised pre-tax profit of £2.1m).
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 the first half
of 2022 is summarised below:
Network capacity - Given the steady increase in application levels seen
through the second half of 2021 and continuing into 2022, the recruitment of
in-branch employees has increased alongside this to take advantage of the
return to growth, with in-branch FTE increasing to 355 at the end of June 2022
(June 2021: 303 in-branch FTE). Three branches originally planned to be opened
in late 2020 and deferred by the pandemic, are now to be opened in 2022.
Eccles branch was opened in May, St. Helens in July and Chester-Le-Street due
to be opened in September. All three branches will split larger branches in
the North West and North East conurbations and will take the total number of
branch locations to 78.
Lead volumes - New borrower qualified applications have increased by 25%,
compared to the first half of 2021. As a result and coupled with a more
cautious approach to lending post-pandemic, new borrower conversion rates
dipped slightly to 6.2% (2021: 6.5%). We received 1.3 million new borrower
applications in the six months to June 2022 (2021: 0.9 million) of which
235,000 (2021: 188,000) applications passed our screening criteria to qualify
as applications to branch (ATBs).
Productivity and quality - The total number of loans issued in H1 2022 reached
18,955 (2021:17,577) an 8% increase over prior year. The focus on better
quality customers led to new cash issued increasing 22% to £58.9m compared to
£48.3m 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 are the primary risk to
collections performance, and although no significant impacts have been yet
observed, action has been, and continues to be, taken both on new originations
and the existing loan book, to mitigate the impact which is expected to
materialise in the second half of the year, failing further government
intervention. As such collections performance in the period was ahead of
expectations, remaining at the more normal levels observed towards the end of
2021, following the historically low delinquency earlier in 2021. Rescheduled
and deferred loans continued a strong reducing trend, following the increases
during COVID-19.
Plans for the rest of 2022
We remain focused on our commitment to servicing the needs of those consumers
that may have been excluded from mainstream lenders, through the use of our
face-to-face lending model. 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 also enhancing the
customer journey is a key area of focus in 2022/23, where work is underway to
streamline back office tasks, embrace technology opportunities such as 'Open
Banking' and reduce waiting time for customers through a smoother application
process.
Since the end of June 2022, whilst the summer months are traditionally a
softer trading period for the division, we have continued to trade ahead of
budget. Our collections performance is also ahead of plan and while we
expect to see some impact from the cost of living crisis on impairment, we
also expect that an improving yield will help to sustain an attractive risk
adjusted margin. We continue to expect that the demand for our products and
services will increase given the current macroeconomic environment as well as
from some of the structural changes in the market regarding both potential
customer population and also 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 plan to focus on
operational efficiency and loan book growth for the remainder of this year
onwards. Future growth plans will require the Group to complete the Process
and the Capital Raise, but once achieved, the business will be well placed to
realise that vision.
Home credit
Following extensive discussions with the FCA regarding 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 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 profit of £1.5m). An exceptional charge
of £5.5m 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 Exceptional items Reported
£'000 £'000 £'000
Revenue 7,315 - 7,315
Other income - - -
Impairments (2,781) - (2,781)
Revenue less impairments 4,534 - 4,534
Admin expenses (5,065) - (5,065)
Operating profit/(loss) (531) - (531)
Exceptional items - (5,523) (5,523)
Profit/(loss) before interest and tax (531) (5,523) (6,054)
Finance cost (257) - (257)
Profit/(loss) before tax (788) (5,523) (6,311)
Taxation - - -
Profit/(loss) after tax (788) (5,523) (6,311)
6 months to 30 June 2021 2021 2021
Normalised Exceptional items Reported
£'000 £'000 £'000
Revenue 18,019 - 18,019
Other income 607 - 607
Impairments (1,419) - (1,419)
Revenue less impairments 17,207 - 17,207
Admin expenses 15,752) - (15,752)
Operating profit/(loss) 1,455 - 1,455
Exceptional items - - -
Profit/(loss) before interest and tax 1,455 - 1,455
Finance cost (486) - (486)
Profit/(loss) before tax 969 - 969
Taxation - -
Profit/(loss) after tax 969 - 969
Guarantor loans
The Group's guarantor loans division was placed into a managed run-off in June
2021 and so it did not issue any new loans in the six months ended 30 June
2022, 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 47% to
£5.5m (2021: £10.4m). Collections performance in the first half of 2022 has
remained strong leading to a further reduction in impairments from £1.0m in
2021 to £0.1m. Administration costs fell by 48% to £3.6m (2021: £6.9m) 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 £1.6m (2021: £0.8m) whilst strong cashflow has
contributed to lower finance costs that increased normalised profit before tax
to £0.5m (2021: loss before tax of £1.9m). The additional charge in
exceptional provision for customer redress of £0.7m (2021: £1.9m) reflects
the impact of the delayed start to the redress program thereby increasing the
interest accrued and also the amount to be returned to customers from more
recent collections.
6 months to 30 June 2022 2022 2022
Normalised(9) Exceptional items Reported
£'000 £'000 £'000
Revenue 5,450 - 5,450
Other income - - -
Modification gain/(loss) (177) - (177)
Derecognition gain/(loss) - - -
Impairments (111) - (111)
Exceptional provisions - (687) (687)
Admin expenses (3,554) - (3,554)
Operating profit/(loss) 1,608 (687) 921
Exceptional items - - -
Profit/(loss) before interest and tax 1,608 (687) 921
Finance costs (1,149) - (1,149)
Profit/(loss) before tax 459 (687) (228)
Taxation - - -
Profit/(loss) after tax 459 (687) (228)
6 months to 30 June 2021 2021 2021
Normalised(9) Exceptional items Reported
£'000 £'000 £'000
Revenue 10,380 - 10,380
Other income 1 - 1
Modification gain/(loss) (1,904) - (1,904)
Derecognition gain/(loss) 130 - 130
Impairments (984) - (984)
Exceptional provisions - (1,918) (1,918)
Admin expenses (6,870) - (6,870)
Operating profit/(loss) 753 (1,918) (1,165)
Exceptional items - (527) (527)
Profit/(loss) before interest and tax 753 (2,445) (1,692)
Finance costs (2,611) - (2,611)
Profit/(loss) before tax (1,858) (2,445) (4,303)
Taxation - - -
Profit/(loss) after tax (1,858) (2,445) (4,303)
(9) Normalised figures, adjusted to exclude exceptional items
Key Performance Indicators(10) 2022 2021
Period end customer numbers (000) 10.0 19.9
Period end loan book (£m) 17.3 41.4
Average loan book (£m) 26.7 60.7
12 Month Rolling:
Revenue yield 32.6% 40.5%
Risk adjusted margin 44.3% 20.8%
Impairment/revenue (35.8)% 48.6%
Impairment (including modifications)/revenue (16.8)% 67.5%
Impairment/average loan book (11.7)% 19.7%
Cost to income ratio 84.8% 55.4%
Operating profit margin 32.0% (22.9)%
Return on asset 10.5% (9.2)%
(10) All definitions are as per glossary. 2021 has been recalculated to ensure
like-for-like comparative to 2022.
Plans for the rest of 2022
The collect-out of the outstanding loan book is progressing well and as
planned.
Central costs
6 months to 30 June 2022 2022 2022
Normalised(11) Exceptional items Reported
£000 £000 £000
Revenue - - -
Other income - - -
Admin expenses (1,984) - (1,984)
Operating loss (1,984) - (1,984)
Exceptional items(14) - (14,172) (14,172)
Loss before interest and tax (1,984) (14,172) (16,156)
Finance costs (5,877) - (5,877)
Loss before tax (7,861) (14,172) (22,033)
Taxation - - -
Loss after tax (7,861) (14,172) (22,033)
6 months to 30 June 2021 2021 2021
Normalised(11) Exceptional items Reported
£000 £000 £000
Revenue - - -
Other income 8 8
Admin expenses (2,343) - (2,343)
Operating loss (2,335) - (2,335)
Exceptional items(14) - (1,580) (1,580)
Loss before interest and tax (2,335) (1,580) (3,915)
Finance costs (2,431) - (2,431)
Loss before tax (4,766) (1,580) (6,346)
Taxation - - -
Loss after tax (4,766) (1,580) (6,346)
(11) Adjusted to exclude exceptional items
(14) Refer to note 6 in the notes to the financial statements for further
detail
Normalised administrative expenses fell by 13% to £2.0m (2021: £2.3m) driven
principally by lower staff, rent and professional fees. Finance fees increased
as surplus cash was held at Group level, rather than paying down any
facilities due to the expectation of the future cash requirements for loan
book growth.
