REG - Non-Standard Finance - Results for the period 08 Jul 14 to 31 Dec 15 <Origin Href="QuoteRef">NSF.L</Origin> - Part 2

Non-Standard FinanceAnnouncement

02/03/2016 07:12

- Part 2: For the preceding part double click  ID:nRSB7397Qa 

                                                                       Period from incorporation to 31 Dec 15£'000  
 Loss before taxation                                                            (16,092)                                     
 Tax on loss on ordinary activities at standard UK corporation tax rate of 20%:  (3,218)                                      
 Effects of:                                                                                                                  
 Expenses not allowable for taxation                                             1,214                                        
 Changes in unrecognised deferred tax                                            441                                          
 Capital allowances in excess of depreciation                                    1                                            
 Changes in tax rateTiming difference                                            (53)(21)                                     
 Tax adjustments arising on date of acquisition                                  (1,386)                                      
 Total tax credit                                                                (3,022)                                      
 
 
5.   Goodwill 
 
 Cost and net book amount   £'000   
 At incorporation           -       
 Acquisition of subsidiary  40,176  
 At 31 December 2015        40,176  
 
 
The subsidiary acquired is the cash generating unit SD Taylor Limited; trading
as Loansathome4u, refer to note 9 for detail on the acquisition. 
 
The Group tests goodwill annually for impairment or more frequently if there
are indications that goodwill might be impaired. 
 
The recoverable amount has been determined based on a value in use
calculation. That calculation uses cash flow projections based on financial
budgets approved by management covering a three-year period to 31 December
2018, disposal costs have been estimated at 2% and a discount rate (WACC) of
15% used. The Directors have estimated the discount rate using pre-tax rates
that reflect current market assessments of the time value of money and the
risks specific to the market. 
 
At 31 December 2015 the recoverable amount of the goodwill was in excess of
its carrying amount by £51.2 million when applying the lowest valuation as
specified in the accounting policies. 
 
None of the goodwill is expected to be tax deductible. 
 
6.   Intangible assets 
 
                                Customer list  Agent network  Brand  Total   
                                £'000          £'000          £'000  £'000   
 Cost                                                                        
 At incorporation               -              -              -      -       
 Additions through acquisition  17,312         540            297    18,149  
 At 31 December 2015            17,312         540            297    18,149  
                                                                             
 Amortisation                                                                
 At incorporation               -              -              -      -       
 Charge for the period          3,869          99             62     4,030   
 At 31 December 2015            3,869          99             62     4,030   
                                                                             
 Net book value                                                              
 At 31 December 2015            13,443         441            235    14,119  
                                                                             
 At incorporation               -              -              -      -       
 
 
The fair value of the customer list on acquisition has been estimated by
calculating the Net Present Value (NPV) of the discounted cash flows from each
new re-loan provided to this, discrete set of known customers. The Board of
Directors will re-calculate the NPV at each future accounting date using the
same assumptions, limited to the original known customer list. The Board
estimate the finite useful life to be seven years. 
 
The fair value of Loansathome4u's agent relationship on acquisition has been
estimated by valuing the cost to set up a similar network of trained agents.
The asset will be amortised on a reducing balance basis at 20%. 
 
The fair value of the brand on acquisition has been estimated by assessing the
likely commercial level of royalties that would be payable to a third party
were the brand licenced rather than owned, calculated as a percentage of
forecast revenues and discounted to the date of the transaction. The Board of
Directors will re-value the brand using the same methodology at each future
accounting date. They anticipate the brand to be fully amortised over an 18
month period. 
 
7.   Amounts receivable from customers 
 
                                        £'000          
 Credit receivablesLoan loss provision  30,335(1,923)  
 Amounts receivable from customers      28,412         
 
 
The movement on the loan loss provision for the period relates to the
provision at Loansathome4u since the date of acquisition. The amounts
receivable from customers was recognised at fair value (net loan book value)
at the date of acquisition refer to note 9 for detail. 
 
Analysis of overdue receivables from customers 
 
                              £'000   
 Not past due or impaired     13,538  
 Past due but not impaired    7,819   
 Impaired                     7,055   
                              28,412  
                                      
 Past due not impaired:               
 One week overdue             4,571   
 Two weeks overdue            1,696   
 Three weeks or more overdue  1,552   
                              7,819   
 
 
Analysis on movement on loan loss provision 
 
                      £'000    
 At incorporation     -        
 Change for the year  3,896    
 Unwind of discount   (1,973)  
 At 31 December 2015  1,923    
 
 
The EIR used during the period to 31 December 2015 was 328%. 
 