An exceptional charge of £14.2m comprised £13.7m of impairments recognised
on receivable balances held with the home credit division which was placed
into administration on 15 March 2022. Whilst the Group does not expect to
recover the balances held directly with LAH following the conclusion of the
administration, as LAH remains a guarantor of the Group's financing
facilities, it is anticipated that the proceeds from the administration would
be paid directly to its secured lenders, thereby reducing the external debt
balance held by the Group at that point. The remaining £0.5m relates to
professional fees associated with the work undertaken in regards to the
Process. Prior year exceptional costs comprised: £1.6m related to
professional fees associated with the planned Capital Raise.
Principal risks
The principal risks facing the Group are:
Going concern, solvency and liquidity - although as at 31 August 2022 the
Group has £56.7m in cash, the Directors note that material uncertainties
exist regarding its ability to successfully execute the planned Capital Raise,
such uncertainties include: (i) success of the court-based process
('Process'), including positive creditor votes and the court sanction of the
Process within the timeframes required; (ii) the redress liability under the
Process being within levels acceptable to investors (iii) the Group's lenders
continuing to grant appropriate extensions to the testing dates or other forms
of waivers for covenant breaches prior to the Capital Raise completing; (iv)
the Group's lenders providing the necessary waivers to implement the Process;
(v) the Group obtaining extensions to the term of its existing debt facilities
on terms acceptable to investors and; (vi) the underlying assumptions in
relation to the regulatory environment, macro-economic environment and
business performance not varying materially from its base case. The range of
assumptions and the likelihood of them all proving correct creates material
uncertainty and therefore the impact on liquidity and solvency under both the
base case and downside scenarios may cast significant doubt on both the
Group's and individual division's ability to continue as a going concern. In
such circumstance, the Group's lenders would be entitled to enforce their
security and there would be a material risk of the Group entering insolvency.
Refer to the going concern statement in note 2 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. Following a multi-firm review, the Group developed
a proposed methodology for redress to certain guarantor loans customers and
has made a provision totalling £17.5m (31 December 2021: £16.9m) to cover
the expected costs (and accrued interest) representing a payment of 100p/£1
for those customers who the Directors believe may have suffered harm. The
provisions made represent the Directors' best estimate of the total cost of
redress in relation to guarantor loans, based upon a detailed methodology and
analyses developed in conjunction with its advisers. Due to the need to bring
this uncertainty to a resolution, and since it has not been possible to reach
an agreement with the FCA regarding a voluntary redress scheme in respect of
guarantor loans, the Group is now actively pursuing a legal resolution to the
redress through the Process which will provide certainty as to the total
liability arising from redress liabilities. Whilst provisions have been
calculated assuming that eligible customers are paid in full, given the cost
of the Process (which will be deducted from the cash pot that will be
available to finance the payment of redress liabilities) and the increased
number of complaints which may be made as part of the Process, it is expected
that those customers who suffered harm would not receive 100p/£1 as
originally planned. The review into branch-based lending concluded that there
was no need for customer redress, however 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. Since the
announcement of the potential scheme of arrangement made as part of the 2021
Annual Report, the numbers of complaints received has increased significantly,
predominantly driven by what is believed to be an acceleration of claims
received by claims management company coordinated activity. The level of
complaints at the current trajectory, could have a materially adverse impact
on the Group and as such, mitigating action in the form of either a scheme of
arrangement or restructuring plan is more likely to ensure the equitable
treatment of all customer complaints, whether historic or current.
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:
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;
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;
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;
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
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.
On behalf of the Board of Directors
Jono Gillespie
Group Chief Executive Officer
28 September 2022
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge, the unaudited
condensed interim financial statements have been prepared in accordance with
IAS 34 as adopted by the United Kingdom, and that the interim report includes
a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R,
namely:
· An indication of important events that have occurred during the
first six months of the financial year and their impact on the unaudited
condensed interim financial statements, and a description of the principal
risks and uncertainties for the remaining six months of the financial year;
and
· Material related party transactions that have occurred in the
first six months of the financial year and any material changes in the related
party transactions described in the last annual report and financial
statements.
The current Directors of Non-Standard Finance plc are listed in the 2021
Annual Report & Financial Statements, with the exception of Sarah Day, who
was appointed to her role as Group Chief ESG Officer on 27 May 2022. A list of
current Directors is also maintained on the Non-Standard Finance website:
www.nsfgroupplc.com (http://www.nsfgroupplc.com) .
The maintenance and integrity of the Non-Standard Finance website is the
responsibility of the Directors.
Legislation in the United Kingdom governing the preparation and dissemination
of unaudited condensed interim financial statements may differ from
legislation in other jurisdictions.
On behalf of the Board of Directors
Jono Gillespie
Group Chief Executive Officer
28 September 2022
Financial Statements
Condensed consolidated statement of comprehensive income for the six months
ended 30 June 2022
Note Before exceptional items Exceptional items Six months
ended 30 June
£000 £000 2022
Unaudited
£000
Revenue 56,594 - 56,594
Other operating income 123 - 123
Modification gain/(loss) (583) - (583)
Derecognition gain/(loss) - - -
Impairment of financial assets (17,723) - (17,723)
Exceptional provisions 6 - (5,187) (5,187)
Administrative expenses (35,597) - (35,597)
Operating profit/(loss) 5 2,814 (5,187) (2,373)
Other exceptional items 6 - (19,695) (19,695)
Profit/(loss) on ordinary activities before interest and tax 2,814 (24,882) (22,068)
Finance costs (14,141) - (14,141)
Profit/(loss) on ordinary activities before tax (11,327) (24,882) (36,209)
Tax on profit (loss) on ordinary activities 8 - - -
Profit/(loss) for the period (11,327) (24,882) (36,209)
Total comprehensive loss for the year (36,209)
Loss attributable to:
- Owners of the parent (36,209)
- Non-controlling interests -
Loss per share
Note Six months ended
30 June 2022
Pence
Basic and diluted 7 (11.59)
There are no recognised gains or losses other than disclosed above and there
have been no discontinued activities in the period.
Condensed consolidated statement of comprehensive income for the six months
ended 30 June 2021
Note Before exceptional items Exceptional items Six months
ended 30 June
£000 £000 2021
Unaudited
£000
Revenue 67,842 - 67,842
Other operating income 853 - 853
Modification gain/(loss) (3,210) - (3,210)
Derecognition gain/(loss) (1,491) - (1,491)
Impairment of financial assets (6,444) - (6,444)
Exceptional provisions 6 - (1,918) (1,918)
Administrative expenses (48,165) - (48,165)
Operating profit/(loss) 5 9,385 (1,918) 7,467
Other exceptional items 6 - (2,107) (2,107)
Profit/(loss) on ordinary activities before interest and tax 9,385 (4,025) 5,360
Finance costs (12,895) - (12,895)
Profit/(loss) on ordinary activities before tax (3,510) (4,025) (7,535)
Tax on profit (loss) on ordinary activities 8 - - -
Profit/(loss) for the period (3,510) (4,025) (7,535)
Total comprehensive loss for the year (7,535)
Loss attributable to:
- Owners of the parent (7,535)
- Non-controlling interests -
Loss per share
Note Six months ended
30 June 2021
Pence
Basic and diluted 7 (2.41)
There are no recognised gains or losses other than disclosed above and there
have been no discontinued activities in the period.
Condensed consolidated statement of financial position as at 30 June 2022
Note 30 June 31 December 2021
2022 Audited
Unaudited £000
£000
ASSETS
Non-current assets
Intangible assets 2,809 2,772
Right of use asset 7,249 7,877
Property, plant and equipment 3,417 3,925
Amounts receivable from customers 10 97,343 98,836
110,818 113,410
Current assets
Amounts receivable from customers 10 80,441 109,148
Trade and other receivables 1,182 2,526
Corporation tax asset - 1,477
Cash and cash equivalents 111,462 114,577
193,085 227,728
Total assets 303,903 341,138
LIABILITIES AND EQUITY
Current liabilities
Current tax liability 15 -
Trade and other payables 17,637 18,375
Provisions 11 25,759 25,643
Lease liability 1,208 2,129
Total current liabilities 44,619 46,147
Non-current liabilities
Lease liability 6,830 7,416
External Borrowings 13 329,850 328,762
Total non-current liabilities 336,680 336,178
Equity
Share capital 15,621 15,621
Share premium 180,019 180,019
Other reserves 255 551
Retained loss (273,291) (237,082)
Total equity (77,396) (41,187)
Total equity and liabilities 303,903 341,138
Condensed consolidated statement of changes in equity for the six months ended
30 June 2022
Note Share Share Other Retained Total
capital premium reserves loss £000
£000 £000 £000 £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 payment reserve on vesting of share awards - - (330) 330 -
At 31 December 2021 15,621 180,019 255 (237,082) (41,187)
Total comprehensive loss for the period
- - - (36,209) (36,209)
Transactions with owners, recorded directly in equity:
Dividends paid 9 - - - -
At 30 June 2022 (unaudited) 15,621 180,019 255 (273,291) (77,396)
(
)
Condensed consolidated statement of cash flows for the six months ended 30
June 2022
Note Six months ended Six months ended
30 June 2022 30 June 2021
Unaudited Unaudited
£000
£000
Net cash (used in)/from operating activities 14 9,982 32,451
Cash flows (used in)/from investing activities
Purchase of property, plant and equipment (118) (139)
Purchase of software intangibles (502) (1,275)
Proceeds from sale of property, plant and equipment - 15
Reduction in actual cash resulting from derecognition of home credit division (7,062) -
in administration
Net cash (used in)/from investing activities (7,682) (1,399)
Cash flows (used in)/from financing activities
Finance cost (4,768) (4,446)
Repayment of principal portion of lease liabilities (645) (880)
Net cash (used in)/from financing activities (5,413) (5,326)
Net increase/(decrease) in cash and cash equivalents (3,113) 25,726
Cash and cash equivalents at beginning of the period 114,577 77,956
Cash and cash equivalents at end of the period 111,462 103,682
As at 30 June 2022 the Group had cash of £111.5m (30 June 2021: £103.7m)
with gross debt of £330.0m (30 June 2021: £330m).
Notes to the preliminary announcement
1. General information
Non-Standard Finance plc is a public limited company, limited by shares,
incorporated and domiciled in the United Kingdom. The address of the
registered office is Unit 26/27 Rear Walled Garden, The Nostell Business
Estate, Wakefield, West Yorkshire, United Kingdom, WF4 1AB.
The unaudited condensed interim financial statements do not constitute the
statutory financial statements of the Group within the meaning of section 435
of the Companies Act 2006. The statutory financial statements for the year
ended 31 December 2021 were approved by the Board of Directors on 29 April
2022 and have been delivered to the Registrar of Companies. The report of the
auditor was unqualified and did not contain a statement under section 498(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 Group notes this
material uncertainty continues to exist as at 30 June 2022 as a result of the
reasons outlined in note 2.
The unaudited condensed interim financial statements for the six months ended
30 June 2022 have been reviewed, not audited, and were approved by the Board
of Directors on 28 September 2022.
2. Basis of preparation
The condensed consolidated financial statements for the six months ended 30
June 2022 have been prepared in accordance with International Accounting
Standard 34: Interim Financial Reporting, as adopted by the UKEB, and the
requirements of the Disclosure and Transparency Rules ('DTR') of the Financial
Conduct Authority ('FCA') in the United Kingdom as applicable to interim
financial reporting. The unaudited condensed interim financial statements
should be read in conjunction with the statutory financial statements for the
year ended 31 December 2021 which have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006 and UK-adopted International Accounting Standards.
On 15 March 2022, the Directors of the Company's indirect subsidiary S.D
Taylor Limited (trading as 'Loans at Home' and forming the home credit
division of the Group) reluctantly concluded that the Loans at Home business
was no longer viable, leading to the business being placed into
administration. As a result, the financial statements of the home credit
division for the year ended December 2021 were prepared on a basis other than
going concern. This required the carrying value of the assets to be at the
amounts they are expected to realise and the liabilities include any amounts
for onerous contracts as a result of the administration. The financial
statements were prepared in all respects in accordance with the accounting
framework.
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
Group's financial statements.
There are no new standards adopted by the Group from 1 January 2022. There are
no new standards not yet effective and not adopted by the Group from 1 January
2022 which are expected to have a material impact on the Group.
Going concern
As part of its going concern assessment for the six months ended 30 June 2022,
the Directors reviewed both the Group's access to liquidity and its future
balance sheet solvency for at least the next 12 months.
Background
As noted in the 2021 Annual Report and Accounts, the Group commissioned an
independent review of its home credit business to ensure that there were no
implications for the division as a result of the multi-firm review into
guarantor loans, or from recent decisions at the Financial Ombudsman Service.
The conclusion from this review was that there may have been harm to certain
customers. Following extensive discussions with the FCA about how harm should
be defined and the implications for future lending, the Directors of S.D
Taylor Limited (trading as 'Loans at Home') reluctantly concluded that the
Loans at Home business was no longer viable, leading to the business being
placed into administration on 15 March 2022. It was clear to the boards of
Loans at Home and of NSF that administration was the only viable option 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 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 and 30 June 2022, the Group's loan to
value (LTV) ratio was higher than the level permitted under its LTV covenant.
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 March 2022 and June 2022 quarter dates. The date on which the Group is
required to supply these compliance certificates has been extended until 5
October 2022, with a mechanism for this date to be extended further with
lender support.
The Directors have decided to pursue the use of a court-based process such as
a scheme of arrangement or restructuring plan in relation to its redress
liabilities, so as to allow it to proceed with its planned capital raise, the
proceeds of which will be used, among other things, to fund a cash pot which
will be available to finance an agreed portion of redress liabilities to
affected customers and to strengthen the Group's balance sheet to underpin
future growth.
Going concern assessment
In light of the above, the Group has produced two reasonably possible
scenarios as part of its going concern assessment:
(i) the base case scenario assumes:
· the proposed court-based process to compromise liabilities
('Process') is successful;
· the Process is completed within a time frame acceptable to the
Group's lenders and potential investors
· the estimated amount of redress payable under the Process is at a
level acceptable to potential investors;
· a substantial equity injection is received in 2023 ( 'Capital
Raise');
· the Group has obtained extensions to the testing dates and/or
other forms of waivers from its lenders for potential covenant breaches to
enable it to proceed with the Capital Raise;
· the extension of the Group's debt facilities on terms acceptable
to investors; and
· the guarantor loan division remains in managed run-off.
(ii) the downside scenario assumes:
· the Process is unsuccessful;
· the Group is unable to complete the Capital Raise;
· no acceptable alternative to the base case is agreed between the
Group, its lenders and major shareholder; and
· the Group is not granted extensions to the testing dates and/or
other forms of waivers from its lenders of covenant breaches and the Group's
lenders become entitled to enforce their security, resulting in a material
risk of the Group entering insolvency.
Under the base case scenario and assuming successful completion of the Capital
Raise, the Group would be in a net asset position from a balance sheet
perspective; achieving this outcome however is dependent upon a number of
factors including:
· a successful Process which would be subject to a number of
variables, including court sanction, satisfying the statutory creditor
approval requirements and the receipt of necessary consents and waivers from
lenders to allow the Group to proceed with the Process;
· the Group receiving extensions to the LTV covenant testing dates
or other form of waivers from its lenders of covenant breaches beyond 5
October 2022 until the completion of the Process and Capital Raise;
· the Group having raised sufficient additional capital and secured
extensions to the term and/or refinancing of the Group's debt facilities;
· no significant further changes in the regulatory environment
and/or approach to complaints by FOS;
· the impact of high levels of inflation, increased cost of living,
and other macroeconomic uncertainties which have not been accounted for in the
base case, on customer behaviour and financial performance; and
· the underlying assumptions in relation to business performance
not varying materially from the base case.
The Directors recognise that the Capital Raise is dependent on a number of
material uncertainties listed above. The Directors continue to maintain a
regular dialogue with key stakeholders including the FCA, Alchemy and the
Group's lenders regarding the above matters.
Under the downside scenario, it is expected that the Group will remain in a
net liability position, not be able to meet its liabilities (including to
redress creditors) as they fall due, the Group's lenders would be entitled to
enforce their security and the most likely outcome would therefore be the
Group going into insolvency in which there would be no payment of redress
liabilities.
The Company is working with key stakeholders on an alternative transaction to
be implemented in the event that the Process is completed but the Capital
Raise is unsuccessful which would preserve the branch-based lending business
as a going concern. It is expected that the same cash pot would be available
to finance an agreed portion of redress liabilities as if the Capital Raise
had completed. However, in this scenario, there would be a material risk of
the Company and certain other members of the Group entering insolvency and as
a result there would be no recovery for the Company's shareholders.