Interest income on impaired loans was £1,901,000 for the period since
acquisition of Loansathome4u to 31 December 2015. 
 
8.   Deferred tax 
 
                                                                     £'000         
 At incorporation                                                    -             
 Recognition of intangible assets at acquisitionCurrent year credit  (4,828)1,771  
 At 31 December 2015                                                 (3,057)       
 
 
The deferred tax liability recognised on intangible assets at acquisition
relates to the acquisition of Loansathome4u. The intangible assets will be
amortised in future periods for which tax deductions will not be available. 
 
The deferred tax liability is attributable to temporary timing differences
arising in respect of: 
 
                                      £'000    
 Accelerated tax depreciation         (115)    
 Recognition of intangible assets     (2,909)  
 Other short term timing differences  (9)      
 Property revaluation                 (23)     
 Net deferred tax liability           (3,057)  
 
 
For the period ended 31 December 2015 the Company has unused tax losses of
£1,822,000 available for offset against future profits. However, due to the
uncertainty over the likelihood of future profits at the Company level, the
deferred asset has not been recognised on the Company or Consolidated Balance
Sheet. 
 
9.   Acquisition of subsidiary 
 
On 4 August 2015, the Group obtained control of SD Taylor Limited, trading as
Loansathome4u through the purchase of 100% of the share capital. 
 
A detailed conversion of Loansathome4u's financial statements, to align
accounting policies, has been completed post acquisition which reduced
Loansathome4u's net assets on acquisition by £5,956,000, principally in
respect of higher impairment provisions due to the impact of a more timely
approach to recognising impairment. 
 
The provisional fair values of the identifiable assets and liabilities of
Loansathome4u as at the acquisition date were as follows: 
 
                               Amounts recognised at acquisition date  Fair value adjustments  Total    
                               £'000                                   £'000                   £'000    
 Intangible assets (a)         -                                       18,149                  18,149   
 Plant and equipment           1,627                                   -                       1,627    
 Inventories                   9                                       -                       9        
 Amounts receivable            22,591                                  5,882                   28,473   
 from customers (b)                                                                                     
 Trade receivables             277                                     -                       277      
 Cash and cash equivalents     1,296                                   -                       1,296    
 Trade and other payables (c)  (2,040)                                 (732)                   (2,772)  
 Deferred tax liabilities (d)  (22)                                    (4,806)                 (4,828)  
                               23,738                                  18,493                  42,231   
 Goodwill                                                                                      40,176   
 Total consideration                                                                           82,407   
 
 
 Satisfied by:                                        
 Cash                                        82,407   
                                                      
 Net cash outflow arising on acquisition:             
 Cash consideration                          82,407   
 Cash and cash equivalents acquired          (1,296)  
                                             81,111   
 
 
(a)  £17,312,000 has been attributed to the fair value of Loansathome4u's
customer list £540,000 to the agent network and £297,000 to the brand. Refer
to intangible assets note 6 for detail 
 
(b)  An adjustment to receivables of £5,882,000 has been made to reflect the
fair value of the receivables book at the acquisition date 
 
(c)  An adjustment of £732,000 to accruals for a recognised dilapidations
provision on the properties owned by Loansathome4u 
 
(d)  Deferred tax liability £4,806,000 recognised on the intangibles and the
fair value adjustment of the receivable book at acquisition 
 
Transaction costs of £3,417,000 relating to the acquisition of Loansathome4u
have been recognised as an expense and included within exceptional costs
(attributable to the Central division) in the statement of comprehensive
income. The remainder of the acquisition costs within exceptional costs relate
to the 2016 acquisition of Everyday Loans. 
 
Loansathome4u contributed £14,657,000 to the Group's revenue and £2,143,000
profit to the Group's adjusted operating loss for the period from the date of
acquisition to the period end date. 
 
10.  Net cash used in operating activities 
 
                                                   Period from incorporation to 31 Dec 15  
                                                   £'000                                   
 Operating loss                                    (16,162)                                
 Taxation paid                                     (350)                                   
 Depreciation                                      198                                     
 Amortisation of intangible assets                 4,030                                   
 Fair value unwind on acquired loan book           5,456                                   
 Loss on disposal of plant property and equipment  51                                      
 Decrease in inventories                           6                                       
 Increase in amounts receivable from customers     (5,394)                                 
 Increase in receivables                           (16,445)                                
 Increase in payables                              19,078                                  
 Cash used in operating activities                 (9,532)                                 
 
 
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