Conclusion
The Directors acknowledge the considerable challenges presented by the
uncertainty around the success of the Process, 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 lenders in
relation to potential future covenant breaches prior to completion of the
Capital Raise, the agreement of the necessary waivers to implement the
Process, agreement from the lenders to extend the term of existing debt
facilities, and the impact of high levels of inflation in the economy and
other macroeconomic uncertainties on the financial performance of the Group.
They have therefore concluded that there exists a material uncertainty around
the going concern status of the Group and Company.
In making their overall assessment, the Directors considered both the balance
sheet solvency and the liquidity position of the Group. In connection with the
former, the Capital Raise would create a positive net asset position. In
connection with the latter the Directors have taken into consideration the
impact of the Capital Raise on the existing cash balances which would then be
available to the business. This combination would provide sufficient liquidity
throughout the going concern period. Whilst essential for the future of the
Group, the capital raise would materially dilute the interest of current
equity holders, most likely to negligible value unless they chose to
participate in the planned Capital Raise. However the Capital Raise is
dependent on the factors listed earlier and this dependency creates a material
uncertainty. Looking at the generation of future cash, the Directors note that
the Group has sufficient cash to continue trading over the next 12 months
assuming no change to lending and costs. However, they also recognised that,
in the absence of the lenders granting the necessary extensions to the testing
dates or other forms of waivers in respect of potential future covenant
breaches, cash balances may not be available to the Group or Company. With
regard to the balance sheet solvency of the Group, the Directors noted that
under the base case scenario, the Group returns to a net asset position and
remains there for the going concern period, however this remains dependent on
the injection of additional capital into the Group.
As noted above, if the Capital Raise is not achieved within the required
timeframe, it is expected that the Group would not be capable of meeting its
liabilities as they fall due. Under this scenario, the Group's lenders would
be entitled to enforce their security and the most likely outcome would be the
Group entering into an insolvency process in which there would be no payment
of redress liabilities. The Company is working with key stakeholders on an
alternative transaction to be implemented in the event that the Process is
completed but the Capital Raise is unsuccessful which would preserve the
branch-based lending business as a going concern. It is expected that the
same cash pot would be available to fund an agreed portion of redress
liabilities to affected customers as if the Capital Raise had completed.
However, in this scenario, there would be a material risk of the Company and
certain other members of the Group entering insolvency and as a result there
would be no recovery for the Company's shareholders.
Despite the material uncertainties associated with the forecast assumptions,
the Directors note that Alchemy has indicated its continued support for a
Capital Raise (subject to a number of conditions as listed below) and the
Group continues to engage with the FCA and the Group lenders in respect of the
Process. The Directors believe that if the actual outcomes do not differ
materially from the assumptions outlined in the base case, the Group and
Company can reasonably expect to continue to operate and meet their respective
liabilities as they fall due for at least 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 favourable performance to date against plan and
the fact that Alchemy remains supportive of a Capital Raise subject to: an
outcome of the Group's engagement with its lenders that is acceptable to
Alchemy; Alchemy's analysis of the regulatory position of the Group's
divisions and the implications of that on (and Alchemy's assessment of) the
Group's business plan and financial projections; and court sanction of the
Process.
The Directors recognise that, whilst court-based processes are complex, time
consuming and not guaranteed to be successful, they believe that there is a
reasonable chance of success. Therefore, along with the continued support of
its lenders and shareholders and extension of the lending facilities, the
Process would allow it to proceed with its planned Capital Raise. The proceeds
of the planned Capital Raise will be used, among other things, to fund a cash
pot which will be available to finance an agreed portion of redress
liabilities to affected customers and reduce debt gearing levels, thereby
strengthening the Group's balance sheet and laying the foundations for future
growth. The Company is in discussions with its lenders regarding a potential
extension of the lending facilities and other measures to support the business
going forward, which is likely to be linked to the completion of the Capital
Raise. Although it is not expected that the cash pot will be sufficient to
allow for redress liabilities to be paid in full, the Board believe that the
Process is in the best interests of customers with redress claims, as well as
the Group's other stakeholders. As mentioned previously, without the Process,
there is a material risk of the Group entering an insolvency process in which
there would be no payment of redress liabilities.
The Directors note that certainty around the level of potential redress
liabilities under the Process is a key factor for Alchemy and other potential
investors in assessing whether they will, ultimately, support the Capital
Raise As outlined previously, a successful court-based process would also be
subject to a number of variables, including court sanction, a positive
creditor vote and the receipt of necessary waivers from lenders.
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 that, should the actual outcomes vary materially from the modelled
assumptions, any consequent negative impact on the liquidity and solvency
under the base case scenario may cast significant doubt on the ability of both
the Group and Company to continue as a going concern. Under the downside
scenario, there is a material risk of the Group going into insolvency. As
noted above, the Company is working on an alternative transaction to preserve
the branch-based lending business as a going concern in the event that the
Process is completed but the Capital Raise is unsuccessful. However, in this
scenario, there would be a material risk of the Company and certain other
members of the Group entering insolvency and as a result there would be no
recovery for the Company's shareholders.
As the possible outcomes detailed above remain dependent on a number of
factors not directly within the Group's control, the Board will continue to
monitor the Company and Group's financial position (including access to
liquidity and balance sheet solvency) carefully over the coming weeks and
months as a better understanding of the impact of these various factors are
developed. The Board recognises the importance of the success of the Process
and the Capital Raise to mitigate the uncertainties noted above and to support
the future growth prospects of the Group.
The Directors will also continue to monitor the Group and Company's risk
management and internal control systems.
Significant judgement
The assumption of a successful Process, shareholder support for the Capital
Raise, lender support for waivers and the extension of existing financing
facilities on terms acceptable to investors, and the continued performance of
the Group and that the ultimate conclusions on those matters are not
materially different to that envisaged under the base case, forms a
significant judgement of the Directors in the context of approving the Group's
going concern status.
3. Accounting policies
The accounting policies used in these condensed consolidated interim financial
statements are consistent with those used in the Non-Standard Finance Plc
Annual Report 2021 with the addition of:
Derecognition of a subsidiary:
The Group derecognises a subsidiary when it no longer has control. Per IFRS 10
control is defined as an investor holding all of the following:
(a) power over the investee;
(b) exposure, or rights, to variable returns from its involvement with the
investee; and
(c) the ability to use its power over the investee to affect the amount of the
investor's returns.
When a parent loses control of a subsidiary, it shall:
(a) derecognise: (i) the assets (including any goodwill) and liabilities of
the subsidiary at their carrying amounts at the date when control is lost;
and (ii) the carrying amount of any non-controlling interests in the former
subsidiary at the date when control is lost (including any components of other
comprehensive income attributable to them);
(b) recognise: (i) the fair value of the consideration received, if any, from
the transaction, event or circumstances that resulted in the loss of control;
(ii) if the transaction, event or circumstances that resulted in the loss of
control involves a distribution of shares of the subsidiary to owners in their
capacity as owners, that distribution; and (iii) any investment retained in
the former subsidiary at its fair value at the date when control is lost;
(c) reclassify to profit or loss, or transfer directly to retained earnings if
required by other IFRSs, the amounts recognised in other comprehensive income
in relation to the subsidiary on the basis described in paragraph B99; and
(d) recognise any resulting difference as a gain or loss in profit or loss
attributable to the parent.
Fair values of financial assets and liabilities
Financial assets and liabilities held at fair value are grouped into Levels 1
to 3 of the fair value hierarchy based on the degree to which the fair value
is observable: Level 1 - quoted prices for similar instruments; Level 2 -
directly observable market inputs other than Level 1 inputs and; Level 3 -
inputs not based on observable market data. The Group does not hold any
financial assets and liabilities at fair value, however information about the
fair values of each class of financial asset and financial liability are made
in line with IFRS 7 where applicable Disclosure of fair values is not required
when the carrying amount is a reasonable approximation of fair value, such as
short-term trade receivables and payables, or for instruments whose fair value
cannot be measured reliably. The carrying value of financial assets and
liabilities are not materially different to their fair value, except for
amounts receivable from customers (refer note 10 for further detail).
4. Critical accounting assumptions and key sources of estimation uncertainty
The preparation of financial statements in conformity with generally accepted
accounting practice requires management to make estimates and judgements that
affect the reported amounts of assets and liabilities as well as the
disclosure of contingent assets and liabilities at the year-end date and the
reported amounts of revenues and expenses during the reporting period.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
Critical accounting judgements:
Amounts receivable from customers - significant increase in credit risk
Expected credit losses (ECL) are measured as an allowance equal to 12-month
ECL for stage 1 assets, or lifetime ECL for stage 2 assets or stage 3 assets.
An asset moves to stage 2 when its credit risk has increased significantly
since initial recognition. IFRS 9 does not define what constitutes a
significant increase in credit risk and therefore the Group makes assumptions
to determine whether there are indicators that credit risk has increased
significantly which indicates that there has been an adverse effect on
expected future cash flows. In assessing whether the credit risk of an asset
has significantly increased, the Group takes into account qualitative and
quantitative reasonable and supportable forward-looking information.
Key sources of estimation uncertainty:
Amounts receivable from customers
The Group assesses its portfolio of amounts receivable from customers for ECL
at each balance sheet date. The following are key estimations that the
Directors have used in the process of applying the Group's recognition of ECL
policy:
· Probability of default (PD): PD constitutes a key input in
measuring ECL. PD is an estimate of the likelihood of default over a given
time horizon, the calculation of which includes historical data, assumptions
and expectations of future conditions.
· Loss given default (LGD): LGD is an estimate of the loss arising
on default. It is based on the difference between the contractual cash flows
due and those that the lender would expect to receive over the life of the
loan.
Sensitivity analysis of amounts receivable from customers - key sources of
estimation uncertainty:
Probability of default and loss given default
Branch-based lending
The calculation of ECL in branch-based lending uses historical data to
forecast future cash flows, discounted at the receivable's EIR. A sensitivity
run on collections performance shows that a 5% increase or decrease in
expected cash collections would result in a £8.2m increase/decrease in
provisions. The suitability of the 5% sensitivity run has been reviewed and
considered appropriate based on historical performance.
Guarantor Loans Division
The calculation of ECL in the guarantor loans division uses historical data to
forecast future cash flows, discounted at the receivable's EIR. A sensitivity
run on collections performance shows that a 10% increase or decrease in
expected cash collections would result in a £1.7m increase/decrease in
provisions. The suitability of the 10% sensitivity run has been reviewed and
considered appropriate based on historical performance.
Provisions for customer complaints and redress
Provisions for customer complaints are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it is probable
that the Group will be required to settle that obligation and a reliable
estimate can be made of the amount of the obligation.
Judgement is applied to determine whether the criteria for establishing and
retaining a provision have been met. Provisions for customer redress are in
respect of complaints where the outcome has not yet been determined. Judgement
is applied to determine the quantum of such provisions, including making
assumptions regarding the extent to which the complaints received may be
upheld, average redress payments and related administrative costs. Past
experience is used as a predictor of future expectations with management
applying overlays where necessary depending on the nature and circumstances.
The cost could differ from the Group's estimates and the assumptions
underpinning them and could result in an increased provision being required.
There is also uncertainty around the impact of proposed regulatory changes,
claims management companies and customer activity.
The key assumptions in these calculations which involve management judgement
and estimation relate primarily to the projected costs of existing complaints
where it is considered likely that customer redress will be appropriate.
These key assumptions are:
· uphold rate percentage - the expected average uphold rate applied
to existing complaint volumes where it is considered more likely than not that
customer redress will be appropriate;
· average redress cost - the estimated compensation, inclusive of
balance adjustments and cash payments, for upheld complaints included in the
provision; and
· customer complaint volumes - the level of claims which would be
due remediation in future based on recent experience of valid claims.
These assumptions remain subjective due to the uncertainty associated with
future complaint volumes and the magnitude of redress which may be required.
Complaint volumes may include complaints under review by the Financial
Ombudsman Service, cases received from claims management companies or cases
lodged directly by customers.
Branch-based lending
A 50% increase/decrease in customer complaints volumes would result in a
£0.5m increase/decrease in the business as usual ("BAU") complaints provision
for the Group. A 50% increase/decrease in average claim redress would result
in a £0.5m increase/decrease in the BAU complaints provisions for the Group,
and a 50% increase/decrease in upheld rate would result in a £0.5m
increase/decrease in the BAU complaints provisions for the Group.
Only if any increase/decrease in BAU complaints was considered to reflect an
overall increase in the number of potential complainants rather than an
acceleration of complaints, would we amend the exceptional future value
provision.
Guarantor Loans Division
A 50% increase/decrease in customer complaints volumes would result in a
£0.7m increase/decrease in the BAU complaints provisions for the Group, a 50%
increase/decrease in average claim redress would result in a £0.7m
increase/decrease in the BAU complaints provisions for the Group, and a 50%
increase/decrease in upheld rate would result in a £0.7m increase/decrease in
the BAU complaints provisions for the Group.
Going concern
Assumptions made in the base case as part of the Group's going concern
assessment form a significant judgement of the Directors in the context of
approving the Company's going concern status. Refer to note 2 of the financial
statements for further detail.
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 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 home credit division was placed into administration on 15 March
2022 and therefore its results have only been included in the Group's
financial statements up to this date.
The Group's operations are all located in the United Kingdom and all revenue
is attributable to customers in the United Kingdom.
Branch-based lending Home Guarantor loans(2) Central 2022
£000 credit(1) £000 £000 Total
£000 £000
Six months ended 30 June 2022
Interest income 43,829 7,315 5,450 - 56,594
Other income 123 - - - 123
Total revenue 43,952 7,315 5,450 - 56,717
Exceptional provisions (4,500) - (687) - (5,187)
Operating profit/(loss) before other exceptional items (779) (531) 921 (1,984) (2,373)
Other exceptional items(4) - (5,523) - (14,172) (19,695)
Finance cost (6,858) (257) (1,149) (5,877) (14,141)
Profit/(loss) before taxation (7,637) (6,311) (228) (22,033) (36,209)
Taxation - - - - -
Profit/(loss) for the period (7,637) (6,311) (228) (22,033) (36,209)
Capital expenditure 618 - - 72 690
Depreciation of plant, property and equipment 601 - - - 601
Depreciation of right of use asset 654 - - 6 660
Amortisation and impairment of intangible assets 456 - - 12 468
Branch-based lending Home Guarantor loans(2) Central Consolidation adjustments(3) 30 June 2022
£000 credit(1) £000 £000 £000 Total
£000 £000
Total assets 181,933 - 17,341 280,959 (176,330) 303,903
Total liabilities (211,550) - - (329,443) 159,694 (381,299)
Net assets (29,617) - 17,341 (48,484) (16,636) (77,396)
(1) The home credit division was placed into administration on 15 March 2022,
therefore its results reflect the period up to 14 March 2022.
(2) Guarantor loans division includes George Banco and TrustTwo. TrustTwo is
supported by the infrastructure of Everyday Loans, but its results are
reported to the Board separately and have therefore been disclosed within the
guarantor loans division above
(3) Consolidation adjustments include the elimination of intra-Group balances
(4) Refer to note 6 for further details
Branch-based lending Home Guarantor loans Central 2021
£000 credit £000 £000 Total
£000 £000
Six months ended 30 June 2021
Interest income 39,443 18,019 10,380 - 67,842
Other income 237 607 1 8 853
Total revenue 39,680 18,626 10,381 8 68,695
Exceptional provisions - - (1,918) - (1,918)
Operating profit/(loss) before other exceptional items 9,512 1,455 (1,165) (2,335) 7,467
Other exceptional items - - (527) (1,580) (2,107)
Finance cost (7,367) (486) (2,611) (2,431) (12,895)
Profit/(loss) before taxation 2,145 969 (4,303) (6,346) (7,535)
Taxation - - - - -
Profit/(loss) for the period 2,145 969 (4,303) (6,346) (7,535)
Capital expenditure 790 657 - 85 1,532
Depreciation of plant, property and equipment 835 121 - 12 968
Depreciation of right of use asset 688 289 - 75 1,052
Amortisation and impairment of intangible assets 360 852 - 12 1,224
Branch-based lending Home Guarantor loans Central Consolidation adjustments 30 June 2021
£000 credit £000 £000 £000 Total
£000 £000
Total assets 191,699 35,044 41,449 359,812 (267,449) 360,555
Total liabilities (226,726) (16,248) - (333,904) 198,025 (378,853)
Net assets (35,027) 18,796 41,449 25,908 (69,424) (18,298)
The results of each segment have been prepared using accounting policies
consistent with those of the Group as a whole.
The carrying value of financial assets and liabilities are not materially
different to their fair value, except for amounts receivable from customers
(refer to note 10 for further detail).
6. Exceptional items
In the six months ended 30 June 2022, the Group incurred exceptional costs
totalling £24.9m. This comprised the following: £5.7m additional costs
associated with the proposed court-based process for a scheme of arrangement
or restructuring plan (refer to note 11 for further detail), £5.5m in
relation to the losses on derecognition of the home credit division ('LAH')
and £13.7m impairments recognised on related receivable balances held with
the division which was placed into administration on 15 March 2022. Whilst the
Group does not expect to recover the balances held directly with LAH following
the conclusion of the administration, as LAH remains a guarantor of the
Group's financing facilities, it is anticipated that the proceeds from the
administration would be paid directly to its secured lenders, thereby reducing
the external debt balance held by the Group at that point.
In the six months ended 30 June 2021, the Group incurred £4.0m of exceptional
costs. These comprised: a charge of £1.9m in relation to the guarantor loans
redress program, an exceptional redundancy cost of £0.5m in relation to the
decision to place the guarantor loans division into managed run-off, and
£1.6m of exceptional costs relate to advisory fees incurred. Equity-related
fees are treated as non-deductible for tax purposes.
7. Loss per share
Six months ended Six months ended
30 June 2022 30 June 2021
Retained loss attributable to Ordinary Shareholders (£000) (36,209) (7,535)
Weighted average number of Ordinary Shares 312,437,422 312,437,422
Basic and diluted loss per share (pence) (11.59) (2.41)
The loss per share was calculated on the basis of net loss attributable to
Ordinary Shareholders divided by the weighted average number of Ordinary
Shares in issue. The basic and diluted loss per share is the same, as the
exercise of share options would reduce the loss per share and is
anti-dilutive.
Six months ended Six months ended
30 June 2022 30 June 2021
Weighted average number of potential Ordinary Shares that are not currently - 5,539
dilutive (000)
The weighted average number of potential Ordinary Shares that are not
currently dilutive includes the Ordinary Shares that the Company may
potentially issue relating to its share option schemes and share awards under
the Group's long-term incentive plans and Save As You Earn schemes.
8. Taxation
The tax charge for the period is calculated by applying the Directors' best
estimate of the effective tax rate for the financial year to the profit or
loss before tax for the period. In the six months to 30 June 2022, the
effective tax rate was 19% (2021: 19%). As at 30 June 2022, the Group has not
recognised a deferred tax asset (2021: £nil). In the current and prior year
the Group has not recognised any tax benefits that would typically accrue
based on current year losses due to the uncertainty in the regulatory 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.
9. Dividends
As a result of the current and prior period's reported losses, the Company
does not have any distributable reserves and is therefore not in a position to
declare a half year dividend for the six months ended 30 June 2022 (2021: nil
pence per share).
With no interim dividend being proposed by the Directors in respect of the six
months ended 30 June 2022 (interim dividend 2021: nil pence per share), there
will be no dividend payment in relation to the current period (2021: £nil).
10. Amounts receivable from customers
30 June 2022 31 Dec 2021
£000 £000
Gross carrying amount 212,969 265,021
Loan loss provision (35,185) (57,037)
Amounts receivable from customers 177,784 207,984
Included within the gross carrying amount above are unamortised broker 30 June 2022 31 Dec 2021
commissions, see table below:
£000 £000
Unamortised broker commissions 6,877 6,653
Total unamortised broker commissions 6,877 6,653
Analysis of amounts receivable from customers due within/more than one year:
30 June 2022 31 Dec 2021
£000 £000
Due within one year 80,441 109,148
Due in more than one year 97,343 98,836
Amounts receivable from customers 177,784 207,984
Analysis of amounts receivable from customers
30 June 2022 Stage 1 Stage 2 Stage 3 Total
£000 £0000 £000 £000
Branch-based lending 152,100 29,301 7,324 188,725
Guarantor loans - 20,568 3,676 24,244
Gross carrying amount 152,100 49,869 11,000 212,969
Branch-based lending (9,435) (12,800) (6,047) (28,282)
Guarantor loans - (4,279) (2,624) (6,903)
Loan loss provision (9,435) (17,079) (8,671) (35,185)
Branch-based lending 142,665 16,501 1,277 160,443
Guarantor loans - 16,289 1,052 17,341
Net amounts receivable 142,665 32,790 2,329 177,784
31 December 2021 Stage 1 Stage 2 Stage 3 Total
£000 £000 £000 £000
Branch-based lending 141,979 33,723 7,138 182,240
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 (9,253) (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
The home credit division was placed in to administration on 15 March 2022 and
therefore has been derecognised from the Group at this point.
Fair value of amounts receivable from customers
30 June 2022 31 Dec 2021
£000 £000
Branch-based lending 212,062 208,440
Home Credit(1) - 36,368
Guarantor Loans(2) 21,549 31,366
Amounts receivable from customers 233,611 276,174
(1) The home credit division was placed into administration on 15 March 2022.
(2) Includes amounts receivable from customers which have been provided for as
part of the guarantor loans redress programme, refer to note 11 for further
detail.
Fair value has been derived by discounting expected future cash flows (net of
collection costs) at the credit risk adjusted discount rate at the balance
sheet date. Under IFRS 13, 'Fair value measurement', receivables are classed
as Level 3 which defines fair value measurements as those derived from
valuation techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs).
11. Provisions
Plevin Onerous contracts Complaints Dilapidations Total
£000 £000 £000 £000 £000
Court-based process provisions
Restructuring £000
£000
Balance at 31 December 2020 49 - 5,129 1,322 - 15,313 21,813
Charge during the period - 282 4,936 15 601 2,251 8,085
Utilised (49) - (3,432) (68) (70) (636) (4,255)
Balance at 31 December 2021 - 282 6,633 1,269 531 16,928 25,643
Derecognition of home credit division (282) (3,636) (230) - - (4,148)
Charge during the period - - - 6 - 5,725 5,731
Utilised - - (666) - (148) (653) (1,467)
Balance at 30 June 2022 - - 2,331 1,045 383 22,000 25,759
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.
Branch-based lending
The Group has recognised a provision for business as usual (BAU) complaints
received of £0.92m as at 30 June 2022 (31 December 2021: £2.0m) in relation
to potential outflows to customers related to past non-compliance with
regulations relating to affordability assessments. Judgement is applied to
determine the quantum of such provisions, including making assumptions
regarding the extent to which the complaints already received may be upheld,
average redress payments and related administrative costs. Refer to note 4 for
sensitivity on this.
As part of their assessment, the Directors also considered the independent
review commissioned by the Group in April 2021 of the lending and complaints
handling activities of the division. This review completed in Q1 2022 and the
result was no requirement for customer redress.
Home credit
The home credit division was placed into administration on 15 March 2022 and
therefore is no longer part of the Group as at 30 June 2022.
Guarantor lending
The Group has recognised a provision for BAU complaints received of £1.41m as
at 30 June 2022 (31 December 2021: £0.95m) in relation to potential outflows
to customers related to past non-compliance with regulations relating to
affordability assessments. Judgement is applied to determine the quantum of
such provisions, including making assumptions regarding the extent to which
the complaints already received may be upheld, average redress payments and
related administrative costs. Refer to note 4 for sensitivity on this.
Court-based process provision
Part of the provision included in the statement of financial position relates
to amounts recognised for the customer redress programme in the Group's
guarantor loans division totalling £17.5m (31 December 2021: £16.9m). The
increase from 2021 reflects additional interest accrued over the period. The
independent review of the branch-based lending division carried out in 2021
identified no systemic issue regarding redress. However, since GLD trades
through the same legal entity as this division, in order to ensure a fair
outcome to all customers, the Process will encompass all eligible Everyday
Loans customers of the branch-based lending division as well as GLD. Whilst
the amount which might be paid as part of the Process in relation to
branch-based lending customers is uncertain given no systemic issues were
identified in the independent review carried out in 2021, in its ordinary
course of business the Group does uphold a small number of complaints each
month for non-systemic reasons. The Group recognises that the Process may pull
forward such complaints from future years and has therefore recognised an
exceptional charge of £4.5m in the branch-based lending division based on
management's best estimate of the future value of such complaints. Whilst the
provisions have been calculated assuming that eligible customers are paid in
full, given the cost of the Process (which will be deducted from the cash pot
that will be available to finance an agreed portion of the redress liability
and the increased number of complaints which may be made as part of the
Process, it is expected that those customers who suffered harm would not
receive 100p/£1. Should the court-based process be unsuccessful, there is a
material risk of the Group entering an insolvency process in which there would
likely be no payment of redress liabilities. Therefore although the Directors
believe their best estimate represents a reasonably possible outcome, there is
a risk of a less favourable outcome. It is anticipated that the payments will
start to be made upon successful conclusion of the court-based process and
subsequent Capital Raise.
12. 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.
13. External Borrowings
30 June 2022 31 December 2021
£000 £000
Due within one year(1) 5,680 4,813
Due in more than one year(1) 329,850 328,762
1 Amounts disclosed are net of capitalised transaction fees.
The Group's total debt facilities as at 30 June 2022 and 31 December 2021
comprised of a £285m term loan provided by institutional investors, a £45m
revolving loan facility provided by The Royal Bank of Scotland plc, and a
£200m securitisation facility provided by Ares Management Corporation. As at
30 June 2022, £285.0m (2021: £285.0m) was drawn under the term loan
facilities, £45.0m (2021: £45.0m) was drawn under the revolving loan
facility and £nil (2021: £nil) was drawn under the securitisation facility.
The term loan facility matures in August 2023, the revolving loan facility
matures in August 2022 and the securitisation facility matures in March 2026.
For the quarters ended 31 March 2022 and 30 June 2022, the Group's loan to
value ('LTV') ratio was higher than the level permitted under its loan to
value covenant. The loan to value covenant will not be formally tested, and no
covenant breach or event of default will arise, until the Group provides its
compliance certificates for the March 2022 and June 2022 quarter dates. The
date on which the Group is required to supply these compliance certificates
has been extended until 5 October 2022, with a mechanism for this date to be
extended further with lender support.
On 8 July 2022, the Group repaid its £45m RCF facility in full. In addition,
on 26 August 2022 a part repayment of £5m was made to the Group's term loan
facilities from the proceeds of the LAH administration. On 14 September 2022,
the Group closed the securitisation facility.
Borrowings are recognised initially at FV and subsequently at amortised cost.
The carrying value of other payables due in more than one year is not
materially different to the FV. The facility arrangements have the benefit of:
(i) guarantees from, and fixed and floating security granted by, the following
entities: NSF Finco Limited, Non-Standard Finance Subsidiary II Limited,
Non-Standard Finance Subsidiary III Limited, S.D. Taylor Limited, Everyday
Loans Holdings Limited, Everyday Loans Limited, Everyday Lending Limited,
George Banco Limited, George Banco.com Limited; and (ii) a charge over the
shares in, and intercompany loans made to, NSF Finco Limited granted by
Non-Standard Finance Subsidiary Limited. The charges made against these
companies are reflected at Companies House.
14. Net cash used in operating activities
Six months ended 30 June 2022 Six months ended 30 June 2021
£000 £000
Operating profit/(loss) (22,068) 5,360
Taxation refunded/(paid) 1,492 -
Interest portion of the repayment of lease liabilities (430) (512)
Depreciation 1,261 2,020
Share-based payment charge - 41
Amortisation of intangible assets 468 1,224
Derecognition and impairments related to administration of home credit 19,695 -
division
(Loss)/profit on disposal of property, plant and equipment and intangible 39 (3)
assets
Decrease/(increase) in amounts receivable from customers 12,694 28,652
Decrease/(Increase) in receivables 176 (825)
(Decrease)/increase in payables and provisions (3,345) (3,506)
Cash generated/(used) in operating activities 9,982 32,451
15. Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
There was one member of senior management of Non-Standard Finance plc who was
a Trustee of the charity Loan Smart as at 30 June 2022 and 31 December 2021.
During the six months ended 30 June 2022, the Company donated £nil to Loan
Smart (six months ended 30 June 2021: £15,000). The charity Loan Smart was
closed on 11 July 2022.
The Company receives charges from and makes charges to related parties in
relation to shared costs, staff costs and other costs incurred on their
behalf. As at 30 June 2022, the Company had an intercompany balance of £4.8m
payable to Everyday Lending Limited (31 December 2021: the Company was owed
£0.03m from its subsidiary S.D. Taylor Limited and £0.07m to its subsidiary
Everyday Loans Limited in relation to Group relief tax charges). Intra-Group
transactions between the Company and the fully consolidated subsidiaries or
between fully consolidated subsidiaries are eliminated on consolidation.
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 £37k (plus VAT) for the period ended 30
June 2022 (six months ended 30 June 2021: £37k).
16. Distributable Reserves of the Parent Company
At 30 June 2022, the Company had no distributable reserves (31 December 2021:
£nil).
17. Subsequent Events
On 8 July 2022, the Group repaid its £45m RCF facility in full. In addition,
on 26 August 2022 a part repayment of £5m was made to the Group's term loan
facilities from the proceeds of the LAH administration. On 14 September 2022,
the Group closed its £200m securitisation facility.
As mentioned above, the Directors have decided to pursue the use of a
court-based process (the 'Process'), such as a scheme of arrangement or
restructuring plan, in relation to its redress liabilities. A successful
Process is intended to provide certainty as to the total liability arising
from redress liabilities, thereby allowing the Group to proceed with its
planned capital raise (the 'Capital Raise'). If successful, the proceeds of
the Capital Raise will be used to fund a cash pot which will be available to
finance an agreed portion of the redress liability to affected customers and
to strengthen the Group's balance sheet and underpin future growth. The Group
has included a provision from the amount it expects to settle as part of the
Process (refer to note 11 for further detail).
APPENDIX
Glossary of alternative performance measures ('APMs') and key performance
indicators
The Group has developed a series of alternative performance measures that it
uses to monitor the financial and operating performance of each of its
business divisions and the Group as a whole. These measures seek to adjust
reported metrics for the impact of non-cash and other accounting charges
(including modification loss) that make it more difficult to see the true
underlying performance of the business. These APMs are not defined or
specified under the requirements of International Financial Reporting
Standards, however we believe these APMs provide readers with important
additional information on our business. To support this, we have included a
reconciliation of the APMs we use, how they are calculated and why we use them
on the following page.
Alternative performance measure Definition
Net debt Gross borrowings less cash at bank
Normalised revenue Normalised figures are before exceptional items.
Normalised operating profit
Normalised profit before tax
Normalised earnings per share
Key performance indicators Definition
Impairments/revenue Impairments as a percentage of normalised revenues
Impairments (including modifications)/revenue Impairments and modification gain/losses as a percentage of normalised
revenues
Impairments/average loan book Impairments as a percentage of 12 month average loan book excluding fair value
adjustments
Normalised net loan book Net loan book before fair value adjustments but after deducting impairment
provisions
Net loan book growth Annual growth in the net loan book
Operating profit margin Normalised operating profit as a percentage of normalised revenues
Cost to income ratio Normalised administrative expenses as a percentage of normalised revenues
Return on asset Normalised operating profit as a percentage of average loan book
Revenue yield Normalised revenue as a percentage of average loan book excluding fair value
adjustments
Risk adjusted margin Normalised revenue less impairments as a percentage of average loan book
excluding fair value adjustments
Alternative Performance Measures reconciliation
1. Net debt
30 Jun 2022 30 Jun 2021
£000 £000
Borrowings 330,000 330,000
Cash at bank and in hand(1) (110,918) (102,976)
219,082 227,024
1 Cash at bank and in hand excludes cash held by Parent Company that sits
outside of the security group
This is deemed useful to show total borrowings if cash available at year end
was used to repay borrowing facilities.
2. Normalised revenue (12 months)
Branch-based lending Guarantor loans
30 Jun 2022 30 Jun 2021(*) 30 Jun 2022 30 Jun 2021(*)
£000 £000 £000 £000
Reported revenue 82,504 89,046 8,706 23,440
Fair value adjustments - - - 971
Normalised revenue 82,504 89,046 8,706 24,411
* 2021 has been recalculated to ensure like-for-like comparative to 2022
Fair value adjustments are excluded due to them being non-business-as-usual
transactions as 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 financial year.
3. Normalised operating profit (12 months)
Branch-based lending Guarantor loans
30 Jun 2022 30 Jun 2021 30 Jun 2022 30 Jun 2021
£000 £000 £000 £000
Reported operating profit (12 months) 3,362 12,406 2,103 (8,332)
Add back fair value adjustments - - - 466
Add back amortisation of intangibles - - - 699
Add back exceptional provisions 4,500 - 687 1,566
Normalised operating profit (12 months) 7,862 12,406 2,790 (5,601)
Fair value adjustments have been excluded due to them being
non-business-as-usual transactions. They have resulted from the Group making
acquisitions and do not reflect the underlying performance of the business.
Removing this item is deemed to give a fairer representation of revenue within
the financial year.
4. Normalised profit before tax for the period ended 30 June 2022
30 Jun 2022 30 Jun 2021
£000 £000
Reported loss before tax (36,209) (7,535)
Add back exceptional items 24,882 4,025
Normalised profit before tax (11,327) (3,510)
Exceptional items have been excluded due to them being non-business-as-usual
transactions. The exceptional items are one-off and are not as a result of
underlying business-as-usual transactions and therefore do not reflect the
underlying performance of the business. Hence, removing these items is deemed
to give a fairer representation of the underlying profit performance within
the financial year.
5. Normalised profit for the period ended 30 June 2022
Group
30 Jun 2022 30 Jun 2021
£000 £000
Reported loss for the period (36,209) (7,535)
Add back exceptional items 24,882 4,025
Adjustment for tax relating to above items - -
Normalised loss for the period (11,327) (3,510)
Weighted average shares 312,437,422 312,437,422
Normalised earnings per share (pence) (3.63)p (1.12)p
As noted above exceptional items have been excluded due to them being
non-business-as-usual transactions. The exceptional items are one-off and are
not as a result of underlying business-as-usual transactions (refer to note 6
for further detail on exceptional costs in the year) and therefore does not
reflect the underlying performance of the business. Hence, removing these
items is deemed to give a fairer representation of the underlying earnings per
share within the financial year.
6. Impairment as a percentage of revenue
Branch-based lending Guarantor loans
30 Jun 2022 30 Jun 2021(*) 30 Jun 2022 30 Jun 2021(*)
£000 £000 £000 £000
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
Impairment (12 months) (25,035) (30,069) 3,118 (11,873)
Impairment as a percentage revenue 30.3% 33.8% (35.8)% 48.6%
* 2021 has been recalculated to ensure like-for-like comparative to 2022
Impairment as a percentage revenue is a key measure for the Group in
monitoring risk within the business.
7. Impairment (including modifications) as a percentage of revenue
Branch-based lending Guarantor loans
30 Jun 2022 30 Jun 2021(*) 30 Jun 2022 30 Jun 2021(*)
£000 £000 £000 £000
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
Impairment (12 months) (26,824) (34,916) 1,463 (16,483)
Impairment as a percentage revenue 32.5% 39.2% (16.8)% 67.5%
* 2021 has been recalculated to ensure like-for-like comparative to
2022impairme
Impairment as a percentage revenue is a key measure for the Group in
monitoring risk within the business.
8. Impairment as a percentage loan book
Branch-based lending Guarantor loans
30 Jun 2022 30 Jun 2021(*) 30 Jun 2022 30 Jun 2021(*)
£000 £000 £000 £000
Reported opening net loan book 163,779 187,705 41,449 88,045
Less fair value adjustments - - - (466)
Normalised opening net loan book 163,779 187,705 41,449 87,579
Reported closing net loan book 160,443 163,779 17,341 41,449
Less fair value adjustments - - - -
Normalised closing net loan book 160,443 163,779 17,341 41,449
Normalised opening net loan book 163,779 187,705 41,449 87,579
Normalised closing net loan book 160,443 163,779 17,341 41,449
Average net loan book 160,149 173,189 26,669 60,271
Impairment (12 months) (25,035) (30,069) 3,118 (11,873)
Impairment as a percentage average loan book 15.6% 17.4% (11.7)% 19.7%
* 2021 has been recalculated to ensure like-for-like comparative to 2022
Impairment as a percentage loan book allows review of impairment level
movements year on year.
9. Net loan book growth
Branch-based lending Guarantor loans
30 Jun 2022 30 Jun 2021 30 Jun 2021 30 Jun 2021
£000 £000 £000 £000
Normalised opening net loan book 163,779 187,705 41,449 87,577
Normalised closing net loan book 160,443 163,779 17,341 41,449
Net loan book growth (2.0)% (12.7)% (58.2)% (52.7)%
10. Return on asset
Branch-based lending Guarantor loans
30 Jun 2022 30 Jun 2021 30 Jun 2022 30 Jun 2021
£000 £000 £000 £000
Normalised operating profit (12 months) 7,862 12,406 2,790 (5,601)
Average net loan book 160,149 173,189 26,669 60,721
Return on asset 4.9% 7.2% 10.5% (9.2)%
The return on asset measure is used internally to review the return on the
Group's primary key assets.
11. Revenue yield
Branch-based lending Guarantor loans
30 Jun 2022 30 Jun 2021(*) 30 Jun 2022 30 Jun 2021(*)
£000 £000 £000 £000
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
Average net loan book 160,149 173,189 26,669 60,721
Revenue yield percentage 51.5% 51.4% 32.6% 40.5%
* 2021 has been recalculated to ensure like-for-like comparative to 2022
Revenue yield percentage is deemed useful in assessing the gross return on the
Group's loan book.
12. Risk adjusted margin
Branch-based lending Guarantor loans
30 Jun 2022 30 Jun 2021(*) 30 Jun 2022 30 Jun 2021(*)
£000 £000 £000 £000
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
Impairments (12 months) (25,035) (30,069) 3,118 (11,873)
Normalised risk adjusted revenue 57,469 58,977 11,824 12,538
Average net loan book 160,149 173,189 26,669 60,721
Risk adjusted margin percentage 35.9% 34.1% 44.3% 20.8%
* 2021 has been recalculated to ensure like-for-like comparative to 2022
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.
13. Operating profit/(loss) margin
Branch-based lending Guarantor loans
30 Jun 2022 30 Jun 2021(*) 30 Jun 2022 30 Jun 2021(*)
£000 £000 £000 £000
Normalised operating profit/(loss) (12 months) 7,862 12,406 2,790 (5,601)
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
Operating profit/(loss) margin percentage 9.5% 13.9% 32.0% (22.9)%
* 2021 has been recalculated to ensure like-for-like comparative to 2022
14. Cost to income ratio
Branch-based lending Guarantor loans
30 Jun 2022 30 Jun 2021(*) 30 Jun 2022 30 Jun 2021(*)
£000 £000 £000 £000
Normalised revenue (12 months) 82,504 89,046 8,706 24,411
Administration expense (12 months) (48,088) (42,197) (7,379) (13,529)
Cost to income ratio 58.3% 47.4% 84.8% 55.4%
* 2021 has been recalculated to ensure like-for-like comparative to 2022
This measure allows review of cost management.
INDEPENDENT REVIEW REPORT TO NON-STANDARD FINANCE PLC
Conclusion
We have been engaged by the Group to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprise the Condensed Consolidated Statement of Comprehensive
Income, the Condensed Consolidated Statement of Financial Position, the
Condensed Consolidated Statement of Changes in Equity, the Consolidated
Statement of Cash Flows and related notes. We have read the other information
contained in the half-yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity", issued for use in the United Kingdom.
A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with International
Standards on Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with UK adopted IASs. The condensed set of financial
statements included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34, "Interim
Financial Reporting".
Material uncertainty related to going concern
We draw attention to note 2 in the condensed set of financial statements of
the half-yearly report, which; due to the considerable challenges presented by
the uncertainty around the success of the court-based process to compromise
liabilities ("Process"); 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 lenders in relation to potential future
covenant breaches prior to completion of the Capital Raise; the agreement of
the necessary waivers to implement the Process; the impact of high levels of
inflation in the economy and other macroeconomic uncertainties on the
financial performance of the Group, along with the other matters as set
forth in note 2, indicates that a material uncertainty exists that may cast
significant doubt on the Group's ability to continue as a going concern. Our
conclusion is not modified in respect of this matter.
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting.
Responsibilities of Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to liquidate the Group
or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Group a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including those within the
Material uncertainty related to going concern paragraph, are based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report.
Use of our report
This report is made solely to the company's Directors, as a body, in
accordance with the terms of our engagement letter dated 12 August 2022. Our
review has been undertaken so that we might state to the company's Directors
those matters we have agreed to state to them in a reviewer's report and for
no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone, other than the company and the company's
Directors as a body, for our work, for this report, or for the conclusions we
have formed.
PKF Littlejohn LLP 15 Westferry Circus
Statutory Auditor Canary Wharf
London E14 4HD
28 September 2022
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